F-1/A

As filed with the Securities and Exchange Commission on December 11, 2006

Registration No. 333-137044

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 3 to

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)

Photowatt Technologies USA 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

      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.

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 December 11, 2006.

PRELIMINARY PROSPECTUS

                             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 have applied 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 9 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.

BMO Capital Markets UBS Investment Bank

The date of this prospectus is                     , 2006.

      You should rely only on the information contained in this prospectus or any free writing prospectus prepared by or on behalf of us. 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.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
RISK FACTORS	9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	30
USE OF PROCEEDS	31
DIVIDEND POLICY	32
CAPITALIZATION	33
DILUTION	34
SELECTED COMBINED FINANCIAL DATA	36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
BUSINESS	64
OUR RELATIONSHIP WITH ATS	82
MANAGEMENT	91
RELATED PARTY TRANSACTIONS	104
PRINCIPAL AND SELLING SHAREHOLDERS	105
DESCRIPTION OF SHARE CAPITAL	106
SHARES ELIGIBLE FOR FUTURE SALE	111
TAXATION	113
UNDERWRITING	119
NOTICE TO INVESTORS	123
LEGAL MATTERS	124
EXPERTS	124
WHERE YOU CAN FIND MORE INFORMATION	125
EX-4.1
EX-4.2
EX-10.1
EX-10.2
EX-10.19
EX-10.10
EX-10.11
EX-10.12
EX-10.16
EX-23.2

      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

      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.

      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. 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.

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, our core business that is based on a wafer technology and Spheral Solar™, a development project that is based on a spheral technology using thousands of tiny silicon spheres instead of silicon wafers.

      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. Photowatt International sells its products under the Photowatt and Matrix brands to a network of independent solar power systems distributors and installers. Solar modules manufactured by Photowatt International are used by businesses, institutions and homeowners to generate electric power. Photowatt International has been developing and selling photovoltaic products since 1979. Photowatt International accounted for all of our combined revenue for our fiscal 2006 and for the six months ended September 30, 2006.

Our 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.

•  Proprietary silicon processing technologies. While all forms of silicon are in short supply, we have developed processes and technologies to make solar cells from polysilicon alternatives, including refined metallurgical silicon and polysilicon powder and fines, that we believe we can acquire more easily than polysilicon.

•  Advanced wafer sawing capabilities. We believe that our advanced wafer sawing capabilities result in lower production costs than for many of our competitors because more wafers can be produced from each silicon brick.

•  Established market positions and relationships with key distributors and installers. We have successfully sold solar products in Europe for over 20 years and enjoy established market positions in several Western European countries. We are also developing a presence in emerging growth markets for solar power in other European markets, as well as in the United States and Canada.

Our Business Strategy

•  Expand integrated annual manufacturing capacity. In response to demand for our products, which is currently greater than our capacity to produce them, we intend to increase our annual integrated manufacturing capacity to approximately 390 MW by the end of calendar 2011.

•  Establish reliable, long-term silicon supply. Our strategy is to establish a long-term supply of polysilicon and polysilicon alternatives from a variety of sources to support our continued growth, including, but not limited to, entering into long term supply agreements.

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•  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, either through direct investment or collaborative activities, aimed at increasing the efficiency of our solar cells and reducing silicon usage per watt.

•  Commercialize our Spheral Solar technology. We are working on development and process engineering in an effort to commercialize our Spheral Solar technology, which we acquired in 1997.

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. If we were able to commercialize the technology, we believe there are market opportunities for our associated solar products where aesthetics, physical flexibility and low weight are critical. However, the technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. For the year ended March 31, 2006, we recognized an after-tax, non-cash asset impairment charge of $94.3 million (pre-tax $94.3 million) due to the uncertainty in resolving technological challenges associated with commercialization and resulting delays in realizing cash flows. We may decide to discontinue development of the technology following a review scheduled for January 2007 or at any time.

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. We believe that we have secured or identified sources of silicon for Photowatt International’s planned capacity to the end of fiscal 2008. The majority of our fiscal 2008 silicon requirements are expected to be filled by inventory on hand and by firm supply contracts. We expect that the balance of our fiscal 2008 requirements will be satisfied by outstanding purchase orders with existing suppliers, which are expected to be confirmed before the end of calendar 2006, and by other identified sources.

Our Industry

      Solar power systems are used for a variety of residential, commercial and industrial applications. 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. Another industry source, Photon Consulting, projects even more rapid growth, with production growing at a compound annual growth rate of 45% from 2,400 MW in 2006 to 10,400 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

      Our parent company, ATS, is a leading designer and producer of turn-key automated manufacturing and test systems, which are used primarily by multinational corporations operating in a variety of industries including: automotive, computer/electronics, healthcare, and consumer products. ATS also uses its many years of repetitive manufacturing experience and skills to produce precision components and sub-assemblies and specialized repetitive equipment. ATS employs approximately 3,700 people at 26 manufacturing facilities in

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Canada, the United States, Europe, southeast Asia and China. ATS’ shares are traded on the Toronto Stock Exchange under the symbol ATA.

      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. 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. 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. We were incorporated on July 10, 2006.

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 December 6, 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 = $1.1468 and €1.00 = 1.3307, 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 annual financial statements and note 16 to our unaudited combined interim 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.

Statistical Data

      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, and Photon Consulting, another industry source. 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.

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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 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 finance the capital expenditures associated with the first and second phases of our manufacturing capacity expansion plan at Photowatt International estimated to be approximately $                     million, to repay $                     million expected to be owed to ATS under an intercompany demand 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 9 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 have applied 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.

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      Unless otherwise indicated, the information in this prospectus, including the number of common shares outstanding after this offering noted above, 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 give effect to:

•  the issuance of                    common shares reserved for issuance under our stock option plan and our executive performance share unit plan;

•  the issuance of                    common shares issuable upon the exercise of options to be issued upon the closing of this offering; or

•  the exercise by the underwriters of 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 have been derived from our audited combined annual financial statements included elsewhere in this prospectus. The following summary combined statements of earnings (loss) data for the six months ended September 30, 2005 and 2006 and the summary combined balance sheet data as of September 30, 2006 have been derived from our unaudited combined interim 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 annual financial statements and note 16 to our unaudited combined interim financial statements. Amounts are stated in United States dollars. The unaudited 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 unaudited 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 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.

										Six Months Ended
		Fiscal Year Ended March 31,								September 30,
		2004			2005		2006			2005		2006
		(U.S. dollars in thousands, except share and per share data)
Combined Statements of Earnings (Loss) Data:
Revenue		$	65,855		$	113,019	$	120,921		$	56,878	$	65,993
Operating costs and expenses:
	Cost of revenue		52,859			89,930		88,998			42,219		46,841
	Research and development(1)		1,236			678		9,252			324		5,668
	Amortization		4,466			5,420		9,680			3,057		4,521
	Selling and administrative		4,708			5,855		9,088			3,325		7,488
	Asset impairment charge(2)		—			—		94,290			—		—
	Shared corporate costs(3)		415			589		717			248		573
			63,684			102,472		212,025			49,173		65,091
Earnings (loss) from operations			2,171			10,547		(91,104	)		7,705		902
Interest (income) expense			(64	)		3		1,666			502		1,898
Provision for income taxes			1,130			3,761		5,610			2,752		3,352
Net earnings (loss)		$	1,105		$	6,783	$	(98,380	)	$	4,451	$	(4,348	)
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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									Six Months Ended
		Fiscal Year Ended March 31,							September 30,
		2004		2005		2006			2005		2006
		(U.S. dollars in thousands)
Selected Segment Data:
Photowatt International:
	Revenue	$	65,855	$	113,019	$	120,921		$	56,878	$	65,993
	Research and development(1)		1,236		678		619			324		697
	Amortization		4,466		5,420		6,252			3,057		4,151
	Earnings from operations		2,586		10,948		19,780			7,872		9,857
	Capital expenditures		5,565		10,625		16,080			5,505		11,313
Spheral Solar:
	Revenue(8)		—		—		—			—		—
	Research and development(1)		—		—		8,633			—		4,971
	Amortization		—		—		3,428			—		370
	Earnings (loss) from operations(2)		—		188		(109,841	)		81		(6,421	)
	Capital expenditures		34,630		16,124		10,351			6,814		—
Corporate costs(3)			415		589		1,043			248		1,468

	As of September 30, 2006
				Pro forma,
	Actual		Pro forma	as adjusted(5)
	(U.S. dollars in thousands)
Selected Combined Balance Sheet Data:
Cash and cash equivalents	$	1,448
Total assets		121,812
Working capital(6)		33,848
Due to parent(7)		20,112
Net investment		76,705
Group equity		73,147

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 annual financial statements and note 16 to our unaudited combined interim financial statements included elsewhere in this prospectus.

											Six Months Ended
		Fiscal Year Ended March 31,									September 30,
		2004			2005			2006			2005			2006
		(U.S. dollars in thousands)
Revenue		$	65,855		$	113,019		$	120,921		$	56,878		$	65,993
Research and development(1)			7,416			18,119			20,380			11,877			5,526
Amortization			4,544			5,502			9,680			3,097			4,521
Asset impairment charge			—			—			(52,609	)		—			—
Earnings (loss) from operations			(4,087	)		(6,976	)		(59,668	)		(3,888	)		1,044
Net loss			(5,153	)		(10,740	)		(66,944	)		(7,142	)		(4,206	)
Total assets (at period end)			117,323			132,847			103,112			133,435			121,812
Net investment (at period end)			97,122			109,508			77,957			120,423			79,494
Selected U.S. GAAP Segment Data:
	Photowatt International earnings from operations		2,623			10,861			19,534			7,841			9,999
	Spheral Solar loss from operations		(6,295	)		(17,248	)		(78,485	)		(11,481	)		(6,421	)

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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)	Corporate costs include Photowatt corporate costs which were incurred directly by us and include legal, compliance, personnel, finance and other corporate costs not directly associated with a segment. Corporate costs also include “shared corporate costs”, which represent an estimate of costs attributable to our business for services that were provided by ATS or one of its affiliates in the past.
(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, excluding due to parent.
(7)	Due to parent consists of debt under our intercompany loan from ATS, which was considered nil as at March 31, 2006 and $20.1 million as at September 30, 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 demand 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.
(8)	Represents revenue from third parties. Spheral Solar had inter-segment revenue with Photowatt International of $2.3 million for the six months ended September 30, 2006 from sales of silicon to Photowatt International that is eliminated in the combined financial statements.

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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 and the contracts will often be long term and not provide us with an option to cancel. 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, based on contractual commitments for the supply of refined metallurgical silicon that we have entered into or expect to enter into, we 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 growth plans. Our ability to obtain adequate financing depends significantly on our financial condition and

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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 the challenges and risks associated with achievement of our development and process engineering goals are substantial. 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. The technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. Our development process for our Spheral Solar technology has targeted the achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. Our next review of our Spheral Solar technology is scheduled for January 2007 following the completion of the current phase of analysis that includes the results of a technical report from our third-party technical consultant on certain aspects of the manufacturing processes. We may decide to discontinue development of the technology following this review or at any time.

      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

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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;

•  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.

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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 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 expect to be 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.

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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 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. The vast majority of these grants were received from Technology Partnerships Canada (“TPC”), an agency of the Canadian government. The final TPC funding claims were recognized in fiscal 2006 and at this time there are no further amounts under this program to be recognized by us. 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

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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 in the future, our research and development costs could be more significant and our results of operations could be adversely affected.

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

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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.

      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 the greatest importance to our Spheral Solar technology 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

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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 20-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. 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.

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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 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. This must be done at the same time as our financial reporting personnel and processes adapt to a public offering, separation from the financial oversight role of ATS and the reporting requirements associated with new circumstances such as

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volatile silicon prices and capacity expansion. We cannot be certain that the measures we are taking 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.

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. Furthermore, a 1997 environmental assessment report revealed the presence of dichloroethylene and vinyl chloride contamination in soil and groundwater at our facility in Lyon, France. No further assessment of this contamination has been undertaken. Should we choose to or be required to investigate or remediate this contamination, costs to do so could be material.

      We are not currently aware of environmental contamination at any of our other facilities that we would expect to have a material impact on our operations or results. However, should we discover contamination at properties that we own or operate, we could be required to conduct investigative or remedial activities that could be material to our operations or results.

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

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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 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

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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;

•  tax and merger and acquisition transaction services;

•  payroll;

•  information technology, including access to network, systems, applications and technical support;

•  human resources and employee benefits;

•  legal services;

•  insurance services;

•  accounting support and treasury; 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.”

      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. See “Principal and Selling Shareholders.” 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.

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      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 any business or securities of any person (other than our wholly-owned subsidiaries) or the acquisition, license, lease, exchange of assets or the assumption of any obligations, in each case 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 or any of its affiliates to transfer shares of our stock they own or that would limit the right of any transferee of ATS or any of its affiliates;

•  take any action that could limit the rights of, or deny any benefit to, ATS or any of its affiliates as holders of our common shares either solely as a result of the amount of shares owned or in a manner not applicable to holders of common shares generally;

•  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.

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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. Also, although we will agree in the Master Separation Agreement not to compete with ATS, ATS is not expected to agree not to compete with us, which may affect us adversely.

We may have a business conflict of interest with ATS as a result of ATS’ portfolio investment in a company that may compete with us.

      Although ATS, in connection with this offering, is transferring to us its interest in the assets that are used exclusively in our business conducted by ATS and its subsidiaries, this transfer is subject to certain excluded assets, including the investment of ATS in securities of Canadian Solar Inc., or CSI, a solar module assembly company in which ATS has a less than 10% interest held as a portfolio investment. Because CSI may compete with us, ATS’ continuing portfolio investment in CSI may lead to conflicts of interest between ATS and us which may not be resolved in our favor or at all.

We are a foreign private issuer and 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.

      We are a foreign private issuer. Additionally, 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 such a company, we intend to utilize certain exemptions under the rules of The Nasdaq Global Market that free us from the obligation to comply with certain corporate governance requirements, including the requirements:

•  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; and

•  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.

      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.

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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. ATS is not expected to be subject to any non-compete provisions with respect to our business, so 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 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.

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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 have applied 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;

•  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

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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 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.

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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.

      In general, Canadian courts will not entertain an action for the enforcement of a foreign judgment that is the result of a penal, revenue, or other public law, nor will they enforce foreign judgments ordering the payment of taxes or penalties. Furthermore, Canadian courts also generally refuse to give effect to laws that empower foreign sovereignty, such as securities legislation, anti-trust or competition laws, trade regulations, expropriation laws and national security legislation. Therefore, 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 reduce our costs;

•  our plans for and timing of expanding our manufacturing capacity;

•  our plans for entering into key strategic partnership arrangements and joint ventures;

•  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 to which we refer 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 finance the capital expenditures associated with the first and second phases of our manufacturing capacity expansion plan at Photowatt International estimated to be approximately $                     million, to repay $                     million expected to be owed to ATS under an intercompany demand loan (which had been incurred for investment in additional manufacturing capacity at Photowatt International, further development and process engineering associated with our Spheral Solar technology, and general corporate purposes) bearing interest at the Bank of Nova Scotia’s U.S. dollar base rate in Canada, 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.

      In the event that any common shares are sold pursuant to the underwriters’ over-allotment option, they will be sold by ATS, and we will receive no proceeds from such sales. If the over-allotment option is exercised in full, ATS will receive net proceeds of approximately $                    .

      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. If we decide not to proceed with the development of our Spheral Solar technology, we would apply the net proceeds of this offering and future capital that we would have used to develop our Spheral Solar technology to Photowatt International for capacity expansion and the other general corporate purposes described above. 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 capitalization as of September 30, 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 September 30, 2006
								Pro forma,
			Actual			Pro forma		as adjusted
			(U.S. dollars in thousands)
Due to parent(1)			$	20,112		$		$
Group equity:
Common shares(2)			$	—		$		$
Preferred shares(3)				—			—		—
Net investment				76,705
Cumulative translation adjustment				(3,558	)
	Total group equity			73,147
		Total capitalization	$	73,147		$		$

(1)	Represents the amount invested by ATS in our company during fiscal 2007 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. We intend to use a portion of the net proceeds from this offering to repay the amount then outstanding as of the date of closing.
(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 September 30, 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 September 30, 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 September 30, 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. Furthermore, upon the completion of this offering, we expect that an additional                      shares of our common stock will be issuable, subject to vesting, under outstanding stock options. If all of these options were exercised immediately upon the completion of this offering, then based on the assumed initial public offering price in the table above, our pro forma net tangible book value per common share as of September 30, 2006 would be $                    , the increase in our pro forma net tangible book value per common share attributable to this offering would be $                    , our pro forma, as adjusted net tangible book value per common share after this offering would be $                    , and the dilution per common share to new investors would be $                    .

      The following table summarizes, on, a pro forma, as adjusted basis as of September 30, 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 $          .

      If all of the options outstanding upon the completion of this offering were exercised immediately upon the completion of this offering, the number of common shares purchased by existing shareholders and new investors would be                     , or           %, and                     , or           %, respectively; total consideration paid by existing shareholders and new investors would be $                    , or           %, and $                    , or           %, respectively; and the average price per common share paid by existing shareholders and new investors would be $                    , or           %, and $                    , or           %, respectively.

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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 selected combined balance sheet data as of March 31, 2005 and 2006 have been derived from our audited combined annual financial statements included elsewhere in this prospectus. The following selected combined statements of earnings (loss) data for the six months ended September 30, 2005 and 2006 and the selected combined balance sheet data as of September 30, 2006 have been derived from our unaudited combined interim 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 annual financial statements and note 16 to our unaudited combined interim 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 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.

										Six Months Ended
		Fiscal Year Ended March 31,								September 30,
		2004			2005		2006			2005		2006
		(U.S. dollars in thousands, except share and per share data)
Combined Statements of Earnings (Loss) Data:
Revenue		$	65,855		$	113,019	$	120,921		$	56,878	$	65,993
Operating costs and expenses:
	Cost of revenue		52,859			89,930		88,998			42,219		46,841
	Research and development(1)		1,236			678		9,252			324		5,668
	Amortization		4,466			5,420		9,680			3,057		4,521
	Selling and administrative		4,708			5,855		9,088			3,325		7,488
	Asset impairment charge(2)		—			—		94,290			—		—
	Shared corporate costs(3)		415			589		717			248		573
			63,684			102,472		212,025			49,173		65,091
Earnings (loss) from operations			2,171			10,547		(91,104	)		7,705		902
Interest (income) expense			(64	)		3		1,666			502		1,898
Provision for income taxes			1,130			3,761		5,610			2,752		3,352
Net earnings (loss)		$	1,105		$	6,783	$	(98,380	)	$	4,451	$	(4,348	)
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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									Six Months Ended
		Fiscal Year Ended March 31,							September 30,
		2004		2005		2006			2005		2006
		(U.S. dollars in thousands)
Selected Segment Data:
Photowatt International:
	Revenue	$	65,855	$	113,019	$	120,921		$	56,878	$	65,993
	Research and development(1)		1,236		678		619			324		697
	Amortization		4,466		5,420		6,252			3,057		4,151
	Earnings from operations		2,586		10,948		19,780			7,872		9,857
	Capital expenditures		5,565		10,625		16,080			5,505		11,313
Spheral Solar:
	Revenue(7)		—		—		—			—		—
	Research and development(1)		—		—		8,633			—		4,971
	Amortization		—		—		3,428			—		370
	Earnings (loss) from operations(2)		—		188		(109,841	)		81		(6,421	)
	Capital expenditures		34,630		16,124		10,351			6,814		—
Corporate costs(3)			415		589		1,043			248		1,468

	As of March 31,
							As of
	2004		2005		2006		September 30, 2006
	(U.S. dollars in thousands)
Selected Combined Balance Sheet Data:
Cash and cash equivalents	$	3,203	$	891	$	1,958	$	1,448
Total assets		129,613		164,567		103,257		121,812
Working capital(5)		29,295		29,098		29,188		33,848
Due to parent(6)		—		—		—		20,112
Net investment		108,352		138,261		75,310		76,705
Group equity		111,193		141,901		75,768		73,147

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 annual financial statements and note 16 to our unaudited combined interim financial statements included elsewhere in this prospectus.

											Six Months Ended
		Fiscal Year Ended March 31,									September 30,
		2004			2005			2006			2005			2006
		(U.S. dollars in thousands)
Revenue		$	65,855		$	113,019		$	120,921		$	56,878		$	65,993
Research and development(1)			7,416			18,119			20,380			11,877			5,526
Amortization			4,544			5,502			9,680			3,097			4,521
Asset impairment charge			—			—			(52,609	)		—			—
Earnings (loss) from operations			(4,087	)		(6,976	)		(59,668	)		(3,888	)		1,044
Net loss			(5,153	)		(10,740	)		(66,944	)		(7,142	)		(4,206	)
Total assets (at period end)			117,323			132,847			103,112			133,435			121,812
Net investment (at period end)			97,122			109,508			77,957			120,423			79,494
Selected U.S. GAAP Segment Data:
	Photowatt International earnings from operations		2,623			10,861			19,534			7,841			9,999
	Spheral Solar loss from operations		(6,295	)		(17,248	)		(78,485	)		(11,481	)		(6,421	)

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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)	Corporate costs include Photowatt corporate costs which were incurred directly by us and include legal, compliance, personnel, finance and other corporate costs not directly associated with a segment. Corporate costs also include shared corporate costs, which represent an estimate of costs attributable to our business for services that were provided by ATS or one of its affiliates in the past.
(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, excluding due to parent.
(6)	Due to parent consists of debt under our intercompany loan from ATS, which was considered nil as at March 31, 2006 and $20.1 million as at September 30, 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 demand 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.
(7)	Represents revenue from third parties. Spheral Solar had inter-segment revenue with Photowatt International of $2.3 million for the six months ended September 30, 2006 from sales of silicon to Photowatt International that is eliminated in the combined financial statements.

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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 annual financial statements and note 16 to our unaudited combined interim 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, our core business that is based on a wafer technology and Spheral Solar, a development project that is based on a spheral technology using thousands of tiny silicon spheres instead of silicon wafers.

      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 has been developing and selling photovoltaic products since 1979. Photowatt International accounted for all of our combined revenue for our fiscal 2006 and for the six months ended September 30, 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 a corporate reorganization upon the closing of this offering under which ATS will transfer our assets and operations to us. ATS shareholders approved this reorganization at a meeting of ATS shareholders held on October 27, 2006. 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 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.”

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      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 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 2011. If we are able to successfully complete the development and process engineering necessary to commercialize our Spheral Solar technology, we expect that 140 MW of this aggregate manufacturing capacity will relate to Spheral Solar technology.

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      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 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 have begun the preliminary design of this phase of our expansion and plan to complete this phase 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 through 2011 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. If we decide not to proceed with the development of our Spheral Solar technology, we would apply the net proceeds of this offering and future capital we would have used to develop the Spheral Solar technology to Photowatt International for 140 MW of additional capacity expansion, the procurement of silicon supply contracts and investments that will enhance our manufacturing, silicon supply or research and development capabilities.

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. However, to the extent that we employ refined metallurgical silicon in the production of our wafers without blending substantial amounts of polysilicon, we expect to experience lower operating margins.

      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 believe that we have secured or identified sources of silicon for Photowatt International’s planned capacity to the end of fiscal 2008. The majority of our fiscal 2008 silicon requirements are expected to be filled by inventory on hand and by firm supply contracts. We expect that the balance of our fiscal 2008 requirements will be satisfied by outstanding purchase orders with existing suppliers, which are expected to be confirmed before the end of

41

calendar 2006, and by other identified sources. 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, including polysilicon ingots and wafers;

•  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 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, including the services of a third-party technical consultant, to development and process engineering in an effort to commercially manufacture products using

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our Spheral Solar technology at commercially acceptable manufacturing costs and yields. Our target efficiency for our Spheral Solar technology at commercialization is approximately 11%, compared with our average solar cell efficiency of 15% for conventional solar cells. Although certain of our Spheral Solar prototypes have reached approximately 10% efficiency in a prototype laboratory setting, more recently our Spheral Solar cells have demonstrated efficiency levels in the range of 5 to 6% on our current equipment. Our development process for our Spheral Solar technology has been based on establishing milestones for achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. The technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. Our development process for our Spheral Solar technology has targeted the achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. Our next review of our Spheral Solar technology is scheduled for January 2007 following the completion of the current phase of analysis that includes the results of a technical report from our third-party technical consultant on certain aspects of the manufacturing processes. We may decide to discontinue development of the technology following this review or at any time.

      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, as well as the six months ended September 30, 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 installation kits and inverters and to provide certain design and project management services and contracting for solar module installation services.

      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 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

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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, plastic 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, and research and development expenses), because the maximum time period during which we had determined to defer them had elapsed.

Research and development

      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 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

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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

      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.”

Corporate costs

      Corporate costs include “Photowatt corporate costs” which were incurred directly by us and include legal, compliance, personnel, finance and other corporate costs not directly associated with a segment. Corporate costs also include shared corporate costs which represent an estimate of costs attributable to our business for services that were provided by ATS or one of its affiliates in the past. These expenses primarily relate to an allocation of ATS corporate personnel costs to provide functions including tax, legal, compliance, finance and operational consulting. The costs are included in our combined financial statements and 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 intercompany loans from ATS. At the time of the closing of this offering, we expect to owe approximately $        million to ATS pursuant to an intercompany demand 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 we may incur interest expense in future periods in relation to our current credit facilities and 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

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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, Photowatt USA and Spheral Solar Power, Inc.

      Our provision for income taxes for the fiscal years 2004, 2005 and 2006 and the six months ended September 30, 2005 and 2006 was $1.1 million, $3.8 million, $5.6 million, $2.8 million and $3.4 million, respectively. This provision for income taxes primarily reflects the income taxes payable on the net earnings of Photowatt France, as our Canadian and U.S. operations have tax losses for which future income tax assets have not been recognized.

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 September 30, 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.

      Revenue on certain long-term design, project management and/or installation services contracts is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated for each contract. Incentive awards, claims or penalty provisions are recognized when such amounts are likely to accrue and can reasonably be estimated. Complete provision is made for losses on contracts in progress when such losses first become known. Revisions in cost and profit estimates, which can be significant, are reflected in the accounting period in which the relevant facts become known.

      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 estimated 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 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

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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 period-end exchange rates, and transactions included in earnings are translated at rates prevailing during the period. 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 undiscounted future cash flows, and the assets were written down to their fair value as further described in note 15 to our combined annual 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

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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 annual 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 the six months ended September 30, 2006 compared with the six months ended September 30, 2005

      The following table provides a comparison of our revenue and expenses for the periods indicated:

		Six Months Ended
		September 30,
		2005		2006
		(U.S. dollars in
		thousands)
Revenue		$	56,878	$	65,993
Operating costs and expenses:
	Cost of revenue		42,219		46,841
	Research and development		324		5,668
	Amortization		3,057		4,521
	Selling and administrative		3,325		7,488
	Shared corporate costs		248		573
			49,173		65,091
Earnings from operations			7,705		902
Interest expense			502		1,898
Provision for income taxes			2,752		3,352
Net earnings (loss)		$	4,451	$	(4,348	)

      Revenue. Revenue continued to be driven by strong market demand for solar products, which is primarily a result of attractive government incentive programs in Europe. For the six months ended September 30, 2006, revenue was $66.0 million, or 16% higher than the same period of 2005. The increase in revenue was primarily due to product pricing increases, which increased revenue by approximately $5.9 million, and incremental revenue associated with new product offerings, including the sale of installation kits and inverters of $3.2 million and an additional $1.1 million in revenues related to a contract for the construction of several turnkey solar powered water pumping stations. In the six months ended September 30, 2005, sales for these types of products and services were nominal. Changes in the exchange rate between the U.S. dollar and the euro increased total revenue for the six months ended September 30, 2006 by an estimated 2% compared to the six months ended September 30, 2005.

      Revenue growth was partially offset by a longer than usual summer factory shutdown at Photowatt France in August 2006 to support the planned reorganization of existing equipment for the current capacity expansion underway as described above under “— Overview — Principal factors affecting our results of operations — Our production capacity and ability to produce and ship our products.” Management estimates that the lost revenue potential from this additional one week shutdown during the second quarter was approximately $1.5 million. Photowatt International returned to expected levels of production following the end of the shutdown period.

      During the six months ended September 30, 2006, Photowatt International diversified its revenue by putting a greater focus on penetrating geographic markets outside Germany, particularly in Spain. As a result, revenue from Spain increased to $24.5 million for the six months ended September 30, 2006, compared to $7.8 million in the six months ended September 30, 2005. This decision to target markets outside Germany (traditionally Photowatt International’s largest market) reflects increased government subsidies in Spain and the reduction of government subsidies for solar products in Germany.

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      The following table sets forth the geographic sources of our revenue:

		Six Months Ended September 30,
		2005		Percent			2006		Percent
		(U.S. dollars in thousands)
Spain		$	7,752		14	%	$	24,522		37	%
Germany			32,963		58			19,926		30
Italy			3,615		6			4,813		7
Rest of Europe			5,509		10			11,590		18
United States			5,895		10			2,564		4
Canada			55		N/M			17		N/M
Other			1,089		2			2,561		4
	Total	$	56,878		100	%	$	65,993		100	%

      Cost of revenue. For the six months ended September 30, 2006, cost of revenue, which was primarily derived from Photowatt International, was $46.8 million, representing 71% of revenue, compared to $42.2 million, or 74% of revenue, in the six months ended September 30, 2005. An approximate $3.6 million impact of silicon price increases in the six months ended September 30, 2006, compared to the six months ended September 30, 2005, was partially offset by a reduction in the number of grams used per watt manufactured, which resulted from improved production yields, efficiencies related to economies of scale and improvements in the production process leading to reduced other material costs. Photowatt International’s silicon costs are expected to continue to increase in fiscal 2007 as silicon prices continue to increase and our inventory of lower-priced silicon is consumed.

      Included in cost of revenue during the six months ended September 30, 2006 are expenses of $0.4 million incurred to prepare the manufacturing facility for the current capacity expansion underway as described above, including incremental labour and maintenance costs related to facility optimization. Cost of revenue for the six months ended September 30, 2006 also included $1.0 million related to revenue from the turnkey solar powered water pumping stations contract.

      Research and development. Research and development expenses increased from $0.3 million for the six months ended September 30, 2005 to $5.7 million for the six months ended September 30, 2006. Photowatt International’s increase in research and development expenses for the six months ended September 30, 2006 compared to the six months ended September 30, 2005 primarily related to continuing efforts to increase cell efficiency. Spheral Solar’s increase in research and development expenses for the six months ended September 30, 2006 is related to costs of the development of our Spheral Solar technology that are no longer being capitalized as deferred development costs. The following table summarizes the breakdown of research and development expenses between our segments:

	Six Months Ended September 30,
	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	$	324		1	%	$	697		1	%
Spheral Solar		—		—			4,971		8
Combined	$	324		1	%	$	5,668		9	%

      Amortization. For the six months ended September 30, 2006, our amortization was $4.5 million, or 48% higher than for the six months ended September 30, 2005. Photowatt International’s amortization increase of 36% for the six months ended September 30, 2006 compared to the six months ended September 30, 2005 primarily related to capital expenditures made during fiscal 2006 to increase our

50

capacity. Spheral Solar’s amortization for the six months ended September 30, 2006 relates to the processing of polysilicon powder and fines and amortization of equipment used in the development of Spheral Solar technology. The following table summarizes the breakdown of the amortization between our segments:

	Six Months Ended September 30,
	2005					2006
			Amortization					Amortization
			as a % of					as a % of
	Amortization		combined revenue			Amortization		combined revenue
	(U.S. dollars in thousands)
Photowatt International	$	3,057		5	%	$	4,151		6	%
Spheral Solar		—		—			370		1
Combined	$	3,057		5	%	$	4,521		7	%

      Selling and administrative. For the six months ended September 30, 2006, our selling and administrative expenses were $7.5 million, or 125% higher than for the six months ended September 30, 2005. Photowatt International’s selling costs increased primarily due to increased sales and marketing activities related to new product offerings including installation contracts and the sale of installation kits and inverters, increased incentive compensation related to increased profitability at Photowatt International, and training cost related to preparation for the current capacity expansion underway as described above. Photowatt France has an incentive compensation plan under which payments are primarily based on a percentage of earnings and are paid to employees at all levels who meet certain criteria. Selling and administrative expenses at Spheral Solar of $1.7 million include wages related to senior Spheral Solar management, product development and other administrative personnel, $0.6 million of severance costs associated with the approximate 40% reduction in Spheral Solar’s staff, and legal, professional and consulting costs of approximately $0.3 million not associated with our initial public offering (the “IPO”). Photowatt corporate costs increased due to increased expenditures related to preparation for this offering, including increased corporate infrastructure and personnel costs. The following table summarizes the breakdown of selling and administrative expenses between our segments:

	Six Months Ended September 30,
	2005						2006
				S&A as a % of					S&A as a % of
	S&A Costs			combined revenue			S&A Costs		combined revenue
	(U.S. dollars in thousands)
Photowatt International	$	3,327			6	%	$	4,880		7	%
Spheral Solar		(2	)		N/M			1,713		3
Photowatt corporate costs		—			—			895		1
Combined	$	3,325			6	%	$	7,488		11	%

      Shared corporate costs. For the six months ended September 30, 2006, our shared corporate costs were $0.6 million, or 131% higher than for the six months ended September 30, 2005. This increase was primarily due to allocated facilities costs in Cambridge, Ontario.

Earnings (loss) from operations

      For the six months ended September 30, 2006, earnings from operations were $0.9 million compared with $7.7 million of earnings from operations in the six months ended September 30, 2005. This decrease was primarily due to the inclusion of Spheral Solar’s loss from operations for the six months ended September 30, 2006 of $6.4 million and the increase in corporate costs of $1.2 million related to increased corporate infrastructure and personnel costs associated with our becoming a public company. Inter-segment eliminations represent profit that is deferred until the underlying shipments of silicon between Spheral Solar and Photowatt International are converted to third-party revenue.

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      Photowatt International’s earnings from operations for the six months ended September 30, 2006 were $9.9 million, or 25% higher than for the six months ended September 30, 2005. This increase was primarily due to product pricing increases and significant improvements in production yields, throughput gains, and manufacturing cost-reductions reflecting the benefits of capital investments. These factors more than offset the impact of higher silicon costs, costs associated with the new capacity expansion, an estimated $0.5 million of reduced operating earnings from lower production as a result of the extended shutdown period, as well as $1.1 million of higher amortization relating primarily to the fiscal 2006 purchases of production equipment.

      Spheral Solar’s loss from operations for the six months ended September 30, 2006 was $6.4 million compared with earnings from operations of $0.1 million for the six months ended September 30, 2005. The decrease in operating earnings was primarily due to costs relating to the development of Spheral Solar technology that were capitalized as deferred development costs in the six months ended September 30, 2005.

	Six Months Ended September 30,
	2005						2006
				Earnings (loss)						Earnings (loss)
	Earnings			from operations			Earnings			from operations
	(loss) from			as a % of			(loss) from			as a % of
	operations			combined revenue			operations			combined revenue
	(U.S. dollars in thousands)
Photowatt International	$	7,872			14	%	$	9,857			15	%
Spheral Solar		81			N/M			(6,421	)		(10	)
Corporate costs		(248	)		N/M			(1,468	)		(2	)
Inter-segment eliminations		—			—			(1,066	)		(2	)
Combined	$	7,705			14	%	$	902			1	%

      Interest expense. For the six months ended September 30, 2006, our interest expense was $1.9 million, compared with $0.5 million for the six months ended September 30, 2005. The increase in interest expense for the six months ended September 30, 2006 compared to the six months ended September 30, 2005 primarily related to interest charged on certain indebtedness owing to ATS.

      Provision for income taxes. For the six months ended September 30, 2006, our provision for income taxes was $3.4 million, compared with $2.8 million for the six months ended September 30, 2005. The provision has increased for the six months ended September 30, 2006 primarily due to the increased earnings before tax of Photowatt International as compared to the six months ended September 30, 2005. No future income tax benefit has been recognized related to loss carryforwards or other temporary differences in the Spheral Solar segment or Photowatt USA.

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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	$	120,921
Operating costs and expenses:
	Cost of revenue		89,930		88,998
	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		212,025
Earnings (loss) from operations			10,547		(91,104	)
Interest expense			3		1,666
Provision for income taxes			3,761		5,610
Net earnings (loss)		$	6,783	$	(98,380	)

      Revenue. For fiscal 2006, our revenue, which was entirely derived from Photowatt International, was $120.9 million, or 7% higher than in fiscal 2005. This increase was primarily due to higher production volumes (approximately 2% higher than the prior year) and product price increases (approximately a 10% increase over the prior year). Changes in the exchange rate between the U.S. dollar and the euro decreased fiscal 2006 total revenue by an estimated 3% compared to fiscal 2005.

      The following table sets forth the geographic sources of our revenue:

		Fiscal Year Ended March 31,
				Percent					Percent
		2005		in 2005			2006		in 2006
		(U.S. dollars in thousands)
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			16,504		14
Canada			150		N/M			23		N/M
Other			2,103		2			6,887		6
	Total	$	113,019		100	%	$	120,921		100	%

      Cost of revenue. For fiscal 2006, our cost of revenue, which was almost entirely derived from Photowatt International, was $89.0 million, representing 74% of revenue, compared to $89.9 million or 80% of revenue in fiscal 2005. Several factors impacted the cost of revenue as compared to the prior year. By improving production yields, realizing efficiencies relating to economies of scale, and through improvements in the production process leading to reduced other material costs, cost of revenue was reduced by 7% as a percentage of revenue. Although silicon costs were higher in fiscal 2006 compared to fiscal 2005, these cost increases were largely mitigated by a reduction in the number of grams used per watt manufactured.

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      Research and development. Research and development expenses increased from $0.7 million in fiscal 2005 to $9.3 million in fiscal 2006 as a result of research and development costs associated with Spheral Solar technology that were expensed in the third and fourth quarters of fiscal 2006 but were capitalized as deferred development costs in fiscal 2005. 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. For fiscal 2006, our selling and administrative expenses were $9.1 million, or 55% higher than in fiscal 2005. This increase was primarily due to the inclusion of the Spheral Solar selling and administrative expenses for the third and fourth quarters of fiscal 2006 in the combined statements of earnings (loss). Photowatt International selling and administrative expenses increased $1.0 million from fiscal 2005 to fiscal 2006 primarily as a result of increased incentive compensation related to increased profitability. Photowatt France has an incentive compensation plan under which payouts are primarily based on a percentage of earnings and are paid to employees at all levels who meet certain criteria. Spheral Solar fiscal 2005 selling and administrative expenses relate primarily to foreign exchange gains. 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	)		N/M			1,511		1
Photowatt corporate costs		—			—			326		N/M
Combined	$	5,855			5	%	$	9,088		7	%

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      Asset impairment charge. Due to ongoing 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, 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

      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 $109.8 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, and manufacturing cost reductions reflecting the benefits of capital investments. These factors more than offset the impact of higher silicon costs in fiscal 2006 compared with fiscal 2005.

	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			N/M			(109,841	)		(90	)
Corporate costs		(589	)		(1	)		(1,043	)		(1	)
Combined	$	10,547			9	%	$	(91,104	)		(75	)%

      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.

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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:

		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
Net earnings		$	1,105		$	6,783

      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. The increase in revenue from 2004 to 2005 is primarily due to increased production volumes (approximately 70% higher than the prior year) related to our capacity expansion and increasing demand for solar products offset in part by lower product pricing, which decreased by approximately 1% during fiscal 2005. Changes in the exchange rate between the U.S. dollar and the euro increased fiscal 2005 total revenue by an estimated 6% 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, representing 80% of revenue, consistent with fiscal 2004. Overall cost of revenue increased from 2004 to 2005 primarily due to volume increases. While cost of revenue remained steady at 80% of revenue, higher silicon costs, which had increased from 11% to 19% of revenue, were partially offset by improving production yields, realizing efficiencies related to economies of scale, and through improvements in the production process leading to a reduction in other material costs and labor costs by a similar amount. In fiscal 2005 and 2004, our cost of revenue related almost entirely to Photowatt International.

      Research and development. 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 by Photowatt International.

      Selling and administrative. For fiscal 2005, our selling and administrative expenses 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 expenses decreased from 7% in fiscal 2004 to 5% in fiscal 2005.

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      Shared corporate costs. For fiscal 2005, our shared corporate costs were $0.6 million, or 42% higher than in fiscal 2004. This increase was primarily due to increased ATS corporate activity in conjunction with our activities.

      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 improvements 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.

Liquidity and Capital Resources

Liquidity

      Cash flows used in operations were $8.6 million for the six months ended September 30, 2006 compared to cash from operations of $7.4 million for the six months ended September 30, 2005. For the six months ended September 30, 2006, cash flows used in operations include an increased investment in non-cash working capital of $9.0 million. For the six months ended September 30, 2005, a non-cash working capital increase of $0.7 million was more than offset by the $8.1 million generated from net earnings adjusted for non-cash items.

      In fiscal 2004, 2005 and 2006, cash flows from operating activities were $9.0 million, $12.6 million and $3.5 million, respectively. In fiscal 2004, non-cash working capital decreased $2.2 million which added to the $6.8 million generated from the net earnings adjusted for non-cash items. In fiscal 2005, investment in non-cash working capital increased $3.2 million which was more than offset by the $15.8 million generated from net earnings adjusted for non-cash items. In fiscal 2006, increased non-cash working capital of $4.0 million, associated primarily with the increased silicon inventory levels at both Photowatt International and Spheral Solar, was more than offset by the $7.5 million net cash generated from net loss adjusted for non-cash items.

      Our investing activities for the six months ended September 30, 2006 of $11.9 million were comprised primarily of acquisitions of property, plant and equipment related to the current Photowatt International capacity expansion. See “ — Capital expenditures” below. For the six months ended September 30, 2005, investing activities were comprised of acquisitions of property, plant, and equipment of $12.3 million and investments in development activities of $12.0 million. Commencing in October 2005, costs pertaining to the Spheral Solar technology ceased being capitalized to deferred development and instead were expensed as operating costs.

      Our investing activities in fiscal 2004, 2005 and 2006 of $48.9 million, $41.9 million and $40.1 million, respectively, included acquisition of property, plant and equipment of $40.2 million, $26.7 million and $26.4 million, respectively, and development expenditures of $8.7 million, $15.2 million and $13.7 million, respectively, primarily related to Spheral Solar technology. See “— Capital expenditures” below.

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      Our financing activities for the six months ended September 30, 2006 and September 30, 2005 were $20.0 million and $16.5 million respectively. For the six months ended September 30, 2005, we received $14.2 million in contributions from ATS and $2.3 million in government funding primarily from the TPC program. For the six months ended September 30, 2006, we drew upon bank indebtedness of $3.3 million, received advances from ATS of $20.1 million that are expected to be repaid using the proceeds from the IPO, and used $3.5 million to fund expenditures related to the IPO.

      Our financing activities in fiscal 2004, 2005 and 2006 consisted of proceeds from government assistance in the amounts of $5.7 million, $12.8 million, and $3.4 million, respectively, the vast majority of which we received from TPC, and contributions by ATS of $36.3 million, $14.3 million and $34.1 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.

      We expect to generate positive cash flow from operations once the first phase of our Photowatt International capacity expansion program comes fully on stream in fiscal 2008. The growth in our capacity is expected to result in an increase in cash flow as these production facilities are completed, the effect of which we expect to be offset by our growing working capital requirements in the short to medium term. In addition, we may be faced with the need to make significant advance payments in order to secure long term supplies of silicon that will require large amounts of capital. We expect to finance these advance payments associated with our long term silicon supply agreements and our capital expenditure programs through the use of a portion of the net proceeds of this offering received by us. If we proceed with a joint venture that is currently under consideration to expand our Photowatt International capacity, we anticipate raising some amount of limited recourse debt in the joint venture.

      Including the net proceeds of the offering, we expect that we will have and will generate sufficient cash and cash equivalents to finance our operations, fund our development activities and meet our growth plan until it is necessary to raise financing for the later phases of our capacity expansion plans. Depending on the nature of the silicon supply market, we may have to raise additional capital to secure adequate silicon supply. We have entered into discussions with a number of financial institutions regarding the provision of lines of credit to provide liquidity in the event that we are unable to raise equity capital at the time that we would require funding for the later phases of our capacity expansion or development plan, but there is no assurance that we will be able to successfully negotiate these agreements or the joint venture limited recourse agreements, or that if successful, that they will be available on satisfactory terms and conditions when we would like to access them.

      As at September 30, 2006 we had two credit facilities available to Photowatt France. The first facility is in the amount of €1.0 million, under which we had drawn €0.8 million as at September 30, 2006, and it bears interest at the French four-month prime rate plus 1.05%. The second facility is in the amount of net €0.8 million, offset by cash deposits on hand at the financial institution, under which we had drawn €1.8 million as at September 30, 2006 including outstanding checks, with €0.8 million of cash on deposit offsetting the gross amount, and it bears interest at the Euro LIBOR rate plus 0.50%. Both credit facilities are unsecured and repayable on demand.

      In November 2006, the €0.8 million facility was increased to €8.0 million with the other terms of the facility unchanged. This increased facility is available until April 1, 2007, at which time it will decrease to €0.8 million.

Capital resources

      We have historically satisfied our capital and liquidity requirements through intercompany borrowings, the sale of equity to ATS and bank indebtedness. At the time of the closing of this offering we expect to owe approximately $           million to ATS pursuant to an intercompany demand loan related to the fiscal 2007 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 amounts due to parent. See “Our Relationship with ATS — General — ATS reorganization relating to our company.”

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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:

							Six Months Ended
	Fiscal Year Ended March 31,						September 30,
	2004		2005		2006		2005		2006
	(U.S. dollars in thousands)
Photowatt International	$	5,565	$	10,625	$	16,080	$	5,505	$	11,313
Spheral Solar		34,630		16,124		10,351		6,814		—
Combined	$	40,195	$	26,749	$	26,431	$	12,319	$	11,313

      The property, plant and equipment acquisitions at Photowatt International related primarily to equipment to increase the estimated annual plant capacity and to increase manufacturing efficiencies.

      Capital expenditures for fiscal 2004 to fiscal 2006 at Spheral Solar related to equipment and expenditures for the development of Spheral Solar technology and included items such as production equipment, computer equipment, software and office furniture. For the six months ended September 30, 2006, no capital purchases were made, in line with our current strategy for Spheral Solar.

      We expect that our capital expenditures will increase in the future as we expand our manufacturing capacity in line with our strategy. A portion of the net proceeds from this offering will be utilized to fund these capital expenditures.

      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 integrated manufacturing capacity to 60 MW by March 2007, at an expected cost of €26.5 million, of which at September 30, 2006, we had spent €10.8 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, other than those discussed under “— Contractual Commitments” below.

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

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      The following table sets forth our contractual commitments as of September 30, 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	$	4,247	$	1,096	$	1,777	$	1,221	$	153
Non-cancelable purchase obligations		30,608		27,041		3,567		—		—
Due to parent		20,112		20,112		—		—		—
Total	$	54,967	$	48,249	$	5,344	$	1,221	$	153

      In September 2006, we entered into an agreement with the French Atomic Energy Commission, or CEA, and two other partners for the Photosil project whose primary objective is to develop a commercial process for the production of solar grade silicon derived from metallurgical silicon with a capacity of 200 tonnes per year. Pursuant to the agreement, our role in the Photosil project is to contribute certain expertise and non-financial resources in order to improve and enhance the silicon material developed during the Photosil development phase. Under the contract, we are to be supplied at predetermined prices with at least 80% of the volume of solar grade silicon or ingots produced by the project through to April 20, 2008, at which point the output would be supplied to a future joint venture, in which we are currently considering participating. We expect initial shipments from the project to commence in April 2007, however given that the Photosil plant is currently under construction and production has not yet begun, there is a risk that these silicon shipments may be delayed.

      In October 2006, we entered into a 10-year irrevocable commitment to purchase from Deutsche Solar AG, Freiburg approximately four million polysilicon wafers per annum commencing in the first half of calendar 2009. Advance payments are required which will be applied against the price of silicon wafers that will be received during the life of the commitment and can only be refunded in the event of the supplier’s failure to deliver polysilicon wafers in accordance with the agreement. Commencing in 2009, the price of the silicon wafers will be adjusted at the beginning of each calendar year based on an agreed upon formula.

      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, we will have the option to renew the lease for two consecutive five-year renewal periods at the then prevailing market rates, as determined by a process outlined in the lease.

      As consideration for C$29.5 million of funding for the development of our Spheral Solar technology from TPC, we agreed to pay royalties of 1.8% on our future revenues resulting from the sale, licensing or other transfer of Spheral Solar products and related services. These royalties commence in the first year that such future annual revenues exceed C$20.0 million and continue for a total of 10 years. 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 annual financial statements.

      Upon the acquisition of the 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. Such revenues consist of any net sales revenue earned from the sale of products derived from the Spheral Solar technology, as well as all net sales revenue received by licensees and subsequent purchasers of the Spheral Solar technology in the event that such technology is licensed or sold to a third party. The obligation extends for a 17-year period, expiring on September 28, 2017. To date, license fees resulting from this obligation are minimal.

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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 denominated in U.S. dollars. While a substantial portion of our operating costs of Photowatt International are also denominated in euros, the majority of our silicon purchases have been in U.S. dollars. Our current Spheral Solar expenditures are largely denominated in Canadian dollars with some purchases and consulting costs being in U.S. dollars. 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. Our exposure to currency gains or losses resulting from timing differences between signing of the purchase contracts and settling of these contracts creates additional foreign exchange risk. Net foreign exchange gains and losses for the year ended March 31, 2006 and for the six months ended September 30, 2006 were a $0.1 million gain and a $0.2 million loss, respectively.

      For the year ended March 31, 2006 and the six months ended September 30, 2006, assuming a 10% appreciation of the euro against the U.S. dollar, the impact of translation of our revenue would have been an estimated increase of $11.2 million and $6.4 million, respectively.

Derivative financial instruments

      We have employed 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.

      Although management considers the use of a derivative portfolio to be an effective risk management tool, we did 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 September 30, 2006, no derivative financial instruments were outstanding.

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 or income may increase due to changes in market interest rates or changes in short-term bank borrowings, debt, cash or cash equivalent balances. Based on the borrowings at September 30, 2006, the increase or decrease in net earnings for each 1% change in interest rates on the due to parent and bank indebtedness balances of $23.4 million amounts to approximately $0.2 million annually.

Stock Options Grant

      In September 2006, we approved the grant of options to our chief executive officer and our chief financial officer to purchase, in aggregate, 302,860 of our common shares at an exercise price of C$5.00 per share. The aggregate number of common shares underlying each of these options is subject to an automatic adjustment that will increase or decrease the number such that it is equal to 0.6883% of our common shares held by ATS immediately prior to the closing of the IPO.

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      The option to purchase 160,000 common shares granted to one executive vests as to 20% on the completion of the IPO and 20% on each anniversary date of the completion of the IPO. The option to purchase 142,860 common shares granted to the second executive vests as to 20% on each anniversary date of the completion of the IPO.

      In addition to the above mentioned grants, the two executives are eligible to receive a cash payment upon any exercise of these options if the number of shares underlying these options exceeds 302,860 after the adjustment described above.

      In the event that a change of control occurs and the employment of the option holder is terminated or they resign, in either case within three months from the date of such change of control, the options granted to the two executive officers will accelerate and become fully vested.

      Furthermore, we have approved the grants to certain of our directors, officers, employees and other key personnel, including one of the executives referred to above, of options to purchase an aggregate of 850,420 common shares exercisable at the public offering price at the closing of the IPO. Included in the 850,420 above are options to purchase 287,710 common shares that vest on the achievement of specific defined performance objectives related to the development of Spheral Solar and options to purchase 562,710 common shares that vest as to 20% on each anniversary date of the completion of the IPO. As these options vest only upon the completion of the IPO, no stock compensation expense will be recognized until completion of the IPO. At the time of the IPO, we will measure the fair value of these stock options as the exercise price will be known.

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 from ATS, primarily for the Spheral Solar segment. We also purchased development services, raw materials and other services from ATS or its affiliates, and these purchases have been reflected at their exchange amount. The majority of such exchange amounts were based on a cost-plus basis varying from 0% to 25%.

      For the six months ended September 30, 2006 and the six months ended September 30, 2005, we generated revenue of $11 thousand and $57 thousand, respectively, from EPISOL s.a.r.l., a business controlled by Mr. Eric Laborde, a consultant who serves as managing director, Europe (acting) of Photowatt France, which have been reflected at their exchange amount, which we believe approximates fair market value. In fiscal 2005 and 2006, we generated revenue of $61 thousand and $150 thousand, respectively, from sales to this business.

      As at September 30, 2006, included in accounts payable and accrued liabilities are amounts due to ATS in the amount of $1.6 million. These amounts are payable on demand and do not bear interest. As at March 31, 2006, included in accounts payable and accrued liabilities are amounts due to 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 our net investment 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. On completion of the IPO, we will repay to ATS amounts funded by ATS during fiscal 2007 up to the date of closing. As at September 30, 2006, the amount funded by ATS during fiscal 2007 that would be repaid was $20.1 million, which is expected to be outstanding as a demand loan at the time of this offering. This amount is included as due to parent in our unaudited combined interim balance sheet at September 30, 2006. Other transactions in the table below include intercompany purchases and sales and miscellaneous other administrative expenses incurred by ATS

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on behalf of us. For more information, see note 17 to our combined annual financial statements and note 12 to our unaudited combined interim financial statements.

							Six Months Ended
	Fiscal Year Ended March 31,						September 30,
Transactions	2004		2005		2006		2005		2006
	(U.S. dollars in thousands)
Purchase of property, plant and equipment — ATS	$	19,128	$	18,691	$	5,725	$	3,785	$	310
Purchase of raw materials and other services — ATS		240		330		343		259		811
Development services — ATS		1,482		213		292		277		—
Initial public offering expenditures — ATS		—		—		—		—		3,451
Shared corporate costs — ATS		415		589		717		248		573
Interest expense — ATS		—		—		1,686		511		1,862
Sale of product — other related party		—		61		150		57		11

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 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 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. The adoption of this standard did not have a significant impact on the unaudited combined interim financial statements.

      In September, 2006, the FASB issued Statement of Financial Standard No. 157, “Fair Value Measurement” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The Statement also expands disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurement on earnings. The Statement is effective for fiscal years beginning on or after January 1, 2008. We are currently evaluating the impact of the adoption on the combined financial statements.

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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, our core business that is based on a wafer technology, and Spheral Solar, a development project that is based on a spheral technology using thousands of tiny silicon spheres instead of silicon wafers.

      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 has been developing and selling photovoltaic products since 1979. Photowatt International accounted for all of our combined revenue for fiscal 2006 and for the six months ended September 30, 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 to 60 MW of integrated manufacturing capacity by March 2007, at an expected cost of €26.5 million, of which at September 30, 2006, we had spent €10.8 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 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 $120.9 million and 49%, 17%, 6%, 14% and 14% of such revenue was generated in Germany, Spain, Italy, the United States and the rest of the world, respectively.

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      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 than polysilicon, including:

—  Processing of refined metallurgical silicon. We are currently producing solar cells and modules 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 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. Based on contractual commitments for the supply of refined metallurgical silicon that we have entered into or expect to enter into, 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 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 have begun selling solar cells that include silicon derived from 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.

•  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

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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. We acquired certain assets used in the development of our Spheral Solar technology in 1997. We commenced further development of our Spheral Solar technology in late 2001. 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%. Although certain of our Spheral Solar prototypes have reached approximately 10% efficiency in a prototype laboratory setting, more recently our Spheral Solar cells have demonstrated efficiency levels in the range of 5 to 6% on our current equipment. Our development process for our Spheral Solar technology has been based on establishing milestones for achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. The technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. Our development process for our Spheral Solar technology has targeted the achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. Our next review of our Spheral Solar technology is scheduled for January 2007 following the completion of the current phase of analysis that includes the results of a technical report from our third-party technical consultant on certain aspects of the manufacturing processes. We may decide to discontinue development of the technology

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following this review or at any time. Spheral Solar’s development facility is located in Cambridge, Ontario, Canada.

      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 to approximately 390 MW by the end of calendar 2011. 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 our annual integrated manufacturing capacity to approximately 390 MW by the end of calendar 2011. If we are able to successfully complete the development and process engineering required to commercialize our Spheral Solar technology, we expect that 140 MW of this aggregate manufacturing capacity will relate to Spheral Solar technology.

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 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 have begun the preliminary design of this phase of our expansion and plan to complete this phase 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 through 2011 either through the expansion of existing facilities or construction of new facilities.

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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. If we decide not to proceed with the development of our Spheral Solar technology, we would apply the net proceeds of this offering and future capital we would have used to develop the Spheral Solar technology to Photowatt International for 140 MW of additional capacity expansion, the procurement of silicon supply contracts and investments that will enhance our manufacturing, silicon supply or research and development capabilities.

•  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, including polysilicon ingots and wafers;

—  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. 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. 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

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backpacking, where aesthetics, physical flexibility and low weight are critical product characteristics. The technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. Our development process for our Spheral Solar technology has targeted the achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. Our next review of our Spheral Solar technology is scheduled for January 2007 following the completion of the current phase of analysis that includes the results of a technical report from our third-party technical consultant on certain aspects of the manufacturing processes. We may decide to discontinue development of the technology following this review or at any time.

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. Historically, all of our silicon feedstock has been 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 than polysilicon.

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

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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 CEA’s Laboratory of Microelectronics and Technology for Information, or LETI, 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, such as building codes and other similar health-and-safety 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 intend to meet our future silicon requirements 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. Based on contractual commitments for the supply of refined metallurgical silicon that we have entered into or expect to enter into, we believe that we have secured or identified sources of silicon for Photowatt International’s planned capacity to the end of fiscal 2008.

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Silicon Supply Agreements

     Photosil Project

      As part of our relationship with CEA, we recently entered into an agreement with CEA and two other partners for the Photosil project. Photosil offers another technology for further enhancing the quality of metallurgical silicon. The Photosil project’s primary objective is to develop a commercial process for the production of solar grade silicon derived from metallurgical silicon with a capacity of 200 tonnes per year. Pursuant to the agreement, our role in the Photosil project is to contribute certain expertise and non-financial resources in order to improve and enhance the silicon material developed during the Photosil development phase. Under the contract, we are to be supplied at predetermined prices with at least 80% of the volume of solar grade silicon or ingots produced by the Photosil project through to April 20, 2008, at which point the output would be supplied to a future joint venture, in which we are currently considering participating. We expect initial shipments from the Photosil project to commence in April 2007, however given that the Photosil plant is currently under construction and production has not yet begun, there is a risk that these silicon shipments may be delayed. This relationship is consistent with our silicon supply strategy and is expected to augment our long-term sources of silicon supply.

     Deutsche Solar AG Wafer Supply Agreement

      In October 2006, we entered into a 10-year irrevocable silicon supply contract with Deutsche Solar AG, Freiberg for the supply of solar-grade, multi-crystalline polysilicon wafers beginning in the first half of calendar 2009. Deutsche Solar is a subsidiary of SolarWorld AG. Under the agreement, Deutsche Solar is obliged to deliver, and we are obliged to accept, approximately four million polysilicon wafers per annum. These wafers will be processed into solar cells and modules by us and are estimated to support the manufacture of approximately 15 MW of solar power products per annum. Advance payments to be made under the contract will be applied against the price of silicon wafers received during the life of the commitment and can only be refunded in the event of the supplier’s failure to deliver polysilicon wafers in accordance with the agreement. Commencing in 2009, the price of the silicon wafers will be adjusted at the beginning of each calendar year based upon an agreed upon formula.

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.

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      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. The initial development work on Spheral Solar technology was undertaken by Texas Instruments beginning in 1980. ATS became interested in the technology in the early 1990s when it built some of the equipment for the Texas Instruments Spheral Solar pilot line. In 1995, Texas Instruments sold the technology to a public utility company, which in 1997 negotiated the sale of the Spheral Solar technology to ATS. In 2001, with the increased interest in renewable energy, ATS began further developing the technology and established a Spheral Solar facility in Cambridge, Ontario, Canada in 2004. 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.

      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. 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. The technological and commercialization challenges associated with the development of our Spheral Solar technology are substantial. Our development process for our Spheral Solar technology has targeted the achievement of certain technical objectives and resolution of process issues, which we review on an ongoing basis. Our next review of our Spheral Solar technology is scheduled for January 2007 following the completion of the current phase of analysis that includes the results of a technical report from our third-party technical consultant on certain aspects of the

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manufacturing processes. We may decide to discontinue development of the technology following this review or at any time.

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. 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 SuperFlex^tm, 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. Such revenues consist of any net sales revenue earned from the sale of products derived from the Spheral Solar technology, as well as all net sales revenue received by licensees and subsequent purchasers of the Spheral Solar technology in the event that such technology is licensed or sold to a third party. This obligation extends for a 17-year period, expiring on September 28, 2017. To date, license fees from this obligation are minimal.

      As consideration for C$29.5 million of funding for the development of the Spheral Solar technology from TPC, we agreed to pay royalties of 1.8% on our future revenues resulting from the sale, licensing or other transfer of Spheral Solar products and related services. These royalties commence in the first year that

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such future annual revenues exceed C$20.0 million and continue for a total of 10 years. 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 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 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.

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•  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. Another industry source, Photon Consulting, projects even more rapid growth, with production growing at a compound annual growth rate of 45% from 2,400 MW in 2006 to 10,400 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. 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;

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•  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 including those for systems installed after 2006, for which the tariff rate for ground mounted systems is anticipated to be reduced by 6.5% each year and the tariff rates for building facade and roof mounted arrays are anticipated to be reduced by 5% each year.

      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.

      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.

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      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.

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 technologies similar to ours on a cost per watt basis. The two ribbon technologies on the market launched commercially at about 11% efficiency with a 10 g/W silicon consumption. These technologies are currently limited to small cell areas of 100-125 cm². Our polysilicon wafer technology has a higher efficiency at the same silicon utilization and on larger cell sizes. Our Spheral Solar technology, if successfully developed, could combine 11% targeted efficiency with the flexibility of thin film technology in one module and is expected to have a lower silicon utilization than conventional crystalline

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devices. Most amorphous technologies use double glass construction to increase life expectations beyond ten years, and commercial launches for these technologies were on products with approximately 5% efficiency.

      Nano-technologies, which are not yet commercialized, are also expected to have close to 5% efficiency with life expectancies of several years for double glass construction. Compared to these competing technologies, we believe the majority of our products have higher efficiencies and longer lifetimes without the need for double glass construction.

      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. See “Risk Factors — We face intense competition from other companies producing solar and other renewable energy products.”

Corporate Structure and Organization

      The following diagram sets forth our expected corporate structure upon the closing of this offering:

      In complying with our reporting obligations under applicable Canadian securities laws we have undertaken (i) to treat each of Photowatt International S.A.S., Photowatt Technologies USA Inc. and Spheral Solar Power, Inc. as our subsidiary for financial reporting purposes in accordance with Canadian generally accepted accounting principles and, where Canadian generally accepted accounting principles prohibit the consolidation of financial information of any such subsidiary and us, and for as long as such subsidiary (including any of its significant business interests) represents a significant asset of the Company, provide separate financial statements and related management’s discussion and analysis for such subsidiary (including information about any of its significant business interests); (ii) to take appropriate measures to require insiders of each of Photowatt International S.A.S., Photowatt Technologies USA Inc. and Spheral Solar Power, Inc. to comply with reporting requirements and prohibitions against insider trading as if such subsidiary was a reporting issuer and (iii) to certify, on an annual basis, our compliance with the above undertakings.

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.

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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 the greatest importance to our Spheral Solar technology 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 also hold a number of patents in the United States, France and other European countries, which will expire between 2007 and 2024, relating to some of the technology used in Photowatt International. We intend to continue to seek patent 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. Furthermore, a 1997 environmental assessment report revealed the presence of dichloroethylene and vinyl chloride contamination in soil and groundwater at our facility in Lyon, France. No further assessment of this contamination has been undertaken. Should we choose to or be required to investigate or remediate this contamination, costs to do so could be material. We believe that we are otherwise in compliance in all material respects with applicable environmental laws and regulations.

      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

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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 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

      Our parent company, ATS, is a leading designer and producer of turn-key automated manufacturing and test systems, which are used primarily by multinational corporations operating in a variety of industries including: automotive, computer/ electronics, healthcare, and consumer products. ATS also uses its many years of repetitive manufacturing experience and skills to produce precision components and sub-assemblies and specialized repetitive equipment. ATS employs approximately 3,700 people at 26 manufacturing facilities in Canada, the United States, Europe, southeast Asia and China. ATS’ shares are traded on the Toronto Stock Exchange under the symbol ATA.

      In March 2006, ATS announced that, following a review of the strategic alternatives for its solar business, it decided to pursue an initial public offering of the solar business segment. ATS’ solar business has different suppliers, customers and industry fundamentals compared to ATS’ automation and repetitive manufacturing businesses. The solar business also requires a significant amount of new capital to execute its strategic growth plan which has been developed to competitively position the business in the growing solar industry. ATS expects that the contemplated initial public offering will allow the solar business to raise significant capital and best position it to execute its strategic growth plan.

      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 a corporate reorganization upon the closing of this offering under which ATS will transfer our assets and operations to us. ATS shareholders approved this reorganization at a meeting of ATS shareholders held on October 27, 2006.

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.”

      We and ATS have planned extensively for our separation from ATS. Through that process we have discussed potential conflicts of interest, and assets and other items have been allocated to us in a manner designed to avoid conflicts of interest. We do not expect there to be significant conflicts of interest with ATS because ATS operates primarily in a different business. To the extent that conflicts do arise, our board of directors consists of nine directors, only three of whom are employed by and are nominees of ATS. Our board will act to protect our interests in a conflict situation with ATS.

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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;

•  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 and assumption of liabilities 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 and use commercially reasonable efforts 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 and use commercially reasonable efforts to transfer such asset to ATS.

Indemnification and Release

      We have agreed to indemnify ATS, each of its controlled subsidiaries (other than us and our controlled subsidiaries), and our and their respective directors, officers, employees, consultants, advisers and agents,

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from all losses they may suffer arising out of certain circumstances, whether such losses arise or accrue prior to, on or following the closing of this offering, including:

•  any failure by us or our affiliates or any other person to pay, perform or otherwise properly discharge any of our liabilities;

•  all liabilities arising out of or related to our present or future business, operations or assets;

•  any breach by us of any separation agreement;

•  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 initial public offering or 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 our subsidiaries), and (ii) ATS and its businesses (other than ours), which (i) and (ii) are collectively referred to as the “ATS Disclosure Portions;” and

•  any liability, covenant, term and condition of ATS in, to and under the contribution agreement between ATS, us and TPC (the “TPC Contribution Agreement”) described in note 14 to our combined annual financial statements.

      ATS will indemnify us, each of our controlled subsidiaries, and our and their respective directors, officers, employees, consultants, advisers and agents, from all losses we or they may suffer arising out of certain circumstances or events, whether such losses arise or accrue prior to, on or following the closing of this offering, including:

•  the failure by ATS or its affiliates (other than us) or any other person to pay, perform or otherwise properly discharge any of ATS’ liabilities;

•  all liabilities arising out of or related to ATS businesses, operations or assets, excluding any liability with respect to the TPC Contribution Agreement;

•  any breach by ATS of any separation agreement; and

•  with respect to all 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 or savings) incurred by either of us, other than those related to a third party in connection with an indemnification obligation.

      Subject to the indemnities described above, we and ATS will also release each other and our and its respective controlled subsidiaries, and our and their respective directors, officers, employees, consultants, advisers and agents, from any and all liabilities existing or arising from any acts, events or conditions occurring or existing on or before the time immediately prior to the closing of this offering, including any acts, events or conditions in connection with implementing this offering or the transactions contemplated in the separation agreements. This release will not impair either us or ATS from enforcing the master separation agreement, any other separation agreement or any other agreement between us and ATS in force and effect immediately prior to the closing of this offering.

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 or sale 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

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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.

TPC Contribution Agreement

      We have agreed to fulfill, observe, perform and comply with all the terms and conditions of the TPC Contribution Agreement together with ATS and to assume all the obligations of ATS under the TPC Contribution Agreement. During such period of time as ATS remains a party to and bound by the TPC Contribution Agreement, we will be unable to amend or assign the TPC Contribution Agreement or to seek the consent of any other party to the TPC Contribution Agreement to the waiver of any provisions thereof, without ATS’ prior written consent. We will also be unable to terminate or breach the TPC Contribution Agreement without prior consultation with ATS, such consultation to be conducted in good faith and for a reasonable duration. We have further agreed to take all actions (or refrain from any actions) reasonably requested by ATS in connection with any further consents, assignments or releases sought by ATS with respect to the TPC Contribution Agreement.

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 incurred in connection with the matters contemplated by the separation agreements and for those relating to a spin-off (or any other divestiture transaction employed by ATS).

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. ATS will have the right to assign its rights under the Master Separation Agreement to an affiliate of ATS without our consent. We will have the right to assign our rights under the Master Separation Agreement with ATS’ consent, such consent to be granted in ATS’ sole discretion. Any permitted assignee shall agree to perform the obligations of the assignor of the Master Separation Agreement.

Shareholder Agreement

      The Shareholder Agreement will provide for, among other things, restrictions on the composition of our board of directors, certain matters that we shall not undertake without ATS’ prior written consent, financial reporting to ATS, and certain other governance matters. The Shareholder Agreement does not in any way limit the ability of ATS to exercise its rights attached to our common shares.

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). For so long as ATS owns at least 10%, but less than 40%, of our outstanding shares, ATS is entitled to designate one nominee for election as director to our board of directors. It is expected that our board will be initially comprised of nine members. ATS will initially designate three nominees for election as directors to our board.

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      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 under the Canada Business Corporations Act (the “CBCA”), which requires that at least twenty-five percent of the directors present at the meeting are resident Canadians, and for so long as ATS holds not less than 40% of our outstanding common shares, subject to one ATS board nominee 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 any business or securities of any person (other than wholly-owned subsidiaries) or the acquisition, license, lease, exchange of assets or the assumption of any obligations, in each case 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 or any of its affiliates to transfer shares of our stock they own or that would limit the right of any transferee of ATS or any of its affiliates;

•  take any action that would limit the rights of, or deny any benefit to, ATS or any of its affiliates as holders of our common shares either solely as a result of the amount of shares owned or in a manner not applicable to holders of common shares generally;

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•  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 for a further 12 months after the date on which ATS ceases to be required to do so, we will:

•  maintain the same fiscal year as ATS;

•  deliver certain periodic budgets and financial projections, and monthly, quarterly and annual 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 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, or unless inconsistent with our audit committee’s responsibilities under U.S. securities laws and regulations, 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, and for a further 12 months after the date on which ATS ceases to be required to do so, 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.

      We have agreed that, after the expiry of 12 months after the date on which ATS ceases to be required to consolidate our results of operations and financial position, for so long as ATS is required to account for its investment in our company under the equity method of accounting, we shall provide ATS, in a timely fashion and in any event in sufficient time to allow ATS to meet its financial and legal obligations, with financial and other information and data with respect to us and our subsidiaries and our and our subsidiaries’ respective businesses, properties, financial positions, results of operations and prospects, and otherwise comply with the financial reporting requirements listed and described above to the extent reasonably requested by ATS.

     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. We will have the right to assign our rights under the Shareholder Agreement with ATS’ consent, such consent to be granted in ATS’ sole discretion.

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Term

      The Shareholder Agreement will continue in force until the earlier of the date on which the Shareholder Agreement is terminated by written agreement of both us and ATS or such time when 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;

•  tax and merger and acquisition transaction services;

•  payroll;

•  information technology, including access to network, systems, applications and technical support;

•  human resources and employee benefits;

•  legal services;

•  insurance services;

•  accounting support and treasury; and

•  other specified services.

      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 Transitional Services Agreement if we fail to perform any of our material obligations and do not remedy the failure within 30 days. 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, including, for example, a prohibition against continued performance in any contract with a third party providing the service in question. 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 $                    . The fixed prices and fixed rates will be specified in the Transitional Services Agreement. Certain of these prices will be based on ATS’s costs plus an administrative charge, and certain of these prices will be based on estimated market prices.

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.

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      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 or where any agreement is tentatively reached with any 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. If ATS fails to perform any of its material obligations with respect to any equipment supplied pursuant to the right of first refusal on two or more occasions, Photowatt may terminate the right of first refusal. The right of first refusal provisions may be waived by ATS and Photowatt in specific instances.

      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 occurs first.

      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 2,500 square feet, respectively, of ATS’ premises. ATS will allow us and our affiliates access to ATS’ premises during normal business hours upon reasonable notice 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 AMD Press as we may order (subject to available labor, supplies 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 AMD Press and will be responsible for its 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 or notice of termination, we would de-install and remove the foil presses from ATS’ premises at our sole cost.

      The Master Supply Agreement terminates on the earlier of (i) five years from its effective date; and (ii) once ATS holds, directly or indirectly, less than 10% of our outstanding common shares. 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 give 10 days’ written notice and compensate ATS for its costs incurred or committed. However, the provisions of the Master Supply Agreement with respect to the aluminum foil presses, described above, will continue for a period of time if the Master Supply Agreement terminates as a result of ATS’ ownership interest in Photowatt falling below 10% of outstanding common shares.

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      Any liability of ATS to us, our affiliates and our and their respective directors, officers, employees and agents 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. This know-how primarily relates to the design and manufacture of certain equipment that automates one or more of the steps involved in manufacturing solar products. We use some of this know-how in our business, primarily in relation to our use of ATS equipment, ATS being one of a number of equipment suppliers we utilize. Upon completion of the offering, we will obtain an irrevocable, personal, non-exclusive, worldwide, royalty-free, perpetual right and license to use the ATS solar automation know-how in our possession immediately prior to the completion of this offering, 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. This license does not include any intellectual property rights owned by ATS solely to the extent covered by any patent or application owned by ATS, the exclusion of which we believe will not have any material effect on our business.

      ATS may indirectly compete with us to the extent that it manufactures solar equipment for competitors of ours. See “Risk Factors — ATS may enter into contracts relating to the design and manufacture of automated manufacturing and test systems with our competitors or potential competitors.”

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; and

•  any tax loss carryforwards, Canadian tax credits or related valuation allowances.

      Pursuant to the Transfer Agreements, in consideration for the transfer of assets by ATS to us, we will issue common shares to ATS and we and our subsidiaries will assume all liabilities, including an inter-company demand loan from ATS, 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, we will have the option to 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 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.

Name	Municipality of Residence	Age		Position/Title
Silvano Ghirardi	Oakville, Ontario		58	President and Chief Executive Officer and Director
David L. 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
Gerald R. Beard	Woolwich, Ontario		35	Director
Wayne S. Hill(1)	Toronto, Ontario		60	Director
Ronald J. Jutras(2)	Waterloo, Ontario		51	Director
Kirk Mandy(1)(2)	Ottawa, Ontario		50	Director
Stewart McCuaig	Kitchener, Ontario		44	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 and director, having joined ATS in 2005, and has diverse experience in international operations, marketing and start-up business. Mr. Ghirardi became our director in August 2006. From 2002-2005, Mr. Ghirardi was the president and chief operating officer of Hoya Opthalmics North America, a division of the Hoya Corporation, a Japanese company whose shares are traded on the Tokyo Stock Exchange and which is among other things the second largest publicly traded 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). He will no longer be employed by ATS following this offering, at which time he will be employed exclusively by us.

      Mr. David L. Adams is our senior vice president and chief financial officer, having joined ATS 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. He will no longer be employed by ATS following this offering, at which time he will be employed exclusively by us.

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      Mr. Gary J. Seiter is currently the senior vice president of operations and technology, having joined ATS 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. He will no longer be employed by ATS following this offering, at which time he will be employed exclusively by us.

      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 has been our director and chairman since August 2006. 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. Gerald R. Beard has been our director since October 2006. He is currently the vice president and chief financial officer of ATS, which he joined in 2001. He is an honors graduate of the University of Waterloo, a Chartered Accountant and a Chartered Business Valuator, and he obtained his Certified Public Accountant designation in 2001. Prior to joining ATS, Mr. Beard was a senior manager at KPMG. Mr. Beard was appointed to our board as a nominee of ATS.

      Mr. Wayne S. Hill has been our director since August 2006. 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 has been our director since July 2006. 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. Jutras was appointed to our board as a nominee of ATS.

      Mr. Kirk Mandy has been our director since August 2006. Since 2005, he has been the president and chief executive officer of Zarlink Semiconductor, a company listed on the Toronto Stock Exchange and the New York Stock Exchange. Mr. Mandy was the vice chairman and a director of Zarlink from 2001 until 2005. 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 vice chairman of the Armstrong Monitoring Corporation. He has served on the board of the Strategic

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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 has been our director since July 2006. 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. McCuaig was appointed to our board as a nominee of ATS.

      Mr. C. Ian Ross has been our director since August 2006. 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 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 has been our director since August 2006. 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 France, 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 s.a.r.l. 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,

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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 nine 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:

•  Robert M. Franklin

•  Wayne S. Hill

•  Kirk Mandy

•  C. Ian Ross

•  John W. Sheridan

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

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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, Mr. Kirk Mandy 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 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 October 13, 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 25% 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, 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, 2005 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’ written 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, Mr. Ghirardi can terminate his employment for any reason within twelve months of such change of control. A “change of control” is defined as (i) any person or persons who acting in concert, other than ATS, become the beneficial owner of over 50% of the votes attaching to our outstanding voting securities, (ii) certain changes in the composition of our board of directors, (iii) certain reorganizations affecting our company, or (iv) the sale of all or substantially all of our assets subject to certain exceptions, including the sale, by ATS or one of its affiliates, of our shares in conjunction with a public offering. 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.

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      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 40% of his annual salary but may increase to a maximum of 80% 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. A “change of control” is defined as (i) any person or persons who acting in concert, other than ATS, become the beneficial owner of over 50% of the votes attaching to our outstanding voting securities, (ii) certain changes in the composition of our board of directors, (iii) certain reorganizations affecting our company, or (iv) the sale of all or substantially all of our assets subject to certain exceptions. 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 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

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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 non-executive directors, other than ATS nominees (currently Messrs. Beard, Jutras and McCuaig) and our chairman, (i) an annual retainer of C$35,000; (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 60 minutes); and (vi) an initial stock option grant covering 15,000 shares. Our chairman receives an annual retainer of C$150,000 and an initial stock option grant covering 64,290 shares.

      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 L. Adams(2)		—		—		—
Eric Laborde(3)		€257,250		€80,850		€11,143
Jean-Louis Dubien		€84,700		€27,373		—
Gary J. 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 a registered retirement savings plan match of C$2,019. In addition, Mr. Ghirardi was granted options expiring on June 6, 2012 to purchase 50,000 shares of ATS in fiscal 2006 at an exercise price of C$15.45 per share, which were surrendered effective October 13, 2006.
(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.

      We have granted and intend to grant options to purchase our common shares under our Stock Option Plan to certain of our executive officers, employees and other key personnel. See “— Share Compensation Arrangements — Stock Option Plan”.

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

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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 service providers to contribute to our success currently and in the future.

     Stock Option Plan

      We have adopted a Stock Option Plan (the “Option Plan”) to provide long-term incentives to attract, motivate and retain our key employees, directors, officers, and service providers.

      Under the Option Plan, we may grant options to (i) any of our directors, officers or employees, or any other service provider (an “Eligible Individual”), or (ii) a corporation controlled by an Eligible Individual, the issued and outstanding voting shares of which are, and will continue to be, beneficially owned by such Eligible Individual and/or the spouse, children and/or grandchildren of such Eligible Individual (an “Employee Corporation” and collectively with Eligible Individual referred to as “Eligible Persons”). 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 our common shares that may be purchased under the Options, establish the exercise price of the Options, determine the expiry date for exercise of the Options (which shall be no later than seven years after the date the Options are granted), 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 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, or in the case of an Employee Corporation if the Eligible Individual associated with the Employee Corporation 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 us or our affiliates 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 maximum number of shares which may be purchased under 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 from us in an amount equal to the excess of the fair market value at the time of exercise of the SAR over the exercise price of the related Option. Upon exercise of a 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 have granted an Option to purchase 160,000 of our common shares to our president and chief executive officer, Mr. Silvano Ghirardi, and an Option to purchase 142,860 of our common shares to our senior vice president and chief financial officer, Mr. David L. Adams, under our Option Plan. These Options have an exercise price of C$5.00 per share and expire on September 12, 2013. Mr. Ghirardi’s Option will vest as to 20% of the underlying common shares on the closing of this offering and on each anniversary of the closing of this offering. Mr. Adams’ Option will vest as to 20% of the underlying common shares on each anniversary of the closing of this offering. In the event that a “change of control” as defined in each executive’s respective option agreement occurs following the closing of this offering and the executive’s employment with us is terminated or he resigns, in either case within three months from the date of such

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change of control, any unvested portion of the Option held by him will vest. The Options granted to Mr. Ghirardi and Mr. Adams are each subject to an adjustment that will increase or decrease the number of common shares underlying the Option such that the resulting aggregate number of common shares is equal to 0.6883% of our common shares held by ATS immediately prior to the closing of this offering. If the adjustment results in an increase in the number of common shares underlying an Option, upon exercise of the Option and payment of the exercise price by the holder to us, the holder will receive a cash payment for anti-dilution purposes. Specifically, the cash payment per share underlying the Option would equal the product of (1) C$5 and (2) the number that is equal to (i) one minus (ii) the fraction that is equal to the original number of common shares underlying the Option divided by the adjusted number of common shares underlying the Option.

      For example, assuming that after the grant of the Option but prior to the closing of the offering, the number of outstanding common shares was multiplied by a factor of 2, the cash payment per share underlying the Option would equal the product of C$5 and (1 - (1/2)), or C$2.5. Similarly, assuming that after the grant of the Option but prior to the closing of the offering, the number of outstanding common shares was multiplied by a factor of 2.5, the cash payment per share underlying the Option would equal the product of C$5 and (1 - (1/2.5)), or C$3.

      In addition, we have approved the granting of Options to certain of our executive officers, directors, employees and other key personnel under the Option Plan as described in the following table. Such options will be granted on the date of the completion of the IPO at an exercise price equal to the initial public offering price and having an expiry date that is seven years from the date of the completion of the IPO.

	Number of
	Common Shares
Class of Optionee (number of individuals in receipt of Options)	under Option
All of our executive officers(3)		335,840
All of our directors who are not also executive officers(5)		124,290
All of our subsidiaries’ executive officers(1)		26,570
All of our other employees(12)		226,870
All of our subsidiaries’ other employees(3)		79,710
All of our consultants(1)		57,140

      Of the foregoing options in the above table, options to purchase 287,710 common shares will vest on the achievement of specific defined performance objectives related to the development of Spheral Solar and options to purchase 562,710 common shares will vest as to 20% on each anniversary date of the completion of the IPO.

      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 employees, directors, officers and service providers 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 employees, directors, officers and service providers (“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

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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.

      The RSU Plan is an unfunded obligation of ours.

      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”).

      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 common shares, or similar transaction, or series of transactions, 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 terminate immediately prior to the specified effective date of the Corporate 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 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 number 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 and in the case of non-executive directors, shall not, in aggregate, exceed 0.5% 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 number 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, or a committee thereof, deems proper in its discretion.

      In the event of any reclassification, reorganization or other change of our common 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.

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      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 and it is approved by our board, if a Participant ceases to provide services to us or our affiliates in any capacity of employee, officer, director, or service provider (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 service provider 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 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, as determined by our board acting in good faith, 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 common 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 common 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 common shares on the date the Options are granted (subject to certain exceptions);

•  any amendment that would reduce the exercise price of an outstanding Option (subject to certain exceptions);

•  any amendment that would permit assignments to persons not currently permitted under the Plans; and

•  any amendment that would expand the scope of Participants.

      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 promote a greater alignment of interests between our outside directors (being directors who are not employees of our company)

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and our shareholders, and to provide a compensation system for directors that is reflective of the responsibility, commitment and risk accompanying board membership and the performance of the duties required of the various committees of the board.

      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 based on the fair 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 if the deferred stock units credited to his or her account under the DSU Plan on the relevant record date for dividends 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).

      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 have adopted a Short Term Incentive Plan (“STI Plan”) which sets out the principles to be applied when establishing annual bonuses for our executives. The STI Plan is designed to encourage the achievement by executives of quantitative and qualitative objectives. Each participating executive will have a bonus plan tailored for that executive. The STI Plan provides that individual bonus plans generally be structured such that the target bonus amount is 50% of the maximum bonus amount. The amount of bonus awarded is dependent upon the level of success in meeting stated objectives. Quantitative objectives generally account for 50-70% of the weighting when determining eligibility for bonus and may include measurements such as revenue growth, margins, operating earnings, return on net assets, and return on capital employed. Qualitative objectives, being personal objectives for individual executives, would often account for 30-50% of the weighting.

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.

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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

      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 from ATS, primarily for the Spheral Solar segment. We also purchased development services, raw materials and other services from ATS or its affiliates, and these purchases have been reflected at their exchange amount. The majority of such exchange amounts were based on a cost-plus basis varying from 0% to 25%.

      For the six months ended September 30, 2006 and the six months ended September 30, 2005, we generated revenue of $11 thousand and $57 thousand, respectively, from EPISOL s.a.r.l., a business controlled by Mr. Eric Laborde, a consultant who serves as managing director, Europe (acting) of Photowatt France, which have been reflected at their exchange amount, which we believe approximates fair market value. In fiscal 2005 and 2006, we generated revenue of $61 thousand and $150 thousand, respectively, from sales to this business.

      For more 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,” note 17 to our combined annual financial statements and note 12 to our unaudited combined interim financial statements included in this prospectus.

      Collectively, our directors and officers hold an aggregate of 110,435 ATS common shares as well as options covering an additional 374,800 ATS common shares as at December 7, 2006. None of our directors or officers holds common shares or options covering common shares representing over 1% of the issued and outstanding common shares of ATS. The following table sets forth these common share and option holdings by our directors and officers.

	Common Shares		Options to purchase
Director/Officer	of ATS		common shares of ATS
Silvano Ghirardi		—		—
David L. Adams		—		—
Gary J. Seiter		—		—
Jean-Louis Dubien		—		—
Robert M. Franklin		5,000		—
Gerald R. Beard		3,503		45,200
Wayne S. Hill		—		—
Ronald J. Jutras		101,932		319,600
Kirk Mandy		—		—
Stewart McCuaig		—		10,000
C. Ian Ross		—		—
John W. Sheridan		—		—
Total		110,435		374,800

      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 AND SELLING 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. 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. 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)				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. ATS acquired its common shares pursuant to the capitalization of its investments in us referred to in note 16 to our combined annual financial statements as well as pursuant to the transfer to us of the assets of our business referred to under “Our Relationship With ATS — Agreements Between ATS and Us — Transfer Agreements”.

*  Represents shares equal to less than 1% of our total 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. We contemplate entering into certain separation agreements, including a shareholder agreement, with ATS immediately prior to the completion of this offering that will provide certain rights to ATS. See “Our Relationship with ATS — Agreements Between ATS and Us.”

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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. The election of directors is based on plurality voting, which results in the election of those nominees who receive the most votes “for” election, up to the number of directors fixed for election. Under the CBCA, certain significant corporate actions, such as an amendment to a corporation’s articles, amalgamation with a non-affiliated corporation, continuance, liquidation, dissolution, and sale, lease or exchange of all or substantially all of the property of a corporation other than in the ordinary course of business must be approved by not less than two thirds 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

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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. 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

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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 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.

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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 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.

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Listing

      We have applied to list our common shares on The Nasdaq Global Market and 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.

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, other than any common shares that are sold by ATS in the event of exercise of the over-allotment option by the underwriters. 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

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 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. Except as set forth in “Taxation of Resident Holders — Dividends” the tax summary set out below would not be materially different if the Tax Proposals were not assumed to be enacted as currently proposed.

      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 does not discuss all aspects of Canadian federal income taxation that may be relevant to a particular holder of common shares in light of such holder’s particular circumstances. 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. 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.

      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.

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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 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 (including the deemed disposition on death), 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.

      In general, a person is a resident of the United States for the purposes of the Treaty (and is therefore entitled to the benefits of the Treaty) if, under the laws of the United States, the person is liable to tax in the United States by reason of domicile, residence, citizenship, place of management, place of incorporation or other criteria of a similar nature, but in the case of an estate or trust, only to the extent that the income

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derived from the estate or trust is liable to tax in the United States either in its hands or in the hands of its beneficiaries.

      A limited liability company (an “LLC”) that is not liable to tax in the United States is not entitled to the benefits of the Treaty. Partnerships which are not liable to tax in the United States are not entitled to the benefits of the Treaty, but the CRA generally takes the position that they will look through to the partners of the partnership for purposes of determining whether and the extent to which the benefits of the Treaty apply to the share of the relevant income or gain attributable to the partners. CRA does not have a similar position with regard to look through for LLCs. The CRA is currently reviewing whether their position with regard to look through to partners will continue to apply to partnerships formed under the laws of Canada that are treated as corporations for United States tax purposes.

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 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 (including the deemed disposition on death) 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.

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

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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.

      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

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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 will 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 will 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 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

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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 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 and ATS 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. If this option is exercised in full, ATS will receive net proceeds of $              after underwriting commissions. We will not receive any proceeds from the sale of common shares by ATS in the event that this option is exercised. This prospectus also qualifies the grant of this option and the distribution of the commons shares transferable upon the exercise of this option.

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

119

U.S. price of the common shares based on the prevailing U.S.-Canadian dollar exchange rate on the date of the underwriting agreement.

      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 have applied 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

120

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-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

121

purchase no earlier than the effective time of the registration statement on 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 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.

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, 4^th Floor, P.O. Box 150, Toronto, Ontario, Canada M5X 1H3. The address of UBS Securities LLC is One North Wacker Drive, Chicago, Illinois, 60606.

122

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.

123

LEGAL MATTERS

      The validity of the issuance and sale 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 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.

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, 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
Unaudited Combined Balance Sheets at March 31, 2006 and September 30, 2006		F-2
Unaudited Combined Statements of Earnings (Loss) for the six months ended September 30, 2005 and 2006		F-3
Unaudited Combined Statements of Net Investment for the six months ended September 30, 2005 and 2006		F-4
Unaudited Combined Statements of Cash Flows for the six months ended September 30, 2005 and 2006		F-5
Notes to the Unaudited Combined Financial Statements		F-6
Report of Independent Registered Public Accounting Firm		F-17
Combined Balance Sheets at March 31, 2005 and 2006		F-18
Combined Statements of Earnings (Loss) for the years ended March 31, 2004, 2005 and 2006		F-19
Combined Statements of Net Investment for the years ended March 31, 2004, 2005 and 2006		F-20
Combined Statements of Cash Flows for the years ended March 31, 2004, 2005 and 2006		F-21
Notes to Combined Financial Statements		F-22

F-1

Photowatt Technologies Inc.

UNAUDITED COMBINED BALANCE SHEETS

		March 31, 2006		September 30, 2006
		(In United States
		thousands of dollars)
ASSETS
Current assets:
	Cash and cash equivalents	$	1,958	$	1,448
	Accounts receivable		20,253		21,262
	Inventories (note 3)		33,441		36,616
	Other current assets		441		2,279
Total current assets			56,093		61,605
Property, plant and equipment (note 4)			42,805		45,221
Goodwill			1,705		1,705
Deferred development costs (note 6)			123		—
Other assets (note 7)			2,531		13,281
Total Assets		$	103,257	$	121,812
LIABILITIES AND GROUP EQUITY
Current liabilities:
	Bank indebtedness (note 8)	$	—	$	3,325
	Accounts payable and accrued liabilities		22,809		23,338
	Due to parent (note 12)		—		20,112
	Income taxes payable		4,096		1,094
Total current liabilities			26,905		47,869
Future income taxes			584		796
Total liabilities			27,489		48,665
Group equity:
	Net investment (note 11)		75,310		76,705
	Cumulative translation adjustment		458		(3,558	)
			75,768		73,147
Total liabilities and group equity		$	103,257	$	121,812
Commitments (note 13)
Subsequent events (note 15)

See accompanying notes to unaudited combined financial statements.

F-2

Photowatt Technologies Inc.

UNAUDITED COMBINED STATEMENTS OF EARNINGS (LOSS)

		Six months ended
		September 30
		2005		2006
		(In United States
		thousands of dollars)
Revenue		$	56,878	$	65,993
Operating costs and expenses:
	Cost of revenue		42,219		46,841
	Research and development		324		5,668
	Amortization		3,057		4,521
	Selling and administrative		3,325		7,488
	Shared corporate costs (notes 2 and 12)		248		573
			49,173		65,091
Earnings from operations			7,705		902
Interest expense (note 12)			502		1,898
Earnings (loss) before provision for income taxes			7,203		(996	)
Provision for income taxes (note 10)			2,752		3,352
Net earnings (loss)		$	4,451	$	(4,348	)

See accompanying notes to unaudited combined financial statements.

F-3

Photowatt Technologies Inc.

UNAUDITED COMBINED STATEMENTS OF NET INVESTMENT

	Six months ended
	September 30
	2005		2006
	(In United States
	thousands of dollars)
Net investment, beginning of period	$	138,261	$	75,310
Net earnings (loss)		4,451		(4,348	)
Net contribution by ATS Automation Tooling Systems Inc.		18,058		5,743
Net investment, end of period (note 11)	$	160,770	$	76,705

See accompanying notes to unaudited combined financial statements.

F-4

Photowatt Technologies Inc.

UNAUDITED COMBINED STATEMENTS OF CASH FLOWS

			Six months ended
			September 30
			2005			2006
			(In United States
			thousands of dollars)
Cash flows from (used in) operating activities:
	Net earnings (loss)		$	4,451		$	(4,348	)
	Other items not involving cash:
		Future tax expense		437			212
		Amortization		3,057			4,521
		Other		162			—
	Net change in non-cash working capital			(675	)		(8,994	)
Cash flows from (used in) operating activities				7,432			(8,609	)
Cash flows used in investing activities:
	Acquisition of property, plant and equipment			(12,319	)		(11,313	)
	Deferred development expenditures			(11,987	)		(625	)
Cash flows used in investing activities				(24,306	)		(11,938	)
Cash flows from (used in) financing activities:
	Advances from bank indebtedness			—			3,325
	Advances from parent			—			20,112
	Proceeds from government assistance			2,296			79
	Deferred expenditures for initial public offering			—			(3,542	)
	Contribution by ATS Automation Tooling Systems Inc.			14,209			—
Cash flows from financing activities				16,505			19,974
Effect of exchange rate changes on cash and cash equivalents				(31	)		63
Decrease in cash and cash equivalents				(400	)		(510	)
Cash and cash equivalents, beginning of period				891			1,958
Cash and cash equivalents, end of period			$	491		$	1,448

See accompanying notes to unaudited combined financial statements.

F-5

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED 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. References to “ATS” or the “Parent” refer to ATS Automation Tooling Systems Inc. and, where applicable, its subsidiaries. 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 the net operating assets of Matrix Solar Technologies, Inc. (“Photowatt USA”), 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 September 30, 2006. As the transfer is not consummated, the financial statements are referred to as combined financial statements. The Company’s principal business activity is the design, manufacture and sale of photovoltaic products.

2.  BASIS OF PRESENTATION:

      These unaudited 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. Certain comparative balances have been reclassified on a carve-out basis.

      A portion of ATS’ corporate 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 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 and due to parent. 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 group of entities. 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.

      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.

      The accompanying unaudited interim combined financial statements are prepared in accordance with accounting principles generally accepted in Canada (“GAAP”) and the accounting policies are consistent with those described in the combined financial statements for the year ended March 31, 2006 and which conforms in all material respects with United States GAAP, except as presented in note 16. The unaudited

F-6

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

interim combined financial statements do not contain all the disclosures required by Canadian generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s fiscal 2006 audited combined financial statements.

      Revenue on certain long-term design, project management and/or installation services contracts is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred as a percentage of total costs anticipated for each contract. Incentive awards, claims or penalty provisions are recognized when such amounts are likely to accrue and can reasonably be estimated. Complete provision is made for losses on contracts in progress when such losses first become known. Revisions in cost and profit estimates, which can be significant, are reflected in the accounting period in which the relevant facts become known.

      In the opinion of management, the unaudited interim combined financial statements reflect all of the adjustments, which consist only of normal and recurring adjustments, necessary to present fairly the financial position at September 30, 2006 and the results of operations and cash flows for the six months ended September 30, 2006 and 2005. Interim results are not necessarily indicative of annual or longer term results as the solar market served by the Company tends to be cyclical in nature. Both revenues and earnings for the Company typically decline during the Company’s second quarter as a result of Photowatt International S.A.S.’s annual summer shutdown. General economic trends, product life cycles and product changes may impact the Company’s volumes and earnings.

3.  INVENTORIES:

		March 31, 2006		September 30, 2006
Inventories are summarized as follows:
	Raw materials	$	19,275	$	21,263
	Work-in-process		8,038		7,678
	Finished goods available for sale		6,128		7,675
		$	33,441	$	36,616

      Raw materials inventory includes supply inventories of $4,136 as at September 30, 2006 (March 31, 2006 — $3,201) which are consumed in the production process. The provision for excess and obsolete inventory was $1,107 at September 30, 2006 (March 31, 2006 — $606).

4.  PROPERTY, PLANT AND EQUIPMENT:

			Accumulated			Net Book
At September 30, 2006	Cost		Amortization			Value
Land and land improvements	$	371	$	—		$	371
Buildings		1,728		(1,174	)		554
Production equipment		73,286		(29,967	)		43,319
Other equipment and furniture		1,529		(552	)		977
	$	76,914	$	(31,693	)	$	45,221

F-7

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

			Accumulated			Net Book
At March 31, 2006	Cost		Amortization			Value
Land and land improvements	$	355	$	—		$	355
Buildings		1,008		(989	)		19
Production equipment		66,047		(24,434	)		41,613
Other equipment and furniture		1,300		(482	)		818
	$	68,710	$	(25,905	)	$	42,805

5.  INTANGIBLE ASSETS:

      The intangible assets were not amortized prior to October 1, 2005, when the Company was in the development stage of its Spheral Solar technology initiative. Subsequent to September 30, 2005, amortization began on the intangible assets on a straight-line basis over their estimated remaining useful lives of 10 to 17 years.

6.  DEFERRED DEVELOPMENT COSTS:

	March 31,		September 30,
	2006		2006
Deferred development costs — various programs	$	123	$	—

      During the six months ended September 30, 2006, the Company deferred $62 of net development costs (September 30, 2005 — $10,878).

7.  OTHER ASSETS:

	March 31,		September 30,
	2006		2006
Long term receivable	$	2,531	$	3,136
Deferred IPO expenditures		—		3,542
Deposits on property, plant and equipment		—		6,603
	$	2,531	$	13,281

      Long term receivable is comprised of amounts due from TPC in regards to funding contributions toward the Company’s development of a new photovoltaic energy technology.

8.  BANK INDEBTEDNESS:

      As at September 30, 2006, the Company had two credit facilities available to Photowatt International S.A.S. The first facility is in the amount of Euro 1,000, under which the Company had drawn Euro 800 as at September 30, 2006, and it bears interest at the French four-month prime rate plus 1.05%. The second facility is in the amount of net Euro 800, offset by cash deposits on hand at the financial institution, under which we had drawn Euro 1,800 as at September 30, 2006, with Euro 810 of cash on deposit offsetting the gross amount, and it bears interest at the Euro LIBOR rate plus 0.50%. Both credit facilities are unsecured and repayable on demand. Subsequent to September 30, 2006, the second credit facility was increased. See note 15 to the unaudited combined interim financial statements.

F-8

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

9.  STOCK-BASED COMPENSATION PLANS:

      Since 1997, Matrix Solar Technologies, Inc., a company whose operating assets are included in these combined financial statements, has granted stock options to certain of its employees and employees of its affiliates. The holders of 195 of these options have the right to require Matrix Solar Technologies, Inc. to settle the value of the vested portion of the shares under option in cash based on a formula linked to the net book value of Matrix Solar Technologies, Inc. A liability has been recognized for the vested portion of the cash settlement value. The amount of the recognized liability was $150, as at September 30, 2006 and $153 as at March 31, 2006. In October 2006, these options were terminated in exchange for a cash payment of $410.

      During fiscal 2006, ATS issued 50,000 stock options on its common shares to an employee of the Company. The Company recognized compensation expense based on the fair value over the vesting period of these options. Compensation expense of $23 was recorded in the six-months ended September 30, 2006 (September 30, 2005 — $13). As of September 30, 2006, there was $188 of unrecognized stock-based compensation related to unvested stock options of this grant which was expected to be expensed over the vesting period of approximately 3.68 years. These options were surrendered in October 2006.

      In September 2006, the Company approved the grant of options to two executive officers of the Company to purchase, in aggregate, 302,860 of the Company’s common shares at an exercise price of C$5.00 per share. The number of common shares underlying each of these options is subject to an automatic adjustment that will increase or decrease the number such that it is equal to 0.6883% of the common shares in the Company held by ATS immediately prior to the closing of the IPO. The option to purchase 160,000 common shares granted to one executive vests as to 20% on the completion of the IPO and 20% on each anniversary date of the completion of the IPO. The option to purchase 142,860 common shares granted to the second executive vests as to 20% on each anniversary date of the completion of the IPO. In addition to the above mentioned grants, the two executives are eligible to receive a cash payment upon any exercise of these options if the number of shares underlying these options exceeds 302,860 after the adjustment described above. In the event that a change of control occurs and the employment of the option holder is terminated or they resign within three months of such change of control, the options granted to the two executive officers will accelerate and become fully vested.

      The fair value of the above options was calculated using the Black-Scholes option pricing model with the following assumptions:

Weighted average Black-Scholes value of options		$	3.35
Assumptions:
	Risk free interest		3.9	%
	Expected life in years		7.0
	Expected dividend yield		0.0	%
	Volatility		80.0	%

      The risk free interest rate utilized during the life of the stock option is based on a Canadian government security for an equivalent period. Expected volatility is based on the expected volatility of industry peers. The maximum life of the stock option has been used for the expected term. As these options vest only upon the completion of the IPO, no stock compensation expense will be recognized until completion of the IPO. As of September 30, 2006, there was $1,015 of unrecognized stock-based compensation related to these unvested stock options.

      Furthermore, the Company has approved the grants to certain directors, officers, employees and other key personnel of the Company, including one of the executives referred to above, of options to purchase an aggregate of 844,000 common shares exercisable at the public offering price at the closing of the IPO.

F-9

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

Included in the 844,000 above are options to purchase 292,000 common shares that vest on the achievement of specific defined performance objectives related to the development of Spheral Solar and options to purchase 552,000 common shares that vest as to 20% on each anniversary date of the completion of the IPO. As these options vest only upon the completion of the IPO, no stock compensation expense will be recognized until completion of the IPO. At the time of the IPO, the Company will measure the fair value of these stock options as the exercise price will be known.

      Subsequent to September 30, 2006, the Company approved an additional option grant to purchase 15,000 common shares. The terms of this option grant are consistent with those outlined above for the options to purchase an aggregate of 844,000 common shares. In addition, of the grant of options to purchase an aggregate of 844,000 common shares, 8,580 options that were approved for grant were terminated subsequent to September 30, 2006.

10.  INCOME TAXES:

      For the six months ended September 30, 2006 and 2005, income tax expense differs from the amounts which would be obtained by applying the combined Canadian basic federal and provincial income tax rate to earnings before income taxes. The Company has not recognized potential benefits related to loss carryforward amounts and other temporary differences primarily in its Spheral Solar segment and in Photowatt USA as management has not been able to conclude that it is more likely than not that such benefits will be realized in the foreseeable future.

11.  NET INVESTMENT:

      The net investment account comprises:

	Photowatt			Spheral
	International			Solar			Photowatt			Spheral
	S.A.S.			Power Inc.			USA			Solar			Other			Total
Net investment, March 31, 2006	$	61,060		$	(5,369	)	$	8,266		$	11,353		$	—		$	75,310
Net earnings (loss) for the period ended September 30, 2006		6,658			—			(736	)		(7,736	)		(2,534	)		(4,348	)
Increase (reduction) of investment by ATS		(1,265	)		(6	)		(48	)		4,528			2,534			5,743
Net investment, September 30, 2006	$	66,453		$	(5,375	)	$	7,482		$	8,145		$	—		$	76,705

      Other includes costs that have been allocated to the Company in connection with the preparation of these financial statements and intersegment eliminations (note 2 and 12).

F-10

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

12.  RELATED PARTY TRANSACTIONS:

Transactions

Six months ended September 30	2005		2006
Purchase of property, plant and equipment — ATS	$	3,785	$	310
Purchase of raw materials and other services — ATS		259		811
Development expenditures — ATS		277		—
Initial public offering expenditures — ATS		—		3,451
Shared corporate costs — ATS		248		573
Interest expense — ATS		511		1,862
Sale of product — other related party		57		11

      As noted in note 2, ATS provides strategic, operational and administrative services to the Company. Furthermore, the Company purchases property, plant and equipment, development expenditures, raw materials and other services from affiliated companies. “Sale of product” pertains to sales to a business controlled by a consultant who serves as our managing director, Europe (acting) of Photowatt International S.A.S. These transactions have been reflected at their exchange amount.

      As at September 30, 2006, included in accounts payable and accrued liabilities are amounts due to ATS in the amount of $1,609 (March 31, 2006 — $192). These amounts are payable on demand and do not bear interest, other than as noted below.

      The amount payable to ATS included in the Company’s balance sheet under net investment represents a net balance as the result of various transactions between the Company and its Parent. There are no terms of settlement or interest charges associated with the account balance other than described below. The Company’s surplus funds are transferred to ATS, and the Company’s financing requirements are funded by ATS. At September 30, 2006, two intercompany amounts were outstanding in the amounts of Euro 8,402 ($10,637), and $52,854 CDN ($47,288) on which interest of Euro LIBOR rate plus 1.25% and Canadian dollar prime rate is charged, respectively. Both amounts have been included in ATS’s net investment in the Company.

      On completion of the IPO, the Company will repay ATS for amounts funded by ATS during fiscal 2007 up to the date of closing. As at September 30, 2006, the amount funded by ATS during fiscal 2007 to be repaid was $20,112. This amount is included as due to parent on the Combined Balance Sheets.

      Other transactions include intercompany purchases and sales and miscellaneous other administrative expenses incurred by the Parent on behalf of the Company.

      An analysis of transactions in the intercompany account for the six months ended September 30, 2006 and September 30, 2005 follows:

	2005			2006
Balance at beginning of period	$	1,313		$	192
Net cash funded by Parent		(6,121	)		(2,139	)
Net intercompany purchases		4,321			1,121
Other administrative expenses		759			2,435
Balance at end of period	$	272		$	1,609
Average balance during the period	$	793		$	901

F-11

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

13.  COMMITMENTS:

      As at September 30, 2006, the Company had issued purchase commitments of $16,419 for production equipment. In May 2006, the Company announced the capacity expansion plan for Photowatt International for the facility near Lyon, France at an expected cost of Euro 26,500.

      During the six months ended September 30, 2006, the Company issued purchase orders, including purchase orders to acquire approximately $8,000 of refined metallurgical silicon which will be delivered through to fiscal 2008.

      In September 2006, the Company entered into an agreement with three other partners for a project whose primary objective is to develop a commercial process for the production of solar grade silicon derived from metallurgical silicon with a capacity of 200 tonnes per year. Pursuant to the agreement, the Company’s role in the project is to contribute certain expertise and non-financial resources in order to improve and enhance the silicon material developed during the project’s development phase. Under the contract, the Company is to be supplied, at predetermined prices, with at least 80% of the volume of solar grade silicon or ingots produced by the project through to April 20, 2008. The Company expects initial shipments from the project to commence in April 2007, however given that the plant is currently under construction and production has not yet begun, the ultimate timing of the delivery will be dependent on the start date of production.

14.  SEGMENTED DISCLOSURE:

      The Company evaluates performance based on two reportable segments. The Photowatt International segment consists of Photowatt International S.A.S. in France and the module assembly business of Photowatt USA. Photowatt International designs, manufactures and sells modules and installation kits, and provides solar power design and other value-added services. The Spheral Solar segment is developing a technology for light weight, flexible crystalline solar modules.

      Intersegment revenues are accounted for at current market rates, negotiated between the segments.

	Six months ended September 30, 2006
	Photowatt		Spheral
	International		Solar			Combined
Revenue	$	65,993	$	2,298		$	68,291
Inter-segment revenue		—		(2,298	)		(2,298	)
Total Company revenue	$	65,993	$	—		$	65,993
Earnings (loss) from operations	$	9,857	$	(6,421	)	$	3,436
Inter-segment eliminations							(1,066	)
Corporate costs							(1,468	)
Total Company earnings from operations						$	902
Total Company assets	$	107,443	$	14,369		$	121,812

F-12

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

	Six months ended September 30, 2005
	Photowatt		Spheral
	International		Solar		Combined
Total Company revenue	$	56,878	$	—	$	56,878
Earnings from operations	$	7,872	$	81	$	7,953
Corporate costs						(248	)
Total Company earnings from operations					$	7,705
Total Company assets	$	68,092	$	110,052	$	178,144

      Total net foreign exchange losses recognized for the six months ended September 30, 2006 were $237 (September 30, 2005 — $7) and are included in selling and administrative expenses on the Combined Statements of Earnings (Loss).

15.  SUBSEQUENT EVENTS:

      In August 2006, the Board of Directors approved the issuance of a preliminary prospectus in connection with the Company’s initial public offering (the “IPO”) in the United States and Canada. Upon the closing of the IPO, certain of ATS’ solar business interests will be transferred to the Company.

      In October 2006, the Company entered into a 10-year irrevocable commitment to purchase approximately 4,000,000 silicon wafers per annum commencing in 2009. Advance payments are required which will be applied against the price of silicon wafers that will be received during the life of the commitment and can only be refunded in the event of the supplier’s failure to deliver polysilicon wafers in accordance with the agreement. Commencing in 2009, the price of the silicon wafers will be adjusted at the beginning of each calendar year based on an agreed-upon formula.

      In November 2006, the Company increased one of its available credit facilities from Euro 800 to Euro 8,000. This increased facility is available until April 1, 2007 at which time it will decrease to Euro 800. Other terms of this credit facility have not changed from those described in note 8.

16.  UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

      The combined financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in Canada (“Canadian GAAP”) as discussed in note 2.

F-13

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

The Company’s accounting policies reflected in these combined financial statements do not materially differ from United States Generally Accepted Accounting Principles (“U.S. GAAP”) except for:

Combined Group Equity

		March 31,			September 30,
		2006			2006
Total accumulated comprehensive income under Canadian GAAP		$	—		$	—
Adjustments:
Foreign currency translation related to U.S. GAAP adjustments (a,b,c,d)			(2,792	)		(2,792	)
Foreign currency translation adjustment(d)			458			(3,558	)
Total accumulated comprehensive loss under U.S. GAAP		$	(2,334	)	$	(6,350	)
Total net investment under Canadian GAAP		$	75,310		$	76,705
Adjustments:
	Deferred development(a)		2,647			2,789
Total net investment under U.S. GAAP		$	77,957		$	79,494
Total group equity		$	75,623		$	73,144

Combined Statements of Earnings (Loss)

For the Six Months Ended September 30,		2005			2006
Net earnings (loss) under Canadian GAAP		$	4,451		$	(4,348	)
Adjustments:
	Deferred development(a)		(11,553	)		142
	Amortization of intangible assets(b)		(40	)		—
Net loss under U.S. GAAP		$	(7,142	)	$	(4,206	)
Other comprehensive loss:
	Foreign currency translation adjustment(d)		(3,440	)		(4,016	)
Comprehensive loss under U.S. GAAP		$	(10,582	)	$	(8,222	)

      (a) Research and development costs: Under Canadian GAAP, the Company has deferred development costs which have met generally accepted criteria for deferral. Under U.S. GAAP, Statement of Financial Standards No. 2, “Accounting for Research and Development Costs”, the Company is required to charge all development costs to expense as incurred.

      (b) Amortization of intangible assets: Under Canadian GAAP, the Company has deferred amortization of the cost of acquired patents until the technology related to such patents is put into use. Under US GAAP, the Company is required to amortize such costs from the date of acquisition. As the intangible assets were written off at March 31, 2006 for both U.S. and Canadian GAAP purposes, there is no GAAP difference in the period ended September 30, 2006.

      (c) Stock-based compensation: The Company prospectively adopted the Canadian GAAP requirements related to stock-based compensation for all options granted to employees on or after April 1, 2003.

      Under U.S. GAAP, in the first quarter of fiscal 2007, the Company was required to adopt the provisions of amended Statement of Financial Standards No. 123, “Accounting for Stock-Based Compensation”, (“SFAS 123R”). SFAS 123R requires all companies to use a fair value based method of accounting for stock-based compensation. The Company is using the modified prospective transition (“MPT”) method to record stock compensation. Stock compensation expense calculated using the MPT method is recognized on a prospective basis in the combined financial statements over the estimated service life. As a result of adoption

F-14

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

of SFAS 123R, the Company’s net income was $23 lower than if the Company had continued to account for share-based payments under Accounting Principles Board Opinion 25 for the six months ended September 30, 2006.

      For the six months ended September 30, 2005, the Company’s proforma net income adjusted for 50,000 stock options granted by ATS to an employee as disclosed in note 9, using the Black-Scholes option pricing model to determine fair value, resulted in pro forma stock compensation expense of $13 and pro forma net loss of $7,155.

      The fair value of options granted during the six months ended September 30, 2005 was calculated using the Black-Scholes option pricing model with the following assumptions:

Weighted average Black-Scholes value of options		$	4.10
Assumptions:
	Risk free interest		3.2	%
	Expected life in years		5.0
	Expected dividend yield		0.0	%
	Volatility		31.0	%

      The risk free interest rate utilized during the life of the stock option is based on a Canadian government security for an equivalent period. Expected volatility is based on historical volatility of ATS. Historical data is used to estimate the expected term.

      (d) Comprehensive income: Under U.S. GAAP, Statement of Financial Standards No. 130, “Reporting Comprehensive Income”, establishes standards for the reporting and display of comprehensive income and its components in general-purpose financial statements. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The only reportable item of comprehensive income is the translation adjustments on the conversion of self-sustaining entities included in these combined financial statements that have a functional currency other than the reporting currency of the United States dollar.

      (e) Investment tax credits: Under Canadian GAAP, investment tax credits are accounted for as a reduction in the cost of the related asset or expense. Under U.S. GAAP, Accounting Principle Board Opinion No. 2, “Accounting for the Investment Tax Credit”, permits the company to recognize the full tax credit against the tax provision in the year the credit arises. As the Company does not believe there is reasonable assurance that the credits will be realized, no benefits have been recognized under U.S. or Canadian GAAP.

      (f) Recently issued pronouncements:

Canadian GAAP Standards:

      In January 2005, the CICA approved Handbook Sections 1530, “Comprehensive Income”, 3855, “Financial Instruments — Recognition and Measurement” and 3865, “Hedges”. The new standards are intended to harmonize Canadian GAAP with U.S. GAAP. The new standards will be effective for the first quarter of fiscal 2008. The Company is currently evaluating the impact of adoption on the combined financial statements.

United States GAAP Standards:

      In June, 2006 the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial

F-15

Photowatt Technologies Inc.

NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS — (Continued)

statements in accordance with FASB Statement 109. The interpretation is effective for fiscal years beginning after December 15, 2006, with earlier adoption encouraged. The Company is currently evaluating the impact of adoption on the 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. The standard is effective for fiscal years beginning after June 15, 2005. The adoption of the standard did not have a significant impact on the combined financial statements.

      In September 2006, the FASB issued Statement of Financial Standard No. 157, “Fair Value Measurement” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The statement also expands disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurement on earnings. The Statement is effective for fiscal years beginning on or after January 1, 2008. The Company is currently evaluating the impact of adoption on the combined financial statements.

F-16

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 the standards of the Public Company Accounting Oversight Board (United States). 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.

/s/ KPMG LLP

Waterloo, Canada

July 31, 2006, except as to notes 10 and 19 which are as of December 8, 2006

F-17

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
Total liabilities			22,666		27,489
Group equity:
	Net investment (note 16)		138,261		75,310
	Cumulative translation adjustment (note 11)		3,640		458
			141,901		75,768
Total liabilities and group equity		$	164,567	$	103,257
Commitments (note 13)
Subsequent event (note 19)

See accompanying notes to combined financial statements.

F-18

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	$	120,921
Operating costs and expenses:
	Cost of revenue		52,859			89,930		88,998
	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		212,025
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			2,235			10,544		(92,770	)
Provision for income taxes (note 12)			1,130			3,761		5,610
Net earnings (loss)		$	1,105		$	6,783	$	(98,380	)

See accompanying notes to combined financial statements.

F-19

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	$	65,197	$	108,352	$	138,261
Net earnings (loss)		1,105		6,783		(98,380	)
Net contribution by ATS Automation Tooling Systems Inc.		42,050		23,126		35,429
Net investment, end of year (note 16)	$	108,352	$	138,261	$	75,310

See accompanying notes to combined financial statements.

F-20

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)		$	1,105		$	6,783		$	(98,380	)
	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		236			14			406
Change in non-cash operating working capital:
	Accounts receivable			(10,788	)		(3,437	)		738
	Inventories			2,804			(2,617	)		(9,397	)
	Prepaid expenses			18			(69	)		(334	)
	Accounts payable and accrued liabilities			9,935			2,963			1,408
	Income taxes payable			235			(60	)		3,576
Cash flows provided by operating activities				8,986			12,583			3,471
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)			36,336			14,304			34,133
Cash flows provided by financing activities				42,050			27,151			37,571
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.

F-21

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. References to “ATS” or the “Parent” refer to ATS Automation Tooling Systems Inc. and, where applicable, its subsidiaries. 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 the net operating assets of Matrix Solar Technologies, Inc. (“Photowatt USA”), 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. 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. Certain comparative balances have been reclassified on a carve-out basis.

      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.

      A portion of ATS’ corporate selling and administrative expenses have been allocated to the Company, based on management’s estimates of expenses attributable to the Company. Shared services provided include strategic, operational, human resources, accounting, information systems, facility, legal, taxation and treasury services. 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 group of entities. 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.

      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.

F-22

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

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 currencies of Photowatt International S.A.S., Spheral Solar Power Inc. and Photowatt USA 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.

F-23

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 estimated 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.

F-24

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 disclosure for those awards granted between April 1, 2002 and March 31, 2003. Pro forma disclosures present net earnings as if the compensation cost for the Company’s 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 the control of the Company. 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).

      (o) Asset retirement obligations: Liabilities related to legal obligations associated with the retirement of tangible long-lived assets are initially measured at fair value and subsequently adjusted for the passage of time and any changes in the underlying cash flows. The asset retirement cost is capitalized to the related asset and amortized into earnings over time.

      (p) Use of estimates: The preparation of these combined financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates and assumptions are used when accounting for items such as impairment of long-lived assets, recoverability of deferred development costs, income taxes, valuation of future income tax assets, determination of estimated useful lives of intangible

F-25

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

assets and property, plant and equipment, inventory provisions, warranty reserves, revenue recognition, contingent liabilities, and allowances for doubtful accounts.

4. FINANCIAL INSTRUMENTS:

      Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company provides credit terms to its customers and generally requires no collateral.

      At March 31, 2006, two customers accounted for approximately 30.7% of the combined balance of accounts receivable (2005 — 41.1%). The allowance for doubtful accounts balance at March 31, 2006 was $183 (March 31, 2005 — $146). The provision for bad debt expense for the year ended March 31, 2006 was $29 (2005  — $63, 2004 — $8).

      The carrying amounts reported in the Combined Balance Sheets for cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their fair values, due to the short-term nature of those instruments.

      Total net foreign exchange gains (losses) recognized in the year ended March 31, 2006 were $91 (2005 — $613, 2004 — ($140)) and are included in selling and administrative expenses on the Combined Statements of Earnings (Loss).

5. INVENTORIES:

At March 31		2005		2006
Inventories are summarized as follows:
	Raw materials	$	14,699	$	19,275
	Work-in-process		6,204		8,038
	Finished goods available for sale		4,378		6,128
		$	25,281	$	33,441

      Raw materials inventory includes supply inventories of $3,201 (2005 — $1,654) which are consumed in the production process. The provision for excess and obsolete inventory was $606 at March 31, 2006 (2005 — $509).

6. PROPERTY, PLANT AND EQUIPMENT:

			Accumulated			Net Book
At March 31, 2006	Cost		Amortization			Value
Land and land improvements	$	355	$	—		$	355
Buildings		1,008		(989	)		19
Production equipment		66,047		(24,434	)		41,613
Other equipment and furniture		1,300		(482	)		818
	$	68,710	$	(25,905	)	$	42,805

F-26

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

			Accumulated			Net Book
At March 31, 2005	Cost		Amortization			Value
Land and land improvements	$	378	$	—		$	378
Buildings		1,054		(974	)		80
Production equipment		101,332		(25,432	)		75,900
Other equipment and furniture		2,643		(374	)		2,269
	$	105,407	$	(26,780	)	$	78,627

      During the year ended March 31, 2006, the Company recorded an impairment charge on property, plant and equipment of $51,881 (note 15).

      At March 31, 2005, $47,060 of property, plant and equipment was not amortized as it was not in service. During the year ended March 31, 2006, the Company recorded amortization of property, plant and equipment of $9,472 (2005 — $5,293, 2004 — $4,415).

7. INTANGIBLE ASSETS:

      During the year ended March 31, 2006, the Company recorded a full impairment charge on intangible assets of $1,432 (note 15).

      The intangible assets were not amortized prior to October 1, 2005, when the Company was in the development stage of its Spheral Solar initiative. Subsequent to September 30, 2005, amortization began on the intangible assets on a straight-line basis over their estimated remaining useful lives. Amortization recorded on these assets was $76 in fiscal 2006.

8. DEFERRED DEVELOPMENT COSTS:

At March 31	2005		2006
Deferred development costs — Spheral Solar Power	$	31,001	$	—
Deferred development costs — other programs		21		123
	$	31,022	$	123

      During the year ended March 31, 2006, the Company deferred $10,671 of net development costs (2005 — $17,657, 2004 — $6,242). Amortization of deferred development costs was $132 (2005 — $127, 2004 — $51).

      During the year ended March 31, 2006, the Company recorded an impairment charge on deferred development costs of $40,977 (note 15).

9. OTHER ASSETS:

      Other assets are comprised of a $2,531 Technology Partnerships Canada (“TPC”) holdback receivable in regards to funding contributions toward the Company’s development of a new photovoltaic energy technology.

10. STOCK-BASED COMPENSATION PLANS:

      Since 1997, Matrix Solar Technologies, Inc., a company whose operating assets are included in these combined financial statements, has granted stock options to certain of its employees and employees of its affiliates. The holders of 195 of these options have the right to require Matrix Solar Technologies, Inc. to settle the value of the vested portion of the shares under option in cash based on a formula linked to the net book value of Matrix Solar Technologies, Inc. A liability has been recognized for the vested portion of the

F-27

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

cash settlement value. The amount of the recognized liability of March 31, 2006 was $153 (2005 — $153, 2004 — $126). The changes in this liability have been charged to compensation expense. In October 2006, these options were terminated in exchange for a cash payment of $410.

      During 2006, ATS issued 50,000 stock options on its common shares to an employee of the Company. The Company recognized compensation expense based on the fair value over the vesting period of these options. Compensation expense of $35 was recorded in 2006 (2005 — nil, 2004 — nil). These options were surrendered for cancellation in October 2006.

      The fair value of options granted during the year was calculated using the Black-Scholes option pricing model with the following assumptions related to underlying ATS shares:

		2006
Weighted average Black-Scholes value of options		$	4.10
Assumptions:
	Risk free interest rate		3.2	%
	Expected life in years		5.0
	Expected dividend yield		0.0	%
	Volatility		31.0	%

11. CUMULATIVE TRANSLATION ADJUSTMENT:

      The cumulative translation adjustment balance reflects unrealized translation adjustments arising on the translation of foreign currency denominated assets and liabilities of self-sustaining foreign operations. These translation adjustments are realized in earnings when there is a reduction in the Company’s investment in the respective foreign operation. The decrease in the cumulative translation adjustment during the current year resulted primarily from the weakening of the Euro against the United States dollar.

F-28

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

12. INCOME TAXES

      (i) Reconciliation of income taxes: Income tax expense differs from the amounts which would be obtained by applying the combined Canadian basic federal and provincial income tax rate to earnings (loss) before income taxes. These differences result from the following items:

Years Ended March 31			2004			2005			2006
Earnings (loss) before provision for income taxes
		Canadian	$	(415	)	$	(401	)	$	(111,522	)
		Foreign		2,650			10,945			18,752
Earnings (loss) before provision for income taxes			$	2,235		$	10,544		$	(92,770	)
Combined Canadian basic federal and provincial income tax rate				36.50	%		36.12	%		36.12	%
Income taxes based on combined Canadian basic federal and provincial income tax rate			$	816		$	3,808		$	(33,509	)
Increase (decrease) in income taxes resulting from:
Increase in valuation allowance				86			122			38,652
Manufacturing and processing allowance				14			11			896
Income of foreign subsidiaries taxed at different rates				(126	)		(324	)		(477	)
Other items				340			144			48
			$	1,130		$	3,761		$	5,610
Provision for income taxes:
	Current
		Canadian	$	138		$	128		$	6
		Foreign		17			47			4,120
	Future
		Canadian		—			—			—
		Foreign		975			3,586			1,484
			$	1,130		$	3,761		$	5,610

F-29

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      (ii) Components of future income tax assets and liabilities: Future income taxes are provided for temporary differences. Future income tax assets and liabilities are comprised of the following:

Years Ended March 31		2005		2006
Future income tax assets:
	Loss carryforwards	$	12,255	$	23,017
	Property, plant and equipment		—		11,498
	Expenditures not yet deducted for tax		3,371		5,065
	Other		150		—
			15,776		39,580
Less valuation allowance			928		39,580
Future income tax assets, net		$	14,848	$	—
Future income tax liabilities:
	Property, plant and equipment	$	4,611	$	—
	Deferred development costs		9,257		—
	Other		28		584
Future income tax liabilities		$	13,896	$	584
Net future income tax asset (liability)		$	952	$	(584	)

      The Company determined that it was not more likely than not that it will realize on its future income tax assets relating to Spheral Solar, Photowatt USA and Spheral Solar Power Inc. Accordingly, a valuation allowance of $39,580 as at March 31, 2006 (2005 — $928) was established.

      (iii) Loss carryforwards: As at March 31, 2006, the Company has the following net operating loss carryforwards which are not recognized for accounting purposes and are scheduled to expire in the following years:

	Non-Canadian		Canadian
2010	$	—	$	22
2011		—		6,104
2015		—		26,069
2017		201		—
2019		93		—
2021		1,418		—
2022		53		—
2023		430		—
2024		154		—
2025		228		—
2026		265		29,250
	$	2,842	$	61,445

      (iv) Investment Tax Credits: At March 31, 2006, the Company had Canadian and provincial investment tax credits of $4,898 (2005 — $3,260), which expire in 2010 through 2026. The Company has determined that it does not have reasonable assurance of realization in respect to these investment tax credits. Accordingly no asset has been recognized.

F-30

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      (v) Completion of Arrangement: Following the completion of the proposed transaction described in notes 1 and 19, none of the benefit of Canadian and United States tax loss carryforwards, Canadian tax credits or related valuation allowance will remain with the Company or any of its successors.

      (vi) Other: Cash paid for income taxes was $183 for the year ended March 31, 2006 (2005 — $154, 2004 — $90) and cash paid relating to interest charges was $683 for the year ended March 31, 2006 (2005 — $125, 2004 — $67).

13. COMMITMENTS:

      The minimum operating lease payments related primarily to facilities and equipment in each of the next five years are as follows:

Year	Amount
2007	$	771
2008		749
2009		599
2010		450
2011		526

      During the year ended March 31, 2006, the Company incurred rental expense of $620 (2005 — $523, 2004 — $401). As at March 31, 2006, the Company had issued purchase commitments of $9,163 for production equipment and services.

      Subsequent to year-end, the Company issued purchase orders to acquire approximately $8,000 of refined metallurgical silicon which will be delivered through to fiscal 2008. In May 2006, the Company announced the capacity expansion plan for Photowatt International for the facility near Lyon, France, at an expected cost of €26,500.

14. GOVERNMENT ASSISTANCE:

      During the year ended March 31, 2003, the Company entered into an agreement with TPC which provides funding of up to $25,257 (C$29,500) as a contribution towards the Company’s development of a new photovoltaic energy technology, Spheral Solar technology. As at March 31, 2006, total TPC funding of $25,257 (2005 — $24,142) has been applied to reduce the deferred development expenses and capital expenditures incurred related to Spheral Solar technology, of which $2,997 remains receivable (2005 — $4,814) including the current portion of $466 which is included in accounts receivable. Cumulative funding of $8,803 and $16,454 has been applied to deferred development expenditures and property, plant and equipment, respectively.

      As consideration for the TPC funding, the Company is required to pay royalties of 1.8% on our future revenues resulting from the sale, licensing or other transfer of Spheral Solar products and related services. These royalties commence in the first year that such future annual revenues exceed $17,100 (C$20,000) and continue for a total of 10 years. If the cumulative royalties exceed $72,340 (C$84,493) 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 $72,340 (C$84,493), the royalty payment term is extended for the lesser of a further five years or once cumulative royalties of $72,340 (C$84,493) have been reached. The Company has not recorded any liability amounts with respect to the TPC funding since the conditions for royalty payments have not yet been met.

F-31

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      During the year ended March 31, 2006 the Company applied $1,311 of other sources of government funding against deferred development expenses and research and development expenses (2005 — $830, 2004 — $515) with respect to Photowatt International S.A.S. of which $873 remains receivable at March 31, 2006 (2005 — $791).

15. ASSET IMPAIRMENT CHARGE:

      The Company regularly reviews the net recoverable amount of its deferred development costs and long-lived assets. As a result of this review, in the year ended March 31, 2006, deferred development costs in the Spheral Solar segment were written-down by $40,977, property, plant and equipment was written-down by $51,881, and intangible assets were written-down by $1,432, for a total impairment expense of $94,290. The impairment resulted due to uncertainty and delays in realizing cash flows from the investment in the Spheral Solar technology. Fair value was determined based on estimated discounted cash flows.

16. NET INVESTMENT:

      The net investment account comprises:

	Photowatt			Spheral
	International			Solar			Photowatt			Spheral
	S.A.S.			Power Inc.			USA			Solar			Other			Total
Share capital		19,066			—			—			—			—			19,066
ATS net investment		35,454			31			5,052			13,950			—			54,487
Retained earnings		(7,201	)		—			(1,155	)		—			—			(8,356	)
Net investment, April 1, 2003		47,319			31			3,897			13,950			—			65,197
Net earnings (loss) for the year ended March 31, 2004		2,245			(56	)		(669	)		—			(415	)		1,105
Additional investment by ATS		2,746			(31	)		(150	)		39,070			415			42,050
Net investment, March 31, 2004		52,310			(56	)		3,078			53,020			—			108,352
Net earnings (loss) for the year ended March 31, 2005		7,415			(24	)		(294	)		275			(589	)		6,783
Additional investment by ATS		(2,915	)		(90	)		1,928			23,614			589			23,126
Net investment, March 31, 2005		56,810			(170	)		4,712			76,909			—			138,261
Net earnings (loss) for the year ended March 31, 2006		10,859			(5,289	)		(148	)		(103,085	)		(717	)		(98,380	)
Additional investment by ATS		(6,609	)		90			3,702			37,529			717			35,429
Net investment, March 31, 2006		61,060			(5,369	)		8,266			11,353			—			75,310

      Other includes a portion of ATS’ shared selling and administrative expenses that have been allocated to the Company (note 2 and 17).

F-32

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

17. RELATED PARTY TRANSACTIONS:

	2004		2005		2006
Transactions
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 services — ATS		1,482		213		292
Shared corporate costs — ATS		415		589		717
Interest expense — ATS		—		—		1,686
Sale of product — other related party		—		61		150

      As noted in note 2, ATS provides strategic, operational and administrative services to the Company. Furthermore, the Company purchases property, plant and equipment, development services, raw materials and other services from affiliated companies. “Sale of product” pertains to sales to EPISOL s.a.r.l., a company controlled by a consultant who serves as our managing director, Europe (acting) of Photowatt International S.A.S. These transactions have been reflected at their exchange amount.

      As at March 31, 2006, included in accounts payable and accrued liabilities are amounts due to ATS in the amount of $192 (2005 — $1,313). These amounts are payable on demand and do not bear interest, other than as noted below.

      The amount payable to ATS included in the Company’s Combined Balance Sheets under net investment represents a net balance as the result of various transactions between the Company and its Parent. There are no terms of settlement or interest charges associated with the account balance other than described below. The Company’s surplus funds are transferred to ATS, and the Company’s financing requirements are funded by ATS. At March 31, 2006, two intercompany amounts were outstanding in the amounts of Euro 25,043 ($30,381 USD), and C$45,975 ($39,362 USD) on which interest of Euro LIBOR rate plus 1.25% and Canadian dollar prime rate is charged, respectively. Both amounts have been included in ATS’ net investment in the Company. Other transactions include intercompany purchases and sales and miscellaneous other administrative expenses incurred by the Parent on behalf of the Company.

      An analysis of transactions in the intercompany account for each of the three years in the period ended March 31, 2006 follows:

	2004			2005			2006
Balance at beginning of year	$	384		$	2,230		$	1,313
Net cash funded by Parent		(19,419	)		(20,740	)		(9,884	)
Net intercompany purchases		20,850			19,234			6,360
Other administrative expenses		415			589			2,403
Balance at end of year	$	2,230		$	1,313		$	192
Average balance during the year	$	1,307		$	1,772		$	753

18. SEGMENTED DISCLOSURE:

      The Company evaluates performance based on two reportable segments. The Photowatt International segment consists of Photowatt International S.A.S. in France and the module assembly business of Photowatt USA, Photowatt International, our core business that is based on a wafer technology, designs, manufactures and sells solar modules and installation kits, and provides solar power design and other value-added services. The Spheral Solar segment is a development project that is based on a spheral technology using thousands of tiny silicon spheres instead of silicon wafers.

F-33

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

	2006
	Photowatt		Spheral
	International		Solar			Combined
Total Company revenue	$	120,921	$	—		$	120,921
Earnings (loss) from operations	$	19,780	$	(109,841	)	$	(90,061	)
Corporate costs						$	(1,043	)
Total Company loss from operations						$	(91,104	)
Total Company assets	$	91,929	$	11,328		$	103,257
Total Company goodwill	$	1,705	$	—		$	1,705
Total Company acquisition of property, plant and equipment	$	16,080	$	10,351		$	26,431
Total Company amortization from operations	$	6,252	$	3,428		$	9,680

	2005
	Photowatt		Spheral
	International		Solar		Combined
Total Company revenue	$	113,019	$	—	$	113,019
Earnings from operations	$	10,948	$	188	$	11,136
Corporate costs					$	(589	)
Total Company earnings from operations					$	10,547
Total Company assets	$	77,691	$	86,876	$	164,567
Total Company goodwill	$	1,705	$	—	$	1,705
Total Company acquisition of property, plant and equipment	$	10,625	$	16,124	$	26,749
Total Company amortization from operations	$	5,420	$	—	$	5,420

	2004
	Photowatt		Spheral
	International		Solar		Combined
Total Company revenue	$	65,855	$	—	$	65,855
Earnings from operations	$	2,586	$	—	$	2,586
Corporate costs						(415	)
Total Company earnings from operations					$	2,171
Total Company acquisition of property, plant and equipment	$	5,565	$	34,630	$	40,195
Total Company amortization from operations	$	4,466	$	—	$	4,466

F-34

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

	2004		2005				2006
					Total Long-				Total Long-
	Revenue		Revenue		Lived Assets		Revenue		Lived Assets
Europe	$	59,807	$	105,406	$	30,088	$	97,507	$	38,222
United States		4,415		5,360		2,409		16,504		2,121
Canada		750		150		49,284		23		4,167
Other		883		2,103		—		6,887		—
Total Company	$	65,855	$	113,019	$	81,781	$	120,921	$	44,510

      Geographic segmentation of revenue is determined based on the customer’s installation site. Long-lived assets represent property, plant and equipment, goodwill and intangible assets that are attributable to individual geographic segments, based on location of the respective operations.

      During the year ended March 31, 2006, the Photowatt International segment had revenue from three customers which amounted to 17.8%, 16.5% and 11.2% of Company revenue (2005 — two customers comprised 30.1% and 24.7%, 2004 — two customers comprised 23.6% and 17.6%).

19. SUBSEQUENT EVENT:

      In August 2006, the Board of Directors approved the issuance of a preliminary prospectus in connection with the Company’s initial public offering (the “IPO”) in the United States and Canada. Upon the closing of the IPO, certain of ATS’ solar business interests will be transferred to the Company.

      In September 2006, the Company approved the grant of options to two executive officers of the Company to purchase, in aggregate, 302,860 of the Company’s common shares at an exercise price of C$5.00 per share. The aggregate number of common shares underlying each of these options is subject to an automatic adjustment that will increase or decrease the number such that it is equal to 0.6883% of the common shares in the Company held by ATS immediately prior to the closing of the IPO.

      The option to purchase 160,000 common shares granted to one executive vests as to 20% on the completion of the IPO and 20% on each anniversary date of the completion of the IPO. The option to purchase 142,860 common shares granted to the second executive vests as to 20% on each anniversary date of the completion of the IPO.

      In addition to the above mentioned grants, the two executives are eligible to receive a cash payment upon any exercise of these options if the number of shares underlying these options exceeds 302,860 after the adjustment described above.

      In the event that a change of control occurs and the employment of the option holder is terminated or they resign, in either case within three months from the date of such change of control, the options granted to the two executive officers will accelerate and become fully vested.

      Furthermore, the Company has approved the grants to certain directors, officers, employees and other key personnel of the Company, including one of the executives referred to above, of options to purchase an aggregate of 850,420 common shares exercisable at the public offering price at the closing of the IPO. Included in the 850,420 above are options to purchase 287,710 common shares that vest on the achievement of specific defined performance objectives related to the development of Spheral Solar and options to purchase 562,710 common shares that vest as to 20% on each anniversary date of the completion of the IPO. As these options vest only upon the completion of the IPO, no stock compensation expense will be recognized until completion of the IPO. At the time of the IPO, the Company will measure the fair value of these stock options as the exercise price will be known.

F-35

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      In September 2006, the Company entered into an agreement with three other partners for a project whose primary objective is to develop a commercial process for the production of solar grade silicon derived from metallurgical silicon with a capacity of 200 tonnes per year. Pursuant to the agreement, the Company’s role in the project is to contribute certain expertise and non-financial resources in order to improve and enhance the silicon material developed during the project’s development phase. Under the contract, the Company is to be supplied, at predetermined prices, with at least 80% of the volume of solar grade silicon or ingots produced by the project through to April 20, 2008.

      In October 2006, the Company entered into a 10-year irrevocable commitment to purchase approximately 4,000,000 polysilicon wafers per annum commencing in calendar 2009. Advance payments are required which will be applied against the price of polysilicon wafers that will be received during the life of the commitment and can only be refunded in the event of the supplier’s failure to deliver silicon wafers in accordance with the agreement. Commencing in 2009, the price of the polysilicon wafers will be adjusted at the beginning of each calendar year based on the agreed upon formula.

      Subsequent to March 31, 2006, the Company drew upon its available credit facilities of Euro 1,000 and Euro 8,000. These credit facilities bear interest at the French four month prime rate plus 1.05% and the Euro LIBOR rate plus 0.50%, respectively. Effective April 1, 2007, the Euro 8,000 facility will decrease to Euro 800.

20.  UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

      The Combined Financial Statements of the Company have been prepared in accordance with the accounting principles generally accepted in Canada (“Canadian GAAP”). The Company’s accounting policies reflected in these Combined Financial Statements do not materially differ from United States generally accepted accounting principles (“U.S. GAAP”) except for:

Combined Group Equity

		2004			2005			2006
Total accumulated comprehensive income under Canadian GAAP		$	—		$	—		$	—
Adjustments:
Foreign currency translation related to U.S. GAAP adjustments(a),(b),(d)			(1,060	)		(2,967	)		(2,792	)
Foreign currency translation adjustment(d)			2,841			3,640			458
Total accumulated comprehensive income (loss) under U.S. GAAP		$	1,781		$	673		$	(2,334	)
Total net investment under Canadian GAAP		$	108,352		$	138,261		$	75,310
Adjustments:
	Deferred development(a)		(10,671	)		(28,062	)		2,647
	Amortization of intangible assets(b)		(559	)		(691	)		—
Total net investment under U.S. GAAP		$	97,122		$	109,508		$	77,957
Total group equity		$	98,903		$	110,181		$	75,623

F-36

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

Combined Statements of Earnings (Loss)

		2004			2005			2006
Net earnings (loss) under Canadian GAAP		$	1,105		$	6,783		$	(98,380	)
Adjustments:
	Deferred development(a)		(6,180	)		(17,441	)		30,697
	Amortization of intangible assets(b)		(78	)		(82	)		—
	Intangible asset impairment charge(b)		—			—			704
	Stock-based compensation(c)		—			—			35
Net loss under U.S. GAAP			(5,153	)		(10,740	)		(66,944	)
Other comprehensive income (loss):
	Foreign currency translation adjustment(d)		1,532			(1,108	)		(3,007	)
Comprehensive income under U.S. GAAP		$	(3,621	)	$	(11,848	)	$	(69,951	)

      (a) Research and development costs: Under Canadian GAAP, the Company has deferred development costs which have met generally accepted criteria for deferral. Under U.S. GAAP, Statement of Financial Standards No. 2, “Accounting for Research and Development Costs,” the Company is required to charge all development costs to expense as incurred.

      (b) Amortization of intangible assets and intangible asset impairment charge: Under Canadian GAAP, the Company has deferred amortization of the cost of acquired patents until the technology related to such patents is put into use. Under U.S. GAAP, the Company is required to amortize such costs from the date of acquisition, which reduced the carrying value of the asset subject to the asset impairment charge at March 31, 2006.

      (c) Stock-based compensation: The Company prospectively adopted the Canadian GAAP requirements related to stock-based compensation for all options granted to employees on or after April 1, 2003.

      Under U.S. GAAP, Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees,” for any stock option with an exercise price that is less than the market price on the date of grant, the difference between the exercise price and the market price on the date of grant is recorded as compensation expense (“intrinsic value based method”). The Company grants stock options at the fair market value of the shares, consequently no compensation expense is recognized under U.S. GAAP.

      Statement of Financial Standards No. 123, “Accounting for Stock-Based Compensation,” requires pro forma disclosures of net income as if the fair value based method as opposed to the intrinsic value based method of accounting for stock options had been applied. The disclosures in the following table show the Company’s net income on a pro forma basis using the fair value method as determined by using the Black-Scholes option pricing model:

Years Ended March 31	2004			2005			2006
Net loss under U.S. GAAP	$	(5,153	)	$	(10,740	)	$	(66,944	)
Estimated stock-based compensation costs		—			—			(35	)
Pro forma net loss under U.S. GAAP	$	(5,153	)	$	(10,740	)	$	(66,979	)

F-37

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

      The fair value of options granted during year was calculated using the Black-Scholes option pricing model with the following assumptions:

		2006
Weighted average Black-Scholes value of options		$	4.10
Assumptions:
	Risk free interest rate		3.2	%
	Expected life in years		5.0
	Expected dividend yield		0.0	%
	Volatility		31.0	%

      (d) Comprehensive income: Under U.S. GAAP, Statement of Financial Standards No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in general-purpose financial statements. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The reportable item of comprehensive income is the translation adjustments on the conversion of self-sustaining entities included in these combined financial statements that have a functional currency other than the reporting currency of the United States dollar.

      (e) Investment tax credits: Under Canadian GAAP, investment tax credits are accounted for as a reduction in the cost of the related asset or expense. Under U.S. GAAP, Accounting Principle Board Opinion No. 2, “Accounting for the Investment Tax Credit,” permits the company to recognize the full tax credit against the tax provision in the year the credit arises. As the Company does not believe there is reasonable assurance that the credits will be realized, no benefits have been recognized.

      (f) Recently issued pronouncements:

Canadian GAAP Standards:

      In January 2005, the CICA approved Handbook Sections 1530, “Comprehensive Income,” 3855, “Financial Instruments — Recognition and Measurement” and 3865, “Hedges.” The new standards are intended to harmonize Canadian GAAP with U.S. GAAP. The new standards will be effective for the first quarter of fiscal 2008.

United States 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 our 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 financial statements over the estimated service life. The Company is currently evaluating the impact of adoption on the combined financial statements.

      In June, 2006 the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” 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. The Company is currently evaluating the impact of adoption on the 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

F-38

Photowatt Technologies Inc.

NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)

facility expense, freight and handling costs, and wasted materials should be recognized as current period charges. The standard is effective for fiscal years beginning after June 15, 2005.

      In September, 2006, the FASB issued Statement of Financial Standard No. 157, “Fair Value Measurement” (“SFAS 157”). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The Statement also expands disclosures about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurement on earnings. The Statement is effective for fiscal years beginning on or after January 1, 2008. The Company is currently evaluating the impact of adoption on the combined financial statements.

F-39

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 6. Indemnification of Directors and Officers

      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 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.

      Currently, there is no pending litigation or proceeding where a current or past director, officer or employee is seeking indemnification, nor are we aware of any threatened litigation that may result in claims for indemnification. We have purchased a liability insurance policy covering our directors and officers and the directors and officers of our subsidiaries against liability incurred by, arising from, or against them for certain of their acts, errors or omissions.

      The form of underwriting agreement to be filed herewith as Exhibit 1.1 is expected to contain provisions by which the underwriters agree to indemnify us, each person who controls us within the meaning of the U.S. Securities Act of 1933, as amended, and each of our officers and directors, with respect to information furnished by the underwriters for use in this Registration Statement.

      Reference is made to Item 9 for the undertakings of the Registrant with respect to indemnification for liabilities arising under the U.S. Securities Act of 1933.

Item 7. Recent Sales of Unregistered Securities

      The Registrant was incorporated on July 10, 2006 under the CBCA. In connection with its formation, the Registrant issued one common share for C$1 to ATS Automation Tooling Systems Inc., pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

II-1

Item 8. Exhibits and Financial Statement Schedules

(a) Exhibits

1	.1*	Form of Underwriting Agreement
3	.1**	Form of Articles of Incorporation of the Registrant to be adopted prior to the completion of this offering
3	.2**	Form of by-laws of the Registrant to be adopted prior to the completion of this offering
4	.1	Specimen certificate for common shares of the Registrant
4	.2	Shareholder Agreement
5	.1*	Opinion of Blake, Cassels & Graydon LLP as to the validity of the securities being offered
10	.1	Form of Master Separation Agreement
10	.2	Form of Master Supply Agreement
10	.3**	Form of Transitional Services Agreement
10	.4*	Registration Rights Agreement
10	.5**	Employment Agreement of Silvano Ghirardi
10	.6**	Employment Agreement of David L. Adams
10	.7**	Employment Agreement of Gary J. Seiter
10	.8**	Employment Agreement of Jean-Louis Dubien
10	.9	Stock Option Plan
10	.10	Directors’ Deferred Stock Unit Plan
10	.11	Executive Performance Share Unit Plan
10	.12	Short-term Incentive Plan
10	.13*	Transfer Agreements
10	.14*	Lease Agreement
10	.15**	Form of Indemnification Agreement
10	.16	Amendment to Employment Agreement of Silvano Ghirardi
21	.1*	Subsidiaries of the Registrant
23	.1*	Consent of Blake, Cassels & Graydon LLP (included in Exhibit 5.1 hereto)
23	.2	Consent of KPMG LLP
24	.1**	Powers of Attorney

*  To be filed by amendment to the registration statement.

**  Previously filed.

(b) Financial Statement Schedules

None

Item 9. Undertakings

      The undersigned registrant hereby undertakes that:

      (1) For purposes of determining any liability under the U.S. Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the U.S. Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

      (2) For the purpose of determining any liability under the U.S. Securities Act of 1933, each post effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-2

      (3) It will provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

      (4) For the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of this registration statement, other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in the registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

      (5) For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i)	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii)	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

      (6) Insofar as indemnification for liabilities arising under the U.S. Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the U.S. Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the U.S. Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-3

SIGNATURES

      Pursuant to the requirements of the U.S. Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this amendment no. 3 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Province of Ontario, on December 11, 2006.

PHOTOWATT TECHNOLOGIES INC.

By:	/s/ SILVANO GHIRARDI
	Name:	Silvano Ghirardi
	Title:	President and Chief Executive Officer and Director

II-4

      Pursuant to the requirements of the U.S. Securities Act of 1933, this amendment no. 3 to the registration statement has been signed by the following persons on December 11, 2006 in the capacities indicated.

	Name	Title
By:	* Silvano Ghirardi	President and Chief Executive Officer (principal executive officer) and Director
By:	* David L. Adams	Senior Vice President and Chief Financial Officer (principal financial and accounting officer)
By:	* Robert M. Franklin	Director — Chairman
By:	/s/ GERALD R. BEARD Gerald R. Beard	Director
By:	* Ronald J. Jutras	Director
By:	* Kirk Mandy	Director
By:	* Stewart McCuaig	Director
By:	* C. Ian Ross	Director
By:	* John W. Sheridan	Director
By:	* Wayne S. Hill	Director
*By:	/s/ SILVANO GHIRARDI Silvano Ghirardi Attorney-in-Fact

II-5

AUTHORIZED REPRESENTATIVE

      Pursuant to the requirements of Section 6(a) of the U.S. Securities Act of 1933, the undersigned has caused this amendment no. 3 to the registration statement to be signed solely in the capacity as the duly authorized representative of Photowatt Technologies Inc. in the United States, in the City of Cambridge, Province of Ontario on December 11, 2006.

Photowatt Technologies USA Inc.
(Authorized U.S. Representative)
By:	/s/ RONALD J. JUTRAS
	Name:	Ronald J. Jutras
	Title:	Chief Executive Officer and President

II-6

EXHIBIT INDEX

1	.1*	Form of Underwriting Agreement
3	.1**	Form of Articles of Incorporation of the Registrant to be adopted prior to the completion of this offering
3	.2**	Form of by-laws of the Registrant to be adopted prior to the completion of this offering
4	.1	Specimen certificate for common shares of the Registrant
4	.2	Shareholder Agreement
5	.1*	Opinion of Blake, Cassels & Graydon LLP as to the validity of the securities being offered
10	.1	Form of Master Separation Agreement
10	.2	Form of Master Supply Agreement
10	.3**	Form of Transitional Services Agreement
10	.4*	Registration Rights Agreement
10	.5**	Employment Agreement of Silvano Ghirardi
10	.6**	Employment Agreement of David L. Adams
10	.7**	Employment Agreement of Gary J. Seiter
10	.8**	Employment Agreement of Jean-Louis Dubien
10	.9	Stock Option Plan
10	.10	Directors’ Deferred Stock Unit Plan
10	.11	Executive Performance Share Unit Plan
10	.12	Short-term Incentive Plan
10	.13*	Transfer Agreements
10	.14*	Lease Agreement
10	.15**	Form of Indemnification Agreement
10	.16	Amendment to Employment Agreement of Silvano Ghirardi
21	.1*	Subsidiaries of the Registrant
23	.1*	Consent of Blake, Cassels & Graydon LLP (included in Exhibit 5.1 hereto)
23	.2	Consent of KPMG LLP
24	.1**	Powers of Attorney

*  To be filed by amendment to the registration statement.

**  Previously filed.

II-7 EX-4.1 2 o34003exv4w1.htm EX-4.1

EXHIBIT 4.1

EX-4.1

exv4w1

EX-4.2

Exhibit 4.2

SHAREHOLDER AGREEMENT

between

ATS AUTOMATION TOOLING SYSTEMS INC.

– and –

PHOTOWATT TECHNOLOGIES INC.

[•], 2006

ARTICLE 1 INTERPRETATION	1
1.1 Definitions	1
1.2 Construction	6
1.3 Conflicts With Other Separation Agreements	7
ARTICLE 2 GOVERNANCE	7
2.1 Board of Directors	7
2.2 Committees of the Board	8
2.3 Quorum	8
2.4 Decisions of Directors	9
2.5 Meetings of Shareholders	9
2.6 Casting Vote	9
2.7 Business and Affairs of Photowatt	9
2.8 Transactions with ATS	9
2.9 Certain Matters Requiring Approval of ATS	10
ARTICLE 3 FINANCIAL REPORTING AND DISCLOSURE COVENANTS	11
3.1 Financial and Other Information	11
3.2 Auditors and Accounting	17
3.3 Future Financial Reporting and Disclosure	19
ARTICLE 4 GENERAL PROVISIONS	20
4.1 Assignment	20
4.2 Entire Agreement	20
4.3 Directors and Officers’ Indemnities and Insurance	21
4.4 Term	22
4.5 Termination Not to Affect Rights or Obligations	22
4.6 Future Litigation and Other Proceedings	22
4.7 Further Assurances	22
4.8 Notices	23
4.9 Time of Essence	23
4.10 Governing Law	24
4.11 Severability	24
4.12 Force Majeure	24
4.13 Specific Performance	24
4.14 Currency	25
4.15 Time Periods	25
4.16 Amendment	25
4.17 Counterparts	25
4.18 Authority	25
4.19 Jurisdiction	25
4.20 Binding Effect	25
4.21 Expenses	26
4.22 Waiver	26
4.23 Compliance With Laws	26

SHAREHOLDER AGREEMENT

     THIS AGREEMENT is made as of the [•] day of [•], 2006

BETWEEN:

ATS AUTOMATION TOOLING SYSTEMS INC., a corporation incorporated under the laws of Ontario

(“ATS”)

– and –

PHOTOWATT TECHNOLOGIES INC., a corporation incorporated under the laws of Canada

(“Photowatt”)

     WHEREAS the Parties wish to enter into this Agreement to provide for the conduct of the business and affairs of Photowatt and to govern the relationship between Photowatt and ATS as a shareholder of the Photowatt.

     NOW THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereto agree as follows:

ARTICLE 1
INTERPRETATION

1.1	Definitions
	In this Agreement:
	“Act” means the Canada Business Corporations Act, as the same may be amended from time to time and any successor legislation thereto;
	“Action” means any suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any arbitration tribunal asserted by a Person;

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“Affiliate” has the meaning ascribed thereto in the Securities Act;

“Agreement” means this agreement and all schedules, if any, attached to this agreement, in each case as they may be supplemented or amended from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this agreement, and unless otherwise indicated, references to Articles and Sections are to the specified Articles and Sections in this agreement;

“Assets” means assets, properties and rights (including goodwill and rights arising under Contracts), wherever located (including in the possession of vendors, other Persons or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person;

“ATS Annual Financial Statements” means consolidated financial statements of ATS for a fiscal year, setting forth in each case in comparative form the consolidated figures (and notes thereto) for the previous fiscal year and all in reasonable detail and prepared in accordance with Canadian GAAP and all applicable Laws, as well as a discussion and analysis by management of ATS’ financial condition and results of operation for such year;

“ATS Auditors” has the meaning ascribed thereto in Section 3.2(b);

“ATS Financial Statements” means ATS Quarterly Financial Statements and ATS Annual Financial Statements;

“ATS Group” means ATS and each Person that ATS directly or indirectly controls (within the meaning of the Securities Act), other than any member of the Photowatt Group.

“ATS Public Filings” has the meaning ascribed thereto in Section 3.1(l);

“ATS Quarterly Financial Statements” means consolidated financial statements of ATS for a fiscal quarter and the period from the beginning of the then-current fiscal year to the end of the fiscal quarter, setting forth in each case in comparative form for each such fiscal quarter and period of ATS, the consolidated figures (and notes thereto) for the corresponding quarter and period of the previous fiscal year and all in reasonable detail and prepared in accordance with Canadian GAAP and all applicable Laws, as well as a discussion and analysis by management of ATS’ financial condition and results of operation for such fiscal period;

“Audit Package” means all materials prepared for and deliver to Photowatt’s audit committee relating to the approval of Photowatt Financial Statements;

“Board of Directors” or “Board” means the board of directors of Photowatt;

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“Business Day” means a day other than Saturday, Sunday or other day on which commercial banks in Toronto, Ontario are authorized or required by Law to close;

“Canadian GAAP” means those accounting principles which are recognized as being generally accepted in Canada from time to time as set out in the Handbook published by the Canadian Institute of Chartered Accountants, applied on a consistent basis;

“Canadian Securities Laws” means the securities statutes of each of the Provinces and Territories of Canada and all regulations, rules, policy statements, notices and blanket orders or rulings thereunder;

“Canadian Securities Regulatory Authorities” means the securities regulatory authorities in each of the Provinces and Territories of Canada;

“Common Shares” means the common shares in the capital of Photowatt at the date hereof and includes any shares or securities into which such common shares may be converted or changed or which result from a consolidation, subdivision, reclassification, stock split, stock dividend, recapitalization or redesignation of the common shares of Photowatt, any shares or securities of Photowatt which are received as a stock dividend or distribution in respect of such common shares, any common shares of Photowatt received on the exercise of any option, warrant or other similar right and any shares or securities which may be received by the holders of common shares of Photowatt as a result of an amalgamation, merger, arrangement or other reorganization of or including Photowatt;

“Consents” means the consents of Persons referred to in the disclosure letter of even date delivered by ATS to Photowatt and initialed by the Parties.

“Contract” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable Law;

“Convertible Security” means any security that is convertible into, exchangeable for, or exercisable to acquire Common Shares;

“Effective Date” means the date hereof;

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;

“Governmental Authority” means any Canadian federal, provincial or local or any foreign government, supranational, regulatory or administrative authority, instrumentality, agency or commission, political subdivision, self-regulatory organization or any court, tribunal or judicial or arbitral body or other governmental authority;

“Independent” means independent as determined pursuant to National Policy 58-201 — Corporate Governance Guidelines of the Canadian Securities Administrators, as amended from time to time;

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“initial directors meeting” has the meaning ascribed thereto in Section 2.3;

“Law” means any law (statutory, common or otherwise), constitution, ordinance, code, rule, regulation, executive order or other similar authority enacted, adopted, promulgated or applied by any Governmental Authority, each as amended;

“Lease Agreement” means the Lease Agreement dated as of the date hereof between Photowatt and ATS;

“Master Separation Agreement” means the Master Separation Agreement dated as of the date hereof between Photowatt and ATS;

“Master Supply Agreement” means the Master Supply Agreement dated as of the date hereof between Photowatt and ATS;

“Material Intellectual Property Assets” means intellectual property rights, including any patents of the Photowatt Group, comprising Assets of the Photowatt Group that are material to the Photowatt Group or the Photowatt Business;

“Meeting Schedule” means the schedule of quarterly and annual meetings of the Board and audit committee of the Board for each of Photowatt and ATS during fiscal 2006, 2007 and 2008 which has been agreed to by both Photowatt and ATS prior to the Effective Date;

“Obligations” means all obligations, contractual or otherwise, including all liabilities and indebtedness, whether known or unknown, asserted or unasserted, absolute or contingent, matured or unmatured, conditional or unconditional, latent or patent, accrued or unaccrued, liquidated or unliquidated, or due or to become due;

“Offering” means an initial public offering by Photowatt, consummated promptly following the execution of this Agreement;

“OSC” means the Ontario Securities Commission;

“Parties” means ATS and Photowatt and their respective successors and permitted assigns, and “Party” means any one of them;

“Percentage of Outstanding Common Shares” means the percentage equivalent to the quotient obtained when (i) the number of Common Shares directly beneficially owned at the time of the calculation by ATS and its Affiliates, is divided by (ii) the total number of Common Shares outstanding at the time of calculation, all quantities being on a non-diluted basis;

“Person” means any individual, partnership, limited partnership, limited or unlimited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator or other legal personal

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representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted;

“Photowatt Annual Financial Statements” means consolidated financial statements of the Photowatt Group for a fiscal year, setting forth in each case in comparative form the consolidated figures (and notes thereto) for the previous fiscal year and all in reasonable detail and prepared in accordance with Canadian GAAP and all applicable Laws, as well as a discussion and analysis by management of the Photowatt Group’s financial condition and results of operation for such year;

“Photowatt Auditors” has the meaning ascribed thereto in Section 3.2(a);

“Photowatt Business” means the businesses undertaken by Photowatt, including, but not limited to the design, manufacture and sale of photovoltaic products and related products and services;

“Photowatt Financial Statements” means Photowatt Quarterly Financial Statements and Photowatt Annual Financial Statements;

“Photowatt Group” means Photowatt and each Person that Photowatt directly or indirectly controls (within the meaning of the Securities Act);

“Photowatt Public Documents” has the meaning ascribed thereto in Section 3.1(h)(i);

“Photowatt Quarterly Financial Statements” means consolidated financial statements of the Photowatt Group for a fiscal quarter and the period from the beginning of the then-current fiscal year to the end of the fiscal quarter, setting forth in each case in comparative form for each such fiscal quarter and period of Photowatt, the consolidated figures (and notes thereto) for the corresponding quarter and period of the previous fiscal year and all in reasonable detail and prepared in accordance with Canadian GAAP and all applicable Laws, as well as a discussion and analysis by management of the Photowatt Group’s financial condition and results of operation for such fiscal period;

“Prospectus” means the final prospectus of Photowatt dated [•], 2006 in respect of the Offering;

“Registration Rights Agreement” means the Registration Rights Agreement dated as of the date hereof between Photowatt and ATS;

“Representatives” means with respect to any Person, any of such Person’s directors, officers, members, managers and employees;

“SEC” means the U.S. Securities and Exchange Commission;

“Securities Act” means the Securities Act (Ontario);

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	“Securities Regulator” means a Canadian Securities Regulatory Authority, the SEC or any stock exchange or quotation;
	“Separation Agreements” means this Agreement, the Master Separation Agreement, the Transfer Agreement, the Lease Agreement, the Registration Rights Agreement, the Master Supply Agreement and the Transitional Services Agreement;
	“Shareholder” means each of ATS and such other Persons as may become a holder of Common Shares from time to time in accordance with the provisions hereof;
	“Standard Financial Report” means a consolidated balance sheet, income statement and statement of cash flows, and other management information, detailed in a form consistent with the reporting template currently used by ATS for such financial information;
	“subsequent directors meeting” has the meaning ascribed thereto in Section 2.3;
	“Subsidiary” has the meaning ascribed thereto in the Securities Act;
	“Transfer” includes any sale, exchange, assignment, gift, bequest, disposition, mortgage, charge, pledge, encumbrance, grant of security interest or other arrangement by which possession, legal title or beneficial ownership passes from one Person to another, or to the same Person in a different capacity, whether or not voluntary and whether or not for value, and any agreement to effect any of the foregoing; and the words “Transferred”, “Transferring” and similar words have corresponding meanings;
	“Transfer Agreement” means the Transfer Agreement dated as of the date hereof between Photowatt and ATS; and
	“Transitional Services Agreement” means the Transitional Services Agreement dated as of the date hereof between Photowatt and ATS.
1.2	Construction

     The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favouring or disfavouring any Party because of the authorship of any provision of this Agreement. Any reference to any federal, state, provincial, local or foreign law shall be deemed also to refer to such law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. Any reference to any Contract (including schedules, exhibits and other attachments thereto), including this Agreement, shall be deemed also to refer to such Contract as amended, restated or otherwise modified, unless the context requires otherwise. The words “include,” “includes” and “including” shall be deemed to be followed by “without limitation.” Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa,

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unless the context requires otherwise. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Where this Agreement states that a Party “will” or “shall” perform in some manner or otherwise act or omit to act, it means that such Party is legally obligated to do so in accordance with this Agreement. The word “or” shall not be exclusive. The captions, titles and headings included in this Agreement are for convenience only and do not affect this Agreement’s construction or interpretation. Any reference to an Article, Section or Schedule in this Agreement shall refer to an Article or Section of, or Schedule to, this Agreement, unless the context otherwise requires.

1.3 Conflicts With Other Separation Agreements

     To the extent any portion of this Agreement conflicts with the Master Separation Agreement, the Master Separation Agreement shall control.

ARTICLE 2
GOVERNANCE

2.1 Board of Directors

     The Board will be comprised of three to fifteen members, initially being comprised of nine members, not less than 25% of whom shall be “resident Canadian” as defined in the Act. ATS shall initially elect three members of the Board.

     Following the date of this Agreement, ATS shall have the following rights of nomination:

(a)

as long as the Percentage of Outstanding Common Shares is not less than 40%, ATS shall have the right to nominate for election to the Board a number of directors of the Board representing 25% of the directors of the Board rounded down to the nearest whole number, provided that, if the Board is to consist of at least six directors, the number of ATS nominees shall be rounded up to the nearest whole number; and

(b)

as long as the Percentage of Outstanding Common Shares is 10% or more, but less than 40%, ATS shall have the right to designate one nominee for election as a director of the Board.

     Photowatt shall nominate for election to the Board the balance of the number of directors to be elected after establishing the number of directors ATS determines to nominate in accordance with the foregoing. Photowatt shall solicit proxies in favour of the election of ATS’ nominees and exercise such proxies and otherwise use its commercial reasonable efforts to secure the election of ATS’ nominees as members of the Board.

     Upon the Percentage of Outstanding Common Shares falling below 40% but not less than 10%, all of the nominees of ATS to the Board except for one shall resign within 90 days or at

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such earlier date as a meeting of the Shareholders is convened by Photowatt to elect directors. Upon the Percentage of Outstanding Common Shares falling below 10%, the nominee of ATS to the Board shall resign within 90 days or at such earlier date as a meeting of the Shareholders is convened by Photowatt to elect directors.

     ATS will be entitled at any time and in its sole discretion, subject to applicable Law and this section, by direction in writing to remove any one or more of its nominees and, so long as it and/or its Affiliates hold the requisite Percentage of Outstanding Common Shares, nominate a successor who will, promptly upon the resignation of the existing director, be appointed by the Board as a director to replace the individual previously nominated. If a director nominated by ATS ceases to be a director for any reason (other than ATS and its Affiliates ceasing to hold the requisite Percentage of Outstanding Common Shares), ATS will nominate a successor to fill the resulting vacancy as soon as practicable thereafter (so long as ATS and/or its Affiliates continue to hold the requisite Percentage of Outstanding Common Shares). If ATS fails for any reason to nominate a successor to fill a vacancy within 30 days after the vacancy arises, the Board will appoint an individual to fill the vacancy, who shall undertake to Photowatt and ATS to serve as a director until a successor is nominated by ATS, at which point such individual shall resign and the nominee of ATS shall be appointed by the Board as a director.

     In the event of the proposed removal of any director nominated by ATS other than a removal proposed by ATS in accordance with the provisions of this Agreement, Photowatt agrees to solicit proxies against the removal of such ATS nominee and exercise such proxies and otherwise use its commercial reasonable efforts to defeat such proposed removal.

     The provisions of this Agreement shall not limit the right attaching to the Common Shares beneficially owned or controlled by ATS or any of its Affiliates or the exercise thereof.

2.2 Committees of the Board

     The Board will have (a) an audit committee; (b) a compensation and governance committee; and (c) such other committees, if any, as determined from time to time by the Board. Each committee will consist of three to five members. Initially the audit committee will consist of three members and the compensation and governance committee will consist of four members.

     Each director is entitled to receive notice of each Board committee meeting, concurrent with that received by the members of such committees; to attend and fully participate but not to vote at each Board committee meeting; to receive all information delivered to Board committee members, concurrent with the delivery thereof to such members; and to receive, upon request to Photowatt, all information to which any Board committee member, is entitled.

2.3	Quorum
	A quorum for a meeting of the Board shall require:

(a) a majority of the number of directors, subject to the Canadian residency requirements of the Act; and

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(b) so long as the Percentage of Outstanding Common Shares is not less than 40%, at least one of the nominees of ATS.

     In the event that a quorum is not achieved or maintained for a meeting of the Board (an “initial directors meeting”), any two directors may call a meeting of the Board by proper notice 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 of the Board (a “subsequent directors meeting”) shall exclude the requirements of Section 2.3(b) of this Agreement.

     A quorum for a meeting of any committee of the Board shall require a majority of the committee members, subject to the Canadian residency requirements of the Act.

2.4 Decisions of Directors

     In order to be effective, a decision of the Board must be approved either by a resolution passed by the affirmative vote of a majority of the directors present and entitled to vote thereon at a meeting of directors duly called and at which a quorum of directors are present, or by an instrument signed by all the directors.

2.5 Meetings of Shareholders

     A meeting of Shareholders shall be called by Photowatt upon written request by any two directors of the Board within 30 days of receipt of any such request.

2.6 Casting Vote

     The chair of any meeting of the Board, committee of the Board or Shareholders will not have a casting vote.

2.7 Business and Affairs of Photowatt

     Each of the Parties to this Agreement will do everything in its power to cause such meetings to be held, votes to be cast, resolutions to be passed, by-laws to be made and confirmed, documents to be executed and all other things and acts to be done to ensure that, at all times, to the extent permitted by Law, the composition and operation of the Board and the operation of the business and affairs of Photowatt comply with the terms of this Article 2 and with the entirety of this Agreement.

2.8 Transactions with ATS

     Any material commercial transaction that Photowatt proposes to enter into after the Effective Date with ATS or any of its Affiliates that is not contemplated by the Separation Agreements must be considered and approved by the Independent directors of Photowatt who are not nominees of ATS..

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2.9 Certain Matters Requiring Approval of ATS

     For so long as the Percentage of Outstanding Common Shares is not less than 50%, Photowatt shall not, and shall not permit any member of the Photowatt Group to, without the affirmative vote of a majority of the Board and the written consent of ATS as a Shareholder (which ATS may withhold in its sole and absolute discretion):

(a)	enter into any merger, amalgamation, plan of arrangement, consolidation, business combination, joint venture or other material corporate transaction, including the acquisition of any business or securities of any other Person (other than a wholly-owned Subsidiary of Photowatt) or acquisition, license, lease, exchange of Assets (other than inventory items acquired in the ordinary course of business in connection with the Photowatt Business) or assume any Obligations of any Person, in each case with an aggregate fair market value in excess of $50 million;
(b)	sell, lease, exchange, license on an exclusive basis or otherwise dispose of, whether pursuant to a single transaction or a series of transactions, Assets of the Photowatt Group with an aggregate fair market value in excess of $50 million (other than the sale or disposition of inventory in the ordinary course of business in connection with the Photowatt Business) and/or any Material Intellectual Property Assets;
(c)	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;
(d)	take any action that could reasonably be expected to lead to or result in a material change in the nature of the Photowatt Business, including directly or indirectly participate in any business other than the Photowatt Business;
(e)	other than pursuant to share compensation arrangements in respect of employees, officers, consultants, or directors of Photowatt or any member of the Photowatt Group approved by the Board and Shareholders, enter into any agreement or make any offer or grant any right capable of becoming an agreement to allot or issue a number of Common Shares or Convertible Securities where the aggregate number of Common Shares to be issued or allotted exceeds 5% of the total number of Common Shares then outstanding on a non-diluted basis;
(f)	take, or cause to be taken, directly or indirectly, any action (including the making or failing to make any election under a Law) that has the effect, directly or indirectly, of restricting or limiting the ability of ATS or any of its Affiliates to freely Transfer Common Shares or would restrict or limit the rights of any transferee of ATS or any of its Affiliates as a holder of Common Shares and, without limiting the generality of the foregoing, Photowatt shall not take any action, or recommend to its shareholders any action, which would limit the legal

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	rights of, or deny any benefit to, ATS or any of its Affiliates as a holder of Common Shares either (i) solely as a result of the amount of Common Shares owned by ATS or any of its Affiliates or (ii) in a manner not applicable to holders of Common Shares generally;
(g)	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 the Photowatt Group in connection therewith either exceeds on formation or at any time in the future could reasonably be expected to exceed $50 million; or
(h)	make any commitment or agreement to do any of the foregoing.

     Each of the above matters must be presented to the Board of Directors for decision, and may not be delegated to any committee of the Board of Directors or to the management of Photowatt or any Subsidiary.

ARTICLE 3
FINANCIAL REPORTING AND DISCLOSURE COVENANTS

3.1 Financial and Other Information

     Photowatt agrees that, for so long as ATS is required to consolidate the results of operations and financial position of any member of the Photowatt Group (determined in accordance with Canadian GAAP and applicable Laws, and consistent with Canadian Securities Regulatory Authorities and SEC reporting requirements), and for a further 12 months after the date on which ATS ceases to be required to do so:

(a) Financial Controls

     Photowatt shall (and shall cause each other member of the Photowatt Group to) maintain effective disclosure controls and procedures and internal control over financial reporting as defined in Exchange Act Rule 13a-15 promulgated under the Exchange Act and in any similar or successor rule, and as required under Canadian Securities Laws or other applicable securities Laws.

     Photowatt shall cause each of its principal executive and principal financial officers to (i) sign and deliver certifications to its periodic reports and shall include the certifications in its periodic reports, as and when required pursuant to Exchange Act Rule 13a-14 and Item 601 of Regulation S-K and in any similar or successor rule, and as required under Canadian Securities Laws and other applicable securities Laws and (ii) sign and deliver to ATS certification and representation documents, and orally discuss related matters, with respect to its periodic reports, in a manner substantially similar to the Parties’ practice in the periods prior to the Effective Date.

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     Photowatt shall cause its management to evaluate its disclosure controls and procedures and internal control over financial reporting (including any change in internal control over financial reporting) as and when required pursuant to Exchange Act Rule 13a-15 and in any similar or successor rule, and as required under Canadian Securities Laws and other applicable securities Laws.

     Photowatt shall disclose in its periodic reports filed with the SEC and Canadian Securities Regulatory Authorities information concerning its management’s responsibilities for and evaluation of its disclosure controls and procedures and internal control over financial reporting (including the annual management report and attestation report of its independent auditors relating to internal control over financial reporting) as and when required under Items 307 and 308 of Regulation S-K and other applicable SEC rules, and as required under Canadian Securities Laws and other applicable securities Laws.

     Without limiting the general application of the foregoing, Photowatt shall (and shall cause each other member of the Photowatt Group to) maintain internal systems and procedures which provide reasonable assurance that (1) the Photowatt Financial Statements are reliable and timely prepared in accordance with Canadian GAAP and applicable Law, (2) all transactions of members of the Photowatt Group are recorded as necessary to permit the preparation of the Photowatt Financial Statements, (3) the receipts and expenditures of members of the Photowatt Group are authorized at the appropriate level within Photowatt, and (4) unauthorized use or disposition of the assets of any member of the Photowatt Group that could have material effect on the Photowatt Financial Statements is prevented or detected in a timely manner.

(b) Fiscal Year

     Photowatt shall (and shall cause each member of the Photowatt Group to) maintain a fiscal year that commences and ends on the same calendar days as the fiscal year of ATS commences and ends, and to maintain monthly account periods that commence and end on the same calendar days as the monthly account periods of ATS commence and end.

(c) Monthly Financial Reports

     No later than ten Business Days after the end of each of Photowatt’s monthly accounting periods following the Effective Date, Photowatt shall deliver to ATS a Standard Financial Report for Photowatt for such period and for each of its Affiliates that is included in the consolidated Photowatt Financial Statements, as the case may be, and any adjusting journal entries, in such format and details as ATS may reasonably request.

(d) Quarterly Financial Reports

     In connection with each meeting of the Board and audit committee of the Board indicated on the Meeting Schedule, Photowatt will provide ATS with (i) drafts of

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Photowatt’s Audit Package relating to Photowatt Quarterly Financial Statements as reasonably requested by ATS, (ii) Photowatt’s Audit Package relating to Photowatt Quarterly Financial Statements when such package is delivered to Photowatt’s audit committee, and (iii) the version of the Photowatt Quarterly Financial Statements that are approved by Photowatt’s audit committee; provided, however, that Photowatt may continue to revise such Photowatt Quarterly Financial Statements prior to the filing thereof in order to make corrections and non-substantive changes, which corrections and changes shall be delivered by Photowatt to ATS as soon as practicable, and in any event within eight hours thereafter; provided further, that ATS and Photowatt financial Representatives shall actively consult with each other regarding any changes (whether or not substantive) that Photowatt may consider making to Photowatt Quarterly Financial Statements and related disclosure during the two calendar days immediately prior to any anticipated filing with the Securities Regulator, with particular focus on any changes that would have an effect upon the financial statements or related disclosure of ATS.

     In addition to the foregoing and subject to applicable Law, no Photowatt Quarterly Financial Statement or any other document that refers to or contains information not previously publicly disclosed in respect of ATS, including, but not limited to the ownership of Photowatt by ATS, the Separation Agreements, or the separation of Photowatt and ATS, shall be filed with the Securities Regulator under applicable securities Laws or otherwise made public by any Photowatt Group member without the prior written consent of ATS. Notwithstanding anything to the contrary herein, Photowatt shall file Photowatt Quarterly Financial Statements with the Securities Regulator on the same date that ATS files ATS Quarterly Financial Statements with the Securities Regulator.

(e) Annual Financial Reports

     In connection with each meeting of the Board and audit committee of the Board indicated on the Meeting Schedule, Photowatt will provide ATS with (i) drafts of Photowatt’s Audit Package relating to Photowatt Annual Financial Statements as reasonably requested by ATS, (ii) Photowatt’s Audit Package relating to Photowatt Annual Financial Statements when such package is delivered to Photowatt’s audit committee, and (iii) the version of the Photowatt Annual Financial Statements that are approved by Photowatt’s audit committee; provided, however, that Photowatt may continue to revise such Photowatt Annual Financial Statements prior to the filing thereof in order to make corrections and non-substantive changes, which corrections and changes shall be delivered by Photowatt to ATS as soon as practicable, and in any event within eight hours thereafter; provided further, that ATS and Photowatt financial Representatives shall actively consult with each other regarding any changes (whether or not substantive) that Photowatt may consider making to Photowatt Annual Financial Statements and related disclosure during the three calendar days immediately prior to any anticipated filing with the Securities Regulator, with particular focus on any changes that would have an effect upon the financial statements or related disclosure of ATS.

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     In addition to the foregoing and subject to applicable Law, no Photowatt Annual Financial Statement or any other document that refers to or contains information not previously publicly disclosed in respect of ATS, including, but not limited to the ownership of Photowatt by ATS, the Separation Agreements, or the separation of Photowatt and ATS, shall be filed with the Securities Regulator under applicable securities Laws or otherwise made public by any Photowatt Group member without the prior written consent of ATS. Notwithstanding anything to the contrary herein, Photowatt shall file Photowatt Annual Financial Statements with the Securities Regulator on the same date that ATS files ATS Annual Financial Statements with the Securities Regulator.

(f) Affiliate Financial Reports

     Photowatt shall deliver to ATS all quarterly and annual financial statements of each Affiliate of Photowatt that is itself required to file financial statements with any Securities Regulator under applicable securities Laws or otherwise make such financial statements publicly available, with such financial statements to be provided in the same manner, detail and timeliness as those financial statements of Photowatt required to be delivered to ATS pursuant to this Agreement.

(g) Conformance with ATS’ Financial Presentation

     All financial information to be provided by any Photowatt Group member to ATS pursuant to this Agreement shall be prepared in accordance with Canadian GAAP, and where practicable, consistent in terms of format and detail and otherwise with the policies of ATS with respect to the application of Canadian GAAP and practices with respect to the provisions of such financial information by such Photowatt Group member to ATS (and, where appropriate, as presently presented in financial reports to ATS’ board of directors), with such changes therein as may be requested by ATS from time to time consistent with changes in such accounting policies, principles and practices; provided, however, that the Parties acknowledge that Photowatt shall report its results in U.S. dollars and shall include in the notes to its financial statements a reconciliation quantifying all material differences between its financial statements as presented and its financial statements as they would be presented if they had been prepared in accordance with United States generally accepted accounting principles.

     All financial information to be filed with the Securities Regulator by any Photowatt Group member shall, to the extent prepared in accordance with generally accepted accounting principles other than Canadian GAAP, be prepared on the same basis and in the same form as the financial information as set forth in the preceding paragraph with such modifications as necessary to the extent of any differences between such generally accepted accounting principles and Canadian GAAP, any such modifications to be reviewed by the Photowatt Group member with ATS and approved by ATS not later than the required time of delivery of such financial information to ATS in accordance with this Agreement.

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(h) Photowatt Reports Generally

     Each Photowatt Group member that files information with a Securities Regulator shall deliver to ATS:

(i)

preliminary and substantially final drafts, as soon as the same are prepared, of (x) all reports, notices and proxy and information statements to be sent or made available by such Photowatt Group member to its respective securityholders, (y) all other reports, whether regular, periodic or otherwise, to be filed or furnished to the Securities Regulator under applicable securities Laws ((x) and (y) collectively, the “Photowatt Public Documents”); and

(ii)

as soon as practicable, but in no event later than four Business Days (other than with respect to material change reports) prior to the earliest of the dates on which the same are printed, sent or filed, current drafts of all such Photowatt Public Documents and, with respect to material change reports, as soon as practicable but in no event later than two Business Days prior to the earliest of the dates on which the same are printed, sent or filed in the case of planned material change reports and as soon as practicable, but in no event less than four hours (or, for material change reports to filed before noon, in no event later than 5 p.m. Toronto time on the previous Business Day) in the case of unplanned material change reports;

provided, however, that Photowatt may continue to revise such Photowatt Public Documents prior to the filing thereof in order to make corrections and non-substantive change, which corrections and changes shall be delivered by Photowatt to ATS as soon as practicable, and in any event within eight hours thereafter; provided further, that ATS and Photowatt financial and/or legal Representatives shall actively consult with each other regarding changes (whether or not substantive) Photowatt may consider making to any of its Photowatt Public Documents and related disclosures prior to any anticipated filing with the Securities Regulator, with particular focus on any changes that would have an effect upon the financial statements or related disclosures of ATS. In additional to the foregoing and subject to applicable Law, no Photowatt Public Documents or any other document that refers to or contains information not previously publicly disclosed in respect of ATS, including, but not limited to the ownership of Photowatt by ATS, the Separation Agreements, or the separation of Photowatt and ATS, shall be filed with the Securities Regulator or otherwise made public by any Photowatt Group member without the prior written consent of ATS.

(i) Budgets and Financial Projections

     Photowatt shall, as promptly as practicable, deliver to ATS copies of all annual and monthly budgets, and two- and three-year annual budgets and financial projections (consistent in terms of detail and as otherwise reasonably required by ATS) relating to

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Photowatt on a consolidated basis and shall provide ATS an opportunity to meet with management of Photowatt to discuss such budgets and projections.

(j) Other Information

     With reasonable promptness, Photowatt shall deliver to ATS such additional financial and other information and data with respect to the members of the Photowatt Group and their respective business, properties, financial positions, results of operations and prospects as from time to time may be reasonably requested by ATS.

(k) Press Releases and Similar Information

     Photowatt shall release its annual and quarterly earnings releases on the same day or the following day after such release is reviewed by the Board according to the Meeting Schedule and shall give ATS the opportunity to review the information therein relating to the Photowatt Group and to comment thereon. Photowatt and ATS shall consult each other as to the timing of any financial guidance for a current or future period and shall give each other the opportunity to review the information therein relating to the Photowatt Group and to comment thereon. Photowatt shall issue its annual and quarterly earnings releases prior to ATS issuing its respective annual and quarterly earnings releases. No later than eight hours prior to the time and date (or, if the same will be published before noon, no later than 5 p.m. Toronto, Ontario, time on the previous Business Day) at which Photowatt intends to publish its regular annual or quarterly earnings release or any financial guidance for a current or future period, Photowatt shall deliver to ATS copies of substantially final drafts of all press releases and other statements to be made available by any Affiliate of Photowatt to employees of any Affiliate of Photowatt or to the public concerning any matters that could be reasonably likely to have a material financial impact on the earnings, results of operations, financial condition or prospects of any Photowatt Group member. In addition, prior to the issuance of any such press release or public statement that meets the criteria set forth in the preceding sentences, Photowatt shall consult with ATS regarding changes (other than typographical or other similar minor changes) to such substantially final drafts. Immediately following the issuance thereof, Photowatt shall deliver to ATS copies of final drafts of all press releases and other public statements.

(l) Cooperation on ATS’ Filings

     Photowatt shall cooperate fully, and shall use commercially reasonable efforts to cause Photowatt’s auditors to cooperate fully, with ATS to the extent reasonably requested by ATS in the preparation of any filings made by ATS with a Securities Regulator pursuant to applicable securities Laws, or otherwise made publicly available by or on behalf of ATS (collectively, the “ATS Public Filings”).

     Photowatt shall provide to ATS all information ATS reasonably requests in connection with any ATS Public Filings or that, in the judgment of legal advisors to ATS, is required to be disclosed or incorporated by reference therein under applicable Law.

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Photowatt shall provide such information in a timely manner on the dates requested by ATS to enable ATS to prepare, print and release all ATS Public Filings on dates as ATS shall determine but in no event later than is required by applicable Law. Photowatt shall use commercially reasonable efforts to cause its auditors to consent to any reference to them as experts in any ATS Public Filings if required under applicable Law.

     If and to the extent requested by ATS, Photowatt shall diligently and promptly review all drafts of such ATS Public Filings and prepare in a diligent and timely fashion any portion of such ATS Public Filings pertaining to Photowatt.

     Prior to any printing or public release of any ATS Public Filings, an appropriate executive officer of Photowatt shall, if requested by ATS, certify that the information relating to any Photowatt Group member or the Photowatt Business in such ATS Public Filings is accurate, true, complete and correct in all material respects.

     Unless required by Law, Photowatt shall not publicly release any financial or other information that conflicts with the information with respect to any Photowatt Group member or the Photowatt Business that is included in any ATS Public Filings without ATS’ prior written consent. Prior to the release or filing thereof, ATS shall provide Photowatt with a draft portion of any ATS Public Filing containing information relating to the Photowatt Group and shall give Photowatt an opportunity to review such information and comment thereon; provided, however, that ATS shall determine in its sole and absolute discretion the final form and content of all ATS Public Filings.

3.2 Auditors and Accounting

     Photowatt agrees that, for so long as ATS is required to consolidate the results of operations and financial position of any member of the Photowatt Group (determined in accordance with Canadian GAAP and applicable Laws, and consistent with Canadian Securities Regulatory Authorities and SEC reporting requirements), and for a further 12 months after the date on which ATS ceases to be required to do so:

(a) Selection of Photowatt’s Auditors

     Unless required by Law, or unless inconsistent with Photowatt’s audit committee’s responsibilities under U.S. securities laws and regulations, Photowatt shall not select a different accounting firm than KPMG (or its affiliate accounting firms) unless so directed by ATS in accordance with a change by ATS in its accounting firm) to serve as its (and its Affiliates’) independent auditors (the “Photowatt Auditors”) without ATS’ prior written consent (which shall not be unreasonably withheld).

(b) Audit Timing

     Photowatt shall use commercially reasonable efforts to enable the Photowatt Auditors to complete their audit such that they may date their opinion on Photowatt Annual Financial Statements on the same date that ATS’ independent auditors (the “ATS Auditors”) date their opinion on ATS Annual Financial Statements, and to enable ATS to

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meet its timetable for the printing, filing and public dissemination of ATS Annual Financial Statements, all in accordance with this Agreement and as required by applicable Law. Photowatt shall request that the Photowatt Auditors date their opinion on Photowatt Annual Financial Statements on the same date that the ATS Auditors date their opinion on ATS Annual Financial Statements.

(c) Information Needed by ATS

     Photowatt shall provide to ATS on a timely basis all information ATS reasonably requires to meet its schedule for the preparation, printing, filing and public dissemination of ATS Annual Financial Statements in accordance with this Agreement and as required by applicable Law. Without limiting the generality of the foregoing, Photowatt shall provide all required financial information with respect to the Photowatt Group to the Photowatt Auditors in a sufficient and reasonable time and in sufficient detail to permit the Photowatt Auditors to take all steps and perform all reviews necessary to provide sufficient assistance to the ATS Auditors with respect to information to be included or contained in ATS Annual Financial Statements.

(d) Access to Photowatt Auditors

     Photowatt shall authorize the Photowatt Auditors to make available to the ATS Auditors both the personnel who performed, or are performing, the annual audit of Photowatt and work papers related to the annual audit of Photowatt, in all cases within a reasonable time prior to the opinion date for the Photowatt Auditors, so that the ATS Auditors are able to perform the procedures they consider necessary to take responsibility for the work of the Photowatt Auditors as it relates to the report of the ATS Auditors on ATS Financial Statements, all within sufficient time to enable ATS to meet the timetable for the printing, filing and public dissemination of ATS Annual Financial Statements.

(e) Access to Records

     If ATS determines in good faith that there may be an inaccuracy in a Photowatt Group member’s financial statements or deficiency in a Photowatt Group member’s internal accounting controls or operation that could materially impact ATS Financial Statements, at the request of ATS, Photowatt shall provide to ATS’ internal auditors access to the Photowatt Group member’s books and records so that ATS may conduct reasonable audits relating to the financial statements provided by Photowatt under this Agreement as well as to the internal accounting controls and operations of the Photowatt Group.

(f) Notice of Changes

     Subject to sections above under the heading “Auditors and Accounting”, Photowatt shall give ATS as much prior notice as reasonably practicable of any proposed determination of, or significant changes in, Photowatt’s accounting estimates or accounting principles, policies or practices from those in effect on the date of the audited

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financial statements included in the Prospectus. Photowatt shall consult with ATS and, if requested by ATS, Photowatt (and the Photowatt Auditors, if requested) shall consult with the ATS Auditors with respect to any such proposed determination or change. Unless otherwise required by applicable Law, Photowatt shall not make any such determination or changes without prior written consent of ATS if such determination or change would be sufficiently material to be required to be disclosed in financial statements or other disclosure documents filed by Photowatt or ATS with a Securities Regulator.

(g) Accounting Changes Requested by ATS

     Notwithstanding the section entitled “Notice of Changes” above, unless prohibited by applicable Law, Photowatt shall make any changes in its accounting estimates or accounting policies or practices that are practicable in order for Photowatt’s accounting policies or practices to be consistent with those of ATS.

(h) Special Reports of Deficiencies or Violations

     Photowatt shall report in reasonable detail to ATS any of the following events or circumstances promptly after any executive officer of Photowatt or any member of the Board of Directors becomes aware of such matter:

(i)	any significant deficiency or material weakness in the design or operation of internal control over financial reporting that is reasonably likely to adversely affect Photowatt’s ability to record, process, summarize and report financial information;
(ii)	any fraud, whether or not material, that involves management or other employees who have a significant role in the internal control over financial reporting to Photowatt;
(iii)	any illegal act within the meaning of Section 10A(b) and (f) of the Exchange Act; and
(iv)	any report of a material violation of Law that an attorney representing any Photowatt Group member has formally made to any officers or directors of Photowatt pursuant to the SEC’s attorney conduct rules (17 C.F.R. Part 205).

3.3 Future Financial Reporting and Disclosure

     Subject to Sections 3.1 and 3.2, Photowatt agrees that for so long as ATS is required to account for its investment in Photowatt under the equity method of accounting (determined in accordance with Canadian GAAP and applicable Laws, and consistent with Canadian Securities Regulatory Authorities and SEC reporting requirements), Photowatt shall provide ATS, in a timely fashion and in any event in sufficient time to allow ATS to meet its financial and legal

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obligations (including, but not limited to, any obligations relating to disclosure control or internal control over financial reporting that ATS deems necessary), with financial and other information and data with respect to the members of the Photowatt Group and their respective business, properties, financial positions, results of operations and prospects, and otherwise comply with the requirements of Section 3.1(a) through (l) and Section 3.2(a) through (h) to the extent reasonably requested by ATS, having regard to ATS’ financial and legal obligations, the minimization of efforts by ATS that are duplicative with those of Photowatt’s and resulting additional expense to ATS in fulfilling those obligations, and any other considerations relevant in the circumstances.

ARTICLE 4
GENERAL PROVISIONS

4.1 Assignment

     Neither Party shall assign, transfer or otherwise alienate any or all of its rights or interest under this Agreement without the express prior written consent of the other Party, which in the case of the consent of ATS, may be granted or withheld in ATS’ sole discretion, and in the case of the consent of Photowatt, shall not be unreasonably withheld or delayed unless the proposed assignee is a Person that is directly or indirectly engaged in any development, production, manufacture, marketing, distribution, promotion or sale of products competitive with the products of the Photowatt Group in any country in the world in which any member of the Photowatt Group conducts its business and the sale of such competitive products exceeds 20% of Photowatt’s consolidated revenues in its most recently completed financial year preceding the proposed date of assignment, transfer or alienation, as the case may be, in which case the consent of Photowatt may be granted or withheld in Photowatt’s sole discretion; provided, however, that ATS may assign any or all of its rights or interest under this Agreement to any Affiliate of ATS without the consent of Photowatt. This Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto, respectively, and their respective successors and permitted assigns, and any permitted assignee shall agree to perform the obligations of the assignor of this Agreement. In the event that the rights of ATS referred to under Section 2.9 are transferred, assigned or alienated, such rights shall expire on the 90^th day following the date of such transfer, assignment or alienation. Any attempted transfer, assignment or alienation in violation of this Section 4.1 shall be invalid and ineffective ab initio.

4.2 Entire Agreement

     This Agreement and the other Separation Agreements constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and supersede (a) all prior oral or written proposals or agreements, (b) all contemporaneous oral proposals or agreements and (c) all previous negotiations and all other communications or understandings between the Parties, in each case with respect to the subject matter hereof and thereof. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made either prior to, contemporaneous with, or after entering into this Agreement, or any amendment or supplement thereto, by any Party to this Agreement or its directors, officers and agents, to any other Party to this Agreement or its directors, officers and agents except to the extent that the same has been reduced to writing and included as a term of the Separation Agreements, and none of the Parties to this Agreement has been induced to enter into this Agreement or any amendment or supplement by reason of any such warranty, representation, opinion, advice or assertion of fact. Accordingly, there will be no liability, either in tort (including negligence) or in Contract,

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assessed in relation to any such warranty, representation, opinion, advice or assertion of fact, except to the extent contemplated above.

4.3 Directors and Officers’ Indemnities and Insurance

     To the fullest extent permitted by law, Photowatt will indemnify all directors, officers, former directors and former officers of Photowatt, ATS (to the extent that ATS exercises the rights, powers, duties and liabilities of directors of Photowatt), and their heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with Photowatt, if such individual

(a)	acted honestly and in good faith with a view to the best interests of Photowatt; and
(b)	in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that the individual’s conduct was lawful.

     Photowatt will advance moneys to an individual referred to in this Section 4.3 for the costs, charges and expenses of a proceeding referred to in this Section 4.3. The individual will repay the moneys if the individual does not fulfil the conditions of this Section 4.3.

     The intention of this Section 4.3 is that all persons referred to in this Section 4.3 will have all benefits provided under the indemnification provisions of the Act to the fullest extent permitted by law, and Photowatt will forthwith pass all resolutions and take such other steps as may be required to give full effect to this Section 4.3.

     For a period of seven years from the date ATS ceases to have the right to nominate any member of the Board, this Agreement and the articles and by-laws of Photowatt (and its successors) will not be modified or amended to diminish any current or past nominee’s right to indemnification and exculpation as is currently provided. Furthermore, so long as ATS is entitled to nominate a member of the Board and thereafter so long as any past or present ATS nominee may be subject to any possible civil, criminal, administrative, investigative or other action or proceeding to which he or she would be made a party by reason of being a director of Photowatt, Photowatt will use commercially reasonable efforts to maintain in full force and effect, for directors and officers of Photowatt, one or more policies of directors and officers’ insurance issued by a reputable insurer or insurers having a policy limits and a retention equal to or better than the amounts of Photowatt’s policy now in force (to the extent commercially available and at rates not substantially in excess of current rates). Furthermore, Photowatt agrees that each ATS nominee will be covered under such insurance policy in a manner as to provide him or her with the same rights and benefits as are accorded Photowatt’s directors most favourably insured by the policy.

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4.4 Term

     This Agreement will continue in force until the earlier of:

(a)	the date on which this Agreement is terminated by the written agreement of the Parties; and
(b)	such time as the Percentage of Outstanding Common Shares is less than 10%.

4.5 Termination Not to Affect Rights or Obligations

     Termination of this Agreement will not affect or prejudice any rights or obligations which have accrued or arisen under this Agreement prior to the time of termination and such rights and obligations, including any indemnities, will survive the termination of this Agreement. For greater certainty, no termination of this Agreement will affect the rights of any Person under Section 4.3.

4.6 Future Litigation and Other Proceedings

     If any member of the Photowatt Group (or any of its Representatives) or any member of the ATS Group (or any of its Representatives) at any time after the Effective Date initiates or becomes subject to any Action with respect to which the Parties have no prior agreements (as to indemnification or otherwise), upon reasonable notice (a) the Party (and its Group members and its and their respective Representatives) that has not initiated and is not subject to such Action shall comply, at the other Party’s expense, with any reasonable requests by the other Party for assistance in connection with such Action (including by way of provision of information and making available of Representatives as witnesses) and (b) each Party (and its Representatives) shall, at its own expense, coordinate with the other Party its strategies and actions with respect to such Action to the extent such coordination would not be detrimental to its interests and shall comply, at the expense of the requesting Party, with any reasonable requests of the other Party for assistance in connection therewith (including by way of provision of information and making available of Representatives as witnesses).

4.7 Further Assurances

     On and after the Effective Date, each Party hereto shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or consents, approvals, rulings or decisions of any Governmental Authority), and to take all such other actions as such Party may reasonably be requested to take by any other Party hereto from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and the other transactions contemplated hereby.

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4.8 Notices

     Any notice, instruction, direction, demand or other communication to any Party under the terms of this Agreement shall be in writing and shall be deemed properly delivered, given and received: (a) when delivered by hand; (b) on the day sent by facsimile provided that the sender has received confirmation of transmission from the recipient as at or prior to 5:00 p.m. Toronto time on such day; (c) the first Business Day after sent by facsimile (to the extent that the sender has received confirmation of transmission from the recipient after 5:00 p.m. Toronto time on the day sent by facsimile); or (d) the next business day after sent by registered mail (at any time other than during a general discontinuance of postal service due to strike, lockout or otherwise) or by courier or express delivery service, in any case to the address or facsimile telephone number set forth beneath the name of such Party below (or to such other address or facsimile telephone number as such Party shall have specified in a written notice given to the other Parties hereto):

(a)	if to ATS, to:
	ATS Automation Tooling Systems Inc.
	250 Royal Oak Road
	Cambridge, Ontario N3H 4R6
	Attention:	General Counsel
	Fax No.:	(519) 650-6520
(b)	if to Photowatt, to:
	Photowatt Technologies, Inc.
	25 Reuter Drive
	Cambridge, Ontario N3E 1A9
	Attention:	President and Chief Executive Officer
	Fax No.:	(519) 650-6535

     In the event of a general discontinuance of registered mail service due to strike, lock out or otherwise, any notice, instruction, direction, demand or other communication will be delivered by hand, courier or express delivery service or sent by facsimile and will be deemed to have been received in accordance with this Section.

4.9 Time of Essence

     Time is of the essence of this Agreement.

4.10 Governing Law

     This Agreement shall be construed in accordance with and governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein.

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4.11 Severability

     If any term or other provision of this Agreement shall be determined by a court, administrative agency or arbitrator in any jurisdiction to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not render the entire Agreement invalid and shall not affect the validity, legality or enforceability of such term or other provision in any other jurisdiction. Rather, this Agreement shall be construed as if not containing the particular invalid, illegal or unenforceable provision, and all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent permitted under applicable Law.

4.12 Force Majeure

     No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control, such as acts of God, decrees or restraints of any Governmental Authority, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, strikes or other labour disturbances or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment, and any other cause or causes whether similar or dissimilar to those already specified, which cannot be controlled by such Party. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay; provided however that the Party seeking to excuse its performance shall promptly notify the other Party of the cause therefor, such performance shall be so excused during the inability of the Party to perform so caused, but for no longer period, and the cause thereof shall be remedied as far as is commercially reasonable with all reasonable dispatch.

4.13 Specific Performance

     In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for security or posting of any bond with such remedy are waived.

4.14 Currency

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     Except as expressly provided in this Agreement, all amounts in this Agreement are stated and will be paid in Canadian currency.

4.15 Time Periods

     Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends.

4.16 Amendment

     This Agreement may only be modified, amended by, altered or supplemented by the execution and delivery of a written agreement executed by both the Parties.

4.17 Counterparts

     This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreement.

4.18 Authority

     Each Party represents to the other Party that (a) it has the corporate power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement and (d) this Agreement is legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equitable principles.

4.19 Jurisdiction

     If any Dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the Parties irrevocably (and the Parties shall cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of the Courts of the Province of Ontario, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO TRIAL OR ADJUDICATION BY JURY.

4.20 Binding Effect

     This Agreement binds and benefits the Parties and their respective successors and permitted assigns. This Agreement is for the sole benefit of the Parties (and, solely for purposes of Section 4.3, the Persons indemnified thereby) and nothing in this Agreement, express or implied, confers or intends to confer any rights or remedies of any nature whatsoever in favour of any Person (including any employee or shareholder of ATS or Photowatt) other than the Parties.

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4.21 Expenses

     Except as otherwise provided in this Agreement, each Party shall be responsible for its own fees, costs and expenses incurred in connection with the matters contemplated by this Agreement.

4.22 Waiver

     A provision of this Agreement may be waived only by a writing signed by the Party or Parties intended to be bound by the waiver. A Party is not prevented from enforcing any right, remedy or condition in the Party’s favour because of any failure or delay in exercising any right or remedy or in requiring satisfaction of any condition, except to the extent that the Party specifically waives the same in writing. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver constitute a continuing waiver unless otherwise expressly provided. Any enumeration of a Party’s rights and remedies in this Agreement is not intended to be exclusive, and a Party’s rights and remedies are intended to be cumulative to the extent permitted by Law and include any rights and remedies authorized in Law or in equity.

4.23 Compliance With Laws

     Each Party shall comply with all applicable legal requirements (including all relevant federal, state and provincial legislation and regulatory requirements); and without limiting the generality of the foregoing, each Party shall comply with, and shall take all necessary measures to ensure that (i) its actions (or lack of action) do not result in non-compliance by the other Party, with the provisions of the Personal Information Protection and Electronic Documents Act (Canada) and any similar federal, state or provincial legislation, including the provisions relating to the collection, use, retention and disclosure of Personal Information and (ii) the transfer of any information hereunder is in compliance with applicable export control or similar Laws.

[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

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     IN WITNESS WHEREOF, the parties have executed this Agreement.

ATS AUTOMATION TOOLING SYSTEMS INC.

Per:

Name:

Title:

Per:

Name:

Title:

PHOTOWATT TECHNOLOGIES INC.

Per:

Name:

Title:

EX-10.1

Exhibit 10.1

MASTER SEPARATION AGREEMENT

between

ATS AUTOMATION TOOLING SYSTEMS INC.

– and –

PHOTOWATT TECHNOLOGIES INC.

[     ], 2006

TABLE OF CONTENTS

	Page
ARTICLE 1 DEFINITIONS		1
1.1 Defined Terms		1
1.2 Construction		9
1.3 Conflicts With Other Separation Agreements		10
ARTICLE 2 PHOTOWATT ASSETS AND LIABILITIES		10
2.1 Transfer of Photowatt Assets		10
2.2 Non-Transferred Assets		10
2.3 No Representations or Warranties		11
2.4 Assumption of Photowatt Liabilities		11
ARTICLE 3 THE OFFERING		11
3.1 Proceeds of the Offering		11
ARTICLE 4 MATTERS RELATING TO A SPIN-OFF		11
4.1 Spin-Off		11
4.2 Actions Prior to a Spin-Off		12
4.3 Stockholder-Related Matters Regarding a Spin-Off		13
ARTICLE 5 EMPLOYEE MATTERS AND NON-COMPETITION		14
5.1 Employee Matters		14
5.2 Non-Competition		15
ARTICLE 6 ACCESS TO AND DISCLOSURE OF INFORMATION		15
6.1 Restrictions on Disclosure of Information		15
6.2 Legally Required Disclosure of Information		17
6.3 Access to Information		17
6.4 Record Retention		18
6.5 Production of Witnesses		18
6.6 Reimbursement		18
6.7 Other Agreements Regarding Access to Information		19
6.8 Acquisition of Photowatt by Another Person		19
ARTICLE 7 ADDITIONAL COVENANTS		19
7.1 Further Assurances		19
7.2 Performance		20

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TABLE OF CONTENTS
(continued)

	Page
7.3 ATS Guarantees		20
7.4 TPC Contribution Agreement		20
7.5 Original Corporate Records		23
7.6 License of ATS Solar Automation Know-How		23
7.7 Legal and Regulatory Matters		23
ARTICLE 8 MUTUAL RELEASES; INDEMNIFICATION		24
8.1 Release of Pre-Closing Claims		24
8.2 Indemnification by Photowatt		25
8.3 Indemnification by ATS		26
8.4 Claim Procedure		26
8.5 Survival; Limitations		28
8.6 Production of Witnesses and Documents		30
ARTICLE 9 MISCELLANEOUS		31
9.1 Assignment		31
9.2 Entire Agreement		31
9.3 No Agency		31
9.4 Future Litigation and Other Proceedings		32
9.5 Further Assurances		32
9.6 Notices		32
9.7 Time of Essence		33
9.8 Governing Law		33
9.9 Severability		33
9.10 Force Majeure		33
9.11 Publicity		34
9.12 Specific Performance		34
9.13 Currency		34
9.14 Time Periods		34
9.15 Amendment		34
9.16 Counterparts		34
9.17 Authority		34
9.18 Jurisdiction		34

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TABLE OF CONTENTS
(continued)

	Page
9.19 Dispute Resolution		35
9.20 Binding Effect		38
9.21 Expenses		38
9.22 Waiver		38
9.23 Compliance With Laws		38

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MASTER SEPARATION AGREEMENT

     This Master Separation Agreement (this “Agreement”) is made and entered into as of [     ], 2006, by and between ATS Automation Tooling Systems Inc., a corporation governed by the laws of Ontario (“ATS”), and Photowatt Technologies Inc., a corporation governed by the laws of Canada (“Photowatt”). ATS and Photowatt are sometimes referred to herein separately as a “Party” and together as the “Parties.”

RECITALS

A. [ATS owns, directly or indirectly, 100% of the issued and outstanding common shares of Photowatt.]

B. Photowatt is undertaking an initial public offering (the “Offering”) of its common shares pursuant to a registration statement on Form F-1 under the U.S. Securities Act of 1933 and a prospectus filed with Canadian Authorities (as defined below).

C. Immediately prior to the completion of the Offering, ATS and Photowatt intend to enter into a Master Separation Agreement (the “Master Separation Agreement”), containing the key provisions relating to the separation of ATS and Photowatt, and the other Separation Agreements (as defined in the Master Separation Agreement).

D. Immediately following completion of the Offering, ATS will own, directly or indirectly approximately [     ]% of the outstanding Photowatt Common Shares (as defined below).

E. ATS and Photowatt desire to maintain the ability of ATS (if so determined by the ATS board of directors) to distribute to holders of ATS Common Shares (as defined below) all or a portion of the outstanding Photowatt common shares then owned by ATS (a “Spin-Off”).

F. The Parties intend in this Agreement and the other Separation Agreements to set forth the principal arrangements between them regarding the Offering and their operations thereafter.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth below, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

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“ATS” is defined in the preamble to this Agreement.

“ATS Assets” means any and all Assets of the ATS Group or Photowatt Group as of the Separation Time other than the Photowatt Assets.

“ATS Business” means the businesses or operations of the ATS Group excluding the Existing Photowatt Business.

“ATS Common Shares” means the common shares in the capital of ATS.

“ATS Disclosure Portions” means all material set forth in the Registration Statement, the Prospectus and the final Preliminary Prospectus to the extent relating exclusively to (i) the ATS Group, excluding Automation Tooling Systems Enterprises, Inc. and Matrix Solar Technologies, Inc. to the extent that the material relates to the Existing Photowatt Business or (ii) the ATS Business.

“ATS Group” means ATS and each Person that ATS directly or indirectly controls (within the meaning of the Securities Act), other than any member of the Photowatt Group.

“ATS Indemnified Persons” means each member of the ATS Group and its respective Representatives.

“ATS Liabilities” means the Liabilities of the ATS Group (but excludes all Photowatt Liabilities).

“ATS Products” means all products of the ATS Business.

“ATS Solar Automation Know-How” means all information, whether written or unwritten, existing as of execution of this Agreement, relating to the Field of Use, that is: (i) known to ATS; or (ii) intellectual property rights owned by ATS, but excluding any intellectual property rights owned by ATS solely to the extent covered by any patent or application therefor owned by ATS as at the Separation Time.

“Action” means any suit, arbitration, inquiry, proceeding or investigation by or before any court, Governmental Authority or any arbitration tribunal asserted by a Person.

“Affiliate” of any specified Person means any other Person directly or indirectly “controlling,” “controlled by” or “under common control with” (within the meaning of the Securities Act), such specified Person; provided, however, that for purposes of the Separation Agreements, except to the extent expressly provided otherwise, the determination of whether a Person is an Affiliate of another Person shall be made assuming that no member of the ATS Group is an Affiliate of any member of the Photowatt Group and vice versa.

“Agreement” is defined in the preamble to this Agreement.

“Amalco” is defined in Section 4.1(a).

“Annual Financial Statements” means (i) the consolidated annual financial statements of the Photowatt Group (and notes thereto), including in comparative form the consolidated figures (and notes thereto) for the previous fiscal year, all in reasonable detail and prepared in

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accordance with Regulation S-X, Canadian Securities Laws and GAAP and in accordance with any similar or successor rule or laws, and (ii) a discussion and analysis by management of the Photowatt Group’s financial condition and results of operations for such year, including an explanation of any material period-to-period change and any off-balance sheet transactions, all in reasonable detail and prepared in accordance with Item 303(a) of Regulation S-K and Canadian Securities Laws and in accordance with any similar or successor rule or laws.

“Assets” means assets, properties and rights (including goodwill and rights arising under Contracts), wherever located (including in the possession of vendors, other Persons or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person.

“Business Day” means a day other than Saturday, Sunday or other day on which commercial banks in Toronto, Ontario are authorized or required by Law to close.

“Business Guarantees” is defined in Section 7.3.

“Canadian Authorities” is defined in Section 4.1(a).

“Canadian Securities Laws” means securities legislation established in each province and territory of Canada, and all regulations, rules, blanket orders and policies established thereunder or issued by Canadian Authorities.

“Claimed Amount” is defined in Section 8.4(a).

“Claim Notice” is defined in Section 8.4(a).

“Consents” means the consents of Persons referred to in the disclosure letter of even date delivered by ATS to Photowatt and initialed by the Parties.

“Contract” means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable Law.

“Controlling Party” is defined in Section 8.4(d)(ii).

“Designated Purposes” means the purpose or purposes for which any confidential Information or Personal Information may be used by any Group member pursuant to this Agreement or any other Separation Agreement and otherwise in accordance with any directions given by one Party to the other Party in performance of services under the Transitional Services Agreement.

“Dispute” is defined in Section 9.19.

“Distribution Agent” is defined in Section 4.3(a).

“Environmental Conditions” means the presence in the environment, including the soil, subsurface strata, groundwater, surface water or ambient air, of any Hazardous Material at a

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level which exceeds any applicable standard or threshold under any Environmental Law or otherwise requires investigation or remediation (including investigation, study, health or risk assessment, monitoring, removal, treatment or transport) under any applicable Environmental Laws.

“Environmental Laws” means all Laws of any Governmental Authority with jurisdiction that relate to the protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) including laws and regulations relating to a Hazardous Materials Release, or otherwise relating to the import, storage, distribution, labelling, sale, use, treatment, disposal, transport or handling of Hazardous Materials, or to the exposure of any individual to a Hazardous Materials Release.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Excluded Assets” means the Assets referred to in Exhibit A.

“Existing Photowatt Business” means the solar and related businesses and operations conducted by ATS prior to the Separation Time through its subsidiaries Photowatt International S.A.S., Automation Tooling Systems Enterprises, Inc., Matrix Solar Technologies, Inc., Photowatt Technologies USA Inc. and Spheral Solar Power, Inc., as well as the Spheral Solar Division of ATS, and including such businesses and operations of the Photowatt Group as described in the Prospectus.

“Field of Use” means the automation of one or more steps in the manufacturing of solar products, including the design and manufacture of equipment used to automatically convey, grip, locate, orient, connect, manipulate, alter, form, inspect, test or sense materials or products as part of a manufacturing process and all processes embodied in such equipment or relating to the manufacturing of solar products or the automation thereof.

“Financial Statements” means the Annual Financial Statements and Quarterly Financial Statements collectively.

“GAAP” means Canadian generally accepted accounting principles, consistently applied.

“Governmental Authority” means any federal, provincial, state or local or any foreign government, supranational, governmental, regulatory or administrative authority, instrumentality, agency or commission, political subdivision, self-regulatory organization or any court, tribunal or judicial or arbitral body or other governmental authority.

“Group” means either the ATS Group or the Photowatt Group, as the context requires.

“Hazardous Materials” means chemicals, pollutants, contaminants, hazardous substances, dangerous substance, noxious substance, toxic substance, radioactive and biological materials, petroleum and petroleum products or any fraction thereof, hazardous waste, flammable or explosive material, radio-active material, urea formaldehyde foam insulation, asbestos, polychlorinated biphenyls, polychlorinated biphenal waste, polychlorinated biphenal related waste or any other substance or material now or hereafter declared, defined or deemed to be regulated or controlled in or pursuant to Environmental Laws.

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“Hazardous Materials Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including the movement of Hazardous Materials through ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata.

“Included Liabilities” means the Liabilities referred to in Exhibit B.

“Indemnified Party” is defined in Section 8.4(a).

“Indemnified Person” means, as applicable, a Photowatt Indemnified Person or an ATS Indemnified Person.

“Indemnifying Party” is defined in Section 8.4(a).

“Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, that may be stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

“Law” means any law (statutory, common or otherwise), constitution, ordinance, code, rule, regulation, guideline, executive order or other similar authority enacted, adopted, promulgated or applied by any Governmental Authority, each as amended.

“Lease Agreement” means the Lease Agreement in the form set out in Exhibit D.

“Liability” means any liability, obligation, cost or expense, whether known or unknown, asserted or unasserted, fixed, absolute or contingent, matured or unmatured, conditional or unconditional, latent or patent, accrued or unaccrued, liquidated or unliquidated or due or to become due, wherever or however arising (including whether arising out of any Law, Contract or tort based on negligence or strict liability), including but not limited to, any tax liability.

“Losses” means all damages, losses, Liabilities, payments, amounts paid in settlement, obligations, fines, penalties, costs of burdens associated with performing injunctive relief and other costs (including reasonable fees and expenses of outside attorneys, accountants and other professional advisors, and of expert witnesses and other costs (excluding the allocable portion of the relevant Person’s internal costs) of investigation, preparation and litigation in connection with any action, appeal, petition, plea, charge, complaint, claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry, investigation or similar matter or proceeding) of any kind or nature whatsoever, whether known or unknown, contingent or vested, or matured or unmatured.

“Master Supply Agreement” means the Master Supply Agreement in the form set out in Exhibit E.

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“Non-Controlling Party” is defined in Section 8.4(d)(ii).

“Non-Transferred Asset” is defined in Section 2.2(a).

“Offering” is defined in the recitals to this Agreement.

“Owning Party” is defined in Section 6.2.

“Person” means any individual or entity, including any partnership, limited liability company, joint venture, corporation, trust, unincorporated organization and Governmental Authority.

“Personal Information” means any information about an identifiable individual that is provided to or obtained by any Group member on behalf of the other Party or any of its respective Group members.

“Photowatt” is defined in the preamble to this Agreement.

“Photowatt Assets” means any and all Assets that are used exclusively or held for use exclusively in the Existing Photowatt Business excluding the Excluded Assets.

“Photowatt Business” means the businesses and operations conducted by the Photowatt Group at the relevant time.

“Photowatt Common Shares” means the common shares in the capital of Photowatt, and include (i) any shares of Photowatt into which such shares may be converted, reclassified, subdivided, consolidated, exchanged or otherwise changed, whether pursuant to a reorganization, amalgamation, merger, arrangement or other form of reorganization, and (ii) any securities of Photowatt convertible into, exchangeable for or otherwise exercisable to acquire such shares.

“Photowatt Facilities” means the facilities located at each of 25 Reuter Drive, Cambridge, Ontario, N3E 1A9; 33, rue Saint-Honore, Z.1 Champfleuri 38300 Bourgoin-Jallieu, France; 540 Silver Creek Road N.W., Suite A, Albuquerque, New Mexico; and such other facilities, offices and locations from which the business or operations of the Photowatt Business are conducted.

“Photowatt Group” means Photowatt and each Person that Photowatt directly or indirectly controls (within the meaning of the Securities Act).

“Photowatt Indemnified Persons” means each member of the Photowatt Group and its respective Representatives.

“Photowatt Liabilities” means the following:

(i) any and all Liabilities to the extent arising out of or relating to the Existing Photowatt Business, the Photowatt Business or the Photowatt Assets, in each case whether such Liabilities arise or accrue prior to, on or after the Separation Time including:

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(A)	any and all Liabilities of any member of the Photowatt Group owed to the ATS Group pursuant to valid intercompany accounts as of the Separation Time and/or reflected in the financial statements contained in the Prospectus or in any Annual Financial Statements or Quarterly Financial Statements prepared after the Separation Time;
(B)	any and all Liabilities arising from or related to Environmental Conditions (x) existing on, under, about or in the vicinity of any of the Photowatt Facilities whether prior to or after the Separation Time, or (y) arising out of operations occurring at any time prior to or after the Separation Time of the Existing Photowatt Business, the Photowatt Business or the Photowatt Assets, or at any of the Photowatt Facilities;
(C)	any and all employment-related Liabilities related to employees of the Existing Photowatt Business and the Photowatt Business;
(D)	any and all Liabilities relating to, arising out of or resulting from any act or failure to act by any Representative of any member of the ATS Group, including Photowatt (whether or not such act or failure to act is or was within such Person’s authority); and
(E)	any and all tax Liabilities relating to, arising out of or resulting from the Existing Photowatt Business and the Photowatt Business;

(ii)	any and all Liabilities to the extent arising out of or relating to the operation of any business conducted by any member of the Photowatt Group at any time after the Separation Time;
(iii)	any and all Liabilities that are expressly listed, scheduled or otherwise clearly described in any other Separation Agreement as Liabilities for which Photowatt or any member of the Photowatt Group is to be responsible, including but not limited to, any Liabilities set out in Exhibit B as “Included Liabilities”;
(iv)	any and all Business Guarantees that are not replaced with Substitute Guarantees, or with respect to which ATS or any member of the ATS Group has any liability or obligation after the Closing Date; and
(v)	any and all obligations of the Photowatt Group under or pursuant to this Agreement, any Separation Agreement or any other instrument entered into in connection herewith or therewith.

“Photowatt Transfer Agent” means the transfer agent and registrar for the Photowatt Common Shares.

“Possessor” is defined in Section 6.3.

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“Preliminary Prospectus” means any preliminary prospectus filed with the SEC and deemed to be part of the Registration Statement and filed with Canadian Authorities pursuant to Canadian Securities Laws.

“Prospectus” means the final prospectus filed with the SEC and deemed to be part of the Registration Statement and filed with Canadian Authorities pursuant to Canadian Securities Laws.

“Quarterly Financial Statements” means (i) the consolidated quarterly financial statements of the Photowatt Group (and notes thereto), including in comparative form the consolidated figures (and notes thereto) for the corresponding quarter and periods of the previous fiscal year, all in reasonable detail and prepared in accordance with Article 10 of Regulation S-X, Canadian Securities Laws and GAAP and in accordance with any similar or successor rule or laws, and (ii) a discussion and analysis by management of the Photowatt Group’s financial condition and results of operations for such fiscal period, including an explanation of any material period-to-period change and any off-balance sheet transactions, all in reasonable detail and prepared in accordance with Item 303(b) of Regulation S-K and Canadian Securities Laws and in accordance with any similar or successor rule or laws.

“Record Date” means the close of business on the date to be determined by ATS board of directors as the record date for determining the shareholders of ATS entitled to receive Photowatt Common Shares pursuant to a Spin-Off.

“Registration Rights Agreement” means the Registration Rights Agreement in the form set out in Exhibit F.

“Registration Statement” means the registration statement on Form F-1 (SEC File No. 333-137044) as filed by Photowatt with the SEC in connection with the Offering, together with all amendments and supplements thereto.

“Regulation S-K” means Regulation S-K of the General Rules and Regulations promulgated by the SEC pursuant to the Securities Act.

“Regulation S-X” means Regulation S-X of the General Rules and Regulations promulgated by the SEC pursuant to the Securities Act.

“Representatives” means, with respect to any Person, any of such Person’s directors, officers, employees, consultants, advisers and agents.

“Requestor” is defined in Section 6.3.

“Retention Period” is defined in Section 6.4.

“SEC” means the United States Securities and Exchange Commission or any successor agency.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

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“Separation Agreements” means this Agreement, the Transfer Agreement, the Lease Agreement, the Registration Rights Agreement, the Shareholder Agreement, the Master Supply Agreement and the Transitional Services Agreement.

“Separation Time” means the time concurrent with the time of closing of the Offering and following the delivery by ATS to Photowatt of a certificate of two officers of Photowatt that all conditions precedent to completion of the Offering, other than the completion of the transactions contemplated by the Separation Agreements to be completed on or prior to the Separation Time, have been satisfied or waived.

“Shareholder Agreement” means the Shareholder Agreement in the form set out in Exhibit G.

“Substitute Guarantees” is defined in Section 7.3.

“Spin-Off” is defined in the recitals to this Agreement.

“Spin-Off Date” means the date, if any, on which a Spin-Off in respect of all Photowatt Common Shares then held by ATS occurs or ATS is otherwise no longer required to consolidate, or account on an equity basis for, the results of operations and financial position of Photowatt or any other member of the Photowatt Group (determined in accordance with GAAP and consistent with SEC reporting requirements and Canadian Securities Laws).

“Tax Benefit” means any deduction, amortization, exclusion from income or other allowance that actually reduces in cash the amount of tax Photowatt or its respective Affiliates (as applicable) would have been required to pay (or actually increases in cash the amount of tax refund to which Photowatt or its respective Affiliates (as applicable) would have been entitled) in the absence of the item giving rise to the indemnity claim.

“Third Party Claim” is defined in Section 8.4(d)(i).

“TPC Contribution Agreement” means TPC Agreement No. 731-477798 dated March 28, 2002, as amended by an amendment agreement dated September 17, 2004, each between Her Majesty The Queen In Right Of Canada, as represented by the Minister of Industry, and ATS.

“Transfer Agreement” means the Transfer Agreement in the form set out in Exhibit H.

“Transitional Services Agreement” means the Transitional Services Agreement in the form set out in Exhibit I.

1.2 Construction. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favouring or disfavouring any Party because of the authorship of any provision of this Agreement. Any reference to any federal, state, provincial, local or foreign law shall be deemed also to refer to such law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. Any reference to any Contract (including schedules, exhibits and other attachments thereto), including this Agreement, shall be deemed also to refer to such Contract as amended, restated or otherwise modified, unless the context requires otherwise. The words “include,” “includes” and “including” shall be deemed to be followed by “without limitation.” Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context requires otherwise. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this

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Agreement as a whole and not to any particular subdivision unless expressly so limited. Where this Agreement states that a Party “will” or “shall” perform in some manner or otherwise act or omit to act, it means that such Party is legally obligated to do so in accordance with this Agreement. The word “or” shall not be exclusive. The captions, titles and headings included in this Agreement are for convenience only and do not affect this Agreement’s construction or interpretation. Any reference to an Article, Section or Schedule in this Agreement shall refer to an Article or Section of, or Schedule to, this Agreement, unless the context otherwise requires.

1.3 Conflicts With Other Separation Agreements. To the extent any portion of this Agreement conflicts with any other Separation Agreement, this Agreement shall control.

ARTICLE 2
PHOTOWATT ASSETS

2.1 Transfer of Photowatt Assets. In order to effect the transfer of the Photowatt Assets by the ATS Group to the Photowatt Group on the terms contemplated by the Separation Agreements, which transfers are to occur prior to or concurrent with completion of the Offering as contemplated by the Separation Agreements, each Party will enter into the Separation Agreements other than this Agreement at the Separation Time.

2.2 Non-Transferred Assets.

(a)

If any Party discovers after the Separation Time that a member of the ATS Group has title to, or an interest in, a Photowatt Asset or a member of the Photowatt Group has title to, or an interest in, an ATS Asset (in either case, a “Non-Transferred Asset”), each Party shall (and shall cause the applicable member(s) of its Group to) cooperate and use commercially reasonable efforts to promptly transfer such title or interest to the appropriate Party (or another member of its Group designated by it), including obtaining any necessary consents or approvals or taking any other actions necessary to effect such transfers.

(b)

If an attempted assignment of a Non-Transferred Asset would be ineffective or would impair the rights of the Party entitled to such asset with respect to such Non-Transferred Asset so that such Party (or its applicable Group Member) would not receive all such rights, then the Parties shall use commercially reasonable efforts to provide to, or cause to be provided to, such Party (or its applicable Group Member), to the extent permitted by Law, rights related to such Non-Transferred Asset and take such other actions as may reasonably be requested by such Party in order to place it, insofar as reasonably possible, in the same position as if such Non-Transferred Asset had been transferred as contemplated hereby. In connection therewith, (i) the Party with title to or an interest in such asset (or its applicable Group Member) shall promptly pass along to the Party entitled to such asset (or its applicable Group Member) when received all benefits derived with respect to any such Non-Transferred Asset, and (ii) the Party entitled to such asset (or its applicable Group Member) shall pay, perform and discharge on behalf of the other Party (or its applicable Group Member) all of the obligations with respect to any such Non-Transferred Asset in a timely

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manner and in accordance with the terms thereof. If and when such transfer may be effected without impairing the rights of the Party entitled to such asset, the Parties shall take appropriate steps to effect transfer of such Non-Transferred Asset.

2.3 No Representations or Warranties. Photowatt (on behalf of itself and each member of the Photowatt Group) acknowledges and agrees that, except as expressly set forth in the Separation Agreements, (a) no member of the ATS Group is making any representations or warranties, express or implied, as to the condition, quality, merchantability or fitness of any Photowatt Asset, whether a Non-Transferred Asset or otherwise, (b) any Non-Transferred Asset shall be transferred on an “as is,” “where is” basis, and (c) the applicable member of the Photowatt Group shall bear the economic and legal risks that any conveyance shall prove to be insufficient to vest in such Person good and marketable title to any Non-Transferred Asset.

2.4 Assumption of Photowatt Liabilities. In furtherance of the transfer of the Photowatt Assets by the ATS Group to the Photowatt Group as contemplated in Section 2.1, the Photowatt Group hereby fully and unconditionally assumes and, to the extent they become due and payable, covenants to pay or otherwise perform or discharge when done, the Photowatt Liabilities, to the complete exoneration of the ATS Group, which assumptions are to occur prior to or concurrent with completion of the Offering as contemplated by the Separation Agreements.

ARTICLE 3
THE OFFERING

3.1 Proceeds of the Offering. The Offering shall consist of a primary offering of Photowatt Common Shares, with a secondary offering of Photowatt Common Shares by ATS to the extent that the over-allotment option to be granted by ATS to the underwriters of the Offering is exercised. The net proceeds of the Offering to Photowatt shall be used as described in the Prospectus in the section entitled “Use of Proceeds.”

ARTICLE 4
MATTERS RELATING TO A SPIN-OFF

4.1 Spin-Off.

(a) ATS has the right, but not the obligation, following the consummation of the Offering, to effect one or more Spin-Offs. ATS shall (in its sole and absolute discretion) determine whether to effect a Spin-Off and, if so, the date of its consummation and all of its terms, including (a) the form, structure and terms of any transactions(s) and/or offerings(s) to effect the Spin-Off; (b) the timing of and conditions to the consummation of the Spin-Off; (c) the selection of any investment banker(s) and manager(s); and (d) the selection of any financial printer, solicitation and/or exchange agent and financial, legal, accounting and other advisors. In addition, ATS may, at any time and from time to time until the completion of a Spin-Off, modify or change the terms of such a Spin-Off, including by accelerating or delaying the timing of the consummation of all or part of such a Spin-Off. At the request of ATS, Photowatt shall cooperate with ATS in all respects to accomplish a Spin-Off and shall, at the direction of ATS, promptly take any and all actions necessary or desirable to effect a Spin-Off, including, to the extent necessary: (i) all actions required to be undertaken by Photowatt in connection with an amalgamation of Photowatt with either an Affiliate of ATS or a corporation whose shareholders and shareholdings are the same as the shareholders and shareholdings of ATS (in either case, an “Amalco”), that does not result in an adverse “material change” (as defined under Canadian

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Securities Laws) to the Photowatt Group, including preparing and delivering a notice of a meeting of holders of Photowatt Shares and soliciting votes in favour of any such amalgamation, which may be specified by ATS, on terms to be specified by ATS (acting reasonably); and (ii) the registration under the Securities Act and the Exchange Act of the Photowatt Common Shares distributed by ATS on an appropriate registration form or forms, the filing of all required documents with Canadian provincial and territorial securities regulatory authorities (the “Canadian Authorities”) and the SEC, including a prospectus prepared in accordance with Canadian Securities Laws and the Securities Act and an application for relief from the Canadian Authorities and the SEC in respect of prospectus or registration requirements otherwise applicable, in any case to ensure that the Photowatt Common Shares are not subject to resale restrictions under Canadian Securities Laws (except those restrictions which may be applicable to control block holders) and the Securities Act. Nothing in this Agreement shall prohibit Photowatt from engaging (at its own expense) its own financial, legal, accounting and other advisors in connection with a Spin-Off.

(b) ATS will not effect a Spin-Off involving an amalgamation of Photowatt with an Amalco unless ATS has obtained an advance tax ruling from the Canada Revenue Agency reasonably acceptable to the board of directors of ATS, to the effect that any dividend received by the Amalco will not be deemed under 55(2) of the Income Tax Act (Canada) not to be a dividend received by the Amalco.

4.2 Actions Prior to a Spin-Off. In connection with a Spin-Off, the Parties shall take one or more of the applicable actions set forth in this Section 4.2.

(a)	ATS and Photowatt shall prepare and mail, prior to the effective date of the Spin-Off, to the holders of ATS Common Shares, such information concerning Photowatt and the Spin-Off and such other matters as ATS reasonably determines and as may be required by Law. The Parties shall prepare, and Photowatt shall, to the extent required by applicable Law, file with the SEC and Canadian Authorities any such documentation that ATS determines is necessary or desirable to effect the Spin-Off, and each Party shall use commercially reasonable efforts to obtain all necessary approvals from the SEC and Canadian Authorities with respect thereto as soon as practicable.
(b)	Photowatt shall use commercially reasonable efforts to take all such action as may be necessary or desirable under applicable state securities and blue sky Laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Spin-Off.
(c)	Photowatt shall prepare, file and use commercially reasonable efforts to seek to make effective, an application for listing of the Photowatt Common Shares to be distributed in the Spin-Off on The Nasdaq Global Market and the Toronto Stock Exchange, subject in each case to official notice of issuance.

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(d) Photowatt shall use commercially reasonable efforts to take all such other actions (or refrain from any actions) reasonably requested by ATS in connection with the Spin-Off.

4.3 Stockholder-Related Matters Regarding a Spin-Off. With respect to a Spin-Off and subject to Section 4.3(d):

(a)	Distribution. For the purpose of this Section 4.3, the contemplated distribution of Photowatt Common Shares owned by ATS to record holders of ATS Common Shares entitled to receive Photowatt Common Shares in connection with the Spin-Off may take place directly or indirectly, by way of a single step or a series of one or more intermediate steps, including one or more distributions of shares of one or more Affiliates of ATS.
(b)	Distribution Agent. On or prior to the effective date of the Spin-Off, ATS shall deliver to a distribution agent to be appointed by ATS (the “Distribution Agent”) for the benefit of holders of record of ATS Common Shares on the Record Date, documentation reasonably required by the Photowatt Transfer Agent, representing all of the outstanding Photowatt Common Shares then owned by ATS to be distributed pursuant to the Spin-Off and ATS shall instruct the Distribution Agent to deliver to the Photowatt Transfer Agent true, correct and complete copies of the share and transfer records reflecting the record holders of ATS Common Shares entitled to receive Photowatt Common Shares in connection with the Spin-Off. ATS shall cause its transfer agent to instruct the Distribution Agent to distribute on the effective date of the Spin-Off or as soon as reasonably practicable thereafter, directly or indirectly, by way of a single step or a series of one or more intermediate steps, the appropriate number of Photowatt Common Shares to each such record holder or designated transferee(s) of such record holder. ATS shall (and shall instruct the Distribution Agent to) cooperate with Photowatt and the Photowatt Transfer Agent, and Photowatt shall (and shall instruct the Photowatt Transfer Agent to) cooperate with ATS and the Distribution Agent, in connection with all aspects of the Spin-Off and all other matters relating to the issuance and delivery or certificates representing, or other evidence of ownership of, the Photowatt Common Shares to be distributed to the holders of ATS Common Shares in connection with the Spin-Off.
(c)	Number of Spin-Off Shares. Each record holder of ATS Common Shares on the Record Date (or such record holder’s designated transferee(s)) shall be entitled to receive in the Spin-Off, directly or indirectly, by way of a single step or a series of one or more intermediate steps, a number of Photowatt Common Shares equal to the number of ATS Common Shares held by such record holder on the Record Date, multiplied by a fraction, (i) the numerator of which is the number of Photowatt Common Shares to be distributed by ATS pursuant to Section 4.3(a) and (ii) the denominator of which is the number of ATS Common Shares outstanding on the Record Date. If the Spin-Off consists of more than one class of Photowatt Common Shares, each record holder of ATS Common Shares shall

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receive Photowatt Common Shares of each class, calculated as provided above, except that the calculation shall be performed separately for each such class.

(d)

Rights of Holders of Spin-Off Shares. After the Spin-Off, until such Photowatt Common Shares are duly registered in the names of the record holders of ATS Common Shares entitled to receive Photowatt Common Shares in connection with the Spin-Off, in accordance with applicable Law, Photowatt shall regard the Persons entitled to receive such Photowatt Common Shares as record holders of Photowatt Common Shares in accordance with the terms of the Spin-Off without requiring any action on the part of such Persons. Photowatt agrees that, subject to any transfers of such Photowatt Common Shares, (i) each such record holder shall be entitled to receive all dividends payable on, and exercise voting rights and all other rights and privileges with respect to, the Photowatt Common Shares then held by such record holder, and (ii) each such record holder shall be entitled, without any action on the part of such record holder, to receive one or more certificates representing, or other evidence of ownership of, the Photowatt Common Shares then held by such record holder.

(e)

Other Transactions. If ATS determines (in its sole discretion) to effect the separation or other disposition of the Photowatt Common Shares held by it through a transaction other than a Spin-Off (whether by means of a plan of arrangement, split off, a share exchange or otherwise), Photowatt shall use commercially reasonable efforts to take all actions (or refrain from any actions) reasonably requested by ATS in connection therewith.

ARTICLE 5
EMPLOYEE MATTERS AND NON-COMPETITION

5.1 Employee Matters

(a) Without the prior written consent of ATS, Photowatt shall not (and shall cause its Affiliates not to) for a period of five years from the date hereof, directly or indirectly, either for itself or another Person, (i) 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 ATS or any of its Affiliates including any such individual seconded by any member of the ATS Group to any member of the Photowatt Group, or (ii) solicit for employment, solicit for hire, Contract for the services of, or encourage any individual to terminate his or her employment with ATS or any of its Affiliates, other than in publications of a general nature and not specifically directed at any employee or employees of ATS or any of its Affiliates, unless in either case, (A) ATS (and/or its applicable Affiliate) has terminated the employment of such individual or (B) at least two years have elapsed since such individual has voluntarily terminated his or her employment with ATS (and/or its applicable Affiliate).

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(b) Without the prior written consent of Photowatt, ATS shall not (and shall cause its Affiliates not to) for a period of five years from the date hereof, directly or indirectly, either for itself or another Person, (i) 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 Photowatt or any of its Affiliates including any such individual seconded by any member of the Photowatt Group to any member of the ATS Group, or (ii) solicit for employment, solicit for hire, Contract for the services of, or encourage any individual to terminate his or her employment with Photowatt or any of its Affiliates, other than in publications of a general nature and not specifically directed at any employee or employees of Photowatt or any of its Affiliates, unless in either case, (A) Photowatt (and/or its applicable Affiliate) has terminated the employment of such individual or (B) at least two years have elapsed since such individual has voluntarily terminated his or her employment with Photowatt (and/or its applicable Affiliate).

5.2 Non-Competition. For a period of three years from the date hereof, Photowatt shall not, and shall cause the members of the Photowatt Group not to, directly or indirectly, engage in any development, production, manufacture, marketing, distribution, promotion or sale of products competitive with ATS Products in any country in the world in which ATS conducts its business.

ARTICLE 6
ACCESS TO AND DISCLOSURE OF INFORMATION

6.1 Restrictions on Disclosure of Information.

(a) Generally. Without limiting any rights or obligations under any other existing or future agreement between the Parties and/or any other members of their respective Group relating to confidentiality, each Party shall, and each Party shall cause its respective Group members and its Representatives to, hold in strict confidence, with at least the same degree of care that applies to ATS confidential and proprietary Information pursuant to policies in effect as of the Separation Time, and use only for the Designated Purposes, all confidential and proprietary Information concerning the other Group that is either in its possession as of the Separation Time or furnished by the other Group or its respective Representatives at any time pursuant to this Agreement, any other Separation Agreement or the transactions contemplated hereby or thereby (including Information relating to employee benefit or compensation plans, proprietary software and computer programs, and business records). Notwithstanding the foregoing, each Party, its respective Group members and each of their respective Representatives may disclose such Information to the extent that such Person can demonstrate that such Information is or was (i) in the public domain other than by the breach of this Agreement or by breach of any other agreement between or among the Parties and/or any of their respective Group members relating to confidentiality, or (ii) lawfully acquired from a third Person on a non-confidential basis or independently developed by, or on behalf of, such Person by Persons who do not

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have use of any such Information. Each Party shall maintain, and shall cause its respective Group members and Representatives to maintain, policies and procedures, and develop such further policies and procedures as shall from time to time become necessary or appropriate, to ensure compliance with this Section 6.1.

(b)	Non-Disclosure of Third Person Information by Photowatt. Photowatt acknowledges that it and other members of the Photowatt Group may have in its or their possession confidential or proprietary Information of third Persons that was received under a confidentiality or non-disclosure agreement between a member of the ATS Group and such third Person prior to the Separation Time. Photowatt shall (and shall cause its respective Group members and Representatives to) hold in strict confidence and restrict the use of the confidential and proprietary Information of third Persons to which any member of the Photowatt Group has access, in accordance with the terms of any agreements entered into prior to the Separation Time between members of the ATS Group (whether acting through, on behalf of, or in connection with, the Photowatt Business or otherwise) and such third Persons.
(c)	Non-Disclosure of Third Person Information by ATS. ATS acknowledges that it and other members of the ATS Group may have in its or their possession confidential or proprietary Information of third Persons that was received under a confidentiality or non-disclosure agreement between a member of the Photowatt Group and such third Person prior to the Separation Time. ATS shall (and shall cause its respective Group members and Representatives to) hold in strict confidence and restrict the use of the confidential and proprietary Information of third Persons to which any member of the ATS Group has access, in accordance with the terms of any agreements entered into prior to the Separation Time between members of the Photowatt Group and such third Persons.
(d)	Disclosure of Confidential Information with a Group. Once confidential Information has been disclosed to a Group, the members of such Group may disclose it to their individual employees who are engaged directly in the Designated Purposes. Such Group members may also disclose such confidential Information to its Representatives. Such Group members shall advise each recipient of the confidential nature of such confidential Information, and shall instruct each such recipient to comply with the confidentiality obligations contained herein; and the Party responsible for such Group member shall be responsible for the failure of any such recipient to do so. Upon a Party’s request, the Party receiving confidential Information shall require its recipients of such Information to sign an agreement of confidentiality and nondisclosure satisfactory to the requesting Party. The obligations of the receiving Party with respect to such recipient apply regardless of whether such recipient is an employee of such Party.

6.2 Legally Required Disclosure of Information. If either Party or any of its respective Group members or Representatives becomes legally required to disclose any Information (the “Disclosing Party”) that it is otherwise obligated to hold in strict confidence pursuant to Section 6.1, such Party shall promptly notify the Person that owns or has a duty not

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to disclose the Information (the “Owning Party”) and shall use all commercially reasonable efforts to cooperate with the Owning Party so that the Owning Party may seek a protective order or other appropriate remedy and/or waive compliance with this Section 6.2. All expenses reasonably incurred by the Disclosing Party in seeking a protective order or other remedy shall be borne by the Owning Party. If such protective order or other remedy is not obtained, or if the Owning Party waives compliance with this Section 6.2, the Disclosing Party shall (a) disclose only that portion of the Information that its legal counsel advises it is compelled to disclose or otherwise stand liable for contempt or suffer other similar significant corporate censure or penalty, (b) use all commercially reasonable efforts to obtain reliable assurance requested by the Owning Party that confidential treatment shall be accorded such Information, and (c) promptly provide the Owning Party with a copy of the Information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such Information was disclosed.

6.3 Access to Information. During the Retention Period, each Party shall (and shall cause its respective Group members and Representatives to) cooperate with and afford to the other Party reasonable access upon reasonable advance written request to all Information (other than Information that is (a) protected from disclosure by the attorney-client privilege or work product doctrine, (b) business sensitive from the perspective of any aspect of the Photowatt Business that is competitive in a material respect with one or more aspects of the ATS Business, (c) the subject of a confidentiality agreement between such Party and a third Person that prohibits disclosure to the other Party, or (d) prohibited from disclosure under applicable Law) owned by such Party or one of its Group members or within such Party’s or any of its respective Group member’s or Representative’s possession that is created prior to the Spin-Off Date and that relates to the business, assets or liabilities of the requesting Party (the “Requestor”), and such access is reasonably required by the Requestor (i) to comply with requirements imposed on the Requestor by any Governmental Authority, (ii) for use in any proceeding (except for a litigation matter between the Parties or any of their respective Group members), (iii) to satisfy audit, accounting, Tax or similar requirements, (iv) to obtain insurance, or (v) to comply with the Requestor’s obligations under this Agreement or any other Separation Agreement. As used in this Agreement, “access” shall mean the obligation of a Party in possession of Information (the “Possessor”) requested by the Requestor to exert its commercially reasonable efforts to locate all requested Information that is owned and/or possessed by Possessor or any of its respective Group members or Representatives. The Possessor, at its own expense, shall conduct a diligent search designed to identify all requested Information and shall collect all such Information for inspection by the Requestor during normal business hours at the Possessor’s place of business. Subject to such confidentiality and/or security obligations as the Possessor may reasonably deem necessary, the Requestor may have all requested Information duplicated at Requestor’s expense. Alternatively, the Possessor may choose to deliver, at the Requestor’s expense, all requested Information to the Requestor in the form requested by the Requestor. The Possessor shall notify the Requestor in writing at the time of delivery if such Information is to be returned to the Possessor. In such case, the Requestor shall return such Information when no longer needed to the Possessor at the Possessor’s expense. In connection with providing Information pursuant to this Section 6.3, each Party shall, upon the request of the other Party and upon reasonable advance notice, make available during normal business hours its respective employees (and those employees of its respective Group members and Representatives, as applicable) to the extent that they are reasonably necessary to discuss and explain all requested Information with and to the Requestor.

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6.4 Record Retention. Photowatt shall (and shall cause each of its other Group members to) adopt and comply with a prudent record retention policy with respect to Information owned by or in the possession of the Photowatt Group and created prior to the Spin-Off Date that is no less stringent than the ATS record retention policy in effect as of the Separation Time or as ATS may modify such policy between the Separation Time and the Spin-Off Date, provided that ATS notifies Photowatt of any such modifications. In any event, such record retention policy will require Photowatt to retain Information owned by or in the possession of the Photowatt Group and created prior to the Spin-Off Date for a period of not less than seven years. Each Party shall, at its sole cost and expense, preserve and retain all Information in its respective possession or control that the other Party has the right to access pursuant to Section 6.3 or that it is required to preserve and retain in accordance with such record retention policy or for any longer period as may be required by (a) any Governmental Authority, (b) any litigation matter, (c) applicable Law, or (d) any Separation Agreement (as applicable, the “Retention Period”). If either Party wishes to dispose of any Information that it is obligated to retain under this Section 6.4 prior to the expiration of the Retention Period, then that Party shall first provide 45 days’ written notice to the other Party, and the other Party shall have the right, at its option but at the expense of the Party that desires to dispose of such Information, upon prior written notice within such 45-day period, to take possession of such Information within 90 days after the date of the notice provided pursuant to this Section 6.4. Written notice of intent to dispose of such Information shall include a description of the Information in detail sufficient to allow the other Party to reasonably assess its potential need to retain such materials.

6.5 Production of Witnesses. For seven years after the Separation Time, each Party shall (and shall cause each of its respective Group members to) use commercially reasonable efforts to make available to each other, upon written request, its past and present Representatives as witnesses to the extent that any such Representatives may reasonably be required (giving consideration to the business demands upon such Representatives) in connection with any legal, administrative or other proceedings in which the requesting Party may from time to time be involved.

6.6 Reimbursement. Unless otherwise provided in this Article 6, each Party providing access to Information or witnesses to the other Party pursuant to Sections 6.3, 6.4 or 6.5 shall be entitled to receive from the receiving Party, upon the presentation of invoices therefor, payment for all reasonable, out-of-pocket costs and expenses (excluding allocated compensation, salary and overhead expenses) as may be reasonably incurred in providing such Information or witnesses.

6.7 Other Agreements Regarding Access to Information. The rights and obligations of the Parties under this Article 6 are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in this Agreement or any other Separation Agreement.

6.8 Acquisition of Photowatt by Another Person. If Photowatt enters into an agreement with a third Person to directly or indirectly sell all or any portion of the Photowatt Business (other than in the ordinary course of business consistent with past practice), together with the Information related thereto, whether pursuant to a share or asset sale, merger or otherwise, ATS shall have the right to duplicate any Information held by Photowatt that relates to

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(a) the Photowatt Business as conducted through the Spin-Off Date (or the date of the disposition to such third Person if a Spin-Off has not occurred), (b) the transactions contemplated by this Agreement and the other Separation Agreements, and (c) the Financial Statements and any Information relating thereto included in financial statements of ATS. Photowatt shall, in connection with any such disposition (x) provide ATS not less than 20 days’ written notice prior to the consummation of such disposition, and (y) not disclose any Information of ATS or relating to the ATS Business to such third Person without the express written consent of ATS (which may be withheld in its absolute and sole discretion). In addition, ATS shall have the right, in its sole discretion, to require Photowatt to destroy or return to ATS all or any portion of such Information of or relating to the ATS Business prior to such disposition. If ATS enters into an agreement with a third Person to sell all or any portion of the ATS Business, ATS shall not in connection with any such disposition disclose any Information of Photowatt or relating to the Photowatt Business to such third Person without the express written consent of Photowatt (which may be withheld in its absolute and sole discretion).

ARTICLE 7
ADDITIONAL COVENANTS

7.1 Further Assurances. The Parties shall (or shall cause their appropriate Group members or Representatives, as appropriate, to) execute and deliver such other agreements, instruments and documents as may be necessary or desirable in order to effect the transactions contemplated by this Agreement and the other Separation Agreements. At the request of Photowatt, ATS shall (and shall cause applicable members of the ATS Group to) execute and deliver to Photowatt and/or applicable members of the Photowatt Group such other instruments of transfer, conveyance, assignment, substitution and confirmation and take such other actions as Photowatt may reasonably deem necessary or desirable in order (a) to transfer, convey and assign to Photowatt and the other members of the Photowatt Group, as applicable, the Photowatt Assets, (b) to put Photowatt and the other members of the Photowatt Group, as applicable, in actual possession and operating control thereof, and (c) to permit Photowatt and the other members of the Photowatt Group, as applicable, to exercise all rights with respect thereto. At the request of ATS, Photowatt shall (and shall cause applicable members of the Photowatt Group to) execute and deliver to ATS and/or applicable members of the ATS Group all instruments, assumptions, novations, undertakings, substitutions or other documents and take such other action as ATS may reasonably deem necessary or desirable in order to ensure that Photowatt and the other members of the Photowatt Group fully and unconditionally assume and discharge the Photowatt Liabilities as contemplated under this Agreement, the other Separation Agreements or any document in connection herewith or therewith, and relieve the ATS Group of any Liability with respect thereto and evidence the same to third Persons. Except as otherwise expressly provided in this Agreement or any other Separation Agreement, no member of the ATS Group shall be obligated to incur any out-of-pocket costs, expenses and fees in connection with its obligations under this Section 7.1, including any attorneys’ fees, recording, assignment or other similar fees.

7.2 Performance. ATS shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Separation Agreement to be performed by any member of the ATS Group. Photowatt shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and

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obligations set forth in this Agreement or in any Separation Agreement to be performed by any member of the Photowatt Group. Each Party further agrees that it shall cause its other Group members not to take any action or fail to take any action inconsistent with such Party’s obligations under this Agreement, any other Separation Agreement or the transactions contemplated hereby or thereby.

7.3 ATS Guarantees. Photowatt acknowledges that members of the ATS Group have entered into various arrangements in which one or more members of the ATS Group issued or made available guarantees, sureties, bonds, letters of credit or similar instruments or are the primary obligors on other agreements, in any such case to support or facilitate the Existing Photowatt Business or the Photowatt Business (the “Business Guarantees”). It is understood that none of such Business Guarantees shall continue after the Separation Time. On or as promptly as practicable following the date hereof, but in no event later than the Separation Time, Photowatt shall obtain replacements for such Business Guarantees or will either terminate the business transactions or programs of the member of the Photowatt Group supported or facilitated by such Business Guarantees or arrange for itself or one of its Affiliates to be substituted as the primary obligor thereto (collectively, the “Substitute Guarantees”).

7.4 TPC Contribution Agreement.

(a)	Assumption. Photowatt covenants and agrees to observe, perform and fulfill each and every Liability, covenant, term and condition of ATS in, to and under the TPC Contribution Agreement from and including the date of assignment of the TPC Contribution Agreement to Photowatt, to the same extent as if Photowatt had been originally named as a party to the TPC Contribution Agreement together with ATS, collectively as “the Proponent” as such term is used in the TPC Contribution Agreement.
(b)	No Amendment, Termination or Waiver. During such period of time as ATS remains a party to and bound by the TPC Contribution Agreement, Photowatt covenants and agrees: (i) not to amend or assign the TPC Contribution Agreement, or to seek the consent of any other party to the TPC Contribution Agreement to the waiver of any provisions thereof, without ATS’ prior written consent and (ii) not to terminate or breach the TPC Contribution Agreement or, for greater clarity, effect a material change in the total scope or nature of any element of the “Project” as such term is used in the TPC Contribution Agreement, without prior consultation with ATS, such consultation to be conducted in good faith and for a reasonable duration.
(c)	Further Assurances. For greater clarity, if ATS determines (in its sole discretion) to seek any further consent or consents with respect to the assignment of the TPC Contribution Agreement, the assignment of Assets subject to the TPC Contribution Agreement, or the release of ATS from any or all Liabilities, covenants, terms or conditions under TPC Contribution Agreement, Photowatt covenants and agrees to take all actions (or refrain from any actions) reasonably requested by ATS in connection therewith.

7.5 Original Corporate Records.

(a)	If any member of the ATS Group has possession of original corporate records of the Photowatt Group, ATS will cause such member to promptly deliver such original corporate records to the Photowatt Group upon request.
(b)	If any member of the Photowatt Group has possession of original corporate records of the ATS Group, Photowatt will cause such member to promptly deliver such original corporate records to the ATS Group upon request.

7.6 License of ATS Automation Solar Know-How.

(a)	License. Subject to the terms and conditions of this Agreement, including Section 5.2, ATS hereby grants to Photowatt an irrevocable, personal, non-exclusive, worldwide, royalty-free, perpetual right and license to use the ATS Solar Automation Know-How now in Photowatt’s possession, solely for Photowatt’s internal use in conducting Photowatt’s business including the right to make, have made, and use, but excluding the right to market and sell manufacturing equipment embodying such ATS Solar Automation Know-How.
(b)	Sub-Licensing. The license granted in Section 7.6(a) is personal and non-transferable and may not be sub-licensed without the express written consent of ATS, except to a wholly-owned Subsidiary of Photowatt and then only so long as it remains a wholly-owned Subsidiary of Photowatt.
(c)	Restrictions. For greater certainty, nothing in the license granted in Section 7.6(a):

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(i)	entitles Photowatt to use the ATS Solar Automation Know-How for the benefit of a competitor of ATS other than may be incidental to the manufacturing of equipment for Photowatt;
(ii)	grants Photowatt any rights in respect of any patent or application therefor, trade-mark or copyright owned by the ATS Group or any intellectual property rights owned by any third party;
(iii)	grants Photowatt any rights in respect of know-how arising after the date of execution of this agreement;
(iv)	prevents any member of the ATS Group from continuing to manufacture equipment or offering services in respect of the Field of Use for the solar industry or using the ATS Solar Automation Know-How in any way; nor
(v)	prevents either Party from using know-how, technology or information generally known within the applicable industry.

(d)	Acknowledgment. Photowatt acknowledges that the purpose of this Agreement is to facilitate Photowatt in continuing to conduct its business by providing for the continued use of ATS Solar Automation Know-How now in its possession. Photowatt also acknowledges that, as of the execution of this Agreement, it is in possession of all ATS Solar Automation Know-How licensed hereunder and that ATS has no affirmative obligation hereunder to actively disclose, transmit or deliver to Photowatt in any manner any ATS Solar Automation Know-How.
(e)	No Ongoing Assistance. ATS shall have no ongoing obligation to provide further information or assistance to Photowatt, to provide technical advice, to send personnel to Photowatt’s facilities or to train Photowatt’s personnel, except as ATS and Photowatt may specifically agree.
(f)	No Rights to Improvements. ATS shall have no obligation to provide Photowatt with updates or improvements to the ATS Solar Automation Know-How or to know-how developed after the date of execution of this Agreement and neither Party shall have any obligation to disclose to the other improvements to the ATS Solar Automation Know-How developed or acquired by that Party.
(g)	No Warranties. ATS does not warrant the quality, utility, merchantability, or any other characteristic of the ATS Solar Automation Know-How or of any product made, used or sold under the license granted in Section 7.6(a). ATS shall not be liable or responsible in any way (including incidental or consequential damages) for any use which Photowatt or any customer of Photowatt makes of any product manufactured, used or sold which incorporates the ATS Solar Automation Know-How licensed under this Agreement. Nothing herein shall be construed as a representation or warranty by ATS (i) as to the results to be attained by the utilization of the rights granted under this agreement; or (ii) that there is any warranty other than as expressly described herein.

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(h) Confidentiality. The Parties acknowledge that the ATS Solar Automation Know-How, whether written or unwritten, is considered secret, confidential and proprietary to ATS and as such, shall be deemed to be confidential whether or not such information, in written form or not, is so identified by ATS as being confidential. Specific ATS Solar Automation Know-How disclosed by ATS to Photowatt shall not be deemed to be in the public domain merely because it is addressed in a general manner as part of information in the public domain, provided that the specific information is not public. Photowatt shall not disclose, for a period of ten years from the date first written above, any and all such confidential ATS Solar Automation Know-How, provided, however, that such obligations of secrecy shall not include information that:

(i)	is at the time of disclosure generally available to the public, or
(ii)	becomes after disclosure generally available to the public through no fault of the Photowatt, or
(iii)	is received by Photowatt from third parties and such third party is not prohibited from disclosing the information to Photowatt.

	During such period, Photowatt shall ensure that no such part of the ATS Solar Automation Know-How that is confidential shall be disclosed except to responsible Representatives who require such information during the course of their duties, and then only in accordance with Section 7.6(j).
(i)	Further Covenants. Photowatt shall not use, disclose or allow access to the ATS Solar Automation Know-How for any purpose other than the purposes permitted by the license granted to it in Section 7.6(a) and in any event in any way that is, directly or indirectly, detrimental to ATS or its Affiliates. Photowatt shall keep the ATS Solar Automation Know-How strictly confidential and treat the ATS Solar Automation Know-How as proprietary to ATS. Photowatt shall not divulge to, or cause or permit to be divulged to, any third party other than Representatives, in any manner whatsoever, the ATS Solar Automation Know-How.
(j)	Disclosure to Representatives. Photowatt may disclose ATS Solar Automation Know-How to only those of its Representatives as is necessary for the purposes permitted by the license granted to it in Section 7.6(a). Photowatt shall inform such Representatives of the confidential nature of the ATS Solar Automation Know-How and cause such Representatives to agree to treat such ATS Solar Automation Know-How confidentially in accordance with this Agreement and not to use, disclose or allow access to such ATS Solar Automation Know-How except as permitted herein. Photowatt shall be responsible for any breach of this Agreement by any of its Representatives. Photowatt shall take all reasonable measures, including court proceedings, at Photowatt’s sole expense, to restrain its Representatives from making unauthorized use or disclosure of the ATS Solar Automation Know-How.

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7.7 Legal and Regulatory Matters. Until ATS and its Affiliates cease to hold in aggregate less than 50% of the outstanding Photowatt Common Shares, Photowatt shall not adopt policies or directives relating to legal or regulatory compliance that are inconsistent in any material respect with the policies and directives identified by ATS as critical to legal and regulatory compliance; provided, however, that nothing contained herein shall prevent adoption of policies or directives that, in the opinion of counsel to Photowatt, are necessary or desirable to comply with then applicable Law.

ARTICLE 8
MUTUAL RELEASES; INDEMNIFICATION

8.1 Release of Pre-Closing Claims.

(a)	Photowatt Release. Except as provided in Section 8.1(d) to this Agreement, effective as of the Separation Time, Photowatt does hereby, for itself and as agent for each member of the Photowatt Group, remise, release and forever discharge the ATS Indemnified Persons from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Time, including in connection with the transactions and all other activities to implement any of the Offering or the transactions contemplated by this Agreement or any of the Separation Agreements.
(b)	ATS Release. Except as provided in Section 8.1(d), effective as of the Separation Time, ATS does hereby, for itself and as agent for each member of the ATS Group, remise, release and forever discharge the Photowatt Indemnified Persons from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Time, including in connection with the transactions and all other activities to implement any of the Offering or the transactions contemplated in this Agreement or any of the Separation Agreements.
(c)	Release and Waiver of Unknown Claims. Photowatt, for itself and as agent for each member of the Photowatt Group, and ATS, for itself and as agent for each member of the ATS Group, do hereby agree, represent, and warrant that the matters released herein are not limited to matters which are known or disclosed. Photowatt, for itself and as agent for each member of the Photowatt Group, and ATS, for itself and as agent for each member of the ATS Group, may hereafter discover facts in addition to or different from those which it now knows or believes to be true with respect to the subject matter of this release, but each shall be deemed to have, finally, and forever settled and released any and all claims, known or unknown, suspected or unsuspected, contingent or non-contingent,

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whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts.

(d)	No Impairment. Nothing contained in Section 8.1(a), Section 8.1(b) or Section 8.1(c) shall impair any right of any Person to enforce this Agreement or any other Separation Agreement or other agreement in force and effect between Photowatt and ATS as of the Separation Time, in each case in accordance with its terms, including the provisions of Section 8.2, Section 8.3 and Section 8.4.
(e)	No Actions as to Released Claims. Photowatt agrees, for itself and as agent for each member of the Photowatt Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against ATS or any member of the ATS Group, or any other Person released pursuant to Section 8.1(a), with respect to any Liabilities released pursuant to Section 8.1(a). ATS agrees, for itself and as agent for each member of the ATS Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Photowatt or any member of the Photowatt Group, or any other Person released pursuant to Section 8.1(b), with respect to any Liabilities released pursuant to Section 8.1(b).
(f)	Further Instruments. At any time, at the request of the other Party, each Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof and such other documents as are necessary to effect the purposes hereof.

8.2 Indemnification by Photowatt. Subject to Section 8.5, Photowatt shall indemnify and hold harmless each ATS Indemnified Person from and against any and all Losses relating to, arising out of or in connection with the following, whether such Losses arise or accrue prior to, on or following the Separation Time:

(a)	The failure of Photowatt or any other member of the Photowatt Group or any other Person to pay, perform or otherwise properly discharge any of the Photowatt Liabilities in accordance with their respective terms;
(b)	The Existing Photowatt Business, the Photowatt Business or any Photowatt Liability (including any Photowatt Liability guaranteed by a member of the ATS Group);
(c)	Any breach by Photowatt or any member of the Photowatt Group of this Agreement or any Separation Agreement;
(d)	With respect to all information contained in the Registration Statement, the Prospectus, the Preliminary Prospectus or any other materials (excluding in the case of such other materials any other materials distributed solely by or on behalf

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	of ATS) distributed in connection with the Offering or 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 the ATS Disclosure Portions; and
(e)	Any Liability, covenant, term and condition of ATS in, to and under the TPC Contribution Agreement.

8.3 Indemnification by ATS. Subject to Section 8.5, ATS shall indemnify and hold harmless each Photowatt Indemnified Person from and against any and all Losses incurred by such Photowatt Indemnified Person arising out of or in connection with the following, whether such Losses arise or accrue prior to, on or following the Separation Time:

(a)	The failure of ATS or any other member of the ATS Group or any other Person to pay, perform or otherwise properly discharge any of the ATS Liabilities in accordance with their respective terms;
(b)	The ATS Business or any ATS Liability, excluding any ATS Liability with respect to the TPC Contribution Agreement;
(c)	Any breach by ATS or any member of the ATS Group of this Agreement or any Separation Agreement; and
(d)	With respect to all 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.

8.4 Claim Procedure.

(a)

Claim Notice. A Party that seeks indemnity under this Article 8 or under any other Separation Agreement (an “Indemnified Party”) shall give written notice (a “Claim Notice”) to the Party from whom indemnification is sought (an “Indemnifying Party”) in respect of Losses arising from any matter other than Third Party Claims. The Claim Notice must contain (i) a description and, if known, estimated amount (the “Claimed Amount”) of any Losses incurred or reasonably expected to be incurred by the Indemnified Party, (ii) a reasonable explanation of the basis for the Claim Notice to the extent of facts then known by the Indemnified Party, and (iii) a demand for payment of those Losses. No failure or delay or deficiency on the part of the Indemnified Party to so notify the Indemnifying Party shall relieve the Indemnifying Party of any Liability or obligation hereunder except to the extent of any Losses caused by or arising out of such failure, delay or deficiency.

(b)

Response to Notice of Claim. Within 30 days after delivery of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a written response in which the Indemnifying Party shall either: (i) agree that the Indemnified Party is entitled to receive all of the Claimed Amount and, in which case, the Indemnifying Party shall pay the Claimed Amount using a payment method reasonably acceptable to the Indemnified Party; or (ii) dispute that the Indemnified Party is entitled to receive all or any portion of the Claimed Amount,

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in which case, the Parties shall resort to the dispute resolution procedures set forth in Section 9.19.

(c)

Contested Claims. If the Indemnifying Party disputes that the Indemnified Party is entitled to receive all or any portion of the Claimed Amount, as soon as practicable but in no event later than 10 Business Days after the receipt of the notice referenced in Section 8.4(b), the Parties shall begin the process to resolve the matter in accordance with the dispute resolution provisions of Section 9.19 hereof. Upon ultimate resolution thereof, the Parties shall take such actions as are reasonably necessary to comply with such resolution.

(d)

Third Party Claims.

(i)

If the Indemnified Party receives notice or otherwise learns of the assertion by a Person who is not a member of either Group of any claim or the commencement of any Action (in each case, a “Third Party Claim”) with respect to which the Indemnifying Party may be obligated to provide indemnification under this Article 8, the Indemnified Party shall give written notification to the Indemnifying Party of the Third Party Claim. Such notification shall be given within five Business Days after receipt by the Indemnified Party of notice of such Third Party Claim, shall be accompanied by reasonable supporting documentation submitted by such third party (to the extent then in the possession of the Indemnified Party) and shall describe in reasonable detail (to the extent known by the Indemnified Party) the facts constituting the basis for such Third Party Claim and the amount of the claimed Losses; provided, however, that no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any Liability or obligation hereunder except to the extent of any Losses caused by or arising out of such failure. Within 20 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such Third Party Claim with counsel reasonably satisfactory to the Indemnified Party. During any period in which the Indemnifying Party has not so assumed control of such defense, the Indemnified Party shall control such defense.

(ii)

The Party not controlling such defense (the “Non-Controlling Party”) may participate therein at its own expense; provided, however, that if the Indemnifying Party assumes control of such defense and the Indemnified Party concludes, upon the written opinion of counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests or different defenses available with respect to such Third Party Claim, the reasonable fees and expenses of separate counsel to the Indemnified Party shall be considered “Losses” for purposes of this Agreement; provided, further, that the Indemnifying Party shall not be responsible for the fees or expenses of more than one legal firm in any single

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jurisdiction for all of the Indemnified Parties; provided, however, that in the event that such legal firm is conflicted amongst the Indemnified Parties, then the Indemnifying Party shall be responsible for the fees or expenses of up to two legal firms in any single jurisdiction for all of the Indemnified Parties. The Party controlling such defense (the “Controlling Party”) shall keep the Non-Controlling Party reasonably advised of the status of such Third Party Claim and the defense thereof and shall consider in good faith recommendations made by the Non-Controlling Party with respect thereto. The Non-Controlling Party shall furnish the Controlling Party with such Information as it may have with respect to such Third Party Claim (including copies of any summons, complaint or other pleading that may have been served on such Party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the Controlling Party in the defense of such Third Party Claim.

(iii)

The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Claim without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed; provided, however, that the consent of the Indemnified Party shall not be required if (A) the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or judgment, (B) such settlement or judgment includes a full, complete and unconditional release of the Indemnified Party from further Liability and (C) such settlement does not create any financial or other obligation on the part of the Indemnified Party. The Indemnified Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

8.5 Survival; Limitations.

(a) Except to the extent expressly set forth in this Agreement or any other Separation Agreement, all covenants and agreements of the Parties contained in the Separation Agreements shall survive each of the Offering and a Spin-Off. The limitation period applicable to any proceeding in respect of such covenants and agreements shall be as prescribed by applicable Law. To the extent the limitation period applicable to any proceeding in respect of such covenants and agreements is governed by the Laws of the Province of Ontario, the limitation period shall be solely as prescribed in sections 15-17 of the Limitations Act, 2002 and any other limitation period in respect of such proceeding (including that provided for in section 4 of the Limitations Act, 2002) is extended accordingly. The rights and obligations of ATS, Photowatt and each of their respective Indemnified Persons under this Agreement shall survive the direct or indirect sale, assignment or other transfer by any Party of any Assets or Liabilities.

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(b)

The amount of any Losses for which indemnification is provided under this Agreement shall be net of any Tax Benefit and any amounts actually recovered by the Indemnified Party from any third Person (including amounts actually recovered under insurance policies) with respect to such Losses. Any Indemnifying Party hereunder shall be subrogated to the rights of the Indemnified Party upon payment in full of the amount of the relevant indemnifiable Losses. An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provision hereof, have any subrogation rights with respect thereto. If any Indemnified Party recovers an amount from a third Person in respect of Losses for which indemnification is provided in this Agreement after the full amount of such indemnifiable Losses has been paid by an Indemnifying Party or after an Indemnifying Party has made a partial payment of such indemnifiable Losses and the amount received from the third Person exceeds the remaining unpaid balance of such indemnifiable Losses, then the Indemnified Party shall promptly remit to the Indemnifying Party the excess, if any, of (X) the sum of the amount theretofore paid by such Indemnifying Party in respect of such indemnifiable Losses plus the amount received from the third Person in respect thereof, over (Y) the full amount of such indemnifiable Losses.

(c)

Notwithstanding anything to the contrary in this Article 8, the initial presumption shall be that there is no insurance coverage for any such Losses, and the Indemnifying Party shall, upon request by the Indemnified Party, fully indemnify and hold harmless the Indemnified Party from and against any and all such Losses. Once the Indemnifying Party has discharged this obligation to the Indemnified Party, the Indemnifying Party may request that the Indemnified Party pursue insurance coverage from one or more insurers in connection with such Losses. If so requested, the Indemnified Party shall pursue insurance coverage, including, if necessary, the filing of coverage litigation, all of which shall be at the Indemnifying Party’s sole cost and expense. The Indemnifying Party shall pay directly or promptly reimburse the Indemnified Party for all such costs and expenses, as directed by the Indemnified Party. The Indemnified Party shall retain full and exclusive control of all such matters (including the settlement of underlying covered claims and/or coverage claims against insurers), and the Indemnified Party shall have the right to select counsel with the concurrence of Indemnifying Party, which concurrence shall not be withheld unreasonably. The net proceeds of any insurance recovery (after deducting any costs and expenses that have not yet been paid or reimbursed by the Indemnifying Party) shall be paid to the Indemnifying Party. At all times, the Indemnifying Party shall cooperate with the Indemnified Party’s insurers and/or with the Indemnified Party in the pursuit of insurance coverage, as and when reasonably requested to do so by the Indemnified Party. It is not the intent of this Section 8.5(c) to absolve the Indemnifying Party of any responsibility to the Indemnified Party for those Losses in connection with which the Indemnified Party actually secures insurance coverage, but to allocate the costs of pursuing such coverage to the Indemnifying Party and to provide the Indemnified Party with a full, interim indemnity from the Indemnifying Party until such time as the extent of insurance coverage is

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determined and is obtained. Notwithstanding anything to the contrary in this Section 8.5(c), if the Indemnified Party (in its absolute and sole discretion) determines that it is necessary to do so, the Indemnified Party may pursue insurance coverage for the benefit of the Indemnified Party before the Indemnifying Party has fully discharged its obligations to the Indemnified Party under this Agreement. In such event, the Indemnified Party may unilaterally take any steps it determines are necessary to preserve such insurance coverage, including tendering the defense of any claim or suit to an insurer or insurers of the Indemnified Party if the Indemnified Party concludes that such action may be required by the relevant insurance policy or policies. Any such actions by the Indemnified Party shall not relieve the Indemnifying Party of any of its obligations to the Indemnified Party under this Agreement, including the Indemnifying Party’s obligation to pay directly or reimburse the Indemnified Party for costs and expenses.

(d)	Any indemnification payment made under this Agreement shall be characterized for Tax purposes as a contribution or distribution or payment of an assumed or retained liability, as applicable.
(e)	ATS’ and Photowatt’s indemnity obligations under Sections 8.2 and 8.3 shall be reduced to reflect any Tax Benefit realized, in the year in which the indemnity payment is required to be made or in any prior year, by the Indemnified Party or any of its Affiliates. To the extent that the claim with respect to which an indemnity obligation arises has not given rise to a Tax Benefit in prior year or in the year in which the indemnity payment is to be made, but gives rise to a Tax Benefit in a later year, the Indemnified Party shall pay to the Indemnifying Party the amount of such Tax Benefit. For purposes of determining the amount of any payment due to an Indemnified Party pursuant to this Section 8.5(e), ATS and Photowatt and their respective Affiliates shall be deemed to use all other deductions, amortizations, exclusions from income or other allowances (to the extent that such deductions, amortizations, exclusions from income or other allowances are entitled to be used under applicable tax law) prior to the use of any Tax Benefits in respect of which the Indemnifying Party is obligated to pay the Indemnified Party hereunder.
(f)	Notwithstanding anything in this Agreement or any other Separation Agreement to the contrary, in no event shall any Party or any of its Group members be liable to the other Party or any other Person under this Agreement or any other Separation Agreement for, and each Party (on behalf of itself, its Affiliates and other Indemnified Persons) hereby releases the other Party from all claims for, special, collateral, indirect, consequential, incidental or punitive damages (including lost profits or savings), however caused and on any theory of liability (including negligence), even if advised of their possible existence; provided, however, that the foregoing limitations shall not limit either Party’s indemnification obligations as set forth in Article 8 hereof in respect of any Third Party Claim.

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8.6 Production of Witnesses and Documents. If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the other Party shall use its commercially reasonable efforts to make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be.

ARTICLE 9
MISCELLANEOUS

9.1 Assignment. Neither Party shall assign, transfer or otherwise alienate any or all of its rights or interest under this Agreement without the express prior written consent of the other Party, which in the case of the consent of ATS, may be granted or withheld in ATS’ sole discretion, and in the case of the consent of Photowatt, shall not be unreasonably withheld or delayed; provided, however, that notwithstanding the foregoing, ATS may assign any or all of its rights or interest under this Agreement to any Affiliate of ATS without the consent of Photowatt. This Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto, respectively, and their respective successors and permitted assigns, and any permitted assignee shall agree to perform the obligations of the assignor of this Agreement. Any attempted transfer, assignment or alienation in violation of this Section 9.1 shall be invalid and ineffective ab initio.

9.2 Entire Agreement. This Agreement and the other Separation Agreements constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and supersede (a) all prior oral or written proposals or agreements, (b) all contemporaneous oral proposals or agreements and (c) all previous negotiations and all other communications or understandings between the Parties, in each case with respect to the subject matter hereof and thereof. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made either prior to, contemporaneous with, or after entering into this Agreement, or any amendment or supplement thereto, by any Party to this Agreement or its directors, officers and agents, to any other Party to this Agreement or its directors, officers and agents except to the extent that the same has been reduced to writing and included as a term of the Separation Agreements, and none of the Parties to this Agreement has been induced to enter into this Agreement or any amendment or supplement by reason of any such warranty, representation, opinion, advice or assertion of fact. Accordingly, there will be no liability, either in tort (including negligence) or in Contract, assessed in relation to any such warranty, representation, opinion, advice or assertion of fact, except to the extent contemplated above.

9.3 No Agency. Nothing in this Agreement or any other Separation Agreement shall constitute or be deemed to constitute a partnership or joint venture between the Parties or, except to the extent provided in Section 4.02 of the Transitional Services Agreement, constitute or be deemed to constitute any Party the agent or employee of the other Party for any purpose

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whatsoever, and neither Party shall have authority or power to bind the other Party or to contract in the name of, or create a liability against, the other Party in any way or for any purpose.

9.4 Future Litigation and Other Proceedings. If any member of the Photowatt Group (or any of its Representatives) or any member of the ATS Group (or any of its Representatives) at any time after the Separation Time initiates or becomes subject to any Action with respect to which the Parties have no prior agreements (as to indemnification or otherwise), upon reasonable notice (a) the Party (and its Group members and its and their respective Representatives) that has not initiated and is not subject to such Action shall comply, at the other Party’s expense, with any reasonable requests by the other Party for assistance in connection with such Action (including by way of provision of information and making available of Representatives as witnesses) and (b) each Party (and its Representatives) shall, at its own expense, coordinate with the other Party its strategies and actions with respect to such Action to the extent such coordination would not be detrimental to its interests and shall comply, at the expense of the requesting Party, with any reasonable requests of the other Party for assistance in connection therewith (including by way of provision of information and making available of Representatives as witnesses).

9.5 Further Assurances. On and after the Separation Time, each Party hereto shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or consents, approvals, rulings or decisions of any Governmental Authority), and to take all such other actions as such Party may reasonably be requested to take by any other Party hereto from time to time, consistent with the terms of this Agreement and the Separation Agreements, in order to effectuate the provisions and purposes of this Agreement and the Separation Agreements and the other transactions contemplated hereby and thereby.

9.6 Notices. Any notice, instruction, direction, demand or other communication to any Party under the terms of this Agreement shall be in writing and shall be deemed properly delivered, given and received: (a) when delivered by hand; (b) on the day sent by facsimile provided that the sender has received confirmation of transmission from the recipient as at or prior to 5:00 p.m. Toronto time on such day; (c) the first Business Day after sent by facsimile (to the extent that the sender has received confirmation of transmission from the recipient after 5:00 p.m. Toronto time on the day sent by facsimile); or (d) the next business day after sent by registered mail (at any time other than during a general discontinuance of postal service due to strike, lockout or otherwise) or by courier or express delivery service, in any case to the address or facsimile telephone number set forth beneath the name of such Party below (or to such other address or facsimile telephone number as such Party shall have specified in a written notice given to the other Parties hereto):

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(a)	if to ATS, to:
	ATS Automation Tooling Systems Inc. 250 Royal Oak Road Cambridge, Ontario N3H 4R6
	Attention: General Counsel Fax No.:    (519) 650-6520
(b)	if to Photowatt, to:
	Photowatt Technologies, Inc. 25 Reuter Drive Cambridge, Ontario N3E 1A9
	Attention: President and Chief Executive Officer Fax No.:    (519) 650-6535

In the event of a general discontinuance of registered mail service due to strike, lock out or otherwise, any notice, instruction, direction, demand or other communication will be delivered by hand, courier or express delivery service or sent by facsimile and will be deemed to have been received in accordance with this Section.

9.7 Time of Essence. Time is of the essence of this Agreement and the other Separation Agreements.

9.8 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein.

9.9 Severability. If any term or other provision of this Agreement shall be determined by a court, administrative agency or arbitrator in any jurisdiction to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not render the entire Agreement invalid and shall not affect the validity, legality or enforceability of such term or other provision in any other jurisdiction. Rather, this Agreement shall be construed as if not containing the particular invalid, illegal or unenforceable provision, and all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent permitted under applicable Law.

9.10 Force Majeure. No Party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control, such as acts of God, decrees or restraints of any Governmental Authority, acts of civil or military authority, embargoes, epidemics, war, riots,

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insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, strikes or other labour disturbances or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment, and any other cause or causes whether similar or dissimilar to those already specified, which cannot be controlled by such Party. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay; provided however that the Party seeking to excuse its performance shall promptly notify the other Party of the cause therefor, such performance shall be so excused during the inability of the Party to perform so caused, but for no longer period, and the cause thereof shall be remedied as far as is commercially reasonable with all reasonable dispatch.

9.11 Publicity. Prior to the Separation Time, each of the Parties shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the Offering or any of the other transactions contemplated hereby and prior to making any filings with any Governmental Authority with respect thereto.

9.12 Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any other Separation Agreement, the Party or Parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement or such Separation Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for security or posting of any bond with such remedy are waived.

9.13 Currency. Except as expressly provided in this Agreement, all amounts in this Agreement are stated and will be paid in Canadian currency.

9.14 Time Periods. Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends.

9.15 Amendment. This Agreement may only be modified, amended by, altered or supplemented by the execution and delivery of a written agreement executed by both the Parties.

9.16 Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreement.

9.17 Authority. Each Party represents to the other Party that (a) it has the corporate power and authority to execute, deliver and perform this Agreement and the other Separation Agreements, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement and the other Separation Agreements and (d) this Agreement and each of the Separation Agreements is legal, valid and binding obligation, enforceable against it in

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accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equitable principles.

9.18 Jurisdiction. If any Dispute arises out of or in connection with this Agreement or any other Separation Agreement, except as expressly contemplated by another provision of this Agreement or any Separation Agreement, the Parties irrevocably (and the Parties shall cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of the Courts of the Province of Ontario, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO TRIAL OR ADJUDICATION BY JURY.

9.19 Dispute Resolution. Any controversy or claim, whether based on Contract, tort, Law or other legal or equitable theory (including any claim of fraud, misrepresentation or fraudulent inducement or any question of validity or effect of this Agreement or any other Separation Agreement, including this Section 9.19) (in each such case, a “Dispute”) arising out of or related to this Agreement or any other Separation Agreement, or the breach or termination thereof, shall be submitted in good faith to negotiations and, if necessary, mediation in accordance with the terms below before any Action is commenced.

(a)

Direct Negotiation. If either Party considers that any Dispute has arisen under or in connection with this Agreement, then such Party may first deliver a notice to the other Party describing the nature and the particulars of such Dispute. Second, within 10 Business Days following delivery of such notice to the other Party, or the expiry of the time for delivery of response to the Claim Notice under Section 8.4(b) hereof, whichever occurs first, the Parties shall meet (whether by phone or in person) in a good faith attempt to resolve the Dispute. Third, if the Dispute is still unresolved after 10 Business Days following the commencement of such good faith attempt, then the chief financial officer (or another designee with full authority to resolve such dispute) of each Party shall meet (whether by phone or in person) in a good faith attempt to resolve the Dispute, such meeting to be held within 20 days of the first meeting referred to above. Fourth, if the Dispute is still unresolved after 10 Business Days following the commencement of such second negotiations, then such Dispute shall be submitted to mediation in accordance with Section 9.19(b).

(b)

Mediation. If the Dispute is to be submitted to mediation in accordance with Section 9.19(a), the mediator will be selected by mutual agreement of the Parties, which agreement shall be reached in good faith and on a timely basis. If they are unable to agree on a mediator, each Party will select one third party representative, each of whom shall be an independent experienced professional mediator practicing in Ontario, which two representatives shall mutually select a mediator for such Dispute with the same qualifications referred to above (and each Party shall in good faith instruct its representative to work in good faith with the other Party’s representative to promptly select such mediator).

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(i) Mediation Procedure. The mediation will be conducted pursuant to the rules generally used by the mediator in the mediator’s practice, subject to the following:

(A)	The mediator will act as an advocate for resolution and will use his or her best efforts to assist the Parties in reaching a mutually acceptable settlement. The mediator may suggest ways of resolving the Dispute, but may not impose his or her own judgment on the issues or that of the Parties. The mediator will not have the authority to decide any issue for the Parties, but will attempt to facilitate the voluntary resolution of the Dispute by the Parties.
(B)	Each Person participating in the mediation will have authority to settle, and all Persons necessary to the decision to settle will be present during the entire mediation session or sessions.
(C)	The mediation will take place at a time and convenient location agreeable to the mediator and the Parties, as the mediator will determine, but such mediation will take place no later than 20 Business Days after the commencement of the second negotiations under Section 9.19(a) and will take place over two consecutive days.
(D)	Mediation sessions will be private, and only the Parties and their representatives may attend the mediation sessions. Other Persons may attend the mediation sessions only with the written permissions of the Parties and with the consent of the mediator.
(E)	There will be no stenographic record of the mediation process, and no Person will tape record any portion of the mediation sessions.
(F)	No subpoenas, summons, complaints, citations, writs, or other process may be served at or away from the site of any mediation session upon any Person who then is entering, on the way to, in attendance or leaving the session.
(G)	The Parties will participate in the mediation proceeding in good faith with the intention to settle.
(H)	No later than five days prior to the mediation, each Party will deliver to the mediator all information reasonably required for the mediator to understand the issues presented and a confidential memorandum (not to exceed five pages with normal type size and margins) setting forth the following:

i. identification of the matters in dispute;

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ii.	concise statement of points (factual, legal, practical) that such Party believes enhances its chance of achieving a favourable outcome of the Dispute; and
iii.	history of settlement discussions and outstanding offers of settlement.

(I) The above rules may be modified or amended with the Parties’ written consent.

(ii)	Release. The mediator will not be a necessary or proper party in any Action relating to the mediation. Neither the mediator, the Person employing the mediator, nor the Person providing the mediator will be liable to any Party for any acts or omissions in connection with any mediation conducted pursuant to this Section 9.19.
(iii)	Compromise Negotiation. The mediation is a compromise negotiation for purposes of the applicable rules of evidence and is an alternative dispute resolution procedure subject to Law chosen to govern this Agreement. The entire procedure is and will be confidential. All conduct, statements, promises, offers, views and opinions, whether oral or written, made in the course of the mediation by any of the Parties, their agents, employees or other representatives and by the mediator, who is the Parties’ joint agent for purposes of these compromise negotiations, are confidential and will, in addition where appropriate, be deemed to be work product and privileged. Such conduct, statements, promises, offers, views and opinions will not be discoverable or admissible for any purposes, including impeachment, if any litigation or other proceedings involve the Parties and will not be disclosed to anyone not an agent, employee, expert or other representative for any of the Parties. Evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of its use in the mediation. Confidential Information disclosed to the mediator by the Parties or by witnesses in the course of the mediation will not be divulged by the mediator. All records, reports or other documents received by the mediator while serving in that capacity will be confidential. The mediator will not be compelled to divulge such records or to testify with regard to the mediation in any adversary proceeding or judicial forum.
(iv)	Costs of Mediation. The Parties will bear their respective costs incurred in connection with the mediation described in this Section 9.19, except that the Parties will share equally the fees and expenses of the mediator, the costs of obtaining the facility for the mediation, and the fees and expenses of any experts employed at the mediator’s request.
(v)	Termination of Mediation. The mediation will be terminated upon the first to occur of the following:

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(A)	by the execution of a settlement agreement resolving the dispute by the Parties;
(B)	by a written declaration of the mediator to the effect that further efforts at mediation are no longer worthwhile; or
(C)	after the completion of two full days of mediation sessions, by written declaration of a Party or Parties to the effect that mediation proceedings are terminated.

(c) Litigation. Neither Party may bring (or have brought) any Action in any forum with respect to any Dispute arising out of or related to this Agreement or any other Separation Agreement, or the breach or termination thereof, until such Party has fully complied with Sections 9.19(a) and (b) with respect to such Dispute.

9.20 Binding Effect. This Agreement and each other Separation Agreement binds and benefits the Parties and their respective successors and permitted assigns. This Agreement is for the sole benefit of the Parties (and, solely for purposes of Section 8, ATS Indemnified Persons and Photowatt Indemnified Persons) and nothing in this Agreement, express or implied, confers or intends to confer any rights or remedies of any nature whatsoever in favour of any Person (including any employee or shareholder of ATS or Photowatt) other than the Parties.

9.21 Expenses. Except as otherwise provided in this Agreement or a Separation Agreement, each Party shall be responsible for its own fees, costs and expenses incurred in connection with the matters contemplated by this Agreement and the Separation Agreement; provided, however Photowatt shall be responsible for the payment of all costs, fees and expenses relating to the Offering and each Party shall be responsible for the payment of all of its costs, fees and expenses relating to a Spin-Off (or any other divestiture transaction employed by ATS).

9.22 Waiver. A provision of this Agreement or any other Separation Agreement may be waived only by a writing signed by the Party or Parties intended to be bound by the waiver. A Party is not prevented from enforcing any right, remedy or condition in the Party’s favour because of any failure or delay in exercising any right or remedy or in requiring satisfaction of any condition, except to the extent that the Party specifically waives the same in writing. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver constitute a continuing waiver unless otherwise expressly provided. Any enumeration of a Party’s rights and remedies in this Agreement or any other Separation Agreement is not intended to be exclusive, and a Party’s rights and remedies are intended to be cumulative to the extent permitted by Law and include any rights and remedies authorized in Law or in equity.

9.23 Compliance With Laws. Each Party shall comply with all applicable legal requirements (including all relevant federal, state and provincial legislation and regulatory requirements); and without limiting the generality of the foregoing, each Party shall comply with, and shall take all necessary measures to ensure that (i) its actions (or lack of action) do not result in non-compliance by the other Party, with the provisions of the Personal Information Protection and Electronic Documents Act (Canada) and any similar federal, state or provincial

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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legislation, including the provisions relating to the collection, use, retention and disclosure of Personal Information and (ii) the transfer of any information hereunder is in compliance with applicable export control or similar Laws.

     IN WITNESS WHEREOF, the Parties have caused this Master Separation Agreement to be signed by their duly authorized representatives.

AUTOMATION TOOLING SYSTEMS INC.
By:
	Name:
	Title:
By:
	Name:
	Title:
PHOTOWATT TECHNOLOGIES INC.
By:
	Name:
	Title:

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EXHIBIT A

Excluded Assets

1.	the premises and building that are the subject of the Lease Agreement.
2.	the investment of ATS in securities of Canadian Solar Inc.
3.	the ATS Solar Automation Know-How.
4.	any tax loss carryforwards, Canadian tax credits or related valuation allowances.
5.	any and all Assets of Matrix Solar Technologies, Inc. not sold, transferred, assigned or conveyed to Photowatt Technologies USA Inc. pursuant to an asset transfer agreement as between Matrix Solar Technologies, Inc. and Photowatt Technologies USA Inc. effected prior to the Separation Time.

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EXHIBIT B

Included Liabilities

1. tax liabilities of Matrix Solar Technologies, Inc. in relation to transfer of common shares in the capital stock of Spheral Solar Power, Inc.

2. product warranty obligations related to the Existing Photowatt Business or the Photowatt Business, including warranties related to solar cells and solar modules.

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EX-10.2

Exhibit 10.2

MASTER SUPPLY AGREEMENT

between

ATS AUTOMATION TOOLING SYSTEMS INC.

– and –

PHOTOWATT TECHNOLOGIES INC.

[     ], 2006

MASTER SUPPLY AGREEMENT

THIS MASTER SUPPLY AGREEMENT (this “Agreement”) is dated as of [     ], 2006 (“Effective Date”) by and between PHOTOWATT TECHNOLOGIES INC., a corporation under the laws of Canada with offices at 25 Reuter Drive, Cambridge, Ontario, N3E 1A9 (“Photowatt”), and ATS AUTOMATION TOOLING SYSTEMS INC., a corporation under the laws of the Province of Ontario with offices at 250 Royal Oak Road, Cambridge, Ontario N3H 4R6 (“ATS”).

RECITALS

A.	Photowatt is undertaking an initial public offering (the “Offering”) of its common shares pursuant to a registration statement on Form F-1 under the U.S. Securities Act of 1933 and a prospectus filed with Canadian provincial and territorial securities regulatory authorities.
B.	Immediately prior to the completion of the Offering, ATS and Photowatt intend to enter into a Master Separation Agreement (the “Master Separation Agreement”), containing the key provisions relating to the separation of ATS and Photowatt, and the other Separation Agreements (as defined in the Master Separation Agreement) providing for, among other things, the transfer to Photowatt of certain assets of ATS including the Foil Presses.
C.	ATS and/or certain Affiliates of ATS are in the business of providing design, development, fabrication and testing services (or some combination thereof) in connection with the development of certain types of machinery or process concepts and Photowatt and/or certain Affiliates of Photowatt may desire to engage ATS or an Affiliate of ATS to provide same from time to time on and subject to the terms of this Agreement.
D.	Photowatt wishes to engage ATS to house its Foil Presses and to supply Foil Products on and subject to the terms of this Agreement.
E.	The parties intend in this Agreement and the other Separation Agreements to set forth the principal arrangements between them regarding the Offering and their operations thereafter.

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NOW, THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties agree as follows:

ARTICLE 1
DEFINITIONS AND INTERPRETATION

1.1 Any capitalized term not defined in this Agreement shall have the meaning given such term in the Master Separation Agreement. The following capitalized terms used in this Agreement shall have the following meaning:

(a)	“Affiliate” means with respect to any entity, any other entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, such entity or one or more of the other Affiliates of that entity (or a combination thereof). For purposes of this definition, an entity shall control another entity if the first entity (i) owns, beneficially or of record, more than fifty percent (50%) of the voting securities of the other entity, or (ii) has the ability to elect a majority of the directors of the other entity.
(b)	“ATS Indemnified Parties” has the meaning set out in Section 4.8(a).
(c)	“Business Day” means a day other than Saturday, Sunday or other day on which commercial banks in Toronto, Ontario are authorized or required by law to close.
(d)	“Common Shares” means the common shares in the capital of Photowatt at the date hereof and includes any shares or securities into which such common shares may be converted or changed or which result from a consolidation, subdivision, reclassification, stock split, stock dividend, recapitalization or redesignation of the common shares of Photowatt, any shares or securities of Photowatt which are received as a stock dividend or distribution in respect of such common shares, any common shares of Photowatt received on the exercise of any option, warrant or other similar right and any shares or securities which may be received by the holders of common shares of Photowatt as a result of an amalgamation, merger, arrangement or other reorganization of or including Photowatt.
(e)	“Cost” means all manufacturing costs including, labour, materials, other direct costs, and an allocation of indirect and overhead costs.
(f)	“Deliverables” mean the tangible documents and equipment that are to be provided to Photowatt pursuant to the terms of a Project Agreement, which may include without limitation, reports, designs, equipment, prototypes, computer software, and documentation. For purposes of clarity, Deliverables exclude Foil Products.
(g)	“Foil Presses” has the meaning set out in Section 4.1.
(h)	“Foil Products” has the meaning set out in Section 4.1.

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(i)	“Percentage of Outstanding Common Shares” means the percentage equivalent to the quotient obtained when (i) the number of Common Shares directly beneficially owned at the time of the calculation by ATS and its Affiliates, is divided by (ii) the total number of Common Shares outstanding at the time of calculation, all quantities being on a non-diluted basis.
(j)	“Person” is to be broadly interpreted and includes an individual, a corporation, a partnership, a trust, an unincorporated organization, a governmental authority, and the executors, administrators or other legal representatives of an individual in such capacity.
(k)	“Photowatt Indemnified Parties” has the meaning set out in Section 4.8(b).
(l)	“Products” means the equipment forming part of the Deliverables with respect to a particular Project. For purposes of clarity, Products exclude Foil Products and Foil Presses.
(m)	“Project” has the meaning set out in Section 3.1.
(n)	“Project Agreement” has the meaning set out in Section 3.1.
(o)	“Project Services” means all the services that are to be performed by ATS pursuant to the terms of a Project Agreement, which may include, without limitation, general consulting services, design services, and installation services. For purposes of clarity, Project Services exclude any services provided by ATS pursuant to Article 4.
(p)	“Proprietary Rights” means any and all legal and equitable rights, including all worldwide copyrights, patent rights, trade secrets, confidential and proprietary information rights, moral rights, and all rights and title in and to the structure, sequence, and organization of a work of authorship, and all rights in and to any code, materials, pictures, interfaces, screen display, and audio visual display or presentation.
(q)	“Specifications” means the design, functional and performance specifications mutually agreed upon between the parties.

1.2 Construction. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favouring or disfavouring any party because of the authorship of any provision of this Agreement. Any reference to any federal, state, provincial, local or foreign law shall be deemed also to refer to such law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. Any reference to any Contract (including schedules, exhibits and other attachments thereto), including this Agreement, shall be deemed also to refer to such Contract as amended, restated or otherwise modified, unless the context requires otherwise. The words “include,” “includes” and “including” shall be deemed to be followed by “without limitation.” Pronouns in masculine, feminine and neuter genders shall be

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construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context requires otherwise. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Where this Agreement states that a party “will” or “shall” perform in some manner or otherwise act or omit to act, it means that such party is legally obligated to do so in accordance with this Agreement. The word “or” shall not be exclusive. The captions, titles and headings included in this Agreement are for convenience only and do not affect this Agreement’s construction or interpretation. Any reference to an Article, Section or Schedule in this Agreement shall refer to an Article or Section of, or Schedule to, this Agreement, unless the context otherwise requires.

1.3 Conflicts With Other Separation Agreements. To the extent any portion of this Agreement conflicts with the Master Separation Agreement, the Master Separation Agreement shall control.

ARTICLE 2
RIGHTS OF FIRST REFUSAL AND
PREFERRED SUPPLIER

2.1 Rights of First Refusal. ATS shall have the right of first refusal with respect to any offer received from any third party or any agreement tentatively reached with any third party to supply any equipment and related services of the type described in Schedule A hereto (“Offer”). Photowatt shall promptly provide ATS with a copy of any such Offer. ATS shall have a period of 30 days after delivery thereof within which to exercise its right of first refusal. The right of first refusal may be exercised by delivery by ATS to Photowatt of a notice of acceptance. The terms and conditions of such Offer with respect to price, equipment and services to be supplied, the specifications thereof and delivery date shall, upon delivery of such notice of acceptance, thereafter be binding upon ATS and Photowatt and ATS shall supply and Photowatt shall purchase the equipment and services described in the Offer pursuant to those terms, provided that the terms of this Agreement shall apply and be incorporated in such Offer and shall collectively constitute a Project Agreement. If ATS does not exercise its right of first refusal, then Photowatt shall be free to accept such Offer for the supply of such equipment and related services with the third party provided that the terms of such Offer may not be revised without first providing the ATS with its right of first refusal hereunder. Photowatt shall have the right in its sole discretion to terminate this Section 2.1 and the right of first refusal of ATS hereunder, by giving notice to ATS, if ATS fails to perform any of its material obligations with respect to the supply of any equipment to Photowatt pursuant to the right of first refusal hereunder on two or more occasions and Photowatt shall have notified ATS of such failures. In such event, all other provisions of this Agreement shall remain in full force and effect. ATS and Photowatt acknowledge that they may agree from time to time to mutually waive the provisions of this Section 2.1 with respect to any Offer, in which case Photowatt shall be free to accept such Offer with the third party provided that the terms of such Offer may not be revised without first providing ATS with its right of first refusal hereunder (unless ATS agrees to waive such right).

2.2 Preferred Supplier. With respect to the supply of any equipment and related services of the nature described in Schedule B hereto, ATS shall be Photowatt’s preferred supplier. If Photowatt determines to purchase any equipment and related services of the nature described in Schedule B hereto, then Photowatt shall send a written notice to ATS which shall contain a description of Photowatt’s requirements with respect to such equipment and related services. Photowatt shall allow ATS the opportunity to submit a bid with respect to the supply of the equipment and related services described in such notice in accordance with this Section. If the parties reach agreement with respect to the supply of such equipment and related services, then such agreement shall constitute a Project Agreement for the purposes of this Agreement and the terms of this Agreement shall apply.

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ARTICLE 3
PROJECT AGREEMENTS

3.1 Project Agreements

(a)

Project Agreements. From time to time during the term of this Agreement including pursuant to the provisions of Article 2, ATS and Photowatt may agree in writing that ATS shall provide certain Project Services and/or Deliverables in connection with a particular project (“Project”) which the parties intend to be governed by this Agreement. Each such project agreement shall reference this Agreement, shall be subject to the terms of this Agreement, and shall be referred to herein as a “Project Agreement”. Any agreements entered into pursuant to Section 2.1 and Section 2.2 shall be deemed to be Project Agreements and shall be subject to the terms of this Agreement. Each Project Agreement shall be deemed to include the terms of any quotation provided by ATS unless otherwise expressly provided for. Any terms on Photowatt’s purchase order, other than terms addressing quantity and price, shall be void and of no force notwithstanding any delivery under such purchase order.

(b)

Affiliates. Should an Affiliate of a party to this Agreement enter into what would otherwise be a Project Agreement with the other party to this Agreement or an Affiliate of such other party, and should the parties to that Project Agreement reference this Agreement as governing such Project, then the terms of this Agreement shall apply to the same extent as if the parties to that Project Agreement were parties to this Agreement and the terms “Photowatt” and “ATS” herein shall be amended as required for the purposes of such Project Agreement.

3.2 Provision Of Services and Deliverables. Upon the execution or entering into of a Project Agreement by both parties, ATS shall provide the Services and Deliverables specified in the Project Agreement in accordance with the terms and conditions of the Project Agreement and the terms and conditions of this Agreement. ATS shall use commercially reasonable efforts to provide Services and Deliverables in accordance with any schedule set forth in a Project Agreement, or if no schedule is set forth in such Project Agreement, in accordance with the schedule otherwise agreed upon in writing between the parties. All scheduled completion dates are best estimates based on current projections and based on Photowatt meeting its obligations and ATS shall not be liable for delays in completion or delivery.

3.3 Price and Payment.

(a) Price and Payment. Photowatt and ATS will mutually agree to pricing for each Project in the corresponding Project Agreement. Unless otherwise provided for in a particular Project Agreement, all payments are due within 30 days of receipt of an invoice from ATS. Photowatt shall pay interest at the prime rate quoted from time to time by The Bank of Nova Scotia plus 2% on any amounts invoiced by ATS which are not paid when due.

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(b) Taxes. The prices quoted by ATS are exclusive of all applicable federal, state/provincial or local taxes, unless otherwise stated. Photowatt shall pay the gross amount of any present or future sales, use, excise, value added, or other similar tax applicable to the price, sale or delivery of any Product, Project Service or Deliverable furnished hereunder or to their use by Photowatt. Photowatt shall furnish ATS with evidence of exemption from any such taxes acceptable to the taxing authorities. Photowatt shall assess and remit any applicable tax to taxing authorities not otherwise invoiced by ATS. If any tax in the nature of withholding tax is payable on any sums invoiced under this Agreement, Photowatt shall pay ATS such amount as is necessary to ensure that the net amount received by ATS after such withholding shall be equal to the amount invoiced or otherwise required to be paid herein.

3.4 Design Changes. No changes to the design of a Product from that agreed upon in the Project Agreement shall be binding unless agreed to in writing by both parties. Any such amendment to a Project Agreement shall address the impact of such changes on costs and schedule. In the event ATS agrees to undertake a design study for Photowatt to assess a potential design change, the schedule for all materials or components affected by the design study shall be extended by a period of time equal to the hold time, if any, associated with such study, whether or not the parties ultimately agree to the proposed change.

3.5 Equipment Safety. ATS shall build the Product to comply with ATS’s interpretation of applicable (OSHA or CSA) safety standards. ATS shall review equipment safety including guarding designs with Photowatt at a design review meeting with the intent to maximize operator safety, particularly with respect to all pinch points and moving parts. Photowatt shall advise ATS of any required equipment safety or guarding changes no later than five (5) days following the date of such design review meeting. Unless provided for in the Specifications, if Photowatt requests deviation from ATS’s interpretation of the applicable safety standards, this shall be considered a design change (See Section 5). ATS may decline any proposed change in the design by Photowatt, if ATS has concerns regarding safety, reliability, performance or warranty service.

3.6 Photowatt Obligations. Unless otherwise stated in a Project Agreement, Photowatt agrees to fulfill the following obligations in relation to each Project. Notwithstanding anything to the contrary contained herein, if the following obligations of Photowatt are not met in a timely manner, ATS will not be responsible for any impacts to the scope, schedule, budget, or any other agreed terms and conditions set forth in the Project Agreement:

(a) Photowatt shall provide ATS in a timely manner with:

(i)	all information necessary in order to comply with its obligations under any Project Agreement or reasonably requested by ATS;
(ii)	access to Photowatt’s and its Affiliates’ personnel and appropriate subject matter experts in connection with any Project;

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(iii)	all required sample parts or other specified items required by ATS to design, manufacture, test and install the Product; and
(iv)	clear and unobstructed access to those portions of Photowatt’s and its Affiliates’ premises required by ATS for installation of the Product in a condition ready to receive the Product; and

(b) Any documents submitted to Photowatt for comment or approval by ATS must be reviewed in a timely manner by Photowatt for accuracy, completeness and conformance to this Agreement. Failure of Photowatt to advise ATS in writing of material issues associated with such documents within 5 business days of submission or resubmission will be considered deemed approval of such documents.

In the event of any delay resulting from Photowatt’s failure to meet these obligations, the date of delivery or of performance as set out in the applicable Project Agreement shall be extended for a period equal to the period of such delay. ATS shall not, in such circumstances be liable for any failure to fulfill any obligations under any Project Agreement and Photowatt shall pay ATS compensation for the costs actually incurred by reason of such delay, including carrying charges, transportation charges, storage charges, travel charges, personnel charges and reasonable overhead and profit thereon.

3.7 Factory Acceptance and Site Acceptance. The following provisions apply with respect to the acceptance of any Products forming part of the Deliverables:

(a)	ATS and Photowatt shall agree in writing upon a test plan (“Test Plan”) within 20 business days of completion of the final designs for the Products, setting out the criteria to be met, and the testing process to be employed, during the FAT (as defined below) and the SAT (as defined below).
(b)	A factory acceptance test (“FAT”) shall be performed at ATS’s facility or such facilities of ATS’s subcontractors as may be agreed upon in writing by the parties and shall commence within five (5) business days of notice from ATS confirming completion of the Products or at such other time as may be agreed upon in writing by the parties. Such testing shall be carried out in accordance with the Test Plan. The FAT shall be deemed successful when the results of the testing are in compliance with the Test Plan’s criteria.
(c)	A Photowatt site acceptance test (“SAT”) shall be performed at Photowatt’s facility within five (5) business days of the completion of installation of the Products at Photowatt’s site. Such testing shall be carried out in accordance with the Test Plan. The SAT shall be deemed successful when the results of the testing are in compliance with the Test Plan’s criteria.
(d)	ATS shall carry out such remedial work as is necessary to achieve a successful FAT and SAT at no additional charge to Photowatt, provided that any changes

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requested by Photowatt beyond those set forth in the Specifications may require additional charges which shall be determined by mutual agreement by both parties and reflected in a change order executed by the parties in accordance with Section 3.4. Once remedial work is complete, the Products will be re-tested and this process shall continue until a successful FAT and SAT is achieved.

(e)

In the event ATS and Photowatt are unable to agree upon a Test Plan within the time period provided for in sub-section (a) above, the parties shall immediately escalate the issue within their organizations and, failing agreement within five (5) business days of when that escalation should have occurred, either party shall have the right to terminate the applicable Project Agreement upon five (5) days’ notice. In the event of such termination, Photowatt shall pay ATS for all work performed prior to the termination, including costs and expenses already incurred and commitments made by ATS plus reasonable amounts for overhead and profit on the foregoing.

(f)

Notwithstanding anything to the contrary, FAT and/or SAT will be deemed successfully completed in the event that Photowatt fails to conduct the tests within the prescribed timeframe referred to above or in the event Photowatt does not provide the production quality sample parts or other inputs required by the Test Plan within such timeframes.

3.8 Delivery, Title, Risk of Loss and Security. Unless otherwise specified in the applicable Project Agreement, delivery will be made to Photowatt Ex-Works at point of manufacture, skidded for domestic truck shipment. Any export or other special packing or special transportation charges shall be charged to and paid by Photowatt. Except as otherwise provided herein or in the Project Agreement, ATS shall not be responsible for freight transportation, insurance, shipping, storage, import duty, brokerage, handling, demurrage, or similar charges. If such charges are by the terms of sale included in the Project Agreement price, any increase in rates becoming effective after the date of Project Agreement shall be for the account of and responsibility of Photowatt. Risks of loss or damage shall pass to Photowatt on delivery to the carrier at ATS’s facility; however, title to the Product will not pass to Photowatt until payment has been received in full. Without limiting and in addition to the aforementioned retention of title, Photowatt hereby grants to ATS a first-priority purchase-money security interest in all goods, general intangibles and other personal property sold or otherwise supplied by ATS to Photowatt under this Agreement and any Project Agreement, including, without limitation, the Deliverables under each Project Agreement, together with all accessions thereto, all replacements thereof and all proceeds therefrom, to secure payment of all amounts owing by Photowatt to ATS under this Agreement and such Project Agreements, including the unpaid portion of the purchase price of the goods, general intangibles and other personal property sold or otherwise supplied by ATS to Photowatt under this Agreement and any Project Agreement from time to time. ATS shall have authority to make all filings, registrations and notifications necessary or desirable to protect, preserve and perfect its security interest and the intended priority thereof. Photowatt agrees that in the event of default by it of any provision of this Agreement, ATS will have all remedies available to it contemplated at

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law, including those contained in applicable personal property security legislation. This security is granted in addition to and not in substitution for any other rights and remedies ATS may have hereunder or otherwise.

3.9 Limited Warranty

(a)	ATS warrants that each Product (other than equipment comprising prototypes or proof of principle equipment) will be free from defects in workmanship and material and shall materially conform to the Specifications for a period (the “Warranty Period”) of twelve (12) months from the date of successful completion of SAT of the Product in Photowatt’s plant or fifteen (15) months from the date of shipment from ATS’s facilities, whichever occurs first.
(b)	During the term of the applicable Project Agreement, ATS warrants that it shall perform all Project Services provided under the Project Agreement in a workmanlike manner respecting industry standards and practices for similar services.
(c)	Upon prompt notification from Photowatt of any failure of a Product or any Project Services to conform to these warranties during the applicable warranty period, ATS will make repairs, adjustments, re-performance or replacements to the defective part(s) or Project Services at ATS’s option. Where required by ATS, Photowatt agrees to return a defective part to ATS at Photowatt’s expense. ATS will return corrected or replacement parts to Photowatt CPT Photowatt’s plant. Photowatt acknowledges that this sub-section sets forth Photowatt’s exclusive remedy, and ATS’s exclusive liability, for any breach of these warranties or other duty related to the quality of the Products or the Project Services.
(d)	ATS shall have no responsibility for, and does not warrant against, any problems that occur as a result of improper use of any Product or failure to properly install, maintain and operate it in accordance with ATS’s recommended procedures, or alteration to it by any party other than ATS or those authorized by ATS to do so or any modifications not made by ATS or problems that result from any accident, vandalism, mischief or theft. Photowatt shall maintain accurate and complete records regarding equipment operation and maintenance and service procedures performed on the Product.
(e)	ATS’s warranty excludes consumable items and wear parts, such as but not limited to belts, bulbs, lamps, fuses, o-rings, filters, fiber guides, printer ribbons or cartridges, lubricants, solvents or chemicals, which by their nature require periodic replacement.
(f)	With respect to third party equipment integrated into the Product, warranties for such items are limited to the warranty extended to ATS by the third party supplier. ATS hereby assigns to Photowatt all warranties received from its

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suppliers to the extent ATS is able to and agrees to assist Photowatt in making any claim pursuant to the said warranties.

ATS MAKES NO OTHER WARRANTY WHATSOEVER WITH RESPECT TO ANY PRODUCTS SUPPLIED UNDER THIS AGREEMENT, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE DISCLAIMED BY ATS AND WAIVED BY PHOTOWATT.

3.10 Spare Parts

(a)

Sixty (60) days prior to the shipment of any Product, ATS shall provide Photowatt with a list of recommended parts (“Spare Parts”), subject to final verification by ATS at the time of shipment of the Products, to be stocked by Photowatt for maintenance of the Products set forth in the applicable Project Agreement, and all subsequent change orders to such Project Agreements in accordance with this Agreement, including prices (in effect at such time), lead-time, original equipment manufacturer (OEM) and OEM part numbers for such parts.

(b)

ATS agrees that it will, for a period of five (5) years after the Warranty Period, make available the necessary resources to service the Products and sell to Photowatt all necessary Spare Parts, at prevailing price, delivery and payment terms, required for maintenance and repair of the Products. The parties acknowledge that in the event that Spare Parts consisting of or including components manufactured by a third party supplier and not manufactured by ATS cease to be available from such third party supplier, ATS shall be entitled to identify a suitable replacement or work-around solution for such Spare Parts. After such five (5) year period has expired, Photowatt may request that ATS continue to support the Products or supply Spare Parts and, if ATS does not choose to continue to support such Products or supply such Spare Parts, ATS agrees to provide Photowatt, upon receipt of a written request from Photowatt therefore, with an opportunity for Photowatt to make final purchases of any Spare Parts then in the possession of ATS and supply Photowatt with copies of all manufacturing drawings of Spare Parts that are manufactured by ATS so that Photowatt can maintain the Products, provided that Photowatt shall only be able to use such drawings to make or have made Spare Parts for Products supplied by ATS and for no other purpose.

3.11 Patent Indemnity

(a) ATS agrees that it will, at its own expense, defend any suit instituted against Photowatt and will indemnify Photowatt against any award of Losses and reasonable costs made against Photowatt in a final judgment by a court of competent jurisdiction, or any amount in settlement or compromise thereof, provided that (i) the same is based upon a claim that any Product infringes a

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	valid patent under the laws of the United States or Canada; (ii) Photowatt gives ATS prompt, detailed notice in writing of any such claims asserted; and (iii) Photowatt permits ATS sole authority through its counsel to defend and/or settle the matter and Photowatt cooperates and assists with such defense and/or settlement.
(b)	In case the Product is, or may become, the subject of any such proceeding, ATS may, and in the event the Product is held in such suit to constitute an infringement and its use is enjoined, ATS shall, at its expense and option, either procure for Photowatt the right to continue to use the Product, or replace same with a non-infringing product or part, or modify same so it becomes non-infringing, or remove the Product and refund the purchase price of the infringing part of the Product (less depreciation for its use on a straight line basis over a period of five (5) years from the date of the applicable Project Agreement) and any transportation costs shall be separately paid by Photowatt.
(c)	The indemnity obligations shall not apply to the extent a claim for infringement of third party intellectual property rights relates to (i) any Product or part which is manufactured to Photowatt’s design; (ii) any Product or part which is modified by a party other than ATS (ii) any product of a third party as specified by Photowatt incorporated in the Product; (iii) the use of any Product furnished to Photowatt in combination with other products not furnished by ATS, unless the Product furnished by ATS, alone and without combination, infringes the asserted rights; or (iv) any infringement relating to Photowatt’s prescribed manufacturing processes. As to any such excluded product or part thereof, ATS assumes no liability whatsoever for intellectual property right infringement and Photowatt shall hold ATS harmless against any infringement claim arising therefrom.
(d)	These express indemnity obligations shall be ATS’s sole obligation and Photowatt’s sole remedy in respect to any third party claims of infringement of intellectual property rights.

3.12 Limitations of Liability and Remedies

(a) Consequential Damages. In no event, whether as a result of breach of contract, warranty, tort (including negligence) or otherwise, shall ATS or its suppliers or subcontractors be liable for any special, indirect, consequential, incidental or punitive damages including, but not limited to, loss of profit or revenues, loss of use of any Product, any Foil Product or any associated equipment, damage to associated equipment, cost of capital, cost of substitute products, facilities, services or replacement equipment, down time costs or claims of Photowatt’s customers for such damages. If Photowatt transfers title to or leases any Product to any third party, Photowatt shall obtain from such third party a provision affording ATS and its suppliers and subcontractors the protection of the preceding sentence.

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(b)

Aggregate Liability. In no event, whether as a result of breach of contract, warranty, tort (including negligence) or otherwise, shall ATS’s liability to any Photowatt Indemnified Party for any Losses arising out of, or resulting from the Products or Project Services furnished hereunder, exceed the amount actually received by ATS for the specific Product or Project Service which gives rise to the claim.

(c)

The remedies provided either party in this Agreement are such party’s sole and exclusive remedies.

ARTICLE 4
FOIL PRESSES AND FOIL PRODUCTS

4.1 Foil Presses. The parties acknowledge that Photowatt is the owner of two aluminium foil presses known as the “Systems 1 Press” and the “AMD Press” (the “Foil Presses”) which are located and installed at the premises of ATS. The AMD Press occupies 2,500 square feet of ATS’s premises and the Systems 1 Press occupies 5,000 square feet of ATS’s premises. In consideration of ATS allowing the Foil Presses to be located and installed and operated at ATS’s premises, Photowatt agrees to pay a charge of $10.00 per square foot per annum occupied by the Foil Presses plus applicable taxes, payable in advance in monthly instalments on the first day of each calendar month during the term of this Article 4 without deduction, abatement or set-off. ATS will allow Photowatt, its Affiliates and its and their respective employees access to ATS’s premises during normal business hours on reasonable notice in order to be able to use and operate the Systems 1 Press for research and development purposes.

4.2 Foil Products. The parties acknowledge that Photowatt may require ATS to supply it with aluminium foil processed by the AMD Press in order to manufacture spheral solar products. At such time as Photowatt is ready to begin to issue firm purchase orders for such products, Photowatt shall notify ATS. ATS agrees to supply to Photowatt such quantities of aluminium foil processed by the AMD Press (“Foil Products”) as Photowatt may order from time to time on and subject to the terms of this agreement and pursuant to firm purchase orders which have been accepted by ATS. The price payable by Photowatt for Foil Products shall be equal to ATS’s Cost thereof plus 12%. Firm purchase orders shall be on ATS’s standard form, as amended from time to time. ATS’s supply obligations under this Section are subject to available labour, supplies, and AMD Press capacity (any requirement to operate the AMD Press for more than eight hours per day being subject to the mutual agreement of the parties). Photowatt shall provide ATS with a rolling forecast of aluminium foil requirements, to be provided on the first day of each month covering the following three months.

4.3 No Warranty. Recognizing that Photowatt owns the Foil Presses and is responsible for their maintenance, the Foil Products supplied by ATS to Photowatt hereunder are sold on an “as is” basis and ATS makes no warranty whatsoever, express or implied, with respect to the Foil Products, including any warranty of quality, merchantability, fitness for a particular purpose, or conformity with specifications all of which are disclaimed by ATS and waived by Photowatt.

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4.4 Terms and Conditions of Sale. Delivery of Foil Products will be made to Photowatt Ex-Works at point of manufacture, skidded for domestic truck shipment. Any export or other special packing or special transportation charges shall be charged to and paid by Photowatt. ATS shall not be responsible for freight transportation, insurance, shipping, storage, import duty, brokerage, handling, demurrage, or similar charges. Risks of loss or damage shall pass to Photowatt on delivery to the carrier at ATS’s facility; however, title to Foil Products will not pass to Photowatt until payment has been received in full. ATS shall not be required to ship Foil Product during any period where past due amounts are owing under this Agreement.

4.5 Maintenance and Repair. Photowatt shall be responsible to maintain the Foil Presses in good operating condition at its sole cost and expense and ATS shall provide Photowatt with access to its premises during normal business hours on reasonable notice for such purpose. Photowatt assumes the entire risk of loss, theft, destruction or damage to the Foil Presses.

4.6 Invoicing and Settlement of Costs.

(a)	ATS shall invoice Photowatt upon shipment of Foil Products, the fees payable by Photowatt for Foil Products ordered by Photowatt under this Article 4.
(b)	Photowatt shall pay to ATS, on or before the 10th day after the date on which an invoice for Foil Products is delivered to the Photowatt in accordance herewith (or the next Business Day, if such 10th day is not a Business Day) (each, a “Payment Date”), by wire transfer of immediately available funds payable to the order of ATS, all amounts invoiced by ATS pursuant to Section 4.6. Photowatt shall pay interest at the prime rate as quoted from time to time of The Bank of Nova Scotia plus 2% on any amounts invoiced by ATS which are not paid when due. In the event Photowatt fails to pay amounts owing under this Article 4 on two or more occasions, ATS reserves the right to require all future deliveries of Foil Products to be paid C.O.D.
(c)	The prices quoted by ATS are exclusive of all applicable federal, state/provincial or local taxes, unless otherwise stated. Photowatt shall pay the gross amount of any present or future sales, use, excise, value added, or other similar tax applicable to the price, sale or delivery of any Product, Foil Product, Project Service or Deliverable furnished hereunder or to their use by Photowatt. Photowatt shall furnish ATS with evidence of exemption from any such taxes acceptable to the taxing authorities. Photowatt shall assess and remit any applicable tax to taxing authorities not otherwise invoiced by ATS. If any tax in the nature of withholding tax is payable on any sums invoiced under this Agreement, Photowatt shall pay ATS such amount as is necessary to ensure that the net amount received by ATS after such withholding shall be equal to the amount invoiced or otherwise required to be paid herein.

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4.7 Limitation of Liability.

(a)	Photowatt acknowledges and agrees that (i) ATS is not in the business of supplying Foil Products to third parties and that the AMD Press has never been used to manufacture Foil Products on a commercial basis, (ii) ATS has agreed to supply Foil Products as an accommodation to Photowatt and (iii) ATS makes no representations or warranties whatsoever, whether express or implied by statute or otherwise, regarding the Foil Products or any other matters relating to or arising out of this Agreement.
(b)	In no event, whether as a result of breach of contract or warranty, tort (including negligence) or otherwise shall ATS have any liability to any Photowatt Indemnified Party or any other Person for any Losses arising out of, resulting from or relating to any Foil Products manufactured on Photowatt’s Foil Presses and supplied to Photowatt hereunder or for any related services rendered or to be rendered hereunder by any ATS Indemnified Party, or for their respective actions or inactions hereunder, except for Losses resulting from the gross negligence or willful misconduct of such ATS Indemnified Party or its representatives.
(c)	Photowatt shall in all circumstances use commercially reasonable efforts to mitigate and otherwise minimize Losses to the Photowatt Indemnified parties, individually and collectively, whether direct or indirect, due to, resulting from or arising in connection with any failure by ATS to comply fully with ATS’s obligations under this Article 4.
(d)	Notwithstanding anything in this Agreement to the contrary, in no event shall ATS be liable to Photowatt or any other Person for, and Photowatt (on behalf of itself, its Affiliates and other Photowatt Indemnified parties) hereby releases ATS from all claims for, special, indirect, consequential, incidental or punitive Losses (including lost profits or savings), even if advised of their possible existence.
(e)	In no event, whether as a result of breach of contract, warranty, tort (including negligence) or otherwise, shall ATS’s liability for any Losses arising out of, or resulting from this Article 4, exceed the amount actually received by ATS for the specific Foil Product or service which gives rise to the claim.

4.8 Indemnification.

(a) Subject to Section 4.7, Photowatt shall indemnify and hold harmless ATS, its Affiliates and its and their respective directors, officers, employees and agents (the “ATS Indemnified Parties”) from and against any and all Losses relating to, arising out of or in connection with the Foil Presses and the Foil Products including any service rendered or to be rendered by any ATS Indemnified Person pursuant to this Agreement, any Losses relating or attributable to the manufacture of the Foil Products by ATS including any Losses resulting from a

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defect or failure in the Products, any claim for patent infringement or other infringement of intellectual property rights relating to the Foil Presses, or any ATS Indemnified Party’s actions or inactions in connection with any such Foil Presses and Foil Products, except to the extent resulting from such ATS Indemnified Party’s gross negligence or willful misconduct.

(b) Subject to Section 4.7, ATS shall indemnify and hold harmless Photowatt, its Affiliates and its and their respective directors, offices, employees and agents (the “Photowatt Indemnified Parties”) from and against any and all Losses relating to, arising out of or in connection with the gross negligence or willful misconduct of any ATS Indemnified Party in connection with the Foil Products supplied to Photowatt pursuant to this Agreement.

4.9 Claim Procedure. The claim procedures set forth in Section 8.4 of the Master Separation Agreement shall apply to indemnification claims under Article 4 of this Agreement.

4.10 Termination of Article 4. Notwithstanding anything to the contrary in this Agreement, this Article 4 may be terminated as follows:

(a)	the parties may by mutual agreement terminate this Article 4 of this Agreement, in whole or in part, in accordance with this Section 4.10(a);
(b)	Photowatt may terminate this Article 4 at any time if ATS shall have failed to perform any of its material obligations under this Article 4, Photowatt shall have notified ATS in writing of such failure and such failure shall have continued unremedied for a period of at least 30 days after receipt by ATS of written notice of such failure from Photowatt; and
(c)	either party shall have the right to terminate its obligations under this Article 4 by giving at least six months notice to the other party; provided that ATS shall not be permitted to exercise its termination right until one year from the Effective Date.

If the term of this Agreement ends pursuant to Section 7.1(b) because the Percentage of Outstanding Common Shares is less than 10%, then, unless earlier terminated as provided for above, this Article 4, Article 5 and Article 6 shall continue in full force and effect notwithstanding Section 7.1 until:

(i)	eighteen (18) months following the Effective Date if the event described in Section 7.1(b) occurs during the first year of the term of this Agreement; and
(ii)	six (6) months following the occurrence of the event described in Section 7.1(b) if such event occurs after the first year of the term of this Agreement.

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4.11 Effect of Termination.

(a)	Notwithstanding any termination or expiry of this Article 4: (i) Photowatt shall remain liable to the ATS for any fees payable under this Article 4 which are owed and payable prior to the effective date of such termination; and (ii) the provisions of Sections 4.7, 4.8, 4.9, 4.11, Article 5 (Confidentiality and Proprietary Rights) and Article 8 (General) shall survive any such termination.
(b)	Following termination of this Agreement, the parties agree to cooperate with each other in providing for an orderly transition to Photowatt or to a successor service provider as designated by Photowatt. Without limiting the foregoing, ATS agrees to cooperate with Photowatt in developing a transition schedule with respect to the supply of Foil Products.
(c)	Upon termination or notice of termination of this Article 4 as applicable, Photowatt shall at Photowatt’s sole cost and expense cause the Foil Presses to be de-installed and shall take possession of the Foil Presses and cause the Foil Presses to be moved and relocated from ATS’s premises. Photowatt also agrees to pay all of ATS’s costs in restoring its premises to its condition prior to the installation of the Foil Presses including filling the holes containing the Foil Presses and installing new flooring. Photowatt shall be permitted a period of 6 months from the earlier of the date of termination or notice of termination to remove the Foil Presses and allow sufficient time for remediation, provided Photowatt shall continue to pay a pro-rata portion of the service charge provided for in Section 4.1 during such period. Notwithstanding anything to the contrary provided for above, in the event there are outstanding amounts owing by Photowatt to ATS at the time of termination, ATS may, at its option, require payment of such amounts before Photowatt is entitled to remove the Foil Presses.

ARTICLE 5
CONFIDENTIALITY AND PROPRIETARY RIGHTS

5.1 Confidentiality. The parties acknowledge that they are bound by the provisions of Article 6 of the Master Separation Agreement which governs the confidentiality and disclosure of Information.

5.2 Proprietary Rights

(a) Ownership/License. ATS shall and does irrevocably grant and assign to Photowatt the Proprietary Rights in and to any and all of the Deliverables first developed or conceived during performance of and otherwise resulting from this Agreement other than those that constitute ATS Proprietary Technology (as defined below) effective upon full payment for such Deliverables. Notwithstanding any provision, express or implied, to the contrary, and for the purposes of clarity, the parties confirm that ATS shall retain all Proprietary Rights to any ATS Proprietary Technology forming part of the Deliverables

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under the Agreement. “ATS Proprietary Technology” means any and all technology, know-how, trade secrets, inventions, and software and other intellectual property that: (i) was developed or conceived by ATS prior to or outside the scope of this Agreement, or (ii) is owned by a third party and that ATS has obtained rights to independently of this Agreement, or (iii) is developed or conceived during the course of performance under this Agreement (“New Developments”), to the extent such New Developments relate to mechanical and electronic devices used to automatically convey, grip, locate, orient, connect, manipulate, alter, form, inspect, test or sense materials or products as part of a manufacturing process. Photowatt shall have and ATS hereby grants to Photowatt, an irrevocable, non-exclusive, world-wide, royalty-free, perpetual right and license to use such ATS Proprietary Technology as has been incorporated into the Deliverables solely to operate, modify, and maintain the Deliverables provided under the Agreement.

(b)

Software. The Product may use computer software. Computer software that is custom developed by ATS specifically for Photowatt under the terms of the Agreement (“Custom Software”) shall be delivered to Photowatt with the Product, including source code. All title, right and interest in the copyright to such Custom Software shall vest in Photowatt upon full payment for the Product and form part of the Deliverables. Computer software of third party suppliers (“Third Party Software”) may also be integrated into the Product. To the extent possible, ATS shall assign all rights afforded under the licenses for such Third Party Software to Photowatt and Photowatt shall assume all obligations under any such software licenses. The Deliverables may also include software that has been developed by ATS, at ATS’s expense, for general use in the products ATS manufactures (“ATS Software”). ATS Software is proprietary to ATS. Upon full payment for the Product, such ATS Software shall be licensed to Photowatt on a non-exclusive basis for use solely to operate and maintain the Product by Photowatt. For certainty, unless the Project Agreement specifically contemplates and identifies software as Custom Software to be developed for and owned by Photowatt, software developed by ATS and included in the Deliverables shall be ATS Software.

ARTICLE 6
INSURANCE

6.1 Insurance. ATS and Photowatt will maintain in effect during the term of this Agreement the following insurance coverage:

(a)	worker’s compensation and employer’s liability Insurance providing for the payment of benefits to and for the account of employees employed in connection with the performances of any obligations hereunder; and
(b)	one or more policies of comprehensive general liability agreement from a recognized, major insurance company qualified to do business in the Province of

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Ontario and naming the other party as an additional insured. Such policy shall include a product liability endorsement covering personal injury and property damage claims, suits and actions, effective for occurrences caused by accidents or other incidents involving the products and services provided hereunder on or after the date hereof. Such policy shall provide limits of liability per occurrence and other terms which ATS from time to time considers satisfactory (initially, such policy shall have a combined single limit for bodily injury and property damage of at least $10,000,000.00. From time to time as requested by either party hereto, the other party shall promptly deliver evidence satisfactory to the requesting party that such insurance is in full force and effect.

ARTICLE 7
TERM AND TERMINATION

7.1 Term. Unless earlier terminated as provided for in this Agreement and subject to Section 4.10, the term of this Agreement shall commence on the Effective Date and continue thereafter until the earlier of:

(a)	five (5) years from the Effective Date; and
(b)	such time as the Percentage of Outstanding Common Shares is less than 10%.

7.2 Termination of Project Agreement by Photowatt for Convenience. Photowatt may terminate a Project Agreement (other than Article 4) in whole or in part for Photowatt’s convenience upon ten (10) days’ written notice to ATS. In the event of such termination, Photowatt shall pay ATS upon demand for all costs and expenses already incurred or commitments made by ATS for materials and labour, including, without limitation, design, processing, handling, fabrication, packing, shipping, travel, supplier termination, and restocking charges, plus reasonable amounts for overhead and profit through to the effective date of termination. ATS shall not be entitled to anticipated profit or anticipated overhead charges for the balance of the Project.

7.3 Termination by ATS for Cause. If Photowatt becomes insolvent or bankrupt or breaches a material provision hereof and does not commence to remedy such breach within ten (10) calendar days of written notice by ATS, ATS may terminate the Agreement in whole or in part effective ten (10) calendar days after said notice was given. In the event of such termination, in addition to any other rights ATS may have hereunder or otherwise, ATS shall have the right to take possession of any Foil Products at an ATS site, as well as the Deliverables and all materials and components related to the Deliverables in whatever stage of design, manufacture, or installation they are at such time, except any Deliverables which have already been delivered to and paid for in full by Photowatt. ATS shall be under no obligation to finish the work, provide further support or information, or provide further Deliverables. In the event of such termination, Photowatt shall pay ATS for all work performed prior to the termination, including costs and expenses already incurred and commitments made by ATS plus reasonable expenses incurred after termination to recover or protect the Deliverables, plus reasonable

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amounts for overhead and profit on the foregoing. ATS shall not be entitled to compensation for anticipated profit or anticipated overhead charges.

7.4 Termination by Photowatt for Cause.

(a)

If ATS becomes bankrupt or insolvent or breaches a material provision hereof and does not commence to remedy such breach within ten (10) calendar days of being given written notice by Photowatt, Photowatt may terminate the Agreement in whole or in part effective ten (10) calendar days after such notice was given. In the event of such termination, Photowatt shall take possession of the Deliverables (in whatever state of design or manufacture they are at such time) immediately and shall have a right to receive a refund of all amounts paid to ATS by Photowatt hereunder, less an amount representing payment for all work performed and deliverables provided by ATS to the date of such termination. ATS shall not be entitled to anticipated profit or anticipated overhead charges. Upon such payment, Photowatt shall have the right to the continued use of the Deliverables then delivered.

(b)

THE REMEDY PROVIDED TO PHOTOWATT IN THIS ARTICLE SHALL BE PHOTOWATT’S SOLE AND EXCLUSIVE REMEDY IN RESPECT OF ANY BANKRUPTCY OR INSOLVENCY OF ATS AND, EXCEPT AS EXPRESSLY OTHERWISE PROVIDED IN THIS AGREEMENT, IN RESPECT OF ANY BREACH OF THIS AGREEMENT BY ATS.

ARTICLE 8
MISCELLANEOUS

8.1 Assignment. Neither party shall assign, transfer or otherwise alienate any or all of its rights or interest under this Agreement without the express prior written consent of the other party, which may be granted or withheld in such other party’s sole discretion. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and any permitted assignee shall agree to perform the obligations of the assignor of this Agreement. Any attempted transfer, assignment or alienation in violation of this Section 8.1 shall be invalid and ineffective ab initio.

8.2 Entire Agreement. This Agreement and the other Separation Agreements constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede (a) all prior oral or written proposals or agreements, (b) all contemporaneous oral proposals or agreements and (c) all previous negotiations and all other communications or understandings between the parties, in each case with respect to the subject matter hereof and thereof. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made either prior to, contemporaneous with, or after entering into this Agreement, or any amendment or supplement thereto, by any party to this Agreement or its directors, officers and agents, to any other party to this Agreement or its directors, officers and agents except to the extent that the same has been reduced to writing and included as a term of the Separation Agreements, and none of the parties to this Agreement has been induced to enter

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into this Agreement or any amendment or supplement by reason of any such warranty, representation, opinion, advice or assertion of fact. Accordingly, there will be no liability, either in tort (including negligence) or in Contract, assessed in relation to any such warranty, representation, opinion, advice or assertion of fact, except to the extent contemplated above.

8.3 Future Litigation and Other Proceedings. If any member of the Photowatt Group (or any of its Representatives) or any member of the ATS Group (or any of its Representatives) at any time after the Effective Date initiates or becomes subject to any Action with respect to which the parties have no prior agreements (as to indemnification or otherwise), upon reasonable notice (a) the party (and its Group members and its and their respective Representatives) that has not initiated and is not subject to such Action shall comply, at the other party’s expense, with any reasonable requests by the other party for assistance in connection with such Action (including by way of provision of information and making available of Representatives as witnesses) and (b) each party (and its Representatives) shall, at its own expense, coordinate with the other party its strategies and actions with respect to such Action to the extent such coordination would not be detrimental to its interests and shall comply, at the expense of the requesting party, with any reasonable requests of the other party for assistance in connection therewith (including by way of provision of information and making available of Representatives as witnesses).

8.4 Further Assurances. On and after the date of this Agreement, each party hereto shall cooperate with the other party, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or consents, approvals, rulings or decisions of any Governmental Authority), and to take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement and the other transactions contemplated hereby.

8.5 Notices. Any notice, instruction, direction, demand or other communication to any party under the terms of this Agreement shall be in writing and shall be deemed properly delivered, given and received: (a) when delivered by hand; (b) on the day sent by facsimile provided that the sender has received confirmation of transmission from the recipient as at or prior to 5:00 p.m. Toronto time on such day; (c) the first Business Day after sent by facsimile (to the extent that the sender has received confirmation of transmission from the recipient after 5:00 p.m. Toronto time on the day sent by facsimile); or (d) the next business day after sent by registered mail (at any time other than during a general discontinuance of postal service due to strike, lockout or otherwise) or by courier or express delivery service, in any case to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto):

(1) if to ATS, to:

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	ATS Automation Tooling Systems Inc. 250 Royal Oak Road Cambridge, Ontario N3H 4R6 Attention: General Counsel Fax No.:    (519) 650-6520
(2)	if to Photowatt, to:
	Photowatt Technologies, Inc. 25 Reuter Drive Cambridge, Ontario N3E 1A9
	Attention: President and Chief Executive Officer Fax No.:    (519) 650-6535

In the event of a general discontinuance of registered mail service due to strike, lock out or otherwise, any notice, instruction, direction, demand or other communication will be delivered by hand, courier or express delivery service or sent by facsimile and will be deemed to have been received in accordance with this Section.

8.6 Time of Essence. Time is of the essence of this Agreement.

8.7 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein.

8.8 Severability. If any term or other provision of this Agreement shall be determined by a court, administrative agency or arbitrator in any jurisdiction to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not render the entire Agreement invalid and shall not affect the validity, legality or enforceability of such term or other provision in any other jurisdiction. Rather, this Agreement shall be construed as if not containing the particular invalid, illegal or unenforceable provision, and all other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent permitted under applicable Law.

8.9 Force Majeure. No party shall be deemed in default of this Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement results from any cause beyond its reasonable control, such as acts of God, decrees or restraints of any Governmental Authority, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, strikes or other labour disturbances or unavailability of parts, or, in the case of computer

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systems, any failure in electrical or air conditioning equipment, and any other cause or causes whether similar or dissimilar to those already specified, which cannot be controlled by such party. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay; provided however that the party seeking to excuse its performance shall promptly notify the other party of the cause therefor, such performance shall be so excused during the inability of the party to perform so caused, but for no longer period, and the cause thereof shall be remedied as far as is commercially reasonable with all reasonable dispatch.

8.10 Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for security or posting of any bond with such remedy are waived.

8.11 Currency. Except as expressly provided in this Agreement, all amounts in this Agreement are stated and will be paid in Canadian currency.

8.12 Time Periods. Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends.

8.13 Amendment. This Agreement may only be modified, amended by, altered or supplemented by the execution and delivery of a written agreement executed by both the parties.

8.14 Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreement.

8.15 Authority. Each party represents to the other party that (a) it has the corporate power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement and (d) this Agreement is legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and general equitable principles.

8.16 Jurisdiction. If any Dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the parties irrevocably (and the parties shall cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of the Courts of the Province of

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Ontario, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient, and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO TRIAL OR ADJUDICATION BY JURY.

8.17 Dispute Resolution. Any controversy or claim, whether based on Contract, tort, Law or other legal or equitable theory (including any claim of fraud, misrepresentation or fraudulent inducement or any question of validity or effect of this Agreement, including this Section 8.17) (in each such case, a “Dispute”) arising out of or related to this Agreement, or the breach or termination thereof, shall be submitted in good faith to negotiations and, if necessary, mediation in accordance with the terms below before any Action is commenced.

(a)

Direct Negotiation. If either party considers that any Dispute has arisen under or in connection with this Agreement, then such party may first deliver a notice to the other party describing the nature and the particulars of such Dispute. Second, within 10 Business Days following delivery of such notice to the other party, the parties shall meet (whether by phone or in person) in a good faith attempt to resolve the Dispute. Third, if the Dispute is still unresolved after 10 Business Days following the commencement of such good faith attempt, then the chief financial officer (or another designee with full authority to resolve such dispute) of each party shall meet (whether by phone or in person) in a good faith attempt to resolve the Dispute, such meeting to be held within 20 days of the first meeting referred to above. Fourth, if the Dispute is still unresolved after 10 Business Days following the commencement of such second negotiations, then such Dispute shall be submitted to mediation in accordance with Section 8.17(b).

(b)

Mediation. If the Dispute is to be submitted to mediation in accordance with Section 8.17(a), the mediator will be selected by mutual agreement of the parties, which agreement shall be reached in good faith and on a timely basis. If they are unable to agree on a mediator, each party will select one third party representative, each of whom shall be an independent experienced professional mediator practicing in Ontario, which two representatives shall mutually select a mediator for such Dispute with the same qualifications referred to above (and each party shall in good faith instruct its representative to work in good faith with the other party’s representative to promptly select such mediator).

(i) Mediation Procedure. The mediation will be conducted pursuant to the rules generally used by the mediator in the mediator’s practice, subject to the following:

(A) The mediator will act as an advocate for resolution and will use his or her best efforts to assist the parties in reaching a mutually acceptable settlement. The mediator may suggest ways of resolving the Dispute, but may not impose his or her own judgment on the issues or that of the parties. The mediator will not have the authority to decide any issue for the parties, but will attempt to

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	facilitate the voluntary resolution of the Dispute by the parties.
(B)	Each Person participating in the mediation will have authority to settle, and all Persons necessary to the decision to settle will be present during the entire mediation session or sessions.
(C)	The mediation will take place at a time and convenient location agreeable to the mediator and the parties, as the mediator will determine, but such mediation will take place no later than 20 Business Days after the commencement of the second negotiations under Section 8.17(a) and will take place over two consecutive days.
(D)	Mediation sessions will be private, and only the parties and their representatives may attend the mediation sessions. Other Persons may attend the mediation sessions only with the written permissions of the parties and with the consent of the mediator.
(E)	There will be no stenographic record of the mediation process, and no Person will tape record any portion of the mediation sessions.
(F)	No subpoenas, summons, complaints, citations, writs, or other process may be served at or away from the site of any mediation session upon any Person who then is entering, on the way to, in attendance or leaving the session.
(G)	The parties will participate in the mediation proceeding in good faith with the intention to settle.
(H)	No later than five days prior to the mediation, each party will deliver to the mediator all information reasonably required for the mediator to understand the issues presented and a confidential memorandum (not to exceed five pages with normal type size and margins) setting forth the following:

i.	identification of the matters in dispute;
ii.	concise statement of points (factual, legal, practical) that such party believes enhances its chance of achieving a favourable outcome of the Dispute; and

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iii. history of settlement discussions and outstanding offers of settlement.

(I) The above rules may be modified or amended with the parties’ written consent.

(ii)	Release. The mediator will not be a necessary or proper party in any Action relating to the mediation. Neither the mediator, the Person employing the mediator, nor the Person providing the mediator will be liable to any party for any acts or omissions in connection with any mediation conducted pursuant to this Section 8.17.
(iii)	Compromise Negotiation. The mediation is a compromise negotiation for purposes of the applicable rules of evidence and is an alternative dispute resolution procedure subject to Law chosen to govern this Agreement. The entire procedure is and will be confidential. All conduct, statements, promises, offers, views and opinions, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees or other representatives and by the mediator, who is the parties’ joint agent for purposes of these compromise negotiations, are confidential and will, in addition where appropriate, be deemed to be work product and privileged. Such conduct, statements, promises, offers, views and opinions will not be discoverable or admissible for any purposes, including impeachment, if any litigation or other proceedings involve the parties and will not be disclosed to anyone not an agent, employee, expert or other representative for any of the parties. Evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of its use in the mediation. Confidential Information disclosed to the mediator by the parties or by witnesses in the course of the mediation will not be divulged by the mediator. All records, reports or other documents received by the mediator while serving in that capacity will be confidential. The mediator will not be compelled to divulge such records or to testify with regard to the mediation in any adversary proceeding or judicial forum.
(iv)	Costs of Mediation. The parties will bear their respective costs incurred in connection with the mediation described in this Section 8.17, except that the parties will share equally the fees and expenses of the mediator, the costs of obtaining the facility for the mediation, and the fees and expenses of any experts employed at the mediator’s request.
(v)	Termination of Mediation. The mediation will be terminated upon the first to occur of the following:

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(A)	by the execution of a settlement agreement resolving the dispute by the parties;
(B)	by a written declaration of the mediator to the effect that further efforts at mediation are no longer worthwhile; or
(C)	after the completion of two full days of mediation sessions, by written declaration of a party or parties to the effect that mediation proceedings are terminated.

(c) Litigation. Neither party may bring (or have brought) any Action in any forum with respect to any Dispute arising out of or related to this Agreement, or the breach or termination thereof, until such party has fully complied with Section 8.17(a) and (b) with respect to such Dispute.

8.18 Binding Effect and Assignment. This Agreement binds and benefits the parties and their respective successors and permitted assigns. This Agreement is for the sole benefit of the parties (and, solely for purposes of Section 3.11 and Section 4.8, the Persons indemnified thereby) and nothing in this Agreement, express or implied, confers or intends to confer any rights or remedies of any nature whatsoever in favour of any Person (including any employee or shareholder of ATS or Photowatt) other than the parties.

8.19 Survival Beyond Completion. The rights and obligations of each party with respect to sections entitled, “Patent Indemnity”, “Confidentiality”, “Proprietary Rights”, “Limitations of Liabilities and Remedies”, shall survive termination of the Agreement or acceptance of the Deliverables in accordance with their terms.

8.20 Expenses. Except as otherwise provided in this Agreement, each party shall be responsible for its own fees, costs and expenses incurred in connection with the matters contemplated by this Agreement.

8.21 Waiver. A provision of this Agreement may be waived only by a writing signed by the party or parties intended to be bound by the waiver. A party is not prevented from enforcing any right, remedy or condition in the party’s favour because of any failure or delay in exercising any right or remedy or in requiring satisfaction of any condition, except to the extent that the party specifically waives the same in writing. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver constitute a continuing waiver unless otherwise expressly provided. Any enumeration of a party’s rights and remedies in this Agreement is not intended to be exclusive, and a party’s rights and remedies are intended to be cumulative to the extent permitted by Law and include any rights and remedies authorized in Law or in equity.

8.22 Compliance With Laws. Each party shall comply with all applicable legal requirements (including all relevant federal, state and provincial legislation and regulatory requirements); and without limiting the generality of the foregoing, each party shall comply with, and shall take all necessary measures to ensure that (i) its actions (or lack of action) do not

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result in non-compliance by the other party, with the provisions of the Personal Information Protection and Electronic Documents Act (Canada) and any similar federal, state or provincial legislation, including the provisions relating to the collection, use, retention and disclosure of Personal Information and (ii) the transfer of any information hereunder is in compliance with applicable export control or similar Laws.

8.23 No Agency. Nothing in this Agreement shall constitute or be deemed to constitute a partnership or joint venture between the parties or constitute or be deemed to constitute any party the agent or employee of the other party for any purpose whatsoever, and neither party shall have authority or power to bind the other party or to contract in the name of, or create a liability against, the other party in any way or for any purpose.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.

ATS AUTOMATION TOOLING SYSTEMS INC.	PHOTOWATT TECHNOLOGIES INC.
By:	By:
Date: [Month] ___, 2006	Date: [Month] ___, 2006

SCHEDULE A

LIST OF EQUIPMENT SUBJECT TO RIGHT OF FIRST REFUSAL
(SECTION 2.1)

The following Spheral Solar Equipment:

1.	Foil Production Equipment
2.	Optical Fused Powder
3.	Front Bond
4.	Diagnostic BLP
5.	Back Bond
6.	Test/Sort
7.	Cell Cut & Test
8.	FWP weld
9.	FWP Cut
10.	Stringers
11.	Module Test
12.	General Material Handling*
13.	New Automation Scopes

* General Material Handling includes automated wafer handling between workstations

SCHEDULE B

LIST OF EQUIPMENT SUBJECT TO PREFERRED SUPPLIER STATUS
(SECTION 2.2)

The following Wafer-based PV Equipment:

1.	Screen Print
2.	Edge Isolation Laser
3.	Wafer Test
4.	Tabbing/Stringing
5.	Lamination
6.	Module Test
7.	*General Material Handling
8.	New Automation Scopes

* General Material Handling includes automated wafer handling between workstations

EX-10.9

Exhibit 10.9

PHOTOWATT TECHNOLOGIES INC.

STOCK OPTION PLAN

As amended on November 8, 2006 and December 5, 2006 with effect as of September 12, 2006

1. PURPOSE OF THE PLAN

1.1 This Stock Option Plan has been established by the Company to provide long-term incentives to attract, motivate and retain certain key employees, directors and officers of, and service providers providing services to, the Company.

2. DEFINITIONS

2.1 In this Plan, the following terms have the following meanings:

“Affiliate” has the meaning ascribed to that term in the Securities Act (Ontario);

“Associate” has the meaning ascribed to that term in the Securities Act (Ontario);

“Applicable Law” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation, together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and Stock Exchange Rules;

“ATS” means ATS Automation Tooling Systems Inc.;

“Board” means the board of directors of the Company;

“Business Day” means any day other than a Saturday, a Sunday or a statutory holiday observed in the Province of Ontario;

“Code” means the United States Internal Revenue Code of 1986, as amended;

“Committee” means a committee, if any, created by the Board to exercise authority under the Plan pursuant to the provisions contained herein;

“Company” means Photowatt Technologies Inc. and includes any successor corporation thereof, and any reference in the Plan to action by the Company means action by or under the authority of the Board or the Committee or any person that has been designated for that purpose by the Board or Committee in accordance with Section 10.4;

“Continuous Service” means that the provision of services to the Company or an Affiliate of the Company in any capacity of employee, director, officer or Service Provider is not interrupted or terminated, whether by resignation, removal, discharge, termination of engagement or otherwise. In the case of an employee whose employment is terminated by the Company or an Affiliate of the Company, Continuous Service shall be terminated on the date of notice of termination is given to the employee. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or an Affiliate of the Company or among the Company and any of its Affiliates, in any capacity of employee, director, officer or Service Provider, or (iii) any change in status as long as the individual remains in the service of the Company or an Affiliate of the Company in any capacity of employee, director, officer or Service Provider (except as otherwise provided in a written agreement between the Company and the Participant). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of an ISO, no

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such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract;

“Corporate Transaction” means a Sale Transaction resulting in a Change of Control (as defined below). A “Change of Control” shall occur in the event of either (A) an acquisition of voting securities of the Company to which are attached in excess of 50% of the votes attaching to all outstanding voting securities of the Company or (B) if the Company is not the surviving corporation following completion of a Corporate Transaction, a transaction whereby the shareholders of the Company immediately before the transaction hold less than 50% of the shares of the surviving corporate entity or purchaser;

“Date of Grant” of an Option means the date the Option is granted to a Participant under the Plan;

“Designated Number” has the meaning ascribed to it in Subsection 3.2(a) hereof;

“Effective Date” means the 12^th day of September, 2006, when this Plan was approved by the Board;

“Eligible Person” means:

(i) any director, officer or employee of the Company or any Affiliate of the Company, or any other Service Provider (an “Eligible Individual”); or

(ii) a corporation controlled by an Eligible Individual, the issued and outstanding voting shares of which are, and will continue to be, beneficially owned, directly or indirectly, by such Eligible Individual and/or the spouse, children and/or grandchildren of such Eligible Individual (an “Employee Corporation”);

“Exercise Notice” has the meaning ascribed to it in Section 3.6 hereof;

“Exercise Notice Deadline” means the earlier of (i) 5:00 p.m. (Toronto time) on the date which is the 180th day following the date of the death of the Participant and (ii) the Expiry Time;

“Exercise Price” has the meaning ascribed to it in Subsection 3.2(b) hereof;

“Expiry Date” means, in respect of an Option, the latest date on which the Option may be exercised, provided that if at any time the date should be determined to occur either during a period in which the Optionee is restricted from trading in securities of the Company under the insider trading policy or other policy of the Company or within ten Business Days following such a period, such date shall be deemed to be the date that is the tenth Business Day following the date of expiry of such period;

“Expiry Time” means, in relation to an Option, 5:00 p.m. (Toronto time) on the Expiry Date;

“Fair Market Value” with respect to the Shares as at any date means the closing price for the Shares on the day immediately prior to such date on the stock exchange on which the highest aggregate volume of Shares have traded on such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Board in its sole discretion, acting reasonably and in good faith;

“Insider” means:

(i) an insider as defined in the Securities Act (Ontario), other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Company; and

(ii) an Associate of any person who is an insider by virtue of (i), above;

“ISO” has the meaning ascribed to it in Section 8.1 hereof;

“Liquid Securities” means securities of an issuer that are listed for trading on one or more of the TSX, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature, that have a market

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capitalization of at least $200 million, and that are not subject to any restriction on sale, pursuant to Applicable Law or otherwise;

“Non-Executive Director” means any director of the Company who is not an employee or officer of the Company or an Affiliate of the Company;

“Option” means a right granted under the Plan to a Participant to purchase Shares in accordance with the Plan;

“Optionee” means an Eligible Person to whom an Option has been granted and who continues to hold such Option;

“Outstanding Issue” means the aggregate number of Shares that are outstanding immediately prior to the Share issuance in question, excluding Shares which have been issued pursuant to Share Compensation Arrangements within the preceding one year period;

“Participant” means an Eligible Person who has agreed to participate in the Plan on such terms as the Company may specify at the time he or she is designated as an Eligible Person;

“Plan” means this Stock Option Plan, as amended and restated from time to time;

“Qualified IPO” means an underwritten public offering of Shares in which immediately following the closing, the Shares are listed for trading on one or more of the TSX, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature and have a market capitalization of at least $200 million;

“Sale Transaction” means any merger, amalgamation or plan of arrangement involving the Company, acquisition or take-over bid for the Shares of the Company, or similar transaction, or series of transactions, or the sale of all or substantially all of the assets of the Company excluding any asset sale transaction in connection with which all holders of Shares are not entitled to receive cash or Liquid Securities in consideration of their Shares, provided that a Sale Transaction shall exclude: (i) any share transfer, reorganization, asset transfer, or similar transaction, undertaken in one or a series of transactions, to which the parties are limited to the Company and/or any of its present or future Affiliates; (ii) the completion of a treasury offering of securities of the Company or an Affiliate of the Company; or (iii) the public offering or the dividend or other distribution by ATS or one of its Affiliates of shares in the capital of the Company;

“SAR” has the meaning ascribed to it in Section 4.3 hereof;

“Service Provider” means: (i) an employee or Insider of the Company or an Affiliate of the Company; or (ii) any other person or company engaged by the Company or an Affiliate of the Company to provide services for an initial, renewable or extended period of 12 months or more;

“Shares” means common shares of the Company, and include any shares of the Company into which such shares may be converted, reclassified, subdivided, consolidated, exchanged or otherwise changed, whether pursuant to a reorganization, amalgamation, merger, arrangement or other form of reorganization;

“Share Compensation Arrangement” means the Plan, a stock option, stock option plan, stock purchase plan where the issuer provides financial assistance or matches the whole or a portion of the purchase price of the securities being purchased, stock appreciation rights involving the issuance of securities from treasury, or any other compensation or incentive mechanism involving the issuance or potential issuance of securities to one or more of an employee, Insider or Service Provider of the Company or any Affiliate of the Company, including a share purchase from treasury which is financially assisted by the Company by way of a loan, guaranty or otherwise;

“Stock Exchange Rules” means the applicable rules of any stock exchange or quotation system upon which shares of the Company are listed or quoted, as applicable;

“Successor Corporation” has the meaning ascribed to it in Section 6.1 hereof;

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“TSX” means the Toronto Stock Exchange;

“US Optionee” has the meaning ascribed to it in Section 8.1 hereof; and

“Vesting Rights” refers to the terms on which the Option may be exercised.

2.2 In this Plan, unless the context requires otherwise, references to the male gender include the female gender, words importing the singular number may be construed to extend to and include the plural number, and words importing the plural number may be construed to extend to and include the singular number. All amounts referred to in this Plan are stated in Canadian dollars unless otherwise indicated.

3. GRANT OF OPTIONS AND TERMS

3.1 Options may be granted by the Board to any Eligible Person. If an Eligible Person executes and delivers to the Company a letter agreement substantially in the form of Schedule “A” and thereby agrees to participate in the Plan on the terms and conditions specified by the Company, he or she shall become a Participant in the Plan. The Company shall have no obligation at any time after the delivery of such a letter agreement to a Participant to notify the Participant of the Expiry Date of any Options granted under this Plan.

3.2 The Company may, from time to time, grant an Option to a Participant to acquire Shares in accordance with the Plan. In granting such Option, subject to the provisions hereof, the Company shall designate,

(a)	the maximum number (the “Designated Number”) of Shares which the Participant may purchase under the Option;
(b)	the price (the “Exercise Price”) per Share at which the Participant may purchase his or her Shares under the Option, which price shall be determined by the Company in accordance with Section 3.3 hereof;
(c)	the conditions to be met to establish Vesting Rights attaching to the Option, which may include performance conditions relating to the market price of the Shares; the return on investment to holders of Shares, with or without reference to other comparable companies; the financial performance or results of the Company or business unit thereof; other performance criteria relating to the Company or business unit thereof; ownership of Shares by a Participant; and any other terms and conditions the Company may in its discretion determine with respect to vesting;
(d)	the Expiry Date of the Option, which shall be no later than the date that is seven years after the Date of Grant; and
(e)	with respect to Options granted pursuant to Section 8 hereof, whether the Option is intended to constitute an ISO.

3.3 The Exercise Price in respect of an Option shall be determined by the Company, but shall be not less than the Fair Market Value of the Shares on the Date of Grant of the Option.

3.4 Except as otherwise set out in any written agreement between a Participant and the Company in respect of an Option, and notwithstanding any other provision of this Plan, in the event of a Corporate Transaction, each Option will be deemed terminated immediately prior to the specified effective date of the Corporate Transaction, unless either the Option is assumed by the successor corporation or parent thereof in connection with the Corporate Transaction or the Board determines otherwise. Upon Board approval of a Sale

- 5 -

Transaction, the Company may give notice to each Participant which will set forth requirements in respect of outstanding Options or any Shares acquired through the exercise of Options following the date of such notice that must be complied with as a condition to each Participant’s participation in the Sale Transaction.

3.5 The Board or the Committee, as the case may be, may, in its sole discretion and subject to such conditions as the Board or Committee considers appropriate, at any time after the Date of Grant of an Option, determine the acceleration, if any, of the vesting provisions for any Option and permit an Optionee to exercise any or all of the unvested Options then outstanding and granted to the Optionee under this Plan, in which event all such unvested Options then outstanding and granted to the Optionee shall be deemed to be immediately exercisable during such period of time as may be specified by the Board or the Committee.

3.6 If a Participant should die and the circumstances specified in Section 3.7 had not occurred in relation to such Participant and such Participant, at the time of his or her death, held an Option(s) in respect of which the Expiry Time had not then occurred, then in the case of each Option so held by the deceased Participant which had vested and was exercisable with respect to some or all of the Shares forming the subject matter thereof as at the date of the death of the deceased Participant, the legal representatives of the deceased Participant shall be entitled to send a notice in writing (an “Exercise Notice”) to the Company advising that they wish to exercise such Option which notice, to be effective, must be actually received by the Company by no later than the Exercise Notice Deadline and must specify the number of Shares in respect of which such Option is wished to be exercised (provided that such exercise can only be in respect of up to that number of Shares that the deceased Participant could have exercised such Option as at the date of his or her death), accompanied by a certified cheque or other means of cash payment satisfactory to the Company in the amount of the aggregate Exercise Price for such number of Shares. In the event that:

	(a)	an effective Exercise Notice is actually received by the Company by no later than the Exercise Notice Deadline, then the Company shall issue to the estate of the deceased Participant that number of Shares as were specified in the Exercise Notice (provided that the maximum number of Shares which can be issued shall not exceed that number of Shares for which the deceased Participant could have exercised such Option as at the date of his or her death), which issuance shall occur as soon as practicable thereafter. If the Exercise Notice so received is in respect of less than the maximum number of Shares for which the deceased Participant could have exercised such Option as at the date of his or her death, such Option shall in all respects terminate and be of no further force or effect as to such of the Shares in respect of which such Option has not been exercised pursuant to the Exercise Notice; and
	(b)	an effective Exercise Notice is not actually received by the Company by the Exercise Notice Deadline, such Option shall in all respects terminate and be of no further force or effect.
3.7	(a)	Except as otherwise provided in Section 3.6 or Subsection 3.7(b) or in a written agreement with the Company and approved by the Board, if a Participant’s Continuous Service shall terminate then (A) any Option granted to such Participant under the Plan that has not vested shall in all respects terminate and be of no further force or effect immediately after such termination of Continuous Service (and without the requirement for any further act or formality including, without limitation, the giving of any notices) and (B) immediately after the earlier of 5:00 p.m. (Toronto time) on the 30th day following the date of the occurrence of any such resignation, discharge, removal or termination other than by reason of death as contemplated in Section 3.6 (and without the requirement for any further act or formality including, without limitation, the giving of any notices) and the Expiry Time, each and every Option granted to such Participant

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	under the Plan that has not been exercised by said time shall in all respects immediately terminate and be of no further force or effect.
(b)	Except as otherwise provided in a written agreement with the Company, and approved by the Board, if a Participant:

(i)	is discharged or terminated as an employee or officer of the Company or an Affiliate of the Company for cause; or
(ii)	is removed as a director of the Company by action of the Board or the shareholders of the Company; or
(iii)	is removed as a director of an Affiliate of the Company by action of the board of directors of the Affiliate or the shareholders of the Affiliate; or
(iv)	was engaged as a Service Provider and is not an employee or director or officer of the Company or an Affiliate of the Company, and the engagement is terminated by the Company or an Affiliate of the Company for cause or breach of duty,

immediately upon the occurrence of any such discharge, removal or termination other than by reason of death as contemplated in Section 3.6 (and without the requirement of any further act or formality including, without limitation, the giving of any notices), each and every Option granted to such Participant under the Plan that had not been exercised prior to such occurrence shall in all respects immediately terminate and be of no further force or effect as to Shares in respect of such Options, regardless of whether or not such Option had vested with respect to such Shares.

For greater certainty, the Company shall in its sole and absolute discretion determine whether “cause” or a “breach of duty” exists with respect to a discharge or termination.

3.8 If the Participant is an Employee Corporation, the references to the Participant in Sections 3.6 and 3.7 shall be deemed to refer to the Eligible Individual associated with the Employee Corporation.

3.9 Participation in the Plan shall be entirely voluntary and any decision not to participate shall not affect the employment or engagement of any Eligible Person with the Company or an Affiliate of the Company.

3.10 The Company shall in its sole discretion, subject only to the terms of this Plan, determine the terms of all Options.

3.11 An Option is personal to the Optionee and non-assignable (whether by operation of law or otherwise), except as provided for herein. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an Option contrary to the provisions of the Plan, or upon the levy of any attachment or similar process upon an Option, the Option shall, at the election of the Company, cease and terminate and be of no further force or effect whatsoever.

3.12 Notwithstanding Sections 3.11 and 10.5, Options may be transferred or assigned between an Eligible Individual and the related Employee Corporation provided the assignor delivers notice to the Company prior to the assignment and the Board or the Committee approves such assignment.

4. EXERCISE OF PARTICIPANTS’ OPTIONS

4.1 Subject to earlier termination as provided for in Sections 3.6 and 3.7, a Participant’s Option shall terminate and may not be exercised after the Expiry Date.

4.2 Other than as provided for in Sections 3.4, 3.6, and 3.7, the exercise of an Option under the Plan shall be made by submitting to the Company a notice substantially similar to that attached as Schedule “B”, specifying and subscribing for the number of Shares in respect of which the Option is being exercised at that time and accompanied by a certified cheque or other means of cash payment satisfactory to the Company in the amount of the aggregate Exercise Price for such number of Shares.

4.3 At the discretion of the Company, an Option granted under the Plan may have connected therewith, at or after the time of grant, a number of stock appreciation rights (a “SAR” or “SARs”) equal to the Designated Number of Shares in respect of the Option. Each such SAR in respect of a Share shall entitle the

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Participant to surrender to the Company, unexercised, the right to subscribe for such Share pursuant to the related Option and to receive from the Company cash in an amount equal to the excess of the Fair Market Value at the time of exercise of the SAR over the Exercise Price of the related Option. Upon exercise of a SAR in respect of a Share covered by a related Option, that Option in respect of such Share shall immediately cease and terminate and be of no further force or effect. Unexercised SARs shall terminate when the related Option is exercised or the Option terminates.

4.4 Upon the exercise of any Option, the Company shall have the right to require the Participant to remit to the Company, in addition to the Exercise Price, an amount sufficient to satisfy all federal, provincial, state and local withholding tax requirements, if any, prior to the issuance of the Shares. The Company shall also have the right in its discretion to satisfy any such withholding tax liability by retaining any Shares which would otherwise be issued to a Participant hereunder.

4.5 Upon the disposition of any Shares acquired through the exercise of an Option, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy all federal, provincial, state and local withholding tax requirements, if any, as a condition to the registration of the transfer of such Shares on its books.

4.6 A term of grant of each Option shall be that if the holder is requested in writing by the Company and the lead underwriters for a proposed public offering of securities of the Company, the holder shall not (as evidenced by such form as may be reasonably requested) sell or otherwise dispose of or enter into a transaction providing the economic consequences of a sale in respect of any Shares acquired or that may be acquired pursuant to the exercise of the Option without the prior written consent of such underwriters, for a period not to exceed 180 days following the closing of such public offering.

5. MAXIMUM NUMBER OF SHARES TO BE ISSUED UNDER THE PLAN

5.1 The maximum number of Shares that may be issued by the Company to Participants pursuant to Options granted and outstanding under this Plan and other Share Compensation Arrangements is, prior to a Qualified IPO, 4,000,000, and after a Qualified IPO, a number equal to 10% of the number of the Outstanding Issue immediately following completion of the Qualified IPO.

5.2 Following completion of a Qualified IPO, no Options shall be granted to any Optionee if the total number of Shares issuable to such Optionee under this Plan, together with any Shares reserved for issuance to such Optionee under options for services or any other stock option plans, would exceed 5% of the issued and outstanding Shares.

5.3 Notwithstanding any of the other provisions of this Plan, following completion of a Qualified IPO, no Options shall be granted to any Optionee if such grant could result, at any time, in:

(a)	the aggregate number of Shares issuable to Insiders at any time and issued to Insiders within the one-year period prior to such time pursuant to Options or other Share Compensation Arrangements exceeding 10% of the issued and outstanding Shares;
(b)	the aggregate number of Shares reserved for issuance pursuant to Options granted under this Plan or any other stock option plan to Non-Executive Directors exceeding 0.5% of the issued and outstanding Shares; and

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(c) the issuance to any one Insider and such Insider’s Associates, within a one-year period, pursuant to Options or other Share Compensation Arrangements of an aggregate number of Shares exceeding 5% of the issued and outstanding Shares.

5.4 If any Option is terminated, cancelled or has expired without being fully exercised, any unissued Shares which have been reserved to be issued upon the exercise of the Option shall become available to be issued upon the exercise of Options subsequently granted under the Plan, provided that any such termination or cancellation of Options shall be conducted in accordance with the applicable rules of any stock exchange upon which the Shares of the Company are listed.

6. ANTI-DILUTION

6.1 In the event that the Shares are at any time changed or affected as a result of the declaration of a stock dividend or other distribution thereon or their subdivision or consolidation, the number of Shares reserved for issuance under this Plan shall be adjusted accordingly by the Board or the Committee to such extent as they deem proper in their discretion. In such event, the number of, and the price payable for, any Shares that are then subject to Option may also be adjusted by the Board or the Committee to such extent, if any, as they deem proper in their discretion.

          Subject to Section 3.4, if at any time after the grant of an Option and prior to the expiration of the term of such Option, the Shares shall be reclassified, reorganized or otherwise changed, otherwise than as specified in the preceding paragraph, or the Company shall merge, combine, enter into a plan of arrangement or amalgamate with or into another corporation (the corporation resulting or continuing from such merger, combination, plan of arrangement or amalgamation being herein called the “Successor Corporation”), the Optionee shall be entitled to receive upon the subsequent exercise of his or her Option in accordance with the terms hereof and shall accept in lieu of the number of Shares to which he or she was theretofore entitled upon such exercise but for the same aggregate consideration payable therefor, the aggregate number of shares of the appropriate class and/or other securities of the Company or the Successor Corporation (as the case may be) and/or other consideration from the Company or the Successor Corporation (as the case may be) that the Optionee would have been entitled to receive as a result of such reclassification, reorganization or other change or, of such merger, combination, arrangement or amalgamation, if on the record date or effective date (as the case may be) of such reclassification, reorganization or other change or such merger, combination, plan of arrangement or amalgamation (as the case may be) he or she had been the registered holder of the number of Shares to which he or she was theretofore entitled upon such exercise.

6.2 The Company shall not be required to issue fractional shares in satisfaction of its obligations hereunder. Any fractional interest in a Share that would, except for the provisions of this Section 6.2, be deliverable upon the exercise of any Option shall be cancelled and not be deliverable by the Company.

7. ACCOUNTS AND STATEMENTS

7.1 The Company shall maintain records of the details of each Option granted to each Participant under the Plan, including the Date of Grant, the Designated Number, the Exercise Price of each Option, the Vesting Rights, the Expiry Date, the number of Shares in respect of which the Option has been exercised and the maximum number of Shares which the Participant may still purchase under the Option, which records shall, absent manifest error, be considered conclusively determinative of all information contained therein. Upon request therefor from a Participant and at such other times as the Company shall determine, the Company shall furnish the Participant with a statement setting forth the details of his Options. Subject to the first sentence of this Section 7.1, such statement shall be deemed to have been accepted by the Participant as correct unless written notice to the contrary is provided to the Company within 30 days after such statement is given to the Participant. For greater certainty, in the event of any discrepancy between the records of the Company and any statement provided to a Participant pursuant to this section 7.1, the records of the Company shall govern and the rights and obligations of the Company and the Participant shall be determined on the basis of such records.

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8. OPTIONS GRANTED TO US RESIDENTS OR CITIZENS

8.1 Any Option granted under this Plan to a Participant who is a citizen or resident of the United States (including its territories, possessions and all areas subject to the jurisdiction) (a “U.S. Optionee”) may be an incentive stock option (an “ISO”) within the meaning of Section 422 of the Code, but only if so designated by the Company in the agreement evidencing such Option. No provision of this Plan, as it may be applied to a US Optionee, shall be construed so as to be inconsistent with any provision of Section 422 of the Code. Grants of Options to US Optionees which are not ISO’s may be granted pursuant to Section 3 hereof. Notwithstanding anything in this Plan contained to the contrary, the following provisions shall apply to ISO’s granted to each US Optionee:

(a)	ISO’s shall only be granted to US Optionees who are employees at the time of grant;
(b)	the aggregate Fair Market Value (determined as of the time an ISO is granted) of the Shares subject to ISO’s exercisable for the first time by a US Optionee during any calendar year under this Plan and all other equity plans, within the meaning of Section 422 of the Code, of the Company shall not exceed One Hundred Thousand Dollars in US funds (US $100,000); provided that options for Shares which exceed such aggregate Fair Market Value shall not be void, but shall instead be options which are granted under Section 3 hereof and are not ISOs;
(c)	the Exercise Price for Shares under each ISO granted to a US Optionee pursuant to this Plan shall be not less than the Fair Market Value of such Shares at the time the Option is granted;
(d)	if any US Optionee to whom an ISO is to be granted under the Plan at the time of the grant of such ISO is the owner of shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company, then the following special provisions shall be applicable to the ISO granted to such individual:

(i)	the Exercise Price (per Share) subject to such ISO shall not be less than one hundred ten percent (110%) of the Fair Market Value of one Share at the time of grant; and
(ii)	for the purposes of this Section 8.1 only, the option exercise period shall not exceed five (5) years from the Date of Grant; and

(e) no Option may be granted hereunder to a US Optionee following the expiration of ten (10) years after the date on which this Plan is adopted by the Company or the date on which the Plan is approved by the shareholders of the Company, whichever is earlier.

8.2 The maximum number of ISOs that may be issued under this Plan is 200,000, subject to adjustment in accordance with Section 6.1, mutatis mutandis.

9. NOTICES

9.1 Any payment, notice, statement, certificate or other instrument required or permitted to be given to a Participant or any person claiming or deriving any rights through him or her shall be given by:

(a) delivering it personally to the Participant or to the person claiming or deriving rights through him or her, as the case may be; or

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(b) mailing it postage paid (provided that the postal service is then in operation) or delivering it to the address which is maintained for the Participant in the Company’s records.

9.2 Any payment, notice, statement, certificate or other instrument required or permitted to be given to the Company shall be given by mailing it postage prepaid (provided that the postal service is then in operation) or delivering it to the Company at the following address:

Photowatt Technologies Inc.
25 Reuter Drive
Cambridge, Ontario N3E 1A9
Attention: President and Chief Executive Officer
Fax No.: (519) 650-6535

9.3 Any payment, notice, statement, certificate or other instrument referred to in Section 9.1 or Section 9.2 hereof, if delivered, shall be deemed to have been given or delivered on the date on which it was delivered or, if mailed (provided that the postal service is then in operation), shall be deemed to have been given or delivered on the second Business Day following the date on which it was mailed.

10. GENERAL

10.1 The Company shall have the power to, at any time and from time to time either prospectively or retrospectively, amend, suspend or terminate the Plan or any Option granted under the Plan; provided, however, that:

(a)	any such amendment, suspension or termination is subject to any approvals required under Applicable Law;
(b)	no such amendment, suspension or termination shall be made at any time to the extent such action would materially adversely affect the existing rights of a Participant with respect to any then outstanding Option, as determined by the Board acting in good faith, without his or her consent in writing, except to the extent required by Applicable Law; and
(c)	following completion of a Qualified IPO, any such amendment in respect of the following shall become effective only upon shareholder approval thereof:

(i)	any amendment to the maximum number of Shares specified in Sections 5.1 and 8.2 in respect of which Options may be granted under this Plan (other than pursuant to Article 6);
(ii)	any amendment that would reduce the Exercise Price at which Options may be granted below the price provided for in Section 3.3 (other than pursuant to Article 6);
(iii)	any amendment that would increase any of the percentage limits in Sections 5.2 and 5.3;
(iv)	any amendment to Subsection 3.2(d) having the effect of extending the maximum term of an Option beyond the date that is seven years after the Date of Grant;
(v)	any amendment that would extend the term of any outstanding Option granted to an Insider to a date beyond the Expiry Date;

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(vi)	any amendment that would reduce the Exercise Price of an outstanding Option (other than pursuant to Article 6);
(vii)	any amendment that would permit assignments to persons not currently permitted under the Plan; and
(viii)	any amendment to the definition of “Eligible Persons” or any defined term used therein that would expand the scope of the term “Eligible Persons”.

10.2 The Company shall have the power to make such rules and regulations for the administration of this Plan, and to interpret the provisions hereof and of such rules and regulations, as it shall in its sole discretion determine to be appropriate.

10.3 The determination by the Company of any question which may arise as to the interpretation or implementation of the Plan or any of the Options granted hereunder shall be final and binding on all Participants and other persons claiming or deriving rights through any of them.

10.4 The Board or Committee may from time to time delegate all or any of its powers under the Plan to one or more directors or officers of the Company who shall thereupon exercise such of the powers herein given to the Board or the Committee as may be delegated by it in accordance with any express directions of the Board or Committee from time to time.

10.5 The Plan shall enure to the benefit of and be binding upon the Company, its successors and assigns. Except as provided for herein, the interest of any Participant under the Plan or in any Option shall not be transferable or alienable by him or her either by pledge, assignment or in any other manner whatsoever and, during his lifetime, shall be vested only in him or her, but shall thereafter enure to the benefit of and be binding upon the legal personal representatives of the Participant in accordance with the terms hereof.

10.6 The Company’s obligation to issue Shares in accordance with the terms of this Plan and the grant or right of exercise of any Option hereunder are subject to compliance with all Applicable Laws and to receipt of any applicable approval under Applicable Laws in respect of the grant or right of exercise or any securities filing that discloses the grant or right of exercise. As a condition of participating in the Plan, each Participant agrees (for such period as the Participant holds any Option, including any period subsequent to termination of Continuous Service of the Participant), in connection with the exercise of all Options held and the sale of any Shares acquired upon the exercise of such Options, to comply with all Applicable Laws as well as the restrictions respecting disclosure of information or trading in securities of the Company established in the Company’s insider trading policy or such other policies as are established from time to time, and to furnish to the Company all information, representations and undertakings as may be necessary to demonstrate compliance with Applicable Laws by the Company, as determined by the Company, acting reasonably.

10.7 Each Participant is subject to all applicable tax laws in connection with the ownership and exercise of Options and the acquisition and disposition of Shares underlying any Options, and no representation or warranty is made by the Company respecting any tax deduction, credit or other favourable tax treatment in connection therewith.

10.8 No Participant shall have any rights as a shareholder in respect of Shares subject to an Option until such Shares have been paid for in full and issued.

10.9 No Participant or other person shall have any claim or right to be granted Options under the Plan. Neither the Plan nor any action taken thereunder shall interfere with the right of the employer of a Participant to terminate that Participant’s employment at any time. Neither any period of notice nor any payment in lieu thereof

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upon termination of employment shall be considered as extending the period of employment for the purposes of the Plan.

10.10 The Board or Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence or disability of any Participant.

10.11 This Plan and any Options granted hereunder shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

10.12 This Plan is hereby instituted and in effect as of the Effective Date.

* * *

SCHEDULE “A”

[LETTERHEAD OF PHOTOWATT TECHNOLOGIES INC.]

TO: [Name of Eligible Person]

          You have been designated as an Eligible Person under the Stock Option Plan of Photowatt Technologies Inc. (the “Plan”), and assuming that you become a Participant in the Plan by signing this letter, the details of the non-assignable Option which has been granted to you under the Plan are as follows:

(a)	Date of Grant:
(b)	Designated Number (maximum number of Shares which you may purchase under this Option):
(c)	Exercise Price (price per Share):
(d)	Expiry Date:

          Subject to the terms of the Stock Option Plan, the conditions to be met to establish Vesting Rights attaching to the Option are as follows:

          If you agree to participate in the Plan and comply with its terms and conditions, please sign one copy of this letter and return it to          by          20,        .

PHOTOWATT TECHNOLOGIES INC.
 

By:  

          I have read the Photowatt Technologies Inc. Stock Option Plan and agree to comply with, and agree that my participation is subject in all respects to, its terms and conditions:

                                                            
(Signature)

                                                            
(Date)

SCHEDULE “B”

PHOTOWATT TECHNOLOGIES INC.

STOCK OPTION PLAN

NOTICE OF INTENT TO EXERCISE OPTION

I,                     , hereby exercise my option to purchase ___ Common Shares of Photowatt Technologies Inc. (the “Company”) at a purchase price of $                     per Common Share.

This Notice is delivered in respect of the option to purchase ___ Common Shares of the Company which was granted to me on the ___ day of                     , 20___.

In connection with the foregoing, I enclose a certified cheque or other means of cash payment payable to the Company in the amount of $                     in full payment for the Common Shares to be received by me following receipt by the Company of this Notice and such payment.

Date Signature

EX-10.10

Exhibit 10.10

PHOTOWATT TECHNOLOGIES INC.

DIRECTORS’ DEFERRED STOCK UNIT PLAN

As amended on December 5, 2006 with effect as of November 8, 2006

Section 1 Interpretation

1.1 Purpose

The purposes of the Plan are:

(a)	to promote a greater alignment of interests between directors of the Company and the shareholders of the Company; and
(b)	to provide a compensation system for directors that, together with the other director compensation mechanisms of the Company, is reflective of the responsibility, commitment and risk accompanying Board membership and the performance of the duties required of the various committees of the Board.

1.2 Definitions

As used in the Plan, the following terms have the following meanings:

(a)	“Account” has the meaning ascribed thereto in Section 2.5;
(b)	“Affiliate” means an affiliate of the Company, as applicable, as the term “affiliate” is defined in paragraph 8 of the Canada Revenue Agency’s interpretation bulletin IT-337R4, Retiring Allowances;
(c)	“Annual Remuneration” means all amounts payable to an Eligible Director by the Company in respect of the services provided by the Eligible Director to the Company in connection with such Eligible Director’s service on the Board in a fiscal year, including without limitation (i) the annual base retainer fee for serving as a director, (ii) the annual retainer fee for serving as a member of a Board committee; and (iii) the annual retainer fee for chairing a Board committee but, for greater certainty, excluding any meeting fees payable in respect of attendance at individual meetings or any amounts received by an Eligible Director as a reimbursement for expenses incurred in attending meetings, which amounts shall, unless otherwise determined by the Board or the Committee, be payable Quarterly in arrears;
(d)	“Beneficiary” means an individual who, on the date of an Eligible Director’s death, is the person who has been designated in accordance with Section 4.7 and the laws applying to the Plan, or where no such individual has been validly designated by the Eligible Director, or where the individual does not survive the Eligible Director, the Eligible Director’s legal representative;
(e)	“Board” means those individuals who serve from time to time as the directors of the Company;
(f)	“Code” means the United States Internal Revenue Code of 1986, as amended;

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(g)	“Committee” means the Compensation, Corporate Governance and Nominating Committee of the Board, or such other persons designated by the Board;
(h)	“Common Share” means a common share of the Company;
(i)	“Company” means Photowatt Technologies Inc. and includes any successor corporation thereof, and any reference in the Plan to action by the Company means action by or under the authority of the Board or the Committee;
(j)	“Conversion Date” means the date used to determine the Fair Market Value of a Deferred Stock Unit for purposes of determining the number of Deferred Stock Units to be credited to an Eligible Director under Section 2.3.1, which date shall, subject to variation as determined by the Board or Committee taking into account the trading blackout period applicable to the Company’s directors as specified in the Company’s insider trading policy, be the date of the sixth trading day on the Toronto Stock Exchange following the announcement and release of the Company’s financial results for each Quarter and, in any event, shall not be earlier than the first business day of the year in respect of which the Deferred Stock Units are being provided;
(k)	“Corporate Transaction” means a Sale Transaction resulting in a Change of Control (as defined below). A “Change of Control” shall occur in the event of either (i) an acquisition of voting securities of the Company to which are attached in excess of 50% of the votes attaching to all outstanding voting securities of the Company or (ii) if the Company is not the surviving corporation following completion of a Corporate Transaction, a transaction whereby the shareholders of the Company immediately before the transaction hold less than 50% of the shares of the surviving corporate entity or purchaser;
(l)	“Deferred Stock Unit” or “DSU” means a unit credited by the Company to an Eligible Director by way of a bookkeeping entry in the books of the Company, as determined by the Board, pursuant to the Plan, the value of which at any particular date shall be the Fair Market Value at that date;
(m)	“Election Notice” means the written election in the form of Schedule A hereto;
(n)	“Eligible Director” means any director of the Company who is not a full-time employee of the Company or any Affiliate
(o)	“Entitlement Date” has the meaning ascribed thereto in Section 3.1 or Section 3.2, as applicable;
(p)	“Fair Market Value” means, with respect to any particular date, the simple average closing price of the Common Shares as traded on the stock exchange on which the highest aggregate volume of Common Shares have traded on each of the five trading days immediately preceding the particular date. In the event that the Common Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Common Shares as

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	determined by the Company in its sole discretion, acting reasonably and in good faith;
(q)	“Liquid Securities” means securities of an issuer that are listed for trading on one or more of the Toronto Stock Exchange, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature, that have a market capitalization of at least $200 million, and that are not subject to any restriction on sale, pursuant to applicable laws;
(r)	“Plan” means this Photowatt Technologies Inc. Directors’ Deferred Stock Unit Plan, as amended from time to time;
(s)	“Quarter” means a fiscal quarter of the Company, which, until changed by the Company, shall be the three month period ending June 30, September 30, December 31 or March 31 in any year and “Quarterly” means each “Quarter”;
(t)	“Redemption Amount” means the amount calculated by multiplying the number of Deferred Stock Units in an Eligible Director’s Account by the Fair Market Value as of the Redemption Date;
(u)	“Redemption Date” means the date which is the sixth trading day on the Toronto Stock Exchange following the announcement and release by the Company of its financial results for the Quarter in which the Termination Date occurred or, if the Common Shares are then no longer listed on the Toronto Stock Exchange, the Redemption Date shall be deemed to the Termination Date;
(v)	“Sale Transaction” means any merger, amalgamation or plan of arrangement involving the Company, acquisition or take-over bid for the Common Shares of the Company, or similar transaction, or series of transactions, or the sale of all or substantially all of the assets of the Company excluding any asset sale transaction in connection with which all holders of Common Shares are not entitled to receive cash or Liquid Securities in consideration of their Common Shares, provided that a Sale Transaction shall exclude: (i) any share transfer, reorganization, asset transfer, or similar transaction to which the parties are limited to the Company and/or any of its present or future Affiliates; (ii) the completion of a treasury offering of securities of the Company or an Affiliate of the Company; or (iii) the public offering or the dividend or other distribution by ATS or one of its Affiliates of shares in the capital of the Company;
(w)	“Termination Date” means the date of (i) the voluntary resignation or retirement of an Eligible Director from the Board; (ii) the death of an Eligible Director; (iii) removal of an Eligible Director from the Board whether by shareholder resolution or failure to achieve re-election, provided that the Eligible Director is not then an employee of the Company or an employee or director of an Affiliate and provided further that in the case of an Eligible Director who is a U.S. Taxpayer, the Termination Date shall not be prior to the date the Eligible Director terminates employment for purposes of section 409A of the Code;
(x)	“U.S. Taxpayer” means a citizen or resident of the United States for United States federal income tax purposes.

1.3 Effective Date

     The Plan shall be effective as of November 8, 2006.

1.4 Eligibility

     If an Eligible Director should become an employee of the Company while remaining as a director, his eligibility for the Plan shall be suspended effective the date of the commencement of his employment and shall resume upon termination of such employment provided he continues as a director of the Company. During the period of such ineligibility, such individual shall not be entitled to receive or be credited with any Deferred Stock Units under the Plan, other than dividend allocations under Section 2.4.

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1.5 Construction

     In this Plan, all references to the masculine include the feminine; references to the singular shall include the plural and vice versa, as the context shall require. If any provision of the Plan or part hereof is determined to be void or unenforceable in whole or in part, such determination shall not affect the validity or enforcement of any other provision or part thereof. Headings wherever used herein are for reference purposes only and do not limit or extend the meaning of the provisions contained herein. References to “Section” or “Sections” mean a section or sections contained in the Plan unless expressly stated otherwise. All amounts referred to in this Plan are stated in Canadian dollars unless otherwise indicated.

1.6 Administration

     The Committee shall, in its sole and absolute discretion: (i) interpret and administer the Plan; (ii) establish, amend and rescind any rules and regulations relating to the Plan; (iii) have the power to delegate, on such terms as the Committee deems appropriate, any or all of its powers hereunder to the Chief Financial Officer or Secretary of the Company; and (iv) make any other determinations that the Committee deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems, in its sole and absolute discretion, necessary or desirable. Any decision of the Committee with respect to the administration and interpretation of the Plan shall be conclusive and binding on the Eligible Director and any other person claiming an entitlement or benefit through the Eligible Director. All expenses of administration of the Plan shall be borne by the Company as determined by the Committee.

1.7 Governing Law

     The Plan shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

Section 2 Election Under the Plan

2.1 Payment of Annual Remuneration

     Subject to Section 2.2 and such rules, regulations, approvals and conditions as the Committee may impose, an Eligible Director may elect to receive his Annual Remuneration in the form of Deferred Stock Units or cash or any combination thereof.

2.2 Method of Electing

(a) To elect a form or forms of payment of Annual Remuneration for the Company’s fiscal year commencing April 1, 2007 and each fiscal year thereafter, an Eligible Director shall complete and deliver to the Secretary of the Company an initial Election Notice by no later than March 31^st, 2007, which shall apply to the Eligible Director’s Annual Remuneration payable after the effective date of such election, subject to the provisions of this Section 2.2(a).

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An Eligible Director may change the form or forms of payment of his Annual Remuneration for a subsequent fiscal year by completing and delivering to the Secretary of the Company a new Election Notice no later than the last day of the Company’s preceding fiscal year. For greater certainty, the Committee may prescribe election forms for use by Eligible Directors who are residents of a jurisdiction other than Canada that differ from the election forms it prescribes for use by Canadian resident Eligible Directors where the Committee determines it is necessary or desirable to do so to obtain comparable treatment for the Plan, the Eligible Directors or the Company under the laws or regulatory policies of such other jurisdiction as is provided under the laws and regulatory policies of Canada and its Provinces, provided that no election form prescribed for use by a non-resident of Canada shall contain terms that would cause the Plan to cease to meet the requirements of paragraph 6801(d) of the regulations under the Income Tax Act (Canada) and any successor to such provisions.

(b)

An individual who becomes an Eligible Director during a year may elect the form or forms of payment of Annual Remuneration earned in Quarters that commence after the date the election is made by completing and delivering to the Secretary of the Company and Election Notice. An Election Notice shall not be effective to require that Annual Remuneration earned in the year in which the individual becomes an Eligible Director be provided in the form of Deferred Stock Units if (i) such Election Notice is not completed and delivered to the Secretary of the Company within 30 days after the individual becomes an Eligible Director; or (ii) the individual previously participated in this Plan or any other plan that is required to be aggregated with this Plan for purposes of Section 409A of the Code.

2.3 Deferred Stock Units

2.3.1 Deferred Stock Units elected by an Eligible Director pursuant to the Plan shall be credited to the Eligible Director’s Account as of the applicable Conversion Date. The number of Deferred Stock Units (including fractional Deferred Stock Units) to be credited to an Eligible Director’s Account as of a particular Conversion Date pursuant to this Section 2.3.1 shall be determined by dividing the portion of that Eligible Director’s Annual Remuneration for the applicable period to be satisfied by Deferred Stock Units by the Fair Market Value on the particular Conversion Date.

2.3.2 In addition to Deferred Stock Units granted pursuant to Section 2.3.1, the Board may, at their complete discretion, award such number of Deferred Stock Units to an Eligible Director as the Board deems advisable to provide the Eligible Director with appropriate equity-based compensation for the services he or she renders to the Company. The Board shall determine the date on which such Deferred Stock Units may be granted and the date as of which such Deferred Stock Units shall be credited to an Eligible Director’s Account.

2.3.3 Deferred Stock Units granted under Section 2.3.1 or Section 2.3.2, together with any additional Deferred Stock Units granted in respect thereof under Section 2.4, will be fully vested

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upon being credited to an Eligible Director’s Account and the Eligible Director’s entitlement to payment of such Deferred Stock Units at his Termination Date shall not thereafter be subject to satisfaction of any requirements as to any minimum period of membership on the Board..

2.4 Dividends

     On any payment date for dividends paid on Common Shares, an Eligible Director shall be credited with dividend equivalents in respect of Deferred Stock Units credited to the Eligible Director’s Account as of the record date for payment of dividends. Such dividend equivalents shall be converted into additional Deferred Stock Units (including fractional Deferred Stock Units) based on the Fair Market Value as of the date such additional Deferred Stock Units are credited.

2.5 Eligible Director’s Account

     The Company shall maintain in its books an account for each Eligible Director (an “Account”) recording at all times the number of Deferred Stock Units standing to the credit of an Eligible Director. Upon payment in satisfaction of Deferred Stock Units credited to an Eligible Director in the manner described herein, such Deferred Stock Units shall be cancelled. A written confirmation of the balance in each Eligible Director’s Account shall be provided by the Company to the Eligible Director at least annually.

2.6 Adjustments and Reorganizations

     In the event of any stock split, stock consolidation, combination or exchange of Common Shares, Corporate Transaction, spin-off, dividend or other distribution of the Company’s assets to shareholders, or any other change in the capital of the Company affecting Common Shares, such proportionate adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change, shall be made with respect to the number of Deferred Stock Units outstanding under the Plan.

Section 3 Redemptions

3.1 Redemption of Deferred Stock Units

     Subject to Sections 3.2 and 3.4 , an Eligible Director may elect up to two separate dates as of which either a portion (specified in whole percentages or number of Deferred Stock Units on any one date) or all of the Deferred Stock Units credited to the Eligible Director’s Account shall be redeemed (each such date being an “Entitlement Date”) by filing one or two irrevocable written redemption elections with the Secretary of the Company. No Entitlement Date elected by an Eligible Director pursuant to this Section 3.1 shall be before the Eligible Director’s Termination Date or later than December 15 of the calendar year commencing immediately after the Eligible Director’s Termination Date. Where an Eligible Director does not elect a particular date or dates within the permissible period set out above as his Entitlement Date or Entitlement Dates, as the case may be, there shall be a single Entitlement Date for such Eligible Director which shall be the date, subject to Sections 3.2 and 3.4, which is six months after the Eligible Director’s Termination Date.

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3.2 Redemption of Deferred Stock Units – U.S. Taxpayers

     Notwithstanding Section 3.1, in the case of an Eligible Director who is a U.S. Taxpayer, subject to Section 3.4, his Entitlement Date shall be the date that is six months after his Termination Date and all Deferred Stock Units Credited to such Eligible Director’s Account shall be redeemed as of such date.

3.3 Payment of Deferred Stock Units

     The value of the Deferred Stock Units redeemed by or in respect of an Eligible Director as of an Entitlement Date shall, after deduction of any applicable taxes and other source deductions required to be withheld by the Company, be paid to the Eligible Director or the Eligible Director’s Beneficiary, as applicable as soon as practicable following such Entitlement Date.

3.4 Extended Entitlement Date

     In the event that the Committee is unable, by an Eligible Director’s Entitlement Date, to compute the final value of the Deferred Stock Units recorded in such Eligible Director’s Account by reason of the fact that any data required in order to compute the market value of a Share has not been made available to the Committee and such delay is not caused by the Eligible Director, then the Entitlement Date shall be the next following trading day on which such data is made available to the Committee.

3.5 Limitation on Extension of Entitlement Date

     Notwithstanding any other provision of the Plan, all amounts payable to, or in respect of, an Eligible Director hereunder shall be paid on or before December 31 of the calendar year commencing immediately after the Eligible Director’s Termination Date.

Section 4 General

4.1 Unfunded Plan

     Unless otherwise determined by the Committee, the Plan shall be unfunded. To the extent any individual holds any rights by virtue of an election under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured general creditor of the Company.

4.2 Successors and Assigns

     The Plan shall be binding on all successors and permitted assigns of the Company and an Eligible Director, including without limitation, the estate of such Eligible Director and the legal representative of such estate, or any receiver or trustee in bankruptcy or representative of the Company’s or the Eligible Director’s creditors.

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4.3 Plan Amendment

4.3.1 The Board may amend the Plan as it deems necessary or appropriate, but no such amendment shall, without the consent of the Eligible Director or unless required by law, adversely affect the rights of an Eligible Director with respect to any amount of Annual Remuneration in respect of which an Eligible Director has then elected to receive Deferred Stock Units or Deferred Stock Units to which the Eligible Director has then been granted under the Plan.

4.3.2 Notwithstanding section 4.3.1, any amendment of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the regulations under the Income Tax Act (Canada) or any successor to such provision, and the requirements of Section 409A of the Code as may apply to Eligible Directors who are U.S. Taxpayers. For avoidance of doubt, and notwithstanding section 4.3.1, if any provision of the Plan contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code or would cause the Share Units to be subject to the interest and penalties under Section 409A of the Code such provision of the Plan shall, to the extent that it applies to US Taxpayers, be modified, without the consent of any Eligible Director, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

4.4 Plan Termination

     The Board may terminate the Plan at any time, including in the event of a Corporate Transaction, but no such termination shall, without the consent of the Eligible Director or unless required by law, adversely affect the rights of an Eligible Director with respect to any amount of Annual Remuneration in respect of which an Eligible Director has then elected to receive Deferred Stock Units or Deferred Stock Units which the Eligible Director has then been granted under the Plan. Notwithstanding the foregoing, any termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the regulations under the Income Tax Act (Canada) or any successor to such provision, and the requirements of Section 409A of the Code as may apply to Eligible Directors who are U.S. Taxpayers.

4.5 Applicable Trading Policies and Reporting Requirements

     The Committee and each Eligible Director will ensure that all actions taken and decisions made by the Committee or an Eligible Director, as the case may be, pursuant to the Plan, comply with applicable securities regulations and policies of the Company relating to the insider trading and “black out” periods. All Deferred Stock Units shall be considered a “security” of the Company solely for the reporting purposes of the insider trading policy of the Company.

4.6 Currency

     All payments and benefits under the Plan shall be determined and paid in the lawful currency of Canada.

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4.7 Designation of Beneficiary

     Subject to the requirements of applicable laws, an Eligible Director shall designate in writing a person who is a dependant or relation of the Eligible Director as a beneficiary to receive any benefits that are payable under the Plan upon the death of such Eligible Director. The Eligible Director may, subject to applicable laws, change such designation from time to time. Such designation or change shall be in the form of Schedule B. The initial designation of each Eligible Director shall be executed and filed with the Secretary of the Company within sixty (60) days following the Effective Date of the Plan. Changes to such designation may be filed from time to time thereafter.

4.8 Death of Participant

     In the event of an Eligible Director’s death, any and all Deferred Stock Units then credited to the Eligible Director’s Account shall become payable to the Eligible Director’s Beneficiary in accordance with Section 3 and the date of death shall be deemed to be the Termination Date.

4.9 Rights of Participants

4.9.1  Except as specifically set out in the Plan, no Eligible Director, or any other person shall have any claim or right to any benefit in respect of Deferred Stock Units granted or Annual Remuneration payable pursuant to the Plan.

4.9.2  Rights of Eligible Directors respecting Deferred Stock Units and other benefits under the Plan shall not be transferable or assignable other than by will or the laws of descent and distribution.

4.9.3  The Plan shall not be construed as granting an Eligible Director a right to be retained as a member of the Board or a claim or right to any future grants of Deferred Stock Units, future Annual Remuneration or other benefits under the Plan.

4.9.4  Under no circumstances shall Deferred Stock Units be considered Common Shares nor shall they entitle any Eligible Director or other person to exercise voting rights or any other rights attaching to the ownership of Common Shares, nor shall any Eligible Director or other person be considered the owner of Common Shares or any interest therein by virtue of this Plan.

4.10 Compliance with Law

     Any obligation of the Company pursuant to the terms of the Plan is subject to compliance with all applicable laws. The Eligible Directors shall comply with all applicable laws and furnish the Company with any and all information and undertakings as may be required to ensure compliance therewith.

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4.11 Withholding

     The Company shall be entitled to deduct any amount of withholding taxes and other withholdings from any amount paid or credited hereunder.

SCHEDULE A

Photowatt Technologies Inc. Directors’ Deferred Stock Unit Plan (the “Plan”)

ELECTION NOTICE

I. Election:

Subject to Part II of this Notice, for the period April 1, to March 31, , I hereby elect to receive the following percentage of Annual Remuneration by way of Deferred Stock Units (“DSUs”):

	Amount	Percentage in DSUs	Percentage in Cash*
Annual Retainer Fee	$	___%	___%
Annual                      Committee Fees	$	___%	___%

*cash payments will be made Quarterly in arrears

II. Acknowledgement

     I confirm and acknowledge that:

1.	I have received and reviewed a copy of the terms of the Plan and agree to be bound by them.
2.	I will not be able to cause the Company or any Affiliate thereof to redeem DSUs granted under the Plan until my Termination Date.
3.	When DSUs credited to my account pursuant to this election are redeemed in accordance with the terms of the Plan after my Termination Date, income tax and other withholdings as required will arise at that time. Upon redemption of the DSUs, the Company will make all appropriate withholdings as required by law at that time.
4.	The value of DSUs are based on the value of the Common Shares of the Company and therefore are not guaranteed.

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5.	No funds will be set aside to guarantee the payment of DSUs. Future payment of DSUs will remain an unfunded and unsecured liability recorded on the books of the Company.
6.	This election is irrevocable.
7.	The foregoing is only a brief outline of certain key provisions of the Plan. In the event of any discrepancy between the terms of the Plan and the terms of this Election Notice, the terms of the Plan shall prevail. All capitalized expressions used herein shall have the same meaning as in the Plan unless otherwise defined herein.

Date	(Name of Eligible Director)
	(Signature of Eligible Director)

SCHEDULE B

BENEFICIARY DESIGNATION

To: Photowatt Technologies Inc.

I,                                         , being a participant in the Photowatt Technologies Inc. Directors’ Deferred Stock Unit Plan (the “Plan”) hereby designate the following person as my Beneficiary for purposes of the Plan:

Name of Beneficiary:

Address of Beneficiary:

     This designation revokes any previous beneficiary designation made by me under the Plan. Under the terms of the Plan, I reserve the right to revoke this designation and to designate another person as my Beneficiary.

Date:
Name:	(please print)
Signature:

EX-10.11

Exhibit 10.11

PHOTOWATT TECHNOLOGIES INC.

EXECUTIVE PERFORMANCE SHARE UNIT PLAN

As amended on December 5, 2006 with effect as of November 8, 2006

1.	PURPOSE	1
2.	PLAN DEFINITIONS AND INTERPRETATIONS	1
3.	GRANT OF SHARE UNITS AND TERMS	4
4.	ACCOUNTS AND STATEMENTS	5
5.	VESTING	6
6.	REDEMPTION OF SHARE UNITS	6
7.	MAXIMUM NUMBER OF SHARES TO BE ISSUED UNDER THE PLAN	7
8.	DEATH, TERMINATION OF EMPLOYMENT AND FORFEITURES	7
9.	CHANGES IN SHARE CAPITAL
10.	NOTICES	10
11.	GENERAL	10

PHOTOWATT TECHNOLOGIES
INC.

EXECUTIVE PERFORMANCE SHARE UNIT PLAN

1.	PURPOSE
1.1	This Executive Performance Share Unit Plan has been established by the Company to provide medium term incentives to certain of its executives to contribute to the success of the Company and to build and maintain a strong spirit of performance and entrepreneurship.

2.	PLAN DEFINITIONS AND INTERPRETATIONS
2.1	In this Plan, the following terms have the following meanings:

(a)	“Account” has the meaning ascribed thereto in section 4.2;
(b)	“Affiliate” has the meaning ascribed to that term in the Securities Act (Ontario);
(c)	“Associate” has the meaning ascribed to that term in the Securities Act (Ontario);
(d)	“Applicable Law” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation, together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder and Stock Exchange Rules;
(e)	“ATS” means ATS Automation Tooling Systems Inc.;
(f)	“Beneficiary” means any person designated by the Participant by written instrument filed with the Company to receive any amount, securities or property payable under the Plan in the event of a Participant’s death or, failing any such effective designation, the Participant’s estate;
(g)	“Board” means the board of directors of the Company;
(h)	“Business Day” means any day other than a Saturday, a Sunday or a statutory holiday observed in the Province of Ontario;
(i)	“Code” means the United States Internal Revenue Code of 1986, as amended;
(j)	“Committee” means a committee, if any, created by the Board to exercise authority under the Plan pursuant to the provisions contained herein;
(k)	“Company” means Photowatt Technologies Inc., and includes any successor corporation thereof, and any reference in the Plan to action by the Company means action by or under the authority of the Board or the Committee or any person that has been designated for that purpose by the Board or Committee in accordance with Section 11.5;

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(l)	“Continuous Service” means that the provision of services to the Company or an Affiliate of the Company in any capacity of employee, director, officer or Service Provider is not interrupted or terminated, whether by resignation, removal, discharge, termination of engagement or otherwise. In the case of an employee whose employment is terminated by the Company or an Affiliate of the Company, Continuous Service shall be terminated on the date of notice of termination is given to the employee. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or an Affiliate of the Company or among the Company and any of its Affiliates or any successor, in any capacity of employee, director, officer or Service Provider, or (iii) any change in status as long as the individual remains in the service of the Company or an Affiliate of the Company in any capacity of employee, director, officer or Service Provider (except as otherwise provided in a written agreement between the Company and the Participant). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.
(m)	“Corporate Transaction” means a Sale Transaction resulting in a Change of Control (as defined below). A “Change of Control” shall occur in the event of either (A) an acquisition of voting securities of the Company to which are attached in excess of 50% of the votes attaching to all outstanding voting securities of the Company or (B) if the Company is not the surviving corporation following completion of a Corporate Transaction, a transaction whereby the shareholders of the Company immediately before the transaction hold less than 50% of the shares of the surviving corporate entity or purchaser.
(n)	“Date of Grant” of a Share Unit means the date a Share Unit is granted to a Participant under the Plan;
(o)	“Effective Date” means the 8th day of November, 2006;
(p)	“Expiry Date” means, in respect of a Share Unit, the latest date, as set out in the applicable Grant Agreement, on which the Share Unit may be redeemed, which date shall be no later than the date that is seven years after the Date of Grant, provided that if at any time the date should be determined to occur either during a period in which the Participant is restricted from trading in securities of the Company under its insider trading policy or other policy or within ten Business Days following such a period, such date shall be deemed to be the date that is the tenth Business Day following the date of expiry of such period;
(q)	“Fair Market Value” as at any date means the closing price for a Share on the day immediately prior to such date on the stock exchange on which the highest aggregate volume of Shares have traded on such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of a Share as determined by the Board in its sole discretion, acting reasonably and in good faith;
(r)	“Grant Agreement” means an agreement between the Company and a Participant under which a Share Unit is granted, together with such amendments, deletions or changes thereto as are permitted under the Plan;
(s)	“including” means including without limitation;

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(t)	“Insider” means: (i) an insider as defined in the Securities Act (Ontario), other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Company; and (ii) an Associate of any person who is an insider by virtue of (i), above;
(u)	“Liquid Securities” means securities of an issuer that are listed for trading on one or more of the TSX, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature, that have a market capitalization of at least $200 million, and that are not subject to any restriction on sale, pursuant to Applicable Law or otherwise;
(v)	“Non-Executive Director” means any director of the Company who is not an employee or officer of the Company or any Affiliate of the Company;
(w)	“Outstanding Issue” means the aggregate number of Shares that are outstanding immediately prior to the Share issuance in question, excluding Shares which have been issued pursuant to Share Compensation Arrangements within the preceding one year period;
(x)	“Participant” means any director, officer or employee of the Company or an Affiliate of the Company, or any other Service Provider, who has been designated by the Company for participation in the Plan and who has agreed to participate in the Plan on such terms as the Company may specify;
(y)	“Plan” means this Executive Performance Share Unit Plan, as amended and restated from time to time;
(z)	“Qualified IPO” means an underwritten public offering of Shares in which immediately following the closing, the Shares are listed for trading on one or more of the TSX, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature and have a market capitalization of at least $200 million;
(aa)	“Sale Transaction” means any merger, amalgamation or plan of arrangement involving the Company, acquisition or take-over bid for the Shares of the Company, or similar transaction, or series of transactions, or the sale of all or substantially all of the assets of the Company excluding any asset sale transaction in connection with which all holders of Shares are not entitled to receive cash or Liquid Securities in consideration of their Shares, provided that a Sale Transaction shall exclude: (i) any share transfer, reorganization, asset transfer, or similar transaction to which the parties are limited to the Company and/or any of its present or future Affiliates; (ii) the completion of a treasury offering of securities of the Company or an Affiliate of the Company; or (iii) the public offering or the dividend or other distribution by ATS or one of its Affiliates of shares in the capital of the Company;
(bb)	“Service Provider” means: (i) an employee or Insider of the Company or an Affiliate of the Company; or (ii) any other person or company engaged by the Company or an Affiliate of the Company to provide services for an initial, renewable or extended period of 12 months or more;
(cc)	“Shares” means common shares of the Company, and include any shares of the Company into which such shares may be converted, reclassified,

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	subdivided, consolidated, exchanged or otherwise changed, whether pursuant to a reorganization, amalgamation, merger, arrangement or other form of reorganization;
(dd)	“Share Compensation Arrangement” means the Plan, a stock option, stock option plan, stock purchase plan where the issuer provides financial assistance or matches the whole or a portion of the purchase price of the securities being purchased, stock appreciation rights involving the issuance of securities from treasury, or any other compensation or incentive mechanism involving the issuance or potential issuance of securities to one or more of an employee, Insider or Service Provider of the Company or any Affiliate of the Company, including a share purchase from treasury which is financially assisted by the Company by way of a loan, guaranty or otherwise;
(ee)	“Share Unit” means a unit credited by means of an entry on books of the Company to a Participant pursuant to the Plan, representing the right to receive for each Vested Share Unit one Share or cash payment equal to the Fair Market Value thereof, at the time, in the manner, and subject to the terms, set forth in the Plan and the applicable Grant Agreement;
(ff)	“Stock Exchange Rules” means the applicable rules of any stock exchange or quotation system upon which shares of the Company are listed or quoted, as applicable;
(gg)	“TSX” means the Toronto Stock Exchange;
(hh)	“U.S. Taxpayer” means a citizen or resident of the United States for United States federal income tax purposes;
(ii)	“Vested Share Units” means Share Units which have vested in accordance with section 5 and the terms of the applicable Grant Agreement;
(jj)	“Vesting Date” has the meaning ascribed thereto in section 5; and
(kk)	“Vesting Rights” refers to the terms on which the Share Unit may be redeemed.

2.2	In this Plan, unless the context requires otherwise, references to the male gender include the female gender, words importing the singular number may be construed to extend to and include the plural number, and words importing the plural number may be construed to extend to and include the singular number. All amounts referred to in this Plan are stated in Canadian dollars unless otherwise indicated.
3.	GRANT OF SHARE UNITS AND TERMS
3.1	The Board or the Committee may grant Share Units to such Participant or Participants in such number and at such times as the Company may, in its sole discretion, determine, as a bonus or similar payment.
3.2	Each Share Unit will give the Participant the right to receive, with respect to each such Share Unit which has become a Vested Share Unit pursuant to the provisions of the Plan and in accordance with the terms of the Grant Agreement relating to such Share Unit, one Share or where the applicable Grant Agreement so provides, the Fair Market Value.
3.3	Subject to the terms of the Plan, the Company may determine other terms or conditions of any Share Units, including:

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(a) any additional conditions to be met to establish Vesting Rights attaching to Share Units, which may include:

(i)	the market price of the Shares;
(ii)	the return to holders of Shares, with or without reference to other comparable companies;
(iii)	the financial performance or results of the Company, an Affiliate of the Company or business unit of the Company or an Affiliate of the Company;
(iv)	other performance criteria relating to the Company, an Affiliate of the Company or business unit of the Company or an Affiliate of the Company;
(v)	ownership of Shares by a Participant; and
(vi)	any other terms and conditions the Company may in its discretion determine with respect to vesting;

(b)	restrictions on the resale of Shares including escrow arrangements; and
(c)	any other terms and conditions the Company may in its discretion determine;

	which shall be set out in the Grant Agreement.
	The conditions may relate to all or a portion of the Share Units in a grant and may be graduated such that different percentages (which may be greater or lesser than 100%) of the Share Units in a grant will become vested depending on the extent of satisfaction of one or more such conditions.
	The Company may, in its discretion, subsequent to the Date of Grant of a Share Unit, waive any such term or condition or determine that it has been satisfied.
3.4	Each grant of a Share Unit will be set forth in a Grant Agreement containing terms and conditions required under the Plan and such other terms and conditions not inconsistent herewith as the Company may, in its sole discretion, deem appropriate.
3.5	No certificates shall be issued with respect to Share Units.
3.6	Participation in the Plan shall be entirely voluntary and any decision not to participate shall not affect the employment or engagement of any person with the Company.
4.	ACCOUNTS AND STATEMENTS
4.1	The Company shall keep or cause to be kept such records and accounts as may be necessary or appropriate in connection with the administration of the Plan and the discharge of its duties, which records shall, absent manifest error, be considered conclusively determinative of all information contained therein. At such times as the Company shall determine, the Company shall furnish the Participant with a statement setting forth the details of his or her Share Units including the Date of Grant and the Vested Share Units and unvested Share Units held by each Participant. Such statement shall be deemed to have been accepted by the Participant as correct unless written notice to the contrary is given to the Company within 30 days after such statement is provided to the Participant. For greater certainty, in the event of any discrepancy between the records of the

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	Company and any statement provided to a Participant pursuant to this section 4.1, the records of the Company shall govern and the rights and obligations of the Company and the Participant shall be determined on the basis of such records.
4.2	The Company shall maintain an account for each Participant (an “Account”) to record Share Units granted to such Participant hereunder.
4.3	On the Date of Grant, the Account will be credited with the Share Units granted to a Participant on that date.
4.4	A Participant’s Account shall, unless otherwise determined by the Company, from time to time until the Vesting Date, be credited with additional Share Units, the number of which shall be the quotient determined by dividing: one hundred per cent (100%) of the dividends declared and that would have been paid to the Participant if the Share Units in his or her Account on the relevant record date for dividends on the Shares had been Shares (excluding stock dividends but including dividends which may be paid in cash or shares at the option of the shareholder) by the Fair Market Value on the dividend payment date, with fractions computed to three decimal places.
5.	VESTING
5.1	Subject to sections 8.1 and 8.2, Share Units shall vest in accordance with the terms of the applicable Grant Agreement and this section 5, and each date on which Share Units shall vest shall be referred to as the “Vesting Date” in respect of such Share Units.
5.2	Except as otherwise set out in any applicable Grant Agreement or any other written agreement between a Participant and the Company in respect of a Share Unit, and notwithstanding any other provision of this Plan, in the event of a Corporate Transaction, each Share Unit will be deemed terminated immediately prior to the specified effective date of the Corporate Transaction, unless either the Share Unit is assumed by the successor corporation or parent thereof in connection with the Corporate Transaction or the Board determines otherwise. Upon Board approval of a Sale Transaction, the Company may give notice to each Participant which will set forth requirements in respect of outstanding Share Units or any Shares acquired through the redemption of Share Units following the date of such notice that must be complied with as a condition to each Participant’s participation in the Sale Transaction.
5.3	The Board or the Committee, as the case may be, may, in its sole discretion and subject to such conditions as the Board or Committee considers appropriate, at any time after the Date of Grant of a Share Unit, determine the acceleration, if any, of the vesting provisions for any Share Units, in which event all such unvested Share Units then outstanding and granted to a Participant shall be deemed to be Vested Share Units and shall be immediately redeemable in accordance with Section 6.
6.	REDEMPTION OF SHARE UNITS
6.1	The Participant shall be entitled to receive, and the Company shall issue to the Participant, one Share for each Vested Share Unit then credited to the Participant. Any such Shares shall be issued to the Participant as soon as practicable following the applicable Vesting Date.
6.2	Notwithstanding section 6.1, the Company may in its sole discretion provide in a Grant Agreement or, subject only to section 11.1(a), amend a Grant Agreement to provide that upon redemption of Vested Share Units a Participant shall receive a cash payment equal to the Fair

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	Market Value on the Vesting Date multiplied by the number of Vested Share Units then credited to the Participant, less any applicable tax withholdings, in full satisfaction of such Participant’s rights with respect to such Vested Share Units.
7.	MAXIMUM NUMBER OF SHARES TO BE ISSUED UNDER THE PLAN
7.1	The maximum number of Shares that may be issued by the Company to Participants pursuant to Share Units granted and outstanding under this Plan and other Share Compensation Arrangements is, prior to a Qualified IPO, 4,000,000, and after a Qualified IPO, a number equal to 10% of the number of the Outstanding Issue immediately following completion of the Qualified IPO.
7.2	Following completion of a Qualified IPO, no Share Unit shall be granted to any Participant if the total number of Shares issuable to such Participant under this Plan, together with any Shares reserved for issuance to such Participant under options for services or any other stock option plans, would exceed 5% of the issued and outstanding Shares.
7.3	Notwithstanding any of the other provisions of this Plan, following completion of a Qualified IPO, no Share Units shall be granted to any Participant if such grant could result, at any time, in:

(i)	the aggregate number of Shares issuable to Insiders at any time and issued to Insiders within the one-year period prior to such time pursuant to Share Units or other Share Compensation Arrangements exceeding 10% of the issued and outstanding Shares;
(ii)	the aggregate number of Shares reserved for issuance pursuant to Share Units granted under this Plan or any stock option plan to Non-Executive Directors exceeding 0.5% of the issued and outstanding Shares; and
(iii)	the issuance to any one Insider and such Insider’s Associates, within a one-year period, pursuant to Share Units or other Share Compensation Arrangements of an aggregate number of Shares exceeding 5% of the issued and outstanding Shares.

7.4	If any Share Unit is terminated, cancelled or has expired without being fully redeemed, any unissued Shares which have been reserved to be issued upon the redemption of the Share Unit shall become available to be issued upon the redemption of Share Units subsequently granted under the Plan, provided that any such termination or cancellation of Share Units shall be conducted in accordance with the applicable rules of any stock exchange upon which the Shares of the Company are listed.
8.	DEATH, TERMINATION OF EMPLOYMENT AND FORFEITURES
8.1	If a Participant should die and the circumstances specified in Section 8.2 had not occurred in relation to such Participant and such Participant, at the time of his or her death, held Share Units in respect of which the Expiry Date had not then occurred:

(i) in the case of Vested Share Units so held by the deceased Participant which had not yet been redeemed pursuant to Section 6 as at the date of the death of the deceased Participant, the Company shall provide to the Participant’s Beneficiary the Shares or payment to which the Participant was entitled in accordance with Section 6 and the applicable Grant Agreement; and

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(ii) in the case of Share Units so held by the deceased Participant which were not Vested Share Units as of the date of death of the deceased Participant, such Share Units may, at the Company’s sole and arbitrary discretion, be redeemed in such number as the Company may determine. Where the Company elects to redeem unvested Share Units held by a deceased Participant the Company shall provide to the Participant’s Beneficiary the Shares or payment to which the Participant would have been entitled in accordance with Section 6 and the applicable Grant Agreement if the Share Units that the Company elects to redeem had become Vested Share Units on the date of death of deceased Participant.

8.2

(a) Except as otherwise provided in Section 8.1 or subsection 8.2(b) or in a written agreement with the Company and approved by the Board, if a Participant’s Continuous Service shall terminate then (A) any Share Unit granted to such Participant under the Plan that has not vested shall in all respects terminate and be of no further force or effect immediately after such termination of Continuous Service (and without the requirement for any further act or formality including, without limitation, the giving of any notices) and (B) as soon as practicable after the date of the occurrence of any such resignation, discharge, removal or termination other than by reason of death as contemplated in Section 8.1 and prior to the Expiry Date the Company shall, in accordance with Section 6 and the applicable Grant Agreement, redeem any Share Units which are Vested Share Units on such date.

(b)

Except as otherwise provided in a written agreement with the Company, and approved by the Board, if a Participant:

(i)	is discharged or terminated as an employee or officer of the Company or an Affiliate of the Company for cause; or
(ii)	is removed as a director of the Company by action of the Board or the shareholders of the Company; or
(iii)	is removed as a director of an Affiliate of the Company by action of the board of directors of the Affiliate or the shareholders of the Affiliate; or
(iv)	was engaged as a Service Provider and is not an employee or director or officer of the Company or an Affiliate of the Company, and the engagement is terminated by the Company or an Affiliate of the Company for cause or breach of duty,

immediately upon the occurrence of any such discharge, removal or termination other than by reason of death as contemplated in Section 8.1 (and without the requirement of any further act or formality including, without limitation, the giving of any notices) each and every Share Unit granted to such Participant under the Plan, which had not been redeemed prior to such occurrence, shall in all respects immediately terminate and be of no further force or effect as to Shares in respect of such Share Units, regardless of whether or not such Share Unit had vested with respect to such Shares.

	For greater certainty, the Company shall in its sole and absolute discretion determine whether “cause” or a “breach of duty” exists with respect to a discharge or termination.
8.3	Subject to the requirements of Applicable Law, a Participant may designate in writing a Beneficiary to receive any benefits that are payable under the Plan upon the death of such Participant. The Participant may, subject to Applicable Law, change such designation from time

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	to time. Such designation or change shall be in such form and executed and filed in such manner as the Company may from time to time determine.
8.4	No cash or other compensation shall at any time be paid in respect of any Share Units which have been forfeited or terminated under this Plan or on account of damages relating to any Share Units which have been forfeited or terminated under this Plan.
8.5	Notwithstanding any other provision of the Plan or a Grant Agreement, Share Units granted hereunder shall terminate, if not redeemed or previously terminated and forfeited in accordance with the Plan, and be of no further force and effect after the Expiry Date.
8.6	The Company shall have no obligation at any time after the delivery of a Grant Agreement to the Participant to notify the Participant of the Expiry Date of any Share Unit granted pursuant to such Grant Agreement.
9.	ANTI-DILUTION
9.1	In the event that the Shares are at any time changed or affected as a result of the declaration of a stock dividend or other distribution thereon or their subdivision or consolidation, the number of Shares reserved for issuance under this Plan shall be adjusted accordingly by the Board or the Committee to such extent as they deem proper in their discretion. In such event, the number of Shares that are then subject to Share Unit grants and the Fair Market Value may also be adjusted by the Board or the Committee to such extent, if any, as they deem proper in their discretion.
	Subject to Section 5.2 if at any time after the grant of Share Units and prior to the earlier of the redemption of such Share Units pursuant to Section 6 and their Expiry Date, the Shares shall be reclassified, reorganized or otherwise changed, otherwise than as specified in the preceding paragraph, or the Company shall merge, combine, enter into a plan of arrangement or amalgamate with or into another corporation (the corporation resulting or continuing from such merger, combination, plan of arrangement or amalgamation being herein called the “Successor Corporation”), the Participant shall be entitled to receive upon the subsequent redemption of his or her Share Units in accordance with the terms hereof and shall accept in lieu of the number of Shares to which he or she was theretofore entitled upon such redemption the aggregate number of shares of the appropriate class and/or other securities of the Company or the Successor Corporation (as the case may be) and/or other consideration from the Company or the Successor Corporation (as the case may be) that the Participant would have been entitled to receive as a result of such reclassification, reorganization or other change or, of such merger, combination, arrangement or amalgamation, if on the record date or effective date (as the case may be) of such reclassification, reorganization or other change or such merger, combination, plan of arrangement or amalgamation (as the case may be) he or she had been the registered holder of the number of Shares to which he or she was theretofore entitled upon such redemption.
9.2	The Company shall not be required to issue fractional shares in satisfaction of its obligations hereunder. Any fractional interest in a Share that would, except for the provisions of this Section 9.2, be deliverable upon the redemption of any Share Unit shall be cancelled and not be deliverable by the Company.

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10.	NOTICES
10.1	Any payment, notice, statement, certificate or other instrument required or permitted to be given to a Participant or any person claiming or deriving any rights through him or her shall be given by:

(a)	delivering it personally to the Participant or to the person claiming or deriving rights through him or her, as the case may be; or
(b)	mailing it postage paid (provided that the postal service is then in operation) or delivering it to the address which is maintained for the Participant in the Company’s records.

10.2 Any payment, notice, statement, certificate or other instrument required or permitted to be given to the Company shall be given by mailing it postage prepaid (provided that the postal service is then in operation), or delivering it to the Company at the following address:

Photowatt Technologies Inc.
25 Reuter Drive
Cambridge, Ontario N3E 1A9
Attention: President and Chief Executive Officer
Fax No.: (519) 650-6535

10.3	Any payment, notice, statement, certificate or other instrument referred to in section 10.1 or 10.2 hereof, if delivered, shall be deemed to have been given or delivered on the date on which it was delivered, or if mailed (provided that the postal service is then in operation), shall be deemed to have been given or delivered on the second Business Day following the date on which it was mailed.
11.	GENERAL
11.1	The Company shall have the power to, at any time and from time to time either prospectively or retrospectively, amend, suspend or terminate the Plan or any Share Unit granted under the Plan (or the Grant Agreement in respect thereof), provided, however, that:

(a)	any such amendment, suspension or termination is subject to any approvals required under Applicable Law;
(b)	no such amendment, suspension or termination shall be made at any time to the extent such action would materially adversely affect the existing rights of a Participant with respect to any then outstanding Share Unit, as determined by the Board acting in good faith, without his or her consent in writing, except to the extent required by Applicable Law and subject to section 11.1(d); and
(c)	following completion of a Qualified IPO, any such amendment in respect of the following shall become effective only upon shareholder approval thereof:

(i) any amendment to the maximum number of Shares specified in section 7.1 in respect of which Share Units may be granted under this Plan (other than pursuant to Article 9);

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(ii)	any amendment that would increase any of the percentage limits in sections 7.2 and 7.3;
(iii)	any amendment to the reference in the definition of Expiry Date in section 2.1(q) to “the date that is seven years after the Date of Grant”;
(iv)	any amendment that would extend the term of any outstanding Share Unit granted to an Insider to a date beyond the Expiry Date;
(v)	any amendment that would permit assignments to persons not currently permitted under the Plan; and
(vi)	any amendment to the definition of “Participant” or any defined term used therein that would expand the scope of the term “Participant”.

(d) If any provision of the Plan contravenes any regulations or Treasury guidance promulgated under Section 409A of the Code or would cause the Share Units to be subject to the interest and penalties under Section 409A of the Code such provision of the Plan shall, to the extent that it applies to U.S. Taxpayers, be modified, without the consent of any Participant, to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A of the Code.

11.2 Upon the termination of the Plan, in whole or in part, the Company may, in its discretion, determine whether the outstanding Share Units (including Vested Share Units and unvested Share Units) or a portion thereof credited to a Participant affected by the termination shall be automatically redeemed and paid out in a lump sum cash payment net of any applicable withholdings or held for the credit of the Participant and redeemed and paid out at a later date in accordance with the terms of the Plan in effect immediately prior to the termination of the Plan.

11.3 The Plan shall be administered by the Company in accordance with its provisions. All costs and expenses of administering the Plan will be paid by the Company. The Company shall have the power to make such rules and regulations for the administration of this Plan, and to interpret the provisions hereof and of such rules and regulations, as it shall in its sole discretion determine to be appropriate.

11.4 The determination by the Company of any question which may arise as to the interpretation or implementation of the Plan or any of the Share Units granted hereunder shall be final and binding on all Participants and other persons claiming or deriving rights through any of them.

11.5 The Board or Committee may from time to time delegate all or any of its powers under the Plan to one or more directors or officers of the Company who shall thereupon exercise such of the powers herein given to the Board or the Committee as may be delegated by it in accordance with any express directions of the Board or Committee from time to time. The Company may also appoint or engage a trustee, custodian or administrator to administer or implement the Plan.

11.6 The Plan shall enure to the benefit of and be binding upon the Company, its successors and assigns. The interest of any Participant under the Plan or in any Share Unit shall not be transferable or alienable by him or her either by pledge, assignment or in any other manner whatsoever and, during his lifetime, shall be vested only in him or her, but shall thereafter enure

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     to the benefit of and be binding upon the legal personal representatives of the Participant in accordance with the terms hereof.

11.7 The Company’s obligation to issue Shares in accordance with the terms of this Plan and the grant, and any right of redemption of any Share Unit hereunder, are subject to compliance with all Applicable Laws and to receipt of any applicable approval under Applicable Laws in respect of the grant or right of exercise or any securities filing that discloses the grant or right of exercise. The Company’s issuance of any Share Units or its obligation to make any payments or to provide any Shares hereunder is subject to compliance with all Applicable Laws. As a condition of participating in the Plan, each Participant agrees (for such period as the Participant holds any Share Unit, including any period subsequent to termination of Continuous Service of the Participant), in connection with the redemption of all Share Units held and the sale of any Shares acquired upon the redemption of such Share Units, to comply with all Applicable Laws as well as the restrictions respecting disclosure of information or trading in securities of the Company established in the Company’s insider trading policy or such other policies as are established from time to time, and to furnish to the Company all information and undertakings as may be required to permit compliance with Applicable Laws.

11.8 Each Participant is subject to all applicable tax laws in connection with the ownership and redemption of Share Units and the acquisition and disposition of Shares underlying any Share Units, and no representation or warranty is made by the Company respecting any tax deduction, credit or other favourable tax treatment in connection therewith.

11.9 The Company and its Affiliates may withhold from any amount payable to a Participant, either under this Plan, or otherwise, such amount as may be necessary so as to ensure that the Company and its Affiliates will be able to comply with the applicable provisions of any federal, provincial, state or local law relating to the withholding of tax or other required deductions, including on the amount, if any, includable in the income of a Participant.

11.10 No Participant shall have any rights as a shareholder in respect of Shares subject to Share Units until such Share Units have been redeemed for Shares and such Shares issued.

11.11 Neither designation of an employee as a Participant nor the grant of any Share Units to any Participant entitles any Participant to the grant, or any additional grant, as the case may be, of any Share Units under the Plan. Neither the Plan nor any action taken thereunder shall interfere with the right of an employer of a Participant to terminate a Participant’s employment at any time. Neither any period of notice nor any payment in lieu thereof upon termination of employment, shall be considered as extending the period of employment for the purposes of the Plan.

11.12 The Plan shall be an unfunded obligation of the Company. Neither the establishment of the Plan nor the grant of any Share Units or the setting aside of any funds or assets (including Shares) by the Company (if, in its sole discretion, it chooses to do so) shall be deemed to create a trust. Legal and equitable title to any funds set aside for the purposes of the Plan shall remain in the Company and no Participant shall have any security or other interest in such funds. Any funds so set aside shall remain subject to the claims of creditors of the Company present or future. Amounts payable to any Participant under the Plan shall be a general, unsecured obligation of the Company. The right of the Participant to receive payment pursuant to the Plan shall be no greater than the right of other unsecured creditors of the Company.

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11.13 The Board or Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence or disability of any Participant.

11.14 All payments and benefits under the Plan shall be determined and paid in the lawful currency of Canada.

11.15 This Plan and any Share Units granted hereunder shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

11.16 This Plan is hereby instituted and in effect as of the Effective Date.

EX-10.12

EXHIBIT 10.12

Photowatt Short Term Incentive Plan

     Short term incentive bonuses are paid in the form of cash bonuses and are expressed as a percentage of an executive’s annual salary. Target bonus amounts are generally equal to 50% of the maximum bonus award under the annual performance incentive bonus plan (the “Bonus Plan”). The Bonus Plan rewards executives for divisional, regional and consolidated financial performance and achievement of personal objectives. The program provides opportunities for executives to earn a bonus based on accomplishments primarily in relation to the following factors (with the respective weighting attributed to each specific area set out in parentheses):

1.	Quantitative Objectives:
	Achievement of Quantitative objectives (revenue growth, margins, operating earnings, RONA or ROCE) (50-70%)
2.	Qualitative Objectives:
	The Qualitative objectives will be the fulfillment of specified individual objectives by each executive (30-50%).

The assessment of executives’ accomplishments with respect to these factors is the responsibility of the President and Chief Executive Officer.

The short term incentive bonus for the President and Chief Executive Officer is based on the same factors as for the other executives.

EX-10.16

Exhibit 10.16

Amendment to Executive Employment Agreement

Between:

     Mr. Silvano Ghirardi (Mr. Ghirardi)

and:

     ATS Automation Tooling Systems Inc. (Company)

WHEREAS:

The parties wish to amend a previous Executive Employment Agreement entered into between the Company and Mr. Ghirardi on May 20, 2005 (the “Employment Agreement”).

NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby agreed and acknowledged, the parties hereto agree as follows:

1. The Employment Agreement is amended to provide that the parties acknowledge that, upon the completion of a Qualified IPO, Photowatt Technologies Inc. (“Photowatt Technologies”) is the corporation established to operate as New Solar Co. as defined in Section 4 of the Employment Agreement.

2. The Employment Agreement is amended to add the following sub-sections to Section 8 of the Employment Agreement, “Termination of Employment”:

“(g) By Employee upon Change of Control

     Employee may terminate Employee’s employment for any reason within 12 months of a Change of Control in which case the Company shall be obligated to continue to pay to Employee Employee’s then-current base monthly salary as provided in Section 5 and provide the benefits pursuant to Section 6, but not any other compensation or supplemental benefits provided pursuant to Schedule A — Supplemental Compensation and Benefits Arrangements other than as provided for in the final paragraph of Section 2 of Schedule A, for a period equal to the Notice Period (as defined in Section 8 (a)), on regular payroll days subject to normal payroll deductions, subject, however to the Employee complying with the provisions of this Employment Agreement during such Notice Period, including without limitation the provisions of Sections 9 (Confidentiality), 10 (Return Of Confidential Records), 11 (Assignment Of Inventions), 12 (Non-Competition Agreement), and 13 (Non-Solicitation Covenant).

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     A “Change of Control” shall be deemed to have occurred if (i) any person becomes, together with any other person acting jointly or in concert with the person, the holder or beneficial owner, directly or indirectly, of securities of the Company to which are attached in excess of 50% of the votes attaching to all outstanding voting securities of the Company; (ii) during any eighteen month period after January 1, 2007, individuals who at the beginning of such period constitute the Board, including for this purpose any new director whose election resulted from a vacancy on the Board caused by the death, disability or resignation of a director and was approved by a vote of at least two-thirds of the directors then still in office, cease for any reason to constitute a majority thereof; (iii) the Company consummates a merger, amalgamation, plan of arrangement or consolidation of the Company or other similar transaction with or into another corporation (a “Reorganization”), the result of which is that the shareholders of the Company at the time of the execution of the agreement relating to the Reorganization own less than 50% of the total equity of the Company, the corporation surviving or resulting from the Reorganization or any corporation owning, directly or indirectly, 100% of the total equity of such surviving or resulting corporation; or (iv) the sale in one or a series of transactions of all or substantially all of the assets of the Company excluding one or a series of transactions pursuant to which the assets of the Company are transferred to an affiliate of the Company. For purposes of clarity, a Change of Control shall not be deemed to have occurred in relation to: (i) any share transfer, reorganization, asset transfer, or similar transaction, or series of transactions, involving the Company and/or any of its present or future affiliates; (ii) the completion of a treasury offering of securities in the Company or an affiliate of the Company; or (iii) the sale, by ATS Automation Tooling Systems Inc. or one of its affiliates, of shares in Photowatt Technologies in conjunction with a public offering.”

(h) By Employer Prior to Sale Transaction

     In the event that the Company completes a Sale Transaction prior to both March 31, 2007 and the date of closing of a Qualified IPO, and the employment of the Employee is terminated, including as a result of constructive dismissal, by the Company prior to the date of completion of the Sale Transaction, the Company shall pay to the Employee within 3 business days of such termination of employment, in addition to the payments specified in Section 8(a), an amount in cash equal to C$150,000.

For the purpose of this Employment Agreement and Schedule A:

“Qualified IPO” means an underwritten public offering of common shares in the capital of Photowatt Technologies in which immediately following the closing, the shares are listed for trading on one or more of the Toronto Stock Exchange, the Nasdaq Global Market, the New York Stock Exchange or a stock exchange or quotation system of similar stature and have a market capitalization of at least $200 million.

“Sale Transaction” means a sale in one or a series of transactions of all or substantially all of the assets of the Company relating to its solar energy business (other than to an affiliate of the Company).”

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3. The Employee hereby surrenders for cancellation to the Company the option to purchase 50,000 common shares in the capital of the Company provided for in Section 2 of Schedule A of the Employment Agreement, and acknowledges that such option is void and of no force or effect. Section 2 of Schedule A is hereby deleted in its entirety and replaced with the following:

“Subject to the terms and conditions of the Stock Option Plan of Photowatt Technologies (the “Plan”), and subject to you executing an option grant letter agreement in the form as prescribed by the Plan, you will be granted the following Options (all capitalized terms not otherwise defined having the meaning ascribed to them in the Plan unless otherwise defined in the Employment Agreement as amended or herein):

A.	Option to purchase 160,000 Shares (“Option 1”). The Date of Grant is September 12, 2006. The Exercise Price per share is C$5.00. The Expiry Date is September 12, 2013. Option 1 shall vest as follows:
	Upon the completion of a Qualified IPO, a number of Options held by Employee equal to 20 percent of the Designated Number of Shares subject to Option 1 multiplied by the sum of 1 plus the number of complete years between the Date of Grant and the date of completion of the Qualified IPO, shall vest. Thereafter, 20 percent of the Designated Number of Shares subject to Option 1, or such lesser number as remain unvested, shall vest on each anniversary of the date of completion of the Qualified IPO until such time as the Options are fully vested.
	Option 1 shall be automatically adjusted immediately following completion of the Qualified IPO to increase or decrease the Designated Number of 160,000 Shares subject to Option 1 such that the Designated Number equals 0.3636 % of the Outstanding Issue held by ATS Automation Tooling Systems Inc. or any of its affiliates immediately prior to completion of the Qualified IPO (such number of Shares referred to as the “Option 1 Designated Number”). To the extent that the Option 1 Designated Number exceeds 160,000, within 3 business days of the date of exercise of Option 1 in whole at any time or in part from time to time, the Employee shall receive from Photowatt Technologies an amount in cash equal to the product of (A) a fraction, the numerator of which is the excess, if any, of the Option 1 Designated Number over 160,000 and the denominator of which is the Option 1 Designated Number and (B) C$5.00 (the product of (A) and (B) referred to as the “Payment Per Share”) and (C) the number of Shares subject to Option 1 acquired pursuant to the exercise of Option 1. Each of the amounts in this paragraph shall be adjusted pursuant to the anti-dilution adjustments under the Plan applicable to the Option 1 Designated Number and the Exercise Price of Option 1, mutatis mutandis. The fraction of which the numerator is the Option 1 Designated Number and the denominator of which is 160,000 shall be referred to as the “Adjustment Factor”.
	In the event that the Fair Market Value of the Shares is less than C$5.00 (reflecting any anti-dilution adjustments under the Plan applicable to the Exercise Price of Option 1) at the date of surrender by the Employee to Photowatt Technologies of the right, vested but unexercised, to purchase Shares subject to Option 1 (the amount of such deficiency referred to as the “Deficiency”), the Employee shall be entitled to

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	receive from Photowatt Technologies within 3 business days of the date of such surrender an amount in cash equal to the product of (A) the excess, if any, of the Payment Per Share over the Deficiency and (B) the number of Shares in respect of which the right to purchase pursuant to Option 1 was surrendered. Upon surrender of the right, vested but unexercised, to purchase Shares subject to Option 1, the portion of Option 1 in respect of such Shares shall immediately cease and terminate and be of no further force or effect.
B.	Option to purchase a number of Shares equal to the product of 57,000 and the Adjustment Factor will be granted on the date of closing of a Qualified IPO (“Option 2”). The Exercise Price of Option 2 is the public offering price per share in relation to the Qualified IPO. The Expiry Date is seven years from the date of closing of a Qualified IPO. Option 2 shall vest as follows:
	Upon the completion of a Qualified IPO, a number of Options held by Employee equal to 20 percent of the Options credited to Employee at the Date of Grant multiplied by the number of complete years between the Date of Grant and the date of completion of the Qualified IPO, shall vest. Thereafter, 20 percent of the Options credited to Employee at the Date of Grant, or such lesser number as remain unvested, shall vest on each anniversary of the date of completion of the Qualified IPO until such time as the Options are fully vested.
C.	Option to purchase a number of Shares equal to the product of 85,700 and the Adjustment Factor will be granted on the date of closing of a Qualified IPO (“Option 3”). The Exercise Price of Option 3 is the public offering price per share in relation to the Qualified IPO. The Expiry Date is seven years from the date of closing of a Qualified IPO. Option 3 shall vest as follows:
	Upon the completion of a Qualified IPO,

o 50% of the Designated Number of Shares subject to Option 3 (42,850) vest upon achievement of SSP sustainable production of 2MW at 9% cell efficiency within 9 months of closing of a Qualified IPO; and

o 50% of the Designated Number of Shares subject to Option 3 (42,850) vest upon achievement of SSP sustainable production of 12MW at 9% cell efficiency and minimum break-even normalized operating performance within 36 months of closing of a Qualified IPO.

For greater certainty, the parties acknowledge that none of the Options referred to in this Schedule A shall vest prior to the completion of a Qualified IPO unless determined by the Board or the Committee in accordance with the Plan.

In the event that a Change of Control occurs subsequent to closing of a Qualified IPO and the employment of the Employee is terminated, including as a result of constructive dismissal, by the Company or the Employee resigns, in either case within 3 months from the date of the Change of Control, Option 1 will accelerate and become fully vested.

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Notwithstanding Section 3.4 of the Plan, in the event that the Company completes a Sale Transaction prior to the closing of a Qualified IPO, and either (A) the employment of the Employee is terminated, including as a result of constructive dismissal, by the Company or the Employee resigns, in either case within 3 months from the date of completion of the Sale Transaction, or (B) the employment of the Employee is terminated, including as a result of constructive dismissal, by the Company prior to the date of completion of the Sale Transaction, the Company shall pay to the Employee within 3 business days of such termination of employment, and upon surrender and release of any entitlement to the Options contemplated above, an amount in cash equal to the product of (A) a fraction, the numerator of which is the excess, if any, of the Transaction Value (as defined below) of the Sale Transaction over C$220,000,000 and the denominator of which is C$220,000,000 and (B) C$800,000.”

For the purposes of this Schedule A and the Employment Agreement:

“Transaction Value” means an amount equal to (i) the sum of (without duplication) the aggregate cash consideration paid or payable to the Company or to its security holders and the aggregate fair market value of any securities or other non-cash consideration paid or payable to the Company or to its security holders in connection with a Sale Transaction, excluding the amount of all liabilities of the Company or any subsidiary of the Company which are assumed or acquired by the purchaser to the extent that the liabilities are liabilities of a corporation in respect of which all of the shares are transferred by the Company pursuant to the Sale Transaction less (ii) the aggregate amount of investment by ATS Automation Tooling Systems Inc. or its affiliates, if any, in the Company or its affiliates in the period from January 1, 2007 to the date of completion of a Qualified IPO. The fair market value of any securities or other non-cash consideration paid or payable to the Company or its security holders in connection with a Sale Transaction shall be the fair market value upon the closing date of the Sale Transaction as determined by the Company in good faith, provided that any publicly-traded securities shall be valued at the volume weighted average of their trading prices on the principal stock exchange on which they trade (as determined by volume) for the five trading days ending on the third trading day prior to the date on which value is being assessed. Any delayed or subsequent payments forming part of the consideration payable to the Company or its security holders shall be discounted to and valued at the applicable date in a manner determined by the Company in good faith.”

4. Schedule A of the Employment Agreement is hereby amended by adding as a new Section 5 the following :

     “5. Compensation Review.

     The Company and the Employee agree that the compensation of the Employee will be reviewed following completion of a Qualified IPO.

5. The undersigned acknowledges and agrees that ATS Automation Tooling Systems Inc. is not obligated to invest in or transfer any assets to Photowatt Technologies Inc. or its affiliates or its solar business, and that there are no assurances that a Qualified IPO or Sale Transaction will be completed and that the SSP development project may be discontinued at any time in the sole

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discretion of the board of directors.

6. Except for the foregoing amendments, the parties hereto acknowledge that the Employment Agreement shall remain in full force and effect, unamended. This Agreement and the Employment Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede (a) all prior oral or written proposals or agreements, (b) all contemporaneous oral proposals or agreements and (c) all previous negotiations and all other communications or understandings between the parties, in each case with respect to the subject matter hereof and thereof, and each of the parties to this Agreement acknowledges and agrees that he or it has not been induced to enter into this Agreement by reason of any warranty, representation, opinion, advice or assertion of fact and that there will be no liability, either in tort (including without limitation negligence) or in contract, assessed in relation to any such warranty, representation, opinion, advice or assertion of fact.

7. In the event of any inconsistency between the terms of this Agreement and the terms of the Employment Agreement, the provisions of this Agreement shall prevail.

8. This Agreement shall be governed and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The parties hereto submit to the exclusive jurisdiction of the courts of the Province of Ontario.

9. This Agreement may be executed in one or more counterparts (by original or facsimile signature) with such counterparts together constituting one original document which shall be effective as of the date hereof.

DATED October 13^th, 2006.

SIGNED:

“Silvano Ghirardi”

          Silvano Ghirardi

ATS Automation Tooling Systems Inc.

“Ron Jutras”

          Ron Jutras

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

Photowatt Technologies Inc.:

We consent to the use of our report dated July 31, 2006, except as to notes 10 and 19 which are as of December 8, 2006, with respect to the combined balance sheets of Photowatt Technologies Inc. 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, included herein and to the references to our firm under the headings “Experts” and “Transfer Agent, Registrar and Auditor” in the prospectus.

Chartered Accountants

Waterloo, Canada
December 11, 2006

KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International, a Swiss cooperative.