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CONTENTS
Notice of Annual Meeting ............................................................................................................................ 1
Management Proxy Circular ......................................................................................................................... 7
Matters to be Voted Upon ........................................................................................................................... 7
Voting Information ...................................................................................................................................... 7
Corporate Governance ............................................................................................................................... 21
Executive Compensation ............................................................................................................................ 28
Additional Information............................................................................................................................... 55
Defined Terms ........................................................................................................................................... 57
Appendix "A" Board Mandate .................................................................................................................... A1
Appendix "B" Description of Option Plan .................................................................................................... B1
Appendix"C" Description of SDP ................................................................................................................. C1
Financial Information ................................................................................................................................ D1
ABOUT BALLARD POWER SYSTEMS
Ballard Power Systems (NASDAQ: BLDP)(TSX: BLD) provides innovative clean energy products and services that
reduce customer costs and risks, and helps customers solve difficult technical and business challenges in their
fuel cell programs. Our business is based on two key growth platforms: Power Products and Technology
Solutions. To learn more about Ballard, please visit www.ballard.com.
CAUTION REGARDING FORWARD‐LOOKING STATEMENTS
This document contains forward‐looking statements concerning:
revenue estimates; market growth projections; operating
expenses; cost savings; adjusted EBITDA; product cost reductions
and product shipments.These forward‐looking statements reflect
Ballard’s current expectations as contemplated under section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any such forward‐
looking statements are based on Ballard’s assumptions relating to
its financial forecasts and expectations regarding its product
development efforts, manufacturing capacity, and market
demand.
These statements involve risks and uncertainties that may cause
Ballard's actual results to be materially different, including general
economic and regulatory changes, detrimental reliance on third
parties, successfully achieving our business plans and achieving
and sustaining profitability. For a detailed discussion of these and
other risk factors that could affect Ballard's future performance,
please refer to Ballard's most recent Annual Information Form.
Readers should not place undue reliance on Ballard's forward‐
looking statements and Ballard assumes no obligation to update
or release any revisions to these forward‐looking statements,
other than as required under applicable legislation.
BALLARD POWER SYSTEMS INC.
9000 Glenlyon Parkway
Burnaby, British Columbia, Canada V5J 5J8
NOTICE OF ANNUAL MEETING
TO OUR SHAREHOLDERS:
Our 2016 Annual Meeting (the "Meeting") will be held at our corporate head office facilities at 9000
Glenlyon Parkway, Burnaby, British Columbia, on Wednesday, June 1, 2016 at 1:00 p.m. (Pacific Daylight
Time) for the following purposes:
1.
2.
3.
4.
5.
6.
To receive our audited financial statements for the financial year ended December 31, 2015
and the report of our auditors thereon;
To elect our directors for the ensuing year;
To appoint our auditors for the ensuing year and to authorize our Audit Committee to fix the
remuneration of the auditors;
To consider and, if thought appropriate, to approve a resolution, on an advisory basis,
accepting the Corporation’s approach to executive compensation;
To consider and, if thought appropriate, to approve the continuance of the Corporation from
the Canada Business Corporations Act to the British Columbia Business Corporations Act
(the “Continuance Proposal”); and
To transact such other business as may properly be brought before the Meeting or any
adjournment thereof.
A detailed description of the matters to be dealt with at the Meeting and our 2015 Annual Report are
included with this Notice.
If you are unable to attend the Meeting in person and wish to ensure that your shares will be voted at the
Meeting, you must complete, date and execute the enclosed form of proxy and deliver it in accordance with
the instructions set out in the form of proxy and in the Management Proxy Circular accompanying this
Notice, so that it is received by Computershare Investor Services Inc. no later than 1:00 p.m. (Pacific
Daylight Time) on Monday, May 30, 2016.
If you plan to attend the Meeting you must follow the instructions set out in the form of proxy and in the
Management Proxy Circular to ensure that your shares will be voted at the Meeting.
DATED at Burnaby, British Columbia, April 15, 2016.
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems Inc.
1
Letter from IAN A. BOURNE
Chair of the Board
Fellow Shareholders:
Notwithstanding a mixed macroeconomic environment in 2015, the drivers underpinning Ballard continue to
strengthen. A landmark climate accord was approved at the United Nations Convention on Climate Change
in December in Paris. Similarly, air quality is increasingly making its way to the top of political agendas,
punctuated by the air quality “red alerts” in Beijing late last year.
2015 marked Randy’s first full year as our CEO. Under Randy’s leadership, the Ballard team had an
important year. Although our financial results were mixed, the Ballard team achieved measured progress in
many parts of the business, including the following milestone accomplishments – closing an $80 million
Technology Solutions deal with Volkswagen Group, acquiring Protonex, winning major commercial
contracts for the deployment of fuel cell buses in China, and securing a strategic investment from our
longstanding partner and plate supplier, Nisshinbo Holdings. Of course the year was not without its
challenges. In particular, our Telecom Backup Power business continued to struggle to achieve higher
volume sales. Starting in late 2015, management initiated strong action to address this part of our business.
We are pleased with the Company’s position as we start 2016, including improved top-line visibility based
on a record sales order book.
In 2015, your board also continued its work on board renewal. During the year Jim Roche and Marty Neese
joined the board as independent directors. Both Jim and Marty bring deep experience in technology and
growth companies, operations and product development. At our upcoming shareholders’ meeting in June, Ed
Kilroy and David Sutcliffe will retire from the board, after having served for 14 and 11 years, respectively.
We thank Ed and David for their important contributions and sound judgment during a dynamic period. With
these changes, the board will return to 7 members – with 6 independent directors and our CEO.
On behalf of my board colleagues, I extend our appreciation to all Ballard employees for their continued
integrity, customer focus, innovation and commitment to doing the right things in our business every day.
We also draw your attention to a subset of employees identified on page 6, who received special recognition
as 2015 Ballard Impact Award winners.
On behalf of the board of directors, I would like thank you, our shareholders, for your continued support.
"Ian A. Bourne"
IAN A. BOURNE
Chair of the Board of Directors
2
Letter from R. RANDALL MACEWEN
President and Chief Executive Officer
Dear Shareholders,
As we start 2016, I am even more excited and more confident in our business than when I joined Ballard less
than 18 months ago. I am very proud of what the Ballard team accomplished last year and what this means
for our business in 2016 and future years.
In 2015, we made important refinements to our strategy. We repositioned our business into two customer-
centric growth platforms – Power Products and Technology Solutions. We also determined to supplement
organic growth with a complementary M&A strategy, with clearly-articulated acquisition criteria.
In our Power Products business, we currently address four markets – Heavy-Duty Motive, Material
Handling, Portable Power and Telecom Backup Power.
Our Heavy-Duty Motive market grew 133% last year, underpinned by our work in China. We developed and
started implementation of a new China strategy in 2015, premised on a model that includes product supply,
licensing, technology transfer support and localization. We have achieved impressive, early traction with this
model. Indeed, over the past year we have signed up close to $50 million of new business in China based on
this model with ground-breaking bus and tram deals, including contracts to support the deployment of 330
fuel cell buses in China. 2016 will be an important year in this business as we deliver on these contracts,
support our local partners as they start initial fuel cell bus deployments, and sign up additional business.
In Material Handling, we continued to be the largest supplier of fuel cell stacks to Plug Power. Volumes
modestly grew in 2015 and we are off to a strong start in 2016 with Plug. We also initiated a diversification
strategy in our Material Handling market. We are targeting forklift OEMs as long-term partners for purpose-
built forklifts.
Last October we acquired Protonex, with their impressive and fast-growing power manager business
targeting the U.S. military complex. We ended 2015 with an important order from the U.S. Army Rangers.
We expect additional positive developments for this business in 2016. We also view Protonex customers as
potential long-term customers for fuel cell products, which offer compelling attributes of power density, light
weight, no noise and no heat signature.
The Telecom Backup Power market has proven to be very challenging to penetrate in scale. The introduction
of disruptive technology in the form of capital equipment based on a lifecycle value proposition in the
slowing and consolidating telecom industry has been challenging for the fuel cell industry players, including
Ballard. While we made outstanding progress in 2015 on foundational work, we nonetheless had a very
disappointing year in terms of commercial orders. We continue to explore strategic alternatives for our
Telecom Backup Power business and expect to provide an update in Q2 2016.
In our Technology Solutions business, we now offer a unique and unmatched bundle of intellectual capital
and intellectual property to help customers solve their PEM fuel cell challenges. Our $80 million deal with
the Volkswagen Group and our development programs for fuel cell trams in China are impressive examples
3
of the muscle presented by this offering. We delivered another extraordinary year of performance under our
key Technology Solutions contracts, including with VW. We believe the Ballard team has produced the
world’s leading automotive fuel cell stack and has also developed new proprietary technology that positions
Ballard very strongly with the automotive industry.
In 2016, we expect to grow revenue, improve gross margin and rationalize certain operating costs. On
revenue scaling, our order book at the beginning of 2016 was $58 million – the largest in Ballard’s history
and exceeding last year’s revenue. We expect to see growth in our Heavy Duty Motive business as well as a
full-year contribution from our Portable Power (Protonex) business. On operating costs, we have
implemented a cost reduction plan, including reductions in our Telecom Backup Power costs and our
executive costs. We expect this cost reduction initiative to yield annualized cost savings in excess of $4
million, lowering breakeven revenue by more than $20 million.
I strongly believe in our business, including the merits of our customer-focused strategy, the strength and
depth of our talent, our market and technology leadership, and the enduring power of the Ballard brand. We
are taking the right steps to continue to win in selected markets and position your company for future
profitability.
On behalf of the executive team, we express our sincere gratitude and appreciation to our valued customers
and partners for your business and your trust. We also thank our extraordinary team at Ballard, who do great
work every day. The commitment, ingenuity and uncompromising professionalism of our team continue to
inspire me every day.
As shareholders, your continued support of Ballard is greatly appreciated. Our intention is to continue to earn
your confidence and to reward your trust as we drive toward an exciting and profitable future. We look
forward to reporting our progress over the coming year.
"R. Randall MacEwen"
R. RANDALL MACEWEN
President & CEO
Ballard Power Systems Inc.
4
Sustainability Report
2015
COM MERCIALIZA TION OF O UR CLEAN ENERGY FUEL CELL PRODUCTS is where Ballard can
make the biggest positive impact on the environment. Ballard’s vision of a clean energy future is what continues
to drive our passionate employees who have dedicated their careers to providing customers with the positive
economic and environmental benefits of the unique products and services that we provide.
Ballard’s GREEN INITIATIVE is focused on three pillars:
2015 ACHIE VEMENTS
OUR PRODUCTS
We will maximize the
environmental benefits
of our products compared
to incumbent
technologies.
PRODU CTS
In 2015 the next-generation clean energy Heavy Duty Motive fuel cell
module –FCveloCity HD–was launched in several power configurations
OPERATIONS
P E OP L E
OUR OPERATIONS
Reduce, reuse, recycle.
We will
improve the
way we
operate our
business to
minimize
environmental
impact.
We share access to information
about green choices.
OUR PEOPLE
We will promote
participation in
relevant events,
and provide
information about
green choices for
our daily lives.
Corporate - Ballard used paper products in 2015
comprised of at least 80% post-consumer waste
and processed chlorine free … an effective reduction
in CO2 emissions equivalent to planting 465 new trees
Five-Year View – During the 2011-15 period Ballard
products in the field reduced greenhouse gas emissions
the equivalent of driving 2.6 million fewer kilometers
Deployed Products – 2015 product shipments will
reduce greenhouse gas emissions the equivalent of
driving 670,000 fewer kilometers each year
going forward
Cleaner Air in China – In 2015 Ballard received orders
for fuel cell products to power over 350 fuel cell buses
in China – more than 2x the number of fuel cell buses
historically deployed around the globe
OUR PRODUCTS IN ACTION
One of eight fuel cell buses currently in service with Transport for London (TfL)
Ballard fuel cell modules are powering buses in
London, U.K. to support the city’s goal of reducing
CO2 emissions by 60% from the 1990 level by 2025.
Currently 20% of London’s carbon dioxide emissions are
generated by transportation, making it an ideal industry of
focus for reductions. Transport for London (TfL), the city’s transit
agency, is actively working to cut energy use from transit, using
new alternatives to diesel buses and thereby reducing emissions.
TfL currently operates eight (8) fuel cell buses – all powered by
Ballard FCveloCity® power modules – as part of the CHIC or
‘Clean Hydrogen in European Cities’ project, which is an essential
next step leading to the full market commercialization of fuel cell
hydrogen powered buses. CHIC involves integrating twenty-six
(26) buses in daily public transport operations and bus routes in
five (5) locations across Europe.
The TfL fuel cell buses have been running on route RV1 between
Covent Garden and Tower Gateway since 2011. The bus fleet has
logged more than 107,000 hours of service, covered over
690,000 kilometers (400,000 miles) and required more than
5,600 hydrogen fillings using over 96,000 kilograms of hydrogen.
A single FCveloCity® power module in the TfL fleet recently set an
important milestone of 20,000 hours of continuous operation
without replacement or repairs. This demonstrates the viability of
fuel cell systems as a strong competitor to diesel buses in terms of
fuel efficiency and reliability, with the added benefit of reduced
greenhouse gas emissions. On average, CHIC program buses
consume approximately nine (9) kilograms of hydrogen
per 100 kilometers, which is more energy efficient than diesel buses.
2015 Ballard Impact Awards
Recipients
Innovation Award
Nisshinbo Catalyst Development Team
Dustin Banham, Siyu Ye, Chris Ekholm, Kyoung Bai, Yingjie Zhou, Lijun Yang, Emil Marquez
Safety Award
Lifetime Achievement for Product Safety
Jake Devaal
Listen & Deliver Award
HyMotion Stack Design Development
Andrew Desouza, Brian Dickson, Ian Stewart, Julie Bellerive, Tommy Cheng
Quality. Always Award
Reliability & Quality Dashboard and Metric Development
Alma Ramirez, Tim Lennox, Grace Valle, Milena Cabral, Wade Popham,
Mark Mellinger
Inspire Excellence Award
Excellence in Cathode Catalyst technology leadership
Siyu Ye
Own it Award
Owning the Coop on‐boarding process
Erin Rogers
Row Together Award
Audi/VW IP Deal Team
Kerry Hillier, Kevin Colbow, Chris Ekholm, Julie Bellerive, Sybel Chor
THE POWER OF FUEL CELLS, SIMPLY DELIVERED
6
MANAGEMENT PROXY CIRCULAR
dated as of April 15, 2016
MATTERS TO BE VOTED UPON
Registered Shareholders or their duly appointed proxyholders will be voting on:
the election of directors to our Board;
the re-appointment of our auditors and authorization for our Audit Committee to fix the
remuneration of the auditors;
on an advisory basis, the Corporation’s approach to executive compensation;
the continuance of the Corporation from the Canada Business Corporations Act to the British
Columbia Business Corporations Act (the “Continuance Proposal”); and
to transact such other business as may properly be brought before the meeting.
As of the date of this Management Proxy Circular, we know of no amendment, variation or other matter
that may come before the Meeting other than the matters referred to in the Notice of Annual Meeting. If
any other matter is properly brought before the Meeting, it is the intention of the persons named in the
enclosed proxy to vote the proxy on that matter in accordance with their best judgment.
VOTING INFORMATION
SOLICITATION OF PROXIES
This Management Proxy Circular is furnished in connection with the solicitation of proxies by our
management in connection with the Meeting to be held on Wednesday, June 1, 2016 at 1:00 p.m. Pacific
Daylight Time in Burnaby, British Columbia, Canada, or the date and place of any adjournment thereof.
We are soliciting proxies primarily by mail, but our directors, officers and employees may solicit proxies
personally, by telephone, by facsimile transmission or by other means of electronic communication. The
cost of the solicitation will be borne by us. The approximate date on which this Management Proxy
Circular and the related materials are first being sent to Registered Shareholders is May 2, 2016.
HOW TO VOTE
Only Registered Shareholders or their duly appointed proxyholders are permitted to vote at the Meeting.
Beneficial Shareholders are not permitted to vote at the Meeting as only proxies from Registered
Shareholders can be recognized and voted at the Meeting. You may vote as follows:
Registered Shareholders: If you are a Registered Shareholder you may vote by attending the
Meeting in person, or if you do not plan to attend the Meeting, by completing the proxy and
delivering it according to the instructions contained in the form of proxy and this Management
Proxy Circular.
Beneficial Shareholders: If you are a Beneficial Shareholder you may only vote by carefully
following the instructions on the voting instruction form or proxy form provided to you by your
stockbroker or financial intermediary. If you do not follow the special procedures described by
your stockbroker or financial intermediary, you will not be entitled to vote.
EXECUTION AND REVOCATION OF PROXIES
A Registered Shareholder or the Registered Shareholder’s attorney authorized in writing or, where the
Registered Shareholder is a company, a duly authorized officer or attorney of that company, must
execute the proxy. In order to be effective, completed proxies must be deposited at the office of the
registrar and
Inc.
("Computershare"), Proxy Dept., 100 University Avenue, 9th Floor, Toronto Ontario, M5J 2Y1 (Fax:
within North America: 1-866-249-7775; outside North America: 1-416-263-9524), not less than 48 hours
(excluding Saturdays and holidays) before the time of the Meeting. The individuals named as
7
the Shares, being Computershare
Investor Services
transfer agent
for
proxyholders in the accompanying form of proxy are directors and officers of Ballard. A Registered
Shareholder desiring to appoint a person or company (who need not be a shareholder) to represent
him or her at the Meeting, other than the persons or companies named in the enclosed proxy, may
do so by inserting the name of such other person or company in the blank space provided in the
proxy.
A proxy may be revoked by written notice executed by the Registered Shareholder or by his or her
attorney authorized in writing or, where the Registered Shareholder is a company, by a duly authorized
officer or attorney of that company, and delivered to:
Computershare, at the address or fax number set out above, at any time up to and including the
last business day preceding the day of the Meeting;
the registered office of the Corporation at any time up to and including the last business day
preceding the day of the Meeting; or
the chair of the Meeting on the day of the Meeting and before any vote in respect of which the
proxy is to be used is taken.
A proxy may also be revoked in any other manner provided by law. Any revocation of a proxy will not
affect a matter on which a vote is taken before such revocation.
VOTING OF SHARES AND EXERCISE OF DISCRETION BY PROXIES
If you complete and deposit your proxy properly, then the proxyholder named in the accompanying form
of proxy will vote or withhold from voting the Shares represented by the proxy in accordance with your
instructions. If you do not specify a choice on any given matter to be voted upon, your Shares will
be voted in favour of such matter. The proxy grants the proxyholder the discretion to vote on
amendments to or variations of matters identified in the Notice of Annual Meeting and with
respect to other matters that may properly come before the Meeting.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
As of the Record Date of April 15, 2016, we had 156,890,067 Shares issued and outstanding, each
carrying the right to one vote. On a show of hands, every individual who is present as a Registered
Shareholder or as a representative of one or more corporate Registered Shareholders, or who is holding a
proxy on behalf of a Registered Shareholder who is not present at the Meeting, will have one vote, and
on a poll, every Registered Shareholder present in person or represented by proxy and every person who
is a representative of one or more corporate Registered Shareholders, will have one vote for each Share
recorded in the Registered Shareholder’s name on the register of shareholders, which is available for
inspection during normal business hours at Computershare and will be available at the Meeting.
As of the Record Date, to the knowledge of our directors and executive officers, no person beneficially
owns, controls or directs, directly or indirectly, Shares carrying more than 10% of the voting rights
attached to all issued and outstanding Shares carrying the right to vote in all circumstances.
INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON
No one who has been a director, director nominee or executive officer of ours at any time since
January 1, 2015, or any of his or her associates or affiliates, has any material interest, direct or indirect,
by way of beneficial ownership of Shares or otherwise, in any matter to be acted on at the Meeting other
than the election of directors.
8
ELECTION OF DIRECTORS
At the Meeting you will be asked to elect seven directors. All of our nominees are currently members of
the Board. Each elected director will hold office until the end of our next annual shareholders’ meeting
(or if no director is then elected, until a successor is elected) unless the director resigns or is otherwise
removed from office earlier. If any nominee for election as a director advises us that he or she is unable
to serve as a director, the persons named in the enclosed proxy will vote to elect a substitute director at
their discretion.
The following information pertains to our nominees for election as directors at the Meeting, as of
April 15, 2016.
The number of Shares shown as being held by each nominee constitute the number beneficially owned,
or controlled or directed, directly or indirectly, by that nominee and such information has been provided
to us by that nominee.
Mr. Bourne’s principal occupation is corporate director, and he has been the Chair of the Board of Ballard since May 2006. Mr.
Bourne was also our lead director from October 2005 to February 2006. Mr. Bourne was interim CEO of SNC-Lavalin Group
Inc. (engineering services) in 2012. Previously, Mr. Bourne was the Executive Vice President and the Chief Financial Officer of
TransAlta Corporation (electricity generation and marketing) from 1998 to 2006 and from 1998 to 2005, respectively. He has
completed the Directors Education Program of the Institute of Corporate Directors and has received his ICD.D designation. Mr.
Bourne was recognized as a Fellow of the ICD in 2011.
Board and Committee
Membership(1)
Board (Chair)
Audit
Corporate Governance &
Compensation
Attendance
Other Public Board Memberships
12
5
5
100%
100%
100%
Current: Wajax Corporation;; Hydro One Inc.
Previous: SNC-Lavalin Group Inc.; Canadian Oil Sands
Limited; TransAlta Power LP; TransAlta CoGen LP
Securities Held(2)
Year
2016
2015
Shares
DSUs
Total of Shares and DSUs
26,824
245,297
26,824
209,215
272,121
236,039
Total Value of Shares and
DSUs (CDN$)(3)
$478,933
$679,792
Mr. Hayhurst’s principal occupation is corporate director. Previously, Mr. Hayhurstwas an executive with IBM Canada Business
Consulting Services (consulting services) and a partner with PricewaterhouseCoopers Management Consultants (consulting
services). Prior to that, Mr. Hayhurst held various senior executive management roles with Pricewaterhouse including National
Deputy Managing Partner (Toronto) and Managing Partner for British Columbia (Vancouver). Mr. Hayhurst received a
Fellowship (FCA) from the Institutes of Chartered Accountants of British Columbia and of Ontario. He has completed the
Directors Education Program of the Institute of Corporate Directors and has received his ICD.D designation.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance
Other Public Board Memberships
11
5
5
92%
100%
100%
Current: Accend Capital Corporation; Canexus
Corporation;
Previous: Catalyst Paper Corporation(5); Northgate
Minerals Corporation
Securities Held(2)
Year
2016
2015
Shares
5,000
5,000
DSUs
129,343
93,026
Total of Shares and DSUs
134,343
98,026
Total Value of Shares and
DSUs (CDN$) (3)
$236,444
$282,315
Ian A. Bourne
Age: 68
Alberta, Canada
Director since: 2003
Independent
Douglas P. Hayhurst
Age: 69
B.C., Canada
Director since: 2012
Independent
9
Mr. MacEwen is President and Chief Executive Officer of Ballard, a position he has held since October 2014. Previously, Mr.
MacEwen was the founder and Managing Partner at NextCleanTech LLC (consulting services) from 2010 to 2014; and President
& CEO and Executive Vice President, Corporate Development at Solar Integrated Technologies, Inc. (solar) from 2006 to 2009
and 2005 to 2006, respectively. Prior to that, Mr. MacEwen was Executive Vice President, Corporate Development at Stuart
Energy Systems Corporation (onsite hydrogen generation systems) from 2001 to 2005; and an associate at Torys LLP (law firm)
from 1997 to 2001.
Board and Committee
Membership
Attendance
Other Public Board Memberships
R. Randall MacEwen
Board
12
100%
Current: none
Previous: none
Age: 47
B.C., Canada
Director since: 2014
Non-Independent
Marty Neese
Age: 53
California, USA
Director since: 2015
Independent
James Roche
Age: 53
Ontario, Canada
Director since: 2015
Independent
Securities Held(2)
Year
2016
2015
Shares
30,312
0
DSUs
116,667
0
Total of Shares and DSUs
146,979
0
Total Value of Shares and
DSUs (CDN$) (3)
$258,683
$0
Mr. Neese is Chief Operating Officer of SunPower Corporation (solar power equipment and services), a position he has held
since 2008. Prior to that, Mr. Neese was responsible for Global Operations at Flextronics (electronics manufacturing services)
from 2007 to 2008 following its acquisition of Solectron Corporation (electronics manufacturing services) where he was
Executive Vice President from 2004 to 2007.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance(4)
Other Public Board Memberships
1
-
-
100%
n/a
n/a
Current: none
Previous: none
Securities Held(2)
Year
2016
2015
Shares
DSUs
Total of Shares and DSUs
Total Value of Shares and
DSUs (CDN$) (3)
0
-
8,035
-
8,035
-
$14,142
-
Mr. Roche is President and Chief Executive Officer of Stratford Managers Corporation (management consulting services), a
position he has held since 2008. Prior to that, Mr. Roche was President and Chief Executive Officer of Tundra Semiconductor
(semiconductor component manufacturer) from 1995 to 2006 and Founding member and executive at Newbridge Networks
Corporation (communications equipment manufacturer) from 1986 to 1995.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance
Other Public Board Memberships
12
4
5
100%
80%
100%
Current: none
Previous: Wi-LAN Inc.; Tundra Semiconductor
Corporation; Aztech Innovations Inc..
Securities Held(2)
Year
2016
2015
Shares
DSUs
Total of Shares and DSUs
Total Value of Shares and
DSUs (CDN$) (3)
0
0
18,330
0
18,330
0
$32,261
$0
10
Ms. Stephenson’s principal occupation is corporate director. Previously, she was the Dean of the Richard Ivey School of
Business at the University of Western Ontario from 2003 until 2013. Prior to that, she served as President and Chief Executive
Officer of Lucent Technologies Canada from 1999 to 2003. Ms. Stephenson was invested as an Officer into the Order of Canada
in 2010.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation (Chair)
Attendance
Other Public Board Memberships
12
4
5
100%
80%
100%
Current: General Motors Company; Intact Financial
Services Corporation (formerly ING Canada); Manitoba
Telecom Services Inc.
Previous: Union Energy Waterheater Income Fund;
Securities Held(2)
Year
2016
2015
Shares
3,550
3,550
DSUs
133,790
108,166
Total of Shares and DSUs
137,340
111,716
Total Value of Shares and
DSUs (CDN$) (3)
$241,718
$321,743
Mr. Sutcliffe’s principal occupation is corporate director. Mr. Sutcliffe has been a partner at Sutcliffe & Associates Management
Consultants (management consulting services) since June 1985. Previously, Mr. Sutcliffe was co-CEO of PHeMI, Inc. (medical
software and IT infrastructure) form July 2010 to November 2012; CEO, Chairman and independent director of BluePoint Data
(IT services) from Sept 2001 to June 2011; and Vice Chair and CEO of BCS Global (video conferencing services) from January
2003 to March 2004. Mr. Sutcliffe was President of Mediconsult.com (public internet health services) from June 1995 to June
1999 and President and CEO from 1999 to 2001. Prior to that, Mr. Sutcliffe was with Coopers & Lybrand (chartered accounting
and consultancy firm) in Vancouver and London, England from June 1979 to June 1985.
Board and Committee
Membership
Board
Audit
Corporate Governance &
Compensation
Attendance
Other Public Board Memberships
12
5
5
100%
100%
100%
Current: none
Previous: BluePoint Data Inc.(5)
Securities Held(2)
Year
2016
2015
Shares
DSUs
Total of Shares and DSUs
10,000
47,762
10,000
26,848
57,762
36,848
Total Value of Shares and
DSUs (CDN$) (3)
$101,661
$106,123
Carol M. Stephenson
Age: 65
Ontario, Canada
Director since: 2012
Independent
Ian Sutcliffe
Age: 63
Ontario, Canada
Director since: 2013
Independent
(1) Mr. Bourne is an ex officio member of each of the committees.
(2) As of April 15, 2016 and April 10, 2015, respectively.
(3) Based on a CDN$1.76 and CDN$2.88 closing Share price on the TSX as of April 15, 2016 and April 10, 2015, respectively.
(4) Mr. Neese was appointed to the board as of December 4, 2015 and has attended all board and committee meetings from that date.
(5) Canadian securities legislation requires disclosure of any company that becomes insolvent while a director is a member of its board, or
within one year from ceasing to act as a director. In this regard, Mr. Hayhurst was a director of Catalyst Paper Corporation, which sought
an Initial Order under the Companies’ Creditors Arrangement Act on January 31, 2012. Mr. Ian Sutcliffe was a director of BluePoint Data
Inc. on May 12, 2012 when the British Columbia Securities Commission issued a cease trade order against it for failure to file its financial
statements and management’s discussion and analysis related thereto for the year ended December 31, 2011. Mr. Sutcliffe resigned as a
director on June 27, 2012, subsequent to which BluePoint sold its business and distributed the proceeds to its shareholders.
APPOINTMENT OF AUDITORS
Our Audit Committee has recommended that KPMG LLP, Chartered Accountants, of 777 Dunsmuir
Street, Vancouver, British Columbia, be nominated at the Meeting for re-appointment as our external
auditors. Our Audit Committee will fix the remuneration of our external auditors if authorized to do so
by Shareholders at the Meeting. It is expected that representatives of KPMG LLP will be present at the
Meeting. KPMG LLP were appointed as our external auditors in 1999. Total fees paid to KPMG in 2015
and 2014 are set forth in the table below. We comply with the requirement regarding the rotation of our
audit engagement partner every five years. The current audit engagement partner at KPMG LLP may
continue in his role until the end of 2016.
11
The following table shows the fees we incurred with KPMG LLP in 2015 and 2014:
Type of Audit Fees
Audit Fees
Audit-Related Fees
Tax Fees(1)
All Other Fees
2015
(CDN$)
$534,000
$7,500
Nil
Nil
2014
(CDN$)
$438,362
$7,350
$3,467
Nil
(1) The Tax Fees related to tax advisory and transfer pricing services.
For a more detailed description of the Audit Committee or to see the Audit Committee’s mandate, a copy
of which is posted on our website (www.ballard.com), see the section entitled "Audit Committee
Matters" in our Annual Information Form dated February 25, 2016, which section is incorporated by
reference into this Management Proxy Circular.
ADVISORY VOTE ON APPROACH TO EXECUTIVE COMPENSATION
The Corporate Governance & Compensation Committee ("CGCC") monitors developments and trends
relating to best practices on corporate governance and executive compensation, including relating to
“say-on-pay” in Canada and in the United States. In the United States, the SEC has established “say-on-
pay” advisory shareholder vote requirements for certain issuers. Although the Corporation’s shares are
traded on NASDAQ, Ballard is a “foreign private issuer” under applicable SEC rules and, accordingly,
these requirements do not apply to the Corporation. Although “say-on-pay” shareholder votes have yet
to be mandated in Canada, a number of larger issuers in Canada have voluntarily implemented such
advisory votes. Ballard has also voluntarily implemented “say on pay” advisory votes. At the request of
the Board, our Shareholders have passed resolutions, on an advisory basis, accepting the Corporation’s
approach to executive compensation since 2011.
The CGCC recommended to the Board that Ballard Shareholders again be provided the opportunity, on
an advisory basis, to vote at the Meeting in respect of the Corporation’s approach to executive
compensation. The CGCC also recommended that adoption by the Board of a formal “say-on-pay”
policy should continue to be deferred until applicable Canadian securities regulatory authorities have set
out the regulatory requirements applicable to the Corporation.
Accordingly, the Shareholders of the Corporation are able to vote at this Meeting, on an advisory and
non-binding basis, “FOR” or “AGAINST”
to executive
compensation through the following resolution:
the Corporation’s current approach
“RESOLVED, on an advisory basis and not to diminish the role and responsibilities of the Board
of Directors of the Corporation, that the Shareholders accept the approach to executive
compensation disclosed in the Corporation’s management proxy circular delivered in advance of
the Corporation’s 2016 annual meeting of Shareholders.”
The Board believes that Shareholders should be well informed about and fully understand the objectives,
philosophy and principles that it has used to make executive compensation decisions. For information
regarding Ballard’s approach to executive compensation, Shareholders should review the section entitled
"Executive Compensation – Compensation Discussion and Analysis" appearing below in this
Management Proxy Circular.
Approval of the above resolution will require an affirmative vote of a majority of the votes cast on the
matter at the Meeting. Abstentions will have no effect and will not be counted as votes cast on the
resolution. As the vote on this resolution is advisory, the results will not be binding on the Board or the
CGCC. However, the Board and the CGCC will take the results of the advisory vote into account, as
appropriate, as part of their ongoing review of the Corporation’s executive compensation objectives,
philosophy, principles, policies and programs.
12
CONTINUANCE OF THE CORPORATION UNDER THE BUSINESS CORPORATIONS ACT
(BRITISH COLUMBIA)
Background
The Corporation is currently incorporated under the CBCA. Subject to shareholder approval, the Board
proposes to continue the Corporation into British Columbia under the BCA (the “Continuance”). At the
Meeting, shareholders will be asked to consider and, if thought advisable, approve, with or without
variation, the Continuance Proposal to approve the Continuance.
The BCA is a more recent statute than the CBCA and provides more flexibility than the CBCA in certain
respects. In particular, the BCA, unlike the CBCA, allows companies to offer shareholders the option to
receive certain shareholders’ meeting materials and continuous disclosure information using the Internet
(“Notice and Access”). The Board believes there would be financial and environmental benefits to
adopting the Continuance and implementing Notice and Access. As required under the CBCA, we
currently mail out paper copies of our Management Proxy Circular to all Shareholders and expect to mail
over 30,000 copies this year. We believe that many Shareholders would prefer to receive our
Management Proxy Circular using the Internet if we offered Notice and Access, as is permitted under the
BCA. This would significantly reduce the Corporation’s annual printing and postage expenses for the
delivery of management proxy circulars, which we currently estimate to be over US$100,000 annually.
There will also be an environmental benefit from the use of Notice and Access as we expect to print
fewer management proxy circulars and save paper that would likely need to be recycled or go into
landfills, and carbon emissions will be reduced as physical delivery of documents declines. Continuance
under the BCA will also provide some added flexibility with respect to certain corporate transactions as
further described below.
Continuance Process
In order to carry out the Continuance:
a) The Corporation must obtain the approval of its shareholders to the Continuance by way of
the Continuance Proposal, being a special resolution to be passed by not less than two-thirds
of the votes cast at the Meeting in person or by proxy (“Special Resolution”);
b) The Corporation must make a written application to the Director under the CBCA for
consent to continue under the BCA, such written application to establish to the satisfaction
of the Director that the proposed Continuance will not adversely affect the Corporation’s
creditors or shareholders;
c) Once the Continuance Proposal is passed and the Corporation has obtained the consent of
the Director under the CBCA, the Corporation must file a Continuation Application and the
consent of the Director under the CBCA, along with prescribed documents under the BCA,
with the Registrar of Companies under the BCA to obtain a Certificate of Continuation;
d) On the date shown on the Certificate of Continuation issued by the British Columbia
Registrar of Companies, the Corporation will become a company registered under the laws
of the Province of British Columbia as if it had been incorporated under the laws of the
Province of British Columbia; and
e) The Corporation must then file a copy of the Certificate of Continuation with the Director
under the CBCA and receive a Certificate of Discontinuance under the CBCA.
Effect of Continuance
Upon the Continuance, the CBCA will cease to apply to the Corporation and the Corporation will
become subject to the BCA, as if it had been originally incorporated as a British Columbia company. The
Continuance will not create a new legal entity, affect the continuity of the Corporation or result in a
change in its business. The persons elected as directors by the shareholders at the Meeting will continue
to constitute the Board upon the Continuance becoming effective.
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The Continuance will not will affect the Corporation’s status as a listed company on the TSX and
NASDAQ, as a reporting issuer under the securities legislation of any jurisdiction in Canada or as a
registrant under the securities legislation in the United States, and the Corporation will remain subject to
the requirements of such legislation.
As of the effective date of the Continuation, the Corporation’s current constating documents — its
Articles and By-laws under the CBCA — will be replaced with a Notice of Articles and Articles under
the BCA, the legal domicile of the Corporation will be the Province of British Columbia and the
Corporation will no longer be subject to the provisions of the CBCA.
A copy of the proposed Articles under the BCA is attached to this Proxy Statement as Appendix “D”.
Comparison of the CBCA and BCA
Upon the Continuance, the Corporation would be governed by the BCA. Although the rights and
privileges of shareholders under the CBCA are in many instances comparable to those under the BCA,
there are several notable differences and shareholders are advised to review the information contained in
this Proxy Statement and to consult with their professional advisors.
In general terms, the BCA provides to shareholders substantively the same rights as are available to
shareholders under the CBCA, including rights of dissent and appraisal and rights to bring derivative
actions and oppression actions. There are, however, important differences concerning the qualifications
of directors, location of shareholder meetings and certain shareholder remedies. The following is a
summary comparison of certain provisions of the BCA and the CBCA. This summary is not
intended to be exhaustive and is qualified in its entirety by the full provisions of the CBCA and
BCA, as applicable.
Shareholder Communications
The CBCA has specific shareholder communication requirements that result in CBCA
companies being unable to take practical advantage of the Notice and Access regime available
under securities legislation. The BCA does not have any similar shareholder communication
requirements, allowing BC companies to take advantage of the new regime under securities
legislation.
Board of Directors
The BCA provides that a reporting company must have a minimum of three directors but does
not impose any residency requirements on the directors. Under the CBCA, at least one-quarter of
the directors must be resident Canadians. However, if a corporation has less than four directors,
at least one director must be a resident Canadian. Subject to certain exceptions, generally an
individual has to be ordinarily resident in Canada to be considered a resident Canadian under the
CBCA.
Under the BCA, a director may be removed by shareholders by Special Resolution unless the
articles provide for a lower approval level, while under the CBCA directors may be removed by
an ordinary resolution of shareholders. In accordance with the CBCA, under the Corporation’s
current By-laws, directors of the Corporation may be removed by an ordinary resolution of the
shareholders at a special meeting of the shareholders. Under the proposed Articles, the removal
of directors by the shareholders will require a Special Resolution, not an ordinary resolution.
Flexibility in Structuring Transactions
The BCA provides greater flexibility to implement certain transactions than the CBCA does.
Unlike the CBCA, the BCA permits a subsidiary to hold shares of its parent. The BCA also
permits a corporate group to implement horizontal short-form amalgamations even though all the
shares of the amalgamating companies are not held by the same company within the group and
permits a company to amalgamate with a foreign corporation to form a British Columbia
company, if permitted by the foreign jurisdiction.
14
Charter Documents
The form of the charter documents for a BCA company is quite different from the form for a
CBCA corporation.
Under the CBCA, the charter documents consist of: (i) articles, which set forth, among other
things, the name of the corporation, the province in which the corporation’s registered office is
to be located, the authorized share capital including any rights, privileges, restrictions and
conditions thereon, whether there are any restrictions on the transfer of shares of the corporation,
the number of directors (or the minimum and maximum number of directors), any restrictions on
the business that the corporation may carry on and other provisions such as the ability of the
directors to appoint additional directors between annual meetings, and (ii) the by-laws, which
govern the management of the corporation. The articles are filed with Corporations Canada and
the by-laws are filed only at the registered office.
Under the BCA, the charter documents consist of (i) a “notice of articles”, which sets forth the
name of the company, the company’s registered and records office, the names and addresses of
the directors of the company and the amount and type of authorized capital, and (ii) “articles”
which govern the management of a company and set out any special rights or restrictions
attached to shares. The notice of articles is filed with the Registrar of Companies and the articles
are filed only with a company’s registered and records office.
A copy of the proposed Articles under the BCA is attached to this Proxy Statement as Appendix
“D”. A brief description of the material differences between the Corporation’s current By-laws
and the proposed Articles is set out under “Comparison of New Articles to Current By-Laws”
below.
Changes to Charter Documents
The CBCA requires shareholder approval by Special Resolution to change the name of the
corporation, whereas under the BCA the board of directors may approve a change of name. The
BCA permits changes to be made to the constating documents with shareholder approval by
ordinary resolution, unless a higher threshold is specified in the articles. The proposed Articles
of the Corporation generally do not specify a higher threshold. Under the CBCA, changes to the
articles generally require approval by shareholders by Special Resolution while changes to the
by-laws require shareholder approval by ordinary resolution, unless a higher threshold is
specified in the by-laws. However, the BCA is slightly less flexible with respect to the timing for
adopting changes to the constating documents. Changes to the articles of a BCA company
require approval by shareholders in order to become effective. The board of directors of a CBCA
corporation, however, may amend the by-laws of the corporation with immediate effect, subject
to the amendment ceasing to have effect if it is not approved by shareholders at the next
shareholder meeting.
Shareholder Proposals and Shareholder Requisitions
Both statutes provide for shareholder proposals. Under the CBCA, a record or non-record
shareholder may submit a proposal, although the record or non-record shareholder must either:
(i) have owned for six months not less than 1% of the total number of voting shares or voting
shares with a fair market value of at least CDN$2,000, or (ii) have the support of persons who, in
the aggregate, have owned for six months not less than 1% of the total number of voting shares
or voting shares with a fair market value of at least CDN$2,000.
Under the BCA, in order for one or more record or non-record shareholders to be entitled to
submit a proposal, they must have held voting shares for an uninterrupted period of at least two
years before the date the proposal is signed by the shareholders and must own not less than 1%
of the total number of voting shares or voting shares with a fair market value in excess of
CDN$2,000.
Both statutes provide that one or more record shareholders holding more than 5% of the
outstanding voting equity may requisition a meeting of shareholders, and permit the
15
requisitioning record shareholder to call the meeting where the board of directors of the company
does not do so within the 21 days following the company’s receipt of the shareholder meeting
requisition. However, the BCA, unlike the CBCA, specifies that the requisitioned shareholder
meeting must be held within not more than four months after the date the company received the
requisition. The CBCA does not specify such an outside limit.
Comparison of Rights of Dissent and Appraisal
The BCA provides that shareholders who dissent to certain actions being taken by a company
may exercise a right of dissent and require the company to purchase the shares held by such
shareholder at the fair value of such shares. The dissent right is available to shareholders where
the company proposes:
a)
to alter the articles to alter restrictions on the powers of the company or on the business it is
permitted to carry on;
b) to adopt an amalgamation agreement;
c)
to approve an amalgamation into a foreign jurisdiction;
d) to approve an arrangement, the terms of which arrangement permit dissent or where the right
of dissent is given pursuant to a court order;
e)
to authorize or ratify the sale, lease or other disposition of all or substantially all of the
company’s undertaking;
f)
to authorize the continuation of the company into a jurisdiction other than British Columbia;
g) to approve any other resolution, if dissent is authorized by the resolution; or
h) a matter to which dissent rights are permitted by court order.
The CBCA contains a similar dissent remedy. However, the procedure for exercising this
remedy under the CBCA is different than that contained in the BCA. The dissent provisions of
the CBCA are described in section “Rights of Dissenting Shareholders”, below, and set forth in
Appendix “E” to this Proxy Statement. Under the BCA the dissenting shareholder must generally
send notice of dissent prior to the resolution being passed.
Oppression Remedies
Under the BCA, a shareholder of a company has the right to apply to court on the grounds that:
a)
the affairs of the company are being or have been conducted, or that the powers of the
directors are being or have been exercised, in a manner oppressive to one or more of the
shareholders, including the applicant; or
b) some act of the company has been done or is threatened, or that some resolution of the
shareholders or of the shareholders holding shares of a class or series of shares has been
passed or is proposed, that is unfairly prejudicial to one or more of the shareholders,
including the applicant.
On such an application, the court can grant a variety of remedies, ranging from an order
restraining the conduct complained of to an order requiring the company to repurchase the
shareholder’s shares or an order liquidating the company.
The CBCA also includes an oppression remedy which is very similar. However, the CBCA will
only allow a court to grant relief if the effect actually exists, while the BCA will allow a court to
grant relief where a prejudicial effect to the shareholder is merely threatened. In addition, under
the BCA non-shareholders require the leave of a court in order to bring an oppression claim.
Shareholder Derivative Actions
Under the BCA, a record shareholder, non-record shareholder or director of a company may,
with judicial leave, bring an action in the name and on behalf of the company to enforce a right,
duty or obligation owed to the company that could be enforced by the company itself or to obtain
16
damages for any breach of such right, duty or obligation. There is a similar right of a shareholder
or director, with leave of the court, and in the name and on behalf of the company, to defend an
action brought against the company. The court will grant leave under the BCA for an application
to commence a derivative action if
a)
the complainant has made reasonable efforts to cause the directors of the company to
prosecute or defend the legal proceeding;
b) notice of the application for leave has been given to the company and to any other person the
court may order;
c)
the complainant is acting in good faith; and
d) it appears to the court that it is in the best interests of the company for the legal proceeding
to be prosecuted or defended.
The CBCA extends the right to a broader group of complainants as it affords the right to a record
shareholder, former record shareholder, non-record shareholder, former non-record shareholder,
director, former director, officer and a former officer of a corporation or any of its affiliates, and
any person who, in the discretion of the court, is a proper person to make an application to court
to bring a derivative action. In addition, the CBCA permits derivative actions to be commenced
in the name and on behalf of not only the corporation, but also any of its subsidiaries. No leave
may be granted under the CBCA unless the court is satisfied that:
(i) the complainant has given at least fourteen days’ notice to the directors of the corporation or
its subsidiary of the complainant’s intention to apply to the court if the directors of the
corporation or its subsidiary do not bring, diligently prosecute, defend or discontinue the
action;
(ii) the complainant is acting in good faith; and
(iii) it appears to be in the interests of the corporation or its subsidiary that the action be brought,
prosecuted, defended or discontinued.
Constitutional Jurisdiction
Other significant differences in the statutes arise from the differences in the constitutional
jurisdiction of the federal and provincial governments. For example, a CBCA corporation has the
capacity to carry on business throughout Canada as of right. Similarly, under the BCA the
registered office must be situated in British Columbia, whereas under the CBCA, the registered
office of the corporation must be situated in the province specified in its articles. A BCA
company is only allowed to carry on business in another province where that other province
allows it to register to do so. A CBCA corporation is subject to provincial laws of general
application, but a province cannot pass laws directed specifically at restricting a CBCA
corporation’s ability to carry on business in that province. If another province so chooses,
however, it can restrict a BCA company’s ability to carry on business within that province. Also,
a CBCA corporation will not have to change its name if it wants to do business in a province
where there is already a corporation with a similar name, whereas a BCA company may not be
allowed to use its name in that other province.
The Corporation does not expect that the Continuance will affect the continuity of the
Corporation or result in a change in its business.
Comparison of New Articles to Current By-Laws
Upon the Continuance, the Corporation’s By-laws will be repealed and new Articles in the form set forth
in Appendix “D” to this Proxy Statement will be adopted. There are many differences between the form
of the current By-laws and the proposed Articles. A number of these changes reflect the increased
flexibility afforded to companies under the BCA as compared with those governed by the CBCA. In
certain cases, provisions contained in the Corporation’s current By-laws which deal with matters which
will, following the Continuance, be dealt with in the BCA or applicable securities legislation, rules and
17
policies, will not be contained in the new Articles. As well, certain provisions in the Corporation’s
current By-laws that reflect the provisions of the CBCA will be retained in the new Articles but will be
altered as required to reflect the provisions of the BCA.
The following is a summary comparison of certain provisions of the Corporation’s current By-laws and
the proposed new Articles. This summary is not intended to be exhaustive and is qualified in its
entirety by the full provisions of the current By-laws and proposed new Articles, as applicable.
Advance notice of nomination of Directors
The Corporation proposes to adopt advance notice provisions for director nominations that are
substantially the same as those currently in By-Law No. 2. There are slight changes to conform
to the terms and numbering used in the proposed Articles. In additions, provisions relating to a
maximum notice period for shareholder notices of nomination of directors and restricting the
notice period to the originally scheduled meeting date have been removed.
Directors’ authority to set auditor’s remuneration
Under the CBCA, remuneration payable to the auditors is fixed by the board, unless fixed by
shareholders by ordinary resolution. The Corporation’s practice has been for the Board to fix the
remuneration payable to the auditors. In order to continue that practice under the BCA, the
Articles need to specify that the directors are authorized to set the remuneration paid to the
auditors of the Corporation.
Shareholder meeting matters
The Articles allow the board to call a meeting of shareholders either in or outside British
Columbia, as they may determine. Under the current By-Laws, the quorum for transacting
business at a meeting of shareholders is at least two persons holding or representing by proxy the
holder or holders of not less than 5% of the shares entitled to vote at the meeting. Under the
proposed Articles, quorum is established if shareholders who, in the aggregate, hold at least 25%
of the issued shares entitled to be voted at the meeting, are present in person or represented by
proxy.
Requirements for Special Resolutions
The CBCA requires that certain matters be approved by shareholders by Special Resolution.
Under the BCA, there is flexibility to provide for different approval requirements for some
matters in the articles. The Corporation proposes to adopt the more flexible approach under the
BCA in order to be able to react and adapt to changing business conditions.
As a result, as allowed under the BCA, management and the Board are proposing that the
Articles provide for the following matters (which currently require a Special Resolution of the
shareholders) to require a directors’ resolution only, and not require a shareholders’ resolution
(recognizing that regulatory authorities may require shareholder approval in certain cases in any
event):
(a) a subdivision of all or any of the unissued, or fully paid issued, shares;
(b) a consolidation of all or any of the unissued, or fully paid issued, shares; and
(c) a change of name of the Corporation.
Other capital and share structure changes will continue to require shareholder approval; however
the Articles would provide that unless otherwise specified in the Articles or the BCA, alterations
to the Articles or Notices of Articles will require shareholder approval only by ordinary
resolution. The creation, variation or elimination of special rights or restrictions attached to
issued shares will nevertheless continue to require shareholder approval by Special Resolution.
Continuance Resolution
Shareholders will be asked at the Meeting to consider and, if deemed appropriate, to approve the
following Continuance Proposal resolution.
18
"BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1.
The Corporation:
(a)
(b)
(c)
apply to the Director (the “Director”) under the Canada Business Corporations
Act (the “CBCA”) for a Letter of Satisfaction pursuant to Section 188(1) of the
CBCA;
apply to the Registrar of Companies of British Columbia to continue as a British
Columbia company pursuant to Section 302 of the British Columbia Business
Corporations Act (the “BCA”) in accordance with the Continuation Application
attached to the Management Proxy Circular and Proxy Statement (the “Proxy
Statement”) prepared in connection with the Meeting at which this resolution
was passed, and such Continuation Application is hereby approved; and
deliver a copy of the Certificate of Continuation to the Director and request that
the Director issue a Certificate of Discontinuance under Section 188(7) of the
CBCA;
subject to the issuance of such Certificate of Continuation and without affecting the
validity of the Corporation and the existence of the Corporation by or under its existing
Articles and By-laws and any act done thereunder, effective upon issuance of the
Certificate of Continuation, the Corporation adopt the Notice of Articles set forth in the
Continuation Application and the Articles attached to the Proxy Statement, in
substitution for the Corporation’s existing Articles and By-laws, and such Notice of
Articles and Articles are hereby approved and adopted;
notwithstanding that this special resolution has been duly passed by the shareholders of
the Corporation, the directors of the Corporation are hereby authorized, at their
discretion, to determine, at any time, to proceed or not to proceed with the continuance
and to abandon this resolution at any time prior to the implementation of the continuance
without further approval of the shareholders and in such case, this resolution approving
the continuance shall be deemed to have been rescinded; and
any one director or any one officer of the Corporation hereby authorized and
empowered, acting for, in the name of and on behalf of the Corporation, to execute or to
cause to be executed, under the seal of the Corporation or otherwise, and to deliver and
file or to cause to be delivered and filed, the Continuation Application and such other
documents and instruments, and to do or to cause to be done, such other acts and things
as in the opinion of such director or officer of the Corporation may be necessary or
desirable in order to carry out the intent of this resolution.”
2.
3.
4.
In order for this ordinary resolution to be passed, it requires the positive approval of two-thirds (66⅔%)
of the votes cast thereon at the Meeting. Abstentions will have no effect and will not be counted as votes
cast on the Continuance Proposal.
The Board recommends that Shareholders vote “FOR” the foregoing resolutions. The
representatives of management named in the enclosed form of proxy, if named as proxyholders,
intend to vote for the resolution, unless the Shareholder has specified in the form of proxy that his
or her shares are to be voted against the resolution.
Rights of Dissent in Respect of the Continuance Proposal
Record shareholders who wish to dissent should take note that strict compliance with the dissent
procedures is required.
The following description of rights of shareholders to dissent is not a comprehensive statement of the
procedures to be followed by a dissenting shareholder who seeks payment of the fair value of its
Shares and is qualified in its entirety by the reference to the full text of Section 190 of the CBCA
19
which is attached to this Proxy Statement as Appendix “E”. A dissenting shareholder who intends to
exercise the right of dissent should carefully consider and comply with the provisions of Section 190
of the CBCA and should seek independent legal advice. Failure to comply strictly with the provisions
of the CBCA and to adhere to the procedures established therein may result in the loss of all rights
thereunder.
Pursuant to Section 190 of the CBCA, a record shareholder is entitled, in addition to any other right that
the shareholder may have, to dissent and to be paid by the Corporation the fair value of the shares in
respect of which that shareholder dissents. “Fair value” is determined as of the close of business on the
last business day before the day on which the Continuance Proposal is adopted. A shareholder may
dissent only with respect to all of the shareholder’s Shares or shares held by the shareholder on behalf of
any one non-record holder. Further, a shareholder may only dissent in respect of shares registered in the
dissenting shareholder’s name.
Persons who are non-record shareholders who wish to dissent with respect to their Shares should be
aware that only record shareholders are entitled to dissent with respect to them. A record shareholder
such as an intermediary who holds Shares as nominee for non-record shareholders, must exercise the
right of dissent on behalf of non-record shareholders with respect to the Shares held for such non-record
shareholders. In such case, the Notice of Objection (as defined below) should set forth the number of
Shares it covers.
A record shareholder who wishes to dissent must send a written objection notice (the “Notice of
Objection”) objecting to the Continuance Proposal to the Corporation, 9000 Glenlyon Parkway,
BC, Canada, fax number 604-412-4700, Attention: Corporate Secretary, at or prior to the time of
the Meeting or any adjournment thereof in order to be effective.
The delivery of a Notice of Objection does not deprive a record shareholder of its right to vote at the
Meeting, however, a vote in favor of the Continuance Proposal will result in a loss of its rights under
Section 190 of the CBCA. A vote against the Continuance Proposal, whether in person or by proxy, does
not constitute a Notice of Objection, but a shareholder need not vote its Shares against the Continuance
Proposal in order to object. Similarly, the revocation of a proxy conferring authority on the proxy holder
to vote in favor of the Continuance Proposal does not constitute a Notice of Objection in respect of the
Continuance Proposal, but any such proxy granted by a shareholder who intends to dissent should be
validly revoked (please see “Execution and Revocation of Proxies”) in order to prevent the proxy holder
from voting such Shares in favor of the Continuance Proposal.
If the Continuance Proposal is approved at the Meeting or at an adjournment or postponement thereof,
the Corporation is required to deliver to each shareholder who has filed a Notice of Objection and has not
voted for the Continuation Proposal or not withdrawn that shareholder’s Notice of Objection (each, a
“Dissenting Shareholder”), within 10 days after the approval of the Continuance Proposal, a notice
stating that the Continuance Proposal has been adopted (the “Notice of Resolution”). A Dissenting
Shareholder then has 20 days after receipt of the Notice of Resolution or, if the Dissenting Shareholder
does not receive a Notice of Resolution, within 20 days after learning that the Continuance Proposal has
been adopted, to send to the Corporation a written notice (a “Demand for Payment”) containing the
Dissenting Shareholder’s name and address, the number of Shares in respect of when it dissents and a
demand for payment of the fair value of such Shares. A Dissenting Shareholder must within 30 days after
sending the Demand for Payment, send the certificates representing the Shares in respect of which it is
dissenting to the Corporation or its transfer agent, Computershare. The Corporation or Computershare
must endorse the certificates with a notice that the holder is a Dissenting Shareholder under Section 190
of the CBCA and forthwith return the certificates to the Dissenting Shareholder. A Dissenting
Shareholder who does not send the certificates within the 30 day period has no right to make a claim
under Section 190 of the CBCA.
A Dissenting Shareholder ceases to have any rights as a holder of Shares, other than the right to be paid
their fair value, unless: (i) the Demand for Payment is withdrawn before the Corporation makes an Offer
to Pay (as defined below); (ii) the Corporation fails to make a timely Offer to Pay to the Dissenting
Shareholder and the Dissenting Shareholder withdraws the Demand for Payment; or (iii) the
Continuation is not proceeded with.
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Not later than seven days after the later of the date shown on the Certificate of Continuation is issued by
the British Columbia Registrar of Companies and the day the Corporation receives the Demand for
Payment, the Corporation must send a written offer to pay (“Offer to Pay”) in the amount considered by
the Board to be the fair value of the Shares in respect of which the Dissenting Shareholder has dissented.
The Offer to Pay must be accompanied by a statement showing how the fair value was determined.
Every Offer to Pay made to Dissenting Shareholders must be on the same terms, and lapses if not
accepted within 30 days after being made.
If the Offer to Pay is accepted, payment must be made within 10 days of acceptance.
If the Corporation does not make an Offer to Pay or if a Dissenting Shareholder fails to accept an Offer
to Pay, the Corporation may, within 50 days after the date shown on the Certificate of Continuation is
issued by the British Columbia Registrar of Companies or within such further period as a court of
competent jurisdiction may allow, apply to the court to fix a fair value for the securities of any
Dissenting Shareholder. If the Corporation fails to so apply to the court, a Dissenting Shareholder may
do so for the same purpose within a further period of 20 days or such other period as the court may
allow. A Dissenting Shareholder is not required to give security for costs in any application to the court.
Applications referred to in this paragraph may be made to a court of competent jurisdiction in the place
where the Corporation has its registered office or in the province where the Dissenting Shareholder
resides if the Corporation carries on business in that province.
If the Corporation makes an application to the court, it must give notice of the date, place and
consequences of the application and of the Dissenting Shareholder’s right to appear and be heard to each
Dissenting Shareholder who has sent the Corporation a Demand for Payment and has not accepted an
Offer to Pay. All Dissenting Shareholders whose shares have not been purchased by the Corporation
must be made parties to the application and are bound by the decision of the court. The court is
authorized to determine whether any other person is a Dissenting Shareholder who should be joined as a
party to such application.
The court must fix a fair value for the shares of all Dissenting Shareholders and may in its discretion
allow a reasonable rate of interest on the amount payable to each Dissenting Shareholder from the
effective date of the Continuation until the date of payment of the amount so fixed. The final order of the
court in the proceedings commenced by an application by the Corporation or a Dissenting Shareholder
must be rendered against the Corporation and in favor of each Dissenting Shareholder.
The above is only a summary of the dissenting shareholder provisions of the CBCA. A shareholder
of the Corporation wishing to exercise a right to dissent should seek independent legal advice.
Failure to comply strictly with the provisions of the statute may prejudice the right of dissent.
CORPORATE GOVERNANCE
Our Board and senior management consider good corporate governance to be central to our effective and
efficient operation. We monitor corporate governance initiatives as they develop and benchmark
industry practices to ensure that we are in compliance with corporate governance rules.
Our corporate governance practices are reflected in our Corporate Governance Policy, which provides
for board composition and director qualification standards, tenure and term limits, director
responsibilities, the form and amount of director compensation, director orientation and continuing
education, management succession planning and performance evaluation of the Board. A copy of the
Corporate Governance Policy can be found on our website at www.ballard.com. We have also reviewed
our internal control and disclosure procedures, and are satisfied that they are sufficient to enable our
Chief Executive Officer and Chief Financial Officer to certify our interim and annual financial reports
filed with Canadian securities regulatory authorities, and to certify our annual financial reports filed with
or submitted to the SEC.
In addition, we have set up a process for Shareholders to communicate to the Board, the details of which
can be found on our website. A summary of shareholder feedback is provided to the Board through a
semi-annual report.
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We believe that we comply with all applicable Canadian securities administrators (“CSA”) and
NASDAQ corporate governance rules and guidelines. The CSA requires that listed corporations subject
to National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") disclose
their policies respecting corporate governance. We comply with NI 58-101, which addresses matters
such as the constitution and independence of corporate boards, the functions to be performed by boards
and their committees, and the effectiveness and education of board members. We are exempt from the
NASDAQ corporate governance rule requiring that each NASDAQ quoted company has in place a
minimum quorum requirement for shareholder meetings of 33 1/3% of the outstanding shares of the
company’s voting common stock. Our by-laws currently provide that a quorum is met if holders of at
least five percent of the votes eligible to be cast at a Shareholders’ meeting are present or represented by
proxy at the meeting.
BOARD COMPOSITION AND NOMINATION PROCESS
All of our directors are independent except for Randall MacEwen, our President and Chief Executive
Officer. "Independence" is judged in accordance with the provisions of the United States Sarbanes-
Oxley Act of 2002 ("Sarbanes-Oxley"), and as determined by the CSA and the NASDAQ. We conduct
an annual review of the other corporate boards on which our directors sit, and have determined that
currently there are no board interlocks with respect to our directors. The Board has also established a
guideline for the maximum number of corporate boards on which a director should sit. This guideline
has been set at five corporate boards (not including non-profit boards) for independent directors and one
corporate board for the CEO. Currently all of our board members comply with this guideline.
The Board believes that its membership should be composed of highly qualified directors with diverse
backgrounds, skills sets and experience bases and who demonstrate integrity and suitability for
overseeing management. The CGCC and the Board have determined that the criteria to be considered
when selecting directors and recommending their election by the Shareholders include the following:
a) Direct experience in leading a business as a CEO or other senior executive
b) Strategy development experience
c) Sales/Marketing experience
d) Finance/Accounting experience & education
e) Product development experience
f) Corporate governance experience & education
g) Early-Stage business commercialization experience
h) CleanTech sector knowledge
i) Asian market experience
In addition to these criteria, we also take into consideration other industry and business factors in
determining the composition of our Board.
Our CGCC conducts an annual process under which an assessment is made of the skills, expertise and
competencies of the directors and is compared to our needs and the needs of the Board. This process
culminates in a recommendation to the Board of individual nominee directors for election at our annual
Shareholders’ meeting. To this end, the CGCC will, when identifying candidates to recommend for
appointment or election to the Board:
a) consider only candidates who are highly qualified based on their relevant experience,
expertise, perspectives, and personal skills and qualities, and cultural fit;
b) consider diversity criteria including gender, age, ethnicity and geographic background; and
c)
in addition to its own search, as and when appropriate from time to time, engage qualified
independent external advisors to conduct a search for candidates who meet the Board’s
expertise, skills and diversity criteria.
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Currently, we have one woman serving on our board, a representation of 14%. As part of its approach to
Board diversity, the Board has not established specific targets for any diversity criteria at this time. The
CGCC will assess the effectiveness of this approach annually and recommend amendments to the Board,
including the possible adoption of measurable objectives for achieving Board diversity, as appropriate.
The following table identifies some of the current skills and other factors considered as part of the
competency matrix developed by the CGCC. Each director was asked to indicate the top three
competencies which he/she believes they possess.
Ian A.
Bourne
Douglas P.
Hayhurst
R. Randall
MacEwen
Marty
Neese
James
Roche
Carol M.
Stephenson
Ian Sutcliffe
President/CEO
Experience
Strategy
Sales/ Marketing
Finance/
Accounting
Product
Development
Corporate
Governance
Early Stage
Business
Commercialization
Clean Technology
Asian Markets
MAJORITY VOTING POLICY
At any meeting of Ballard’s Shareholders where directors are to be elected, Shareholders will be able to
either: (a) vote in favor; or (b) withhold their Shares from being voted in respect of each nominee
separately. If, with respect to any nominee, the total number of Shares withheld exceeds the total
number of Shares voted in favor, then the nominee will immediately submit his or her resignation to the
Board to take effect immediately upon acceptance by the Board. Upon receipt of such conditional
resignation, the CGCC will consider the matter and, as soon as possible, make a recommendation to the
full Board regarding whether or not such resignation should be accepted. After considering the
recommendation of the CGCC, the Board will decide whether or not to accept the tendered resignation
and will, not later than 90 days after the annual Shareholders’ meeting, issue a press release which either
confirms that it has accepted the resignation or provides an explanation for why it has refused to accept
the resignation. The director tendering his or her resignation will not participate in any meeting of the
Board or the CGCC at which the resignation is considered. Subject to any restrictions or requirements
contained in applicable corporate law or Ballard’s constating documents, the Board may: (a) leave a
resulting vacancy unfilled until the next annual Shareholders’ meeting; (b) appoint a replacement
director whom the Board considers merits the confidence of the Shareholders; or (c) call a special
meeting of Shareholders to elect a replacement director who may be a person nominated by management.
The policy does not apply in respect of any contested Shareholders’ meeting, which is any meeting of
Shareholders where the number of nominees for director is greater than the number of directors to be
elected.
TENURE AND TERM LIMITS
Directors are elected yearly at our annual Shareholders’ meeting and serve on the Board until the
following annual Shareholders’ meeting, at which time they either stand for re-election or leave the
23
Board. If no meeting is held, each director serves until his or her successor is elected or appointed,
unless the director resigns earlier.
Independent directors are expected to serve on at least one Committee of the Board. The CGCC and
Audit Committee are tasked with ensuring a rotation of Committee members and Chairs to broaden the
experience and skills of each member of the Board, and ensure an appropriate mix of experience and
expertise in respect of the various roles of the Board and its committees. Currently, each independent
director serves as a member of the Audit Committee and the CGCC. A director may only serve on the
Board for a maximum of 15 consecutive years. These provisions do not apply to the President & Chief
Executive Officer in his/her role as a Board member.
In addition to the majority voting policy, the Board has established additional guidelines that set out the
circumstances under which a director would be compelled to submit a resignation or be asked to resign.
DIRECTOR SHARE OWNERSHIP GUIDELINES
We have minimum share ownership guidelines that apply to our independent directors. The guidelines
were revised by the Board effective October 27, 2015.
All independent directors are required to hold at least the number of Ballard Shares that has a value
equivalent to three times the director’s annual retainer. Directors have six years from the date that they
are first elected to the Board to comply with this minimum share ownership guideline. In determining
whether a director is in compliance with the minimum share ownership guidelines, any DSUs that a
director receives as payment for all or part of their annual retainer will be credited towards calculating
achievement of the minimum share ownership requirements.
The value of Shares held by directors will be measured on or about December 31st of each year based on
the purchase price actually paid by the director for such Shares, or the value of DSUs or Shares received
by the director when issued to him or her by the Corporation, as applicable.
Any director who fails to comply with the share ownership guideline will not be eligible to stand for re-
election. Currently, all of our directors have met or are on track to achieve these guidelines.
BOARD MEETINGS
The Board meets on a regularly scheduled basis and directors are kept informed of our operations at
meetings of the Board and its committees, and through reports by and discussions with management. In
2015, in camera sessions, chaired by the Chair of the Board, were held after each regularly scheduled
Board meeting involving all of the independent directors without the presence of management. In
addition, communications between the directors and management occur apart from regularly scheduled
Board and committee meetings. The Board has set a minimum meeting attendance guideline of 70%.
Non-compliance with this guideline by a director is one of the factors considered in his or her individual
performance evaluation at the end of the year.
ROLES AND RESPONSIBILITIES
The Board operates under a formal mandate (a copy of which is attached as Appendix "A" and is posted
on our website at www.ballard.com), which sets out its duties and responsibilities, including matters such
as corporate strategy, fiscal management and reporting, selection of management, legal and regulatory
compliance, risk management, external communications and performance evaluation. The Board has
also established terms of reference and corporate governance guidelines for individual directors (copies
of which are also posted on our website), which set out the directors’ individual responsibilities and
duties. Terms of reference are also established for the Board Chair and the CEO. These terms of
reference and guidelines serve as a code of conduct with which each director is expected to comply, and
address matters such as conflicts of interest, the duties and standard of care of directors, the level of
availability expected of directors, requirements for maximizing the effectiveness of Board and committee
meetings, and considerations that directors are to keep in mind in order to make effective and informed
decisions.
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In addition, we have a Board-approved "Code of Ethics", which applies to all members of the Board, as
well as our officers and employees. A copy of the Code of Ethics can be found on our website
(www.ballard.com). This document is reviewed annually and updated or revised as necessary.
Annually, all employees in Sales & Marketing, Finance & Administration, Supply Chain, Customer
Service and Quality, and all management employees and officers, are required to formally acknowledge
they have read, reviewed and comply with the Code of Ethics. A compliance report is then presented to
the Audit Committee and Board.
The Chair of the Board is responsible for ensuring the appropriate organization, content and flow of
information to the Board and that all concerns of the directors are addressed. The Chair of the Board
reviews and sets the agenda for each Board meeting. The Chair of the Board is also responsible for
organizing and setting the frequency of Board meetings and ensuring that Board meetings are conducted
efficiently. The Chair of the Board is an independent director.
Each year, the Board identifies a list of focus priorities for the Board during the year. The CGCC
regularly monitors the Board’s progress against these priorities throughout the year.
BOARD ORIENTATION AND EDUCATION
We have established a formal director orientation and ongoing education program. Upon joining our
Board, each director receives an orientation regarding our business. Such orientation includes site visits
to our manufacturing facilities, presentations regarding our business, technology and products, and a
manual that contains various reference documents and information. Continuing education is offered by
way of ongoing circulation of informative materials aimed at topical subject matters, material industry
developments, and management presentations at Board meetings, as well as guest speakers who are
invited to speak to our Board on various topics. In the past, we have invited guest speakers to speak to
our Board about the fuel cell industry, government regulation, capital markets, corporate governance and
risk management, and internal management representatives to speak about various issues, including
relating to our industry, business, strategy, markets, customers, projects, technology, products, services,
operations, employee relations, investor relations and risks. The orientation and ongoing educational
presentations that are made by internal management provide an opportunity for Board members to meet
and interact with members of our management team.
SHAREHOLDER FEEDBACK AND COMMUNICATION
We have an e-mail process for Shareholders to communicate with the Board, through the Chair of the
Board. Shareholders who wish to send a message to the Chair of the Board can find the details of this
process on our website at www.ballard.com. In addition, a summary of shareholder feedback that is
received by us is provided to the Board through a semi-annual report.
BOARD AND DIRECTOR PERFORMANCE EVALUATIONS
Each year, the Board conducts an evaluation and review of its performance during the past year. The
evaluation is conducted through a process determined from time to time by the CGCC which elicits
responses from individual directors on a confidential basis regarding performance of the Board and
individual directors. The process may include the completion of a questionnaire by all of the directors as
well as individual director self-evaluations and peer evaluations. The CGCC presents the summary
results to the full Board, which then, based on the results of the evaluation, determines appropriate
actions and changes to improve Board effectiveness.
COMMITTEES OF THE BOARD
The Board has established two standing committees: (1) the Audit Committee; and (2) the Corporate
Governance & Compensation Committee (“CGCC”).
Each committee has been delegated certain responsibilities, performs certain advisory functions and
either makes certain decisions or makes recommendations to the Board. Each committee chair reports on
the activities of the committee to the Board following each committee meeting. The members of these
committees are all independent. Given a number of considerations, including the past and planned size
25
of the Board, the composition of the Board, considerations relating to the efficiency and effectiveness of
the Board and these two committees, and the flat retainer fee structure used for compensating the Board,
these two committees are represented by all directors other than the CEO.
The following chart sets out current members of our standing committees:
Ian A. Bourne
Audit Committee
1
Douglas P. Hayhurst
(Chair Designate)
Marty Neese
James Roche
Carol M. Stephenson
Ian Sutcliffe
Corporate Governance
& Compensation
Committee
1
(Chair)
1 Chair of the Board and designated financial expert. Mr. Bourne is an ex officio member of each of the committees.
After the Meeting, we will reconstitute all of the standing committees to reflect the newly elected Board.
In addition to the standing committees of the Board, the Director Search Committee, an ad hoc
committee first established in 2014, met in 2015.
Audit Committee
The Audit Committee met five (5) times during 2015. The Audit Committee is constituted in accordance
with SEC rules, applicable Canadian securities laws and applicable NASDAQ rules, and assists the
Board in fulfilling its responsibilities by reviewing financial information, the systems of corporate
controls and the audit process.
The Audit Committee is responsible for overseeing the audit process and the preparation of our financial
statements, ensuring that our financial statements are fairly presented in accordance with International
Financial Reporting Standards (“IFRS”), approving our quarterly financial statements, and reviewing and
recommending to the Board our year-end financial statements and all financial disclosure contained in
our public documents. The Audit Committee meets with our financial officers and our internal and
external auditors to review matters affecting financial reporting, the system of internal accounting and
financial disclosure controls and procedures, and the audit procedures and audit plans. The Audit
Committee reviews our significant financial risks and the appointment of senior financial executives, and
annually reviews our insurance coverage, tax loss carry forwards, pension and health care liabilities, and
off-balance sheet transactions. The Audit Committee has at least two members, Ian A. Bourne and
Douglas P. Hayhurst, who qualify as audit committee financial experts under applicable securities
regulations. All of the members of the Audit Committee are independent directors in accordance with
the applicable Canadian and United States securities laws and exchange requirements and are financially
literate.
The Audit Committee is responsible for recommending the appointment of our external auditors (for
Shareholder approval at our annual general meeting), monitoring the external auditors’ qualifications and
independence, and determining the appropriate level of remuneration for the external auditors. The
external auditors report directly to the Audit Committee. The Audit Committee also approves in
advance, on a case-by-case basis, any services to be provided by the external auditors that are not related
to the audit. The Audit Committee is also responsible for the appointment of our internal auditors (or
persons responsible for the function), and directing, monitoring and providing guidance to the internal
audit function and review the performance of the internal auditor at least annually.
In addition, the Audit Committee is mandated to review all financial disclosure contained in
prospectuses, annual reports, annual information forms, management proxy circulars and other similar
documents. The Audit Committee is also responsible for ensuring that the internal audit function is
26
being effectively carried out. The Audit Committee reviews and approves, in advance, related party
transactions (including transactions and agreements in respect of which a director or executive officer
has a material interest) on a case-by-case basis.
For a more detailed description of the Audit Committee or to see the Audit Committee’s mandate, a copy
of which is posted on our website, see the section entitled "Audit Committee Matters" in our Annual
Information Form dated February 25, 2016, which section is incorporated by reference into this
Management Proxy Circular.
Corporate Governance & Compensation Committee
The CGCC met five (5) times during 2015. Collectively, the CCGC members have extensive
compensation-related experience as senior executives (past and present) and members of the board of
directors and committees of other public and private corporations. The Board is confident that the CCGC
collectively has the knowledge, experience and background to carry out the Committee’s mandate
effectively and to make executive compensation decisions in the best interests of the Corporation and its
Shareholders.
The CGCC is responsible for the following:
recommending the size of the Board and the formation and membership of committees of the
Board;
review and approval of all director nominations to the Board;
determining director compensation;
maintaining an ongoing education program for Board members;
ensuring a formal process exists to evaluate the performance of the Board, Board committees,
individual directors, and the Chair of the Board, and ensuring that appropriate actions are
taken, based on the results of the evaluation, to improve the effectiveness of the Board;
conducting succession planning for the Chair of the Board; and
monitoring corporate governance and making recommendations to enable the Board to comply
with best corporate governance practices in Canada and the United States;
The CGCC is also responsible for:
considering and authorizing the terms of employment and compensation of executive officers
and providing advice on organizational and compensation structures in the various
jurisdictions in which we operate;
reviewing and setting the minimum share ownership requirement for executive officers;
reviewing all distributions under our equity-based compensation plans, and reviewing and
approving the design and structure of, and any amendments to, those plans;
ensuring appropriate CEO and senior management succession planning, recruitment,
development, training and evaluation; and
annually reviewing the performance objectives of our CEO and conducting his annual
performance evaluation.
Any compensation consultants engaged by us, at the direction of the CGCC, report directly to the CGCC,
which has the authority to appoint such consultants, determine their level of remuneration, and oversee
and terminate their services.
The CGCC does not have a written policy regarding succession planning or recruitment of executive
officers. However, the CGCC takes the same approach when identifying candidates for executive
officers that it takes in respect of director candidates. The CGCC will, when identifying executive
officer candidates:
27
a) consider only candidates who are highly qualified based on their experience, expertise,
perspectives, and personal skills and qualities; and
b) consider diversity criteria including gender, age, ethnicity and geographic background.
The CGCC has not established targets for any diversity criteria for executive officers at this time. The
CGCC and Board annually review executive succession plans and emerging leadership candidates,
including a review of demographic information to ensure the correct focus on diversity. Individual
development plans are established by management, including those for female leaders, and the
Corporation has sponsored and supported participation in activities including the Minerva “Women in”
annual luncheon series and Board-led career discussions. As of the Record Date, there are no women
executive officers of the Corporation.
A copy of the CGCC’s mandate is posted on our website (www.ballard.com). The mandate is reviewed
annually and the CGCC’s performance is assessed annually through a process overseen by the Board.
Director Search Committee
The Director Search Committee is a temporary sub-committee of the CGCC established in 2014 for the
purpose of establishing and leading a search and selection process of potential director nominees for
consideration by the Board.
The Director Search Committee met twice during 2015. The members are Carol M. Stephenson (Chair),
Ian A. Bourne and David B. Sutcliffe. The committee engaged Spencer Stuart to provide services in
support of the director nominee candidate selection and interview process.
During 2015, there were two new directors – James Roche and Marty Neese – that joined the Board as a
result of the work of the Director Search Committee.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This section discusses the elements of compensation earned by our "Named Executive Officers" as of
December 31, 2015:
Randall MacEwen
Tony Guglielmin
Christopher J. Guzy
Paul Cass
Steven Karaffa
President and Chief
Executive Officer
Vice President and
Chief Financial
Officer
Vice President and
Chief Technical
Officer
Vice President and
Chief Operations
Officer
Vice President and
Chief Commercial
Officer
INTRODUCTION
Setting executive compensation in an early-stage high technology business – such as our hydrogen fuel
cell enterprise – in a way that balances ‘motivation and incentive’ with ‘creation of shareholder value’ is
a challenging task. As a result, the Company puts a considerable amount of effort into the development,
and ongoing monitoring and management of our executive compensation plan. This includes the
involvement of expert third parties to provide independent advice, monitoring of industry best-practices,
and benchmarking against relevant comparators inside and outside the fuel cell industry sector.
Executive Compensation Program Highlights
Ballard’s executive compensation program is designed to attract the skillsets and experience needed to
lead the development and execution of the Company’s strategy and to reward executives appropriately
for high performance. Our executive compensation program is comprised of the following elements:
Annual Base Salary – set to reflect the size and scope of the role, as well as individual
experience and performance, and market competitiveness;
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Annual Performance Bonus – expressed as a percentage of annual base salary and typically
paid in cash, annual performance bonus is determined based on achievement levels against a
weighted mix of annual corporate performance goals and individual performance goals that
support the overall corporate goals, both quantitative and qualitative – at the Board’s discretion;
Long-Term Incentive
o Performance Share Units (PSUs) – performance-based PSUs are awarded annually as
a percentage of annual base salary and typically vest over three years, subject to the
achievement of corporate performance objectives; PSUs are aligned with shareholder
interests as vesting is dependent on corporate performance and the realizable value of
PSUs partly depends on our share price after vesting. In 2015, we determined that going
forward new PSU grants will vest after three years (see below for more details);
o Stock Options – stock options are awarded annually, vest over three years and have a
seven year term; stock options are aligned with shareholder interests as their realizable
value depends on growth in our share price;
o Restricted Stock Units (RSUs) – stock RSUs are only issued for limited purposes, such
as at the time of hire, and typically vest over three years; RSUs are aligned with
shareholder interests as the realizable value depends on our share price after vesting.
With these compensation elements, a significant proportion of compensation is put “at risk” (for NEOs,
from 55% to 67% of total compensation), since it depends on successful performance and growth in
Ballard’s share price – both of which effectively align executive compensation with shareholder
interests.
To further align with the shareholder experience, our executive officers are required to hold between
1.0X to 3.0X of their individual salary in Common Shares or Deferred Share Units, depending on their
level within the Company. They have 5 years in which to meet this requirement.
In setting, monitoring and managing executive compensation the Company ensures careful consideration
of the relevant factors impacting each element of the plan through a rigorous process, with appropriate
oversight designed to pay appropriate short- and long-term incentive amounts that are strongly aligned
with the creation of long-term value for shareholders.
In recruiting our new CEO in October 2014, we were mindful to adopt best practices, including
clawbacks, and state-of-the-art provisions dealing with termination and change of control, as well as to
align the total compensation package at a level appropriate for the Corporation’s size and stage of
development
Significant Program Changes Planned in 2016
Commitment to improve ‘Advisory Say on Pay’ approval
We solicit investor feedback on our executive compensation approach by providing an advisory
“Say on Pay” vote, which we introduced in 2011.
The CGCC has committed to better understand the relatively modest ‘For’ vote on Say on Pay
(80.2% of votes “for”), analyze this information and engage where possible with shareholders on
Executive Pay issues. The Chair of the CGCC attended the Company’s annual meeting of
Shareholders held in June 2015 and the Company’s investor and analyst day held in October
2015 to directly meet and solicit feedback from Shareholders. The re-shaping of this CD&A into
a clearer, more communicative format is one example of our commitment to improve our
compensation disclosure for Shareholders and re-designed the LTIP program to more closely
align with shareholder expectations (discussed in more detail below).
Monitoring SEC Executive ClawBack Provision proposals
The CGCC is actively monitoring the upcoming final guidelines from the SEC related to
Executive Clawback provisions. Clawback provisions were proactively included in the new
29
CEO employment agreement in 2014 and revised employment agreements with certain senior
management in early 2016.
The CGCC expects to include clawback provisions for all relevant members of the executive
team in 2016. The CGCC also expects the clawback provisions in executive employment
agreements will be updated from time to time to reflect future changes to SEC guidelines and
any applicable guidelines from Canadian securities regulatory authorities.
Oversaw the Executive Team succession planning process, resulting in a rationalized and
renewed executive team for 2016
The Committee works actively with management and, where appropriate, independent expert
advisors, to ensure appropriate succession plans are in place for the CEO and senior Executives.
In late 2015 and early 2016, the Committee oversaw the development and execution by the CEO
of a rationalization and renewal plan relating to the executive team, including related succession
planning.
In early 2016, we restructured the organization with the departure of Paul Cass, Chief Operating
Officer; Dr. Chris Guzy, Chief Technology Officer; and Steve Karaffa, Chief Commercial
Officer. Responsibilities of the departed executives were assumed by internal personnel:
o David Whyte was promoted from Director, Operations to VP, Operations, flattening and
eliminating duplication in the Operations reporting structure.
o Dr. Kevin Colbow was appointed VP, Technology and Product Development,
consolidating with his existing responsibilities as VP, Technology Solutions.
o Karim Kassam was appointed VP, Commercial, consolidating with his existing
responsibilities as VP, Business and Corporate Development.
These organizational changes eliminated three C-level positions through rationalization and
consolidation, while providing opportunity for fresh approaches in these important roles, without
compromising customer deliverables and competencies.
Each of Mr. Cass, Dr. Guzy and Mr. Karaffa served with the Company through March 31, 2016
after supporting an effective transition of responsibilities to Mr. Whyte, Dr. Colbow and Mr.
Kassam, respectively.
Enhancements to our Executive LTIP program – specifically re-visiting and revising the
Performance Share Unit Program to better align to market trends and best practice
During 2015 the CGCC engaged with Towers Watson and management to re-evaluate and
update our overall LTI approach for executives, including to ensure that our compensation
principles and program is closely aligned with our corporate strategy and long-term shareholder
interests. The re-evaluation:
o Confirmed the importance of stock options in allowing us to compete for talent in our high
technology industry while aligning executives with the interests of Shareholders over the
longer-term, and
o Re-designed the PSU element of Executive Compensation to:
1. Introduce clearly measurable performance metrics that are closely aligned with our
corporate strategy and achieving long-term success; and
2. Continue to measure performance and determine vesting for a third of the award
annually, but pay out the vested portion of the award at the end of the three year
performance period (rather than paying the vested portion annually during the 3-year
period) so that executives continue to be aligned with shareholder experience through
the entire three-year term of PSUs.
30
This new approach became effective January 1, 2016. The first PSU grants were awarded in
February 2016 to executives, with vesting of a third of the award subject to the achievement each
year of revenue and gross margin performance targets consistent with our longer term strategic
plan.
Context of Our Executive Compensation Practices
There are a number of industry and business factors that present challenges to creating and implementing
an effective executive compensation program, including the following:
Despite our lengthy history, we are a pre-profit, publicly-listed company developing and
commercializing new technology, products and services that are highly disruptive in our markets
and disruptive to incumbent markets.
Our business is complex and volatile:
o We have a relatively complex business model for a company with our revenue base.
Our business activities include technology and product development, commercialization
of new products in global markets, manufacturing operations, engineering services, sales
and marketing for various market applications, and after-sales service support. We have
operations and offices in Canada, the United States, Mexico and Denmark, with an
international sales and service team. Many of our customers and markets are outside
North America creating a degree of complexity, and requiring us to recruit executives
with wider skills and international experience than may be the case for many companies
our size
o Setting longer-term performance targets in an early-stage business with significant
volatility and market risks is particularly challenging; the CGCC seeks to balance setting
concrete, challenging performance targets that reflect genuine progress in the business
consistent with our strategy, which are also reasonably achievable and capable of
dealing with the volatility of our business.
While we may be considered an industrial products company, we also compete for talent in the
technology industry, where there is a higher emphasis on equity to compensate staff than general
industry.
We use equity incentives as a way to compete for talent with larger companies while conserving
our shareholders’ cash for investment in our business.
Many of our competitors are headquartered in the United States and are subject to different
market conditions relating to executive compensation than typical Canadian-headquartered
companies.
The CGCC seeks to balance these factors, the expectations of our shareholders and the highest standards
of governance. As our business becomes more robust and predictable through the execution of our
strategy, the CGCC intends to continue to align compensation more predictably to performance, for
example, through the use of performance metrics that demonstrate and measure our performance relative
to peer group companies.
It is important to note our compensation has been aligned with our performance. Against a background
of challenging market conditions and weaker financial and operational performance in recent years,
actual values received by executives by way of bonuses and long-term incentive payouts have reflected
our performance and have been significantly below the values we targeted to pay executives that are
disclosed in our summary compensation tables. This means that where performance has not been
achieved against objectives, executive compensation has been directly impacted with lower bonus
payments, underwater share options and zero vesting of performance-based long-term incentives.
31
Highlights of our Executive Compensation Philosophy
Our compensation philosophy focuses on creating shareholder value, paying for performance and effective
risk management; our objective is to pay competitively in the markets in which we compete for talent, while
also aligning compensation with value created for shareholders
We target our compensation at the 50th percentile of the market, with actual compensation varying above and
below based on performance.
Objectives
How We Achieve It
Attract and retain
Paying compensation, including salaries, which are competitive in
the markets in which we compete for executive talent
Motivate
Align
Directly linking bonuses to annual performance measures that are
tied to our corporate strategy to motivate short term performance
Delivering a majority of long-term incentives contingent on
achieving sustained performance consistent with our corporate
strategy
Delivering a significant portion of total compensation in long-
term incentives that are tied to our creation of shareholder value,
including share price performance
Requiring executive officers to maintain a meaningful equity
ownership in Ballard
The Use of Benchmarking
Our overall compensation objective is to pay executives, on average, around the 50th percentile of our
comparator group for achieving performance goals at the levels targeted by the Board. Over-achievement or
under-achievement will result in actual payments for performance-based compensation being over or under
the targeted amounts.
Benchmarking for a company of Ballard’s size and stage of business is particularly challenging as our
industry is nascent and there are few direct comparables. Many of the direct competitors in our industry are
smaller, niche fuel cell companies. By contrast, companies in broader comparator groups, such as industrials
and technology companies, are often significantly larger companies that provide similarly inappropriate
benchmarks. In determining the appropriate comparator group, the CGCC considers several factors detailed
below, including the labor markets in which we compete for executive talent.
In 2011, the CGCC, working with Towers Watson, updated the comparator companies comprising the
Corporation’s compensation comparator group to better reflect the Corporation’s current business size and
market focus. A revised list of comparator companies was reviewed and accepted by the CGCC, which
selected the group of comparators ensuring a suitable mix of Canadian and United States companies
exhibiting a growth oriented mix of revenues, employee base, asset base, market capitalization and market
focus. This comparator group provides the primary source of compensation data used to review the
competitiveness of our executive compensation. The CGCC reviews and updates the composition of the
comparator group annually.
32
Our current comparator group is:
Canada (5)
EXFO Inc.
United States (6)
AeroVironment Inc.
Hydrogenics Corp.
Allied Motion Technologies Inc.
New Flyer Industries Inc.
American Superconductor Corporation
Sierra Wireless Inc.
Fuel Cell Energy Inc.
Westport Innovations Inc.
GrafTech International Ltd.
Plug Power Inc.
The CGCC compares each executive officer’s annual salary, target annual incentive bonus and long-term
incentive compensation value, both separately and in the aggregate, to amounts paid for similar positions at
comparator group companies.
Compensation Framework for 2015
The compensation program for our executive officers has five primary components that deliver pay over the
short- and long-term:
Element
Features
Performance Measures
Base Salary
Set to reflect market conditions and the size
N/A
Annual Bonus
and scope of the role, as well as individual
experience and performance
Paid annually in cash or DSUs
Each executive has a specified target bonus
expressed as a percentage of his or her base
salary
Actual bonuses based on Corporate and
Individual performance multipliers that
range from 0% - 150% of target based on
Corporate and Individual performance
Outcomes are formula-driven subject to the
Board’s overarching discretion
Corporate
Quantitative (60%)
Gross margin
Revenue
Cash flow from
operations
Qualitative (40%)
Quality initiatives
Building a sustainable
business platform
Executing a significant
licensing deal
33
Element
Features
Performance Measures
Long-Term
Incentive:
Performance Share
Units (PSUs)
Gross margin
Revenue
Cashflow from
operations
Each executive has a specified target long-
term incentive expressed as a percentage of
base salary
75% of each executive’s target long-term
incentive is awarded in the form of PSUs
Annual grants with three year term
Awards vest over three years based on
annual achievement of Corporate objectives
Payout can range from 0% - 100% of target
award
Long-Term
Incentive: Stock
Options
Annual grants
Exercise price equal to market price at grant
Awards vest in equal amounts annually over
Option value
contingent on share
price growth
three years
Seven-year term
Long-Term
Incentive:
Restricted Share
Units (RSUs)
For special purposes (e.g. on-hire award)
Typically vests in equal thirds over three
Value based on share
price at time of vesting
year period
Executive Pay Mix and the Emphasis on "At Risk" Pay
We emphasise performance by linking a significant proportion of our executive officers’ total annual
compensation to corporate and individual performance. For 2015, an average of 57% of the target annual
compensation earned by each of our Named Executive Officers was "at risk", in the form of variable and / or
performance-related compensation as shown below (including annual bonus, stock options and PSUs). As
such, executives will only receive value from those elements to the extent that the relevant performance
conditions are met, with long-term incentive values also tied to share price performance.
Total Target Direct
Compensation Mix - CEO
Long-
term
Incentiv
es
41%
Base
Salary
33%
Annual
Bonus
26%
Total Target Direct
Compensation Mix - Other
Executives
Base
Salary
45%
Long-
term
Incentiv
es
28%
Annual
Bonus
27%
Pay for Performance and Incentive Awards aligned with Shareholders Interests
The alignment between pay for performance for Executive Officers and Shareholder interests is clearly
demonstrated as follows:
34
Annual Bonus Plan – Performance measures are substantially and directly linked to the Annual
Operating Plan and achievement against those measures determines the size of the annual executive
bonus award. When corporate performance is below the minimum level expected by the Board this
amount could be zero. Equally, over achievement against the measures may result in payment of
bonus greater than the targeted amount, up to a capped amount.
Long Term Incentive Plan – Stock Options align pay with share price performance as the
compensation realised is based solely on share price appreciation. PSUs deliver compensation value
to executives by tying the vesting of PSUs (i.e. ability to receive value from units) to the extent that
performance measures related to key business objectives are met, while the value of each vested unit
changes in line with movements in the Corporation’s share price.
How Executive Compensation is Determined
The CGCC reviews and approves executive officers’ benefit policies and compensation plans, including our
annual bonus plan and our long-term equity-based compensation plans. As part of its mandate, the CGCC:
Approves and recommends to the Board the appointment of our executive officers;
Reviews and approves the amount and form of their compensation, their development and succession
plans, and any significant organizational or executive management changes;
Retains independent compensation consultants for professional advice and as a source of competitive
market information. In 2015, the CGCC continued to retain Towers Watson to provide independent
advice related to various executive compensation matters;
Determines the annual compensation, sets the performance conditions relating to the annual bonus
and long-term incentives, and determines the actual bonus payments in relation to our President and
CEO. The President and CEO is not a member of the CGCC and does not participate in the portions
of the CGCC discussions that relate directly to his personal compensation;
Seeks the advice and recommendations of our President and CEO with respect to the compensation
of our other executive officers including setting annual compensation, approving performance
conditions and targets for short- and long-term incentive awards, and proposed long-term incentive
awards and actual bonus payments; and
Ensures 100% of CGCC (Corporate Governance & Compensation Committee) meetings include an
in-camera session, and our CGCC is advised by independent compensation counsel.
Annual Salary
The CGCC approves the annual salary of our executive officers. Salary guidelines and adjustments for our
executive officers are considered with reference to:
(a)
(b)
(c)
(d)
compensation benchmarking as set out above;
the experience and qualifications of each executive officer;
the individual performance of each executive officer; and
the scope of responsibilities of each executive officer.
In 2015, there was no annual salary increase for the President and CEO, or other Named Executive Officers.
Annual Bonus for Executive Officers
In 2015, the annual target bonus for was set at 80% of base salary for Mr. MacEwen and 60% of salary for
each of Mr. Guglielmin, Mr. Guzy, Mr. Cass and Mr. Karaffa. The targets were initially established in 2012
based on benchmarking of our compensation arrangements as described above.
Payments relative to the annual bonus target are determined by performance against Corporate Scorecard
goals and the achievement of individual objectives. The Corporate Scorecard typically includes financial
35
objectives which contain a ‘”stretch” achievement component whereby 100% achievement of annual plan
goals equates to 50% payout of Corporate Scorecard goals. This means that in order to achieve 100% payout
against the financial targets, performance needs to be higher than the annual operating plan.
For a full discussion of annual incentive compensation for our President and CEO, see the section entitled
"CEO Compensation".
Methodology for Determining Annual Incentives
The actual annual bonus for each executive officer is determined by the CGCC on the basis of the following
formula:
= x x x x x x x
Actual
Bonus
Annual
Base Salary
Target Bonus
Percentage
Corporate
Scorecard
Multiplier
Individual
Performance
Multiplier
Corporate Scorecard Multiplier
The corporate scorecard multiplier is determined on completion of each fiscal year by the CGCC and
approved by the Board with reference to achievement against the corporate goals set out in a Corporate
Performance Scorecard approved by the CGCC and the Board at the commencement of the year. Each
corporate performance goal on the scorecard is assigned a relative weighting in terms of importance to
annual performance of the Corporation. The corporate scorecard typically includes a mix of quantitative
financial metrics and qualitative goals. The quantitative financial metrics typically include a threshold level
of performance below which the contribution of that goal to the overall corporate scorecard multiplier is
zero, and a maximum beyond which no further contribution to the corporate scorecard multiplier accrues.
For 2015, the Corporate Performance Scorecard reflected a balance of Quantitative annual goals focussed on
delivery of the 2015 operating plan (60% of the scorecard) and Qualitative goals focussed on key strategic
outcomes to be achieved during 2015 to better position the Corporation for longer term success (40% of the
scorecard).
Component
Weight
Quantitative
(60%)
Qualitative
(40%)
Performance Areas
Performance Highlights
Annual gross margin
dollar contribution
Not achieved – Below minimum threshold
Annual revenue
Not achieved – Below minimum threshold
Annual cash flow from
operations
Partially achieved
Quality initiatives
Substantially achieved
Building a sustainable
business platform
Executing a significant
licensing deal
Partially achieved
Over achieved
In aggregate, the Corporate Scorecard Multiplier achievement for 2015 was 42%.
Individual Performance Multiplier
The individual performance multiplier is determined with reference to achievement against the individual
goals set for each executive officer. Individual goals are set for individual executive officers by the CEO and
reviewed by the CGCC, and are based on agreed, objective and identifiable measures related to their roles,
and aligned to the corporate performance goals. An individual performance multiplier greater than 100%
36
may be awarded for superior performance against these goals, with an individual performance multiplier of
less than 100% being awarded for performance that does not achieve the goals.
In 2015, individual multipliers for each Executive Officer ranged from 50% to 130%. Our Executive
Officers elected to receive their 2015 bonus is DSUs rather than in cash. A summary of the Executive
Officers’ annual bonus payments for 2015 is as follows:
Name
CEO
Other NEOs
Target Bonus
(% of salary)
Corporate
Score/Multiplier
Individual
Score/Multiplier
Actual as a % of
Target
80%
60%
42%
42%
125%
52.5%
50% to 130%
21% to 55%
Long Term Incentives
We provide our Executive Officers with equity-based long-term incentives through the Consolidated Share
Option Plan, Market Purchase RSU Plan and the SDP (Consolidated Share Distribution Plan). Our equity-
based long-term incentives typically take the form of Stock Options or PSUs (that vest after a specified time
but normally only in the event that performance conditions are satisfied). These plans are designed to align
Executive Officer remuneration with performance and long-term shareholder value. They serve a vital role
in retaining executives as value under the plans is only received over time.
The target value of long-term incentives granted to Named Executive Officers in 2015, and the composition
of long-term incentives is set out in the table below.
Total LTI Mix (%)
Name
Target LTI
($)
PSUs2
Stock
Options1
Mr. MacEwen
625,000
Mr. Guglielmin
192,000
Mr. Guzy
Mr. Cass
192,000
192,000
Mr. Karaffa
192,000
75%
75%
75%
75%
75%
25%
25%
25%
25%
25%
1 Converted to a number of options by dividing the dollar value by the Black-Scholes value of the option on the award
date. The exercise price of these options was determined based on the closing Share price on the day prior to the award
date. .
2 Converted to a number of PSUs dividing the dollar value by the closing Share price on either the TSX or NASDAQ on
the award date.
This element of compensation supports the Corporation’s overall compensation objectives by linking our
Shareholders’ interests with those of our Executive Officers, by providing our Executive Officers with
compensation that is driven by the experience of our Shareholders in terms of our share price performance,
and in the case of PSUs is further tied to the achievement of performance measures. In addition, we require
our Executive Officers to comply with minimum share ownership guidelines that further align them with the
Shareholders’ experience.
37
For 2015 the awards to our Named Executive Officers were as follows:
Number Granted
Name
Total LTI Granted ($)
PSUs
Stock
Options
RSUs
Mr. MacEwen
1,459,000
157,299
293,563
167,785
Mr. Guglielmin
192,000
48,322
28,743
Mr. Guzy
Mr. Cass
Mr. Karaffa
192,000
192,000
222,000
48,322
28,743
48,322
28,743
48,322
28,743
10,067
0
0
0
Mr. MacEwen was subject to a trading blackout at the time of his hire in October 2014 and therefore his new
hire long term incentive equity awards were not issued until February 26, 2015.
Performance Share Units
Performance Share Units (PSUs) comprise the other 75% of the long-term incentive compensation provided
to an executive. The PSUs provide for vesting of one third of the grant each year over a period of three
years, subject to achievement of certain performance criteria in each year. The number of PSUs awarded to
each Executive Officer is typically determined in the first quarter of each financial year, in conjunction with
the determination of that executive officer’s annual bonus for the prior financial year. Vesting of PSUs may
be satisfied either with Shares bought under the Market Purchase RSU Plan or by treasury shares reserved
under the SDP.
In 2015, the performance criteria for PSUs were based on a tiered approach to vesting related to the three key
annual financial metrics contained in the Corporate Performance Scorecard, which were (1) Gross Margin
dollar contribution, (2) Annual Revenue, and (3) Cashflow from Operations, which collectively formed a
PSU Scorecard. Each element was equally weighted.
PSU Scorecard
PSU Vesting
< 50%
≥50% and <75%
≥75%
0%
50%
100%
Stock Options
Stock options are an integral part of each executive’s annual compensation package and are granted annually
in respect of approximately 25% of the long-term incentive compensation to be provided to an executive.
Under our Option Plan:
(a)
the exercise price of each option is determined by the Board, but must not be less
than the closing price per Share on the TSX or NASDAQ on the last trading day
before the date the option is granted; and
38
(b)
each option may be exercised by the holder in respect of up to one-third of the
Shares subject to the option on or after the first, second and third anniversary of the
effective date of the option on a cumulative basis.
Vested stock options may normally be exercised for a period of seven years from the grant date (the option
“term”).
Units Granted
On February 26, 2015, 350,587 PSUs were issued to the Named Executive Officers, including the President
and CEO using the methodology described above. In February 2016, the Board determined, after setting the
PSU Scorecard multiplier to 6% (with only the Annual Cashflow from Operations target having been
partially achieved) for the purpose of determining PSU Vesting, that 0% of this year’s PSUs vested, per the
terms of the PSU awards.
Vesting Awards
There was no vesting of PSUs to Shares for the Named Executive Officers, based on zero vesting of annual
awards granted in 2013, 2014 and 2015, given that performance goals were not met.
Grant Year
2013
2014
2015
Total
Number
Granted
137,295
59,652
116,861
Total
Number
Vested
Number
Vested as a
% of Granted
0
0
0
0%
0%
0%
Restricted Share Units
The Corporation also operates a Restricted Share Unit (RSU) Plan which is ordinarily used to provide new
employees and executive officers with one-time RSU awards, for example, as new hire awards. RSUs
provide for vesting over periods of up to three years. Vesting of these share units may be satisfied either
with Shares bought under the Market Purchase RSU Plan or by treasury based shares reserved under the
SDP.
Units Granted
Mr. MacEwen received a new hire grant of RSUs upon his appointment in October 2014. However due to a
trading blackout at the time of this award the RSUs were not issued until February 26, 2015. On February
26, 2015, Mr. MacEwen received the new hire grant of 167,785 RSUs, which are subject to time vesting
commencing annually from his appointment in October 2014 over 3 years.
Mr. Karaffa was granted RSUs in September 2014 to assist with one-time cost differentials associated with
his transition from U.S. to Canada. However, due to a trading blackout at the time of this award the RSUs
were not issued until February 26, 2015. On February 26, 2015, Mr. Karaffa received the grant of 10,067
RSUs, which are subject to time vesting annually over 3 years.
CEO Compensation
Mr. MacEwen was appointed President & CEO on October 6, 2014 with a base salary set at CDN$500,000
per year.
Mr. MacEwen’s target bonus for 2015 was CDN$400,000 based on an amount equal to 80% of his annual
base salary. His actual bonus for 2015 was determined by the CGCC on the basis of corporate financial and
operational performance reflected in the Corporate Performance Scorecard rating, plus performance relative
to his individual goals for 2015, as approved by the Board.
39
Annual Bonus
Performance
Areas
Corporate
Outcome
Specific corporate quantitative and qualitative results are described in detail under
“Corporate Scorecard Multiplier”
In 2015, the corporate score was 42% of target
Individual
Mr. MacEwen’s individual objectives for 2015 were based on:
Building a sustainable Business Platform – Partially Achieved
Strategic M&A – Achieved
Cash Balance - Achieved
Customer Engagement – Achieved
Employee Engagement – Achieved
In 2015, Mr. MacEwen’s individual performance multiplier was 125% of
target.
Mr. MacEwen’s annual bonus award was CDN$210,000 representing 52.5% of his
target bonus, based on a corporate multiplier of 42% and an individual performance
multiplier of 125%. Mr. MacEwen elected to receive his 2015 bonus is DSUs
rather than in cash.
Type
Value
Features
Overall
Outcome
Long-term
Incentives
Annual Award
Stock Option
$156,250
($625,000)
7-year term, with one-third of the
options vesting at the end of each of the
first three years
PSU
$468,750
3-year vesting with performance criteria
New Hire Award
Stock Option
$334,000
($834,000)
RSU
$500,000
7-year term, with one-third of the
options vesting at the end of each of the
first three years
3-year vesting, one-third on each
anniversary of start date. Time-Based
only
For the CEO, 67% of his target compensation is ‘at-risk’ (via the annual bonus plan and long term incentive
awards). 57% of his target compensation is linked directly to performance goals (via annual bonus plan and
PSUs). 41% of his target compensation is linked to the performance of the Ballard common shares (via
PSUs and Stock Option grants).
40
Total Target Direct
Compensation Mix - CEO
2015 Actual Direct
Compensation Elements - CEO
Long-
term
Incentiv
es
41%
Base
Salary
33%
Annual
Bonus
26%
Base
Salary
23%
Options
22%
RSUs
23%
PSUs
22%
Annual
Bonus
10%
Note: The CEO’s 2015 actual direct compensation mix pie chart includes the one-time new hire award
(RSUs and Options).
CEO Realized Pay
In 2015, actual CEO realized pay, as defined by the sum of base salary earned, annual bonus achieved plus
the value of vested equity during the year equalled CDN$710,000 in total.
Perquisites
In addition to cash and equity compensation, the Corporation provides Named Executive Officers with
certain personal benefits, consistent with similar benefits coverage within the comparator group. These
benefits include a car allowance, medical benefits program, long and short-term disability coverage, life
insurance, an annual medical and a financial planning allowance.
Retirement Benefits
Executives are eligible to receive a matching contribution by the Corporation to their RRSP, up to 50% of the
maximum amount allowable under the Income Tax Act (Canada).
In 2015, Mr. MacEwen, Mr. Guglielmin, Mr. Guzy, Mr. Karaffa and Mr. Cass each received an RRSP
contribution from the Corporation, equal to 50% of the maximum amount allowable under the Income Tax
Act (Canada), as each of them made an equivalent personal matching contribution.
None of the Named Executive Officers currently participates in any Corporation-sponsored Defined Benefits
Plan, Defined Contribution Plan, or Supplemental Executive Retirement Plan, nor do they receive
contributions to any such plan on their behalf from the Corporation.
Share Ownership Guidelines and Share Trading Policy
Our Executive Officer minimum share ownership guidelines oblige each executive officer to own a
minimum number of our Shares expressed as a multiple of Base Salary as set out below.
Position
Multiple of Base Salary
President and CEO
Other Executives
3.0x
1.0x
For the purposes of this section, the "fair market value" is defined as the closing price of our Shares as listed
on the TSX on the date that the Executive Officer acquired the Common Shares, or DSUs were allocated to
them. All executive officers have met or are on track to meet the applicable guidelines. Executives have 5
years in which to meet these requirements.
41
Executives and directors are not permitted to hedge the market value of the Corporation securities granted to
them as compensation or otherwise held, directly or indirectly, by them.
Compensation Risk Considerations
The CGCC and Board believe that the risk associated with our compensation practices is relatively
low. Given the increased emphasis placed on ensuring that compensation practices do not encourage
behaviours that expose the corporation to greater risk, the CGCC and Board continue to monitor this issue
closely.
The CGCC and Board consider the risks associated with the Corporation’s compensation policies and
practices are mitigated by:
its evaluation of the impact of each compensation component on management behaviour:
o
total compensation levels are set relative to median of a peer group of companies that are
broadly comparable to the Corporation
o base salary is set relative to median and at levels which the CGCC considers unlikely to
create inappropriate risks;
o
o
o
for short term cash incentives, the potential risks are evaluated as low as the plan uses
multiple metrics in the Corporate Multiplier, both quantitative and qualitative (described
above) and maximum earnings available under each component of the plan are capped;
the use of long-term incentives themselves minimizes short-term or inappropriate risk-taking
by linking value to long-term share price performance, and
the long-term equity-based incentive programs are evaluated as low risk in structure, in part
due to the mix of PSU and Option awards with overlapping terms and vesting / performance
periods, and / or performance based vesting conditions that are generally consistent with
public company risks;
ensuring the CGCC and Board mandates reflect appropriate accountabilities, oversight and controls
on the Corporation’s compensation policies and practices, especially as they relate to executive
compensation; and
working with management and/or external consultants to stress test each compensation component,
to ensure boundary conditions are reasonable and do not produce unexpected or unintended financial
windfalls.
The CGCC and Board have not identified any risks arising from the compensation policies and practices that
are reasonably likely to have a material adverse effect on the Corporation.
Advisors to the Corporate Governance & Compensation Committee
Towers Watson has been retained by the CGCC since 2008 to provide executive compensation
benchmarking and general executive compensation, equity plan and Board compensation advisory services.
In 2015, Towers Watson provided significant input into the review of the new LTI approach, including the
new PSU principles outlined earlier.
The following table sets out the fees paid to Towers Watson during each of the two most recently completed
financial years:
Compensation-Related
Fees
All Other Fees
2015
2014
$56,062
$10,194
42
Nil
Nil
Performance Graph
The following graph compares the total cumulative return to a Shareholder who invested $100 in our Shares
on December 31, 2010, assuming reinvestment of dividends, with the total cumulative return of $100 on the
NASDAQ Composite Index for the last five years. NASDAQ data was selected because the majority of
trading of Ballard’s shares (typically >75%) occurs on this exchange.
(Dec 31)
Ballard
NASDAQ
Composite Index
2010
($)
100
100
2011
($)
72
98
2012
($)
41
114
2013
($)
101
157
2014
($)
132
179
2015
($)
104
189
Cumulative Value of a $100 Investment
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
2010
2011
2012
2013
2014
2015
Ballard (BLDP on Nasdaq)
NASDAQ Composite Index
The trend shown by this graph does not reflect the trend in the Corporation’s compensation to its Named
Executive Officers.
43
Executive Compensation Tables
The following table summarizes the compensation paid for the fiscal years ended on December 31, 2013,
December 31, 2014 and December 31, 2015 to our Named Executive Officers.
Summary Compensation Table
Name and Principal
Position
Year
Salary(2)
(CDN$)
Bonus(3)(4)
(CDN$)
Long-Tern Incentives
Share-Based
Awards(5)
(CDN$)
Option-
Based
Awards(6)
(CDN$)
All Other
Compensation(7)
(CDN$)
Total
Compensation
(CDN$)
R. Randall MacEwen(1)
President and Chief
Executive Officer
Tony Guglielmin
Vice President and Chief
Financial Officer
Paul Cass
Vice President and Chief
Operations Officer
Christopher J. Guzy
Vice President and Chief
Technical Officer
Steven Karaffa
Vice President and Chief
Commercial Officer
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
500,000
117,808
0
318,000
316,663
310,000
292,000
287,488
265,000
318,000
316,663
310,000
318,000
327,580
0
210,000
968,750
490,250
0
0
104,177
43,909
157,635
51,509
25,469
89,835
84,143
35,127
136,617
40,068
23,532
0
0
0
144,000
222,500
167,500
144,000
222,500
167,500
144,000
222,500
167,500
174,000
193,760
0
0
0
48,000
57,500
48,750
48,000
57,500
48,750
48,000
57,500
48,750
48,000
336,000
0
98,069
108,958
0
33,326
36,010
31,533
30,188
29,625
29,959
36,297
39,344
43,443
41,600
28,638
0
2,267,069
226,766
0
647,503
676,582
715,418
565,697
622,582
601,044
630,440
671,134
706,310
621,668
909,510
0
(1) Mr. MacEwen was appointed President and Chief Executive Officer as of October 6, 2014. He is also a director, but receives no compensation
for his service as a director.
(2)
(3)
Salary of each of the Named Executive Officers was paid in Canadian dollars, with the exception of Mr. Karaffa’s compensation for 2014,
which was paid in part in United States dollars. The portion paid in United States dollars was converted into Canadian dollars using the Bank of
Canada noon rate of exchange on December 31, 2015. The United States dollar amounts for 2015 were US$361,272, US $229,769, US$210,983,
US$229,769, and US$229,769 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for
2014 were US$85,121, US$228,803, US$207,723, US$228,803, and US$236,690 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa,
respectively. The United States dollar amounts for 2013 were US$0, US$223,988, US$191,474, US$223,988, and US$0 for Messrs. MacEwen,
Guglielmin, Cass, Guzy, and Karaffa, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of
this disclosure using the Bank of Canada noon rate of exchange on December 31, 2015.
In 2015 and 2013, the bonus for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa was issued as DSUs, while in 2014, the bonus was
paid in cash (see footnote 4 below). The DSU amount is based on the grant date fair market value of the award, which equals the closing price
of the Shares on the TSX on the date of issuance of the award. The number of DSUs awarded is equal to the dollar amount of the award divided
by the fair market value of the Shares at the time of issuance (based on the closing price of the Shares on the TSX on the date of issuance). The
number of DSUs issued to Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa in respect of the fiscal years ended December 31, 2015 and
2013 is as follows:
Named Executive Officer
Year
R. Randall MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
2015
2013
2015
2013
2015
2013
2015
2013
2015
2013
Bonus
DSUs
(#)
116,667
0
57,876
42,261
28,616
24,084
46,746
36,627
22,260
0
Fair Market Value
of a Share
(CDN$)(A)
1.80
0
1.80
3.73
1.80
3.73
1.80
3.73
1.80
0
Total
(CDN$)(B)
210,000
0
104,177
157,635
51,509
89,835
84,143
136,617
40,068
0
(A) The fair market value of a Share has been calculated using the Canadian dollar closing price of the Shares underlying the DSUs
on the TSX on the date of issuance.
44
(B) The United States dollar amounts for 2015 were US$151,734, US$75,272, US$37,217, US$60,797, and US$28,951 for Messrs.
MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2013 were US$0,
US$113,898, US$64,910, US$98,712, and US$0 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively.
The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the Bank of
Canada noon rate of exchange on December 31, 2015.
(4)
In 2014, the bonus of each of the Named Executive Officers was paid in Canadian dollars. The corresponding United States dollar amounts for
2014 were US$0, US$31,726, US$18,402, US$25,381, and US$17,003 for Messrs. MacEwen, Guglielmin, Cass, Guzy and Karaffa,
respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of this disclosure using the Bank of
Canada noon rate of exchange on December 31, 2015.
(5) Represents the total fair market value of PSUs/RSUs issued to each Named Executive Officer during the 2015, 2014, and 2013 fiscal years.
This amount is based on the grant date fair market value of the award, which equals the closing price of the Shares on the TSX and NASDAQ on
the date of issuance of the award. Fair value is determined in accordance with IFRS 2 of the International Financial Reporting Standards
(accounting fair value) is recorded as compensation expense in the statement of operations over vesting periods of one to three years. There is
no difference in Canadian dollars between the grant date fair market value of the award and the accounting fair value.
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 75% of this amount is
awarded in the form of PSUs with the remaining 25% being awarded in the form of stock options in 2015. In 2014, approximately 50-80% of
this amount is awarded in the form of PSUs with the remaining 20-50% being awarded in the form of stock options. In 2013, approximately 75-
90% of this amount is awarded in the form of PSUs with the remaining 10-25% being awarded in the form of stock options. The number of
PSUs awarded is equal to the dollar amount of the award divided by the fair market value of the Shares at the time of issuance (based on the
closing price of the Shares on the TSX and NASDAQ on the date of issuance). The number of PSUs/RSUs issued to each Named Executive
Officer in respect of the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013 is as follows:
Share-Based Awards
Named Executive
Officer
R. Randall MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Year
2015(A)
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015(B)
2014
2013
PSUs/RSUs
(#)
325,084
0
0
48,322
59,651
137,295
48,322
59,651
137,295
48,322
59,651
137,295
58,389
41,791
0
Fair Market Value
of a Share
(CDN$)(C)
2.98
0
0
2.98
3.73
1.22
2.98
3.73
1.22
2.98
3.73
1.22
2.98
4.64
0
Total
(CDN$)(D)
968,750
0
0
144,000
222,500
167,500
144,000
222,500
167,500
144,000
222,500
167,500
174,000
193,760
0
(A)
(B)
Included in the PSUs/RSUs issued to Mr. MacEwen in 2015 was a $500,000 grant of 167,785 RSUs (time vested only), which
represented a new hire grant upon his appointment in October 2014. Mr. MacEwen was subject to a trading blackout at the
time of this award and therefore the RSUs were not issued until February 26, 2015.
Included in the PSUs/RSUs issued to Mr. Karaffa in 2015 was a $30,000 grant of 10,067 RSUs (time vested only) to assist with
one-time cost differentials associated with his transition from U.S. to Canada in September 2014. Mr. Karaffa was subject to a
trading blackout at the time of this award and therefore the RSUs were not issued until February 26, 2015.
(C) The fair market value of a Share has been calculated using the Canadian dollar closing price of the Shares underlying the
PSUs/RSUs on the TSX on the date of issuance with the exception of RSUs issued to Mr. Karaffa in 2014, which have been
calculated using the United States dollar closing price of the Shares underlying the RSUs on the NASDAQ on the date of
issuance (US$3.35). The United States dollar amount was converted to Canadian dollars for the purpose of this disclosure
using the Bank of Canada noon rate of exchange on December 31, 2015.
(D) The United States dollar amounts for 2015 were US$699,964, US$104,046, US$104,046, US$104,046, and US$125,723 for
Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2014 were US$0,
US$160,766, US$160,766, US$160,766, and US$140,000 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa,
respectively. The United States dollar amounts for 2013 were US$0, US$121,026, US$121,026, US$121,026, and US$0 for
Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The Canadian dollar amounts were converted into
United States dollars for the purpose of this disclosure using the Bank of Canada noon rate of exchange on December 31, 2015.
(6) Represents the total of the fair market value of options to purchase our Shares issued under the Option Plan granted to each Named Executive
Officer during each fiscal year. This amount is based on the grant date fair market value of the award determined using the Black-Scholes
valuation model using the following key assumptions: expected life of 4 years, expected volatility of 77% and risk free interest rate of 1% for
2015; expected life of 4 years, expected volatility of 68% and risk free interest rate of 1% for 2014; and expected life of 5 years, expected
volatility of 63% and risk free interest rate of 1% for 2013. Accounting fair value is recorded as compensation expense in the statement of
45
operations over the vesting period. There is no difference in Canadian dollars between the grant date fair market value of the award determined
using the Black-Scholes valuation model and accounting fair value determined in accordance with IFRS 2 of the International Financial
Reporting Standards (accounting fair value).
As noted above, a dollar value is approved for the long term incentive awarded to each executive and approximately 75% of this amount is
awarded in the form of PSUs with the remaining 25% being awarded in the form of stock options in 2015. In 2014, approximately 50-80% of
this amount is awarded in the form of PSUs with the remaining 20-50% being awarded in the form of stock options. In 2013, approximately 75-
90% of this amount is awarded in the form of PSUs with the remaining 10-25% being awarded in the form of stock options. The number of
stock options awarded is equal to the dollar amount of the award divided by the fair market value of the Shares at the time of issuance (based on
the closing trading price of the Shares on the TSX on the day prior to issuance). The number of stock options issued to each Named Executive
Officer in respect of the fiscal years ended December 31, 2015, December 31, 2014 and December 31, 2013 is as follows:
Named Executive Officer
Year
Option-Based Awards
Shares Under
Options
(#)
Black-Scholes Value of
Shares Underlying Options
on Date of Grant
(CDN$/Share)(B)
Fair Market Value
(CDN$))(C)
R. Randall MacEwen
2015(A)
293,563
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
0
0
28,743
29,947
75,000
28,743
29,947
75,000
28,743
29,947
75,000
28,743
175,000
0
1.67
0
0
1.67
1.92
0.65
1.67
1.92
0.65
1.67
1.92
0.65
1.67
1.92
0
490,250
0
0
48,000
57,500
48,750
48,000
57,500
48,750
48,000
57,500
48,750
48,000
336,000
0
(A)
Included in the stock options issued to Mr. MacEwen in 2015 was a grant of 200,000 stock options, which represented a new hire
grant upon his appointment in October 2014. Mr. MacEwen was subject to a trading blackout at the time of this award and therefore
the stock options were not issued until February 27, 2015.
(B) The fair market value of a Share has been calculated based on the Black-Scholes valuation model using the Canadian dollar closing
price of the Shares underlying the options on the TSX on the date of issuance.
(C) The United States dollar amounts for 2015 were US$354,227, US$34,683, US$34,683, US$34,683, and US$34,683 for Messrs.
MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for 2014 were US$0, US$41,545,
US$41,545, US$41,545, and US$242,775 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United
States dollar amounts for 2013 were US$0, US$35,224, US$35,224, US$35,224, and US$0 for Messrs. MacEwen, Guglielmin, Cass,
Guzy, and Karaffa, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of this
disclosure using the Bank of Canada noon rate of exchange on December 31, 2015.
(7) All Other Compensation was paid in Canadian dollars. The United States dollar amounts for 2015 were US$70,858, US$24,079, US$21,812,
US$26,226, and US$30,057 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa, respectively. The United States dollar amounts for
2014 were US$78,727, US$26,019, US$21,405, US$28,428, and US$20,693 for Messrs. MacEwen, Guglielmin, Cass, Guzy, and Karaffa,
respectively. The United States dollar amounts for 2013 were US$0, US$22,784, US$21,647, US$31,389, and US$0 for Messrs. MacEwen,
Guglielmin, Cass, Guzy, and Karaffa, respectively. The Canadian dollar amounts were converted into United States dollars for the purpose of
the table above using the Bank of Canada noon rate of exchange on December 31, 2015.
The value of the items included in this amount was based on the aggregate incremental cash cost to the Corporation. All Other Compensation,
including the type and amount of each perquisite, the value of which exceeds 25% of the total value of perquisites reported for a Named
Executive Officer, includes:
46
Named Executive
Officer
R. Randall MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Year
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
All Other Compensation
Retirement Benefits
(RRSP / 401k /
Defined Benefits)
(CDN$)
Insurance Premiums
(CDN$)
12,465
5,354
0
12,465
12,135
11,910
12,465
12,135
11,910
12,465
12,135
11,910
12,465
13,112
0
1,188
198
0
1,077
1,059
1,075
1,284
1,023
1,075
1,077
914
1,075
1,077
326
0
Other(A)
(CDN$)
84,416
103,406
0
19,784
22,816
18,548
16,439
16,467
16,974
22,755
26,295
30,458
28,058
15,200
0
Total
(CDN$)
98,069
108,958
0
33,326
36,010
31,533
30,188
29,625
29,959
36,297
39,344
43,443
41,600
28,638
0
(A)
Includes automobile allowances, temporary living and travel allowances, financial planning services and medical and health
benefits. For Mr. MacEwen, other compensation in 2014 also includes a $100,000 payment in lieu of bonus.
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our Named Executive
Officers that are outstanding as of December 31, 2015.
Outstanding Share-Based Awards and Option-Based Awards
(as of December 31, 2015)
Option-Based Awards
Share-Based Awards
Number of Securities
Underlying
Unexercised Options
(#)
Option
Exercise
Price(1)
(CDN$)
Option
Expiration Date
Value of
Unexercised In-
The-Money
Options(2)
(CDN$)
Number of
PSUs/RSUs That
Have Not Vested
(#)
Market or Payout
Value of PSUs/RSUs
That Have Not
Vested(3)
(CDN$)
200,000(5)
93,563(4)
103,448
60,674
75,000(6)
29,947(7)
28,743(4)
103,448
60,674
75,000(6)
29,947(7)
28,743(4)
20,225
50,000(8)
29,947(7)
28,743(4)
175,000(9)
28,743(4)
2.98
2.98
2.10
1.69
1.22
3.73
2.98
2.10
1.69
1.22
3.73
2.98
1.69
1.22
3.73
2.98
4.64
2.98
Feb. 27, 2022
Feb. 27, 2022
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb. 27, 2022
Mar. 9, 2018
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb. 27, 2022
Feb. 24, 2019
Mar. 8, 2020
Feb. 27, 2021
Feb. 27, 2022
Feb. 27, 2021
Feb. 27, 2022
0
0
5,172
27,910
46,500
0
0
5,172
27,910
46,500
0
0
9,304
23,250
0
0
0
0
269,156
578,685
133,855
287,788
133,855
287,788
133,855
287,788
86,250
185,690
Named Executive
Officer
R. Randall
MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
(1) All figures are in Canadian dollars.
(2)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX or NASDAQ as at December
31, 2015, and the exercise price of the option. Where the difference is a negative number, the value is deemed to be 0.
(3)
This amount is calculated by multiplying the number of PSUs/RSUs that have not vested by the closing price of the Shares underlying the
PSUs/RSUs on the TSX or NASDAQ as at December 31, 2015.
Such amounts may not represent the actual value of the PSUs/RSUs which ultimately vest, as the value of the Shares underlying the PSUs/RSUs
may be of greater or lesser value and/or the exchange rate may be higher or lower on vesting. However, given that it would be not be feasible
for the Corporation to estimate, with any certainty, the market value of its Shares or the exchange rate on vesting, the Corporation has used the
market value and exchange rate at the end of the most recently completed financial year for the purpose of calculating the amount disclosed.
(4) Unvested options.
(5) Comprising 66,666 vested and 133,334 unvested options.
47
(6) Comprising 50,000 vested and 25,000 unvested options.
(7) Comprising 9,982 vested and 19,965 unvested options.
(8) Comprising 25,000 vested and 25,000 unvested options.
(9) Comprising 58,333 vested and 116,667 unvested options.
The following table sets forth the value of the incentive plan awards vested or earned during the year ended
December 31, 2015 by our Named Executive Officers.
Incentive Plan Awards – Value Vested or Earned During the Year
(2015)
Named Executive Officer
R. Randall MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
Option-Based Awards –
Value Vested During the
Year(1)
(CDN$)
Share-Based Awards – Value
Vested During the Year(2)
(CDN$)
Non-equity incentive plan
compensation – Value earned
during the year
(CDN$)
0
76,383
76,383
76,383
0
110,178
0
0
0
45,499
0
0
0
0
0
(1)
(2)
This value was determined by calculating the difference between the market price of the underlying Shares on the TSX or NASDAQ on the
vesting date and the exercise price of the options on the vesting date.
This value was determined by calculating the dollar value realized by multiplying the number of Shares by the market value of the underlying
Shares on the TSX or NASDAQ on the vesting date.
The number of options vesting to Named Executive Officers under the Option Plan during the most recently
completed financial year is 290,620.
Summaries of the Corporations’ Option Plan and SDP are provided in Appendix “B” and “C”, respectively.
As noted in the Outstanding Share-Based Awards and Option-Based Awards table, as at December 31, 2015,
there were 756,971 PSUs/RSUs awarded to Named Executive Officers that were still unvested. The
performance criteria for each of these RSUs will be determined by the Board at the appropriate time, and
they are set to vest (subject to the terms of the Consolidated Share Distribution Plan or Market Purchase RSU
Plan) as follows:
Named Executive Officer
Number of PSUs/RSUs That Have Not Vested
Vesting Date
R. Randall MacEwen
Tony Guglielmin
Paul Cass
Christopher J. Guzy
Steven Karaffa
52,433
55,929
52,433
55,928
52,433
35,991
45,765
19,884
16,107
16,108
35,991
45,765
19,884
16,107
16,108
35,991
45,765
19,884
16,107
16,108
33,393
13,931
19,463
19,463
48
February 26, 2016
October 6, 2016
February 26, 2017
October 5, 2017
February 25, 2018
February 26, 2016
March 6, 2016
February 25, 2017
February 26, 2017
February 25, 2018
February 26, 2016
March 6, 2016
February 25, 2017
February 26, 2017
February 25, 2018
February 26, 2016
March 6, 2016
February 25, 2017
February 26, 2017
February 25, 2018
February 26, 2016
February 25, 2017
February 26, 2017
February 25, 2018
PENSION PLAN BENEFITS
None of the Named Executive Officers participate in a Corporation-sponsored Defined Benefits Plan or
Defined Contribution Plan, nor do they receive contributions to any such plan on their behalf from the
Corporation.
TERMINATION AND CHANGE OF CONTROL BENEFITS
Employment Contracts
Ballard employs a standard-form executive employment agreement which all of our Named Executive
Officers have executed. These agreements have indefinite terms, provide for payments to be made on
termination and otherwise include standard industry terms and conditions, including intellectual property,
confidentiality, and non-competition and non-solicitation provisions in favour of Ballard.
The annual salary paid to each of our Named Executive Officers under their employment agreements for
2015 was as follows: Mr. MacEwen received CDN$500,000 Mr. Guglielmin received CDN$318,000; Mr.
Cass received CDN$292,000; Mr. Guzy received CDN$318,000; and Mr. Karaffa received CDN$318,000.
Pursuant to these employment agreements, a Named Executive Officer’s employment terminates
immediately, without any required period of notice or payment in lieu thereof, for just cause, upon the death
of the executive, or if the executive does not renew any required work permits. In every other circumstance
for Mr. MacEwen, Mr. Guglielmin, Dr. Guzy, Mr. Cass and Mr. Karaffa, other than one following a change
of control, we are required to provide notice of 12 months plus one month for every year of employment
completed with us, to a maximum of 24 months, or payment in lieu of such notice, consisting of the salary,
target bonus and other benefits that would have been earned during such notice period.
All of the employment contracts for the Named Executive Officers include a "double-trigger" in relation to a
change of control – if the executive’s employment is terminated (including a constructive dismissal) within
two years following the date of a change of control, the executive is entitled to a payment equivalent to
payment in lieu of a 24 month notice period. For these purposes, a "change of control" under the
employment agreements is defined as occurring when:
(a)
(b)
(c)
(d)
a person or persons acting in concert acquires at least one-half of Ballard’s shares;
the persons who comprise the Board of Ballard do not consist of a majority of persons who
were previously directors of Ballard, or who were recommended to the Shareholders for
election to the Board by a majority of the Directors;
there is a disposition of all or substantially all of Ballard’s assets to an entity in which
Ballard does not have a majority interest; or
Ballard is involved in any business combination that results in Ballard’s Shareholders
owning less than one-half of the voting shares of the combined entity.
In addition, Mr. MacEwen’s contract includes a clawback provision allowing the Corporation to recover
incentive payments made in the event of the Corporation’s financial statements being materially restated as a
result of wilful misconduct or fraud. In 2016, the Corporation intends to revise the employment agreements
for its executive officers to include similar clawback provision.
Equity-Based Compensation Plans
The Option Plan provides that, if a participant ceases to be an employee of Ballard or its subsidiaries (other
than by reason of death/disability or being retired), he or she will have up to 90 days, in the event of
termination other than for just cause, or 30 days, in the event of voluntary resignation, in which to exercise
his or her vested options (in each case subject to extension if the option would otherwise expire during, or
within 9 business days after the end of, a blackout period). In the event of termination other than for just
49
cause, the CEO has the discretion to extend the exercise period to up to one year after the optionee ceases to
work for Ballard and to accelerate the vesting of unvested options that would have otherwise vested during
that period in the next year (in effect, enabling the continuance of the options during a notice period).
All Ballard PSUs/RSUs awarded under either the SDP or the Market Purchase RSU Plan expire on the last
day on which the participant works for Ballard or any of its subsidiaries (other than by reason of
death/disability or being retired).
DSUs will be redeemed for Shares under the SDP by no later than December 31 of the first calendar year
commencing after the holder’s employment with Ballard and its subsidiaries is terminated, except in the case
of US holders, whose DSUs will be redeemed for Shares approximately 6 months after termination of
employment.
The Option Plan provides for the accelerated vesting of options upon a change of control, which is defined
as:
(a)
(b)
(c)
(d)
a person making a take-over bid that could result in that person or persons acting in concert
acquiring at least two-thirds of Ballard’s shares and in respect of which the Board approves
the acceleration of options;
any person or persons acting in concert acquiring at least two-thirds of the outstanding
Shares;
there is a disposition of all or substantially all of Ballard’s assets to an entity in which
Ballard does not have a majority interest;
Ballard joins in any business combination that results in Ballard’s Shareholders owning one-
third or less of the voting shares of the combined entity and Ballard is privatized (or the
parties to the business combination have publicly expressed an intention to privatize
Ballard); or
(e)
any other transaction, a consequence of which is to privatize Ballard is approved by Ballard
security holders or, if such approval is not required, is approved by Ballard.
If an accelerated vesting event occurs, any outstanding option may be exercised at any time before the 60th
day after such event.
Under the SDP and the Market Purchase RSU Plan, the occurrence of any of the accelerated vesting events
described above triggers (subject to Board approval in the case of a take-over bid) the termination of the
restriction period applicable to PSUs/RSUs such that holders will become immediately entitled to receive
Shares in respect of their PSUs/RSUs (subject to satisfaction of any performance criteria or other conditions
specified in the award).
The following table shows, for each Named Executive Officer, the amount such person would have been
entitled to receive if on December 31, 2015: their employment was terminated without just cause; a change
of control occurred; or, their employment was terminated without just cause and that termination occurred
following a change in control.
50
Named Executive Officer
Termination of Employment (2)
(CDN$)(1)
Change of Control (3)
(CDN$)(1)
Termination of Employment
following Change of Control
(CDN$)(1)
Triggering Event (as of December 31, 2015)
R. Randall MacEwen
Severance
Other benefits
Accelerated vesting
Total
Tony Guglielmin
Severance
Other benefits
Accelerated vesting
Total
Christopher J. Guzy
Severance
Other benefits
Accelerated vesting
Total
Paul Cass
Severance
Other benefits
Accelerated vesting
Total
Steven Karaffa
Severance
Other benefits
Accelerated vesting
Total
$975,000
$40,535
$0
$1,015,535
$720,800
$47,212
$0
$768,012
$932,800
$66,471
$0
$999,271
$661,867
$42,766
$0
$704,633
$551,200
$45,023
$0
$596,223
$0
$0
$578,683
$578,683
$0
$0
$390,621
$390,621
$0
$0
$334,288
$334,288
$0
$0
$390,621
$390,621
$0
$0
$185,438
$185,438
$1,800,000
$99,834
$0
$1,899,834
$1,017,600
$91,652
$0
$1,109,252
$1,017,600
$97,514
$0
$1,115,114
$934,400
$85,376
$0
$1,019776
$1,017,600
$90,047
$0
$1,107,647
(1) All values are in Canadian dollars.
(2) Based on accrued service to December 31, 2015.
(3) All options and PSUs/RSUs vest immediately upon a change of control. Value shown equals, in the case of PSUs/RSUs, the price of the
underlying Shares on December 31, 2015 multiplied by the number of PSUs/RSUs. Value shown in the case of Options is the difference
between the market price on December 31, 2015 and the exercise price for options, for those options where the market price on that date is
greater than the exercise price.
51
Our CGCC is responsible for determining compensation for our Directors.
DIRECTOR COMPENSATION
We remunerate directors who are not executive officers for services to the Board, committee participation
and special assignments. The following table describes the compensation of independent directors in 2015:
2015 Compensation Elements
Annual Retainer (Non-Executive Chair of the Board)
Annual Retainer (Director)
Annual Retainer (Committee Chairs)
Board or Committee Meeting Attendance Fee (per meeting)
CDN$
$140,000
$65,000
$10,000
$1,500
At the discretion of the Chair, a meeting fee may be paid to independent directors for meetings that the
director is requested or required to attend that are not official meetings of the Board or committees.
Directors are also reimbursed for travel and other reasonable expenses incurred in connection with fulfilling
their duties. If a meeting or group of meetings is held on a continent other than the continent on which an
independent director is resident, that director will receive an additional fee of CDN$2,250, in recognition of
the additional time required to travel to and from the meeting or meetings.
In 2015, the following compensation was paid to the directors:
Compensation
Board Retainer
(CDN$)
Committee
Retainer
(CDN$)
Board and
Committee
Attendance Fees
(CDN$)
Total
Compensation
(CDN$) (1)
140,000
65,000
65,000
5,417
48,750
65,000
65,000
65,000
N/A
0
10,000
0
0
10,000
0
0
N/A
30,000
30,000
1,500
22,500
33,000
34,500
31,500
140,000
95,000
105,000
6,917
71,250
108,000
99,500
96,500
Director
Ian A. Bourne
Douglas P. Hayhurst
Edwin J. Kilroy
Marty Neese (1)
Jim Roche (2)
Carol M. Stephenson
David B. Sutcliffe
Ian Sutcliffe
1. Mr. Neese joined the board effective December 4, 2015
2. Mr. Roche joined the board effective April 1, 2015
The Chair received his annual retainer 50% in cash and 50% in DSUs, with the other directors receiving
Committee Chair fees 100% in DSUs and annual retainer fees approximately 40% in cash and 60% in DSUs
(with the individual choice to elect to receive a greater portion in DSUs). Directors can elect to receive
100% of their retainer in DSUs annually in support of their share ownership targets.
Directors are entitled to participate in the deferred share unit section for directors (the "DSU Plan for
Directors") in the SDP. Each DSU is convertible into one Share. The number of DSUs to be credited to a
Director is determined quarterly by dividing the amount of the eligible remuneration to be deferred into
DSUs by the fair market value per Share, being a price not less than the closing sale price at which the
Shares are traded on the TSX (in respect of a DSU issued or to be issued to a person who is resident in any
52
country other than the U.S.) or NASDAQ (in respect of a DSU issued or to be issued to a person who is
resident in the U.S.) on the trading day before the relevant date. For the Directors, DSUs are credited to an
account maintained for each eligible person by Ballard at the time specified by the Board (DSUs are granted
in equal instalments over the course of a year, at the end of each quarter). However, a DSU is not redeemed
until the Director leaves the Board, and its value on redemption will be based on the value of our Shares at
that time. The SDP or any successor plans will be used to satisfy the redemption of DSUs issued pursuant to
the DSU Plan for Directors.
Directors have not been issued any stock options in the last 5 years, and there is no current intention to do so
in the future.
2015 Board Compensation Review
The objective of the CGCC is to ensure that the annual retainer paid to Directors is sufficient to allow the
Corporation to attract and retain candidates with an appropriate level of skill and expertise as has been the
case in the past. As a result, the CGCC seeks to provide compensation for directors at approximately the 50th
percentile of its comparator group of North American companies. The committee retains independent
compensation consultants (Towers Watson) for professional advice and as a source of competitive market
information.
New Program for 2016
During 2015, the CGCC reviewed the Director Compensation program from the viewpoint of best
governance trends and practices, the Board/Committee model currently employed at Ballard and the
appropriate level of compensation for Directors as compared to the comparator group. As a result a new
structure contemplating an all-in, flat annual retainer was approved, effective January 1, 2016 as follows:
Flat Fee Structure for Board Chair. Level set at CDN$150,000 per annum.
Annual Flat Fee Structure for directors. No additional meeting attendance fees for board or
committee meetings.
Annual flat fee retainer of CDN$90,000 per director.
Additional annual retainer fees for committee chairs. Level set at CDN$15,000.
All retainer fees are paid in CAD$, regardless of director’s country of residence.
Retainers are paid 50% in DSUs and 50% in cash. Directors can elect to take their fees up to 100% in
the form of DSUs annually in support of their share ownership targets.
The period over which share ownership targets must be met (remaining at 3x annual retainer) was
increased from 5 years to 6 years, recognizing the higher retainer level multiple to be achieved.
2016 Compensation Elements
Annual Retainer (Non-Executive Chair of the Board)
Annual Retainer (Director)
Annual Retainer (Committee Chairs)
CDN$
$150,000
$90,000
$15,000
53
INCENTIVE PLAN AWARDS
The following table sets forth all option-based and share-based awards granted to our non-executive directors
that are outstanding as of December 31, 2015.
In 2003, we ceased the practice of annual grants of share options to our independent Directors.
Outstanding Share-Based Awards and Option-Based Awards (as of December 31, 2015)
Name
Ian A. Bourne
Doug Hayhurst
Edwin J. Kilroy
Marty Neese
Jim Roche
Carol Stephenson
David B. Sutcliffe
Ian Sutcliffe
Option-Based Awards
Number of Securities
Underlying
Unexercised Options
Option Exercise Price(1)
(CDN$)
Option Expiration
Date
Value of Unexercised
In-The-Money
Options(2) (CDN$)
0
0
0
0
0
0
0
0
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
─
(1) All figures are in Canadian dollars.
(2)
This amount is based on the difference between the closing price of the Shares underlying the options on the TSX as at December 31, 2015, and
the exercise price of the option. Where the difference is a negative number the value is deemed to be 0.
No incentive plan awards vested for, or were earned by, our Directors during the year ended December 31,
2015.
Directors are not permitted to hedge the market value of the Corporation securities they hold.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of December 31, 2015, the number of securities we are authorized to issue
under our equity-based compensation plans and the relevant exercise prices at which such securities may be
issued.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (#)
(a)
Weighted -Average Exercise
Price of Outstanding
Options, Warrants and
Rights (CDN$)
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans excluding securities
reflected in column (a)
(c)
6,935,424(1)
Nil
6,935,424
2.31
N/A
2.31
8,748,294
N/A
8,748,294
Plan Category
Equity-based compensation plans
approved by security holders
Equity-based compensation plans
not approved by security holders
Total
(1)
Shares issuable under the DSU Plan for Directors and the DSU Plan for Executive Officers (together, the "DSU Plans") will be satisfied with
Shares reserved under the SDP or any successor plan.
For a detailed description of our equity-based compensation plans, see Appendix "B" and "C" of this
Management Proxy Circular.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
To the best of our knowledge, no informed person, proposed director or person who has been a director or
executive officer of the Corporation (or any associate of affiliate of such persons) had any interest in any
material transactions during the past year or has any interest in any material transaction to be considered at
the Meeting, except as disclosed in this Management Proxy Circular.
54
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
In compliance with Sarbanes-Oxley, we do not make or arrange personal loans to directors or executive
officers. As of April 15, 2016, our current or former directors, officers and employees have no outstanding
indebtedness to the Corporation, its subsidiaries or to any other entity and which is guaranteed by the
Corporation or its subsidiaries.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
We purchase and maintain insurance for the benefit of our directors and officers for losses arising from
claims against them for certain actual or alleged wrongful acts they may undertake while performing their
director or officer function. The total annual premium in respect of our directors’ and officers’ liability
insurance program was approximately US$235,000 for 2015 and US$226,000 for 2014. The aggregate
maximum coverage provided by the policy for all claims, for both directors and officers, in any single policy
year is US$30 million. In addition to the payment of the premiums, we are accountable for the payment of
the policy deductible of US$0 to US$200,000 per claim. We have also agreed to indemnify each of our
directors and officers against all expenses, liability and loss, reasonably incurred or suffered, arising from the
performance of his or her duties as an officer or director of Ballard.
ADDITIONAL INFORMATION
Additional information relating to us is included in the following public filings, which are incorporated by
reference (the "Incorporated Documents") into, and form an integral part of, this Management Proxy
Circular:
Annual Information Form dated February 25, 2016;
Audited Annual Financial Statements for the year ended December 31, 2015 together with the
auditors’ report thereon; and
Management's Discussion and Analysis for the year ended December 31, 2015.
Copies of the Incorporated Documents and all our other public filings providing additional information
relating to us may be obtained at www.sedar.com or www.sec.gov, or upon request and without further
charge from either our Corporate Secretary, at 9000 Glenlyon Parkway, Burnaby, British Columbia, Canada
V5J 5J8, or by calling our Investor Relations Department at (604) 454-0900.
PROPOSALS
Any Shareholder who intends to present a proposal at our 2016 annual Shareholders’ meeting must send the
proposal to our Corporate Secretary at 9000 Glenlyon Parkway, Burnaby, British Columbia, Canada V5J
5J8. In order for the proposal to be included in the proxy materials we send to Shareholders for that meeting,
the proposal:
must be received by us no later than January 13, 2017; and
must comply with the requirements of section 137 of the Canada Business Corporations Act; or if
the Continuation Proposal passes, the requirements of section 188 of the Business Corporations Act
(British Columbia).
We are not obligated to include any shareholder proposal in our proxy materials for the 2016 annual
Shareholders’ meeting if the proposal is received after the January 13, 2017 deadline.
55
Our Board has approved the contents and the sending of this Management Proxy Circular to the Shareholders
of the Corporation.
APPROVAL BY THE BOARD
BY ORDER OF THE BOARD
"Kerry Hillier"
Kerry Hillier
Corporate Secretary
Ballard Power Systems Inc.
Dated: April 15, 2016
56
In this Management Proxy Circular:
DEFINED TERMS
"Ballard", "Corporation", "we", "us" and "our" refer to Ballard Power Systems Inc.
"Beneficial Shareholders" means holders of our Shares that do not hold our Shares in their own name, but
instead, whose Shares are held on the Record Date by a bank, trust company, securities broker or other
nominee.
"Board" means the board of directors of Ballard.
"CDN$" refers to Canadian currency.
"CBCA" means the Canadian Business Corporations Act.
"Equity-based Compensation Plans" means the Option Plan and the SDP.
"DSU" means deferred share unit.
"$" or "dollars" refer to United States currency unless specifically stated otherwise.
"Meeting" means the 2016 annual meeting of our Registered Shareholders and includes any adjournment
thereof, unless otherwise indicated.
"NASDAQ" means the NASDAQ Global Market.
"Option Plan" means the Corporation’s consolidated share option plan, the principal terms of which are set
out in Appendix "B".
"PSU" means restricted share unit subject to time and performance vesting criteria.
"Record Date" means 5:00 p.m. Pacific Daylight Time on April 15, 2016.
"Registered Shareholders" means registered holders of our Shares on the Record Date.
"RSU" means restricted share unit subject to time vesting only.
"SDP" means the Corporation’s consolidated share distribution plan, the principal terms of which are set out
in Appendix "C".
"SEC" means the U.S. Securities and Exchange Commission.
"Shares" means common shares without par value in the capital of Ballard.
"TSX" means the Toronto Stock Exchange.
"US$" refers to United States currency.
57
APPENDIX "A"
BOARD MANDATE
PURPOSE
The board of directors (the "Board") is responsible for the overall corporate governance of the Corporation.
It oversees and directs the management of the Corporation’s business and affairs. In doing so, it must act
honestly, in good faith, and in the best interests of the Corporation. The Board guides the Corporation’s
strategic direction, evaluates the performance of the Corporation’s executive officers, monitors the
Corporation’s financial results, and is ultimately accountable to the Corporation’s shareholders, employees,
customers, suppliers, and regulators. Board members are kept informed of the Corporation’s operations at
meetings of the Board and its committees, and through reports and analyses by, and discussions with,
management. The Board manages the delegation of decision-making authority to management through
Board resolutions under which management is given authority to transact business, but only within specific
limits and restrictions. In this Mandate, the "Corporation" means Ballard Power Systems Inc. and a
"director" means a Board member.
COMPOSITION
A. As stated in the Articles of the Corporation, the Board will be composed of no fewer than five and no
more than fifteen directors.
B. The Board will have a majority of independent directors.
C. The Board will appoint its own Chair.
MEETINGS
D. Meetings of the Board will be held as required, but at least four times a year.
E. The Board will appoint its own Secretary, who need not be a director. The Secretary, in conjunction
with the Chair of the Board, will draw up an agenda, which will be circulated in advance to the
members of the Board along with the materials for the meeting. The Secretary will be responsible
for taking and keeping the Board’s meeting minutes.
F. As set out in the By-laws of the Corporation, meetings will be chaired by the Chair of the Board, or
if the Chair is absent, by a member chosen by the Board from among themselves.
G. If all directors consent, and proper notice has been given or waived, a director or directors may
participate in a meeting of the Board by means of such telephonic, electronic or other
communication facilities as permit all persons participating in the meeting to communicate
adequately with each other, and a director participating in such a meeting by any such means is
deemed to be present at that meeting.
H. The Board will conduct an in-camera session excluding management at the end of each Board
meeting.
I. A majority of directors constitute a quorum.
J. All decisions made by the Board may be made at a Board meeting or evidenced in writing and
signed by all Board members, which will be fully effective as if it had been made or passed at a
Board meeting.
A-1
DUTIES AND RESPONSIBILITIES
K. Selection of Management
The Board is responsible for appointing the Chief Executive Officer ("CEO"), for monitoring and
evaluating the CEO’s performance, and approving the CEO’s compensation. Upon recommendation
of the CEO and the Corporate Governance & Compensation Committee, the Board is also
responsible for appointing all officers. The Board also ensures that adequate plans are in place for
management development and succession and conducts an annual review of such plans.
L. Corporate Strategy
The Board is responsible for reviewing and approving the Corporation’s corporate mission statement
and corporate strategy on a yearly basis, as well as determining the goals and objectives to achieve
and implement the corporate strategy, while taking into account, among other things, the
opportunities and risks of the business. Each year, the Board meets for a strategic planning session
to set the plans for the upcoming year. In addition to the general management of the business, the
Board expects management to achieve the corporate goals set by the Board, and the Board monitors
throughout the year the progress made against these goals.
In addition, the Board approves key transactions, which have strategic impact to the Corporation,
such as acquisitions, key collaborations, key supply arrangements, and strategic alliances. Through
the delegation of signing authorities, the Board is responsible for setting out the types of transactions
that require approval of the Board before completion.
M. Fiscal Management and Reporting
The Board monitors the financial performance of the Corporation and must ensure that the financial
results are reported: (a) to shareholders and regulators on a timely and regular basis; and (b) fairly
and in accordance with generally accepted accounting principles. The Board must also ensure that
all material developments of the Corporation are disclosed to the public on a timely basis in
accordance with applicable securities regulations. In the spring of each year, the Board reviews and
approves the Annual Report, which is sent to shareholders of the Corporation and describes the
achievements and performance of the Corporation for the preceding year.
N. Legal Compliance
The Board is responsible for overseeing compliance with all relevant policies and procedures by
which the Corporation operates and ensuring that the Corporation operates at all times in compliance
with all applicable laws and regulations, and to the highest ethical and moral standards.
O. Statutory Requirements
The Board is responsible for approving all matters, which require Board approval as prescribed by
applicable statutes and regulations, such as payment of dividends and issuances of shares.
Management ensures that such matters are brought to the attention of the Board as they arise.
P. Formal Board Evaluation
The Board, through a process led by the Corporate Governance& Compensation Committee,
conducts an annual evaluation and review of the performance of the Board, Board committees, and
the Chair of the Board. The Corporate Governance & Compensation Committee reviews the results
of such evaluation and together with the Chair of the Board, discusses potential ways to improve
Board effectiveness. The Corporate Governance & Compensation Committee discusses the results
of the evaluation and the recommended improvements with the full Board. The Board also sets
annual effectiveness goals and tracks performance against those goals. In addition, each individual
director’s performance is evaluated and reviewed regularly.
A-2
Q. Risk Management
The Board is responsible for identifying the Corporation’s principal risks and ensuring the
implementation of appropriate systems to manage these risks. The Board is also responsible for the
integrity of the Corporation’s internal controls and management information systems.
R. External Communications
The Board is responsible for overseeing the establishment, maintenance and annual review of the
Corporation’s external communications policies which address how the Corporation interacts with
analysts and the public and which also contain measures for the Corporation to avoid selective
disclosure. The Board is responsible for establishing a process for receiving shareholder feedback.
This is achieved through a semi-annual presentation of an investor relations report, which contains a
summary of the feedback and common enquiries received from shareholders, as well as a Board e-
mail address, which has been set up for the public to submit messages to the Board.
A-3
APPENDIX "B"
DESCRIPTION OF OPTION PLAN
All directors, officers and employees of Ballard and its subsidiaries are eligible to participate in the Option
Plan.
As of April 15, 2016, the total number of Shares issued and reserved and authorized for issue under the
Option Plan was 6,373,486 Shares, representing 4.1% of the issued and outstanding Shares as that date.
The number of options granted under the Option Plan may adjust if any share reorganization, stock dividend
or corporate reorganization occurs.
The Option Plan limits insider participation such that the number of Shares issued to insiders, within any
one-year period, and issuable to insiders, at any time, under the plan and any other Ballard equity-based
compensation arrangements, cannot exceed 10% of Ballard’s issued and outstanding Shares.
In any year, a non-executive Director’s participation in all Ballard equity-based compensation arrangements
is limited to that number of shares (or that number of securities in respect of underlying shares) having a
value of not more than CDN$100,000 on the date of grant, excluding any securities issued in respect of the
non-executive Director’s annual retainer.
Apart from the limits on Shares issued or issuable to insiders and to non-executive Directors, described
above, the Option Plan does not restrict the number of Shares that can be issued to any one person or to
Directors.
The exercise price of a Ballard option will be determined by the Board and is to be no less than the closing
price per Share on the TSX on the last trading day before the date the option is granted.
Ballard options may have a term of up to 10 years from the date of grant, and unless otherwise determined by
the Board, will vest in equal amounts on the first, second and third anniversaries of the date of grant.
If an "accelerated vesting event" occurs, any outstanding option may be exercised at any time before the 60th
day after such event. An accelerated vesting event occurs when: (a) a person makes a take-over bid that
could result in that person or persons acting in concert acquiring at least two-thirds of Shares; (b) any person
or persons acting in concert acquire at least two-thirds of Shares; (c) there is a disposition of all or
substantially all of Ballard’s assets; (d) Ballard joins in any business combination that results in Ballard’s
shareholders owning one-third or less of the voting shares of the combined entity and Ballard is privatized
(or the parties to the business combination have publicly expressed an intention to privatize Ballard); or (e)
any other transaction is approved, a consequence of which is to privatize Ballard.
The Option Plan also contains a "double trigger" in the event of a take-over. Accordingly, vesting will only
be accelerated if the Board approves the acceleration. In such circumstances, the Board will also have the
ability to make such changes as it considers fair and appropriate, including accelerating vesting, otherwise
modifying the terms of options to assist the holder to tender into the take-over bid or terminating options
which have not been exercised prior to the successful completion of the accelerated vesting event.
Under the Option Plan each option will expire (or no longer be capable of being exercised) on the earlier of:
(a)
(b)
(i)
(ii)
the expiration date as determined by the Board, which date will not be more than 10 years
from the date of grant; and
if the optionee is a director, officer or employee, the optionee ceases to hold such position,
except that, an option will be capable of exercise, if the optionee ceases to be a director,
officer or employee:
because of his or her death, for one year after the optionee dies;
as a result of voluntary resignation, for 30 days after the last day on which the optionee
ceases to be a director, or the officer or employee ceases to work for Ballard; or
B-1
(iii)
other than as a result of voluntary resignation (in the case of a director) or termination
other than for just cause (in the case of an officer or employee), for 90 days after the last
day on which the optionee ceases to be a director, or the officer or employee ceases to
work for Ballard (although in these circumstances, the Chief Executive Officer has
discretion to extend the exercise period to up to one year after the optionee ceases to
work for Ballard).
In the event that the optionee dies, all previously unvested options vest and, in the circumstances described in
(b)(iv) above, the Chief Executive Officer has discretion to accelerate the vesting of unvested options that
would have otherwise vested in the next year. In the other circumstances described above, an option is only
capable of being exercised in respect of options that were vested at the time the optionee ceased to be a
director or ceased to work for Ballard.
In the event that an optionee becomes "totally disabled" (as defined in the Option Plan), his or her options
will continue to vest and be exercisable as they would have had the optionee continued to be a director,
officer or employee of Ballard.
Similarly, if an optionee becomes "retired" (as defined in the Option Plan), his or her options will continue to
vest and be exercisable as they would have had the optionee continued to be a director, officer or employee
of Ballard.
If an option would otherwise expire or cease to be exercisable during a blackout period or within nine
business days after the end of a blackout period (that is, a period during which employees and/or directors
cannot trade in securities of the Corporation because they may be in possession of insider information), the
expiry date of the option is extended to the date which is 10 business days after the end of the blackout
period.
The Board is entitled to make, at any time, and from time to time, and without obtaining shareholder
approval, any of the following amendments
(a)
(b)
amendments to the definitions and other amendments of a clerical nature;
amendments to any provisions relating to the granting or exercise of options, including but
not limited to provisions relating to the term, termination, amount and payment of the
subscription price, vesting period, expiry or adjustment of options, provided that, without
shareholder approval, such amendment does not entail:
(i)
(ii)
(iii)
(iv)
a change in the number or percentage of Shares reserved for issuance under the plan;
a reduction in the exercise price of an option or the cancellation and reissuance of
options;
an extension of the expiry date of an outstanding option;
an increase to the maximum number of Shares that may be:
(A)
(B)
issued to insiders within a one-year period; or
issuable to insiders at any time,
under all of Ballard’s equity-based compensation arrangements, which could exceed 10% of
the issued and outstanding Shares at that time;
(v)
an increase in the maximum number of securities that can be granted to directors
(other than directors who are also officers) under all of Ballard’s equity-based
compensation arrangements, which could exceed such number of securities in
respect of which the underlying Shares have a Fair Market Value (as defined in the
plan) on the date of grant of such securities of CDN$100,000;
(vi)
permitting options to be transferable or assignable other than for normal course
estate settlement purposes; or
B-2
(vii)
a change to the amendment provisions of the plan;
(c)
(d)
(e)
(f)
the addition or amendment of terms relating to the provision of financial assistance to
optionees or resulting in optionees receiving any Ballard securities, including pursuant to a
cashless exercise feature;
any amendment in respect of the persons eligible to participate in the plan, provided that,
without shareholder approval, such amendment does not permit non-employee directors to
re-gain participation rights under the plan at the discretion of the Board if their eligibility to
participate had previously been removed or increase limits previously imposed on non-
employee director participation;
such amendments as are necessary for the purpose of complying with any changes in any
relevant law, rule, regulation, regulatory requirement or requirement of any applicable stock
exchange or regulatory authority; or
amendments to correct or rectify any ambiguity, defective provision, error or omission in the
plan or in any agreement to purchase options.
Options are not assignable except as permitted by applicable regulatory authorities in connection with a
transfer to an optionee’s registered retirement savings plan or registered retirement income fund or to the
personal representative of an optionee who has died.
B-3
The SDP is a single plan divided into the following three principal sections:
APPENDIX"C"
DESCRIPTION OF SDP
1. A deferred share unit section for senior executives (the "DSU Plan for Executive Officers").
Under the SDP, DSUs are granted at the election of each executive officer of Ballard who is
eligible (as determined by the Board) in partial or full payment of his or her annual bonus, which
otherwise is paid in Shares.
2. A deferred share unit section for directors (the "DSU Plan for Directors"). Under the DSU Plan
for Directors, each independent outside director elects annually the proportion (0% to 100%) of
his or her annual retainer that he or she wishes to receive in DSUs.
Under the SDP, DSUs are credited to an account maintained for each eligible person by Ballard. Each DSU
is convertible into one Share. The number of DSUs to be credited to an eligible person is determined on the
relevant date by dividing the amount of the eligible remuneration to be deferred into DSUs by the fair market
value per Share, being a price not less than the closing sale price at which the Shares are traded on the TSX
(in respect of a DSU issued or to be issued to a person who is resident in any country other than the U.S.) or
NASDAQ (in respect of a DSU issued or to be issued to a person who is resident in the U.S.) on the trading
day before the relevant date. In the case of the executive officers, the relevant date is set by the Board but if
such date occurs during a trading blackout, the number of DSUs will be determined on the first trading day
after the day on which the blackout is lifted. For directors, DSUs are credited at the time specified by the
Board (currently DSUs are granted in equal instalments over the course of a year, at the end of each quarter).
On any date on which a dividend is paid on the Shares, an eligible person's account will be credited with the
number of DSUs calculated by: (i) multiplying the amount of the dividend per Share by the aggregate
number of DSUs that were credited to that account as of the record date for payment of the dividend; and (ii)
dividing the amount obtained in (i) by the fair market value (determined as set out above) of Shares on the
date on which the dividend is paid.
A departing director or executive officer may receive Shares in respect of the DSUs credited to that person's
account (at the ratio of one Share per DSU, subject to the deduction of any applicable withholding tax in the
case of an eligible person who is a United States citizen or resident for the purpose of United States tax). A
DSU, however, cannot be redeemed until such time as the director leaves the Board or the executive officer
ceases to work for Ballard, and its value on redemption will be based on the value of Shares at that time. All
DSUs vest immediately as they are issued in respect of remuneration that would have otherwise been paid in
Shares or cash. DSUs do not expire. Except in the case of death, DSUs can only be assigned with consent.
3. A restricted share unit section (the "RSU Plan"). All employees (excluding non-executive
directors) are eligible to participate in the RSU Plan.
The vesting of RSUs issued under the SDP occurs up to three years from the date of issuance, subject to the
achievement of any performance criteria which may be set by the Board and to earlier vesting upon the
occurrence of any accelerated vesting event (as defined in the SDP). Each RSU is convertible into one
Share, which will be issued under the SDP.
A "double trigger" is included in the event of a take-over. Accordingly, in the event of a take-over the
accelerated vesting of an RSU (technically, the shortening of the restriction period) will only occur if the
Board so determines. In such circumstances, the Board will also have the ability to make such changes as it
considers fair and appropriate in the circumstances, including the date on which the restriction period ends or
otherwise modifying the terms of RSUs to assist the holder to tender into the take-over bid.
In addition, the Board has the discretion to deem performance criteria or other conditions to have been met
on the occurrence of an accelerated vesting event.
If any performance criteria or other conditions specified in an award of RSUs is not met on or before the last
day of the restriction period applicable to the relevant grant (usually three years less one day from the date of
C-1
grant), the RSUs will expire and the participant will no longer be entitled to receive any Shares upon
conversion of those RSUs.
All RSUs awarded to a participant under the SDP will also expire on the last day on which the participant
works for Ballard or any of its subsidiaries except that,
(a)
(b)
in the event of the participant's death or total disability, the performance criteria and
conditions specified in the participant's award of RSUs will, unless otherwise specified in the
award, be deemed satisfied and the RSUs will be converted into Shares; and
if the participant is retired, the vesting of RSUs will continue on the same terms as they
would have had the participant continued to be an officer or employee of Ballard.
RSUs cannot be assigned other than by will or the laws of descent and distribution.
Under the SDP, the Board can elect to satisfy the conversion of RSUs through Ballard Shares purchased on
the open market.
As of April 15, 2016, the total number of Shares issued and reserved and authorized for issue under the SDP
was 1,539,591 Shares, representing 1.0% of the issued and outstanding Shares as of April 10, 2015.
The SDP limits insider participation such that the number of Shares issued to insiders, within any one-year
period, and issuable to insiders, at any time, under the plan and any other Ballard equity-based compensation
arrangements, cannot exceed 10% of Ballard’s issued and outstanding Shares.
Under the SDP, in any year, a non-executive Director’s participation in all Ballard equity-based
compensation arrangements is limited to that number of shares (or that number of securities in respect of
underlying shares) having a value of not more than CDN$100,000 on the date of grant, excluding any
securities issued in respect of the non-executive Director’s annual retainer.
The SDP does not limit the number of DSUs that can be issued to executive officers.
The SDP does not limit the number of RSUs that can be issued to any one participant.
Apart from the limits on Shares issued or issuable to insiders and non-executive Directors described above,
the SDP does not restrict the number of Shares that can be issued to any one person, to executive officers or
to Directors.
The SDP permits the Board, without obtaining shareholder approval, to amend any provision of the SDP
and/or any RSU and/or DSU governed by it (whether outstanding or otherwise) (subject to any stock
exchange or regulatory requirement at the time of any such amendment) including, without limitation, any of
the following amendments:
(c)
(d)
amendments to the definitions and other amendments of a clerical nature;
amendments to any provisions relating to the issuance of Shares, granting or conversion of
DSUs or RSUs, including but not limited to provisions relating to the term, termination, and
number of DSUs or RSUs to be awarded, provided that, without shareholder approval, such
amendment does not entail:
(i)
(ii)
(iii)
(iv)
a change in the number or percentage of Shares reserved for issuance under the plan;
a reduction of the issue price of the Shares issued under the plan or the cancellation
and reissue of Shares;
a reduction to the fair market value used to calculate the number of DSUs to be
awarded;
an extension of time for redemption of a DSU or an extension beyond the original
restriction period of a RSU;
(v)
an increase to the maximum number of Shares that may be:
(A)
issued to insiders within a one-year period; or
C-2
(B)
issuable to insiders at any time,
under all of Ballard’s equity-based compensation arrangements, which could exceed 10% of
the issued and outstanding Shares at that time;
(vi)
an increase in the maximum number of securities that can be granted to directors
(other than directors who are also officers) under all of Ballard’s equity-based
compensation arrangements, which could exceed such number of securities in
respect of which the underlying Shares have a Fair Market Value (as defined in the
plan) on the date of grant of such securities of CDN$100,000;
(vii)
permitting DSUs or RSUs to be transferable or assignable other than for normal
course estate settlement purposes; or
(viii)
a change to the amendment provisions of the plan;
(e)
any amendment in respect of the persons eligible to participate in the plan (or any part of it),
provided that, without shareholder approval, such amendment does not permit non-employee
directors to:
(i)
(ii)
participate as holders of RSUs at the discretion of the Board;
re-gain participation rights under any section of the plan at the discretion of the
Board if their eligibility (as a class) to participate had previously been removed; or
(iii)
increase limits previously imposed on non-employee director participation;
(f)
(g)
such amendments as are necessary for the purpose of complying with any changes in any
relevant law, rule, regulation, regulatory requirement or requirement of any applicable stock
exchange or regulatory authority; or
amendments to correct or rectify any ambiguity, defective provision, error or omission in the
plan or in any option agreement, notice to redeem DSUs or RSU agreement.
C-3
APPENDIX"D"
PROPOSED ARTICLES UNDER THE BCA
Incorporation Number
ARTICLES
OF
BALLARD POWER SYSTEMS INC.
PROVINCE OF BRITISH COLUMBIA
BUSINESS CORPORATIONS ACT
D-1
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
Section 1.1
Section 1.2
Definitions ....................................................................................................... 8
BCA and Interpretation Act Definitions Applicable ....................................... 9
ARTICLE 2
SHARES AND SHARE CERTIFICATES
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Section 2.5
Section 2.6
Section 2.7
Section 2.8
Section 2.9
Section 2.10
Authorized Share Structure ............................................................................. 9
Form of Share Certificate ................................................................................ 9
Shareholder Entitled to Certificate or Acknowledgement ............................... 9
Delivery by Mail ............................................................................................. 9
Replacement of Worn Out or Defaced Certificate or Acknowledgement ....... 9
Replacement of Lost, Destroyed or Wrongfully Taken Certificate............... 10
Recovery of New Share Certificate ............................................................... 10
Splitting Share Certificates ............................................................................ 10
Certificate Fee ............................................................................................... 10
Recognition of Trusts .................................................................................... 10
ARTICLE 3
ISSUE OF SHARES
Section 3.1
Section 3.2
Section 3.3
Section 3.4
Section 3.5
Board Authorized .......................................................................................... 10
Commissions and Discounts ......................................................................... 11
Brokerage ...................................................................................................... 11
Conditions of Issue ........................................................................................ 11
Share Purchase Warrants and Rights ............................................................. 11
ARTICLE 4
SHARE REGISTERS
Section 4.1
Section 4.2
Central Securities Register ............................................................................ 11
Closing Register ............................................................................................ 11
ARTICLE 5
SHARE TRANSFERS
Section 5.1
Section 5.2
Section 5.3
Section 5.4
Section 5.5
Section 5.6
Section 5.7
Registering Transfers .................................................................................... 11
Waivers of Requirements for Transfer .......................................................... 12
Form of Instrument of Transfer ..................................................................... 12
Transferor Remains Shareholder ................................................................... 12
Signing of Instrument of Transfer ................................................................. 12
Enquiry as to Title Not Required .................................................................. 13
Transfer Fee ................................................................................................... 13
D-2
ARTICLE 6
TRANSMISSION OF SHARES
Section 6.1
Section 6.2
Legal Personal Representative Recognized on Death ................................... 13
Rights of Legal Personal Representative ....................................................... 13
ARTICLE 7
ACQUISITION OF COMPANY'S SHARES
Section 7.1
Section 7.2
Section 7.3
Company Authorized to Purchase or Otherwise Acquire Shares .................. 13
No Purchase, Redemption or Other Acquisition When Insolvent ................. 13
Sale and Voting of Purchased, Redeemed or Otherwise Acquired Shares ... 13
ARTICLE 8
BORROWING POWERS
Section 8.1
Borrowing Powers ......................................................................................... 14
ARTICLE 9
ALTERATIONS
Section 9.1
Section 9.2
Section 9.3
Section 9.4
Alteration of Authorized Share Structure ...................................................... 14
Special Rights or Restrictions ....................................................................... 15
Change of Name ............................................................................................ 15
Other Alterations ........................................................................................... 15
ARTICLE 10
MEETINGS OF SHAREHOLDERS
Section 10.1
Section 10.2
Section 10.3
Section 10.4
Section 10.5
Section 10.6
Section 10.7
Section 10.8
Section 10.9
Section 10.10
Annual General Meetings .............................................................................. 15
Resolution Instead of Annual General Meeting ............................................ 15
Calling of Meetings of Shareholders ............................................................. 15
Notice for Meetings of Shareholders ............................................................. 15
Record Date for Notice ................................................................................. 16
Record Date for Voting ................................................................................. 16
Failure to Give Notice and Waiver of Notice ................................................ 16
Notice of Special Business at Meetings of Shareholders .............................. 16
Notice of Dissent Rights ............................................................................... 17
Advance Notice Provisions ........................................................................... 17
ARTICLE 11
PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
Section 11.1
Section 11.2
Section 11.3
Section 11.4
Section 11.5
Special Business ............................................................................................ 20
Special Majority ............................................................................................ 20
Quorum ......................................................................................................... 20
Persons Entitled to Attend Meeting ............................................................... 21
Requirement of Quorum ................................................................................ 21
D-3
Section 11.6
Section 11.7
Section 11.8
Section 11.9
Section 11.10
Section 11.11
Section 11.12
Section 11.13
Section 11.14
Section 11.15
Section 11.16
Section 11.17
Section 11.18
Section 11.19
Section 11.20
Section 11.21
Section 11.22
Section 12.1
Section 12.2
Section 12.3
Section 12.4
Section 12.5
Section 12.6
Section 12.7
Section 12.8
Section 12.9
Section 12.10
Section 12.11
Section 12.12
Section 12.13
Section 12.14
Section 12.15
Section 12.16
Lack of Quorum ............................................................................................ 21
Lack of Quorum at Succeeding Meeting ....................................................... 21
Chair .............................................................................................................. 21
Selection of Alternate Chair .......................................................................... 21
Adjournments ................................................................................................ 21
Notice of Adjourned Meeting........................................................................ 22
Decisions by Show of Hands or Poll ............................................................. 22
Declaration of Result ..................................................................................... 22
Motion Need Not be Seconded ..................................................................... 22
Casting Vote .................................................................................................. 22
Manner of Taking Poll .................................................................................. 22
Demand for Poll on Adjournment ................................................................. 22
Chair Must Resolve Dispute.......................................................................... 22
Casting of Votes ............................................................................................ 23
No Demand for Poll on Election of Chair ..................................................... 23
Demand for Poll Not to Prevent Continuance of Meeting ............................ 23
Retention of Ballots and Proxies ................................................................... 23
ARTICLE 12
VOTES OF SHAREHOLDERS
Number of Votes by Shareholder or by Shares ............................................. 23
Votes of Persons in Representative Capacity ................................................ 23
Votes by Joint Holders .................................................................................. 23
Legal Personal Representatives as Joint Shareholders .................................. 24
Representative of a Corporate Shareholder ................................................... 24
When Proxy Holder Need Not Be Shareholder ............................................. 24
When Proxy Provisions Do Not Apply to the Company ............................... 24
Appointment of Proxy Holders ..................................................................... 25
Alternate Proxy Holders ................................................................................ 25
Deposit of Proxy ............................................................................................ 25
Validity of Proxy Vote .................................................................................. 25
Form of Proxy ............................................................................................... 25
Revocation of Proxy ...................................................................................... 26
Revocation of Proxy Must Be Signed ........................................................... 26
Chair May Determine Validity of Proxy. ...................................................... 26
Production of Evidence of Authority to Vote................................................ 26
ARTICLE 13
DIRECTORS
Section 13.1
Section 13.2
Section 13.3
Section 13.4
Section 13.5
Section 13.6
Section 13.7
Section 13.8
Number of Directors ...................................................................................... 26
Change in Number of Directors .................................................................... 27
Board's Acts Valid Despite Vacancy............................................................. 27
Qualifications of Directors ............................................................................ 27
Remuneration of Directors ............................................................................ 27
Reimbursement of Expenses of Directors ..................................................... 27
Special Remuneration for Directors .............................................................. 27
Gratuity, Pension or Allowance on Retirement of Director .......................... 27
D-4
ARTICLE 14
ELECTION AND REMOVAL OF DIRECTORS
Section 14.1
Section 14.2
Section 14.3
Section 14.4
Section 14.5
Section 14.6
Section 14.7
Section 14.8
Section 14.9
Section 14.10
Section 14.11
Election at Annual General Meeting ............................................................. 27
Consent to be a Director ................................................................................ 28
Failure to Elect or Appoint Directors ............................................................ 28
Places of Retiring Directors Not Filled ......................................................... 28
Board May Fill Casual Vacancies ................................................................. 28
Remaining Directors' Power to Act ............................................................... 28
Shareholders May Fill Vacancies .................................................................. 29
Additional Directors ...................................................................................... 29
Ceasing to be a Director ................................................................................ 29
Removal of Director by Shareholders ........................................................... 29
Removal of Director by Directors ................................................................. 29
ARTICLE 15
POWERS AND DUTIES OF THE BOARD
Section 15.1
Section 15.2
Powers of Management ................................................................................. 29
Appointment of Attorney of Company ......................................................... 30
ARTICLE 16
INTERESTS OF DIRECTORS AND OFFICERS
Section 16.1
Section 16.2
Section 16.3
Section 16.4
Section 16.5
Section 16.6
Section 16.7
Section 16.8
Obligation to Account for Profits .................................................................. 30
Restrictions on Voting by Reason of Interest ................................................ 30
Interested Director Counted in Quorum ........................................................ 30
Disclosure of Conflict of Interest or Property ............................................... 30
Director Holding Other Office in the Company ............................................ 30
No Disqualification ....................................................................................... 30
Professional Services by Director or Officer ................................................ 31
Director or Officer in Other Corporations ..................................................... 31
ARTICLE 17
PROCEEDINGS OF THE BOARD
Section 17.1
Section 17.2
Section 17.3
Section 17.4
Section 17.5
Section 17.6
Section 17.7
Section 17.8
Section 17.9
Section 17.10
Section 17.11
Section 17.12
Meetings of the Board ................................................................................... 31
Voting at Meetings ........................................................................................ 31
Chair of Meetings .......................................................................................... 31
Meetings by Telephone or Other Communications Medium ........................ 31
Calling of Meetings ....................................................................................... 32
Notice of Meetings ........................................................................................ 32
When Notice Not Required ........................................................................... 32
Meeting Valid Despite Failure to Give Notice .............................................. 32
Waiver of Notice of Meetings ....................................................................... 32
Quorum ......................................................................................................... 32
Validity of Acts Where Appointment Defective ........................................... 32
Consent Resolutions in Writing .................................................................... 32
D-5
ARTICLE 18
EXECUTIVE AND OTHER COMMITTEES
Section 18.1
Section 18.2
Section 18.3
Section 18.4
Section 18.5
Appointment and Powers of Executive Committee ...................................... 33
Appointment and Powers of Other Committees ............................................ 33
Obligations of Committees ............................................................................ 34
Powers of Board ............................................................................................ 34
Committee Meetings ..................................................................................... 34
ARTICLE 19
OFFICERS
Section 19.1
Section 19.2
Section 19.3
Section 19.4
Board May Appoint Officers ......................................................................... 34
Functions, Duties and Powers of Officers ..................................................... 34
Qualifications ................................................................................................ 35
Remuneration and Terms of Appointment .................................................... 35
ARTICLE 20
INDEMNIFICATION
Section 20.1
Section 20.2
Section 20.3
Section 20.4
Section 20.5
Definitions ..................................................................................................... 35
Mandatory Indemnification of Directors ....................................................... 35
Permitted Indemnification ............................................................................. 35
Non-Compliance with BCA .......................................................................... 35
Company May Purchase Insurance ............................................................... 36
ARTICLE 21
DIVIDENDS
Section 21.1
Section 21.2
Section 21.3
Section 21.4
Section 21.5
Section 21.6
Section 21.7
Section 21.8
Section 21.9
Section 21.10
Section 21.11
Section 21.12
Section 21.13
Payment of Dividends Subject to Special Rights .......................................... 36
Declaration of Dividends .............................................................................. 36
No Notice Required ....................................................................................... 36
Record Date ................................................................................................... 36
Manner of Paying Dividend .......................................................................... 36
Settlement of Difficulties .............................................................................. 36
When Dividend Payable ................................................................................ 37
Dividends to be Paid in Accordance with Number of Shares ....................... 37
Receipt by Joint Shareholders ....................................................................... 37
Dividend Bears No Interest ........................................................................... 37
Fractional Dividends ..................................................................................... 37
Payment of Dividends ................................................................................... 37
Capitalization of Retained Earnings or Surplus ............................................ 37
ARTICLE 22
ACCOUNTING RECORDS AND AUDITOR
Section 22.1
Section 22.2
Recording of Financial Affairs ...................................................................... 37
Inspection of Accounting Records ................................................................ 38
D-6
Section 22.3
Remuneration of Auditor .............................................................................. 38
ARTICLE 23
NOTICES
Section 23.1
Section 23.2
Section 23.3
Section 23.4
Section 23.5
Section 23.6
Method of Giving Notice .............................................................................. 38
Deemed Receipt ............................................................................................ 38
Certificate of Sending .................................................................................... 39
Notice to Joint Shareholders.......................................................................... 39
Notice to Legal Personal Representatives and Trustees ................................ 39
Undelivered Notices ...................................................................................... 39
ARTICLE 24
SEAL
Section 24.1
Section 24.2
Section 24.3
Who May Attest Seal .................................................................................... 39
Sealing Copies ............................................................................................... 40
Mechanical Reproduction of Seal ................................................................. 40
ARTICLE 25
SPECIAL RIGHTS OR RESTRICTIONS
Section 25.1
Section 25.2
Common Shares ............................................................................................ 40
Preferred Shares ............................................................................................ 41
D-7
Incorporation Number
ARTICLES
BALLARD POWER SYSTEMS INC.
(the "Company")
ARTICLE 1
INTERPRETATION
Section 1.1
Definitions
In these Articles, unless the context otherwise requires:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
"appropriate person" has the meaning assigned in the Securities Transfer Act;
"board of directors" and "board" mean the board of directors or sole director of the Company for
the time being;
"BCA" means the Business Corporations Act (British Columbia) from time to time in force and all
amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;
"director" means a person who is a director of the Company for the time being;
"directors' resolution" means a resolution of the board of directors passed at a meeting of the board
or consented to by the directors in accordance with Section 140 of the BCA and Section 17.12;
"Interpretation Act" means the Interpretation Act (British Columbia) from time to time in force and
all amendments thereto and includes all regulations and amendments thereto made pursuant to that
Act;
"legal personal representative" means the personal or other legal representative of a shareholder or
other person, as the context requires;
"protected purchaser" has the meaning assigned in the Securities Transfer Act;
"registered address" of a shareholder means the shareholder's address as recorded in the central
securities register;
(10)
"seal" means the seal of the Company, if any;
(11)
(12)
"Securities Act" means the Securities Act (British Columbia) from time to time in force and all
amendments thereto and includes all regulations and amendments thereto made pursuant to that Act;
"securities legislation" means statutes concerning the regulation of securities markets and trading in
securities and the regulations, rules, forms and schedules under those statutes, all as amended from
time to time, and the blanket rulings and orders, as amended from time to time, issued by the
securities commissions or similar regulatory authorities appointed under or pursuant to those
statutes; "Canadian securities legislation" means the securities legislation in any province or
territory of Canada and includes the Securities Act; and "U.S. securities legislation" means the
securities legislation in the federal jurisdiction of the United States and in any state of the United
States and includes the Securities Act of 1933 and the Securities Exchange Act of 1934;
D-8
(13)
"Securities Transfer Act" means the Securities Transfer Act (British Columbia) from time to time in
force and all amendments thereto and includes all regulations and amendments thereto made
pursuant to that Act; and
(14)
"special business" has the meaning set out in Section 11.1.
Section 1.2
BCA and Interpretation Act Definitions Applicable
The definitions in the BCA and the definitions and rules of construction in the Interpretation Act, with the
necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as
if they were an enactment. If there is a conflict between a definition in the BCA and a definition or rule in the
Interpretation Act relating to a term used in these Articles, the definition in the BCA will prevail in relation to
the use of the term in these Articles. If there is a conflict or inconsistency between these Articles and the
BCA, the BCA will prevail.
ARTICLE 2
SHARES AND SHARE CERTIFICATES
Section 2.1
Authorized Share Structure
The authorized share structure of the Company consists of shares of the class or classes and series, if any,
described in the Notice of Articles of the Company.
Section 2.2
Form of Share Certificate
Each share certificate issued by the Company must comply with, and be signed as required by, the BCA.
Section 2.3
Shareholder Entitled to Certificate or Acknowledgement
Unless the shares of which the shareholder is the registered owner are uncertificated shares within the
meaning of the BCA, each shareholder is entitled, without charge, to (a) one share certificate representing the
shares of each class or series of shares registered in the shareholder's name or (b) a non-transferable written
acknowledgement of the shareholder's right to obtain such a share certificate, provided that in respect of a
share held jointly by several persons, the Company is not bound to issue more than one share certificate or
acknowledgement and delivery of a share certificate or an acknowledgement to one of several joint
shareholders or to a duly authorized agent of one of the joint shareholders will be sufficient delivery to all.
Section 2.4
Delivery by Mail
Any share certificate or non-transferable written acknowledgement of a shareholder's right to obtain a share
certificate may be sent to the shareholder by mail at the shareholder's registered address and neither the
Company nor any director, officer or agent of the Company is liable for any loss to the shareholder because
the share certificate or acknowledgement is lost in the mail or stolen.
Section 2.5
Replacement of Worn Out or Defaced Certificate or Acknowledgement
If the board is satisfied that a share certificate or a non-transferable written acknowledgement of the
shareholder's right to obtain a share certificate is worn out or defaced, the board must, on production to it of
the share certificate or acknowledgement, as the case may be, and on such other terms, if any, as it thinks fit:
(1)
(2)
order the share certificate or acknowledgement, as the case may be, to be cancelled; and
issue a replacement share certificate or acknowledgement, as the case may be.
D-9
Section 2.6
Replacement of Lost, Destroyed or Wrongfully Taken Certificate
If a person entitled to a share certificate claims that the share certificate has been lost, destroyed or
wrongfully taken, the Company must issue a new share certificate, if that person:
(1)
(2)
so requests before the Company has notice that the share certificate has been acquired by a protected
purchaser;
provides the Company with an indemnity bond sufficient in the Company's judgement to protect the
Company from any loss that the Company may suffer by issuing a new certificate; and
(3)
satisfies any other reasonable requirements imposed by the board.
A person entitled to a share certificate may not assert against the Company a claim for a new share certificate
where a share certificate has been lost, apparently destroyed or wrongfully taken if that person fails to notify
the Company of that fact within a reasonable time after that person has notice of it and the Company registers
a transfer of the shares represented by the certificate before receiving a notice of the loss, apparent
destruction or wrongful taking of the share certificate.
Section 2.7
Recovery of New Share Certificate
If, after the issue of a new share certificate, a protected purchaser of the original share certificate presents the
original share certificate for the registration of transfer, then in addition to any rights under any indemnity
bond, the Company may recover the new share certificate from a person to whom it was issued or any person
taking under that person other than a protected purchaser.
Section 2.8
Splitting Share Certificates
If a shareholder surrenders a share certificate to the Company with a written request that the Company issue
in the shareholder's name two or more share certificates, each representing a specified number of shares and
in the aggregate representing the same number of shares as represented by the share certificate so
surrendered, the Company must cancel the surrendered share certificate and issue replacement share
certificates in accordance with that request.
Section 2.9
Certificate Fee
There must be paid to the Company, in relation to the issue of any share certificate under Section 2.5, Section
2.6, or Section 2.8, the amount, if any and which must not exceed the amount prescribed under the BCA,
determined by the board.
Section 2.10 Recognition of Trusts
Except as required by law or statute or these Articles, no person will be recognized by the Company as
holding any share upon any trust, and the Company is not bound by or compelled in any way to recognize
(even when having notice thereof) any equitable, contingent, future or partial interest in any share or fraction
of a share or (except as required by law or statute or these Articles or as ordered by a court of competent
jurisdiction) any other rights in respect of any share except an absolute right to the entirety thereof in the
shareholder.
Section 3.1
Board Authorized
ARTICLE 3
ISSUE OF SHARES
Subject to the BCA and the rights, if any, of the holders of issued shares of the Company, the Company may
issue, allot, sell or otherwise dispose of the unissued shares, and issued shares held by the Company, at the
times, to the persons, including directors, in the manner, on the terms and conditions and for the issue prices
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(including any premium at which shares with par value may be issued) that the board may determine. The
issue price for a share with par value must be equal to or greater than the par value of the share.
Section 3.2
Commissions and Discounts
The Company may at any time pay a reasonable commission or allow a reasonable discount to any person in
consideration of that person purchasing or agreeing to purchase shares of the Company from the Company or
any other person or procuring or agreeing to procure purchasers for shares of the Company.
Section 3.3
Brokerage
The Company may pay such brokerage fee or other consideration as may be lawful for or in connection with
the sale or placement of its securities.
Section 3.4
Conditions of Issue
Except as provided for by the BCA, no share may be issued until it is fully paid. A share is fully paid when:
(1)
consideration is provided to the Company for the issue of the share by one or more of the following:
(a)
(b)
(c)
past services performed for the company;
property;
money; and
(2)
the value of the consideration received by the Company equals or exceeds the issue price set for the
share under Section 3.1.
Section 3.5
Share Purchase Warrants and Rights
Subject to the BCA, the Company may issue share purchase warrants, options and rights upon such terms and
conditions as the board determines, which share purchase warrants, options and rights may be issued alone or
in conjunction with debentures, debenture stock, bonds, shares or any other securities issued or created by the
Company from time to time.
Section 4.1
Central Securities Register
ARTICLE 4
SHARE REGISTERS
As required by and subject to the BCA, the Company must maintain a central securities register. The board
may, subject to the BCA, appoint an agent to maintain the central securities register. The board may also
appoint one or more agents, including the agent which keeps the central securities register, as transfer agent
for its shares or any class or series of its shares, as the case may be, and the same or another agent as registrar
for its shares or such class or series of its shares, as the case may be. The board may terminate such
appointment of any agent at any time and may appoint another agent in its place.
Section 4.2
Closing Register
The Company must not at any time close its central securities register.
ARTICLE 5
SHARE TRANSFERS
Section 5.1
Registering Transfers
The Company must register a transfer of a share of the Company if either:
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(1)
the company or the transfer agent or registrar for the class or series of shares to be transferred has
received:
(a)
(b)
(c)
in the case where the company has issued a share certificate in respect of the share to be
transferred, that share certificate and a written instrument of transfer (which may be on a
separate document or endorsed on the share certificate) made by the shareholder or other
appropriate person or by an agent who has actual authority to act on behalf of that person;
in the case of a share that is not represented by a share certificate (including an uncertificated
share within the meaning of the bca and including the case where the company has issued a
non-transferable written acknowledgement of the shareholder's right to obtain a share
certificate in respect of the share to be transferred), a written instrument of transfer, made by
the shareholder or other appropriate person or by an agent who has actual authority to act on
behalf of that person; and
such other evidence, if any, as the company or the transfer agent or registrar for the class or
series of shares to be transferred may require to prove the title of the transferor or the
transferor's right to transfer the share, that the written instrument of transfer is genuine and
authorized and that the transfer is rightful or to a protected purchaser; or
(2)
all the preconditions for a transfer of a share under the securities transfer act have been met and the
company is required under the securities transfer act to register the transfer.
Section 5.2 Waivers of Requirements for Transfer
The Company may waive any of the requirements set out in Section 5.1(1) and any of the preconditions
referred to in Section 5.1(2).
Section 5.3
Form of Instrument of Transfer
The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the
back of the Company's share certificates or in any other form that may be approved by the Company or the
transfer agent for the class or series of shares to be transferred.
Section 5.4
Transferor Remains Shareholder
Except to the extent that the BCA otherwise provides, the transferor of shares is deemed to remain the holder
of the shares until the name of the transferee is entered in a securities register of the Company in respect of
the transfer.
Section 5.5
Signing of Instrument of Transfer
If a shareholder or other appropriate person or an agent who has actual authority to act on behalf of that
person, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the
signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors,
officers and agents to register the number of shares specified in the instrument of transfer or specified in any
other manner, or, if no number is specified but share certificates are deposited with the instrument of transfer,
all the shares represented by such share certificates:
(1)
(2)
in the name of the person named as transferee in that instrument of transfer; or
if no person is named as transferee in that instrument of transfer, in the name of the person on whose
behalf the instrument is deposited for the purpose of having the transfer registered.
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Section 5.6
Enquiry as to Title Not Required
Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of
the person named in the instrument of transfer as transferee or, if no person is named as transferee in the
instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having
the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any
intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing
such shares or of any written acknowledgement of a right to obtain a share certificate for such shares.
Section 5.7
Transfer Fee
There must be paid to the Company, in relation to the registration of any transfer, the amount, if any,
determined by the board.
ARTICLE 6
TRANSMISSION OF SHARES
Section 6.1
Legal Personal Representative Recognized on Death
In the case of the death of a shareholder, the legal personal representative of the shareholder, or in the case of
shares registered in the shareholder's name and the name of another person in joint tenancy, the surviving
joint holder, will be the only person recognized by the Company as having any title to the shareholder's
interest in the shares. Before recognizing a person as a legal personal representative of a shareholder, the
board may require the original grant of probate or letters of administration or a court certified copy of them
or the original or a court certified or authenticated copy of the grant of representation, will, order or other
instrument or other evidence of the death under which title to the shares or securities is claimed to vest.
Section 6.2
Rights of Legal Personal Representative
The legal personal representative of a shareholder has the rights, privileges and obligations that attach to the
shares held by the shareholder, including the right to transfer the shares in accordance with these Articles, if
appropriate evidence of appointment or incumbency within the meaning of the Securities Transfer Act has
been deposited with the Company. This Section 6.2 does not apply in the case of the death of a shareholder
with respect to shares registered in the shareholder's name and the name of another person in joint tenancy.
ARTICLE 7
ACQUISITION OF COMPANY'S SHARES
Section 7.1
Company Authorized to Purchase or Otherwise Acquire Shares
Subject to Section 7.2, the special rights or restrictions attached to the shares of any class or series of shares
and the BCA, the Company may, if authorized by the board, purchase or otherwise acquire any of its shares
at the price and upon the terms determined by the board.
Section 7.2
No Purchase, Redemption or Other Acquisition When Insolvent
The Company must not make a payment or provide any other consideration to purchase, redeem or otherwise
acquire any of its shares if there are reasonable grounds for believing that:
(1)
(2)
the Company is insolvent; or
making the payment or providing the consideration would render the Company insolvent.
Section 7.3
Sale and Voting of Purchased, Redeemed or Otherwise Acquired Shares
If the Company retains a share redeemed, purchased or otherwise acquired by it, the Company may sell, gift
or otherwise dispose of the share, but, while such share is held by the Company, it:
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(1)
(2)
(3)
is not entitled to vote the share at a meeting of its shareholders;
must not pay a dividend in respect of the share; and
must not make any other distribution in respect of the share.
ARTICLE 8
BORROWING POWERS
Section 8.1
Borrowing Powers
The Company, if authorized by the board, may:
(1)
(2)
(3)
(4)
borrow money in the manner and amount, on the security, from the sources and on the terms and
conditions that the board considers appropriate;
issue bonds, debentures and other debt obligations either outright or as security for any liability or
obligation of the Company or any other person and at such discounts or premiums and on such other
terms as the board considers appropriate;
guarantee the repayment of money by any other person or the performance of any obligation of any
other person; and
mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give
other security on, the whole or any part of the present and future assets and undertaking of the
Company.
Section 9.1
Alteration of Authorized Share Structure
ARTICLE 9
ALTERATIONS
Subject to Section 9.2, the special rights or restrictions attached to the shares of any class or series of shares
and the BCA, the Company may by directors' resolution or ordinary resolution, unless an alteration to the
Company's Notice of Articles would be required, in which case by ordinary resolution:
(1)
(2)
(3)
(4)
create one or more classes or series of shares or, if none of the shares of a class or series of shares are
allotted or issued, eliminate that class or series of shares;
increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue
out of any class or series of shares or establish a maximum number of shares that the Company is
authorized to issue out of any class or series of shares for which no maximum is established;
subdivide or consolidate all or any of its unissued, or fully paid issued, shares;
if the Company is authorized to issue shares of a class of shares with par value:
(1)
(2)
decrease the par value of those shares; or
if none of the shares of that class of shares are allotted or issued, increase the par value of
those shares;
(5)
change all or any of its unissued, or fully paid issued, shares with par value into shares without par
value or any of its unissued shares without par value into shares with par value;
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(6)
(7)
alter the identifying name of any of its shares; or
otherwise alter its shares or authorized share structure when required or permitted to do so by the
BCA;
and, if applicable, alter its Notice of Articles and, if applicable, its Articles, accordingly.
Section 9.2
Special Rights or Restrictions
Subject to the special rights or restrictions attached to the shares of any class or series of shares and the BCA,
the Company may by ordinary resolution:
(1)
(2)
create special rights or restrictions for, and attach those special rights or restrictions to, the shares of
any class or series of shares, whether or not any or all of those shares have been issued; or
vary or delete any special rights or restrictions attached to the shares of any class or series of shares,
whether or not any or all of those shares have been issued;
and alter its Articles and Notice of Articles accordingly.
Section 9.3
Change of Name
The Company may by directors' resolution or ordinary resolution authorize an alteration to its Notice of
Articles in order to change its name.
Section 9.4
Other Alterations
If the BCA does not specify the type of resolution and these Articles do not specify another type of
resolution, the Company may by ordinary resolution alter these Articles.
ARTICLE 10
MEETINGS OF SHAREHOLDERS
Section 10.1 Annual General Meetings
Unless an annual general meeting is deferred or waived in accordance with the BCA, the Company must hold
its first annual general meeting within 18 months after the date on which it was incorporated or otherwise
recognized, and after that must hold an annual general meeting at least once in each calendar year and not
more than 15 months after the last annual reference date at such time and place, either in or outside British
Columbia, as may be determined by the board.
Section 10.2 Resolution Instead of Annual General Meeting
If all the shareholders who are entitled to vote at an annual general meeting consent by a unanimous
resolution to all of the business that is required to be transacted at that annual general meeting, the annual
general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must,
in any unanimous resolution passed under this Section 10.2, select as the Company's annual reference date a
date that would be appropriate for the holding of the applicable annual general meeting.
Section 10.3 Calling of Meetings of Shareholders
The board may, at any time, call a meeting of shareholders, to be held at such time and at such place, either
in or outside British Columbia, as may be determined by the board.
Section 10.4 Notice for Meetings of Shareholders
The Company must send notice of the date, time and location of any meeting of shareholders (including,
without limitation, any notice specifying the intention to propose a resolution as an exceptional resolution, a
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special resolution or a special separate resolution, and any notice to consider approving an amalgamation into
a foreign jurisdiction, an arrangement or the adoption of an amalgamation agreement, and any notice of a
general meeting, class meeting or series meeting), in the manner provided in these Articles, or in such other
manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has
been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of
the Company, unless these Articles otherwise provide, at least the following number of days before the
meeting:
(1)
(2)
if and for so long as the Company is a public company, 21 days;
otherwise, 10 days.
Section 10.5 Record Date for Notice
The board may set a date as the record date for the purpose of determining shareholders entitled to notice of
any meeting of shareholders. The record date must not precede the date on which the meeting is to be held
by more than two months or, in the case of a general meeting requisitioned by shareholders under the BCA,
by more than four months. The record date must not precede the date on which the meeting is held by fewer
than:
(1)
(2)
if and for so long as the Company is a public company, 21 days;
otherwise, 10 days.
If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the
notice is sent or, if no notice is sent, the beginning of the meeting.
Section 10.6 Record Date for Voting
The board may set a date as the record date for the purpose of determining shareholders entitled to vote at
any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by
more than two months or, in the case of a general meeting requisitioned by shareholders under the BCA, by
more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding
the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.
Section 10.7 Failure to Give Notice and Waiver of Notice
The accidental omission to send notice of any meeting of shareholders to, or the non-receipt of any notice by,
any of the persons entitled to notice does not invalidate any proceedings at that meeting. Any person entitled
to notice of a meeting of shareholders may, in writing or otherwise, waive that entitlement or agree to reduce
the period of that notice. Attendance of a person at a meeting of shareholders is a waiver of entitlement to
notice of the meeting unless that person attends the meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully called.
Section 10.8 Notice of Special Business at Meetings of Shareholders
If a meeting of shareholders is to consider special business within the meaning of Section 11.1, the notice of
meeting must:
(1)
(2)
state the general nature of the special business; and
if the special business includes considering, approving, ratifying, adopting or authorizing any
document or the signing of or giving of effect to any document, have attached to it a copy of the
document or state that a copy of the document will be available for inspection by shareholders:
(a)
at the company's records office, or at such other reasonably accessible location in british
columbia as is specified in the notice; and
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(b)
during statutory business hours on any one or more specified days before the day set for the
holding of the meeting.
Section 10.9 Notice of Dissent Rights
The Company must send to each of its shareholders, whether or not their shares carry the right to vote, a
notice of any meeting of shareholders at which a resolution entitling shareholders to dissent is to be
considered specifying the date of the meeting and containing a statement advising of the right to send a
notice of dissent together with a copy of the proposed resolution at least the following number of days before
the meeting:
(1)
(2)
if and for so long as the Company is a public company, 21 days;
otherwise, 10 days.
Section 10.10
Advance Notice Provisions
(1)
Nomination of Directors
Subject only to the BCA and these Articles, only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors to the board of directors of the Company.
Nominations of persons for election to the board at an annual meeting of shareholders, or at a special meeting
of shareholders called for any purpose which includes the election of directors to the board, may only be
made:
(a)
(b)
by or at the direction of the board or an authorized officer of the company, including
pursuant to a notice of meeting;
by or at the direction or request of one or more shareholders pursuant to a proposal made in
accordance with the provisions of the bca or a requisition of shareholders made in
accordance with the provisions of the bca; or
(c)
by any person entitled to vote at such meeting (a "Nominating Shareholder"), who:
(i)
is, at the close of business on the date of giving notice provided for in this Section
10.10 and on the record date for notice of such meeting, either entered in the
securities register of the Company as a holder of one or more shares carrying the
right to vote at such meeting or who beneficially owns shares that are entitled to be
voted at such meeting; and
(ii)
has given timely notice in proper written form as set forth in this Section 10.10.
(2)
Exclusive Means
For the avoidance of doubt, this Section 10.10 shall be the exclusive means for any person to bring
nominations for election to the board before any annual or special meeting of shareholders of the Company.
(3)
Timely Notice
For a nomination made by a Nominating Shareholder to be timely notice (a "Timely Notice"), the
Nominating Shareholder's notice must be received by the corporate secretary of the Company at the principal
executive offices of the Company:
(a)
in the case of an annual meeting of shareholders, not later than 5:00 p.m. (Vancouver time)
on the 30th day before the date of the meeting; provided, however, if the first public
announcement made by the company with respect to the date of the annual meeting (each
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such date being the "notice date") is less than 50 days prior to the meeting date, not later than
the close of business on the 10th day following the notice date; and
(b)
in the case of a special meeting (which is not also an annual meeting) of shareholders called
for any purpose which includes the election of directors to the board, not later than the close
of business on the 15th day following the notice date;
provided that, in either instance, if notice-and-access (as set out in applicable securities legislation) is used
for the delivery of proxy related materials in respect of a meeting described in Section 1.1(1)(a) or Section
1.1(1)(b), and the Notice Date in respect of the meeting is not less than 50 days before the date of the
applicable meeting, the notice must be received not later than the close of business on the 40th day before the
date of the applicable meeting.
(4)
Proper Form of Notice
To be in proper written form, a Nominating Shareholder's notice to the corporate secretary must
comply with all the provisions of this Section 10.10 and:
(a)
disclose or include, as applicable, as to each person whom the nominating shareholder
proposes to nominate for election as a director (a "proposed nominee"):
(i)
(ii)
(iii)
(iv)
(v)
(vi)
their name, age, business and residential address and principal occupation and/or
employment for the past five years;
their direct or indirect beneficial ownership in, or control or direction over, any class
or series of securities of the Company, including the number or principal amount;
any relationships, agreements or arrangements, including financial, compensation
and indemnity related relationships, agreements or arrangements, between the
Proposed Nominee or any affiliates or associates of, or any person or entity acting
jointly or in concert with, the Proposed Nominee and the Nominating Shareholder;
any other information relating to such Proposed Nominee that would be required to
be disclosed in a dissident proxy circular or other filings required to be made in
connection with the solicitation of proxies for election of directors pursuant to the
BCA or applicable securities law;
a duly completed personal information form in respect of the Proposed Nominee in
the form prescribed by the principal stock exchange on which the Company's
securities are then listed for trading; and
a written consent duly signed by each Proposed Nominee to being named as a
nominee and certifying that the Proposed Nominee is not disqualified from acting as
a director under the provisions of subsection 124(2) of the BCA; and
(b)
disclose or include, as applicable, as to each nominating shareholder giving the notice, and
each beneficial owner, if any, on whose behalf the nomination is made:
(i)
their name, business and residential address, direct or indirect beneficial ownership
in, or control or direction over, any class or series of securities of the Company,
including the number or principal amount and the date(s) on which such securities
were acquired;
(ii)
their interests in, or rights or obligations associated with, an agreement, arrangement
or understanding, the purpose or effect of which is to alter, directly or indirectly, the
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person's economic interest in a security of the Company or the person's economic
exposure to the Company;
(iii) any relationships, agreements or arrangements, including financial compensation
and indemnity related relationships, agreements or arrangements, between the
Nominating Shareholder or any affiliates or associates of, or any person or entity
acting jointly or in concert with, the Nominating Shareholder and any Proposed
Nominee;
(iv) any proxy, contract, arrangement, agreement or understanding pursuant to which
such person, or any of its affiliates or associates, or any person acting jointly or in
concert with such person, has any interests, rights or obligations relating to the
voting of any securities of the Company or the nomination of directors to the board;
(v) a representation that the Nominating Shareholder is a holder of record of securities
of the Company, or a beneficial owner, entitled to vote at such meeting, and intends
to appear in person or by proxy at the meeting to propose such nomination;
(vi) a representation as to whether such person intends to deliver a proxy circular and/or
form of proxy to any shareholder of the Company in connection with such
nomination or otherwise solicit proxies or votes from shareholders of the Company
in support of such nomination; and
(vii) any other information relating to such person that would be required to be included
in a dissident proxy circular or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to the BCA or as required
by applicable securities law.
(5)
Delivery of Information
Despite any other provision of these Articles relating to giving of notice, any notice, or other document or
information required to be given to the corporate secretary pursuant to this Section 10.10 may only be given
by personal delivery, facsimile transmission or by email (at such email address as may be stipulated from
time to time by the corporate secretary for purposes of this notice), and shall be deemed to have been given
and made only at the time it is served by personal delivery to the corporate secretary at the address of the
principal executive offices of the Company, email (at the address as aforesaid) or sent by facsimile
transmission (provided that receipt of confirmation of such transmission has been received); provided that if
such deliver or electronic communication is made on a day which is not a business day or later than 5:00
p.m. (Vancouver time) on a day which is a business day, then such delivery or electronic communication
shall be deemed to have been made on the next following day that is a business day.
(6)
Additional Matters
(a)
(b)
The chair of any meeting of shareholders of the Company shall have the power to determine
whether any proposed nomination is made in accordance with the provisions of this Section
10.10, and if any proposed nomination is not in compliance with such provisions, must
declare that such defective nomination shall not be considered at any meeting of
shareholders.
Despite any other provision of this Section 10.10, if the Nominating Shareholder (or a
qualified representative of the Nominating Shareholder) does not appear at the meeting of
shareholders of the Company to present the nomination, such nomination shall be
disregarded, notwithstanding that proxies in respect of such nomination may have been
received by the Company.
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(c)
(d)
The board may, in its sole discretion, waive any requirement in this Section 10.10.
For the purposes of this Section 10.10, "public announcement" means disclosure in a press
release disseminated by the Company through a national news service in Canada, or in a
document filed by the Company for public access under its profile on the System of
Electronic Document Analysis and Retrieval at www.sedar.com.
(7)
Annual or Special Meetings of Shareholders
For business to be properly brought before a meeting by a shareholder of the Company, such shareholder
must submit a proposal to the Company for inclusion in the Company’s management proxy circular in
accordance with the requirements of the BCA; provided that any proposal that includes nominations for the
election of directors shall also comply with the requirements of Section 10.10(1) to Section 10.10(6).
ARTICLE 11
PROCEEDINGS AT MEETINGS OF SHAREHOLDERS
Section 11.1
Special Business
At a meeting of shareholders, the following business is special business:
(1)
at a meeting of shareholders that is not an annual general meeting, all business is special business
except business relating to the conduct of or voting at the meeting;
(2)
at an annual general meeting, all business is special business except for the following:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
business relating to the conduct of or voting at the meeting;
consideration of any financial statements of the Company presented to the meeting;
consideration of any reports of the board or auditor;
the setting or changing of the number of directors;
the election or appointment of directors;
the appointment of an auditor;
the setting of the remuneration of an auditor;
business arising out of a report of the board not requiring the passing of a special resolution
or an exceptional resolution;
any other business which, under these articles or the BCA, may be transacted at a meeting of
shareholders without prior notice of the business being given to the shareholders.
Section 11.2
Special Majority
The majority of votes required for the Company to pass a special resolution at a general meeting of
shareholders is two-thirds of the votes cast on the resolution.
Section 11.3 Quorum
Subject to the special rights or restrictions attached to the shares of any class or series of shares, a quorum for
the transaction of business at a meeting of shareholders is present if shareholders who, in the aggregate, hold
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at least 25% of the issued shares entitled to be voted at the meeting are present in person or represented by
proxy, irrespective of the number of persons actually present at the meeting.
Section 11.4 Persons Entitled to Attend Meeting
In addition to those persons who are entitled to vote at a meeting of shareholders, the only other persons
entitled to be present at the meeting are the directors, the president (if any), the secretary (if any), the
assistant secretary (if any), any lawyer for the Company, the auditor of the Company, any persons invited to
be present at the meeting by the board or by the chair of the meeting and any persons entitled or required
under the BCA or these Articles to be present at the meeting; but if any of those persons does attend the
meeting, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that
person is a shareholder or proxy holder entitled to vote at the meeting.
Section 11.5 Requirement of Quorum
No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be
transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote is present at the
commencement of the meeting, but such quorum need not be present throughout the meeting.
Section 11.6 Lack of Quorum
If, within one-half hour from the time set for holding a meeting of shareholders, a quorum is not present:
(1)
(2)
in the case of a general meeting requisitioned by shareholders, the meeting is dissolved, and
in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the
next week at the same time and place.
Section 11.7 Lack of Quorum at Succeeding Meeting
If, at the meeting to which the meeting referred to in Section 11.6(2) was adjourned, a quorum is not present
within one-half hour from the time set for holding the meeting, the person or persons present and being, or
representing by proxy, one or more shareholders entitled to attend and vote at the meeting constitute a
quorum.
Section 11.8 Chair
The following individual is entitled to preside as chair at a meeting of shareholders:
(1)
(2)
the chair of the board, if any; or
if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.
Section 11.9
Selection of Alternate Chair
If, at any meeting of shareholders, there is no chair of the board or president present within 15 minutes after
the time set for holding the meeting, or if the chair of the board and the president are unwilling to act as chair
of the meeting, or if the chair of the board and the president have advised the secretary, if any, or any director
present at the meeting, that they will not be present at the meeting, the directors present must choose one of
their number to be chair of the meeting. If all of the directors present decline to take the chair or fail to so
choose or if no director is present, the shareholders entitled to vote at the meeting who are present in person
or by proxy may choose any person present at the meeting to chair the meeting.
Section 11.10 Adjournments
The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting
from time to time and from place to place, but no business may be transacted at any adjourned meeting other
than the business left unfinished at the meeting from which the adjournment took place.
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Section 11.11 Notice of Adjourned Meeting
It is not necessary to give any notice of an adjourned meeting of shareholders or of the business to be
transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or
more, notice of the adjourned meeting must be given as in the case of the original meeting.
Section 11.12 Decisions by Show of Hands or Poll
Subject to the BCA, every motion put to a vote at a meeting of shareholders will be decided on a show of
hands unless a poll, before or on the declaration of the result of the vote by show of hands, is directed by the
chair or demanded by any shareholder entitled to vote who is present in person or by proxy.
Section 11.13 Declaration of Result
The chair of a meeting of shareholders must declare to the meeting the decision on every question in
accordance with the result of the show of hands or the poll, as the case may be, and that decision must be
entered in the minutes of the meeting. A declaration of the chair that a resolution is carried by the necessary
majority or is defeated is, unless a poll is directed by the chair or demanded under Section 11.12, conclusive
evidence without proof of the number or proportion of the votes recorded in favour of or against the
resolution.
Section 11.14 Motion Need Not be Seconded
No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules
otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.
Section 11.15 Casting Vote
In the case of an equality of votes, the chair of a meeting of shareholders does not, either on a show of hands
or on a poll, have a second or casting vote in addition to the vote or votes to which the chair may be entitled
as a shareholder.
Section 11.16 Manner of Taking Poll
Subject to Section 11.17, if a poll is duly demanded at a meeting of shareholders:
(1)
the poll must be taken:
(a)
at the meeting, or within seven days after the date of the meeting, as the chair of the meeting
directs; and
(b)
in the manner, at the time and at the place that the chair of the meeting directs;
the result of the poll is deemed to be the decision of the meeting at which the poll is demanded; and
the demand for the poll may be withdrawn by the person who demanded it.
(2)
(3)
Section 11.17 Demand for Poll on Adjournment
A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at
the meeting.
Section 11.18 Chair Must Resolve Dispute
In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting
must determine the dispute, and his or her determination made in good faith is final and conclusive.
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Section 11.19 Casting of Votes
On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.
Section 11.20 No Demand for Poll on Election of Chair
No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.
Section 11.21 Demand for Poll Not to Prevent Continuance of Meeting
The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent
the continuation of the meeting for the transaction of any business other than the question on which a poll has
been demanded.
Section 11.22 Retention of Ballots and Proxies
The Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll
and each proxy voted at the meeting, and, during that period, make them available for inspection during
normal business hours by any shareholder or proxyholder entitled to vote at the meeting. At the end of such
three month period, the Company may destroy such ballots and proxies.
ARTICLE 12
VOTES OF SHAREHOLDERS
Section 12.1 Number of Votes by Shareholder or by Shares
Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint
shareholders under Section 12.3:
(1)
(2)
on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled
to vote on the matter has one vote; and
on a poll, every shareholder entitled to vote on the matter has one vote in respect of each share
entitled to be voted on the matter and held by that shareholder and may exercise that vote either in
person or by proxy.
Section 12.2 Votes of Persons in Representative Capacity
A person who is not a shareholder may vote at a meeting of shareholders, whether on a show of hands or on a
poll, and may appoint a proxy holder to act at the meeting, if, before doing so, the person satisfies the chair
of the meeting, or the board, that the person is a legal personal representative or a trustee in bankruptcy for a
shareholder who is entitled to vote at the meeting.
Section 12.3 Votes by Joint Holders
If there are joint shareholders registered in respect of any share:
(1)
(2)
any one of the joint shareholders may vote at any meeting of shareholders, personally or by proxy, in
respect of the share as if that joint shareholder were solely entitled to it; or
if more than one of the joint shareholders is present at any meeting of shareholders, personally or by
proxy, and more than one of them votes in respect of that share, then only the vote of the joint
shareholder present whose name stands first on the central securities register in respect of the share
will be counted.
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Section 12.4 Legal Personal Representatives as Joint Shareholders
Two or more legal personal representatives of a shareholder in whose sole name any share is registered are,
for the purposes of Section 12.3, deemed to be joint shareholders registered in respect of that share.
Section 12.5 Representative of a Corporate Shareholder
If a corporation that is not a subsidiary of the Company is a shareholder, that corporation may appoint a
person to act as its representative at any meeting of shareholders of the Company, and:
(1)
for that purpose, the instrument appointing a representative must be received:
(a)
(b)
at the registered office of the Company or at any other place specified, in the notice calling
the meeting, for the receipt of proxies, at least the number of business days specified in the
notice for the receipt of proxies, or if no number of days is specified, two business days
before the day set for the holding of the meeting or any adjourned meeting; or
at the meeting or any adjourned meeting, by the chair of the meeting or adjourned meeting or
by a person designated by the chair of the meeting or adjourned meeting;
(2)
if a representative is appointed under this Section 12.5:
(a)
(b)
the representative is entitled to exercise in respect of and at that meeting the same rights on
behalf of the corporation that the representative represents as that corporation could exercise
if it were a shareholder who is an individual, including, without limitation, the right to
appoint a proxy holder; and
the representative, if present at the meeting, is to be counted for the purpose of forming a
quorum and is deemed to be a shareholder present in person at the meeting.
Evidence of the appointment of any such representative may be sent to the Company by written instrument,
fax or any other method of transmitting legibly recorded messages.
Section 12.6 When Proxy Holder Need Not Be Shareholder
A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who
is not a shareholder may be appointed as a proxy holder if:
(1)
(2)
(3)
the person appointing the proxy holder is a corporation or a representative of a corporation appointed
under Section 12.5;
the Company has at the time of the meeting for which the proxy holder is to be appointed only one
shareholder entitled to vote at the meeting;
the shareholders present in person or by proxy at and entitled to vote at the meeting for which the
proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but
in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to
attend and vote at the meeting; or
(4)
the Company is a public company.
Section 12.7 When Proxy Provisions Do Not Apply to the Company
If and for so long as the Company is a public company, Section 12.8 to Section 12.16 apply only insofar as
they are not inconsistent with any Canadian securities legislation applicable to the Company, any U.S.
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securities legislation applicable to the Company or any rules of an exchange on which securities of the
Company are listed.
Section 12.8 Appointment of Proxy Holders
Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the
Company, entitled to vote at a meeting of shareholders may, by proxy, appoint one or more proxy holders to
attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.
Section 12.9 Alternate Proxy Holders
A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.
Section 12.10 Deposit of Proxy
A proxy for a meeting of shareholders must:
(1)
(2)
be received at the registered office of the Company or at any other place specified, in the notice
calling the meeting, for the receipt of proxies, at least the number of business days specified in the
notice, or if no number of days is specified, two business days before the day set for the holding of
the meeting or any adjourned meeting; or
unless the notice provides otherwise, be received, at the meeting or any adjourned meeting, by the
chair of the meeting or adjourned meeting or by a person designated by the chair of the meeting or
adjourned meeting.
A proxy may be sent to the Company by written instrument, fax or any other method of transmitting legibly
recorded messages.
Section 12.11 Validity of Proxy Vote
A vote given in accordance with the terms of a proxy is valid notwithstanding the death or incapacity of the
shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under
which the proxy is given, unless notice in writing of that death, incapacity or revocation is received:
(a)
(b)
at the registered office of the Company, at any time up to and including the last business day before
the day set for the holding of the meeting or any adjourned meeting at which the proxy is to be used;
or
at the meeting or any adjourned meeting, by the chair of the meeting or adjourned meeting, before
any vote in respect of which the proxy has been given has been taken.
Section 12.12 Form of Proxy
A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other
form approved by the board or the chair of the meeting:
[name of Company]
(the "Company")
The undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that person,
[name], as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at
the meeting of shareholders of the Company to be held on [month, day, year] and at any adjournment of that
meeting.
Number of shares in respect of which this proxy is given (if no number is specified, then this proxy is given
in respect of all shares registered in the name of the undersigned): _________________________________
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____________________________
Signed [month, day, year]
____________________________
[Signature of shareholder]
____________________________
[Name of shareholder - printed]
Section 12.13 Revocation of Proxy
Subject to Section 12.14, every proxy may be revoked by an instrument in writing that is received:
(1)
(2)
at the registered office of the Company at any time up to and including the last business day before
the day set for the holding of the meeting or any adjourned meeting at which the proxy is to be used;
or
at the meeting or any adjourned meeting, by the chair of the meeting or adjourned meeting, before
any vote in respect of which the proxy has been given has been taken.
Section 12.14 Revocation of Proxy Must Be Signed
An instrument referred to in Section 12.13 must be signed as follows:
(1)
(2)
if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be
signed by the shareholder or his or her legal personal representative or trustee in bankruptcy; or
if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be
signed by the corporation or by a representative appointed for the corporation under Section 12.5.
Section 12.15 Chair May Determine Validity of Proxy.
The chair of any meeting of shareholders may determine whether or not a proxy deposited for use at the
meeting, which may not strictly comply with the requirements of this Article 12 as to form, execution,
accompanying documentation, time of filing or otherwise, shall be valid for use at the meeting, and any such
determination made in good faith shall be final, conclusive and binding upon the meeting.
Section 12.16 Production of Evidence of Authority to Vote
The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote
at the meeting and may, but need not, demand from that person production of evidence as to the existence of
the authority to vote.
Section 13.1 Number of Directors
ARTICLE 13
DIRECTORS
(1)
(2)
The number of directors is the number determined from time to time by directors' resolution.
If the number of directors has not been determined as provided in paragraph (1), the number of
directors is equal to the number of directors holding office immediately following the most recent
election or appointment of directors, whether at an annual or special general meeting of the
shareholders, by a consent resolution of shareholders, or by the directors pursuant to Section 14.4,
Section 14.5 or Section 14.8.
(3)
Notwithstanding paragraph (2), the minimum number of directors is one or, if the company is a
public company, three.
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Section 13.2 Change in Number of Directors
If the number of directors is set under Section 13.1(1):
(1)
(2)
the shareholders may elect or appoint the directors needed to fill any vacancies in the board of
directors up to that number; and
if the shareholders do not elect or appoint the directors needed to fill any vacancies in the board of
directors up to that number at the first meeting of shareholders following the setting of that number,
then the board, subject to Section 14.8, may appoint, or the shareholders may elect or appoint,
directors to fill those vacancies.
Section 13.3 Board's Acts Valid Despite Vacancy
An act or proceeding of the board is not invalid merely because fewer than the number of directors set or
otherwise required under these Articles is in office.
Section 13.4 Qualifications of Directors
A director is not required to hold a share of the Company as qualification for his or her office but must be
qualified as required by the BCA to become, act or continue to act as a director.
Section 13.5 Remuneration of Directors
The directors are entitled to the remuneration for acting as directors, if any, as the board may from time to
time determine. If the board so decides, the remuneration of the directors, if any, will be determined by the
shareholders. That remuneration may be in addition to any salary or other remuneration paid to any officer or
employee of the Company as such, who is also a director.
Section 13.6 Reimbursement of Expenses of Directors
The Company must reimburse each director for the reasonable expenses that he or she may incur in and
about the business of the Company.
Section 13.7
Special Remuneration for Directors
If any director performs any professional or other services for the Company that in the opinion of the board
are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the
Company's business, he or she may be paid remuneration fixed by the board, or, at the option of that director,
fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any
other remuneration that he or she may be entitled to receive.
Section 13.8 Gratuity, Pension or Allowance on Retirement of Director
Unless otherwise determined by ordinary resolution, the board on behalf of the Company may pay a gratuity
or pension or allowance on retirement to any director who has held any salaried office or place of profit with
the Company or to his or her spouse or dependants and may make contributions to any fund and pay
premiums for the purchase or provision of any such gratuity, pension or allowance.
ARTICLE 14
ELECTION AND REMOVAL OF DIRECTORS
Section 14.1 Election at Annual General Meeting
At every annual general meeting and in every unanimous resolution contemplated by Section 10.2:
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(1)
(2)
the shareholders entitled to vote at the annual general meeting for the election of directors must elect,
or in the unanimous resolution appoint, a board of directors consisting of the number of directors for
the time being set under these Articles; and
all the directors cease to hold office immediately before the election or appointment of directors
under paragraph (1), but are eligible for re-election or re-appointment.
Section 14.2 Consent to be a Director
No election, appointment or designation of an individual as a director is valid unless:
(1)
(2)
that individual consents to be a director in the manner provided for in the BCA;
that individual is elected or appointed at a meeting at which the individual is present and the
individual does not refuse, at the meeting, to be a director; or
(3)
with respect to first directors, the designation is otherwise valid under the BCA.
Section 14.3 Failure to Elect or Appoint Directors
If:
(1)
the Company fails to hold an annual general meeting, and all the shareholders who are entitled to
vote at an annual general meeting fail to pass the unanimous resolution contemplated by Section
10.2, on or before the date by which the annual general meeting is required to be held under the
BCA; or
(2)
the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by
Section 10.2, to elect or appoint any directors;
then each director then in office continues to hold office until the earlier of:
(3)
(4)
when his or her successor is elected or appointed; and
when he or she otherwise ceases to hold office under the BCA or these Articles.
Section 14.4 Places of Retiring Directors Not Filled
If, at any meeting of shareholders at which there should be an election of directors, the places of any of the
retiring directors are not filled by that election, those retiring directors who are not re-elected and who are
asked by the newly elected directors to continue in office will, if willing to do so, continue in office to
complete the number of directors for the time being set pursuant to these Articles until further new directors
are elected at a meeting of shareholders convened for that purpose.
Section 14.5 Board May Fill Casual Vacancies
Any casual vacancy occurring in the board of directors may be filled by the remaining directors.
Section 14.6 Remaining Directors' Power to Act
The board may act notwithstanding any vacancy in the board of directors, but if the Company has fewer
directors in office than the number set pursuant to these Articles as the quorum of directors, the board may
only act for the purpose of appointing directors up to that number or of calling a meeting of shareholders for
the purpose of filling any vacancies on the board of directors or, subject to the BCA, for any other purpose.
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Section 14.7
Shareholders May Fill Vacancies
If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as
the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of
directors.
Section 14.8 Additional Directors
Notwithstanding Section 13.1 and Section 13.2, between annual general meetings or unanimous resolutions
contemplated by Section 10.2, the board may appoint one or more additional directors, but the number of
additional directors appointed under this Section 14.8 must not at any time exceed:
(1)
(2)
one-third of the number of first directors, if, at the time of the appointments, one or more of the first
directors have not yet completed their first term of office; or
in any other case, one-third of the number of the current directors who were elected or appointed as
directors other than under this Section 14.8.
Any director so appointed ceases to hold office immediately before the next election or appointment of
directors under Section 14.1(1), but is eligible for re-election or re-appointment.
Section 14.9 Ceasing to be a Director
A director ceases to be a director when:
(1)
(2)
(3)
the term of office of the director expires;
the director dies;
the director resigns as a director by notice in writing provided to the Company or a lawyer for the
Company; or
(4)
the director is removed from office pursuant to Section 14.10 or Section 14.11.
Section 14.10 Removal of Director by Shareholders
The Company may remove any director before the expiration of his or her term of office by special
resolution. In that event, the shareholders may elect, or appoint by ordinary resolution, a director to fill the
resulting vacancy. If the shareholders do not elect or appoint a director to fill the resulting vacancy
contemporaneously with the removal, then the board may appoint or the shareholders may elect, or appoint
by ordinary resolution, a director to fill that vacancy.
Section 14.11 Removal of Director by Directors
The board may remove any director before the expiration of his or her term of office if the director is
convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company
and does not promptly resign, and the board may appoint a director to fill the resulting vacancy.
ARTICLE 15
POWERS AND DUTIES OF THE BOARD
Section 15.1 Powers of Management
The board must, subject to the BCA and these Articles, manage or supervise the management of the business
and affairs of the Company and has the authority to exercise all such powers of the Company as are not, by
the BCA or by these Articles, required to be exercised by the shareholders of the Company.
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Section 15.2 Appointment of Attorney of Company
The board may from time to time, by power of attorney or other instrument, under seal if so required by law,
appoint any person to be the attorney of the Company for such purposes, and with such powers, authorities
and discretions (not exceeding those vested in or exercisable by the directors under these Articles and
excepting the power to fill vacancies in the board of directors, to remove a director, to change the
membership of, or fill vacancies in, any committee of the board, to appoint or remove officers appointed by
the board and to declare dividends) and for such period, and with such remuneration and subject to such
conditions as the board may think fit. Any such power of attorney may contain such provisions for the
protection or convenience of persons dealing with such attorney as the board thinks fit. Any such attorney
may be authorized by the board to sub-delegate all or any of the powers, authorities and discretions for the
time being vested in him or her.
ARTICLE 16
INTERESTS OF DIRECTORS AND OFFICERS
Section 16.1 Obligation to Account for Profits
A director or senior officer who holds a disclosable interest (as that term is used in the BCA) in a contract or
transaction into which the Company has entered or proposes to enter is liable to account to the Company for
any profit that accrues to the director or senior officer under or as a result of the contract or transaction only
if and to the extent provided in the BCA.
Section 16.2 Restrictions on Voting by Reason of Interest
A director who holds a disclosable interest in a contract or transaction into which the Company has entered
or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction,
unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of
those directors may vote on such resolution.
Section 16.3
Interested Director Counted in Quorum
A director who holds a disclosable interest in a contract or transaction into which the Company has entered
or proposes to enter and who is present at the meeting of the board at which the contract or transaction is
considered for approval may be counted in the quorum at the meeting whether or not the director votes on
any or all of the resolutions considered at the meeting.
Section 16.4 Disclosure of Conflict of Interest or Property
A director or senior officer who holds any office or possesses any property, right or interest that could result,
directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty
or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the
BCA.
Section 16.5 Director Holding Other Office in the Company
A director may hold any office or place of profit with the Company, other than the office of auditor of the
Company, in addition to his or her office of director for the period and on the terms (as to remuneration or
otherwise) that the board may determine.
Section 16.6 No Disqualification
No director or intended director is disqualified by his or her office from contracting with the Company either
with regard to the holding of any office or place of profit the director holds with the Company or as vendor,
purchaser or otherwise, and no contract or transaction entered into by or on behalf of the Company in which
a director is in any way interested is liable to be voided for that reason.
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Section 16.7 Professional Services by Director or Officer
Subject to the BCA, a director or officer, or any person in which a director or officer has an interest, may act
in a professional capacity for the Company, except as auditor of the Company, and the director or officer or
such person is entitled to remuneration for professional services as if that director or officer were not a
director or officer.
Section 16.8 Director or Officer in Other Corporations
A director or officer may be or become a director, officer or employee of, or otherwise interested in, any
person in which the Company may be interested as a shareholder or otherwise, and, subject to the BCA, the
director or officer is not accountable to the Company for any remuneration or other benefits received by him
or her as director, officer or employee of, or from his or her interest in, such other person.
ARTICLE 17
PROCEEDINGS OF THE BOARD
Section 17.1 Meetings of the Board
The board may meet for the conduct of business, adjourn and otherwise regulate its meetings as the board
thinks fit, and meetings of the board held at regular intervals may be held at the place, at the time and on the
notice, if any, as the board may from time to time determine.
Section 17.2 Voting at Meetings
Questions arising at any meeting of the board are to be decided by a majority of votes and, in the case of an
equality of votes, the chair of the meeting does not have a second or casting vote.
Section 17.3 Chair of Meetings
The following individual is entitled to preside as chair at a meeting of the board:
(1)
(2)
(3)
the chair of the board, if any;
in the absence of the chair of the board, the president, if any, if the president is a director; or
any other director chosen by the directors present if:
(a)
(b)
(c)
neither the chair of the board nor the president, if a director, is present at the meeting within
15 minutes after the time set for holding the meeting;
neither the chair of the board nor the president, if a director, is willing to chair the meeting;
or
the chair of the board and the president, if a director, have advised the secretary, if any, or
any other director, that they will not be present at the meeting.
Section 17.4 Meetings by Telephone or Other Communications Medium
A director may participate in a meeting of the board or of any committee of the board:
(1)
(2)
(3)
in person;
by telephone; or
with the consent of all directors who wish to participate in the meeting, by other communications
medium;
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if all directors participating in the meeting, whether in person, or by telephone or other communications
medium, are able to communicate with each other. A director who participates in a meeting in a manner
contemplated by this Section 17.4 is deemed for all purposes of the BCA and these Articles to be present at
the meeting and to have agreed to participate in that manner.
Section 17.5 Calling of Meetings
A director may, and the secretary or an assistant secretary of the Company, if any, on the request of a director
must, call a meeting of the board at any time.
Section 17.6 Notice of Meetings
Other than for meetings held at regular intervals as determined by the board pursuant to Section 17.1 or as
provided in Section 17.7, reasonable notice of each meeting of the board, specifying the place, day and time
of that meeting must be given to each of the directors by any method set out in Section 23.1 or orally or by
telephone.
Section 17.7 When Notice Not Required
It is not necessary to give notice of a meeting of the board to a director if:
(1)
the meeting is to be held immediately following a meeting of shareholders at which that director was
elected or appointed, or is the meeting of the board at which that director is appointed; or
(2)
the director has waived notice of the meeting.
Section 17.8 Meeting Valid Despite Failure to Give Notice
The accidental omission to give notice of any meeting of the board to, or the non-receipt of any notice by,
any director does not invalidate any proceedings at that meeting.
Section 17.9 Waiver of Notice of Meetings
Any director may send to the Company a document signed by him or her waiving notice of any past, present
or future meeting or meetings of the board and may at any time withdraw that waiver with respect to
meetings held after that withdrawal. After sending a waiver with respect to all future meetings and until that
waiver is withdrawn, no notice of any meeting of the board need be given to that director, and all meetings of
the board so held are deemed not to be improperly called or constituted by reason of notice not having been
given to such director.
Attendance of a director at a meeting of the board is a waiver of notice of the meeting, unless that director
attends the meeting for the express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
Section 17.10 Quorum
The quorum necessary for the transaction of the business at a meeting of the board may be set by the board
and, if not so set, is deemed to be set at a majority of the number of directors then in office. If the number of
directors is set at one, the quorum is deemed to be set at one director, and that director may constitute a
meeting.
Section 17.11 Validity of Acts Where Appointment Defective
Subject to the BCA, an act of a director or officer is not invalid merely because of an irregularity in the
election or appointment or a defect in the qualification of that director or officer.
Section 17.12 Consent Resolutions in Writing
A resolution of the board or of any committee of the board may be passed without a meeting:
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(1)
(2)
in all cases, if each of the directors entitled to vote on the resolution consents to it in writing; or
in the case of a resolution to approve a contract or transaction in respect of which a director has
disclosed that he or she has or may have a disclosable interest, if each of the other directors who
have not made such a disclosure consents in writing to the resolution.
A consent in writing under this Section 17.12 may be by any written instrument, fax, e-mail or any other
method of transmitting legibly recorded messages in which the consent of the director is evidenced, whether
or not the signature of the director is included in the record. A consent in writing may be in two or more
counterparts which together are deemed to constitute one consent in writing. A resolution of the board or of
any committee of the board passed in accordance with this Section 17.12 is effective on the date stated in the
consent in writing or on the latest date stated on any counterpart and is deemed to be a proceeding at a
meeting of the board or of the committee of the board and to be as valid and effective as if it had been passed
at a meeting of the board or of the committee of the board that satisfies all the requirements of the BCA and
all the requirements of these Articles relating to meetings of the board or of a committee of the board.
ARTICLE 18
EXECUTIVE AND OTHER COMMITTEES
Section 18.1 Appointment and Powers of Executive Committee
The board may, by resolution, appoint an executive committee consisting of the director or directors that they
consider appropriate, and during the intervals between meetings of the board all of the board's powers are
delegated to the executive committee, except:
(1)
(2)
(3)
(4)
the power to fill vacancies in the board of directors;
the power to remove a director;
the power to change the membership of, or fill vacancies in, any committee of the board; and
such other powers, if any, as may be set out in the resolution or any subsequent directors' resolution.
Section 18.2 Appointment and Powers of Other Committees
The board may, by resolution:
(1)
appoint one or more committees (other than the executive committee) consisting of the director or
directors that they consider appropriate;
(2)
delegate to a committee appointed under paragraph (1) any of the board's powers, except:
(a)
(b)
(c)
(d)
the power to fill vacancies in the board of directors;
the power to remove a director;
the power to change the membership of, or fill vacancies in, any committee of the board; and
the power to appoint or remove officers appointed by the board; and
(3)
make any delegation referred to in paragraph (2) subject to the conditions set out in the resolution or
any subsequent directors' resolution.
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Section 18.3 Obligations of Committees
Any committee appointed under Section 18.1 or Section 18.2, in the exercise of the powers delegated to it,
must:
(1)
(2)
conform to any rules that may from time to time be imposed on it by the board; and
report every act or thing done in exercise of those powers at such times as the board may require.
Section 18.4 Powers of Board
The board may, at any time, with respect to a committee appointed under Section 18.1 or Section 18.2:
(1)
(2)
(3)
revoke or alter the authority given to the committee, or override a decision made by the committee,
except as to acts done before such revocation, alteration or overriding;
terminate the appointment of, or change the membership of, the committee; and
fill vacancies in the committee.
Section 18.5 Committee Meetings
Subject to Section 18.3(1) and unless the board otherwise provides in the resolution appointing the
committee or in any subsequent resolution, with respect to a committee appointed under Section 18.1 or
Section 18.2:
(1)
(2)
(3)
(4)
the committee may meet and adjourn as it thinks proper;
the committee may elect a chair of its meetings but, if no chair of a meeting is elected, or if at a
meeting the chair of the meeting is not present within 15 minutes after the time set for holding the
meeting, the directors present who are members of the committee may choose one of their number to
chair the meeting;
a majority of the members of the committee constitutes a quorum of the committee; and
questions arising at any meeting of the committee are determined by a majority of votes of the
members present, and in the case of an equality of votes, the chair of the meeting does not have a
second or casting vote.
Section 19.1 Board May Appoint Officers
ARTICLE 19
OFFICERS
The board may, from time to time, appoint such officers, if any, as the board determines and the board may,
at any time, terminate any such appointment.
Section 19.2 Functions, Duties and Powers of Officers
The board may, for each officer:
(1)
(2)
determine the functions and duties of the officer;
delegate to the officer any of the powers exercisable by the board on such terms and conditions and
with such restrictions as the board thinks fit; and
(3)
revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.
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Section 19.3 Qualifications
No officer may be appointed unless that officer is qualified in accordance with the BCA. One person may
hold more than one position as an officer of the Company. Any person appointed as the chair of the board
must be a director. Any other officer need not be a director.
Section 19.4 Remuneration and Terms of Appointment
All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by
way of salary, fee, commission, participation in profits or otherwise) that the board thinks fit and are subject
to termination at the pleasure of the board, and an officer may in addition to such remuneration be entitled to
receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or
gratuity.
ARTICLE 20
INDEMNIFICATION
Section 20.1 Definitions
In this Article 20:
(1)
(2)
(3)
(4)
"eligible penalty" means a judgment, penalty or fine awarded or imposed in, or an amount paid in
settlement of, an eligible proceeding;
"eligible proceeding" means a legal proceeding or investigative action, whether current, threatened,
pending or completed, in which a director, former director, officer or former officer of the Company
(an "eligible party") or any of the heirs and legal personal representatives of the eligible party, by
reason of the eligible party being or having been a director of the Company:
(a)
(b)
is or may be joined as a party; or
is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to,
the proceeding;
"expenses" has the meaning set out in the BCA; and
"officer" means a person appointed by the board as an officer of the Company.
Section 20.2 Mandatory Indemnification of Directors
Subject to the BCA, the Company must indemnify a director, former director, officer or former officer of the
Company and his or her heirs and legal personal representatives against all eligible penalties to which such
person is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay
the expenses actually and reasonably incurred by such person in respect of that proceeding. Each director
and officer is deemed to have contracted with the Company on the terms of the indemnity contained in this
Section 20.2.
Section 20.3 Permitted Indemnification
Notwithstanding Section 20.2 and subject to any restrictions in the BCA, the Company may indemnify any
person.
Section 20.4 Non-Compliance with BCA
The failure of a director or officer of the Company to comply with the BCA or these Articles or, if applicable,
any former Articles, does not invalidate any indemnity to which he or she is entitled under this Article 20.
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Section 20.5 Company May Purchase Insurance
The Company may purchase and maintain insurance for the benefit of any person (or his or her heirs or legal
personal representatives) who:
(1)
(2)
(3)
(4)
is or was a director, officer, employee or agent of the Company;
is or was a director, officer, employee or agent of a corporation at a time when the corporation is or
was an affiliate of the Company;
at the request of the Company, is or was a director, officer, employee or agent of a corporation or of
a partnership, trust, joint venture or other unincorporated entity;
at the request of the Company, holds or held a position equivalent to that of a director, or officer of a
partnership, trust, joint venture or other unincorporated entity;
against any liability incurred by him or her as such director, officer, employee or agent or person who holds
or held such equivalent position.
ARTICLE 21
DIVIDENDS
Section 21.1 Payment of Dividends Subject to Special Rights
The provisions of this Article 21 are subject to the rights, if any, of shareholders holding shares with special
rights as to dividends.
Section 21.2 Declaration of Dividends
Subject to the BCA, the board may from time to time declare and authorize payment of such dividends as it
may consider appropriate.
Section 21.3 No Notice Required
The board need not give notice to any shareholder of any declaration under Section 21.2.
Section 21.4 Record Date
The board may set a date as the record date for the purpose of determining shareholders entitled to receive
payment of a dividend. The record date must not precede the date on which the dividend is to be paid by
more than two months. If no record date is set, the record date is 5 p.m. on the date on which the board
passes the resolution declaring the dividend.
Section 21.5 Manner of Paying Dividend
A resolution declaring a dividend may direct payment of the dividend wholly or partly in money or by the
distribution of specific assets or of fully paid shares or of bonds, debentures or other securities of the
Company or any other corporation, or in any one or more of those ways.
Section 21.6
Settlement of Difficulties
If any difficulty arises in regard to a distribution under Section 21.5, the board may settle the difficulty as it
deems advisable, and, in particular, may:
(1)
set the value for distribution of specific assets;
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(2)
determine that money in substitution for all or any part of the specific assets to which any
shareholders are entitled may be paid to any shareholders on the basis of the value so fixed in order
to adjust the rights of all parties; and
(3)
vest any such specific assets in trustees for the persons entitled to the dividend.
Section 21.7 When Dividend Payable
Any dividend may be made payable on such date as is fixed by the board.
Section 21.8 Dividends to be Paid in Accordance with Number of Shares
All dividends on shares of any class or series of shares must be declared and paid according to the number of
such shares held.
Section 21.9 Receipt by Joint Shareholders
If several persons are joint shareholders of any share, any one of them may give an effective receipt for any
dividend, bonus or other money payable in respect of the share.
Section 21.10 Dividend Bears No Interest
No dividend bears interest against the Company.
Section 21.11 Fractional Dividends
If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the
currency of the dividend, that fraction may be disregarded in making payment of the dividend and that
payment represents full payment of the dividend.
Section 21.12 Payment of Dividends
Any dividend or other distribution payable in in respect of shares will be paid by cheque or by electronic
means or by such other method as the directors may determine. The payment will be made to or to the order
of each registered holder of shares in respect of which the payment is to be made. Cheques will be sent to
the registered address of the shareholder, unless the shareholder otherwise directs. In the case of joint
holders, the payment will be made to the order of all such joint holders and, if applicable, sent to them at the
registered address of the joint shareholder who is first named on the central securities register, unless such
joint holders otherwise direct. The sending of the cheque or the sending of the payment by electronic means
or the sending of the payment by a method determined by the directors in an amount equal to the dividend or
other distribution to be paid less any tax that the Company is required to withhold will satisfy and discharge
the liability for the payment, unless payment is not made upon presentation, if applicable, or the amount of
tax so deducted is not paid to the appropriate taxing authority.
Section 21.13 Capitalization of Retained Earnings or Surplus
Notwithstanding anything contained in these Articles, the board may from time to time capitalize any
retained earnings or surplus of the Company and may from time to time issue, as fully paid, shares or any
bonds, debentures or other securities of the Company as a dividend representing the retained earnings or
surplus so capitalized or any part thereof.
ARTICLE 22
ACCOUNTING RECORDS AND AUDITOR
Section 22.1 Recording of Financial Affairs
The board must cause adequate accounting records to be kept to record properly the financial affairs and
condition of the Company and to comply with the BCA.
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Section 22.2
Inspection of Accounting Records
Unless the board determines otherwise, or unless otherwise determined by ordinary resolution, no
shareholder of the Company is entitled to inspect or obtain a copy of any accounting records of the
Company.
Section 22.3 Remuneration of Auditor
The board may set the remuneration of the auditor of the Company.
ARTICLE 23
NOTICES
Section 23.1 Method of Giving Notice
Unless the BCA or these Articles provide otherwise, a notice, statement, report or other record required or
permitted by the BCA or these Articles to be sent by or to a person may be sent by any one of the following
methods:
(1)
mail addressed to the person at the applicable address for that person as follows:
(a)
(b)
for a record mailed to a shareholder, the shareholder's registered address;
for a record mailed to a director or officer, the prescribed address for mailing shown for the
director or officer in the records kept by the Company or the mailing address provided by the
recipient for the sending of that record or records of that class;
(c)
in any other case, the mailing address of the intended recipient;
(2)
delivery at the applicable address for that person as follows, addressed to the person:
(A)
for a record delivered to a shareholder, the shareholder's registered address;
(B)
for a record delivered to a director or officer, the prescribed address for delivery shown for
the director or officer in the records kept by the Company or the delivery address provided
by the recipient for the sending of that record or records of that class;
(C)
in any other case, the delivery address of the intended recipient;
unless the intended recipient is the auditor of the Company, sending the record by fax to the fax
number provided by the intended recipient for the sending of that record or records of that class;
unless the intended recipient is the auditor of the Company, sending the record by e-mail to the e-
mail address provided by the intended recipient for the sending of that record or records of that class;
physical delivery to the intended recipient; or
as otherwise permitted by applicable securities legislation.
(3)
(4)
(5)
(6)
Section 23.2 Deemed Receipt
A notice, statement, report or other record that is:
(1)
mailed to a person by ordinary mail to the applicable address for that person referred to in Section
23.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays
and holidays excepted, following the date of mailing;
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(2)
(3)
faxed to a person to the fax number provided by that person referred to in Section 23.1 is deemed to
be received by the person to whom it was faxed on the day it was faxed; and
e-mailed to a person to the e-mail address provided by that person referred to in Section 23.1 is
deemed to be received by the person to whom it was e-mailed on the day it was e-mailed.
Section 23.3 Certificate of Sending
A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation
acting in that capacity on behalf of the Company stating that a notice, statement, report or other record was
sent in accordance with Section 23.1 is conclusive evidence of that fact.
Section 23.4 Notice to Joint Shareholders
A notice, statement, report or other record may be provided by the Company to the joint shareholders of a
share by providing such record to the joint shareholder first named in the central securities register in respect
of the share.
Section 23.5 Notice to Legal Personal Representatives and Trustees
A notice, statement, report or other record may be provided by the Company to the persons entitled to a share
in consequence of the death, bankruptcy or incapacity of a shareholder by:
(1)
mailing the record, addressed to them:
(a)
(b)
by name, by the title of the legal personal representative of the deceased or incapacitated
shareholder, by the title of trustee of the bankrupt shareholder or by any similar description;
and
at the address, if any, supplied to the Company for that purpose by the persons claiming to
be so entitled; or
(2)
if an address referred to in paragraph (1)(b) has not been supplied to the Company, by giving the
notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not
occurred.
Section 23.6 Undelivered Notices
If, on two consecutive occasions, a notice, statement, report or other record is sent to a shareholder pursuant
to Section 23.1 and on each of those occasions any such record is returned because the shareholder cannot be
located, the Company shall not be required to send any further records to the shareholder until the
shareholder informs the Company in writing of his or her new address.
Section 24.1 Who May Attest Seal
ARTICLE 24
SEAL
Except as provided in Section 24.2 and Section 24.3, the Company's seal, if any, must not be impressed on
any record except when that impression is attested by the signatures of:
(1)
(2)
(3)
any two directors;
any officer, together with any director;
if the Company only has one director, that director; or
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(4)
any one or more directors or officers or persons as may be determined by the board.
Section 24.2
Sealing Copies
For the purpose of certifying under seal a certificate of incumbency of the directors or officers of the
Company or a true copy of any resolution or other document, despite Section 24.1, the impression of the seal
may be attested by the signature of any director or officer or the signature of any other person as may be
determined by the board.
Section 24.3 Mechanical Reproduction of Seal
The board may authorize the seal to be impressed by third parties on share certificates or bonds, debentures
or other securities of the Company as the board may determine appropriate from time to time. To enable the
seal to be impressed on any share certificates or bonds, debentures or other securities of the Company,
whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers
of the Company are, in accordance with the BCA or these Articles, printed or otherwise mechanically
reproduced, there may be delivered to the person employed to engrave, lithograph or print such definitive or
interim share certificates or bonds, debentures or other securities one or more unmounted dies reproducing
the seal and such persons as are authorized under Section 24.1 to attest the Company's seal may in writing
authorize such person to cause the seal to be impressed on such definitive or interim share certificates or
bonds, debentures or other securities by the use of such dies. Share certificates or bonds, debentures or other
securities to which the seal has been so impressed are for all purposes deemed to be under and to bear the
seal impressed on them.
ARTICLE 25
SPECIAL RIGHTS OR RESTRICTIONS
Section 25.1 Common Shares
The Common Shares of the Company shall have attached thereto the following special rights or
restrictions:
(1)
(2)
(3)
Voting. The holders of Common Shares shall be entitled to notice of, and to attend and vote at, all
meetings of shareholders of the Company, and shall be entitled to one vote for each Common Share
held at all meetings of the shareholders of the Company, other than meetings at which only holders
of another specified class or series of shares of the Company are entitled to vote separately as a class
or series.
Dividends. Subject to the rights of the holders of the Preferred Shares, and to any other shares
ranking senior to the Common Shares with respect to priority in the payment of dividends, the
holders of Common Shares shall be entitled to receive dividends, and the Company shall pay
dividends thereon, as and when declared by the board of directors of the Company out of moneys
properly applicable to the payment of dividends, in such amount and in such form as the board may
from time to time determine. All dividends declared on Common Shares shall be declared and paid
in equal amounts per share on all Common Shares at the time outstanding.
Liquidation. In the event of the liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary, or any other distribution of its assets among its shareholders, the holders of
Common Shares shall be entitled to receive the remaining property or assets of the Company
available for distribution pro rata, in proportion to the number of Common Shares held, after
distribution to the holders of the Preferred Shares and any other shares, ranking senior to the
Common Shares with respect to priority in the distribution of assets upon dissolution, liquidation or
winding-up, of the property or assets of the Company to which they are entitled in accordance with
the rights attached to the Preferred Shares or such other shares ranking senior to the Common Shares.
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Section 25.2
Preferred Shares
The Preferred Shares of the Company shall have attached thereto the following special rights or
restrictions:
(1)
(2)
(3)
(4)
Series. The board of directors of the Company may issue the Preferred Shares at any time and from
time to time in one or more series. Before any shares of a particular series are issued, the board shall
fix the number of shares that will form such series and shall determine, subject to the limitations set
out in these Articles, the designation and special rights or restrictions to be attached to the Preferred
Shares of such series, including but without in any way limiting or restricting the generality of the
foregoing, the rate or rates, amount or method or methods of calculation of dividends thereon, the
currency or currencies of payment of dividends, the time and place of payment of dividends, the
consideration and the terms and conditions of any purchase for cancellation, retraction or redemption
rights (if any), the conversion or exchange rights attached thereto (if any), the voting rights attached
thereto (if any) and the terms and conditions of any share purchase plan or sinking fund with respect
thereto. Before the issue of the first shares of a series, the board shall alter these Articles and
authorize the alteration of the Notice of Articles of the Company to create the series and attach
special rights or restrictions to the shares.
Ranking. No special rights or restrictions attached to a series of Preferred Shares shall confer upon
a series a priority in respect of dividends or return of capital over any other series of Preferred
Shares. The Preferred Shares shall be entitled to priority over the Common Shares of the Company
and over any other shares ranking junior to the Preferred Shares with respect to the payment of
dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, or any other distribution of the assets of the
Company among its shareholders for the purpose of winding-up its affairs. If any cumulative
dividends or amounts payable on a return of capital in respect of a series of Preferred Shares are not
paid in full, the Preferred Shares of all series shall participate rateably in respect of such dividends,
including accumulations, if any, in accordance with the sums that would be payable on such shares if
all such dividends were declared and paid in full, and in respect of any repayment of capital in
accordance with the sums that would be payable on such repayment of capital if all sums so payable
were paid in full, provided, however, that in the event of there being insufficient assets to satisfy in
full all such claims as aforesaid, the claims of the holders of the Preferred Shares with respect to
repayment of capital shall first be paid and satisfied and any assets remaining thereafter shall be
applied towards the payment and satisfaction of claims in respect of dividends. The Preferred Shares
of any series may also be given such other preferences not inconsistent with clauses Section 25.2(2)
to Section 25.2(4) hereof over the Common Shares and over any other shares ranking junior to the
Preferred Shares as may be determined in the case of such series of Preferred Shares.
Voting. Except as hereinafter referred to or as otherwise provided by law or in accordance with any
voting rights which may from time to time be attached to any series of Preferred Shares, the holders
of the Preferred Shares as a class shall not be entitled as such to receive notice of, to attend or to vote
at any meeting of the shareholders of the Company.
Approval of Holders of Preferred Shares. The special rights or restrictions attached to the
Preferred Shares as a class may be added to, changed or removed but only with the approval of the
holders of Preferred Shares given as hereinafter specified. The approval of the holders of Preferred
Shares to add to, change or remove any special right or restriction attached to the Preferred Shares as
a class or any other matter requiring the consent of the holders of the Preferred Shares as a class may
be given in such manner as may then be required by law, subject to a minimum requirement that
such approval be given by a resolution passed by the affirmative vote of not less than two-thirds of
the votes cast for such resolution by the holders of Preferred Shares at a meeting called for that
purpose, or signed by all holders of Preferred Shares entitled to vote on that resolution.
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Dated __________________, 2016.
FULL NAME AND SIGNATURE OF ONE OF
THE DIRECTORS PURSUANT TO S. 302(1)(C)
OF THE BUSINESS CORPORATIONS ACT
(BRITISH COLUMBIA)
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APPENDIX"E"
DISSENT PROVISIONS
Record shareholders have the right to dissent in respect of the Continuance. Such right of dissent is
described in the Proxy Statement. The full text of Section 190 of the CBCA is set forth below.
SECTION 190 OF THE CANADA BUSINESS CORPORATIONS ACT
190. (1) Right to dissent. — Subject to sections 191 and 241, a holder of shares of any class of a corporation
may dissent if the corporation is subject to an order under paragraph 192(4)(d) that affects the holder or if the
corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove any provisions restricting or
constraining the issue, transfer or ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any restriction on the business or businesses
that the corporation may carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188;
(e) sell, lease or exchange all or substantially all its property under subsection 189(3); or
(f) carry out a going-private transaction or a squeeze-out transaction.
(2) Further right. — A holder of shares of any class or series of shares entitled to vote under section 176 may
dissent if the corporation resolves to amend its articles in a manner described in that section.
(2.1) If one class of shares. — The right to dissent described in subsection (2) applies even if there is only one
class of shares.
(3) Payment for shares. — In addition to any other right the shareholder may have, but subject to subsection
(26), a shareholder who complies with this section is entitled, when the action approved by the resolution from which
the shareholder dissents or an order made under subsection 192(4) becomes effective, to be paid by the corporation the
fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day
before the resolution was adopted or the order was made.
(4) No partial dissent. — A dissenting shareholder may only claim under this section with respect to all the
shares of a class held on behalf of any one non-record owner and registered in the name of the dissenting shareholder.
(5) Objection. — A dissenting shareholder shall send to the corporation, at or before any meeting of
shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the
resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right
to dissent.
(6) Notice of resolution. — The corporation shall, within ten days after the shareholders adopt the resolution,
send to each shareholder who has filed the objection referred to in subsection (5) notice that the resolution has been
adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn
their objection.
(7) Demand for payment. — A dissenting shareholder shall, within twenty days after receiving a notice under
subsection (6) or, if the shareholder does not receive such notice, within twenty days after learning that the resolution
has been adopted, send to the corporation a written notice containing
(a) the shareholder’s name and address;
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(b) the number and class of shares in respect of which the shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
(8) Share certificate. — A dissenting shareholder shall, within thirty days after sending a notice under
subsection (7), send the certificates representing the shares in respect of which the shareholder dissents to the
corporation or its transfer agent.
(9) Forfeiture. — A dissenting shareholder who fails to comply with subsection (8) has no right to make a
claim under this section.
(10) Endorsing certificate. — A corporation or its transfer agent shall endorse on any share certificate received
under subsection (8) a notice that the holder is a dissenting shareholder under this section and shall forthwith return the
share certificates to the dissenting shareholder.
(11) Suspension of rights. — On sending a notice under subsection (7), a dissenting shareholder ceases to have
any rights as a shareholder other than to be paid the fair value of their shares as determined under this section except
where
(a) the shareholder withdraws that notice before the corporation makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance with subsection (12) and the shareholder withdraws the
notice, or
(c) the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5), terminate an
amalgamation agreement under subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9), in which case the shareholder’s rights
are reinstated as of the date the notice was sent.
(12) Offers to pay. — A corporation shall, not later than seven days after the later of the day on which the
action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (7),
send to each dissenting shareholder who has sent such notice
(a) a written offer to pay for their shares in an amount considered by the directors of the corporation to be the
fair value, accompanied by a statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable lawfully to pay dissenting shareholders for their
shares.
(13) Same terms. — Every offer made under subsection (12) for shares of the same class or series shall be on
the same terms.
(14) Payment. — Subject to subsection (26), a corporation shall pay for the shares of a dissenting shareholder
within ten days after an offer made under subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has been made.
(15) Corporation may apply to court. — Where a corporation fails to make an offer under subsection (12), or
if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by
the resolution is effective or within such further period as a court may allow, apply to a court to fix a fair value for the
shares of any dissenting shareholder.
(16) Shareholder application to court. — If a corporation fails to apply to a court under subsection (15), a
dissenting shareholder may apply to a court for the same purpose within a further period of twenty days or within such
further period as a court may allow.
E-2
(17) Venue. — An application under subsection (15) or (16) shall be made to a court having jurisdiction in the
place where the corporation has its registered office or in the province where the dissenting shareholder resides if the
corporation carries on business in that province.
(18) No security for costs. — A dissenting shareholder is not required to give security for costs in an
application made under subsection (15) or (16).
(19) Parties. — On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased by the corporation shall be joined as
parties and are bound by the decision of the court; and
(b) the corporation shall notify each affected dissenting shareholder of the date, place and consequences of the
application and of their right to appear and be heard in person or by counsel.
(20) Powers of court. — On an application to a court under subsection (15) or (16), the court may determine
whether any other person is a dissenting shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(21) Appraisers. — A court may in its discretion appoint one or more appraisers to assist the court to fix a fair
value for the shares of the dissenting shareholders.
(22) Final order. — The final order of a court shall be rendered against the corporation in favour of each
dissenting shareholder and for the amount of the shares as fixed by the court.
(23) Interest. — A court may in its discretion allow a reasonable rate of interest on the amount payable to each
dissenting shareholder from the date the action approved by the resolution is effective until the date of payment.
(24) Notice that subsection (26) applies. — If subsection (26) applies, the corporation shall, within ten days
after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(25) Effect where subsection (26) applies. — If subsection (26) applies, a dissenting shareholder, by written
notice delivered to the corporation within thirty days after receiving a notice under subsection (24), may
(a) withdraw their notice of dissent, in which case the corporation is deemed to consent to the withdrawal and
the shareholder is reinstated to their full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to
do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority
to its shareholders.
(26) Limitation. — A corporation shall not make a payment to a dissenting shareholder under this section if
there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its liabilities as they become due; or
(b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities.
E-3
FINANCIAL INFORMATION
Management’s Discussion and Analysis
Consolidated Financial Statements
F-1
MANAGEMENT’S DISCUSSION AND ANALYSIS
This discussion and analysis of financial condition and results of operations of Ballard Power
Systems Inc. (“Ballard”, “the Company”, “we”, “us” or “our”) is prepared as at February 24,
2016 and should be read in conjunction with our audited consolidated financial statements
and accompanying notes for the year ended December 31, 2015. The results reported
herein are presented in U.S. dollars unless otherwise stated and have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board. Additional information relating to the Company,
including our Annual Information Form, is filed with Canadian (www.sedar.com) and U.S.
securities regulatory authorities (www.sec.gov) and is also available on our website at
www.ballard.com.
BUSINESS OVERVIEW
At Ballard, we are building a clean energy growth company. We are recognized as a world
leader in proton exchange membrane (“PEM”) fuel cell development and commercialization.
Our principal business is the design, development, manufacture, sale and service of fuel cell
products for a variety of applications, focusing on our power product markets of Heavy-Duty
Motive (consisting of bus and tram applications), Portable Power, Material Handling and
Telecom Backup Power, as well as the delivery of Technology Solutions including
engineering services and the license and sale of our extensive intellectual property portfolio
and fundamental knowledge for a variety of fuel cell applications.
A fuel cell is an environmentally clean electrochemical device that combines hydrogen fuel
with oxygen (from the air) to produce electricity. The hydrogen fuel can be obtained from
natural gas, kerosene, methanol or other hydrocarbon fuels, or from water through
electrolysis. Ballard fuel cell products feature high fuel efficiency, low operating
temperature, low noise and vibration, compact size, quick response to changes in electrical
demand, modular design and environmental cleanliness. Embedded in each Ballard PEM fuel
cell product lies a stack of unit cells designed with our proprietary technology which draws
on intellectual property from our patent portfolio together with our extensive experience and
know-how in key areas of fuel cell stack design, operation, system integration, and fuel
processing.
We provide our customers with the positive economic and environmental benefits unique to
fuel cell power. We plan to build value for our shareholders by developing, manufacturing,
selling and servicing industry-leading fuel cell products to meet the needs of our customers
in select target markets.
Our business strategy is a two-pronged approach to build shareholder value through the
sale and service of power products and the delivery of technology solutions. In power
product sales, our focus is on meeting the power needs of our customers by delivering high
value, high reliability, high quality and innovative clean energy power products that reduce
customer costs and risks. Through technology solutions, our focus is on enabling our
customers to solve their technical and business challenges and accelerate their fuel cell
programs by delivering customized, high value, bundled technology solutions, including
specialized engineering services, access to our deep intellectual property portfolio and
know-how through licensing or sale, and providing technology component supply.
Page 1 of 53
We are based in Canada, with head office, research and development, testing,
manufacturing and service facilities in Burnaby, British Columbia. In the United States, we
have research and development facilities in Bend, Oregon, and have a sales, manufacturing,
and research and development facility in Southborough, Massachusetts. We use a contract
manufacturing facility in Tijuana, Mexico. We also have a sales, service and research and
development facility in Hobro, Denmark.
RECENT DEVELOPMENTS
As part of the Company’s rationalization and renewal initiatives, Ballard announces that
three executives – Paul Cass, COO, Dr. Christopher Guzy, CTO, and Steve Karaffa, CCO –
will be departing from the Company by March 31, 2016. Responsibilities of the departing
executives have now been assumed by internal personnel: David Whyte has been promoted
from Director, Operations to VP, Operations, flattening and eliminating duplication in the
Operations reporting structure; Dr. Kevin Colbow is now VP, Technology and Product
Development, also retaining his current responsibility for Technology Solutions; and Karim
Kassam is now VP, Commercial, also retaining his current responsibility for Business and
Corporate Development. These senior management changes eliminate three C-level
positions through rationalization and consolidation, while providing an opportunity for new
approaches in these roles.
On December 31, 2008, we completed a restructuring agreement (“Arrangement”) with
Superior Plus Income Fund (“Superior Plus”), whereby Ballard caused its entire business and
operations, including all assets and liabilities, to be transferred to a new corporate entity,
such that the new corporate entity held all of the same assets, liabilities, directors,
management and employees as Ballard formerly had under its old corporate entity, except
for its tax attributes. The Arrangement included an indemnification agreement (the
"Indemnity Agreement") which set out each party’s continuing obligations to the other
including a provision for adjustments to be paid by us, or to us, depending on the final
determination of the amount of our Canadian non-capital losses, scientific research and
development expenditures and investment tax credits generated to December 31, 2008, to
the extent that such amounts are more or less than the amounts estimated at the time the
Arrangement was executed. In 2015, we reached agreement and signed mutual releases
with Superior Plus as to the full and final amount payable to us under the Indemnity
Agreement and received additional cash proceeds of approximately $3.3 million (Canadian
$4.6 million) in February 2016. The cash proceeds receivable have been recorded as a
credit to shareholders’ equity as of December 31, 2015 consistent with the accounting for
the original transaction in 2008.
On January 21, 2016, we announced the signing of an equipment supply agreement, valued
at $12 million, with an existing partner in China, Guangdong Synergy Hydrogen Power
Technology Co., Ltd. (“Synergy”) to provide FCvelocityTM-9SSL fuel cell stacks for range
extension applications in commercial vehicles in China. Ballard expects to deliver the stacks
in 2016 and 2017. Synergy will collaborate with Dongfeng Xiangyangtouring Car Co., Ltd.
(“DFAC”), which is part of Dongfeng Motor Corporation, a Chinese state-owned automobile
manufacturer headquartered in Wuhan. Dongfeng Motor Corporation is the largest
manufacturer of commercial vehicles in China. Amounts earned from this agreement (nil in
fiscal 2015) will be recorded as Heavy-Duty Motive revenues.
Page 2 of 53
On December 29, 2015, we announced that our subsidiary, Protonex Technology
Corporation (“Protonex”), had received a follow-on purchase order from the U.S. Army for
more than 400 Squad Power Manager (SPM-622) Special Operations Kits, with a value of
approximately $2.8 million. The purchase order was issued by the Program Executive Office
– Soldier which has responsibility for acquiring man-worn and carried equipment utilized by
U.S. Army Soldiers. The SPM-622 product has been developed and is produced by the
Protonex engineering and operations team at the company’s facility in Southborough,
Massachusetts for Military use. To date more than 4,000 Power Managers have been trialed
and deployed by the United States and allied Militaries. Amounts earned from this
agreement ($1.7 million in the fourth quarter of 2015) are recorded as Portable Power
revenues.
On November 10, 2015, we announced that we had closed a $5 million strategic equity
investment in Ballard by Nisshinbo Holdings Inc. (“Nisshinbo”) in Japan, as previously
announced on October 27, 2015. The investment was made through a private placement
subscription of approximately 3.3 million Ballard common shares issued from treasury at
$1.5049 per share (based on a 10-day volume weighted average share price calculation).
We intend to use the proceeds from the financing for general corporate purposes, including
the potential funding of future acquisitions or investments in complementary businesses,
products or technologies. The common shares issued are subject to a four-month hold
period expiring on March 10, 2016 in accordance with applicable securities laws. Nisshinbo
is an “Environmental and Energy Company” providing low-carbon, optimized products
across a range of business lines, including chemicals, precision instruments, electronics,
automotive brakes, textiles and paper. Nisshinbo has been a long-time leading global
supplier of carbon plates, used in the construction of membrane electrode assemblies
(“MEA’s”), to the fuel cell industry. On January 20, 2016, we announced that we had
received a follow-on purchase order from Nisshinbo for a further phase of a Technology
Solutions program related to the development of a breakthrough catalyst technology
intended to reduce the cost of certain proton exchange membrane (PEM) fuel cells. The
program, now entering its seventh phase, has been underway for approximately 2.5 years.
On November 1, 2015, we announced that the signing of a definitive agreement with
Tangshan Railway Vehicle Company, Limited (“TRC”) for the development of a new fuel cell
module that will be designed to meet the requirements of tram or Modern Ground Rail
Transit Equipment applications. This agreement, with a value of approximately $3 million,
contemplates that TRC trams will use next-generation Ballard fuel cell power modules
designed specifically for the Modern Ground Rail Transit Equipment application, with a target
of powering the initial prototype by 2016. The purpose-designed product is expected to
deliver at least 200 kilowatts of power. Amounts earned from this agreement ($0.5 million
in the fourth quarter of 2015) are recorded as Technology Solutions revenue.
On October 1, 2015, we completed the acquisition of Protonex, a leading designer and
manufacturer of advanced power management products and portable fuel cell solutions. The
signing of a definitive agreement to acquire Protonex was previously announced on June 29,
2015. As consideration for the transaction, we assumed and paid certain of Protonex’ debt
obligations and transaction costs on closing of approximately $3.8 million, and issued
approximately 11.4 million of Ballard shares at fair value of $1.20 per share, or
Page 3 of 53
approximately $13.7 million, for total purchase consideration of $17.5 million.
On September 28, 2015, we announced the signing of a joint development agreement and a
supply agreement to develop and commercialize a fuel cell engine specifically designed for
integration into low floor trams manufactured by CRRC Qingdao Sifang Company, Ltd.
(CRRC Sifang), a Chinese rolling stock manufacturer. The agreements include delivery
expected in 2016 of ten customized FCvelocity® modules and have an initial expected value
of approximately $6 million. Ballard plans to develop a new prototype configuration of its
FCvelocity® fuel cell module to deliver 200 kilowatts of net power for use in powering trams
in urban deployments. An initial deployment of eight fuel cell-powered trams is planned by
CRRC Sifang and the City of Foshan on the Gaoming Line starting in 2017. Amounts earned
from this agreement (nil in fiscal 2015) will be recorded as either Heavy-Duty Motive or
Technology Solutions revenues depending on the nature of work performed.
On September 25, 2015, we announced the signing of a long-term license and supply
agreement with Synergy to provide fuel cell power products and technology solutions in
support of the planned deployment of approximately 300 fuel cell-powered buses in the
cities of Foshan and Yunfu, China. The agreement has an estimated initial value of
approximately $17 million expected through 2016, with the opportunity for significant
recurring royalties starting in 2017. The agreement includes supply and sale of fully-
assembled fuel cell power modules, ready-to-assemble module kits, a technology license for
localization of assembly, supply of proprietary fuel cell stacks and long-term recurring
royalties leveraged to unit volumes of locally assembled modules. Amounts earned from this
agreement ($2.9 million in the fourth quarter of 2015) are recorded as either Heavy-Duty
Motive or Technology Solutions revenues depending on the nature of work performed.
On September 24, 2015, we announced that we are developing, and plan to launch, two
new configurations of our FCvelocity®-HD7 fuel cell module in 2016. The two new module
configurations will expand Ballard’s product portfolio and provide customers with increased
flexibility to address a range of emerging power needs in heavy-duty transit applications,
such as buses. Ballard’s latest-generation FCvelocity®-HD7 was launched in a 90kW net
power configuration in June 2015 at the UITP World Congress and Exhibition in Milan, Italy.
This initial 90kW configuration will typically be used to power large urban transit buses. The
two new product configurations are expected to deliver net power of 30kW and 60kW,
respectively, and are expected to be launched for commercial deployments in 2016 to power
smaller buses and provide range extension solutions. During fiscal 2015, $1.4 million of
FCvelocity®-HD7 development costs were capitalized as fuel cell technology intangible
assets.
On July 22, 2015, we announced the signing of an agreement to provide a 1 megawatt
(1MW) ClearGen™ fuel cell distributed generation system for Hydrogène de France (“HDF”)
which will be deployed at an AkzoNobel sodium chlorate chemical plant in Bordeaux
Métropole, France. In addition, Ballard will provide engineering services support for the
program. The program will be partially funded by the EU Fuel Cells and Hydrogen Joint
Undertaking (FCH-JU), with the remaining funding expected to be provided by HDF and its
partners. The program agreement is structured in two phases. Under the first phase,
targeted for completion in mid-2016, Ballard received an initial payment of €1.7 million to
undertake engineering services and core component development work. Under the second
Page 4 of 53
phase, targeted for completion in 2017, Ballard is expected to receive an additional €1.7
million for onsite assembly and commissioning, subject to HDF securing necessary funding
to complete the project. Amounts earned from this agreement ($0.7 million in the fourth
quarter of 2015 and $0.8 million in fiscal 2015) are recorded as Technology Solutions
revenue.
On July 7, 2015, we closed an underwritten offering (“July 2015 Offering”) of 9.3 million
common shares for gross proceeds of approximately $15.0 million, which included the
exercise in full by the underwriters of their option to purchase up to an additional 15% of
common shares to cover over-allotments. Net proceeds to Ballard were approximately $13.4
million, after deducting underwriting discounts, commissions and other offering expenses.
During fiscal 2015, we used the net proceeds of $13.4 million in pursuit of our ongoing
general business objectives including the funding of our 2015 working capital requirements,
and for the continuing development and marketing of our proprietary technologies and core
products.
On June 8, 2015, we announced the signing of definitive license and supply agreements
with Nantong Zehe New Energy Technology Co., Ltd. (“Nantong Zehe”) and Synergy to
provide fuel cell power products and technology solutions to support the planned
deployment of an initial 33 fuel cell-powered buses in two Chinese cities. The agreements
have an estimated value of approximately $10 million, the majority of which was recognized
in 2015. The agreements include an initial order from Nantong Zehe (announced in April
2015) for the supply of FCvelocity®-HD7 bus power modules to power eight buses in
addition to new orders for the supply of additional power products and technology solutions
including a non-exclusive license for local assembly of FCvelocity®-HD7 bus power modules
for use in clean energy buses in China. In addition, Ballard will be the exclusive supplier of
its proprietary fuel cell stacks for use in power modules assembled in China under these
agreements. Amounts earned from these agreements ($0.9 million in the fourth quarter of
2015 and $8.6 million in fiscal 2015) are recorded as either Heavy-Duty Motive or
Technology Solutions revenues depending on the nature of work performed.
On February 11, 2015, we entered
into a transaction with Volkswagen Group
(“Volkswagen”) to transfer certain automotive-related fuel cell intellectual property for an
aggregate amount of approximately $80 million including the benefits of a two-year
extension of our existing technology development and engineering services agreement with
Volkswagen previously announced on March 6, 2013 (see below for additional details).
Under the transfer agreement (“Volkswagen IP Agreement”), Ballard will transfer to
Volkswagen the ownership of the automotive-related portion of the fuel cell intellectual
property assets previously acquired by us from United Technologies Corporation (“UTC”) on
April 24, 2014 (the “UTC Portfolio”) through two separate transactions for total gross
proceeds of $50 million:
(i)
On the closing of the initial transaction on February 23, 2015, Ballard transferred
ownership of the automotive-related patents and patent applications of the UTC
Portfolio in exchange for gross proceeds of $40 million. This receipt triggered a 25%,
or $10.0 million, license fee payment to UTC. Although ownership of the patents and
patent applications was transferred to Volkswagen, Ballard received a royalty-free
back-license to all the transferred patents and patent applications for use in all non-
Page 5 of 53
(ii)
automotive applications, in bus applications and in certain limited pre-commercial
automotive applications.
On the closing of the second transaction on December 2, 2015, Ballard transferred a
copy of the automotive-related know-how of the UTC Portfolio in exchange for gross
proceeds receivable of $10 million. This receipt (expected to be collected in the first
quarter of 2016 net of applicable withholding taxes that are expected to be
recovered in fiscal 2016) will trigger a 9%, or $0.9 million, payment to UTC in fiscal
2016. On the closing of the sale of a copy of the know-how, Ballard retained full
ownership of the know-how including the right to sell additional copies of the know-
how to third parties as well as retaining the right to use the know-how in all our
applications.
On the closing of the sale of the automotive-related patents and patent applications of the
UTC Portfolio in the first quarter of 2015, we recognized a gain on sale of intellectual
property of $14.2 million on net proceeds received of $29.5 million. On the closing of the
sale of a copy of the automotive-related know-how in the fourth quarter of 2015, we
recognized an additional gain on sale of intellectual property of $5.4 million on net proceeds
receivable of approximately $9.1 million.
On January 2, 2015, we announced that we had given termination notice on two licensing
agreements in the China market as a result of material breaches of these agreements by
Azure Hydrogen Energy Science and Technology Corporation (“Azure”). The first license
agreement (the “Azure Bus Licensing Agreement”), originally announced on September 26,
2013, related to the assembly of Ballard’s FCvelocity®-HD7 Bus power modules for the
Chinese market. The second license agreement (the “Azure Telecom Backup Power
Licensing Agreement”), announced on June 19, 2014, related to the assembly of Ballard’s
ElectraGen® Telecom Backup Power systems in China for the Chinese market. As a result of
Azure’s breaches under both contracts, and notwithstanding Ballard’s good faith efforts to
reach a settlement, we provided notice of termination of both agreements and recorded an
impairment loss on trade receivables of $4.4 million in the fourth quarter of 2014 as we fully
impaired all outstanding amounts owed by Azure. In June 2015, we agreed to a mutual
release with Azure (“Azure Mutual Release Agreement”) whereby each party mutually
released and forever discharged each other from any and all liability arising from the above
noted licensing agreements. Pursuant to the Azure Mutual Release Agreement, Azure
returned for cancellation its 10% ownership position in Dantherm Power to Dantherm Power
for $nil proceeds, upon which the shares were cancelled by Dantherm Power. Following such
cancellation, Ballard’s controlling ownership position in Dantherm Power was increased from
52% to 57%. Amounts earned from the Azure Bus Licensing Agreement (nil in fiscal 2015,
nil in the fourth quarter of 2014, and $4.9 million in fiscal 2014) and the Azure Telecom
Backup Power Licensing Agreement (nil in fiscal 2015, nil in the fourth quarter of 2014, and
$3.8 million in fiscal 2014) prior to the contract termination and subsequent mutual release
are recorded as Technology Solutions revenues.
During 2015, a total of 0.1 million share purchase warrants were exercised for Ballard
common shares generating net proceeds of $0.2 million. During 2014, a total of 7.9 million
share purchase warrants were exercised for Ballard common shares generating net
proceeds of $12.3 million. The share purchase warrants were issued as part of two
Page 6 of 53
underwritten offerings which closed in March 2013 and October 2013. As of December 31,
2015, 0.1 million share purchase warrants (exercisable at $1.50 per share to March 2018)
from the March 2013 underwritten offering and 1.7 million share purchase warrants
(exercisable at $2.00 per share to October 2018) from the October 2013 underwritten
offering remain outstanding.
During 2015, a total of 0.3 million employee share purchase options were exercised for
Ballard common shares generating proceeds of $0.4 million. During 2014, a total of 3.6
million employee share purchase options were exercised for Ballard common shares
generating proceeds of $6.8 million. As of December 31, 2015, 5.5 million share purchase
options at a variety of prices and vesting dates remain outstanding.
On October 8, 2014, we completed a long term supply agreement with Plug Power Inc
(“Plug Power”) to provide fuel cell stacks for use in Plug Power’s GenDrive™ systems
deployed in forklift trucks. The new supply agreement replaced an existing agreement and
runs to the end of 2017, with the provision for two 1-year potential extensions.
On April 24, 2014, we acquired the transportation and stationary related fuel cell intellectual
property assets of United Technologies Corporation (“UTC”) for total consideration of $22.3
million. The UTC Portfolio consisted of approximately 800 patents and patent applications,
as well as patent licenses, invention disclosures and know-how primarily related to PEM fuel
cell technology. In addition to incremental intellectual property licensing revenue or sale
opportunities, the acquired intellectual property assets will support other key elements of
Ballard’s corporate strategy: engineering service capabilities will be expanded in both
automotive and non-automotive markets; and fuel cell product sales will be accelerated
through product development initiatives in areas such as durability and balance of plant
simplification. As consideration for the acquired intellectual property assets, UTC received
5.1 million Ballard common shares valued at $20.3 million, $2 million in cash, a grant back
license to use the patent portfolio in UTC’s existing businesses, and a portion (typically
25%) of Ballard’s future intellectual property sale and licensing income generated from the
combined intellectual property portfolio for a period of 15-years expiring in April 2029. On
February 11, 2015, we entered into an agreement with Volkswagen to transfer the
automotive-related portion of the UTC Portfolio to Volkswagen in two separate transactions
for total payments of $50 million (which will trigger total payments to UTC of $10.9 million;
of which $10.0 million was paid in fiscal 2015) while retaining a royalty-free back-license to
utilize the entire UTC Portfolio in all non-automotive applications, in bus applications and in
certain limited pre-commercial purposes in automotive applications. We retain a royalty
obligation to pay UTC a portion (typically 25%) of any additional future intellectual property
sale and licensing income generated from our intellectual property portfolio until April 2029.
On March 6, 2013, we entered into a technology development and engineering services
agreement with Volkswagen to advance development of fuel cells for use in powering
demonstration cars in Volkswagen’s fuel cell automotive research program. The initial
contract term was 4-years commencing in March 2013, with an option by Volkswagen for a
2-year extension. The initial expected 4-year contract value was in the range of
approximately $60 - $100 million Canadian. On closing of the Volkswagen IP Agreement in
February 2015, this technology development and engineering services was extended 2-
years to February 2019. Over the full 6-years, this technology development and engineering
Page 7 of 53
services contract now has an estimated value of Canadian $100-140 million and is focused
on the design and manufacture of next-generation fuel cell stacks for use in Volkswagen’s
fuel cell demonstration car program. Volkswagen also retains an option to further extend
this program by 2-years to February 2021. Amounts earned from this agreement
(approximately $3.6 million in the fourth quarter of 2015, $14.5 million in fiscal 2015, $4.0
million in the fourth quarter of 2014, and $18.5 million in fiscal 2014) are recorded as
Technology Solutions revenues.
OPERATING SEGMENTS
We report our results in the single operating segment of Fuel Cell Products and Services.
Our Fuel Cell Products and Services segment consists of the sale and service of fuel cell
products for our power product markets of Heavy-Duty Motive (consisting of bus and tram
applications), Portable Power, Material Handling and Telecom Backup Power, as well as the
delivery of Technology Solutions including engineering services and the license and sale of
our extensive intellectual property portfolio and fundamental knowledge for a variety of fuel
cell applications.
We made changes to the composition of revenues in our Fuel Cell Products and Services
segment in 2015. As a result, licensing revenues of nil for the fourth quarter of 2014 and
$6.3 million for fiscal 2014 previously recorded as either Heavy-Duty Motive revenues,
Material Handling revenues, or Telecom Backup Power revenues have been retroactively
reclassified as Technology Solutions revenues.
SELECTED ANNUAL FINANCIAL INFORMATION
Results of Operations
Year ended,
2015
2014
2013
(Expressed in thousands of U.S. dollars, except per share
amounts and gross margin %)
From continuing operations
Revenues
Gross margin
Gross margin %
Cash Operating Costs (1)
Adjusted EBITDA (1)
Normalized Net Loss (1)
Normalized Net Loss per share
Net loss from continuing operations attributable to Ballard
Net loss per share attributable to Ballard, basic and diluted
From discontinued operations
Net earnings (loss) from discontinued operations
Net earnings (loss) per share from discontinued operations
$
$
$
$
$
$
$
$
$
$
56,463
9,974
18%
29,050
(15,259)
(24,791)
(0.18)
(5,815)
(0.04)
-
-
$
$
$
$
$
$
$
$
$
$
68,721
10,246
15%
26,367
(18,635)
(21,833)
(0.17)
(28,188)
(0.22)
320
-
$
$
$
$
$
$
$
$
$
$
Financial Position
(expressed in thousands of U.S. dollars)
2015
At December 31,
2014
61,251
16,759
27%
28,084
(8,188)
(18,056)
(0.18)
(19,988)
(0.20)
24
-
2013
Total assets
$
161,331
$
127,949
$
120,214
Cash, cash equivalents and short-term investments
1 Cash Operating Costs, Adjusted EBITDA, Normalized Net Loss and Normalized Net Loss per share are non-GAAP measures. We use certain Non-GAAP
measures to assist in assessing our financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are
therefore unlikely to be comparable to similar measures presented by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP
Measures section.
$
40,049
$
23,671
$
30,301
Page 8 of 53
2015 Performance compared to 2015 Business Outlook
Although we did not provide formal revenue guidance for 2015, we did indicate that we
expected the positive top-line growth trends in 2012 through 2014 to continue in 2015 as
we continued to pursue our growth strategy for fuel cell product sales, engineering services
and intellectual property licensing and sale. While our strategic focus on multiple fuel cell
product markets, engineering services and intellectual property monetization serves to
mitigate risk, the resulting cadence in customer demand can be uneven through the early
stages of market development. As such and given this early stage of fuel cell market
development and adoption rate, our financial results on a quarterly basis are subject to a
high degree of variability.
Actual revenues of $56.5 million in 2015 declined (18%), or ($12.3) million, compared to
2014. Actual revenues in 2015 were lower than internal revenue expectations for 2015,
primarily as a result of lower than planned Telecom Backup Power revenues driven by a
significant decline in shipments of methanol-based backup power systems and hydrogen-
based backup power stacks. New customer deployments of Telecom Backup Power system
and stack solutions also continued to be negatively impacted by the relatively long,
protracted sales cycle that includes additional time required for qualification, onsite testing,
field trialing and certification. We continue to review strategic alternatives for our Telecom
Backup Power business, including a possible sale, joint venture or orderly wind-up of this
business.
RESULTS OF OPERATIONS – Fourth Quarter of 2015
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Fuel Cell Products and
Services
Heavy-Duty Motive
$
Portable Power
Material Handling
Telecom Backup Power
Technology Solutions
Revenues
Cost of goods sold
Gross Margin
Gross Margin %
2015
4,068
3,398
4,053
1,622
6,844
19,986
16,168
2014
$ Change
% Change
$
2,120
$
-
4,316
3,116
6,095
15,647
18,680
1,948
3,398
(263)
(1,494)
749
4,339
(2,512)
92%
100%
(6%)
(48%)
12%
28%
(13%)
$
3,818
$
(3,033)
$
6,851
226%
19%
(19%)
n/a
38 pts
Fuel Cell Products and Services Revenues of $20.0 million for the fourth quarter of 2015
increased 28%, or $4.3 million, compared to the fourth quarter of 2014. The 28% increase
was driven by higher Heavy-Duty Motive, Portable Power and Technology Solutions
revenues, which more than offset a decrease in Telecom Backup Power revenues as Material
Handling revenues were relatively flat.
Technology Solutions revenues of $6.8 million increased $0.7 million, or 12%, due primarily
to amounts earned in 2015 on the HDF distributed generation project, the TRC tram project
and from Nantong Zehe for bus licensing and engineering services work. These increases
Page 9 of 53
more than offset a decline in Volkswagen service revenues which were negatively impacted
by approximately ($0.6) million in the fourth quarter of 2015, as compared to the fourth
quarter of 2014, as a result of an approximate (18%) lower Canadian dollar, relative to the
U.S. dollar, as the Volkswagen Agreement is priced in Canadian dollars. The underlying
costs to satisfy the Volkswagen Agreement are primarily denominated in Canadian dollars.
Heavy-Duty Motive revenues of $4.1 million increased $1.9 million, or 92%, due to higher
bus revenues as a result of significantly higher shipments of FCvelocity®-HD7 bus power
modules and FCvelocity®-HD7 bus module part kits in the fourth quarter of 2015 primarily
to our customers, Synergy and Nantong Zehe in China.
Material Handling revenues of $4.1 million decreased ($0.3) million, or (6%), primarily as a
result of the pass-through of the benefit of lower platinum commodity prices to our
customer, Plug Power, as overall stack shipments were relatively flat.
Portable Power revenues of $3.4 million in the fourth quarter of 2015 were generated by
Protonex subsequent to our acquisition on October 1, 2015. Protonex is a leading designer
and manufacturer of advanced power management products and portable fuel cell solutions.
Telecom Backup Power revenues of $1.6 million decreased ($1.5) million, or (48%), due to
a significant decline in shipments of methanol-based backup power systems, which more
than offset the increase in shipments of hydrogen-based backup power systems. New
customer deployments of Telecom Backup Power system and stack solutions also continued
to be negatively impacted by the relatively long, protracted sales cycle that includes
additional time required for qualification, onsite testing, field trialing and certification. We
continue to review strategic alternatives for our Telecom Backup Power business, including a
possible sale, joint venture or orderly wind-up of this business.
Fuel Cell Products and Services gross margins improved to $3.8 million, or 19% of
revenues, for the fourth quarter of 2015, compared to ($3.0) million, or (19%) of revenues,
for the fourth quarter of 2014. The significant improvement in gross margin of $6.9 million,
or 226%, was driven by the 28% increase in overall revenues combined with the 38 point
improvement in gross margin as a percent of revenues.
Gross margin in the fourth quarter of 2015 benefited from the increase in shipments of
higher margin Heavy-Duty Motive products and services and by the increase in Portable
Power shipments and services as a result of the recent acquisition of Protonex. In addition,
gross margin in the fourth quarter of 2014 was adversely impacted by negative warranty
and inventory charges. Negative net warranty adjustments of ($3.7) million were
recognized in the fourth quarter of 2014 relating primarily to an increase in customer
service related expenses in our Telecom Backup Power market as a result of fuel processor
issues in a select Asian deployment, compared to net positive warranty adjustments of $0.5
million in the fourth quarter of 2015. Negative inventory impairments of ($0.6) million were
recognized in the fourth quarter of 2014 relating primarily to excess distributed generation
and other excess and obsolete inventory, compared to negative inventory impairments of
($0.4) million in the fourth quarter of 2015 relating primarily to excess bus inventory as we
transition from FCvelocity®-HD6 bus products to FCvelocity®-HD7 bus products.
Page 10 of 53
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Research and Product
Development (operating cost)
General and Administrative
(operating cost)
Sales and Marketing (operating cost)
Cash Operating Costs
$
2015
2014
$ Change
% Change
$
3,065
$
3,700
$
(635)
(17%)
2,806
1,858
7,729
2,545
1,586
261
272
$
7,831
$
(102)
10%
17%
(1%)
Cash Operating Costs is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP measures
do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other
companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating expenses for stock-
based compensation expense, depreciation and amortization, impairment losses on trade receivables, restructuring charges, acquisition costs and
financing charges.
Cash Operating Costs (see Supplemental Non-GAAP Measures) for the fourth quarter of
2015 were $7.7 million, a decrease of ($0.1) million, or (1%), compared to the fourth
quarter of 2014. The (1%) decrease in the fourth quarter of 2015 was driven by lower
research and product development operating costs which were partially offset by slightly
higher general and administrative and sales and marketing operating costs.
Research and product development operating costs for the fourth quarter of 2015 were $3.1
million, a decrease of ($0.6) million, or (17%), compared to the fourth quarter of 2014. The
(17%) decrease was driven primarily by increased government funding as recoveries in
Denmark by Dantherm Power were up significantly, by the capitalization in the fourth
quarter of 2015 of $0.8 million of FCvelocity®-HD7 development costs as fuel cell
technology intangible assets, and by lower labour costs in Canada as a result of an
approximate (18%) lower Canadian dollar, relative to the U.S. dollar, and the resulting
positive impact on our Canadian operating cost base. These costs savings in the fourth
quarter of 2015 were partially offset by increased costs as a result of the acquisition of
Protonex on October 1, 2015 which contributed approximately $0.7 million of research and
product development operating costs in the quarter.
General and administrative operating costs for the fourth quarter of 2015 were $2.8 million,
an increase of 10% compared to the fourth quarter of 2014. The 10% increase was driven
primarily by the acquisition of Protonex on October 1, 2015 which contributed
approximately $0.6 million of general and administrative operating costs in the quarter. This
cost pressure in the fourth quarter of 2015 was partially offset by lower labour costs in
Canada as a result of an approximate (18%) lower Canadian dollar, relative to the U.S.
dollar, and the resulting positive impact on our Canadian operating cost base.
Sales and marketing operating costs for the fourth quarter of 2015 were $1.9 million, an
increase of 17% compared to the fourth quarter of 2014. The 17% increase was driven
primarily by increased investment in sales and marketing capacity primarily in the Telecom
Backup Power market, combined with the acquisition of Protonex on October 1, 2015 which
contributed approximately $0.3 million of sales and marketing operating costs in the
quarter. This cost pressure in the fourth quarter of 2015 was partially offset by lower labour
costs in Canada as a result of an approximate (18%) lower Canadian dollar, relative to the
U.S. dollar, and the resulting positive impact on our Canadian operating cost base.
As noted above, operating costs in the fourth quarter of 2015 benefited from the positive
Page 11 of 53
impact of a weaker Canadian dollar, relative to the U.S. dollar. As a significant amount of
our net operating costs (primarily labour) are denominated in Canadian dollars, operating
expenses and Adjusted EBITDA are impacted by changes in the Canadian dollar relative to
the U.S. dollar. As the Canadian dollar relative to the U.S. dollar was approximately (18%)
lower in the fourth quarter of 2015 as compared to the fourth quarter of 2014, positive
foreign exchange impacts on our Canadian operating cost base and Adjusted EBITDA were
approximately $1.3 million. A $0.01 decrease in the Canadian dollar, relative to the U.S.
dollar, positively impacts annual Cash Operating Costs and Adjusted EBITDA by
approximately $0.2 million to $0.3 million.
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2015
2014
$ Change
% Change
Adjusted EBITDA
$
(2,936)
$
(16,057)
$
13,121
82%
EBITDA and Adjusted EBITDA are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-
GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented
by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for stock-based
compensation expense, transactional gains and losses, finance and other income, and acquisition costs.
Adjusted EBITDA (see Supplemental Non-GAAP Measures) for the fourth quarter of 2015
was ($2.9) million, compared to ($16.1) million for the fourth quarter of 2014. The $13.1
million reduction in Adjusted EBITDA loss in the fourth quarter of 2015 was driven by the
$6.9 million increase in gross margin primarily as a result of the 28% increase in revenue
combined with lower net negative warranty and inventory charges of $4.2 million, by lower
impairment losses on trade receivables included in other operating expenses of $6.2 million,
and by the decline in Cash Operating Costs of $0.1 million.
Impairment loss on trade receivables for the three months ended December 31, 2015 were
nil, compared to ($6.2) million for the corresponding period of 2014. Impairment loss on
trade receivables in 2014 consists of a ($4.4) million impairment charge as a result of
material breaches by Azure of the Azure Telecom Backup Power Licensing Agreement and
the Azure Bus Licensing Agreement, and by additional impairment charges of ($1.8) related
to non-collection of certain of our customers primarily in Asia. In the event that we are able
to recover on an impaired trade receivable through legal or other means, the recovered
amount is recognized in the period of recovery as a reversal of the impairment loss.
Net income (loss) attributable to Ballard
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2015
2014
$ Change
% Change
Net income (loss) attributable to Ballard
$
(1,355)
$
(17,467)
$
16,122
92%
from continuing operations
Net income (loss) attributable to Ballard from continuing operations for the fourth quarter of
2015 was ($1.4) million, or ($0.01) per share, compared to a net loss of ($17.5) million, or
($0.13) per share, in the fourth quarter of 2014. The $16.1 million reduction in net loss was
driven by the reduction in Adjusted EBITDA loss of $13.1 million, combined with the gain on
sale of intellectual property of $5.4 million related to the closing of the sale of a copy of the
automotive-related know-how of the UTC Portfolio to Volkswagen pursuant to the
Volkswagen IP Agreement. These fourth quarter of 2015 net income improvements were
partially offset by acquisition costs of ($0.9) million in 2015 related to the Protonex
Page 12 of 53
acquisition, by higher income taxes of ($0.5) million related to withholding taxes incurred
on Chinese licensing income, and by higher stock-based compensation expense of ($0.6)
million.
As noted above, net loss attributable to Ballard in the fourth quarter of 2015 was positively
impacted by the gain on sale of intellectual property of $5.4 million, and negatively
impacted by acquisition costs of ($0.9) million. Adjusted EBITDA and net loss attributable to
Ballard in the fourth quarter of 2014 was negatively impacted by impairment loss on trade
receivables of ($6.2) million. Excluding the impact of the gain on sale of intellectual
property and the impact from acquisition costs and impairment losses on trade receivables,
Normalized Net Loss (see Supplemental Non-GAAP Measures) in the fourth quarter of 2015
was ($5.9) million, or ($0.04) per share, compared to ($11.3) million, or ($0.09) per share,
for the fourth quarter of 2014.
Net loss attributable to Ballard from continuing operations excludes the net loss attributed
to the non-controlling interests in the losses of Dantherm Power related to their 43% equity
interest in Dantherm Power. Net income (loss) attributed to non-controlling interests for the
fourth quarter of 2015 was $0.1 million, compared to ($0.6) million for the fourth quarter of
2014. The improvement in performance at Dantherm Power in the fourth quarter of 2015,
as compared to the fourth quarter of 2014, is primarily a result of cost reduction efforts
combined with an increase in government funding recoveries on research and product
development activities.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2015
2014
$ Change
% Change
Cash (used in) provided by operating
$
(10,566)
$
(8,195)
$
(2,371)
(29%)
activities
Cash used in operating activities in the fourth quarter of 2015 was ($10.6) million,
consisting of cash operating losses of ($4.6) million and net working capital outflows of
($5.9) million. Cash used in operating activities in the fourth quarter of 2014 was ($8.2)
million, consisting of cash operating losses of ($10.8) million partially offset by net working
capital inflows of $2.6 million. The ($2.4) million increase in cash used by operating
activities in the fourth quarter of 2015, as compared to the fourth quarter of 2014, was
driven by the relative increase in working capital requirements of ($8.6) million, partially
offset by the relative reduction in cash operating losses of $6.2 million. The $6.2 million
reduction in cash operating losses in the fourth quarter of 2015 was due primarily to the
$13.1 million reduction in Adjusted EBITDA loss, partially offset by lower impairment losses
on trade receivables of ($6.1) million which while included in the Adjusted EBITDA loss, are
excluded from cash operating losses.
The total change in working capital of ($5.9) million in the fourth quarter of 2015 was
driven by higher accounts receivable of ($2.2) million primarily as a result of the timing of
Portable Power and Heavy-Duty Motive revenues and the related customer collections, by
lower accounts payable and accrued liabilities of ($1.8) million due primarily to the timing of
purchases and supplier payments including the payment of acquisition and transaction
related costs incurred on the Protonex acquisition, and by lower deferred revenue of ($1.5)
Page 13 of 53
million as we completed the contract work on certain Technology Solutions, Heavy-Duty
Motive and government grant contracts for which we received pre-payments in an earlier
period.
This compares to a total change in working capital of $2.6 million in the fourth quarter of
2014 which was due to higher accrued warranty provisions of $3.5 million primarily as a
result of an adjustment for an expected increase in customer service related expenses in
our Telecom Backup Power market in Asia, combined with lower inventory of $2.6 million as
we shipped product purchased and built in prior quarters. These fourth quarter of 2014
working capital inflows were partially offset by lower accounts payable and accrued liabilities
of ($3.7) million as a result of increased supplier payments made for higher inventory
purchases in the first three quarters of 2014 and by a downward adjustment to accrued
cash-based compensation expense in the fourth quarter of 2014.
RESULTS OF OPERATIONS – Year ended December 31, 2015
Revenue and gross margin
(Expressed in thousands of U.S. dollars)
Year ended December 31,
Fuel Cell Products and
Services
2015
2014
$ Change
% Change
Heavy-Duty Motive
$
11,953
$
5,140
$
Portable Power
Material Handling
Telecom Backup Power
Technology Solutions
Revenues
Cost of goods sold
Gross Margin
Gross Margin %
3,398
12,710
5,737
22,665
56,463
46,489
-
13,946
13,099
36,536
68,721
58,475
6,813
3,398
(1,236)
(7,362)
(13,871)
(12,258)
133%
100%
(9%)
(56%)
(38%)
(18%)
(11,986)
(20%)
$
9,974
$
10,246
$
(272)
18%
15%
n/a
(3%)
3 pts
Fuel Cell Products and Services Revenues of $56.5 million in 2015 declined (18%), or
($12.3) million, compared to 2014. The (18%) decline was driven by lower Technology
Solutions, Telecom Backup Power and Material Handling revenues, which more than offset
an increase in Heavy-Duty Motive and Portable Power revenues. As a result of the
termination of the Azure contracts in the fourth quarter of 2014, we did not record any
revenue in 2015 from the Azure Bus and Azure Telecom Backup Power Agreements as
compared to a total of $8.7 million recognized in 2014.
Technology Solutions revenues of $22.7 million decreased ($13.9) million, or (38%), due
primarily to the absence in 2015 of licensing and engineering services revenues under the
Azure Bus Licensing Agreement (nil in 2015 as compared to $4.9 million in 2014) and the
Azure Telecom Backup Power Licensing Agreement (nil in 2015 as compared to $3.9 million
in 2014), and by the increased allocation of engineering resources during 2015 to corporate
research and product development activities. In addition, Volkswagen service revenues were
negatively impacted by approximately ($2.3) million in 2015, as compared to 2014, as a
result of an approximate (16%) lower Canadian dollar, relative to the U.S. dollar, as the
Volkswagen Agreement is priced in Canadian dollars. The Volkswagen Agreement is priced
in Canadian dollars as a majority of the underlying costs to satisfy the agreement are
Page 14 of 53
denominated in Canadian dollars.
Material Handling revenues of $12.7 million decreased ($1.2) million, or (9%), primarily as
a result of the pass through of the benefit of lower platinum commodity prices to our
customer, Plug Power, as overall stack shipments were relatively flat.
Heavy-Duty Motive revenues of $12.0 million increased $6.8 million, or 133%, due to higher
shipments of fuel cell bus products to our customers primarily in Asia, North America and
Europe. Bus product shipments in 2015 included significantly higher shipments of
FCvelocity®-HD7 bus power modules and FCvelocity®-HD7 bus module part kits primarily
to our customers, Nantong Zehe and Synergy in China.
Telecom Backup Power revenues of $5.7 million declined ($7.4) million, or (56%), due to a
significant decline in shipments of methanol-based backup power systems and hydrogen-
based backup power stacks, combined with a lower average selling price in 2015 on sales of
methanol-based backup power systems driven by the completed shipment of an initial order
from RJIL of 100 ElectraGen™-ME 2.5kW fuel cell backup power systems to be deployed in
RJIL’s wireless telecom network in India. The lower average selling price of methanol-based
backup power systems in 2015 was due primarily to product mix as the 100-system RJIL
order was for 2.5kW systems compared to predominately 5.0kW system shipments in 2014.
New customer deployments of Telecom Backup Power system and stack solutions also
continued to be negatively impacted in 2015 by the relatively long, protracted sales cycle
that includes additional time required for qualification, onsite testing, field trialing and
certification, as well as by our actions to correct certain product quality issues discovered in
2014.
Portable Power revenues of $3.4 million in 2015 were generated by Protonex subsequent to
our acquisition on October 1, 2015. Protonex is a leading designer and manufacturer of
advanced power management products and portable fuel cell solutions.
Fuel Cell Products and Services gross margins were $10.0 million, or 18% of revenues, for
2015, compared to $10.2 million, or 15% of revenues, for 2014. The minor decline in
overall gross margin of ($0.3) million, or (3%), was driven by the (18%) decline in overall
revenues offset by the 3 point improvement in gross margin as a percent of revenues from
15% in 2014 to 18% in 2015.
Gross margin in 2015 was negatively impacted by a significant reduction in higher margin
Technology Solutions licensing revenues as licensing amounts earned in 2015 on the
Nantong Zehe agreements were significantly lower than amounts earned in 2014 on the
breached Azure Bus and Azure Telecom Backup Power Agreements totaling $8.7 million.
This negative gross margin impact in 2015 was partially offset by improvements in 2015 as
a result of the significant increase in shipments of higher margin Heavy-Duty Motive bus
products and by the increase in Portable Power shipments and services as a result of the
recent acquisition of Protonex. In addition, gross margin in 2014 was negatively impacted
by negative warranty and inventory charges. Negative net warranty adjustments of ($3.5)
million were recognized in 2014 relating primarily to an increase in customer service related
expenses in our Telecom Backup Power market as a result of fuel processor issues in a
select Asian deployment, compared to net positive warranty adjustments of $1.3 million in
2015 relating primarily to warranty expirations and reduced product costs. Negative
Page 15 of 53
inventory impairments of ($1.3) million were recognized in 2014 relating primarily to excess
distributed generation and other excess and obsolete inventory, compared to negative
inventory impairments of ($0.6) million in 2015 relating primarily to excess bus inventory as
we transition from FCvelocity®-HD6 bus products to FCvelocity®-HD7 bus products.
Cash Operating Costs
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Research and Product
Development (operating cost)
General and Administrative
(operating cost)
Sales and Marketing (operating cost)
$
13,301
$
10,436
$
2,865
9,022
6,727
9,451
6,480
(429)
247
Cash Operating Costs
$
29,050
$
26,367
$
2,683
27%
(5%)
4%
10%
Cash Operating Costs is a non-GAAP measure. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-GAAP measures
do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other
companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Cash Operating Costs adjusts operating expenses for stock-
based compensation expense, depreciation and amortization, impairment losses on trade receivables, restructuring charges, acquisition costs and
financing charges.
Cash Operating Costs (see Supplemental Non-GAAP Measures) in 2015 were $29.0 million,
an increase of $2.7 million, or 10%, compared to 2014. The 10% increase in 2015 was
driven by significantly higher research and product development operating costs, and by
slightly higher sales and marketing operating costs, which more than offset the reduction in
general and administrative costs.
Research and product development operating costs in 2015 were $13.3 million, an increase
of $2.9 million, or 27%, compared to 2014. The 27% increase was driven primarily by the
(38%) decline in Technology Solutions revenues resulting in significantly fewer engineering
staff resources being directed to revenue generating engineering service projects as
engineering resources were instead redirected to research and product development
activities. Labour and material costs incurred on revenue producing engineering services
projects are reallocated from research and product development expenses to cost of goods
sold. These cost pressures in 2015 were partially offset by the capitalization in 2015 of $1.6
million of FCvelocity®-HD7 development costs as fuel cell technology intangible assets, and
by lower labour costs in Canada as a result of an approximate (16%) lower Canadian dollar,
relative to the U.S. dollar, and the resulting positive impact on our Canadian operating cost
base.
General and administrative operating costs in 2015 were $9.0 million, a decline of ($0.4)
million, or (5%), compared to 2014. The (5%) decrease was driven by lower labour costs in
Canada as a result of an approximate (16%) lower Canadian dollar, relative to the U.S.
dollar, and the resulting positive impact on our Canadian operating cost base. These cost
savings in 2015 were partially offset by higher legal and patent renewal expenses in 2015
and by additional expenses assumed on the acquisition of Protonex on October 1, 2015.
Sales and marketing operating costs in 2015 were $6.7 million, an increase of 4% compared
to 2014. The 4% increase was driven by increased investment in sales and marketing
capacity primarily in the Telecom Backup Power market, and by the additional expenses
assumed on the acquisition of Protonex on October 1, 2015. These cost pressures in 2015
were partially offset by lower labour costs in Canada as a result of an approximate (16%)
Page 16 of 53
lower Canadian dollar, relative to the U.S. dollar, and the resulting positive impact on our
Canadian operating cost base.
As noted above, operating costs in 2015 benefited from the positive impact of a weaker
Canadian dollar, relative to the U.S. dollar. As a significant amount of our net operating
costs (primarily labour) are denominated in Canadian dollars, operating expenses and
Adjusted EBITDA are impacted by changes in the Canadian dollar relative to the U.S. dollar.
As the Canadian dollar relative to the U.S. dollar was approximately (16%) lower in 2015 as
compared to 2014, positive foreign exchange impacts on our Canadian operating cost base
and Adjusted EBITDA were approximately $4.3 million. A $0.01 decrease in the Canadian
dollar, relative to the U.S. dollar, positively impacts annual Cash Operating Costs and
Adjusted EBITDA by approximately $0.2 million to $0.3 million.
Adjusted EBITDA
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Adjusted EBITDA
$
(15,259)
$
(18,635)
$
3,376
18%
EBITDA and Adjusted EBITDA are non-GAAP measures. We use certain Non-GAAP measures to assist in assessing our financial performance. Non-
GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented
by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP Measures section. Adjusted EBITDA adjusts EBITDA for stock-based
compensation expense, transactional gains and losses, finance and other income, and acquisition costs.
Adjusted EBITDA (see Supplemental Non-GAAP Measures) in 2015 was ($15.3) million,
compared to ($18.6) million for 2014. The $3.4 million reduction in Adjusted EBITDA loss in
the 2015 was driven by lower impairment losses on trade receivables included in other
operating expenses of $7.1 million, partially offset by the increase in Cash Operating Costs
of ($2.7) million primarily as a result of significantly fewer engineering staff resources being
directed to revenue generating engineering service projects, and by the minor decline in
gross margin of ($0.3) million.
Impairment (loss) recovery on trade receivables in 2015 were $0.9 million, compared to
($6.2) million for 2014. Impairment recovery on trade receivables in 2015 of $0.9 million
resulted primarily from the collection of certain accounts principally in Asia that were
considered impaired and written down 2014. Impairment loss on trade receivables in 2014
of ($6.2) million consist primarily of a ($4.4) million impairment charge as a result of
material breaches by Azure of the Azure Telecom Backup Power Licensing Agreement and
the Azure Bus Licensing Agreement, and by additional impairment charges of ($1.8) related
to non-collection of certain of our customers primarily in Asia. In the event that we are able
to recover on an impaired trade receivable through legal or other means, the recovered
amount is recognized in the period of recovery as a reversal of the impairment loss.
Net income (loss) attributable to Ballard
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Net income (loss) attributable to Ballard
$
(5,815)
$
(28,188)
$
22,373
79%
from continuing operations
Net income (loss) attributable to Ballard from continuing operations in 2015 was ($5.8)
million, or ($0.04) per share, compared to a net loss of ($28.2) million, or ($0.22) per
share, in 2014. The $22.4 million reduction in net loss for 2015 was driven primarily by the
Page 17 of 53
gain on sale of intellectual property of $19.6 million related to the closing of the sale of the
automotive-related patents and patent applications of the UTC Portfolio and the closing of
the sale of a copy of the automotive-related know-how of the UTC Portfolio to Volkswagen
pursuant to the Volkswagen IP Agreement, combined with the reduction in Adjusted EBITDA
loss of $3.4 million, and the decline in depreciation and amortization expense of $1.2 million
primarily as a result of lower intangible asset amortization after the Volkswagen IP
Agreement. These 2015 net income improvements were partially offset by acquisition costs
of ($1.5) million in 2015 related to the Protonex acquisition.
As noted above, net loss attributable to Ballard in 2015 was positively impacted by the gain
on sale of intellectual property of $19.6 million, and negatively impacted by acquisition
costs of ($1.5) million. Adjusted EBITDA and net loss attributable to Ballard in 2015 were
also positively impacted by net impairment recoveries on trade receivables of $0.9 million.
Adjusted EBITDA and net loss attributable to Ballard 2014 was negatively impacted by
impairment loss on trade receivables of ($6.2) million. Excluding the impact of the gain on
sale of intellectual property and the impact from acquisition costs, impairment (losses)
recoveries (losses) on trade receivables, and other minor asset impairment charges,
Normalized Net Loss (see Supplemental Non-GAAP Measures) in 2015 was ($24.8) million,
or ($0.18) per share, compared to ($21.8) million, or ($0.17) per share, for 2014.
Net loss attributable to Ballard from continuing operations excludes the net loss attributed
to the non-controlling interests in the losses of Dantherm Power related to their 48% equity
interest in Dantherm Power. Net loss attributed to non-controlling interests for 2015 was
($0.8) million, compared to ($1.6) million for 2014. The improvement in performance at
Dantherm Power in 2015, as compared to 2014, is primarily a result of cost reduction
efforts combined with an increase in government funding recoveries on research and
product development activities.
Cash used in operating activities
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Cash (used in) provided by operating
$
(25,364)
$
(20,671)
$
(4,693)
(23%)
activities
Cash used in operating activities in 2015 was ($25.4) million, consisting of cash operating
losses of ($19.3) million and net working capital outflows of ($6.0) million. Cash used in
operating activities in 2014 was ($20.7) million, consisting of cash operating losses of
($15.7) million and net working capital outflows of ($5.0) million. The ($4.7) million
increase in cash used by operating activities in 2015, as compared to 2014, was driven by
the relative increase in cash operating losses of ($3.6) million, combined with the relative
increase in working capital requirements of ($1.0) million. The ($3.6) million increase in
cash operating losses in 2015 was due primarily to lower impairment losses on trade
receivables of ($5.8) million which while included in the Adjusted EBITDA loss, are excluded
from cash operating losses, partially offset by the $3.4 million reduction in Adjusted EBITDA
loss.
The total change in working capital of ($6.0) million in 2015 was driven by higher inventory
of ($5.6) million primarily to support expected Heavy-Duty Motive and Power Products
Page 18 of 53
shipments in the first quarter of 2016 to Synergy, the U.S. Army and other customers and
as a result of delayed but expected Telecom Backup Power system shipments, by lower
accrued warranty provisions of ($3.6) million due primarily to customer service related
expenses incurred in our Telecom Backup Power market in Asia and by Heavy-Duty Motive
warranty contract expirations, and by lower accounts payable and accrued liabilities of
($1.3) million due primarily to the timing of purchases and supplier payments. These 2015
working capital outflows were partially offset by higher deferred revenue of $4.0 million as
we collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed.
This compares to a total change in working capital of ($5.0) million in 2014 which was
driven by lower accounts receivable of ($4.1) million primarily as a result of impairment
losses on trade receivables of ($6.2) million and the timing of Technology Solutions, Heavy-
Duty Motive and Telecom Backup Power revenues and the related customer collections, and
by lower deferred revenue of ($4.4) million as we completed the contract work on
Technology Solutions and certain government grant contracts for which we received pre-
payments in an earlier period. These working capital outflows in 2014 were partially offset
by working capital inflows related to higher accrued warranty provisions of $2.4 million
primarily as a result of an adjustment for an expected increase in customer service related
expenses in our Telecom Backup Power market in Asia, and by lower inventory of $1.5
million as we shipped product purchased and built in prior quarters.
OPERATING EXPENSES AND OTHER ITEMS
Research and product development expenses
(Expressed in thousands of U.S. dollars)
Research and product development
Research and product development expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
Research and product development (operating
cost)
(Expressed in thousands of U.S. dollars)
Research and product development
Research and product development expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
Research and product development (operating
cost)
2015
3,461
(321)
(74)
3,066
2015
16,206
(1,947)
(957)
13,302
$
$
$
$
$
$
$
$
Three months ended December 31,
2014
4,510
(914)
104
3,700
$ Change
% Change
$
$
$
$
(1,049)
593
(178)
(634)
(23%)
65%
(171%)
(17%)
Year ended December 31,
2014
14,294
(3,209)
(649)
10,436
$ Change
% Change
$
$
$
$
1,912
1,262
(308)
2,866
13%
39%
(47%)
27%
$
$
$
$
$
$
$
$
Research and product development expenses for the three months ended December 31,
2015 were $3.5 million, a decline of ($1.0) million, or 23%, compared to the corresponding
period of 2014. Excluding depreciation and amortization expense of ($0.3) million and
($0.9) million, respectively, in each of the periods and excluding stock-based compensation
(expense) recovery of ($0.1) million and $0.1 million, respectively, in each of the periods,
research and product development operating costs were $3.1 million in the fourth quarter of
2015, a decline of ($0.6) million, or (17%), compared to the fourth quarter of 2014.
Page 19 of 53
The (17%) decline in research and development operating costs in the fourth quarter of
2015 was driven primarily by increased government funding as recoveries in Denmark by
Dantherm Power were up significantly, by the capitalization in the fourth quarter of 2015 of
$0.8 million of FCvelocity®-HD7 development costs as fuel cell technology intangible assets,
and by lower labour costs in Canada as a result of an approximate (18%) lower Canadian
dollar, relative to the U.S. dollar, and the resulting positive impact on our Canadian
operating cost base. These costs savings in the fourth quarter of 2015 were partially offset
by increased costs as a result of the acquisition of Protonex on October 1, 2015 which
contributed approximately $0.7 million of research and product development operating
costs in the quarter.
Research and product development expenses for the year ended December 31, 2015 were
$16.2 million, an increase of $1.9 million, or 13%, compared to the corresponding period of
2014. Excluding depreciation and amortization expense of ($1.9) million and ($3.2) million,
respectively, in each of the periods and excluding stock-based compensation expense of
($1.0) million and ($0.6) million, respectively, in each of the periods, research and product
development operating costs were $13.3 million in 2015, an increase of $2.9 million, or
27%, compared to 2014.
The 27% increase in research and development operating costs in 2015 was driven
primarily by the (38%) decline in Technology Solutions revenues resulting in fewer
engineering staff resources being directed to revenue generating engineering service
projects. These engineering resources were instead redirected to corporate research and
product development activities. In addition, costs increased in 2015 as a result of the
acquisition of Protonex on October 1, 2015 which contributed approximately $0.7 million of
research and product development operating costs in 2015. These cost pressures in 2015
were partially offset by the capitalization in 2015 of $1.6 million of FCvelocity®-HD7
development costs as fuel cell technology intangible assets, and by lower labour costs in
Canada as a result of an approximate (16%) lower Canadian dollar, relative to the U.S.
dollar, and the resulting positive impact on our Canadian operating cost base. Government
funding recoveries in were effectively flat year over year as increased government funding
recoveries in Denmark by Dantherm Power in 2015 were offset by lower government
funding recoveries in Canada in 2015 primarily as a result of the conclusion of the multi-
year SDTC Bus award in the fourth quarter of 2014 with the introduction of the
FCvelocity®-HD7, Ballard’s next-generation of fuel cell bus power module.
Government research funding is reflected as a cost offset to research and product
development expenses, whereas labour and material costs incurred on revenue producing
engineering services projects are reallocated from research and product development
expenses to cost of goods sold.
Depreciation and amortization expense included in research and product development
expense for the three months and year ended December 31, 2015 was $0.3 million and
$1.9 million, respectively, compared to $0.9 million and $3.2 million, respectively, for the
corresponding periods of 2014. Depreciation and amortization expense relates primarily to
amortization expense on our intangible assets and depreciation expense on our
manufacturing equipment. Depreciation and amortization expense has declined in 2015 as a
result of the Volkswagen IP Agreement whereby in the first quarter of 2015 we transferred
Page 20 of 53
to Volkswagen the ownership of the automotive-related portion of the fuel cell intellectual
property assets previously acquired by us from UTC in the second quarter of 2014.
Although ownership of the patents and patent applications was transferred to Volkswagen,
Ballard received a royalty-free back-license to all the transferred patents and patent
applications to utilize all non-automotive applications, in bus applications and in certain
limited pre-commercial purposes for automotive applications.
included
Stock-based compensation expense (recovery)
in research and product
development expense for the three months and year ended December 31, 2015 was $0.1
million and $1.0 million, respectively, compared to ($0.1) million and $0.6 million,
respectively, for the corresponding periods of 2014. Stock-based compensation increased in
2015 primarily as a result of a change in compensation structure from cash incentive
awards to share-compensation awards for certain employees combined with new awards
granted on the acquisition of Protonex to certain Protonex employees. In addition, a
downward adjustment to accrued stock-based compensation expense was made in the
fourth quarters of both 2015 and 2014 as certain outstanding restricted share units failed to
meet the vesting criteria.
General and administrative expenses
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
General and administrative (operating cost)
(Expressed in thousands of U.S. dollars)
General and administrative
General and administrative expense
Less: Depreciation and amortization expense
Less: Stock-based compensation expense
General and administrative (operating cost)
2015
3,028
(140)
(82)
2,806
2015
10,594
(280)
(1,292)
9,022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended December 31,
2014
2,157
(44)
432
2,545
$ Change
% Change
$
$
$
$
871
(96)
(514)
261
40%
(218%)
(119%)
10%
Year ended December 31,
2014
10,450
(183)
(816)
9,451
$ Change
% Change
$
$
$
$
144
(97)
(476)
(429)
1%
(53%)
(58%)
(5%)
General and administrative expenses for the three months ended December 31, 2015
were $3.0 million, an increase of $0.9 million, or 40%, compared to the corresponding
period of 2014. Excluding relatively insignificant depreciation and amortization expense in
each of the periods, and excluding stock-based compensation (expense) recovery of ($0.1)
million and $0.4 million, respectively, in each of the periods, general and administrative
operating costs were $2.8 million in the fourth quarter of 2015, an increase of $0.3 million,
or 10%, compared to the fourth quarter of 2014.
The 10% increase in general and administrative operating costs in the fourth quarter of
2015 was driven primarily by the acquisition of Protonex on October 1, 2015 which
contributed approximately $0.6 million of general and administrative operating costs in the
quarter. This cost pressure in the fourth quarter of 2015 was partially offset by lower labour
costs in Canada as a result of an approximate (18%) lower Canadian dollar, relative to the
U.S. dollar, and the resulting positive impact on our Canadian operating cost base.
Page 21 of 53
General and administrative expenses for year ended December 31, 2015 were $10.6 million,
an increase of $0.1 million, or 1%, compared to the corresponding period of 2014.
Excluding relatively insignificant depreciation and amortization expense in each of the
periods, and excluding stock-based compensation expense of ($1.3) million and ($0.8)
million, respectively, in each of the periods, general and administrative operating costs in
the 2015 were $9.0 million, a decrease of ($0.4) million, or (5%), compared to 2014.
The (5%) decrease in general and administrative operating costs in 2015 was driven
primarily by lower labour costs in Canada as a result of an approximate (16%) lower
Canadian dollar, relative to the U.S. dollar, and the resulting positive impact on our
Canadian operating cost base. These cost savings in 2015 were partially offset by added
expenses assumed on the acquisition of Protonex on October 1, 2015 and by higher patent
renewal costs in 2015 related to the acquired UTC intellectual property portfolio prior to its
sale in February 2015 in the Volkswagen IP Agreement. Higher legal and transaction related
expenses incurred in 2015, primarily as a result of the Azure contract breaches, were offset
by lower human resources expenses in 2015 due to CEO search expenses incurred in 2014.
Depreciation and amortization expense included in general and administrative expense
relates primarily to depreciation expense on our office equipment and was relatively
consistent period over period.
Stock-based compensation expense (recovery) included in general and administrative
expense for the three months and year ended December 31, 2015 was $0.1 million and
$1.3 million, respectively, compared to ($0.4) million and $0.8 million, respectively, for the
corresponding periods of 2014. Stock-based compensation increased in 2015 primarily as a
result of a change in compensation structure from cash incentive awards to share-
compensation awards for certain employees combined with new awards granted on the
acquisition of Protonex to certain Protonex employees. In addition, a downward adjustment
to accrued stock-based compensation expense was made in the fourth quarters of both
2015 and 2014 as certain outstanding restricted share units failed to meet the vesting
criteria.
Sales and marketing expenses
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: Stock-based compensation expense
Sales and marketing (operating cost)
(Expressed in thousands of U.S. dollars)
Sales and marketing
Sales and marketing expense
Less: Stock-based compensation expense
Sales and marketing (operating cost)
2015
1,951
(93)
1,858
2015
7,428
(701)
6,727
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended December 31,
2014
1,755
(169)
1,586
$ Change
% Change
$
$
$
196
76
272
11%
45%
17%
Year ended December 31,
2014
7,265
(785)
6,480
$ Change
% Change
$
$
$
163
84
247
2%
11%
4%
Sales and marketing expenses for the three months ended December 31, 2015 were $2.0
million, an increase of $0.2 million, or 11%, compared to the corresponding period of 2014.
Excluding stock-based compensation expense of ($0.1) million and ($0.2), respectively, in
Page 22 of 53
each of the periods, sales and marketing operating costs were $1.9 million in the fourth
quarter of 2015, an increase of 17% compared to the fourth quarter of 2014.
Sales and marketing expenses for the year ended December 31, 2015 were $7.4 million, an
increase of 2%, compared to the corresponding period of 2014. Excluding stock-based
compensation expense of ($0.7) million and ($0.8) million, respectively, in each of the
periods, sales and marketing operating costs were $6.7 million in 2015, an increase of 4%
compared to 2014.
The respective 17% and 4% increases in sales and marketing operating costs in 2015 were
driven by increased investment in sales and marketing capacity primarily in the Telecom
Backup Power market, combined with the acquisition of Protonex on October 1, 2015 which
contributed approximately $0.3 million of sales and marketing operating costs in the
quarter. This cost pressure in the fourth quarter of 2015 was partially offset by lower labour
costs in Canada as a result of an approximate (18%) lower Canadian dollar, relative to the
U.S. dollar, and the resulting positive impact on our Canadian operating cost base.
Other (expense) recovery for the three months and year ended December 31, 2015 was
($0.9) million and $0.6 million, respectively, compared to ($6.2) million and ($6.3) million
for the corresponding periods of 2014. The following tables provide a breakdown of other
(expense) recovery for the reported periods:
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
2015
2014
$ Change
% Change
Impairment (loss) recovery on trade
receivables
Restructuring (expense) recovery
Acquisition charges
$
39
-
(902)
$
(6,159)
$
6,198
(78)
-
78
(902)
Other (expenses) recovery
$
(863)
$
(6,237)
$
(5,374)
101%
100%
(100%)
(86%)
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Impairment (loss) recovery on trade
receivables
Restructuring (expense) recovery
Acquisition charges
$
899
$
(6,206)
$
7,105
13
(1,542)
(85)
-
98
(1,542)
Other (expenses) recovery
$
630
$
(6,291)
$
(5,661)
114%
115%
(100%)
(90%)
Impairment (loss) recovery on trade receivables of $0.9 million for the year ended
December 31, 2015 consist of a $1.5 million impairment recovery as we collected on certain
accounts in 2015 principally in Asia that were considered impaired and written down in
2014, less new impairment charges in 2015 of ($0.6) million related to non-collection of
certain other accounts primarily in Asia. In the event that we are able to recover on an
impaired trade receivable through legal or other means, the recovered amount is recognized
in the period of recovery as a reversal of the impairment loss.
Impairment loss on trade receivables for the three months and year ended December 31,
2014 was ($6.2) million and consist of a ($4.4) million impairment charge as a result of
material breaches by Azure of the Azure Telecom Backup Power Licensing Agreement and
Page 23 of 53
the Azure Bus Licensing Agreement, and by additional impairment charges of ($1.8) million
related to non-collection of certain of our customers primarily in Asia.
Acquisition charges for the three months and year ended December 31, 2015 of ($0.9)
million and ($1.5) million, respectively, consist of brokerage, legal and other costs incurred
related to the acquisition of Protonex which closed on October 1, 2015. Acquisition costs are
expensed as incurred.
Restructuring charges of ($0.1) million in 2014 relate primarily to minor restructurings
focused on overhead cost reduction.
Finance income (loss) and other for the three months and year ended December 31,
2015 was ($1.0) million and ($0.3) million, respectively, compared to ($0.5) million and
($0.1) million, respectively, for the corresponding periods of 2014. The following tables
provide a breakdown of finance and other income (loss) for the reported periods:
(Expressed in thousands of U.S. dollars)
Three months ended December 31,
Employee future benefit plan expense
$
Pension administration expense
Investment and other income
Foreign exchange gain (loss)
2015
(77)
(27)
44
(890)
$
(48)
$
(7)
44
(490)
(29)
(20)
-
(400)
Finance income (loss) and other
$
(950)
$
(501)
$
(449)
(60%)
(286%)
-
(82%)
(90%)
2014
$ Change
% Change
(Expressed in thousands of U.S. dollars)
Year ended December 31,
2015
2014
$ Change
% Change
Employee future benefit plan expense
$
(292)
$
(183)
$
(109)
Pension administration expense
Investment and other income
Foreign exchange gain (loss)
(103)
143
(53)
(100)
139
31
(3)
4
(84)
Finance income (loss) and other
$
(305)
$
(113)
$
(192)
(60%)
(3%)
3%
(271%)
(170%)
Employee future benefit plan expense for the three months and year ended December 31,
2015 were ($0.1) million and ($0.3) million, respectively, relatively consistent with the
corresponding periods of 2014. Employee future benefit plan expense primarily represents
the excess of expected interest cost on plan obligations in excess of the expected return on
plan assets related to a curtailed defined benefit pension plan for certain former United
States employees. Pension administration expense of approximately ($0.1) million for the
years ended December 31, 2015 and 2014 represent administrative costs incurred in
managing the plan.
Foreign exchange gains (losses) for the three months and year ended December 31, 2015
were ($0.9) million and $0.1 million, respectively, compared to ($0.5) million and nil,
respectively, for the corresponding periods of 2014. Foreign exchange gains and losses are
attributable primarily to the effect of the changes in the value of the Canadian dollar,
relative to the U.S. dollar, on our Canadian dollar-denominated net monetary position and
on any outstanding foreign exchange currency contracts that are marked to market each
Page 24 of 53
reporting period if not qualified for hedge accounting treatment. Foreign exchange gains and
losses are also impacted by the conversion of Dantherm Power’s assets and liabilities from
the Danish Kroner to the U.S. dollar at exchange rates in effect at each reporting date.
Investment and other income for the three months and years ended December 31, 2015
and 2014 were nominal and were earned primarily on our cash, cash equivalents and short-
term investments.
Finance expense for the three months and year ended December 31, 2015 was ($0.2)
million and ($0.8) million, respectively, compared to ($0.2) million and ($0.9) million,
respectively, for the corresponding periods of 2014. Finance expense relates primarily to the
sale and leaseback of our head office building in Burnaby, British Columbia which was
completed on March 9, 2010. Due to the long term nature of the lease, the leaseback of the
building qualifies as a finance (or capital) lease.
Gain on sale of Intellectual Property for the three months and year ended December
31, 2015 was $5.4 million and $19.6 million, respectively, and resulted from the transfer of
ownership of the UTC Portfolio previously acquired by us from UTC in 2014 to Volkswagen in
2015 through two separate transactions under the Volkswagen IP Agreement for total gross
proceeds of $50 million.
On the closing of the sale of the automotive-related patents and patent applications of the
UTC Portfolio in the first quarter of 2015, we recognized a gain on sale of intellectual
property of $14.2 million on net proceeds received of $29.5 million. On the closing of the
initial transaction on February 23, 2015, Ballard transferred ownership of the automotive-
related patents and patent applications of the UTC Portfolio in exchange for gross proceeds
of $40 million. This receipt triggered a 25%, or $10.0 million, license fee payment to UTC.
Although ownership of the patents and patent applications was transferred to Volkswagen,
Ballard received a royalty-free back-license to all the transferred patents and patent
applications for use in all non-automotive applications, in bus applications and in certain
limited pre-commercial automotive applications. The gain on sale of intellectual property of
$14.2 million represents gross proceeds received on the sale of the automotive-related
patents and patent applications from Volkswagen of $40.0 million, net of the license fee
paid to UTC of ($10.0) million, transaction costs of approximately ($0.5) million, and the
ascribed cost of the patents and patent applications in the UTC Portfolio of approximately
($15.3) million.
On the closing of the sale of a copy of the automotive-related know-how of the UTC Portfolio
in the fourth quarter of 2015, we recognized an additional gain on sale of intellectual
property of $5.4 million. On the closing of the second tranche on December 2, 2015, Ballard
transferred a copy of the automotive-related know-how of the UTC Portfolio in exchange for
gross proceeds receivable of $10 million. This receivable is recorded in trade and other
receivables at December 31, 2015 and is expected to be collected in the first quarter of
2016, net of applicable withholding taxes, which are expected to be recovered in fiscal
2016. The receipt will trigger a 9%, or $0.9 million, payment to UTC in fiscal 2016 which is
recorded in accounts payable and accrued liabilities as of December 31, 2015. On the
closing of the sale of a copy of the automotive-related know-how of the UTC Portfolio,
Ballard retained full ownership of the know-how including the right to sell additional copies
Page 25 of 53
of the know-how to third parties as well as retaining the right to use the know-how in all our
applications. The gain on sale of intellectual property of $5.4 million represents gross
proceeds receivable from Volkswagen of $10.0 million, net of a fee payable to UTC of ($0.9)
million, and the ascribed cost of the automotive-related know-how of the UTC Portfolio
previously classified as assets held for sale of approximately ($3.8) million.
Impairment loss on investment for the year ended December 31, 2014 was ($0.1)
million and consists of an impairment charge related to our non-core investment in
Chrysalix Energy Limited Partnership which was written down in 2014 to its net realizable
value of nil.
Net income (loss) attributed to non-controlling interests for the three months and
year ended December 31, 2015 was $0.1 million and ($0.8) million, respectively, compared
to ($0.6) million and ($1.6) million, respectively, for the corresponding periods of 2014.
Amounts primarily represent the non-controlling interest of Dantherm A/S in the losses of
Dantherm Power as a result of their 43% total equity interest in Dantherm Power. The
improvement in performance at Dantherm Power in 2015, as compared to 2014, is primarily
a result of cost reduction efforts combined with an increase in government funding
recoveries on research and product development activities.
Net earnings from Discontinued Operations for the year ended December 31, 2014 was
$0.3 million and consists of additional proceeds received in the form of a 12-month product
credit on the disposition of our former Materials Product division. As a result of the
disposition of our Materials Products segment on January 31, 2013, the former Material
Products segment has been classified as a discontinued operation in our consolidated
financial statements. As such, the operating results of the former Material Products segment
have been removed from our results from continuing operations and are instead presented
separately in the statement of comprehensive income as income from discontinued
operations. The former Materials Product segment sold carbon fiber products primarily for
automotive transmissions, and GDL’s for fuel cells.
PROTONEX ACQUISITION PURCHASE PRICE ALLOCATION
On October 1, 2015, we completed the acquisition of Protonex, a leading designer and
manufacturer of advanced power management products and portable fuel cell solutions.
During the fourth quarter of 2015, we completed detailed valuation studies and prepared
the preliminary purchase price allocation for Protonex using the acquisition method of
accounting in accordance with IFRS 3 Business Combinations, with Ballard Power considered
as the accounting acquirer and Protonex as the accounting acquiree. As the accounting
acquirer, consideration given by Ballard to acquire Protonex has been allocated to the assets
acquired, and the liabilities assumed, based on their fair values as of the acquisition date of
October 1, 2015.
As consideration for the transaction, we assumed and paid certain of Protonex’ debt
obligations and transaction costs on closing of approximately $3.8 million, and issued
approximately 11.4 million of Ballard shares at fair value of $1.20 per share, or
approximately $13.7 million, for total purchase consideration of $17.5 million. In accordance
with IAS 3, the fair value of the 11.4 million Ballard shares has been measured for
accounting purposes using the $1.20 closing price of the Ballard shares on the day
Page 26 of 53
immediately preceding the acquisition date.
In accordance with IFRS 3, the identifiable assets acquired and liabilities assumed as part of
a business combination are recognized separately from goodwill at the acquisition date if
they meet the definition of an asset or liability and are exchanged as part of the business
combination. The identifiable assets acquired and liabilities assumed are then measured at
their acquisition date fair values based on the contractual terms, economic conditions,
Ballard’s operating and accounting policies and other pertinent conditions as of the
acquisition date. The fair value review of Protonex’ assets and liabilities commenced with a
review of the carrying amount of each respective asset and liability. The carrying amounts
of all assets and liabilities were audited as of September 30, 2015 (the former fiscal year-
end of Protonex) and included confirmation of existence and a review of potential
impairment of all significant assets and a review for completeness of all liabilities. Each
asset and liability was then reviewed and measured for potential fair value adjustments
from carrying cost to arrive at the preliminary fair value of each asset and liability as of the
acquisition date of October 1, 2015.
(Expressed in thousands of U.S. dollars)
Fair Value of Assets acquired and Liabilities assumed
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Intangible assets
Goodwill
Other long-term assets
Accounts payable and accrued liabilities
Deferred revenue
Capital lease payable
Accrued warranty obligations
Payable to Ballard Power
Other long-term liabilities
$
Oct-01-15
1,464
558
2,330
167
1,223
11,138
4,272
22
(2,654)
(275)
(22)
(47)
(703)
(2)
Fair Value (preliminary) of Assets acquired and
Liabilities assumed
$
17,471
The preliminary fair value of each of the acquired identifiable assets and liabilities assumed
was determined as follows:
The fair value of certain of the acquired working capital balances including accounts
receivable, other current assets, accounts payable and accrued liabilities and accrued
warranty obligations have been assessed at their respective audited carrying amount on
September 30, 2015 which is considered to approximately equate to fair value as a
result of the short-term to maturity of each of these accounts.
The fair value of acquired raw material inventory has been assessed at its audited
carrying amount on September 30, 2015 which is considered to approximately equate to
fair value. A cost-based approach has been used for raw material inventory as market
information to utilize a market approach is not available. Furthermore, an audit of
Page 27 of 53
Protonex as of September 30, 2015 included a net realizable value assessment of the
inventory.
The fair value of acquired finished goods and work-in-progress inventory has been
calculated using the market or income approach. Under this approach, the fair value of
the finished goods and work-in-progress inventory has been calculated equal to the
estimated selling price of the finished units less the sum of the estimated (i) costs to
complete; (ii) costs of disposal, and (iii) a reasonable profit allowance for the completion
and selling effort of the acquirer, all of which are estimated from the perspective of a
market participant. The fair value of finished goods and work-in-progress inventory of
includes a fair value adjustment of $0.1 million from its original audited carrying
amount.
The fair value of other assets, deferred revenues, and capital lease obligations have
been assessed at their respective audited carrying amounts on September 30, 2015 as
any fair value adjustment would be insignificant.
Acquired property, plant and equipment consist primarily of specialized manufacturing
and research and development equipment, as well as miscellaneous leasehold
improvements, computer hardware, computer software and office equipment, all
physically located in Protonex’ operating facility in Southborough, MA. As there is no
market-based evidence of fair value for these specialized assets that are rarely sold
other than as part of a continuing business, fair value was estimated using a depreciated
replacement cost approach in accordance with IAS 16. A depreciated replacement cost
approach considers how much it would cost to reproduce an asset after adjusting for
depreciation and optimization. The adjustment for depreciation takes into account the
age of the asset in relation to its useful life and its residual value. The adjustment for
optimization takes into account situations in which the asset is obsolete, over-
engineered or has capacity greater than that required. The fair value of property, plant
and equipment includes a fair value adjustment of $1.0 million from its original audited
net book value carrying amount.
Acquired identified intangible assets consist of patents, know-how and in-process
research and development, customer base and relationships, trademarks and service
marks, non-compete arrangements, and domain names. We have concluded that each of
the identified intangible assets meet the definition of an identified intangible asset (or
non-monetary asset without physical substance) under IAS 38 Intangible Assets as the
acquired IP meets the definition of an asset and is identifiable. The fair value of all
identified intangible assets includes a fair value adjustment of $11.1 million from their
original audited carrying amount.
Page 28 of 53
(Expressed in thousands of U.S. dollars)
Fair Value of Identified Intangible Assets
Patents, know-how and in-process research & development
$
Customer base and relationships
Trademarks and service marks
Non-compete agreements
Domain names
Amount
Amortization
Period
8,973
986
1,135
27
17
20-years
10-years
15-years
1-year
15-years
Fair Value (preliminary) of Identified Intangible
Assets
$
11,138
The preliminary fair value of acquired identified intangible assets were calculated with
the assistance of an independent valuator and were determined through a variety of
valuation techniques.
o The fair value of the acquired product and patent portfolio including know-how
and in-process R&D totaling $9.0 million has been calculated using the Relief
from Royalty approach which is a variant of the Income Approach. The
application of the Relief from Royalty approach involves estimating the value of
an intangible asset by quantifying the present value of the stream of market-
derived royalty payments that the owner of the intangible asset is exempted or
‘relieved’ from paying. The method entails the determination of the avoided cost
as if the Company did not own any patents, and instead was required to make
royalty payments for their use. The basic tenet of this method is that without the
ownership of the subject intangible asset, the user of that intangible asset would
have to make payments to the owner in return for the rights to use it.
o The fair value of the acquired customer contracts and relationships totaling $1.0
million has been calculated using the Multi-Period Excess Earnings Method
(“MPEEM”) approach which is a variant of the Income Approach. The basic
principle of the MPEEM Approach is that a single asset, in isolation, is not capable
of generating cash flow for an enterprise. Several assets are brought together
and exploited to generate cash flow. Therefore, to determine cash flow from the
exploitation of existing customer contracts/relationships, one must deduct the
related expenses incurred for the exploitation of other assets used for the
generation of overall cash flow and revenues. The fair value of existing customer
contracts/relationships was estimated by discounting the net cash flow derived
the acquired customer
from
contracts/relationships.
revenues attributable
the expected
to
o The fair value of the acquired trademarks and service marks totaling $1.1 million
has been calculated using the Price Premium approach which is a variant of the
Income Approach as reasonable market data to enable use of the Relief of
Royalty approach was not available. Under the Price Premium approach, the
Company is expected to be able to charge a minimal price premium (vis-à-vis
competitors) attributable to the acquired trademarks/trade names.
o The fair value of the acquired non-compete covenants were nominal and were
calculated using the Income Approach whereby the fair value of the non-compete
covenants was estimated by calculating the expected decrease or loss in
forecasted cash flows if the employees compete with the target’s business sans
the non-compete covenants.
Page 29 of 53
o The fair value of the acquired website and domain names were nominal and were
calculated using the Replacement Cost Approach which considers the value based
on the cost of reproducing or replacing the asset.
The remaining unallocated $4.3 million of the total purchase price consideration of $17.5
million has been ascribed as Goodwill. The goodwill of $4.3 million resulting from the
acquisition consists largely of the expectation that the acquisition will complement the
Corporation’s Fuel Cell Products and Services growth platform by delivering strategic
benefits in diversification, growth, scale, and profitability.
SUMMARY OF QUARTERLY RESULTS FROM CONTINUING OPERATIONS
The following table provides summary financial data for our last eight quarters from
continuing operations:
(Expressed in thousands of U.S. dollars, except per share amounts
and weighted average shares outstanding which are expressed in
thousands)
Quarter ended,
Revenues from continuing operations
Net income (loss) attributable to Ballard from
continuing operations
Net income (loss) per share attributable to
Ballard from continuing operations, basic and
diluted
Dec 31,
2015
Sep 30,
2015
Jun 30,
2015
$
$
19,986
(1,355)
$
$
16,037
(4,135)
$
$
11,177
(7,342)
$
$
Mar 31,
2015
9,263
7,017
$
(0.01)
$
(0.03)
$
(0.06)
$
0.05
Weighted average common shares outstanding
155,188
141,253
132,595
132,276
Revenues
Net income (loss) attributable to Ballard
Net income (loss) per share attributable to
Ballard from continuing operations, basic and
diluted
Dec 31,
2014
15,647
(17,467)
(0.13)
$
$
$
Sep 30,
2014
20,611
(2,423)
(0.02)
$
$
$
Jun 30,
2014
18,471
(4,457)
(0.03)
$
$
$
Mar 31,
2014
13,992
(3,841)
(0.03)
$
$
$
Weighted average common shares outstanding
132,104
132,049
130,392
114,756
Summary of Quarterly Results: There were no significant seasonal variations in our
quarterly results from continuing operations. Variations in our net loss for the above periods
were affected primarily by the following factors:
Revenues: Variations in fuel cell revenues reflect the demand and timing of our
customers’ fuel cell vehicle, bus and fuel cell product deployments as well as the
demand and timing of their engineering services projects.
Variations in fuel cell revenues also reflect the timing of work performed and the
achievements of milestones under long-term fixed price contracts including the contract
with Volkswagen which commenced in the first quarter of 2013, the Azure Bus Licensing
Agreement which commenced in the third quarter of 2013 and the Azure Telecom
Backup Power Licensing Agreement which commenced in the second quarter of 2014
prior to breaches by Azure of both the Azure Bus Licensing Agreement and the Azure
Telecom Backup Power Licensing Agreement in the fourth quarter of 2014. Revenues
were positively impacted as of the fourth quarter of 2015 by the acquisition and
integration of Protonex on October 1, 2015.
Page 30 of 53
Operating expenditures: Operating expenses were negatively impacted as of the
fourth quarter of 2015 by the acquisition and integration of Protonex on October 1,
2015, including the incurrence of acquisition related expenses totaling $1.5 million
incurred in the second and third quarters of 2015. Operating expenses were positively
impacted in the first quarter of 2015 by net recoveries of previously impaired trade
receivables of $1.0 million. Operating expenses were negatively impacted in the fourth
quarter of 2014 by impairment losses on trade receivables of ($6.2) million consisting of
a ($4.4) million impairment charge as a result of material breaches by Azure of the
Azure Telecom Backup Power Licensing Agreement and the Azure Bus Licensing
Agreement, and by additional impairment charges of ($1.8) million related to non-
collection of certain of our customers primarily in Asia. Impairment losses on trade
receivables are recognized in other income (expense). Operating expenses also include
the impact of changes in the value of the Canadian dollar, versus the U.S. dollar, on our
Canadian dollar denominated expenditures.
Net income (loss): The net income for the first quarter of 2015 was positively
impacted by a gain on sale of intellectual property of $14.2 million resulting from the
sale of the automotive-related patents and patent applications of the UTC Portfolio
transferred to Volkswagen on the closing of the initial tranche of the Volkswagen IP
Agreement. Net income for the fourth quarter of 2015 was positively impacted by a gain
on sale of intellectual property of $5.4 million resulting from the sale of a copy of the
automotive-related know-how of the UTC Portfolio to Volkswagen on the closing of the
second and final tranche of the Volkswagen IP Agreement.
CASH FLOWS
Cash, cash equivalents and short-term investments were $40.0 million at December 31,
2015, compared to $23.7 million at December 31, 2014. The $16.4 million increase in cash,
cash equivalents and short-term investments in 2015 was driven by net proceeds on the
sale of intellectual property of $29.5 million received on the closing of the initial tranche of
the Volkswagen IP Agreement, combined with net proceeds from the July 2015 Offering of
$13.3 million, net proceeds from the Nisshinbo strategic equity investment of $5.0 million,
net proceeds from share purchase warrant exercises of $0.2 million and employee share
purchase option proceeds of $0.4 million. These inflows were partially offset by a net loss
(excluding non-cash items) of ($19.3) million, working capital outflows of ($6.0) million,
purchases in property, plant and equipment of ($2.3) million, the acquisition of Protonex of
($3.8) million partially offset by acquired Protonex cash of $1.5 million, and investments in
fuel cell technology intangible assets of ($1.6) million.
For the three months ended December 31, 2015, cash used by operating activities was
($10.6) million, consisting of cash operating losses of ($4.6) million and net working capital
outflows of ($5.9) million. For the three months ended December 31, 2014, cash used by
operating activities was ($8.2) million, consisting of cash operating losses of ($10.8) million
partially offset by net working capital inflows of $2.6 million. The ($2.4) million increase in
cash used by operating activities in the fourth quarter of 2015, as compared to the fourth
quarter of 2014, was driven by the relative increase in working capital requirements of
($8.6) million, partially offset by the relative reduction in cash operating losses of $6.2
million. The $6.2 million reduction in cash operating losses in the fourth quarter of 2015 was
Page 31 of 53
due primarily to the $13.1 million reduction in Adjusted EBITDA loss, partially offset by
lower impairment losses on trade receivables of ($6.1) million which while included in the
Adjusted EBITDA loss, are excluded from cash operating losses.
In the fourth quarter of 2015, net working capital cash outflows of ($5.9) million were
driven by higher accounts receivable of ($2.2) million primarily as a result of the timing of
Portable Power and Heavy-Duty Motive revenues and the related customer collections, by
lower accounts payable and accrued liabilities of ($1.8) million due primarily to the timing of
purchases and supplier payments including the payment of acquisition and transaction
related costs incurred on the Protonex acquisition, and by lower deferred revenue of ($1.5)
million as we completed the contract work on certain Technology Solutions, Heavy-Duty
Motive and government grant contracts for which we received pre-payments in an earlier
period. Working capital inflows of $2.6 million in the fourth quarter of 2014 was due to
higher accrued warranty provisions of $3.5 million primarily as a result of an adjustment for
an expected increase in customer service related expenses in our Telecom Backup Power
market in Asia, combined with lower inventory of $2.6 million as we shipped product
purchased and built in prior quarters. These fourth quarter of 2014 working capital inflows
were partially offset by lower accounts payable and accrued liabilities of ($3.7) million as a
result of increased supplier payments made for higher inventory purchases in the first three
quarters of 2014 and by a downward adjustment to accrued cash-based compensation
expense in the fourth quarter of 2014.
For the year ended December 31, 2015, cash used in operating activities was ($25.4)
million, consisting of cash operating losses of ($19.3) million and net working capital
outflows of ($6.0) million. For the year ended December 31, 2014, cash used in operating
activities was ($20.7) million, consisting of cash operating losses of ($15.7) million and net
working capital outflows of ($5.0) million. The ($4.7) million increase in cash used by
operating activities in 2015, as compared to 2014, was driven by the relative increase in
cash operating losses of ($3.6) million, combined with the relative increase in working
capital requirements of ($1.0) million. The ($3.6) million increase in cash operating losses in
2015 was due primarily to lower impairment losses on trade receivables of ($5.8) million
which while included in the Adjusted EBITDA loss, are excluded from cash operating losses,
partially offset by the $3.4 million reduction in Adjusted EBITDA loss.
In 2015, net working capital outflows of ($6.0) million were driven by higher inventory of
($5.6) million primarily to support expected Heavy-Duty Motive and Power Products
shipments in the first quarter of 2016 to Synergy, the U.S. Army and other customers and
as a result of delayed but expected Telecom Backup Power system shipments, by lower
accrued warranty provisions of ($3.6) million due primarily to customer service related
expenses incurred in our Telecom Backup Power market in Asia and by Heavy-Duty Motive
warranty contract expirations, and by lower accounts payable and accrued liabilities of
($1.3) million due primarily to the timing of purchases and supplier payments. These 2015
working capital outflows were partially offset by higher deferred revenue of $4.0 million as
we collected pre-payments on certain Heavy-Duty Motive and Technology Solutions
contracts in advance of work performed. Working capital outflows of ($5.0) million in 2014
was driven by lower accounts receivable of ($4.1) million primarily as a result of impairment
losses on trade receivables of ($6.2) million and the timing of Technology Solutions, Heavy-
Page 32 of 53
Duty Motive and Telecom Backup Power revenues and the related customer collections, and
by lower deferred revenue of ($4.4) million as we completed the contract work on
Technology Solutions and certain government grant contracts for which we received pre-
payments in an earlier period. These working capital outflows in 2014 were partially offset
by working capital inflows related to higher accrued warranty provisions of $2.4 million
primarily as a result of an adjustment for an expected increase in customer service related
expenses in our Telecom Backup Power market in Asia, and by lower inventory of $1.5
million as we shipped product purchased and built in prior quarters.
Investing activities resulted in net cash inflows (outflows) of ($3.6) million and $23.3
million, respectively, for the three months and year ended December 31, 2015, compared to
cash outflows ($0.5) million and ($4.2) million, respectively, for the corresponding periods
of 2014. Investing activities in 2015 of $23.2 million consist primarily of net proceeds on the
sale of intellectual property of $29.5 million received on the closing of the initial tranche of
the Volkswagen IP Agreement, partially offset by capital expenditures of ($2.3) million, by
the acquisition of Protonex of ($3.8) million partially offset by acquired Protonex cash of
$1.5 million, and by investments in fuel cell technology intangible assets of ($1.6) million.
Investing activities in 2014 of ($4.2) million consist primarily of the investment in fuel cell
technology intangible assets of ($3.4) million related primarily to the acquisition and
integration of the UTC intellectual property assets, and capital expenditures of ($0.8)
million.
Financing activities resulted in cash inflows of $4.9 million and $18.1 million, respectively,
for the three months and year ended December 31, 2015 compared to cash (outflows)
inflows of ($0.2) million and $18.5 million for the corresponding periods of 2014. Financing
activities in 2015 of $18.1 million consist of net proceeds received from the July 2015
Offering of $13.4 million, net proceeds from the November 2015 Nisshinbo strategic equity
investment of $5.0 million, net proceeds from share purchase warrant exercises of $0.2
million, proceeds from employee share purchase option exercises of $0.4 million, partially
offset by capital lease payments of ($0.8) million. Financing activities in 2014 of $18.5
million consist of net proceeds from share purchase warrant exercises of $12.3 million,
proceeds from employee share purchase option exercises of $6.8 million, proceeds on sale
of treasury shares of $0.4 million, partially offset by capital lease payments of ($0.9)
million.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2015, we had total Liquidity of $40.0 million. We measure Liquidity as our
net cash position, consisting of the sum of our cash, cash equivalents and short-term
investments of $40.0 million, net of amounts drawn on our $7 million Canadian demand
revolving facility (“Operating Facility”) of nil. The Operating Facility is occasionally used to
assist in financing our short term working capital requirements and is secured by a
hypothecation of our cash, cash equivalents and short-term investments. Our Liquidity
position was subsequently augmented in February 2016 by approximately $3.3 million
(Canadian $4.6 million) as we reached payment under a settlement agreement with
Superior Plus as to the full and final amount payable to us under the Indemnity Agreement.
Our Liquidity position is expected to be further augmented in 2016 by the additional net
proceeds receivable of approximately $9 million due from the sale of the automotive-related
Page 33 of 53
know-how of the UTC Portfolio to Volkswagen pursuant to the Volkswagen IP Agreement.
We also have a $1.8 million Canadian capital leasing facility (“Leasing Facility”) which is
occasionally used to finance the acquisition and / or lease of operating equipment and is
secured by a hypothecation of our cash, cash equivalents and short-term investments. At
December 31, 2015, $0.7 million Canadian was outstanding on the Leasing Facility.
Our Liquidity objective is to maintain cash balances sufficient to fund at least six quarters of
forecasted cash used by operating activities at all times. Our strategy to attain this objective
is to continue our drive to attain profitable operations that are sustainable by executing a
business plan that continues to focus on Fuel Cell Products and Services revenue growth,
improving overall gross margins, minimizing Cash Operating Costs, managing working
capital requirements, and securing additional financing to fund our operations as needed
until we do achieve profitable operations that are sustainable. As a result of our recent
actions to bolster our cash balances including the net proceeds received, and receivable,
pursuant to the Volkswagen IP Agreement, the July 2015 Offering, the November 2015
Nisshinbo equity investment, and the settlement of the Superior Plus Indemnity Agreement,
we believe that we have adequate liquidity in cash and working capital to meet this Liquidity
objective and to finance our operations.
Failure to achieve or maintain this Liquidity objective could have a material adverse effect
on our financial condition and results of operations including our ability to continue as a
going concern. There are also various risks and uncertainties affecting our ability to achieve
this Liquidity objective including, but not limited to, the market acceptance and rate of
commercialization of our products, the ability to successfully execute our business plan, and
general global economic conditions, certain of which are beyond our control. While we
continue to make significant investments in product development and market development
activities necessary to commercialize our products, and make increased investments in
working capital as we grow our business, our actual liquidity requirements will also vary and
will be impacted by our relationships with our lead customers and strategic partners, our
success in developing new channels to market and relationships with customers, our
success in generating revenue growth from near-term product, service and licensing
opportunities, our success in managing our operating expense and working capital
requirements, foreign exchange fluctuations, and the progress and results of our research,
development and demonstration programs.
In addition to our existing cash reserves of $40.0 million at December 31, 2015, there are
0.1 million warrants outstanding (expire on March 27, 2018) from the March 2013
underwritten offering each of which enables the holder to purchase one common share at a
fixed price of $1.50 per common share, and 1.7 million warrants outstanding (expire on
October 9, 2018) from the October 2013 underwritten offering each of which enable the
holder to purchase one common share at a fixed price of $2.00 per common share. If any of
these warrants are exercised, our liquidity position would be further augmented. We may
also choose to pursue additional liquidity through the issuance of debt or equity in private or
public market financings. To enable such an action and to allow the exercise of warrants, we
filed a short form base shelf prospectus (“Prospectus”) in May 2014 in each of the provinces
and territories of Canada, except Quebec, and a corresponding shelf registration statement
on Form F-10 (“Registration Statement”) with the United States Securities and Exchange
Page 34 of 53
Commission. These filings enable offerings of equity securities during the effective period
(to June 2016) of the Prospectus and Registration Statements. However, no assurance can
be given that any such additional liquidity will be available or that, if available, it can be
obtained on terms favorable to the Company.
2016 BUSINESS OUTLOOK
In 2016, we expect to grow revenue, improve gross margin and rationalize certain operating
costs. We expect to see revenue growth in our Heavy-Duty Motive market as well as a full-
year contribution from our Portable Power market. On gross margin improvement, we plan
to generate further product cost reductions and improve operating efficiencies while
realizing benefits from expected increased volumes and improved product mix, including
important contributions from Portable Power, Technology Solutions and Heavy-Duty Motive.
Finally, on operating costs, we have initiated a review of strategic alternatives for our
Telecom Backup Power business and will rationalize our Telecom Backup Power and
executive team cost structures in 2016.
Given the early stage of fuel cell market development and adoption rate and consistent with
2015, we have decided not to provide specific revenue and Adjusted EBITDA guidance for
2016. While our strategic focus on multiple fuel cell product markets, engineering services
and intellectual property monetization serves to mitigate risk, the resulting cadence in
customer demand can be uneven through the early stages of market development. As such,
our financial results on a quarterly basis are subject to a high degree of variability.
Our outlook for 2016 is based on our internal forecast which reflects an assessment of
overall business conditions and takes into account actual sales and financial results in the
first six weeks of 2016, sales orders received for units and services to be delivered in the
remainder of 2016, an estimate with respect to the generation of new sales and the timing
of deliveries in each of our markets for the balance of 2016, and assumes an average U.S.
dollar exchange rate in the low 70’s in relation to the Canadian dollar for the remainder of
2016. The primary risk factors to our business outlook expectations for 2016 are delays
from forecast in terms of closing and delivering expected sales primarily in our Heavy-Duty
Motive and Portable Power markets, potential adverse macro-economic conditions
negatively impacting our Chinese customer’s access to capital and program plans which
could adversely impact our Heavy-Duty market, potential disruptions in the Material
Handling market as a result of our reliance on a single customer in this market and that
customer’s internal stack development and commercialization plans, and fluctuations in the
Canadian dollar, relative to the U.S. dollar, as a significant portion of our Technology
Solutions revenues (including the technology development and engineering services
agreement with Volkswagen) are priced in Canadian dollars.
Furthermore, potential fluctuations in our financial results make financial forecasting
difficult. The Company's revenues, cash flows and other operating results can vary
significantly from quarter to quarter. Sales and margins may be lower than anticipated due
to general economic conditions, market-related factors and competitive factors. Cash
receipts may also vary from quarter to quarter due to the timing of cash collections from
customers. As a result, quarter-to-quarter comparisons of revenues, cash flows and other
operating results may not be meaningful. In addition, due to the early stage of development
Page 35 of 53
of the market for hydrogen fuel cell products, it is difficult to accurately predict future
revenues, cash flows or results of operations on a quarterly basis. It is likely that in one or
more future quarters, financial results will fall below the expectations of securities analysts
and investors. If this occurs, the trading price of the Company's shares may be materially
and adversely affected.
OFF-BALANCE SHEET ARRANGEMENTS & CONTRACTUAL OBLIGATIONS
Periodically, we use forward foreign exchange and forward platinum purchase contracts to
manage our exposure to currency rate fluctuations and platinum price fluctuations. We
record these contracts at their fair value as either assets or liabilities on our balance sheet.
Any changes in fair value are either (i) recorded in our statement of comprehensive income
if formally designated and qualified under hedge accounting criteria; or (ii) recorded in our
statement of operations if either not designated, or not qualified, under hedge accounting
criteria. At December 31, 2015, we had outstanding foreign exchange currency contracts to
purchase a total of Canadian $10.8 million at an average rate of 1.33 Canadian per U.S
dollar, resulting in an unrealized loss of ($0.3) million at December 31, 2015. The
outstanding foreign exchange currency contracts are not qualified under hedge accounting.
At December 31, 2015, we did not have any other material obligations under guarantee
contracts, retained or contingent interests in transferred assets, outstanding derivative
instruments or non-consolidated variable interests.
At December 31, 2015, we had the following contractual obligations and commercial
commitments:
(Expressed in thousands of U.S. dollars)
Contractual Obligations
Operating leases
Capital leases
Asset retirement obligations
Payments due by period,
Total
Less than
1-3 years
4-5 years
After 5
one year
years
$ 11,447
$
2,409
$
4,532
$
2,616
$
1,890
10,536
4,245
1,524
2,014
-
-
2,167
-
4,830
4,245
Total contractual obligations
$ 26,228
$
3,993
$
6,546
$
4,783
$
10,965
In addition, we have outstanding commitments of $0.4 million related primarily to
purchases of capital assets at December 31, 2015. Capital expenditures pertain to our
regular operations and are expected to be funded through cash on hand.
In connection with the acquisition of intellectual property from UTC on April 24, 2014, we
retain a royalty obligation to pay UTC a portion (typically 25%) of any future intellectual
property sale and licensing income generated from our intellectual property portfolio for a
period of 15-years expiring in April 2029.
As at December 31, 2015, we retain a previous funding obligation to pay royalties of 2% of
revenues (to a maximum of Canadian $5.4 million) on sales of certain fuel cell products for
commercial distributed utility applications. No royalties have been incurred to date as a
result of this agreement. We also retain a previous funding obligation to pay royalties of 2%
of revenues (to a maximum of Canadian $2.2 million) on sales of certain fuel cell products
for commercial transit applications. No royalties have been incurred to date as a result of
this agreement.
Page 36 of 53
In the ordinary course of business or as required by certain acquisition or disposition
agreements, we are periodically required to provide certain indemnities to other parties.
Our Arrangement with Superior Plus included an Indemnity Agreement which set out each
party’s continuing obligations to the other. The Indemnity Agreement included two basic
elements to the final determination date of December 31, 2015: it provided for the
indemnification of each party by the other for breaches of representations and warranties or
covenants as well as, in our case, any liability relating to our business which is suffered by
Superior Plus. Our indemnity to Superior Plus with respect to our representation relating to
the existence of our tax pools immediately prior to the completion of the Arrangement is
limited to an aggregate of Canadian $7.4 million with a threshold amount of Canadian $0.5
million before there is an obligation to make a payment. Second, the Indemnity Agreement
provided for adjustments to be paid by us, or to us, depending on the final determination of
the amount of our Canadian non-capital losses, scientific research and development
expenditures and investment tax credits generated to December 31, 2008, to the extent
that such amounts are more or less than the amounts estimated at the time the
Arrangement was executed. In 2015, we reached agreement and signed mutual releases
with Superior Plus as to the full and final amount payable to us under the Indemnity
Agreement and received additional cash proceeds of approximately $3.3 million (Canadian
$4.6 million) in February 2016. The cash proceeds receivable have been recorded as a
credit to shareholders’ equity as of December 31, 2015 consistent with the accounting
treatment for the original transaction in 2008.
At December 31, 2015, we have not accrued any other amount owing, or receivable, as a
result of any other indemnity agreements undertaken in the ordinary course of business.
RELATED PARTY TRANSACTIONS
Related parties include shareholders with a significant ownership interest in either us or
Dantherm Power, together with their subsidiaries and affiliates. Revenues and costs
recognized from such transactions reflect the prices and terms of sale and purchase
transactions with related parties, which are in accordance with normal trade practices at fair
value. For the three months and year ended December 31, 2015 and 2014, related party
transactions and balances are limited to transactions between Dantherm Power and its non-
controlling interests as follows:
(Expressed in thousands of U.S. dollars)
Transactions with related parties
Purchases
Finance expense on Dantherm Power debt to Dantherm Power non-
controlling interests
(Expressed in thousands of U.S. dollars)
Transactions with related parties
Purchases
Finance expense on Dantherm Power debt to Dantherm Power non-
controlling interests
Three Months Ended December 31,
2015
61
8
2014
39
8
$
$
Year Ended December 31,
2015
172
30
2014
175
34
$
$
$
$
$
$
Page 37 of 53
(Expressed in thousands of U.S. dollars)
Balances with related parties
Trade accounts payable
Interest payable
Dantherm Power debt to Dantherm Power non-controlling interests
2015
24
69
433
$
$
$
As at December 31,
2014
70
45
484
$
$
$
As at December 31, 2015, Ballard holds a controlling 57% ownership interest in Dantherm
Power as compared to a 43% interest held by Dantherm A/S. Ballard’s ownership position
increased in mid-June 2015 from 52% to 57% when pursuant to a mutual release
agreement, Azure returned its 10% ownership position in Dantherm Power to Dantherm
Power for nil proceeds, upon which the shares were cancelled by Dantherm Power. As of
December 31, 2015, the outstanding Dantherm Power debt (including interest) to Dantherm
Power’s non-controlling interests totals $0.5 million, bears interest at 6.0% per annum, is
non-convertible, and is repayable by December 31, 2016.
OUTSTANDING SHARE DATA
As at February 24, 2016
Common share outstanding
Warrants outstanding
Options outstanding
DSU’s outstanding
RSU’s outstanding (subject to vesting criteria)
156,839,687
1,797,563
5,503,000
917,625
1,708,626
CRITICAL ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Our consolidated financial statements are prepared in accordance with IFRS, which require
us to make estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from those estimates. Estimates and underlying assumptions are reviewed on an ongoing
basis Revisions to accounting estimates are recognized in the period in which the estimates
are revised and in any future periods affected.
Critical Judgments in Applying Accounting Policies:
Critical judgments that we have made in the process of applying our accounting policies and
that have the most significant effect on the amounts recognized in the consolidated financial
statements is limited to our assessment of the Corporation’s ability to continue as a going
concern (See Note 2 (e) to our annual consolidated financial statements).
Our significant accounting policies are detailed in note 4 to our annual consolidated financial
statements for the year ended December 31, 2015.
Key Sources of Estimation Uncertainty:
The following are key assumptions concerning the future and other key sources of
estimation uncertainty that have a significant risk of resulting in a material adjustment to
the reported amount of assets, liabilities, income and expenses within the next financial
year.
Page 38 of 53
REVENUE RECOGNITION
Revenues are generated primarily from product sales and services, the license and sale of
intellectual property, and the provision of engineering services. Product and service
revenues are derived primarily from standard equipment and material sales contracts and
from long-term fixed price contracts. Intellectual property license and sale revenues are
derived primarily from licensing and sale agreements and from long-term fixed price
contracts. Engineering service revenues are derived primarily from cost-plus reimbursable
contracts and from long-term fixed price contracts.
On standard equipment and material sales contracts, revenues are recognized when (i)
significant risks and rewards of ownership of the goods has been transferred to the buyer;
(ii) we retain neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold; (iii) the amount of revenue can be
measured reliably; (iv) it is probable that the economic benefits associated with the sale will
accrue to us; and (v) the costs incurred, or to be incurred, in respect of the transaction can
be measured reliably. Provisions are made at the time of sale for warranties. Revenue
recognition for standard equipment and material sales contracts does not usually involve
significant estimates.
On standard licensing and sale agreements, revenues are recognized on the transfer of the
rights to the licensee if (i) the rights to the assets are assigned to the licensee in return for
a fixed fee or a non-refundable guarantee; (ii) the contract is non-cancellable; (iii) the
licensee is able to exploit its rights to the asset freely; and (iv) the Company has no
remaining obligations to perform. Otherwise, the proceeds are considered to relate to the
right to use the asset over the license period and the revenue is recognized over that
period. Revenue recognition for license and sale agreements does not usually involve
significant estimates.
On cost-plus reimbursable contracts, revenues are recognized as costs are incurred, and
include applicable fees earned as services are provided. Revenue recognition for cost-plus
reimbursable contracts does not usually involve significant estimates.
On long-term fixed price contracts, revenues are recorded on the percentage-of-completion
basis over the duration of the contract, which consists of recognizing revenue on a given
contract proportionately with its percentage of completion at any given time. The
percentage of completion is determined by dividing the cumulative costs incurred as at the
balance sheet date by the sum of incurred and anticipated costs for completing a contract.
The determination of anticipated costs for completing a contract is based on estimates
that can be affected by a variety of factors such as variances in the timeline to
completion, the cost of materials, the availability and cost of labour, as well as
productivity.
The determination of potential revenues includes the contractually agreed amount and
may be adjusted based on the estimate of our attainment on achieving certain defined
contractual milestones. Management’s estimation is required in determining the
probability that the revenue will be received and in determining the measurement of
that amount.
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Estimates used to determine revenues and costs of long-term fixed price contracts involve
uncertainties that ultimately depend on the outcome of future events and are periodically
revised as projects progress. There is a risk that a customer may ultimately disagree with
our assessment of the progress achieved against milestones, or that our estimates of the
work required to complete a contract may change. The cumulative effect of changes to
anticipated revenues and anticipated costs for completing a contract are recognized in the
period in which the revisions are identified. If the anticipated costs exceed the anticipated
revenues on a contract, such loss is recognized in its entirety in the period it becomes
known.
During the three months and year ended December 31, 2015 and 2014, there were no
material adjustments to revenues relating to revenue recognized in a prior period.
ASSET IMPAIRMENT
The carrying amounts of our non-financial assets other than inventories are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. For goodwill and
intangible assets that have indefinite useful lives, the recoverable amount is estimated at
least annually.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
In assessing fair value less costs to sell, the price that would be received on the sale of an
asset in an orderly transaction between market participants at the measurement date is
estimated. For the purposes of impairment testing, assets that cannot be tested individually
are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other groups of assets.
The allocation of goodwill to cash-generating units reflects the lowest level at which goodwill
is monitored for internal reporting purposes. Many of the factors used in assessing fair value
are outside the control of management and it is reasonably likely that assumptions and
estimates will change from period to period. These changes may result in future
impairments. For example, our revenue growth rate could be lower than projected due to
economic, industry or competitive factors, or the discount rate used in our value in use
model could increase due to a change in market interest rates. In addition, future goodwill
impairment charges may be necessary if our market capitalization decreased due to a
decline in the trading price of our common stock, which could negatively impact the fair
value of our business.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating
unit exceeds its estimated recoverable amount. Impairment losses are recognized in net
loss. Impairment losses recognized in respect of the cash-generating units are allocated first
to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the
carrying amounts of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
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indications that the cumulative loss has decreased or no longer exists. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
We perform the annual review of goodwill as at December 31 of each year, more often if
events or changes in circumstances indicate that it might be impaired. Under IFRS, the
annual review of goodwill requires a comparison of the carrying value of the asset to the
higher of (i) value in use; and (ii) fair value less costs to sell. Value in use is defined as the
present value of future cash flows expected to be derived from the asset in its current state.
As of December 31, 2015, our consolidated goodwill balance of $40.6 million relates solely
to our Fuel Cell Products and Services segment. Based on the impairment test performed as
at December 31, 2015, we have concluded that no goodwill impairment charge is required
for the year ending December 31, 2015. Details of our 2015 goodwill impairment tests are
as follows:
One of the methods used to assess the recoverable amount of the goodwill is a fair
value, less costs to sale, test. Our fair value test is in effect a modified market
capitalization assessment, whereby we calculate the fair value of the Fuel Cell Products
and Services segment by first calculating the value of the Company at December 31,
2015 based on the average closing share price in the month of December, add a
reasonable estimated control premium of 25% to determine the Company’s enterprise
value on a controlling basis after adjusting for excess cash balances, and then deducting
the estimated costs to sell from this enterprise value to arrive at the fair value of the
Fuel Cell Products and Services segment. As a result of this assessment, we have
determined that the fair value of the Fuel Cell Products and Services segment exceeds
its carrying value as of December 31, 2015 indicating that no impairment charge is
required for 2015.
In addition to this fair value test, we also performed a value in use test on our Fuel Cell
Products and Services segment that compared the carrying value of the segment to the
present value of future cash flows expected to be derived from the segment. The
principal factors used in this discounted cash flow analysis requiring significant
estimation are the projected results of operations, the discount rate based on the
weighted average cost of capital (“WACC”), and terminal value assumptions. Our value
in use test was based on a WACC of 15%; an average estimated compound annual
growth rate of approximately 27% from 2016 to 2021; and a terminal year EBITDA
multiplied by a terminal value multiplier of 10. Our value in use assessment resulted in
an estimated fair value for the Fuel Cell Products and Services segment that is
consistent with that as determined under the above fair value, less costs to sell,
assessment. As a result of this assessment, we have determined that the fair value of
the Fuel Cell Products segment exceeds its carrying value by a significant amount as of
December 31, 2015 indicating that no impairment charge is required in 2015.
In addition to the above goodwill impairment test, we perform a quarterly assessment of
the carrying amounts of our non-financial assets (other than inventories) to determine
whether there is any indication of impairment. During the three months and years ended
December, 2015 and 2014, there was no material adjustments to non-financial assets
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(other than inventories) relating to these reviews.
WARRANTY PROVISION
A provision for warranty costs is recorded on product sales at the time of shipment. In
establishing the accrued warranty liabilities, we estimate the likelihood that products sold
will experience warranty claims and the cost to resolve claims received.
In making such determinations, we use estimates based on the nature of the contract and
past and projected experience with the products. Should these estimates prove to be
incorrect, we may incur costs different from those provided for in our warranty provisions.
During the three months and year ended December 31, 2015, we recorded provisions to
accrued warranty liabilities of $0.3 million and $0.9 million, respectively, for new product
sales, compared to $0.5 million and $1.0 million, respectively, for the three months and
year ended December 31, 2014.
We review our warranty assumptions and make adjustments to accrued warranty liabilities
quarterly based on the latest information available and to reflect the expiry of contractual
obligations. Adjustments to accrued warranty liabilities are recorded in cost of product and
service revenues. As a result of these reviews and the resulting adjustments, our warranty
provision and cost of revenues for the three months and year ended December 31, 2015
were adjusted downwards by a net amount of $0.5 million and $1.3 million, respectively,
compared to a net adjustment (upwards) downwards of ($3.7) million and ($3.5) million for
the three months and year ended December 31, 2014. The adjustments to the accrued
warranty liability provisions in 2015 were due primarily due to contractual warranty
expirations and improved lifetimes and reliability of our Heavy-Duty Motive and Telecom
Backup Power products, whereas the negative adjustments to the accrued warranty liability
provisions in 2014 were primarily due to an increase in customer service related expenses
for our Telecom Backup Power products in Asia.
INVENTORY PROVISION
In determining the lower of cost and net realizable value of our inventory and establishing
the appropriate provision for inventory obsolescence, we estimate the likelihood that
inventory carrying values will be affected by changes in market pricing or demand for our
products and by changes in technology or design which could make inventory on hand
obsolete or recoverable at less than cost. We perform regular reviews to assess the impact
of changes in technology and design, sales trends and other changes on the carrying value
of inventory. Where we determine that such changes have occurred and will have a
negative impact on the value of inventory on hand, appropriate provisions are made. If
there is a subsequent increase in the value of inventory on hand, reversals of previous
write-downs to net realizable value are made. Unforeseen changes in these factors could
result in additional inventory provisions, or reversals of previous provisions, being required.
During the three months and year ended December 31, 2015, negative inventory
adjustments of ($0.4) million and ($0.6) million, respectively, were recorded as a charge to
cost of product and service revenues, compared to negative inventory adjustments of ($0.6)
million and ($1.3) million, respectively, for the three months and year ended December 31,
2014.
Page 42 of 53
IMPAIRMENT RECOVERIES (LOSSES) ON TRADE RECEIVABLES
Trade and other receivables are recognized initially at fair value and subsequently at
amortized cost using the effective interest method, less any impairment losses. Fair value is
estimated as the present value of future cash flows, discounted at the market rate of
interest at the reporting date. In determining the fair value of our trade and other
receivables and establishing the appropriate provision for doubtful accounts, we perform
regular reviews to estimate the likelihood that our trade and other accounts receivable will
ultimately be collected in a timely manner. Where we determine that customer collectability
issues have occurred and will have a negative impact on the value of trade and other
receivables, appropriate provisions are made. If there is a subsequent recovery in the value
of trade and other receivables, reversals of previous write-downs to fair value are made.
Unforeseen changes in these factors could result in additional impairment provisions, or
reversals of previous impairment provisions, being required. During the three months and
year ended December 31, 2015, net impairment recoveries on trade receivables of nil and
$0.9 million, respectively, were recorded as other operating income, compared to compared
to net impairment (charges) of ($6.2) million and ($6.2) million, respectively, for the three
months and year ended December 31, 2014.
EMPLOYEE FUTURE BENEFITS
The present value of our defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that
have terms to maturity approximating the terms of the related pension liability.
Determination of benefit expense requires assumptions such as the discount rate to
measure obligations, expected plan investment performance, expected healthcare cost
trend rate, and retirement ages of employees. Actual results will differ from the recorded
amounts based on these estimates and assumptions.
INCOME TAXES
We use the asset and liability method of accounting for income taxes. Under this method,
deferred income taxes are recognized for the deferred income tax consequences attributable
to differences between the financial statement carrying values of assets and liabilities and
their respective income tax bases (temporary differences) and for loss carry-forwards. The
resulting changes in the net deferred tax asset or liability are included in income.
Deferred tax assets and liabilities are measured using enacted, or substantively enacted, tax
rates expected to apply to taxable income in the years in which temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets and liabilities,
of a change in tax rates, is included in income in the period that includes the substantive
enactment date. Deferred income tax assets are reviewed at each reporting period and are
reduced to the extent that it is no longer probable that the related tax benefit will be
realized. As of December 31, 2015 and 2014, we have not recorded any deferred income
tax assets on our consolidated statement of financial position.
NEW AND FUTURE IFRS ACCOUNTING POLICIES
Recently Adopted Accounting Policy Changes:
We did not adopt any new accounting standard changes or amendments effective January
Page 43 of 53
1, 2015 that had a material impact on our consolidated financial statements.
Future Accounting Policy Changes:
The following is an overview of accounting standard changes that we will be required to
adopt in future years. We do not expect to adopt any of these standards before their
effective dates and we continue to evaluate the impact of these standards on our
consolidated financial statements.
IFRS 11 (Amendments) – BUSINESS COMBINATION ACCOUNTING FOR INTERESTS IN A
JOINT OPERATION
On May 6, 2014, the IASB issued amendments to IFRS 11 Accounting for Acquisitions of
Interests in Joint Operations. The amendments require business combination accounting to
be applied to acquisitions of interests in a joint operation that constitute a business.
The amendments apply prospectively for annual periods beginning on or after January 1,
2016. The Corporation intends to adopt the amendments to IFRS 11 in its financial
statements for the fiscal year beginning on January 1, 2016. We do not expect the
amendments to have a material impact on the financial statements.
IAS 16 and IAS 38 (Amendments) – METHODS OF DEPRECIATION AND AMORTISATION
On May 12, 2014, the IASB issued amendments to IAS 16 Property, Plant and Equipment
and IAS 38 Intangible Assets. The amendment made to IAS 16 explicitly state that revenue-
based methods of depreciation cannot be used for property, plant and equipment. This is
because such methods reflect factors other than the consumption of economic benefits
embodied in the asset. The amendments in IAS 38 introduce a rebuttable presumption that
the use of revenue-based amortization methods for intangible assets is inappropriate. This
presumption could be overcome only when revenue and consumption of the economic
benefits of the intangible asset are highly correlated or when the intangible asset is
expressed as a measure of revenue.
The amendments apply prospectively for annual periods beginning on or after January 1,
2016. The Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its
financial statements for the fiscal year beginning on January 1, 2016. We do not expect the
amendments to have a material impact on the financial statements.
ANNUAL IMPROVEMENTS TO IFRS (2012 – 2014) CYCLE
On September 25, 2014, the IASB issued narrow-scope amendments to a total of four
standards as part of its annual improvements process. Amendments were made to clarify
the following in their respective standards:
Changes in method for disposal under IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations;
Continuing involvement’ for servicing contracts and offsetting disclosures in condensed
interim financial statements under IFRS 7 Financial Instruments: Disclosures;
Discount rate in a regional market sharing the same currency under IAS 19 Employee
Benefits; and
Disclosure of information ‘elsewhere in the interim financial report’ under IAS 34 Interim
Financial Reporting;
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The amendments will apply for annual periods beginning on or after January 1, 2016. Each
of the amendments has its own specific transition requirements. The Corporation intends to
adopt the amendments in its financial statements for the fiscal year beginning on January 1,
2016. We do not expect the amendments to have a material impact on the financial
statements.
IAS 1 (Amendments) - DISCLOSURE INITIATIVE
On December 18, 2014, the IASB issued amendments to IAS 1 Presentation of Financial
Statements as part of its major initiative to improve presentation and disclosure in financial
reports (the “Disclosure Initiative”). The amendments will not require any significant change
to current practice, but should facilitate improved financial statement disclosures.
The amendments are effective for annual periods beginning on or after January 1, 2016.
The Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its financial
statements for the fiscal year beginning on January 1, 2016. The extent of the impact of
adoption of the amendments has not yet been determined.
IFRS 15 – REVENUE FROM CONTRACTS WITH CUSTOMERS
On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which
replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of
Assets from Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising
Services.
IFRS 15 contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The model features a
contract-based five-step analysis of transactions to determine whether, how much, and
when revenue is recognized. New estimates and judgmental thresholds have been
introduced, which may affect the amount and/or timing of revenue recognized. The new
standard applies to contracts with customers. It does not apply to insurance contracts,
financial instruments or lease contracts, which fall in the scope of other IFRSs.
The new standard is effective for fiscal years ending on or after December 31, 2018 and is
available for early adoption. The Corporation intends to adopt IFRS 15 in its financial
statements for the fiscal year beginning on January 1, 2018. The extent of the impact of
adoption of the standard has not yet been determined.
IFRS 9 – FINANCIAL INSTRUMENTS
On July 24, 2014, the IASB issued the complete IFRS 9 Financial Instruments (“IFRS 9
(2014)”). IFRS 9 (2014) introduces new requirements for the classification and
measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and
measured based on the business model in which they are held and the characteristics of
their contractual cash flows.
The standard introduces additional changes relating to financial liabilities. It also amends
the impairment model by introducing a new ‘expected credit loss’ model for calculating
impairment.
Page 45 of 53
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge
accounting more closely with risk management. This new standard does not fundamentally
change the types of hedging relationships or the requirement to measure and recognize
ineffectiveness; however it will provide more hedging strategies that are used for risk
management to qualify for hedge accounting and introduce more judgment to assess the
effectiveness of a hedging relationship. Special transitional requirements have been set for
the application of the new general hedging model.
The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after
January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption
is permitted. The restatement of prior periods is not required and is only permitted if
information is available without the use of hindsight. The Corporation intends to adopt IFRS
9 (2014) in its financial statements for the fiscal year beginning on January 1, 2018. The
extent of the impact of adoption of the standard has not yet been determined.
IFRS 16 – LEASES
On January 13, 2016, the IASB issued IFRS 16 Leases. IFRS 16 standard introduces a single
lessee accounting model and requires a lessee to recognize assets and liabilities for all
leases with a term of more than 12 months, unless the underlying asset is of low value. A
lessee is required to recognize a right-of-use asset representing its right to use the
underlying asset and a lease liability representing its obligation to make lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17,
while requiring enhanced disclosures to be provided by lessors. Other areas of the lease
accounting model have been impacted, including the definition of a lease. Transitional
provisions have been provided.
The new standard is effective for annual periods beginning on or after January 1, 2019.
Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with
Customers as at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IFRS
17 Leases. The Corporation intends to adopt IFRS 16 in its financial statements for the fiscal
year beginning on January 1, 2019. The extent of the impact of adoption of the standard
has not yet been determined.
SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with GAAP, we present certain
supplemental non-GAAP measures. These measures are Cash Operating Costs, EBITDA and
Adjusted EBITDA, and Normalized Net Loss. These non-GAAP measures do not have any
standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. We believe these measures are useful in
evaluating the operating performance and liquidity of the Company’s ongoing business.
These measures should be considered in addition to, and not as a substitute for, net
income, cash flows and other measures of financial performance and liquidity reported in
accordance with GAAP.
Cash Operating Costs
This supplemental non-GAAP measure is provided to assist readers in determining our
operating costs on a cash basis. We believe this measure is useful in assessing performance
Page 46 of 53
and highlighting trends on an overall basis.
We also believe Cash Operating Costs is frequently used by securities analysts and investors
when comparing our results with those of other companies. Cash Operating Costs differs
from the most comparable GAAP measure, operating expenses, primarily because it does
not include stock-based compensation expense, depreciation and amortization, impairment
losses or recoveries on trade receivables, restructuring charges, acquisition costs, and
financing charges. The following tables show a reconciliation of operating expenses to Cash
Operating Costs for the three months and year ended December 31, 2015 and 2014:
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Total Operating Expenses
$
Stock-based compensation (expense)
recovery
Impairment recovery (losses) on trade
receivables
Acquisition and integration costs
Restructuring (charges) recovery
Financing charges
Depreciation and amortization
2015
9,303
(248)
39
(902)
-
-
(463)
Three months ended December 31,
2014
$ Change
$
14,659
$
(5,356)
367
(6,159)
-
(78)
-
(958)
(615)
6,198
(902)
78
-
495
Cash Operating Costs
$
7,729
$
7,831
$
(102)
(Expressed in thousands of U.S. dollars)
Cash Operating Costs
Year ended December 31,
2015
2014
$ Change
Total Operating Expenses
$
34,858
$
38,300
$
(3,442)
Stock-based compensation expense
Impairment recovery (losses) on trade
receivables
Acquisition and integration costs
Restructuring (charges) recovery
Financing charges
(2,949)
899
(1,542)
13
-
(2,249)
(6,206)
-
(85)
-
Depreciation and amortization
(2,229)
(3,393)
(700)
7,105
(1,542)
98
-
1,164
Cash Operating Costs
$
29,050
$
26,367
$
2,683
EBITDA and Adjusted EBITDA
These supplemental non-GAAP measures are provided to assist readers in determining our
operating performance and ability to generate operating cash flow. We believe this measure
is useful in assessing performance and highlighting trends on an overall basis. We also
believe EBITDA and Adjusted EBITDA are frequently used by securities analysts and
investors when comparing our results with those of other companies. EBITDA differs from
the most comparable GAAP measure, net loss attributable to Ballard from continuing
operations, primarily because it does not include finance expense, income taxes,
depreciation of property, plant and equipment, amortization of intangible assets, and
goodwill
for stock-based
compensation expense, transactional gains and losses, asset impairment charges, finance
and other income, and acquisition costs. The following tables show a reconciliation of net
income attributable to Ballard to EBITDA and Adjusted EBITDA for the three months and
year ended December 31, 2015 and 2014:
impairment charges. Adjusted EBITDA adjusts EBITDA
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(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Net (loss) from continuing operations
Three months ended December 31,
2015
2014
$ Change
attributable to Ballard
$
(1,355)
$
(17,467)
$
16,112
Depreciation and amortization
1,536
Finance expense
Income taxes
EBITDA attributable to Ballard
$
Stock-based compensation expense
(recovery)
Acquisition and integration costs
Finance and other (income) loss
Gain on sale of intellectual property
Loss on sale of property, plant and equipment
208
(1)
388
248
902
950
(5,424)
-
1,448
234
88
(26)
(477)
476
$
(16,262)
$
16,650
(367)
-
501
-
71
615
902
449
(5,424)
(71)
Adjusted EBITDA
$
(2,936)
$
(16,057)
$
13,121
(Expressed in thousands of U.S. dollars)
EBITDA and Adjusted EBITDA
Net (loss) from continuing operations
Year ended December 31,
2015
2014
$ Change
attributable to Ballard
$
(5,815)
$
(28,188)
$
22,373
Depreciation and amortization
Finance expense
Income taxes
4,375
794
211
5,610
942
417
(1,235)
(148)
(206)
EBITDA attributable to Ballard
$
(435)
$
(21,219)
$
20,784
Stock-based compensation expense
Acquisition and integration costs
Finance and other (income) loss
2,949
1,542
305
Gain on sale of intellectual property
(19,619)
Impairment of equity investment
Loss (gain) on sale of property, plant and
equipment
-
(1)
2,249
-
113
-
149
73
700
1,542
192
(19,619)
(149)
(74)
Adjusted EBITDA
$
(15,259)
$
(18,635)
$
3,376
Normalized Net Loss
This supplemental non-GAAP measure is provided to assist readers in determining our
financial performance. We believe this measure is useful in assessing our actual
performance by adjusting our results from continuing operations for one-time transactional
gains and losses and impairment losses. Normalized Net Loss differs from the most
comparable GAAP measure, net loss attributable to Ballard from continuing operations,
primarily because it does not include impairment losses or recoveries on trade receivables,
transactional gains and losses, asset impairment charges, and acquisition costs. The
following table shows a reconciliation of net loss attributable to Ballard from continuing
operations to Normalized Net Loss for the three months and year ended December 31, 2015
and 2014.
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(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Three months ended December 31,
2015
2014
$ Change
Net (loss) attributable to Ballard from continuing
operations
Impairment loss (recovery) on trade
receivables
Acquisition and integration costs
Gain on sale of intellectual property
Normalized Net Loss
Normalized Net Loss per share
(Expressed in thousands of U.S. dollars)
Normalized Net Loss
Net (loss) attributable to Ballard from continuing
operations
Impairment loss (recovery) on trade
receivables
Impairment of equity investment
Acquisition and integration costs
$
(1,355)
$
(17,467)
$
16,112
(39)
902
(5,424)
(5,916)
6,159
-
-
$
(11,308)
(0.04)
$
(0.09)
Year ended December 31,
$
$
(6,198)
902
(5,424)
5,392
0.05
$
$
2015
2014
$ Change
$
(5,815)
$
(28,188)
$
22,373
(899)
-
1,542
6,206
149
-
-
(7,105)
(149)
1,542
(19,619)
(2,958)
(0.01)
Gain on sale of intellectual property
(19,619)
Normalized Net Loss
Normalized Net Loss per share
$
$
(24,791)
$
(21,833)
(0.18)
$
(0.17)
$
$
MANAGEMENT’S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that
relevant information is gathered and reported to senior management, including the Chief
Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), on a timely basis so that
appropriate decisions can be made regarding public disclosures.
As of the end of the period covered by this report, we evaluated, under the supervision and
with the participation of management, including the CEO and the CFO, the effectiveness of
the design and operation of our disclosure controls and procedures, as defined in Rules 13a–
15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”). The CEO and
CFO have concluded that as of December 31, 2015, our disclosure controls and procedures
were effective to ensure that information required to be disclosed in reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified therein, and accumulated and reported to management to allow
timely discussions regarding required disclosure.
Internal control over financial reporting
The CEO and CFO, together with other members of management, are responsible for
establishing and maintaining adequate internal control over the Company’s financial
reporting. Internal control over financial reporting is designed under our supervision, and
effected by the Company’s board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS.
Page 49 of 53
There are inherent limitations in the effectiveness of internal control over financial reporting,
including the possibility that misstatements may not be prevented or detected. Accordingly,
even effective internal controls over financial reporting can provide only reasonable
assurance with respect to financial statement preparation. Furthermore, the effectiveness of
internal controls can change with circumstances.
Management, including the CEO and CFO, have evaluated the effectiveness of internal
control over financial reporting, as defined in Rules 13a–15(f) of the Exchange Act, in
relation to criteria described in Internal Control–Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on
this evaluation, Management has determined that internal control over financial reporting
was effective as of December 31, 2015.
As Protonex was acquired in the last 365 days, we have limited the scope of our design of
disclosure controls and procedures and internal controls over financial reporting to exclude
controls, policies and procedures of Protonex. Summary financial information of Protonex
consolidated in our year ended December 31, 2015 consolidated financial statements are as
follows:
Select Protonex financial information
(Expressed in thousands of U.S. dollars)
Revenues
Cash Operating Costs (1)
Adjusted EBITDA (1)
Net loss
Cash used by operating activities
Cash and cash equivalents
Total assets
$
$
$
$
$
$
$
2015
3,397
1,518
(260)
(652)
(2,363)
303
17,802
1 Cash Operating Costs, Adjusted EBITDA, Normalized Net Loss and Normalized Net Loss per share are non-GAAP measures. We use certain Non-GAAP
measures to assist in assessing our financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are
therefore unlikely to be comparable to similar measures presented by other companies. See reconciliation to GAAP in the Supplemental Non-GAAP
Measures section.
KPMG LLP, our independent registered public accounting firm, has audited our consolidated
financial statements and expressed an unqualified opinion thereon. KPMG has also
expressed an unqualified opinion on the effectiveness of our internal control over financial
reporting as of December 31, 2015.
Changes in internal control over financial reporting
During the year ended December 31, 2015, there were no changes in internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting. Our design of disclosure controls
and procedures and internal controls over financial reporting includes controls, policies and
procedures covering Dantherm Power.
RISKS & UNCERTAINTIES
An investment in our common shares involves risk. Investors should carefully consider the
risks and uncertainties described below and in our Annual Information Form which remain
substantively unchanged. The risks and uncertainties described in our Annual Information
Form are not the only ones we face. Additional risks and uncertainties, including those that
we do not know about now or that we currently deem immaterial, may also adversely affect
Page 50 of 53
our business. For a more complete discussion of the risks and uncertainties which apply to
our business and our operating results, please see our Annual Information Form and other
filings with Canadian (www.sedar.com) and U.S. securities regulatory authorities
(www.sec.gov).
A summary of our identified risks and uncertainties are as follows:
We may not be able to achieve commercialization of our products on the timetable
we anticipate, or at all;
We expect our cash reserves will be reduced due to future operating losses and
working capital requirements, and we cannot provide certainty as to how long our
cash reserves will last or that we will be able to access additional capital when
necessary;
A mass market for our products may never develop or may take longer to develop
than we anticipate;
We have limited experience manufacturing fuel cell products on a commercial basis;
Warranty claims could negatively
impact our gross margins and
financial
performance;
We may not be able to successfully execute our business plan;
Global macro-economic conditions are beyond our control and may have an adverse
impact on our business or on our key suppliers and / or customers;
In our Heavy-Duty Motive market, we depend on Chinese customers for a majority of
our revenues. Global macro-economic conditions, including significant and recent
volatility in China’s capital markets, may adversely impact our Chinese customer’s
access to capital and program plans which could adversely impact our business;
In our Technology Solutions market, we depend on a single customer for the
majority of our revenues;
In our Material Handling market, we depend on a single customer for the majority of
internal stack development and
our
commercialization plans;
revenues and on
that customer’s
We may not be able to successfully conclude and realize any benefits or value from
our ongoing review of strategic alternatives for our Telecom Backup Power business;
In our Portable Power market, defense spending volatility could have an adverse
impact on our business;
In our Portable Power market, defense acquisition process changes could have an
adverse impact on our business;
Potential fluctuations in our financial and business results make forecasting difficult
and may restrict our access to funding for our commercialization plan;
We could be adversely affected by risks associated with acquisitions;
We are subject to risks inherent in international operations;
Exchange rate fluctuations are beyond our control and may have a material adverse
effect on our business, operating results, financial condition and profitability;
Commodity price fluctuations are beyond our control and may have a material
Page 51 of 53
adverse effect on our business, operating results, financial condition and profitability;
We are dependent upon Original Equipment Manufacturers and Systems Integrators
to purchase certain of our products;
We are dependent on third party suppliers for the supply of key materials and
components for our products and services;
We currently face and will continue to face significant competition;
We could lose or fail to attract the personnel necessary to run our business;
Public Policy and regulatory changes could hurt the market for our products;
We depend on our intellectual property, and our failure to protect that intellectual
property could adversely affect our expected future growth and success;
We could be liable for environmental damages resulting from our research,
development or manufacturing operations; and
Our products use flammable fuels and some generate high voltages, which could
subject our business to product liability claims.
FORWARD-LOOKING STATEMENTS DISCLAIMER
This document contains forward-looking statements that are based on the beliefs of
management and reflect our current expectations as contemplated under the safe harbor
provisions of Section 21E of the United States Securities Exchange Act of 1934, as
amended. Such statements include, but are not limited to, statements with respect to our
objectives, goals, liquidity, sources of capital and our outlook including our estimated
revenue and gross margins, cash flow from operations, Cash Operating Costs, EBITDA and
Adjusted EBITDA (see Non-GAAP Measures) as well as statements with respect to our
beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Words such
as "estimate", "project", "believe", "anticipate", "intend", "expect", "plan", "predict", "may",
"should", "will", the negatives of these words or other variations thereof and comparable
terminology are intended to identify forward-looking statements. These statements are not
guarantees of future performance and involve assumptions, risks and uncertainties that are
difficult to predict.
In particular, these forward-looking statements are based on certain factors and
assumptions relating to our expectations with respect to the generation of new sales,
producing, delivering and selling the expected product and service volumes at the expected
prices, controlling our costs, and obtaining the expected benefits arising from the Protonex
acquisition. They are also based on a variety of general factors and assumptions including,
but not limited to, our expectations regarding product development efforts, manufacturing
capacity, product and service pricing, market demand, and the availability and prices of raw
materials, labour and supplies. These assumptions have been derived from information
available to the Company including information obtained by the Company from third parties.
These assumptions may prove to be incorrect in whole or in part. In addition, actual results
may differ materially from those expressed, implied, or forecasted in such forward-looking
statements. Factors that could cause our actual results or outcomes to differ materially from
the results expressed, implied or forecasted in such forward-looking statements include, but
are not limited to: the condition of the global economy; the rate of mass adoption of our
products; changes in product or service pricing; changes in our customers' requirements,
Page 52 of 53
the competitive environment and related market conditions; product development delays;
changes in the availability or price of raw materials, labour and supplies; our ability to
attract and retain business partners, suppliers, employees and customers; changing
environmental regulations including subsidies or incentives associated with the adoption of
clean energy products; our access to funding and our ability to provide the capital required
for product development, operations and marketing efforts, and working capital
requirements; our ability to protect our intellectual property; risks relating to the Company’s
successful integration of Protonex and its operations, such as the loss of key personnel due
to the transaction, the disruption to the operations of the Company and Protonex’ respective
businesses, the cost of integration exceeding that projected by Ballard, and the integration
failing to achieve the expected benefits of the transaction; risks related to our ongoing
strategic review of our telecom backup power business, including our ability to identify,
pursue and realize the benefits of strategic alternatives being explored by us (which could
include possible joint ventures, strategic partnerships or alliances, a sale of the business or
other possible transactions), as well as the risk that uncertainty relating to the strategic
review process may impact our business, existing and future relationships with business
partners and customers, and ability to attract and retain key employees; the magnitude of
the rate of change of the Canadian dollar versus the U.S. dollar; and the general
assumption that none of the risks identified in the Risks and Uncertainties section of this
report or in our most recent Annual Information Form will materialize. Readers should not
place undue reliance on Ballard's forward-looking statements.
The forward-looking statements contained in this document speak only as of the date of this
Management Discussion and Analysis. Except as required by applicable legislation, Ballard
does not undertake any obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date of this Management Discussion
and Analysis, including the occurrence of unanticipated events.
Page 53 of 53
Consolidated Financial Statements
(Expressed in U.S. dollars)
BALLARD POWER SYSTEMS INC.
Years ended December 31, 2015 and 2014
MANAGEMENT’S REPORT
Management’s Responsibility for the Financial Statements and Report on
Internal Control over Financial Reporting
The consolidated financial statements contained in this Annual Report have been prepared by
management in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board. The integrity and objectivity of the data in these
consolidated financial statements are management’s responsibility. Management is also responsible
for all other information in the Annual Report and for ensuring that this information is consistent,
where appropriate, with the information and data contained in the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external reporting purposes in accordance with IFRS. Internal control over financial
reporting may not prevent or detect fraud or misstatements because of limitations inherent in any
system of internal control. Management has assessed the effectiveness of the Corporation’s internal
control over financial reporting based on the framework in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
concluded that the Corporation’s internal control over financial reporting was effective as of December
31, 2015. In addition, management maintains disclosure controls and procedures to provide
reasonable assurance that material information is communicated to management and appropriately
disclosed. Some of the assets and liabilities include amounts, which are based on estimates and
judgments, as their final determination is dependent on future events.
The Corporation acquired Protonex Technology Corporation (“Protonex”) during 2015, and
management excludes from its assessment of the effectiveness of the Corporation’s internal control
over financial reporting as of December 31, 2015, Protonex’ internal control over financial reporting
associated with total assets of $17,802,000 and total revenue of $3,397,000 included in the
consolidated financial statements of the Corporation as of and for the year ended December 31, 2015
as Protonex was acquired in the last quarter of 2015.
The Board of Directors oversees management’s responsibilities for financial reporting through the
Audit Committee, which consists of eight directors who are independent and not involved in the daily
operations of the Corporation. The Audit Committee meets on a regular basis with management and
the external and internal auditors to discuss internal controls over the financial reporting process,
auditing matters and financial reporting issues. The Audit Committee is responsible for appointing the
external auditors (subject to shareholder approval), and reviewing and approving all financial
disclosure contained in our public documents and related party transactions.
The external auditors, KPMG LLP, have audited the financial statements and expressed an unqualified
opinion thereon. KPMG has also expressed an unqualified opinion on the effective operation of the
internal controls over financial reporting as of December 31, 2015. The external auditors have full
access to management and the Audit Committee with respect to their findings concerning the fairness
of financial reporting and the adequacy of internal controls.
“RANDALL MACEWEN”
“TONY GUGLIELMIN”
RANDALL MACEWEN
President and
Chief Executive Officer
February 25, 2016
TONY GUGLIELMIN
Vice President and
Chief Financial Officer
February 25, 2016
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone
Fax
Internet
(604) 691-3000
(604) 691-3031
www.kpmg.ca
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors Directors of Ballard Power Systems Inc.
We have audited the accompanying consolidated statements of financial position of Ballard Power Systems
Inc.(“the Company”) as of December 31, 2015 and December 31, 2014 and the related consolidated
statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and 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 consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as of December 31, 2015 and December 31, 2014, and
its consolidated financial performance and its consolidated cash flows for the years then ended in
conformity with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31, 2015,
based on the criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 24, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
Chartered Professional Accountants
February 24, 2016
Vancouver, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
KPMG Confidential
KPMG LLP
Chartered Professional Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
(604) 691-3031
Fax
www.kpmg.ca
Internet
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Ballard Power Systems Inc.
We have audited Ballard Power Systems Inc.’s (“the Company”) internal control over financial reporting as
of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the
section entitled “Management’s Report on Disclosure Controls and Procedures and Internal Controls over
Financial Reporting” under the heading “Internal control over financial reporting” included in the Company’s
Management and Discussion Analysis. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
KPMG Confidential
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
The Company acquired Protonex Technology Corporation during 2015, and management excluded from its
assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2015, Protonex Technology Corporation’s internal control over financial reporting associated
with total assets of $17.8 million and total revenues of $3.4 million included in the consolidated financial
statements of the Company as of and for the year ended December 31, 2015. Our audit of internal control
over financial reporting of the Company also excluded an evaluation of the internal control over financial
reporting of Protonex Technology Corporation.
We also have audited, in accordance with Canadian general accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States), the consolidated statements
of financial position of the Company as of December 31, 2015 and December 31, 2014, and the related
consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for the years
then ended and our report dated February 24, 2016 expressed an unqualified opinion on those
consolidated financial statements.
Chartered Professional Accountants
February 24, 2016
Vancouver, Canada
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Financial Position
(Expressed in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets
Goodwill
Investments
Other long-term assets
Total assets
Liabilities and Equity
Current liabilities:
Trade and other payables
Deferred revenue and other recoveries
Provisions
Finance lease liability
Debt to Dantherm Power A/S non-controlling interests
Total current liabilities
Non-current liabilities:
Finance lease liability
Deferred gain on finance lease
Provisions
Employee future benefits
Total liabilities
Equity:
Share capital
Contributed surplus
Accumulated deficit
Foreign currency reserve
Total equity attributable to equity holders
Dantherm Power A/S non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements
Approved on behalf of the Board:
“Ed Kilroy”
Director
“Ian Bourne”
Director
Note
December 31,
2015
December 31,
2014
9
10
11
12
13
15
16
17
18
17
17
16
19
20
20
$
40,049
25,484
20,369
1,672
87,574
16,725
16,329
40,562
6
135
$ 161,331
$
17,220
6,085
5,368
1,011
504
30,188
6,723
3,829
3,646
5,331
49,717
$
$
$
23,671
13,146
12,538
1,294
50,649
16,685
24,151
36,291
6
167
127,949
12,556
1,798
9,010
1,008
529
24,901
9,226
4,274
4,353
5,961
48,715
948,213
293,332
(1,127,655)
567
114,457
(2,843)
111,614
$ 161,331
$
914,786
288,533
(1,121,671)
280
81,928
(2,694)
79,234
127,949
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Loss and Comprehensive Loss
For the year ended December 31
(Expressed in thousands of U.S. dollars, except per share amounts and number of shares)
Revenues:
Product and service revenues
Cost of product and service revenues
Gross margin
Operating expenses:
Research and product development
General and administrative
Sales and marketing
Other expense
Total operating expenses
Results from operating activities
Finance (loss) and other
Finance expense
Net finance expense
Gain (loss) on sale of property, plant and equipment
Gain on sale of intellectual property
Impairment loss on investment
Loss before income taxes
Income tax expense
Net loss from continuing operations
Net earnings from discontinued operations
Net loss
Other comprehensive income (loss):
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit plans
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation differences
Other comprehensive income (loss), net of tax
Note
2015
2014
$
56,463
$
46,489
9,974
16,206
10,594
7,428
630
34,858
68,721
58,475
10,246
14,294
10,450
7,265
6,291
38,300
(24,884)
(28,054)
(305)
(794)
(1,099)
1
19,619
-
(6,363)
(211)
(6,574)
-
(6,574)
168
168
560
560
728
(113)
(942)
(1,055)
(73)
-
(149)
(29,331)
(417)
(29,748)
320
(29,428)
(2,863)
(2,863)
529
529
(2,334)
24
25
25
12
26
8
19
Total comprehensive loss
$
(5,846)
$
(31,762)
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Loss and Comprehensive Loss (cont’d)
For the year ended December 31
(Expressed in thousands of U.S. dollars, except per share amounts and number of shares)
Net loss attributable to:
Ballard Power Systems Inc. from continuing operations
$
(5,815) $
(28,188)
Ballard Power Systems Inc. from discontinued operations
Dantherm Power A/S non-controlling interest
Net loss
-
(759)
320
(1,560)
$
(6,574) $
(29,428)
2015
2014
Total comprehensive loss attributable to:
Ballard Power Systems Inc.
Dantherm Power A/S non-controlling interest
Total comprehensive loss
Basic and diluted loss per share attributable to Ballard Power Systems Inc.
Continuing operations
Discontinued operations
Net loss
$
$
$
$
(5,351) $
(30,460)
(495)
(1,302)
(5,846) $
(31,762)
(0.04) $
-
(0.04) $
(0.22)
-
(0.22)
Weighted average number of common shares outstanding
140,393,579
127,385,814
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Changes in Equity
(Expressed in thousands of U.S. dollars except per share amounts and number of shares)
Ballard Power Systems Inc. Equity
Number of
shares
Share
capital
Treasury
shares
Contributed
surplus
Accumulated
deficit
Dantherm
Power A/S
Non-
controlling
interests
Foreign
currency
reserve
Total
equity
Balance, December 31, 2013
110,133,901 $
866,574 $
(118) $
296,368 $ (1,091,187)
$
9
$
(1,392) $
70,254
Balance, December 31, 2014
132,104,116 $ 914,786 $
- $ 288,533 $ (1,121,671) $
280
$ (2,694) $ 79,234
-
-
271
258
529
Net loss
Acquisition of intangible assets
(note 12 and 20)
-
-
5,121,507
20,307
Warrants exercised (note 20)
7,939,937
12,299
Exercise of convertible promissory note
(note 20)
4,761,905
4,000
-
-
-
-
-
-
-
(4,000)
(27,868)
-
-
-
Sale of treasury shares (note 20)
-
-
118
-
247
RSUs redeemed (note 20)
583,084
866
Options exercised (note 20)
3,563,782
10,740
Share distribution plan
-
-
Other comprehensive income (loss):
Defined benefit plan actuarial loss
Foreign currency translation for
foreign operations
-
-
-
-
-
-
-
-
-
(2,829)
(3,946)
2,940
-
-
-
-
(2,863)
Net loss
Non-dilutive financing (note 22)
-
-
-
-
Net Offering proceeds (note 20)
9,343,750
13,389
Acquisition (note 7)
11,415,704
13,699
Private placement (note 20)
3,322,479
4,987
DSUs redeemed (note 20)
RSUs redeemed (note 20)
Options exercised (note 20)
Warrants exercised (note 20)
Share distribution plan
Dantherm power NCI adjustment for
cancellation of Azure shares
Other comprehensive income (loss):
Defined benefit plan actuarial loss
Foreign currency translation for
foreign operations
83,619
119,627
322,892
125,000
-
-
-
-
354
203
627
168
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,815)
3,347
-
-
-
(520)
(345)
(239)
-
2,556
-
-
-
-
-
-
-
-
-
-
(337)
168
-
-
-
-
-
-
-
-
-
-
-
(1,560)
(29,428)
-
20,307
-
-
12,299
-
-
365
-
(1,963)
-
-
6,794
2,940
-
(2,863)
-
-
-
-
-
-
-
-
-
-
-
-
(759)
(6,574)
-
3,347
-
13,389
-
13,699
-
4,987
-
-
-
-
(166)
(142)
388
168
-
2,556
337
-
-
168
Balance, December 31, 2015
156,837,187 $ 948,213 $
- $ 293,332 $ (1,127,655) $
567
$ (2,843) $ 111,614
See accompanying notes to consolidated financial statements
-
287
273
560
BALLARD POWER SYSTEMS INC.
Consolidated Statement of Cash Flows
For the year ended December 31
(Expressed in thousands of U.S. dollars)
Cash provided by (used in):
Operating activities:
Net loss for the year
Adjustments for:
Share-based compensation
Employee future benefits
Employee future benefits plan contributions
Depreciation and amortization
Gain on decommissioning liabilities
Loss (gain) on sale of property, plant and equipment
Gain on sale of intellectual property
Reversal of impairment loss on property, plant and equipment
Impairment loss on trade receivables
Impairment loss on investment
Unrealized loss on forward contracts
Changes in non-cash working capital:
Trade and other receivables
Inventories
Prepaid expenses and other current assets
Trade and other payables
Deferred revenue and other recoveries
Warranty provision
Cash used by operating activities
Investing activities:
Additions to property, plant and equipment
Net proceeds on sale of property, plant and equipment and other
Additions to and acquisition of intangible assets
Net proceeds on sale of intangible assets
Cash and cash equivalents acquired on acquisition of Protonex
Acquisition of Protonex
Cash provided by (used in) investing activities
Financing activities:
Proceeds on sale of treasury shares
Net payment of finance lease liabilities
Net proceeds on issuance of share capital from underwritten Offering
Net proceeds on issuance of share capital from private placement
Net proceeds on issuance of share capital from stock option exercises
Net proceeds on issuance of share capital from warrant exercises
Cash provided by financing activities
Note
2015
2014
$
(6,574) $
(29,428)
20
12
8
24
12
12
7
7
20
20
20
20
2,950
278
(740)
4,375
(602)
(1)
(19,619)
-
456
-
162
(19,315)
410
(5,550)
(166)
(1,344)
4,213
(3,612)
(6,049)
2,249
182
(253)
5,610
(282)
73
-
(320)
6,206
149
144
(15,670)
(4,104)
1,464
(434)
69
(4,356)
2,360
(5,001)
(25,364)
(20,671)
(2,282)
1
(1,604)
29,475
1,464
(3,772)
23,282
-
(845)
13,389
4,987
388
168
18,087
(829)
-
(3,411)
-
-
-
(4,240)
365
(923)
-
-
6,794
12,299
18,535
Effect of exchange rate fluctuations on cash and cash equivalents held
373
(254)
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
16,378
23,671
(6,630)
30,301
$
40,049 $
23,671
Supplemental disclosure of cash flow information (note 28)
See accompanying notes to consolidated financial statements
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
1. Reporting entity:
The principal business of Ballard Power Systems Inc. (the “Corporation”) is the design,
development, manufacture, sale and service of fuel cell products for a variety of applications,
focusing on our power product markets of Heavy-Duty Motive (consisting of bus and tram
applications), Portable Power, Material Handling and Telecom Backup Power, as well as the
delivery of Technology Solutions including engineering services and the license and sale of the
Corporation’s extensive intellectual property portfolio and fundamental knowledge for a variety of
fuel cell applications. A fuel cell is an environmentally clean electrochemical device that combines
hydrogen fuel with oxygen (from the air) to produce electricity.
The Corporation is a company domiciled in Canada and its registered office is located at 9000
Glenlyon Parkway, Burnaby, British Columbia, Canada, V5J 5J8. The consolidated financial
statements of the Corporation as at and for the year ended December 31, 2015 comprise the
Corporation and its subsidiaries (note 4(a)).
2. Basis of preparation:
(a) Statement of compliance:
These consolidated financial statements of the Corporation have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Board of Directors on
February 24, 2016.
(b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis except for
the following material items in the statement of financial position:
Financial instruments classified as fair value through profit or loss and available-for-sale
are measured at fair value;
Derivative financial instruments are measured at fair value; and
Employee future benefits liability is recognized as the net total of the present value of
the defined benefit obligation, less the fair value of plan assets.
(c) Functional and presentation currency:
These consolidated financial statements are presented in U.S. dollars, which is the Corporation’s
functional currency.
11
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
2. Basis of preparation (cont’d):
(d) Use of estimates:
The preparation of the consolidated financial statements in conformity with IFRS requires the
Corporation’s management to make estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future
periods affected.
Significant areas having estimation uncertainty include revenue recognition, asset impairment,
warranty provision, inventory provision, impairment loss (recoveries) on trade receivables,
employee future benefits, and income taxes. These estimates and judgments are discussed
further in note 5.
(e) Future operations:
The Corporation is required to assess its ability to continue as a going concern and whether
substantial doubt exists as to the Corporation’s ability to continue as a going concern into the
foreseeable future. The Corporation has forecast its cash flows and despite the ongoing volatility
and uncertainties inherent in the business, the Corporation believes it has adequate liquidity in
cash and working capital to finance its operations for the foreseeable future. The Corporation’s
ability to continue as a going concern and realize its assets and discharge its liabilities and
commitments in the normal course of business is ultimately dependent upon the Corporation
having adequate liquidity and achieving profitable operations that are sustainable. There are
various risks and uncertainties affecting the Corporation including, but not limited to, the market
acceptance and rate of commercialization of the Corporation’s products, the ability of the
Corporation to successfully execute its business plan, and general global economic conditions,
certain of which are beyond the Corporation’s control.
The Corporation’s strategy to mitigate these risks and uncertainties is to execute a business plan
aimed at continued focus on revenue growth, improving overall gross margins, and managing
operating expenses and working capital requirements. Failure to implement this plan could have a
material adverse effect on the Corporation’s financial condition and or results of operations.
3. Changes in accounting policies:
The Corporation has consistently applied the accounting policies set out in note 4 to all periods
presented in these consolidated financial statements. The Corporation did not adopt any new
accounting standard changes or amendments effective January 1, 2015 that had a material impact
on these consolidated financial statements.
12
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies:
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated
financial statements, unless otherwise
indicated. Certain prior year
comparative figures have been reclassified to comply with current year presentation.
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Corporation and its principal
subsidiaries as follows:
Ballard Fuel Cell Systems Inc.
Ballard Power Corporation
Ballard Services Inc.
Dantherm Power A/S
Protonex Technology Corporation
Percentage ownership
2015
100%
100%
100%
57%
100%
2014
100%
100%
100%
51.3%
-
Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it
is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns though its power over the entity. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases. Intercompany balances and transactions are
eliminated in the consolidated financial statements.
On October 1, 2015, the Corporation acquired Protonex Technology Corporation (note 7), a
leading designer and manufacturer of advanced power management products and portable fuel
cell solutions.
The Corporation acquired a 45% interest in Dantherm Power A/S on January 18, 2010. In August
2010, the Corporation acquired an additional 7% interest in Dantherm Power A/S and a further
5% interest in December 2012. On March 31, 2013, Azure Hydrogen Energy Science and
Technology Corporation (“Azure”) acquired a 10% ownership interest in Dantherm Power A/S,
which reduced the Corporation’s interest from 57% to 51.3%. On June 8, 2015, the Corporation
agreed to a mutual release with Azure whereby each party mutually released and forever
discharged each other from any and all liability arising from the prior year’s licensing agreements.
Pursuant to the Azure Mutual Release Agreement, Azure returned its 10% ownership position in
Dantherm Power to Dantherm Power for $nil proceeds, upon which the shares were cancelled by
Dantherm Power on June 17, 2015.
13
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(a) Basis of consolidation (cont’d):
Following the Azure Mutual Release Agreement, the Corporation’s controlling ownership position in
Dantherm Power was increased from 52% to 57%. The remaining 43% interest is held by
Dantherm A/S. As the Corporation obtained control over Dantherm Power A/S as of the date of
acquisition of the initial 45% interest, Dantherm Power A/S has been consolidated since
acquisition on January 18, 2010. Acquisitions of non-controlling interest are accounted as
transactions with equity holders in their capacity as equity holders; therefore no goodwill is
recognized as a result of such transactions.
(b) Foreign currency:
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the
Corporation and its subsidiaries at the exchange rate in effect at the transaction date.
Monetary assets and liabilities denominated in other than the functional currency are
translated at the exchange rates in effect at the balance sheet date. The resulting exchange
gains and losses are recognized in earnings. Non-monetary assets and liabilities denominated
in other than the functional currency that are measured at fair value are translated to the
functional currency at the exchange rate at the date that the fair value was determined. Non-
monetary items that are measured in terms of historical cost in other than the functional
currency are translated using the exchange rate at the date of the transaction.
(ii) Foreign operations
The assets and liabilities of foreign operations are translated to the presentation currency
using exchange rates at the reporting date. The income and expenses of foreign operations
are translated to the presentation currency using exchange rates at the dates of the
transactions. Foreign currency differences are recognized in other comprehensive income.
(c) Financial instruments:
(i) Financial assets
The Corporation initially recognizes loans and receivables and deposits on the date that they
originated and all other financial assets on the trade date at which the Corporation becomes a
party to the contractual provisions of the instrument. The Corporation derecognizes a financial
asset when the contractual rights to the cash flows from the asset expire, or when it transfers
substantially all the risks and rewards of ownership of the financial asset.
14
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(i) Financial assets (cont’d)
Financial assets at fair value through profit or loss
Financial assets are classified at fair value through profit or loss if they are held for trading or
if the Corporation manages such investments and makes purchase and sale decisions based
on their fair value in accordance with the Corporation’s documented risk management or
investment strategy. Financial assets at fair value through profit or loss are measured at fair
value, and changes therein are recognized in net loss.
The Corporation’s short-term investments, consisting of highly liquid interest bearing
securities with maturities at the date of purchase between three months and three years, are
classified as held for trading.
The Corporation also periodically enters into platinum futures and foreign exchange forward
contracts to limit its exposure to foreign currency rate fluctuations and platinum price
fluctuations. These derivatives are recognized initially at fair value and are recorded as either
assets or liabilities based on their fair value. Subsequent to initial recognition, these
derivatives are measured at fair value and changes to their value are recorded through net
loss, unless these financial instruments are designated as hedges (note 4 (c)(iv)).
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not
quoted in an active market. Such assets are recognized initially at fair value and subsequently
at amortized cost using the effective interest method, less any impairment losses. Loans and
receivables are comprised of the Corporation’s trade and other receivables.
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid short-term interest-
bearing securities with original maturities of three months or less and are initially measured at
fair value, and subsequently measured at amortized cost, which approximates fair value due
to the short-term and liquid nature of these assets.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as
available-for-sale and that are not classified in any of the previous categories. Subsequent to
initial recognition, they are measured at fair value and changes therein, other than impairment
losses and foreign currency differences, are recognized in other comprehensive income. When
an investment is derecognized, the cumulative gain or loss in other comprehensive income is
transferred to profit or loss.
15
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(i) Financial assets (cont’d)
Determination of fair value
The fair value of financial assets at fair value through profit or loss and available-for-sale are
determined by reference to their quoted closing bid price at the reporting date if they are
traded in an active market. For derivative instruments (foreign exchange forward contracts,
platinum futures contracts), fair value is estimated by Management based on their listed
market price or broker quotes that include adjustments to take account of the credit risk of
the Corporation and the counterparty when appropriate. The fair value of loans and
receivables is estimated as the present value of future cash flows, discounted at the market
rate of interest at the reporting date.
(ii) Financial liabilities
Financial liabilities comprise the Corporation’s trade and other payables. The financial
liabilities are initially recognized on the date they are originated and are derecognized when
the contractual obligations are discharged or cancelled or expire. These financial liabilities are
recognized initially at fair value and subsequently are measured at amortized costs using the
effective interest method, when materially different from the initial amount. Fair value is
determined based on the present value of future cash flows, discounted at the market rate of
interest.
(iii) Share capital
Share capital is classified as equity. Incremental costs directly attributable to the issue of
shares and share options are recognized as a deduction from equity. When share capital is
repurchased, the amount of the consideration paid, including directly attributable costs, is
recognized as a deduction from equity. Repurchased shares are classified as treasury shares
and are presented as a deduction from equity. When treasury shares are subsequently
reissued, the amount received is recognized as an increase in equity, and the resulting surplus
or deficit on the transaction is transferred to or from retained earnings.
(iv) Derivative financial instruments, including hedge accounting
The Corporation periodically holds derivative financial instruments to hedge its foreign
currency risk exposures that are designated as the hedging instrument in a hedge
relationship.
16
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(iv) Derivative financial instruments, including hedge accounting (cont’d)
If designated in a qualifying hedge relationship, on initial designation of the hedge, the
Corporation formally documents the relationship between the hedging instrument and hedged
item, including the risk management objectives and strategy in undertaking the hedge
transaction, together with the methods that will be used to assess the effectiveness of the
hedging relationship.
The Corporation makes an assessment, both at the inception of the hedge relationship as well
as on an ongoing basis, whether the hedging instruments are expected to be “highly effective”
in offsetting the changes in the fair value or cash flows of the respective hedged items during
the period for which the hedge is designated, and whether the actual results of each hedge are
within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the
transaction should be highly probable to occur and should present an exposure to variations in
cash flows that could ultimately affect reported net income.
Derivatives are recognized initially at fair value; attributable transaction costs are recognized
in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair
value, and changes therein are accounted for as described below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash
flows attributable to a particular risk associated with a recognized asset or liability or a highly
probable forecast transaction that could affect profit or loss, the effective portion of changes in
the fair value of the derivative is recognized in other comprehensive income and presented in
unrealized gains/losses on cash flow hedges in equity. The amount recognized in other
comprehensive income is removed and included in profit or loss in the same period as the
hedged cash flows affect profit or loss under the same line item in the statement of
comprehensive income as the hedged item. Any ineffective portion of changes in the fair value
of the derivative is recognized immediately in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,
terminated, exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously recognized in other comprehensive
income and presented in unrealized gains/losses on cash flow hedges in equity remains there
until the forecast transaction affects profit or loss.
17
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(c) Financial instruments (cont’d):
(iv) Derivative financial instruments, including hedge accounting (cont’d)
If the forecast transaction is no longer expected to occur, then the balance in other
comprehensive income is recognized immediately in profit or loss. In other cases the amount
recognized in other comprehensive income is transferred to profit or loss in the same period
that the hedged item affects profit or loss.
Other non-trading derivatives
When a derivative financial instrument is not held for trading, or is not designated in a
qualifying hedge relationship, all changes in its fair value are recognized immediately in profit
or loss.
(d) Inventories:
Inventories are recorded at the lower of cost and net realizable value. The cost of inventories is
based on the first-in first-out principle, and includes expenditures incurred in acquiring the
inventories, production or conversion costs and other costs incurred in bringing them to their
existing location and condition. In the case of manufactured inventories and work in progress,
cost includes materials, labor and appropriate share of production overhead based on normal
operating capacity. Costs of materials are determined on an average per unit basis.
Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses. In establishing any impairment of inventory,
management estimates the likelihood that inventory carrying values will be affected by changes in
market demand, technology and design, which would impair the value of inventory on hand.
(e) Property, plant and equipment:
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation
and any accumulated impairment losses. The cost of self-constructed assets includes the cost
of materials, costs directly attributable to bringing the assets to a working condition for their
intended use, and the costs of dismantling and removing items and restoring the site on which
they are located. If significant parts of an item of property, plant and equipment have
different useful lives, then they are accounted for as separate items (major components) of
property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit
or loss.
18
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(e) Property, plant and equipment (cont’d):
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits
associated with the expenditure will flow to the Corporation.
(iii) Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less
their estimated residual values using the straight-line method over their estimated useful
lives, and is generally recognized in profit or loss. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is reasonably certain that the
Corporation will obtain ownership by the end of the lease term.
The estimated useful lives of property, plant and equipment for current and comparative
periods are as follows:
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under finance lease
15 years
3 to 7 years
5 to 14 years
5 years
The shorter of initial term of the respective lease and
estimated useful life
4 to 15 years
5 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(f) Leases:
Leases where the Corporation assumes substantially all the risks and rewards of ownership are
classified as finance leases. Upon initial recognition the leased asset is measured at an amount
equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting
policy applicable to that asset. Other leases are operating leases and not recognized in the
statement of financial position.
Minimum lease payments made under finance leases are apportioned between finance expense
and the reduction of the outstanding liability. Finance expense is allocated to each period during
the lease term so as to produce a constant periodic rate of interest on the remaining balance of
the liability.
19
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(f) Leases (cont’d):
Payments made under operating leases are recognized in income on a straight-line basis over the
term of the lease. Lease incentives received are recognized as a reduction to the lease expense
over the term of the lease.
(g) Goodwill and intangible assets:
(i) Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less
accumulated impairment losses.
Research and development Expenditure on research activities is recognized in profit or loss as
incurred.
Development expenditure is capitalized only if the expenditure can be
measured reliably, the product or process is technically and commercially
feasible, future economic benefits are probable and the Corporation
intends to and has sufficient resources to complete development and to
use or sell the asset. Otherwise, it is recognized in profit or loss as
incurred. Subsequent to initial recognition, development expenditure is
measured at cost less accumulated amortization and any accumulated
impairment losses.
Intangible assets, including patents and trademarks, that are acquired by
the Corporation and have finite useful lives are measured at cost less
accumulated amortization and any accumulated impairment losses.
Intangible assets
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure, including expenditure
on internally generated goodwill, is recognized in profit or loss as incurred.
(iii) Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual
values using the straight-line method over their estimated useful lives, and is recognized in
profit or loss. Goodwill is not amortized.
The estimated useful lives for current and comparative periods are as follows:
Internally generated intangible assets
Patents, know-how and in-process research & development
Trademarks and service marks
Domain names
Customer base and relationships
Acquired non-compete agreements
5 years
5 to 20 years
15 years
15 years
10 years
1 year
20
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(g) Goodwill and intangible assets (cont’d):
(iii) Amortization (cont’d)
Amortization methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(h) Impairment:
(i) Financial assets
Financial assets not carried at fair value through profit or loss are assessed for impairment at
each reporting date by determining whether there is objective evidence that indicates that a
loss event has occurred after the initial recognition of the asset, and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Impairment losses on available-for-sale investment securities are recognized by transferring
the cumulative loss that has been recognized in other comprehensive income and presented in
accumulated other comprehensive loss in equity, to net loss. The cumulative loss that is
removed from other comprehensive income and recognized in net loss is the difference
between the acquisition cost, net of any principal repayment and amortization, and the current
fair value less any impairment loss previously recognized in net loss. If subsequently the fair
value of an impaired available-for-sale security increases, then the impairment loss is
reversed, with the amount of the reversal recognized in net loss. However, any subsequent
recovery in the fair value of an impaired available for sale equity security is recognized in
other comprehensive income.
(ii) Non-financial assets
The carrying amounts of the Corporation’s non-financial assets other than inventories are
reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill
and intangible assets that have indefinite useful lives, the recoverable amount is estimated
annually.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Fair value less
costs to sell is defined as the estimated price that would be received on the sale of the asset in
an orderly transaction between market participants at the measurement date. For the
purposes of impairment testing, assets that cannot be tested individually are grouped together
into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other groups of assets.
21
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(h) Impairment (cont’d):
(ii) Non-financial assets (cont’d)
The allocation of goodwill to cash-generating units reflects the lowest level at which goodwill is
monitored for internal reporting purposes.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit
exceeds its estimated recoverable amount. Impairment losses are recognized in net loss.
Impairment losses recognized in respect of the cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units, and then to reduce the
carrying amounts of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets,
impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
(i) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risk specific to the liability. The unwinding of the
discount is recognized as a finance cost.
Warranty provision
A provision for warranty costs is recorded on product sales at the time the sale is recognized. In
establishing the warranty provision, management estimates the likelihood that products sold will
experience warranty claims and the estimated cost to resolve claims received, taking into account
the nature of the contract and past and projected experience with the products.
Decommissioning liabilities
Legal obligations to retire tangible long-lived assets are recorded at the net present value of the
expected costs of settlement at acquisition with a corresponding increase in asset value. These
include assets leased under operating leases. The liability is accreted over the life of the asset to
the ultimate settlement amount and the increase in asset value is depreciated over the remaining
useful life of the asset.
22
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(j) Revenue recognition:
The Corporation generates revenues primarily from product sales and services, the license and
sale of intellectual property, and the provision of engineering services. Product and service
revenues are derived primarily from standard equipment and material sales contracts and from
long-term fixed price contracts. Intellectual property license and sale revenues are derived
primarily from licensing and sale agreements and from long-term fixed price contracts.
Engineering service revenue is derived primarily from cost-plus reimbursable contracts and from
long-term fixed price contracts.
On standard equipment and material sales contracts, revenues are recognized when (i) significant
risks and rewards of ownership of the goods has been transferred to the buyer; (ii) the
Corporation retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold; (iii) the amount of revenue can be
measured reliably; (iv) it is probable that the economic benefits associated with the sale will
accrue to the Corporation; and (v) the costs incurred, or to be incurred, in respect of the
transaction can be measured reliably. Provisions are made at the time of sale for warranties.
On standard licensing and sale agreements, revenues are recognized on the transfer of rights to
the licensee if: (i) the rights to the assets are assigned to the licensee in return for a fixed fee or a
non-refundable guarantee; (ii) the contract is non-cancellable; (iii) the licensee is able to exploit
its rights to the asset freely; and (iv) the Corporation has no remaining obligations to perform. In
other cases, the proceeds are considered to relate to the right to use the asset over the license
period and the revenue is recognized over that period.
On cost-plus reimbursable contracts, revenues are recognized as costs are incurred, and include
applicable fees earned as services are provided.
On long-term fixed price contracts, revenues are recognized on the percentage-of-completion
basis over the duration of the contract, which consists of recognizing revenue on a given contract
proportionately with its percentage of completion at any given time. The percentage of completion
is determined by dividing the cumulative costs incurred as at the balance sheet date by the sum of
incurred and anticipated costs for completing a contract.
The cumulative effect of changes to anticipated revenues and anticipated costs for completing a
contract are recognized in the period in which the revisions are identified. In the event that the
anticipated costs exceed the anticipated revenues on a contract, such loss is recognized in its
entirety in the period it becomes known.
Deferred revenue represents cash received from customers in excess of revenue recognized on
uncompleted contracts.
23
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(k) Finance income and expense:
Finance income comprises interest income on funds invested, gains on the disposal of available-
for-sale financial assets and changes in the fair value of financial assets at fair value through profit
or loss. Interest income is recognized as it accrues in income, using the effective interest method.
Finance expense comprise interest expense on capital leases, unwinding of the discount on
provisions, changes in the fair value of financial assets at fair value through profit or loss and
impairment losses recognized on financial assets.
Foreign currency gains and losses are reported on a net basis.
(l) Income taxes:
The Corporation follows the asset and liability method of accounting for income taxes. Under this
method, deferred income taxes are recognized for the deferred income tax consequences
attributable to differences between the financial statement carrying values of assets and liabilities
and their respective income tax bases (temporary differences) and for loss carry-forwards. The
resulting changes in the net deferred tax asset or liability are included in income.
Deferred tax assets and liabilities are measured using enacted, or substantively enacted, tax rates
expected to apply to taxable income in the years in which temporary differences are expected to
be recovered or settled. The effect on deferred income tax assets and liabilities, of a change in
tax rates, is included in income in the period that includes the substantive enactment date.
Deferred income tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
(m) Employee benefits:
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts.
Obligations for contributions to defined contribution pension plans are recognized as an employee
benefit expense in profit or loss in the periods during which services are rendered by employees.
Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in
future payments is available. Contributions to a defined contribution plan that are due more than
12 months after the end of the period in which the employees render the service are discounted to
their present value.
24
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(m) Employee benefits (cont’d):
Defined benefit plans
A defined benefit plan is a post-employment pension plan other than a defined contribution plan.
The Corporation’s net obligation in respect of defined benefit pension plans is calculated separately
for each plan by estimating the amount of future benefit that employees have earned in return for
their service in the current and prior periods; that benefit is discounted to determine its present
value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The
discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates
approximating the terms of the Corporation’s obligations and that are denominated in the same
currency in which the benefits are expected to be paid. The calculation is performed annually by a
qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Corporation, the recognized asset is limited to the
total of any unrecognized past service costs and the present value of economic benefits available
in the form of any future refunds from the plan or reductions in future contributions to the plan. In
order to calculate the present value of economic benefits, consideration is given to any minimum
funding requirements that apply to any plan in the Corporation. An economic benefit is available to
the Corporation if it is realizable during the life of the plan, or on settlement of the plan liabilities.
The Corporation recognizes all remeasurements arising from defined benefit plans, which comprise
actuarial gains and losses, immediately in other comprehensive income. Remeasurements
recognized in other comprehensive income are not recycled through profit or loss in subsequent
periods.
Other long-term employee benefits
The Corporation’s net obligation in respect of long-term employee benefits other than pension
plans is the amount of future benefit that employees have earned in return for their service in the
current and prior periods; that benefit is discounted to determine its present value, and the fair
value of any related assets is deducted. The discount rate is the yield at the reporting date on AA
credit-rated bonds that have maturity dates approximating the terms of the Corporation’s
obligations. The calculation is performed using the projected unit credit method. Any actuarial
gains and losses are recognized in other comprehensive income or loss in the period in which they
arise.
25
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(m) Employee benefits (cont’d):
Termination benefits
Termination benefits are recognized as an expense when the Corporation is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either
terminate employment before the normal retirement date, or to provide termination benefits as a
result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary
redundancies are recognized as an expense if the Corporation has made an offer of voluntary
redundancy, it is probable that the offer will be accepted, and the number of acceptances can be
estimated reliably. If benefits are payable more than 12 months after the reporting period, then
they are discounted to their present value.
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit
sharing plans if the Corporation has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee, and the obligation can be estimated reliably.
(n) Share-based compensation plans:
The Corporation uses the fair-value based method of accounting for share-based compensation for
all awards of shares and share options granted. The resulting compensation expense, based on
the fair value of the awards granted, excluding the impact of any non-market service and
performance vesting conditions, is charged to income over the period that the employees
unconditionally become entitled to the award, with a corresponding increase to contributed
surplus.
Fair values of share options are calculated using the Black-Scholes valuation method as of the
grant date and adjusted for estimated forfeitures. For awards with graded vesting, the fair value
of each tranche is calculated separately and recognized over its respective vesting period. Non-
market vesting conditions are considered in making assumptions about the number of awards that
are expected to vest. At each reporting date, the Corporation reassesses its estimates of the
number of awards that are expected to vest and recognizes the impact of any revision in the
income statement with a corresponding adjustment to contributed surplus.
The Corporation issues shares and share options under its share-based compensation plans as
described in note 20. Any consideration paid by employees on exercise of share options or
purchase of shares, together with the amount initially recorded in contributed surplus, is credited
to share capital.
26
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
4. Significant accounting policies (cont’d):
(o) Earnings (loss) per share:
Basic earnings (loss) per share is computed using the weighted average number of common
shares outstanding during the period, adjusted for treasury shares. Diluted earnings per share is
calculated using the treasury stock method.
Under the treasury stock method, the dilution is calculated based upon the number of common
shares issued should deferred share units (“DSUs”), restricted share units (“RSUs”), and “in the
money” options, if any, be exercised. When the effects of outstanding stock-based compensation
arrangements would be anti-dilutive, diluted loss per share is not calculated.
(p) Government assistance and investment tax credits:
Government assistance and investment tax credits are recorded as either a reduction of the cost
of the applicable assets, or credited against the related expense incurred in the statement of
comprehensive loss, as determined by the terms and conditions of the agreements under which
the assistance is provided to the Corporation or the nature of the expenditures which gave rise to
the credits. Government assistance and investment tax credit receivables are recorded when their
receipt is reasonably assured.
(q) Segment reporting:
An operating segment is a component of the Corporation that engages in business activities from
which it may earn revenues and incur expenses, including revenues and expenses that relate to
transactions with any of the Corporation’s other components. Segment results include items
directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets
and liabilities.
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty:
Critical judgments in applying accounting policies:
Critical judgments that management has made in the process of applying the Corporation’s
accounting policies and that have the most significant effect on the amounts recognized in the
consolidated financial statements are limited to management’s assessment of the Corporation’s
ability to continue as a going concern (note 2(e)).
Key sources of estimation uncertainty:
The following are key assumptions concerning the future and other key sources of estimation
uncertainty that have significant risk of resulting in a material adjustment to the reported amount
of assets, liabilities, income and expenses within the next fiscal year.
27
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
(a) Revenue recognition:
On long-term fixed price contracts, revenues are recorded on the percentage-of-completion basis
over the duration of the contract, which consists of recognizing revenue on a given contract
proportionately with its percentage of completion at any given time. The percentage of completion
is determined by dividing the cumulative costs incurred as at the balance sheet date by the sum of
incurred and anticipated costs for completing a contract.
The determination of anticipated costs for completing a contract is based on estimates that
can be affected by a variety of factors such as variances in the timeline to completion, the
cost of materials, the availability and cost of labour, as well as productivity.
The determination of potential revenues includes the contractually agreed amount and
may be adjusted based on the estimate of the Corporation’s attainment on achieving
certain defined contractual milestones. Management’s estimation
is required
in
determining the probability that the revenue will be received and in determining the
measurement of that amount.
Estimates used to determine revenues and costs of long-term fixed price contracts involve
uncertainties that ultimately depend on the outcome of future events and are periodically revised
as projects progress. There is a risk that a customer may ultimately disagree with management’s
assessment of the progress achieved against milestones, or that our estimates of the work
required to complete a contract may change. The cumulative effect of changes to anticipated
revenues and anticipated costs for completing a contract are recognized in the period in which the
revisions are identified. If the anticipated costs exceed the anticipated revenues on a contract,
such loss is recognized in its entirety in the period it becomes known.
(b) Asset impairment:
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and
its fair value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. In assessing fair value
less costs to sell, the price that would be received on the sale of an asset in an orderly transaction
between market participants at the measurement date is estimated. For the purposes of
impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other groups of assets. The allocation of goodwill to cash-
generating units reflects the lowest level at which goodwill is monitored for internal reporting
purposes. Many of the factors used in assessing fair value are outside the control of management
and it is reasonably likely that assumptions and estimates will change from period to period.
28
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
(b) Asset impairment (cont’d):
These changes may result in future impairments. For example, the revenue growth rate could be
lower than projected due to economic, industry or competitive factors, or the discount rate used in
the value in use model could increase due to a change in market interest rates. In addition, future
goodwill impairment charges may be necessary if the market capitalization decreased due to a
decline in the trading price of the Corporation’s common stock, which could negatively impact the
fair value of the Corporation’s operating segments.
(c) Warranty provision:
A provision for warranty costs is recorded on product sales at the time of shipment. In establishing
the warranty provision, management estimates the likelihood that products sold will experience
warranty claims and the cost to resolve claims received. In making such determinations, the
Corporation uses estimates based on the nature of the contract and past and projected experience
with the products. Should these estimates prove to be incorrect, the Corporation may incur costs
different from those provided for in the warranty provision. Management reviews warranty
assumptions and makes adjustments to the provision at each reporting date based on the latest
information available, including the expiry of contractual obligations. Adjustments to the warranty
provision are recorded in cost of product and service revenues.
(d) Inventory provision:
In determining the lower of cost and net realizable value of inventory and in establishing the
appropriate provision for inventory obsolescence, management estimates the likelihood that
inventory carrying values will be affected by changes in market pricing or demand for the products
and by changes in technology or design which could make inventory on hand obsolete or
recoverable at less than the recorded value. Management performs regular reviews to assess the
impact of changes in technology and design, sales trends and other changes on the carrying value
of inventory. Where it is determined that such changes have occurred and will have an negative
impact on the value of inventory on hand, appropriate provision are made.
If there is a subsequent increase in the value of inventory on hand, reversals of previous write-
downs to net realizable value are made. Unforeseen changes in these factors could result in
additional inventory provisions, or reversals of previous provisions, being required.
29
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
5. Critical judgments in applying accounting policies and key sources of estimation
uncertainty (cont’d):
(e) Impairment loss (recoveries) on trade receivables:
Trade and other receivables are recognized initially at fair value and subsequently at amortized
cost using the effective interest method, less any impairment losses. Fair value is estimated as
the present value of future cash flows, discounted at the market rate of interest at the reporting
date. In determining the fair value of trade and other receivables and establishing the appropriate
provision for doubtful accounts, management performs regular reviews to estimate the likelihood
that trade and other receivables will ultimately be collected in a timely manner. Where
management determines that customer collectability issues have occurred and will have a
negative impact on the value of trade and other receivables, appropriate provisions are made. If
there is a subsequent recovery in the value of trade and other receivables, reversals of previous
write-downs to fair value are made. Unforeseen changes in these factors could result in additional
impairment provisions, or reversals of previous impairment provisions, being required.
(f) Employee future benefits:
The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high-quality corporate bonds that have terms to
maturity approximating the terms of the related pension liability. Determination of benefit
expense requires assumptions such as the discount rate to measure obligations, expected plan
investment performance, expected healthcare cost trend rate, and retirement ages of employees.
Actual results will differ from the recorded amounts based on these estimates and assumptions.
(g) Income taxes:
Deferred tax assets and liabilities are measured using enacted, or substantively enacted, tax rates
expected to apply to taxable income in the years in which temporary differences are expected to
be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax
rates is included in income in the period that includes the substantive enactment date.
Management reviews the deferred income tax assets at each reporting period and records
adjustments to the extent that it is no longer probable that the related tax benefit will be realized.
6. Recent accounting pronouncements and future accounting policy changes:
The Corporation did not adopt any new accounting standard changes or amendments in 2015 that
had a material impact on the Corporation’s financial statements.
The following is an overview of accounting standard changes that the Corporation will be required
to adopt in future years.
30
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements and future accounting policy changes (cont’d):
(a) IFRS 11 (Amendments) – Business Combination Accounting for Interests in a Joint Operation
On May 6, 2014, the IASB issued amendments to IFRS 11 Accounting for Acquisitions of Interests
in Joint Operations. The amendments require business combination accounting to be applied to
acquisitions of interests in a joint operation that constitute a business.
The amendments apply prospectively for annual periods beginning on or after January 1, 2016.
The Corporation intends to adopt the amendments to IFRS 11 in its financial statements for the
fiscal year beginning on January 1, 2016. The Corporation does not expect the amendments to
have a material impact on the financial statements.
(b) IAS 16 and IAS 38 (Amendments) – Methods of Depreciation and Amortization
On May 12, 2014, the IASB issued amendments to IAS 16 Property, Plant and Equipment and IAS
38 Intangible Assets. The amendment made to IAS 16 explicitly state that revenue-based
methods of depreciation cannot be used for property, plant and equipment. This is because such
methods reflect factors other than the consumption of economic benefits embodied in the asset.
The amendments in IAS 38 introduce a rebuttable presumption that the use of revenue-based
amortization methods for intangible assets is inappropriate. This presumption could be overcome
only when revenue and consumption of the economic benefits of the intangible asset are highly
correlated or when the intangible asset is expressed as a measure of revenue.
The amendments apply prospectively for annual periods beginning on or after January 1, 2016.
The Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its financial statements
for the fiscal year beginning on January 1, 2016. The Corporation does not expect the
amendments to have a material impact on the financial statements.
(c) Annual Improvements to IFRS (2012 – 2014) Cycle
On September 25, 2014, the IASB issued narrow-scope amendments to a total of four standards
as part of its annual improvements process. Amendments were made to clarify the following in
their respective standards:
Changes in method for disposal under IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations;
“Continuing involvement” for servicing contracts and offsetting disclosures in condensed
interim financial statements under IFRS 7 Financial Instruments: Disclosures;
Discount rate in a regional market sharing the same currency under IAS 19 Employee
Benefits; and
Disclosure of information “elsewhere in the interim financial report” under IAS 34 Interim
Financial Reporting;
31
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements and future accounting policy changes (cont’d):
(c) Annual Improvements to IFRS (2012 – 2014) Cycle (cont’d)
The amendments will apply for annual periods beginning on or after January 1, 2016. Each of the
amendments has its own specific transition requirements. The Corporation intends to adopt the
amendments in its financial statements for the fiscal year beginning on January 1, 2016. The
Corporation does not expect the amendments to have a material impact on the financial
statements.
(d) IAS 1 (Amendments) – Disclosure Initiative
On December 18, 2014, the IASB issued amendments to IAS 1 Presentation of Financial
Statements as part of its major initiative to improve presentation and disclosure in financial
reports (the “Disclosure Initiative”). The amendments will not require any significant change to
current practice, but should facilitate improved financial statement disclosures.
The amendments are effective for annual periods beginning on or after January 1, 2016. The
Corporation intends to adopt the amendments to IAS 16 and IAS 38 in its financial statements for
the fiscal year beginning on January 1, 2016. The extent of the impact of adoption of the
amendments has not yet been determined.
(e) IFRS 15 – Revenue from Contracts with Customers
On May 28, 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which
replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes,
IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from
Customers, and SIC 31 Revenue – Barter Transactions Involving Advertising Services.
IFRS 15 contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-
step analysis of transactions to determine whether, how much, and when revenue is recognized.
New estimates and judgmental thresholds have been introduced, which may affect the amount
and/or timing of revenue recognized. The new standard applies to contracts with customers. It
does not apply to insurance contracts, financial instruments or lease contracts, which fall in the
scope of other IFRSs.
The new standard is effective for fiscal years ending on or after December 31, 2018 and is
available for early adoption. The Corporation intends to adopt IFRS 15 in its financial statements
for the fiscal year beginning on January 1, 2018. The extent of the impact of adoption of the
standard has not yet been determined.
32
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements and future accounting policy changes (cont’d):
(f) IFRS 9 – Financial Instruments
On July 24, 2014, the IASB issued the complete IFRS 9 Financial Instruments (“IFRS 9 (2014)”).
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial
assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business
model in which they are held and the characteristics of their contractual cash flows.
The standard introduces additional changes relating to financial liabilities.
It also amends the impairment model by introducing a new ‘expected credit loss’ model for
calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge
accounting more closely with risk management. This new standard does not fundamentally change
the types of hedging relationships or the requirement to measure and recognize ineffectiveness;
however it will provide more hedging strategies that are used for risk management to qualify for
hedge accounting and introduce more judgment to assess the effectiveness of a hedging
relationship. Special transitional requirements have been set for the application of the new general
hedging model.
The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January
1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted.
The restatement of prior periods is not required and is only permitted if information is available
without the use of hindsight. The Corporation intends to adopt IFRS 9 (2014) in its financial
statements for the fiscal year beginning on January 1, 2018. The extent of the impact of adoption
of the standard has not yet been determined.
(g) IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 Leases. IFRS 16 standard introduces a single
lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with
a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to
recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments.
This standard substantially carries forward the lessor accounting requirements of IAS 17, while
requiring enhanced disclosures to be provided by lessors.
Other areas of the lease accounting model have been impacted, including the definition of a lease.
Transitional provisions have been provided.
33
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
6. Recent accounting pronouncements and future accounting policy changes (cont’d):
(g) IFRS 16 – Leases (cont’d)
The new standard is effective for annual periods beginning on or after January 1, 2019. Early
adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers as at
or before the date of initial adoption of IFRS 16. IFRS 16 will replace IFRS 17 Leases. The
Corporation intends to adopt IFRS 16 in its financial statements for the fiscal year beginning on
January 1, 2019. The extent of the impact of adoption of the standard has not yet been
determined.
7. Acquisition:
On October 1, 2015, the Corporation completed the acquisition of Protonex, a leading designer
and manufacturer of advanced power management products and portable fuel cell solutions. As
consideration for the transaction, the Corporation assumed and paid certain of Protonex’ debt
obligations and transaction costs on closing of $3,772,000, and issued 11,415,704 of Ballard
shares at fair value of $1.20 per share at a total value of $13,699,000, for total purchase
consideration of $17,471,000. The fair value of the Corporation’s 11,415,704 common shares has
been measured for accounting purposes using the closing price of the Ballard common shares on
the day immediately preceding the acquisition date.
The acquisition has been accounted for as a business combination using the acquisition method of
accounting in accordance with IFRS 3 Business Combinations. As such, consideration given by the
Corporation to acquire Protonex has been allocated to the assets acquired, and the liabilities
assumed, based on their fair values as of the acquisition date of October 1, 2015.
The fair value of purchase consideration is as follows:
Total Ballard shares issued on closing
Ballard Share Price pre-closing
Fair value of Ballard shares
Cash paid to Protonex for transaction costs assumed
Cash paid direct to lender to settle Protonex debt obligations
Total cash paid
Total purchase consideration
11,415,704
$1.20
$
13,699
1,397
2,375
3,772
$
17,471
34
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
7. Acquisition (cont’d):
In accordance with IFRS 3, the identifiable assets acquired and liabilities assumed as part of a
business combination are recognized separately from goodwill at the acquisition date if they meet
the definition of an asset or liability and are exchanged as part of the business combination. The
identifiable assets acquired and liabilities assumed are then measured at their acquisition date fair
values based on the contractual terms, economic conditions, the Corporation’s operating and
accounting policies and other pertinent conditions as of the acquisition date. The fair value review
of Protonex’ assets and liabilities commenced with a review of the carrying amount of each
respective asset and liability. The carrying amounts of all assets and liabilities were audited as of
September 30, 2015 (the former fiscal year-end of Protonex) and included confirmation of
existence and a review of potential impairment of all significant assets and a review for
completeness of all liabilities. Each asset and liability was then reviewed and measured for
potential fair value adjustments from carrying cost to arrive at each asset and liability’s
preliminary fair value as of the acquisition date of October 1, 2015.
The preliminary fair values of assets acquired and liabilities assumed are as follows:
Net assets acquired:
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Intangible assets
Goodwill
Other long-term assets
Accounts payable and accrued liabilities
Deferred revenue
Accrued warranty obligations
Payable to Ballard Power
Other long-term liabilities
Total purchase consideration
$
1,464
558
2,330
167
1,223
11,138
4,272
22
(2,676)
(275)
(47)
(703)
(2)
$
17,471
The goodwill of $4,272,000 resulting from the acquisition consists largely of the expectation that
the acquisition will complement the Corporation’s Fuel Cell Products and Services growth platform
by delivering strategic benefits in diversification, growth, scale, and profitability.
35
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
7. Acquisition (cont’d):
Identified intangible assets of $11,138,000 consist of the following and are being amortized based
on the following useful lives:
Fair value (preliminary) of Identified Intangible Assets
Patents, know-how and in-process research & development
Customer base and relationships
Trademarks and service marks
Domain names
Non-compete agreements
Estimated
Useful Life
20 years
10 years
15 years
15 years
1 year
$
8,973
986
1,135
17
27
$
11,138
The amount of revenue and net loss attributable to Protonex included in the consolidated
statement of loss from the acquisition date, through the period ended December 31, 2015 was
$3,397,000 and ($652,000), respectively.
The following table presents the unaudited pro forma results for the year ended December 31,
2015. The proforma financial information combines the results of operations of Ballard Power
Systems Inc. and Protonex as though the businesses had been combined as of the beginning of
fiscal 2015. The pro forma financial information is presented for informational purposes only and
is not indicative of the results of operations that would have been achieved if the acquisition had
taken place at the beginning of fiscal 2015. The pro forma financial information presented includes
amortization charges for acquired tangible and intangible assets, based on the values assigned in
the preliminary purchase price allocation.
Proforma Information:
Revenue
Loss from operations
Net loss
Basic loss per share (in dollars)
December 31,
2015
$
62,535
(27,315)
(9,614)
$
(0.06)
Acquisition costs of $1,542,000 were incurred in 2015 as a result of the transaction, and are
recognized in other (expense).
36
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
8. Discontinued operations – Disposition of Material Products division:
On January 31, 2013, the Corporation completed an agreement to sell substantially all of the
assets of its Material Products division for net cash proceeds of $9,085,000 after deducting for
working capital adjustments, broker’s commissions and expenses, and legal and other expenses.
In March 2014, the Corporation received additional proceeds of $320,000 payable through a
product credit in 2014 and 2015 for fuel cell gas diffusion layers based on 2013 results of the
former Material Products division. The additional proceeds payable have been recorded as a
reversal of previously recorded impairment losses on property, plant and equipment, and were
recorded in net earnings from discontinued operations in 2014. As of March 31, 2015, the
additional proceeds had been fully paid through the product credit. The former Material Products
division has been classified and accounted for as a discontinued operation.
9. Trade and other receivables:
Trade receivables
Other
10. Inventories:
Raw materials and consumables
Work-in-progress
Finished goods
Service inventory
December 31,
2015
December 31,
2014
$
23,664
1,820
$
$
25,484
$
11,216
1,930
13,146
December 31,
2015
December 31,
2014
$
$
15,289
739
3,388
953
$
20,369
$
10,605
821
914
198
12,538
In 2015, changes in raw materials and consumables, finished goods and work-in-progress
recognized as cost of product and service revenues amounted to $17,905,000 (2014 -
$22,628,000).
In 2015, the write-down of inventories to net realizable value amounted to $855,000 (2014 -
$1,392,000) and the reversal of previously recorded write-downs amounted to $239,000 (2014 -
$nil), resulting in a net write-down of $616,000 (2014 - $1,392,000). Write-downs and reversals
are included in either cost of product and service revenues, or research and product development
expense, depending on the nature of inventory.
37
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
11. Property, plant and equipment:
Net carrying amounts
Building under finance lease
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under finance lease
December 31,
December 31,
2015
$
7,443
$
826
229
26
2,741
4,506
954
2014
8,255
443
31
90
2,994
3,381
1,491
$
16,725
$
16,685
Additions
Effect of
December 31,
through
movements in
December 31,
Cost
2014
Acquisition
Additions
Disposals
exchange rates
2015
Building under finance lease
$
12,180 $
-
$
-
$
-
$
-
$
12,180
Computer equipment
Furniture and fixtures
Furniture and fixtures under
finance lease
Leasehold improvements
Production and test equipment
Production and test equipment
under finance lease
4,600
685
317
8,779
29,308
3,667
165
83
-
350
625
-
428
137
-
95
1,622
-
(49)
(3)
-
(105)
(364)
-
(11)
(11)
-
(40)
(9)
-
5,133
891
317
9,079
31,182
3,667
$
59,536 $
1,223
$ 2,282
$
(521)
$
(71) $
62,449
During 2015, additions through acquisition of property, plant and equipment relate to the
acquisition of Protonex on October 1, 2015 (note 7).
Effect of
Accumulated depreciation and
December 31,
movements in
December 31,
impairment loss
2014 Depreciation
Disposals
exchange rates
2015
Building under finance lease
$
3,925
$
812
$
-
$
- $
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under
finance lease
4,157
654
227
5,785
25,927
2,176
210
21
64
589
1,123
537
(49)
(3)
-
-
(365)
-
(11)
(10)
-
(36)
(9)
-
4,737
4,307
662
291
6,338
26,676
2,713
$
42,851
$
3,356
$
(417)
$
(66) $
45,724
38
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
11. Property, plant and equipment (cont’d):
Cost
2013
Additions
Disposals
exchange rates
2014
Building under finance lease
$
12,180 $
- $
- $
-
$
12,180
December 31,
movements in
December 31,
Effect of
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under
finance lease
4,581
688
317
9,043
29,390
3,667
227
18
-
11
599
-
(193)
(7)
-
(224)
(669)
-
(15)
(14)
-
(51)
(12)
-
4,600
685
317
8,779
29,308
3,667
$
59,866 $
855 $
(1,093) $
(92)
$
59,536
Effect of
Accumulated depreciation and
December 31,
movements in
December 31,
impairment loss
2013 Depreciation
Disposals
exchange rates
2014
Building under finance lease
$
3,113
$
812
$
-
$
- $
Computer equipment
Furniture and fixtures
Furniture and fixtures under finance lease
Leasehold improvements
Production and test equipment
Production and test equipment under
finance lease
4,207
652
164
5,216
25,026
1,543
157
22
63
612
1,482
633
(193)
(7)
-
-
(572)
-
(14)
(13)
-
(43)
(9)
-
3,925
4,157
654
227
5,785
25,927
2,176
$
39,921
$
3,781
$
(772)
$
(79) $
42,851
Leased assets
The Corporation leases certain assets under finance lease agreements including the Corporation’s
head office building in Burnaby, British Columbia and certain production and test equipment (note
17).
Impairment loss
There were no impairment losses or reversals of previously recorded impairment losses recognized
against property, plant and equipment used for continuing operations in 2015 and 2014. In 2014,
a $320,000 reversal of previously recognized impairment losses was recorded against property,
plant and equipment used for discontinued operations based on the additional proceeds received
from the disposition of the former Material Products division (note 8).
39
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. Intangible assets:
Net carrying amounts
Intellectual property acquired from UTC
Intellectual property acquired from Idatech, LLC
Intellectual property acquired from H2 Logic A/S
Intellectual property acquired from Protonex (note 7)
Internally generated intellectual assets
Intangible assets
Balance
December 31,
2015
December 31,
2014
$
$
2,757
914
301
10,975
1,382
22,273
1,491
387
-
-
$
16,329
$
24,151
Accumulated
Net carrying
43,613
-
2,283
(519)
45,377
-
1,464
(1,102)
$
amount
2,716
23,718
(2,283)
-
24,151
12,742
(1,464)
(19,100)
At January 1, 2014
Additions to and acquisition of intangible assets
$
46,329
23,718
$
Cost
amortization
Amortization expense
Disposals
At December 31, 2014
Additions to and acquisition of intangible assets
Amortization expense
Disposals
At December 31, 2015
-
(519)
69,528
12,742
-
(20,202)
$
62,068
$
45,739
$
16,329
Amortization expense on intangible assets is allocated to research and product development
expense. In 2015, amortization of $1,464,000 (2014 - $2,283,000) was recorded. There were no
impairment losses recorded in 2015 and 2014.
Sale of Intellectual Property to Volkswagen
On February 11, 2015, the Corporation entered into a transaction (“Volkswagen IP Agreement”)
with Volkswagen Group (“Volkswagen”) to transfer to Volkswagen in two separate transactions the
automotive-related portion of the UTC Portfolio, in exchange for total payments of $50,000,000:
(i) On the closing of the initial transaction on February 23, 2015, the Corporation transferred
ownership of the automotive-related patents and patent applications of United Technologies
Corporation (the “UTC Portfolio”) in exchange for $40,000,000. This receipt triggered a 25%,
or $10,000,000, license fee payment to UTC. Although ownership of the patents and patent
applications was transferred to Volkswagen, the Corporation received a royalty-free back-
license to all the transferred patents and patent applications for use in all of the Corporation’s
non-automotive applications, in bus applications, and in certain limited pre-commercial
automotive applications.
40
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. Intangible assets (cont’d):
(ii) On December 2, 2015, the Corporation sold a copy of the automotive-related know-how of the
UTC Portfolio for consideration receivable of $10,000,000. This has been recorded in accounts
receivable at December 31, 2015. This receipt triggered a 9%, or $900,000, payable to UTC.
On the closing of the sale of a copy of the know-how, the Corporation retained full ownership
of the know-how, including the right to sell additional copies of the know-how to third parties
as well as retaining the right to use the know-how in all of the Corporation’s applications.
On the closing of the sale of the automotive-related patents and patent applications of the UTC
Portfolio on February 23, 2015, the Corporation recognized a gain on sale of intellectual property
of $14,195,000 on net proceeds of $29,475,000.
Gross proceeds
Less: License fee
Disposition costs
Net proceeds
Less: Net book value of disposed intellectual property
Gain on sale of intellectual property
$
40,000
(10,000)
(525)
29,475
(15,280)
$
14,195
On the closing of the sale of a copy of the automotive-related know-how on December 2, 2015,
the Corporation recognized a gain on sale of intellectual property of $5,424,000 on net receivable
proceeds of $9,244,000.
Gross proceeds
Less: License fee
Disposition recovery (costs)
Net proceeds
Less: Net book value of disposed intellectual property
Gain on sale of intellectual property
$
10,000
(900)
144
9,244
(3,820)
$
5,424
The net book value of disposed intellectual property related to the two transactions of
$19,100,000 represents the decline in value of the underlying UTC intellectual property assets as
Ballard is no longer able to effectively monetize the automotive intellectual property assets
through future intellectual property licensing and royalty transactions.
UTC Intellectual Property Acquisition
On April 24, 2014, the Corporation acquired the UTC Portfolio for total consideration of
$22,307,000. The acquired UTC Portfolio assets consist of approximately 800 patents and patent
applications, as well as patent licenses, invention disclosures and know-how primarily related to
PEM fuel cell technology.
41
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
12. Intangible assets (cont’d):
As consideration for the UTC Portfolio, UTC received 5,121,507 of the Corporation’s common
shares valued at $20,307,000, $2,000,000 in cash, a grant back license to use the patent portfolio
in UTC’s existing businesses, and a portion of royalties, typically 25%, on the Corporation’s future
intellectual property sale or licensing income generated from the combined intellectual property
portfolio for a period of 15 years to April 2029. Since the acquisition, an additional $209,000
(2014 - $981,000) has been incurred to prepare the intellectual property for use, which has been
capitalized.
Internally Generated Intangible Assets
In 2015, the Corporation commenced development of two new configurations of its fuel cell
module for heavy-duty motive applications. The two new product configurations are expected to
deliver net power of 30kW and 60kW, respectively, in addition to ongoing development of its
90kW application. The Corporation has assessed its development expenditure on these product
configurations to be internally generated intangible assets. During 2015, total development
expenditures of $1,395,000 have been capitalized at cost. The estimated useful life has been
assessed as five years. In 2015, amortization of $13,000 (2014 - $nil) was recorded on these
assets.
After the conclusion of the Volkswagen Agreement, the net carrying amount of the remaining
intangible assets of the UTC Portfolio of $2,757,000 as of December 31, 2015 consists of certain
stationary related fuel cell intellectual property assets and the royalty-free back-license from
Volkswagen to utilize the entire UTC Portfolio in the Corporation’s bus and non-automotive
applications and in certain limited pre-commercial purposes for automotive applications. The
estimated useful life of the remaining UTC Portfolio has been reassessed from approximately
fourteen years to seven years, and will be amortized over seven years from the date of the
Volkswagen IP Agreement.
13. Goodwill:
For the purpose of impairment testing, goodwill is allocated to the Corporation’s cash-generating
units which represent the lowest level within the Corporation at which the goodwill is monitored
for internal management purposes, which is not higher than the Corporation’s operating segments
(note 29).
Fuel Cell Products and Services
As of December 31, 2015, the aggregate carrying amount of the Corporation’s goodwill is
$40,562,000 (2014 - $36,291,000).
The impairment testing requires a comparison of the carrying value of the asset to the higher of
(i) value in use; and (ii) fair value less costs to sell. Value in use is defined as the present value
of future cash flows expected to be derived from the asset in its current state.
42
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
13. Goodwill (cont’d):
The Corporation’s fair value test is in effect a modified market capitalization assessment, whereby
the fair value of the Fuel Cell Products and Services segment is determined by first calculating the
value of the Corporation at December 31, 2015 based on the average closing share price in the
month of December, adding a reasonable estimated control premium of 25% to determine the
Corporation’s enterprise value on a controlling basis after adjusting for excess cash balances, and
deducting the estimated costs to sell from this enterprise value, arriving at the fair value of the
Fuel Cell Products and Services segment. Based on the fair value test, the Corporation has
determined that the fair value of the Fuel Cell Products and Services segment exceeds its carrying
value as of December 31, 2015.
In addition to the fair value test, the Corporation also performed a value in use test on the Fuel
Cell Products and Services segment, comparing the carrying value of the segment to the present
value of future cash flows expected to be derived from the segment. The principal factors used in
the discounted cash flow analysis requiring significant estimation are the projected results of
operations, the discount rate based on the weighted average cost of capital (“WACC”), and
terminal value assumptions. The Corporation’s value in use test was based on a WACC of 15%;
an average estimated compound annual growth rate of approximately 27% from 2016 to 2021;
and a terminal year earnings before interest, taxes, depreciation and amortization (“EBITDA”)
multiplied by a terminal value multiplier of 10. The value in use assessment resulted in an
estimated fair value for the Fuel Cell Products and Services segment that is consistent with that
determined under the fair value, less costs to sell, assessment.
As the recoverable amount of the Fuel Cell Products and Services segment was determined to be
greater than its carrying amount, no impairment loss was recorded in 2015.
14. Bank facilities:
The Corporation has certain bank facilities available to it, which are secured by a hypothecation of
the Corporation’s cash and cash equivalents.
Bank Operating Line
The Corporation has a demand revolving facility (“Bank Operating Line”) in which an operating line
of credit of up to CDN $7,000,000 is made available to be drawn upon by the Corporation. The
Bank Operating Line can be utilized to assist in financing the day-to-day operating activities and
short-term working capital requirements of the business. Outstanding amounts are charged
interest at the bank’s prime rate minus 0.50% per annum and are repayable on demand by the
bank.
There was no activity under the Bank Operating Line in 2015, and there were no outstanding
amounts payable on the Bank Operating Line as of December 31, 2015 and 2014.
43
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
14. Bank facilities (cont’d):
Leasing Facility
The Corporation also has a CDN $1,830,770 capital leasing facility (“Leasing Facility”) which can
be utilized to finance the acquisition and lease of operating equipment (notes 11 & 17). Interest is
charged on outstanding amounts at the bank’s prime rate per annum and is repayable on demand
by the bank in the event of certain conditions.
At December 31, 2015, $510,000 (2014 - $1,061,000) was outstanding on the Leasing Facility
which is included in the finance lease liability (note 17). The remaining $7,224,000 finance lease
liability relates to the lease of the Corporation’s head office building.
Forward Contract Facility
The Corporation also has a CDN $5,000,000 demand revolving line (“Forward Contract Facility”),
which is available for use when the Corporation purchases forward foreign exchange contracts or
forward platinum contracts used to hedge against currency and platinum price fluctuations,
respectively.
Periodically, the Corporation uses forward foreign exchange and forward platinum purchase
contracts to manage exposure to currency rate fluctuations and platinum price fluctuations. These
contracts are recorded at their fair value as either assets or liabilities on the balance sheet. Any
changes in fair value are either (i) recorded in the statement of comprehensive income if formally
designated and qualified under hedge accounting criteria; or (ii) recorded in the statement of
operations if either not designated, or not qualified, under hedge accounting criteria.
At December 31, 2015, the Corporation had outstanding foreign exchange currency contracts to
purchase a total of CDN $10,750,000 at an average rate of 1.33 CDN per U.S. dollar, resulting in
an unrealized loss of $392,000 at December 31, 2015. The outstanding foreign exchange currency
contracts are not qualified under hedge accounting. The Corporation did not have any outstanding
foreign exchange currency contracts at December 31, 2014.
15. Trade and other payables:
Trade accounts payable
Compensation payable
Other liabilities
Taxes payable
December 31,
2015
December 31,
2014
$
$
9,030
4,137
3,641
412
6,031
2,948
3,260
317
$
17,220
$
12,556
44
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Provisions:
Balance
At January 1, 2014
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in exchange rates
At December 31, 2014
Provisions acquired through acquisition
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Effect of movements in exchange rates
At December 31, 2015
Current
Non-current
Restructuring
Restructuring
provision
liabilities
Total
Warranty
Decommissioning
$
237
$
78
(226)
-
(11)
78
-
-
(47)
(24)
-
7
7
-
7
$
$
$
6,582
6,258
(1,562)
(1,843)
(503)
8,932
47
1,171
(2,473)
(1,620)
(696)
$
4,857
$
11,676
129
-
(222)
(411)
4,353
-
110
-
(104)
(713)
6,465
(1,788)
(2,065)
(925)
13,363
47
1,281
(2,520)
(1,748)
(1,409)
$
5,361
$
5,361
-
$
5,361
$
$
$
3,646
$
9,014
-
$
3,646
3,646
$
5,368
3,646
9,014
Restructuring charges relate to minor restructurings focused on overhead cost reductions and
relate primarily to employee termination benefits. Restructuring charges are recognized in other
expense.
Warranty provision
During 2015, the Corporation acquired $47,000 of warranty provisions through business
combinations (2014 – $nil). It also recorded $1,171,000 of warranty provisions (2014 -
$6,258,000) of which $890,000 related to new product sales (2014 - $1,020,000) and $281,000
related to upward warranty adjustments (2014 - $5,238,000). This was offset by warranty
expenditures of $2,473,000 (2014 - $1,562,000) and downward warranty adjustments of
$1,620,000 (2014 - $1,843,000), due primarily to contractual expirations and changes in
estimated and actual costs to repair. The remaining $696,000 reduction to the warranty provision
related to the effect of movements in exchange rates (2014 – $503,000).
Decommissioning liabilities
Provisions for decommissioning liabilities have been recorded for the Corporation’s two leased
locations in Burnaby, British Columbia, comprising the Corporation’s head office building and
manufacturing facilities, and are related to estimated site restoration obligations at the end of
their respective lease terms. The Corporation has made certain modifications to the leased
buildings to facilitate the manufacturing and testing of its fuel cell products. Consequently, the
site restoration obligations relate primarily to dismantling and removing various manufacturing
and test equipment and restoring the infrastructures of the leased buildings to their original states
of when the respective leases were entered.
45
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
16. Provisions (cont’d):
Decommissioning liabilities (cont’d)
Due to the long-term nature of the liability, the most significant uncertainty in estimating the
provision is the costs that will be incurred. The Corporation has determined a range of reasonably
possible outcomes of the total costs for the head office building and manufacturing facility. In
determining the fair value of the decommissioning liabilities, the estimated future cash flows have
been discounted at 2.15% per annum (2014 – 2.0%).
The Corporation performed an assessment of the estimated cash flows required to settle the
obligations for the two buildings as of December 31, 2015. Based on the assessment, a $104,000
(2014 - $222,000) reduction of the provision was recorded against decommissioning liabilities,
which was offset in part by accretion costs of $110,000 (2014 - $129,000). The total
undiscounted amount of the estimated cash flows required to settle the obligation for one of the
buildings is $1,606,000 (2014 - $1,979,000) which is expected to be settled at the end of the
lease term in 2025. The total undiscounted amount of the estimated cash flows required to settle
the obligation for the second building is $2,639,000 (2014 - $3,226,000), which is expected to be
settled at the end of the operating lease term of 2019. The net discounted amount of estimated
cash flows required to settle the obligations for both buildings is $3,646,000 as at December 31,
2015 (2014 - $4,353,000).
17. Finance lease liability:
The Corporation leases certain assets under finance lease agreements (note 17). The finance
leases have imputed interest rates ranging from 3.00% to 7.35% per annum and expire between
June 2016 and February 2025.
Finance lease liabilities are payable as follows:
At December 31, 2015
Less than one year
Between one and five years
More than five years
Current
Non-current
Future minimum
lease payments
$
1,524
4,181
4,830
$
$
10,535
$
Interest
513
1,617
671
2,801
Present value of
minimum lease
payments
$
$
$
$
1,011
2,564
4,159
7,734
1,011
6,723
7,734
46
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
17. Finance lease liability (cont’d):
At December 31, 2014
Less than one year
Between one and five years
More than five years
Current
Non-current
Future minimum
lease payments
$
1,680
5,423
7,145
$
$
14,248
$
Interest
672
2,144
1,198
4,014
Present value of
minimum lease
payments
$
1,008
3,279
5,947
$
10,234
$
1,008
9,226
$
10,234
At December 31, 2015, $510,000 (2014 - $1,061,000) was outstanding on the Leasing Facility
which is included in the finance lease liability. The remaining $7,224,000 (2014- $9,173,000)
finance lease liability relates to the lease of the Corporation’s head office building.
Deferred gains were also recorded on closing of the finance lease agreements and are amortized
over the finance lease term. At December 31, 2015, the outstanding deferred gain was
$3,829,000 (2014 – $4,274,000).
18. Debt to Dantherm Power A/S non-controlling interests:
Dantherm Power has received financing from its non-controlling partner in the form of a revolving
credit facility. The revolving credit facility makes available a revolving facility to Dantherm Power
of a maximum aggregate amount of DKK 2,977,975 ($433,000) from the non-controlling partner,
Dantherm A/S. Interest is accrued at 6% and the facility matures on December 31, 2016. At
December 31, 2015, the total principal and interest outstanding on the revolving credit facility was
$504,000 (2014 – $529,000).
19. Employee future benefits:
Net defined benefit pension plan liability
Net other post-retirement benefit plan liability
Employee future benefits
December 31,
2015
December 31,
2014
$
5,116
215
$
$
5,331
$
5,701
260
5,961
The Corporation maintains a defined benefit pension plan covering existing and former employees
in the United States. The benefits under the pension plan are based on years of service and salary
levels accrued as of December 31, 2009. In 2009, amendments were made to the defined benefit
pension plan to freeze benefits accruing to employees at their respective years of service and
salary levels obtained as of December 31, 2009. Certain employees in the United States are also
eligible for post-retirement healthcare, life insurance, and other benefits.
The Corporation accrues the present value of its obligations under employee future benefit plans
and related costs, net of the present value of plan assets.
47
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
The measurement date used to determine pension and other post-retirement benefit obligations
and expense is December 31 of each year. The most recent actuarial valuation of the employee
future benefit plans for funding purposes was as of January 1, 2015. The next actuarial valuation
of the employee future benefit plans for funding purposes is expected to be performed as of
January 1, 2016.
The Corporation expects contributions of approximately $750,000 to be paid to its defined benefit
plans in 2016.
The following tables reconcile the opening balances to the closing balances for the net defined
benefit liability and its components for the two plans. The expense recognized in net income is
recorded in finance income (loss) and other.
Defined benefit pension plan
2015
2014
2015
2014
2015
2014
Balance at January 1
$ 16,167
$
13,703
$ (10,466) $ (10,667)
$
5,701
$
3,036
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Included in profit or loss
Current service cost
Interest cost (income)
Benefits payable
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Demographic assumptions
Financial assumptions
Experience adjustment
Return on plan assets excluding interest
income
Plan expenses
Other
58
663
-
721
38
654
-
692
-
-
(438)
(512)
-
-
(438)
(512)
(212)
830
(620)
1,462
116
-
108
-
-
-
-
-
-
-
588
325
58
225
-
283
(212)
(620)
116
588
38
142
-
180
830
1,462
108
325
(40)
(57)
(756)
2,343
40
628
57
382
-
-
(128)
2,725
Contributions paid by the employer
Benefits paid
-
(553)
(553)
-
(740)
(240)
(740)
(240)
(571)
(571)
553
(187)
571
331
-
-
(740)
(240)
Balance at December 31
$ 15,579
$
16,167
$ (10,463) $ (10,466)
$
5,116
$
5,701
48
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
Other post-retirement benefit plan
2015
2014
2015
2014
2015
2014
Balance at January 1
$
260
$
133
$
-
$
-
$
260
$
133
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability
Included in profit or loss
Interest cost (income)
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Financial assumptions
Experience adjustment
Other
Contributions paid by the employer
Benefits paid
8
8
2
2
(25)
(15)
(40)
-
(13)
(13)
144
(6)
138
-
(13)
(13)
-
-
-
-
-
(13)
13
-
Balance at December 31
$
215
$
260
$
-
$
Pension plan assets comprise:
Cash and cash equivalents
Equity securities
Debt securities
Total
-
-
-
-
-
8
8
2
2
(25)
$
144
(15)
$
(40)
(13)
13
-
-
(13)
-
(13)
(6)
138
(13)
-
(13)
$
215
$
260
2015
1%
62%
37%
100%
2014
1%
22%
77%
100%
The significant actuarial assumptions adopted in measuring the fair value of benefit obligations at
December 31 were as follows:
Discount rate
Rate of compensation increase
2015
2014
Pension plan Other benefit plan
Pension plan Other benefit plan
4.44%
n/a
3.89%
n/a
4.18%
n/a
3.53%
n/a
The significant actuarial assumptions adopted in determining net expense for the years ended
December 31 were as follows:
Discount rate
Rate of compensation increase
2015
2014
Pension plan Other benefit plan
Pension plan Other benefit plan
4.18%
n/a
3.53%
n/a
4.87%
n/a
2.03%
n/a
49
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
19. Employee future benefits (cont’d):
The assumed health care cost trend rates applicable to the other benefit plan at December 31
were as follows:
Initial medical health care cost trend rate
Initial dental health care cost trend rate
Cost trend rate declines to medical and dental
Year that the medical rate reaches the rate it is assumed to remain at
Year that the dental rate reaches the rate it is assumed to remain at
2015
7.5%
5.0%
5.0%
2020
2015
2014
7.0%
5.0%
5.0%
2018
2013
A one-percentage-point change in assumed health care cost trend rates would not have a material
impact on the Corporation’s financial statements.
20. Equity:
(a) Share capital:
Authorized and issued:
Unlimited number of common shares, voting, without par value.
Unlimited number of preferred shares, issuable in series.
Offering:
On July 7, 2015, the Corporation closed an underwritten offering (“Offering”) of 9,343,750
common shares at a price of $1.60 per share for gross proceeds of $14,950,000. Net cash
proceeds to Ballard were $13,389,000, after deducting underwriting discounts, commissions and
other offering expenses.
Gross July Offering proceeds (9,343,750 shares at $1.60 per share)
Less: Underwriting expenses
Less: Other financing expenses
Net July Offering proceeds
Acquisition:
$
14,950
(1,047)
(514)
$
13,389
On October 1, 2015, the Corporation completed the acquisition of Protonex (note 7). On closing of
the transaction, the Corporation assumed and paid certain of Protonex’ debt obligations and
transaction costs of $3,772,000, and issued 11,415,704 shares at fair value of $1.20 per share, or
$13,699,000.
Private placement:
On November 10, 2015, the Corporation closed a private placement strategic equity investment
with Nisshinbo Holdings Inc. (“Nisshinbo”) of 3,322,479 common shares issued from treasury at
$1.5049 per share for gross proceeds of $5,000,000.
50
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
Gross Nisshinbo Offering proceeds (3,322,479 shares at $1.5049 per share)
Less: Legal expenses
Net Nisshinbo Offering proceeds
Acquisition of intangible assets:
$
$
5,000
(13)
4,987
On April 24, 2014, the Corporation issued 5,121,507 of its common shares valued at $20,306,775
to UTC as part of the consideration for acquired intellectual property assets (note 12).
At December 31, 2015, 156,837,187 common shares were issued and outstanding (2014 –
132,104,116).
(b) Share purchase warrants:
Warrants Outstanding
At January 1, 2014
Warrants exercised in 2014
At December 31, 2014
Warrants exercised in 2015
At December 31, 2015
Exercise price of
Exercise price of
$1.50
7,275,000
(7,027,437)
247,563
(125,000)
122,563
$2.00
2,587,500
Total
Warrants
9,862,500
(912,500)
(7,939,937)
1,675,000
1,922,563
-
(125,000)
1,675,000
1,797,563
During 2015, 125,000 warrants were exercised for an equal amount of common shares for net
proceeds of $168,000. During 2014, 7,939,937 warrants were exercised for an equal amount of
common shares for net proceeds of $12,299,000.
At December 31, 2015, 1,797,563 share purchase warrants were issued and outstanding (2014 –
1,922,563).
(c) Convertible promissory note:
On March 28, 2013, the Corporation completed an agreement with Anglo American Platinum
Limited (“Anglo”), under which Anglo invested $4,000,000 in the Corporation through its Platinum
Group Metals Development Fund, to support continued development and commercial advancement
of the Corporation’s fuel cell products in target market applications. The investment took the form
of a 5-year non-interest bearing convertible promissory note (“Note”). The Note may be repaid in
the form of the Corporation’s common shares at Anglo’s option on or before the loan maturity
date of April 1, 2018. The conversion, or repayment price, was set at a fixed price of $0.84 per
share which was equal to a 20% discount to the market price of the shares on the closing date of
the agreement.
In March 2014, Anglo exercised its option and converted the Note into 4,761,905 common shares.
The conversion right and $4,000,000 proceeds received in 2013 were accounted for as a single
equity instrument and originally recorded in contributed surplus, which has been reclassified to
share capital upon the issuance of the common shares in March 2014.
51
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(d) Share options:
The Corporation has options outstanding under a consolidated share option plan. All directors,
officers and employees of the Corporation, and its subsidiaries, are eligible to participate in the
share option plans although as a matter of policy, options are currently not issued to directors.
Option exercise prices are denominated in both Canadian and U.S. dollars, depending on the
residency of the recipient. Canadian dollar denominated options have been converted to U.S.
dollars using the year-end exchange rate for presentation purposes.
All options have a term of seven to ten years from the date of grant unless otherwise determined
by the board of directors. One-third of the options vest and may be exercised, at the beginning of
each of the second, third, and fourth years after granting.
As at December 31, options outstanding from the consolidated share option plan were as follows:
Balance
At January 1, 2014
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2014
Options granted
Options exercised
Options forfeited
Options expired
At December 31, 2015
Options for
common shares
Weighted average
exercise price
6,972,102
1,417,507
(3,563,782)
(153,236)
(356,164)
4,316,427
2,306,635
(322,892)
(349,336)
(445,334)
5,505,500
$
$
2.54
3.25
1.83
2.73
7.42
2.65
2.02
1.13
2.46
4.11
2.10
The following table summarizes information about the Corporation’s share options outstanding as
at December 31, 2015:
Range of exercise price
Number
exercisable
Weighted
average
exercise price
5,505,500
4.4
$
2.10
2,293,299
$
2.09
During 2015, 322,892 options were exercised for an equal amount of common shares for proceeds
of $388,000. During 2014, 3,563,782 options were exercised for an equal amount of common
shares for proceeds of $6,794,000.
52
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(d) Share options (cont’d):
During 2015, options to purchase 2,306,635 common shares were granted with a weighted
average fair value of $1.23 (2014 – 1,417,507 options and $1.74 fair value). The granted options
vest annually over three years.
The fair values of the options granted were determined using the Black-Scholes valuation model
under the following weighted average assumptions:
Expected life
Expected dividends
Expected volatility
Risk-free interest rate
2015
4 years
Nil
78%
1%
2014
4 years
Nil
69%
1%
As at December 31, 2015, options to purchase 5,505,500 common shares were outstanding (2014
– 4,316,427). During 2015, compensation expense of $2,048,000 (2014 – $1,471,000) was
recorded in net income based on the grant date fair value of the awards recognized over the
vesting period.
(e) Share distribution plan:
The Corporation has a consolidated share distribution plan that permits the issuance of common
shares for no cash consideration to employees of the Corporation to recognize their past
contribution and to encourage future contribution to the Corporation. At December 31, 2015,
there were 8,748,294 (2014 – 7,334,927) shares available to be issued under this plan.
No compensation expense was recorded against income during the years ended December 31,
2015 and 2014 for shares distributed, and to be distributed, under the plan.
(f) Deferred share units:
Deferred share units (“DSUs”) are granted to the board of directors and executives. Eligible
directors may elect to receive all or part of their annual retainers and executives may elect to
receive all or part of their annual bonuses in DSUs. Each DSU is redeemable for one common
share in the capital of the Corporation after the director or executive ceases to provide services to
the Corporation. Shares will be issued from the Corporation’s share distribution plan.
Balance
At January 1, 2014
DSUs granted
At December 31, 2014
DSUs granted
DSUs exercised
At December 31, 2015
DSUs for common shares
616,264
295,579
911,843
160,062
(154,280)
917,625
53
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(f) Deferred share units (cont’d):
During 2015, $659,000 of compensation expense was recorded in net income, of which $265,000
related to DSUs granted during the year. The remaining $394,000 related to compensation
expense expected to be earned for DSUs not yet issued.
During 2015, 154,280 DSUs were exercised for 83,619 common shares. During 2014, no DSUs
were exercised.
During 2014, 295,579 DSUs were issued and $306,000 of compensation expense was recorded in
net income relating to 96,269 DSUs granted during the year. For the remaining 199,310 DSUs
granted during the year, estimated compensation expense of $737,000 was recorded in net
income in 2013. Upon the issuance of the 199,310 DSUs in 2014, an $18,000 adjustment
increasing net income was recorded.
As at December 31, 2015, 917,625 deferred share units were outstanding (2014 – 911,843).
(g) Restricted share units:
Restricted share units (“RSUs”) are granted to employees and executives. Each RSU is convertible
into one common share. The RSUs vest after a specified number of years from the date of
issuance, and under certain circumstances, are contingent on achieving specified performance
criteria.
The Corporation has two plans under which RSUs may be granted, the consolidated share
distribution plan and the market purchase RSU plan. Awards under the consolidated share
distribution plan (note 20(e)) are satisfied by the issuance of treasury shares on maturity. Awards
granted under the market purchase RSU Plan are satisfied by shares purchased on the open
market by a trust established for that purpose. No common shares were repurchased in 2015 and
2014. In March 2014, the Corporation sold its remaining 65,441 treasury shares for proceeds of
$118,000 as no RSUs remained outstanding under the market purchase RSU plan. As of
December 31, 2014, the Corporation held no treasury shares.
Balance
At January 1, 2014
RSUs granted
RSUs exercised
RSUs forfeited
At December 31, 2014
RSUs granted
RSUs exercised
RSUs forfeited
At December 31, 2015
RSUs for common shares
Share
Distribution Plan
2,399,722
588,372
(1,022,658)
(41,453)
1,923,983
1,036,417
(206,333)
(1,045,441)
1,708,626
Market
Purchase Plan
23,806
-
-
(23,806)
-
-
-
-
-
Total RSUs
2,423,528
588,372
(1,022,658)
(65,259)
1,923,983
1,036,417
(206,333)
(1,045,441)
1,708,626
54
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
20. Equity (cont’d):
(g) Restricted share units (cont’d):
During 2015, 1,036,417 RSUs were issued (2014 – 588,372). The fair value of RSU grants is
measured based on the stock price of the shares underlying the RSU on the date of grant. During
2015, compensation expense of $243,000 (2014 - $490,000) was recorded against income.
During 2015, 206,333 RSUs were exercised for 119,627 common shares. During 2014, 1,022,658
RSUs were exercised for 583,084 common shares.
As at December 31, 2015, 1,708,626 RSUs were outstanding (2014 – 1,923,983).
21. Operating leases:
The Corporation leases a facility at its Burnaby, Canada location, which has been assessed as an
operating lease. The facility has a lease term expiring in 2019, with renewal options after that
date. During 2015, lease payments of $2,139,000 were expensed (2014 - $2,321,000).
At December 31, 2015, the Corporation is committed to payments under operating leases as
follows:
Less than 1 year
1-3 years
4-5 years
Thereafter
Total minimum lease payments
22. Commitments and contingencies:
$
2,409
4,532
2,616
1,890
$
11,447
In connection with the acquisition of intellectual property from UTC in April 2014 (note 12), the
Corporation retains a royalty obligation to pay UTC a portion (typically 25%) of any future
intellectual property sale and licensing income generated from our intellectual property portfolio
for a period of 15 years expiring in April 2029.
The Corporation retains a previous funding obligation to pay royalties of 2% of revenues, to a
maximum of $4,613,000 (CDN $5,351,000), on sales of certain fuel cell products for commercial
distributed utility applications. As of December 31, 2015, no royalties have been incurred to date
for this agreement.
The Corporation also retains a previous funding obligation to pay royalties of 2% of revenues, to a
maximum of $1,896,000 (CDN $2,200,000), on sales of certain fuel cell products for commercial
transit applications. As of December 31, 2015, no royalties have been incurred to date for this
agreement.
55
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
22. Commitments and contingencies (cont’d):
On December 31, 2008, the Corporation completed a restructuring agreement (“Arrangement”)
with Superior Plus Income Fund (“Superior Plus”), whereby the Corporation caused its entire
business and operations, including all assets and liabilities, to be transferred to a new corporate
entity, such that the new corporate entity held all of the same assets, liabilities, directors,
management and employees as the Corporation formerly had under its old corporate entity,
except for its tax attributes. The Arrangement included an indemnification agreement (the
"Indemnity Agreement") which set out each party’s continuing obligations to the other including a
provision for adjustments to be paid by the Corporation, or to the Corporation, depending on the
final determination of the amount of the Corporation’s Canadian non-capital losses, scientific
research and development expenditures and investment tax credits generated to December 31,
2008, to the extent that such amounts are more or less than the amounts estimated at the time
the Arrangement was executed. In 2015, an agreement was reached and the Corporation signed
mutual releases with Superior Plus as to the full and final amount payable to the Corporation
under the Indemnity Agreement and received additional cash proceeds of $3,347,000 in February
2016. The cash proceeds receivable have been recorded as a credit to shareholders’ equity as of
December 31, 2015 consistent with the accounting for the original transaction in 2008.
At December 31, 2015, the Corporation has outstanding commitments aggregating up to a
maximum of $432,000 (2014 - $232,000) relating primarily to purchases of property, plant and
equipment.
23. Personnel expenses:
Personnel expenses are included in cost of product and service revenues, research and product
development expense, general and administrative expense, sales and marketing expense, and
other expense.
Salaries and employee benefits
Share-based compensation (note 20)
24. Other expense:
Net impairment loss (recovery) on trade receivables
Restructuring costs (recovery)
Acquisition costs (note 7)
December 31,
2015
December 31,
2014
$
$
47,762
2,950
$
50,712
$
47,993
2,249
50,242
December 31,
December 31,
$
$
2015
(899) $
(13)
1,542
630
$
2014
6,206
85
-
6,291
56
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
24. Other expense (cont’d):
In 2015, net impairment loss (recovery) on trade receivables of ($899,000) consists of recoveries
of $1,586,000 as the Corporation collected on certain trade receivables in 2015 principally in Asia
that were considered impaired and written down in 2014, less new impairment charges in 2015 of
$687,000 relating to the non-collection of certain trade receivables outstanding from certain
customers primarily located in Asia. In the event that the Corporation recovers any amounts
previously recorded as impairment losses, the recovered amount will be recognized as a reversal
of the impairment loss in the period of recovery. Of the new impairment charges in 2015 of
$687,000, $231,000 relates to cash collected within the year, resulting in net impairment charges
of $456,000.
In 2014, net impairment loss on trade receivables of $6,206,000 consisted of a $4,415,000
impairment charge as a result of material breaches by Azure Hydrogen Energy Science and
Technology (“Azure”) relating to the Azure Telecom Backup Power Licensing Agreement and the
Azure Bus Licensing Agreement. The Corporation also incurred impairment charges of $1,791,000
relating to the non-collection of certain trade receivables outstanding from certain customers
primarily located in Asia.
25. Finance income and expense:
Employee future benefit plan expense (note 19)
Pension administration expense
Investment and other income
Unrealized loss on forward foreign exchange contracts
Foreign exchange gain
Finance (loss) and other
Finance expense
2015
(291) $
(103)
143
(287)
233
(305) $
(794) $
2014
(183)
(100)
139
-
31
(113)
(942)
$
$
$
57
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Income taxes:
(a) Current tax expense:
The components of income tax benefit / (expense) included in the determination of the profit
(loss) from continuing operations comprise of:
Current tax expense
Current period income tax
Withholding tax
Adjustment for prior periods
Total current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Adjustments for prior periods
Change in unrecognized deductible temporary differences
Total deferred tax expense
Total income tax expense
2015
2014
$
5
$
206
-
$
211
$
-
457
(40)
417
$
$
$
$
14,144
2,874
(17,018)
(947)
(536)
1,483
-
$
-
211
$
417
The Corporation’s effective income tax rate differs from the combined Canadian federal and
provincial statutory income tax rate for companies. The principal factors causing the difference
are as follows:
Net loss before income taxes
Expected tax recovery at 26.00% (2014 – 26.00%)
Increase (reduction) in income taxes resulting from:
Non-taxable portion of capital gain
Non-deductible expenses
Expiry of losses and investment tax credits
Investment tax credits earned
Foreign tax rate differences
Change in unrecognized deductible temporary differences
2015
2014
$
$
(6,363)
(1,654)
$
$
(29,331)
(7,626)
(2,213)
1,875
1,181
(2,883)
(304)
4,209
-
813
2,800
(4,084)
113
8,401
Income taxes
$
211
$
417
(b) Unrecognized deferred tax liabilities:
At December 31, 2015, the Corporation did not recognize any deferred tax liabilities resulting from
taxable temporary differences for financial statement and income tax purposes.
(c) Unrecognized deferred tax asset:
At December 31, 2015, the Corporation did not have any deferred tax assets resulting from the
following deductible temporary differences for financial statement and income tax purposes.
58
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Income taxes (cont’d):
(c) Unrecognized deferred tax asset (cont’d):
Scientific research expenditures
Accrued warranty provision
Share issuance costs
Losses from operations carried forward
Investment tax credits
2015
58,385 $
$
17,079
2,605
89,872
23,757
2014
66,943
25,830
1,826
89,176
26,637
Property, plant and equipment and intangible assets
149,892
189,123
$
341,590 $
399,535
Deferred tax assets have not been recognized in respect of these deductible temporary differences
because it is not currently probable that future taxable profit will be available against which the
Corporation can utilize the benefits.
The Corporation has available to carry forward the following as at December 31:
Canadian scientific research expenditures
Canadian losses from operations
Canadian investment tax credits
German losses from operations for corporate tax purposes
U.S. federal losses from operations
Denmark losses from operations
2015
$
58,385 $
31,990
23,749
303
30,320
27,259
2014
66,943
39,758
26,637
303
13,023
35,973
The Canadian scientific research expenditures may be carried forward indefinitely. The Canadian
losses from operations may be used to offset future Canadian taxable income and expire over the
period from 2030 to 2035.
The German and Denmark losses from operations may be used to offset future taxable income in
Germany and Denmark for corporate tax and trade tax purposes and may be carried forward
indefinitely.
The U.S. federal losses from operations may be used to offset future U.S. taxable income and
expire over the period from 2019 to 2035.
59
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
26. Income taxes (cont’d):
(c) Unrecognized deferred tax asset (cont’d):
The Canadian investment tax credits may be used to offset future Canadian income taxes
otherwise payable and expire as follows:
2019
2020
2021
2022
2023
2024
2025
2029
2030
2031
2032
2033
2034
2035
$
1,900
1,384
1,304
1,046
740
912
1,447
3,424
2,344
2,180
1,895
1,663
1,571
1,940
$
23,750
27. Related party transactions:
Related parties include shareholders with a significant ownership interest in either the Corporation
or Dantherm Power, together with their subsidiaries and affiliates. The revenue and costs
recognized from transactions with such parties reflect the prices and terms of sales and purchase
transactions with related parties, which are in accordance with normal trade practices.
Transactions between the Corporation and its subsidiaries are eliminated on consolidation.
Balances with related parties:
Trade payables
Interest payable (note 17)
Revolving credit facility (note 17)
Transactions during the year with related parties:
Purchases
Finance expense
$
$
2015
24
69
433
2015
172
30
$
$
2014
70
45
484
2014
175
34
The Corporation provides key management personnel, being board directors and executive
officers, certain benefits, in addition to their salaries. Key management personnel also participate
in the Corporation’s share-based compensation plans (note 20).
60
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
27. Related party transactions (cont’d):
In addition to cash and equity compensation, the Corporation provides the executive officers with
certain personal benefits, including car allowance, medical benefit program, long and short-term
disability coverage, life insurance and an annual medical, financial planning allowance and
relocation allowances and services as necessary.
In accordance with the employment agreements of the executive officers, the Corporation is
required to provide notice of 12 months plus one month for every year of employment completed
with the Corporation, to a maximum of 24 months, or payment in lieu of such notice, consisting of
the salary, bonus and other benefits that would have been earned during such notice period. If
there is a change of control, and if the executive officer’s employment is terminated, including a
constructive dismissal, within 2 years following the date of a change of control, the executive
officer is entitled to a payment equivalent to payment in lieu of a 24 month notice period.
Key management personnel compensation is comprised of:
Salaries and employee benefits
Post-employment retirement benefits
Share-based compensation (note 20)
$
2015
2,164
49
1,006
$
$
3,219
$
2014
2,348
60
926
3,334
28. Supplemental disclosure of cash flow information:
Non-cash financing and investing activities:
Compensatory shares
Shares issued for acquisition of intangible assets (note 12)
Shares issued for acquisition of subsidiary (note 20)
2015
557 $
2014
866
- $
20,307
13,698 $
-
$
$
$
29. Operating segments:
The Corporation operates in a single segment, Fuel Cell Products and Services, which consists of
the design, development, manufacture, sale and service of fuel cell products for a variety of
applications, focusing on the power product markets of Heavy-Duty Motive (consisting of bus and
tram applications), Portable Power, Material Handling and Telecom Backup Power, as well as the
delivery of Technology Solutions including engineering services and the licensing and sale of the
Corporation’s extensive intellectual property portfolio and fundamental knowledge for a variety of
fuel cell applications.
As a result of the disposition of the Material Products division on January 31, 2013, the former
Material Products segment has been classified as discontinued operations and therefore has been
removed from the continuing operating results (note 8). The former Material Products segment
sold carbon fiber products primarily for automotive transmissions and gas diffusion layers (“GDL”)
for fuel cells.
61
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
29. Operating segments (cont’d):
In 2015, revenues included sales to three individual customers of $14,517,000, $12,674,000 and
$8,605,000, respectively, which each exceeded 10% of total revenue.
In 2014, revenues included sales to three individual customers of $22,632,000, $13,918,000 and
$9,082,000, respectively, which each exceeded 10% of total revenue.
Revenues from continuing operations by geographic area, which are attributed to countries based
on customer location for the years ended December 31, is as follows:
Revenues
Canada
U.S.
Germany
China
India
Taiwan
Japan
Denmark
Other countries
Non-current assets by geographic area are as follows:
Non-current assets
Canada
U.S.
Denmark
Mexico
30. Financial instruments:
(a) Fair value:
2015
$
917 $
19,643
15,046
12,777
2,195
1,061
993
656
3,175
$
56,463 $
2014
2,869
15,989
17,484
-
1,229
23,495
2,797
-
4,858
68,721
December 31,
2015
December 31,
2014
$
57,096 $
16,299
26
336
$
73,757 $
76,447
350
50
453
77,300
The Corporation’s financial instruments consist of cash and cash equivalents, trade and other
receivables, investments, trade and other payables, and finance lease liability. The fair values of
cash and cash equivalents, trade and other receivables, and trade and other payables approximate
their carrying values because of the short-term nature of these instruments. The interest rates
applied to the finance lease liability are not considered to be materially different from market
rates, thus the carrying value of the finance lease liability approximates fair value.
62
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
30. Financial instruments (cont’d):
(a) Fair value (cont’d):
Fair value measurements recognized in the statement of financial position must be categorized in
accordance with the following levels:
(i) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;
(ii) Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
(iii) Level 3: Inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
(b) Financial risk management:
The Corporation primarily has exposure to foreign currency exchange rate risk, commodity risk,
interest rate risk, and credit risk.
Foreign currency exchange rate risk
Foreign currency exchange rate risk is the risk that the fair value of deferred cash flows of a
financial instrument will fluctuate because of changes in foreign exchange rates. The Corporation
is exposed to currency risks primarily due to its holdings of Canadian dollar denominated cash
equivalents and its Canadian dollar denominated purchases and accounts payable. Substantially
all receivables are denominated in U.S. dollars.
The Corporation limits its exposure to foreign currency risk by holding Canadian denominated cash
and cash equivalents in amounts up to 100% of forecasted twelve month Canadian dollar net
expenditures and up to 50% of the following twelve months of forecasted Canadian dollar net
expenditures, thereby creating a natural hedge. Periodically, the Corporation also enters into
forward foreign exchange contracts to further limit its exposure. At December 31, 2015, the
Corporation held Canadian dollar denominated cash and cash equivalents of CDN $11,633,000
and outstanding forward foreign exchange contracts to sell a total of CDN $ 10,750,000 in 2016 at
an average rate of CDN $1.33 to US $1.00.
The following exchange rates applied during the year ended December 31, 2015:
January 1, 2015 Opening rate
December 31, 2015 Closing rate
Fiscal 2015 Average rate
$U.S. to $1.00 CDN
$CDN to $1.00 U.S.
$ 0.862
$ 0.723
$ 0.783
$ 1.160
$ 1.384
$ 1.279
Based on cash and cash equivalents held at December 31, 2015, a 10% increase in the Canadian
dollar against the U.S. dollar, with all other variables held constant, would result in an increase in
foreign exchange gains of approximately $841,000 recorded against net income.
63
BALLARD POWER SYSTEMS INC.
Notes to Consolidated Financial Statements
Years ended December 31, 2015, and 2014
(Tabular amounts expressed in thousands of U.S. dollars, except per share amounts and number of shares)
30. Financial instruments (cont’d):
(b) Financial risk management (cont’d):
If the Canadian dollar weakened 10% against the U.S. dollar, there would be an equal, and
opposite impact, on net income. This sensitivity analysis includes foreign currency denominated
monetary items, and adjusts their translation at year-end, for a 10% change in foreign currency
rates.
Commodity risk
Commodity risk is the risk of financial loss due to fluctuations in commodity prices, in particular,
for the price of platinum and palladium, which are key components of the Corporation’s fuel cell
products. Platinum and palladium are scarce natural resources and therefore the Corporation is
dependent upon a sufficient supply of these commodities. To manage its exposure to commodity
price fluctuations, the Corporation may include platinum and or palladium pricing adjustments
directly into certain significant customer contracts, and may also periodically enter into platinum
and or palladium forward contracts. At December 31, 2015, there were no outstanding forward
platinum contracts under the Forward Contract Facility.
Interest rate risk
Interest rate risk is the risk that the fair value of deferred cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Corporation is exposed to interest rate
risk arising primarily from fluctuations in interest rates on its cash and cash equivalents. The
Corporation limits its exposure to interest rate risk by continually monitoring and adjusting
portfolio duration to align to forecasted cash requirements and anticipated changes in interest
rates.
Based on cash and cash equivalents at December 31, 2015, a 0.25% decline in interest rates, with
all other variables held constant, would result in a decrease in investment income of $100,000,
arising mainly as a result of an increase in the fair value of fixed rate financial assets classified as
held-for-trading. If interest rates had been 0.25% higher, there would be an equal and opposite
impact on net income.
Credit risk
Credit risk is the risk of financial loss to the Corporation if a counterparty to a financial instrument
fails to meet its contractual obligations and arises principally from the Corporation’s cash, cash
equivalents, short-term investments and accounts receivable. The Corporation limits its exposure
to credit risk on cash and cash equivalents by only investing in liquid, investment grade securities.
The Corporation manages its exposure to credit risk on accounts receivable by assessing the
ability of counterparties to fulfill their obligations under the related contracts prior to entering into
such contracts, and continuously monitors these exposures.
64
CORPORATE INFORMATION
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
R. Randall MacEwen
President & Chief Executive Officer
Tony Guglielmin
Vice President & Chief Financial Officer
INDEPENDENT AUDITORS
KPMG LLP
Vancouver, BC Canada
LEGAL COUNSEL
Canada:
Stikeman Elliott, LLP
Vancouver, BC Canada
United States:
Dorsey & Whitney LLP
Seattle, WA USA
Intellectual Property:
Seed Intellectual Property
Law Group, LLC
Seattle, WA USA
Ian A. Bourne
Corporate Director
Alberta, Canada
Douglas P. Hayhurst
Corporate Director
British Columbia, Canada
R. Randall MacEwen
President &
Chief Executive Officer
British Columbia, Canada
Marty Neese
Corporate Director
California, USA
James Roche
Corporate Director
Ontario, Canada
Carol M. Stephenson
Corporate Director
Ontario, Canada
Ian Sutcliffe
Corporate Director
Ontario, Canada
CORPORATE OFFICES
Ballard Power Systems Inc.
Corporate Headquarters
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.454.0900
F: 604.412.4700
TRANSFER AGENT
Computershare Trust
Company of Canada
Shareholder Services Department
510 Burrard Street
Vancouver, BC Canada V6C 3B9
T: 1.800.564.6253
F: 1.866.249.7775
STOCK LISTING
Ballard’s common shares are
listed on the Toronto Stock
Exchange under the trading
symbol BLD and on the
NASDAQ Global Market
under the trading symbol BLDP.
INVESTOR RELATIONS
To obtain additional information,
please contact:
Ballard Power Systems
Investor Relations
9000 Glenlyon Parkway
Burnaby, BC Canada V5J 5J8
T: 604.412.3195
F: 604.412.3100
E: investors@ballard.com
W: www.ballard.com
www.ballard.com