The “Plan” provides for shares of USco to be issued to employees of its Canadian subsidiary (Canco) under the Deferred Stock, Restricted Stock, Performance Shares, Stock Appreciation Rights and Stock Options component of the Plan as well as making the “ESPP” available to them. Canco deducted the reimbursement payments it made to USco respecting the costs incurred by USco in issuing its common shares at a discount to Canco’s employees, claiming under Transalta that a legally binding agreement to issue shares did not exist for s. 7 purposes.
SARs
A Stock Appreciation Right provided a right to receive a payment in cash or shares, as selected by the Compensation Committee. The Directorate stated:
The issue of shares or payment in cash in satisfaction of the SAR is at the Committee’s complete discretion. Accordingly, Transalta will apply and paragraph 7(3)(b) will not apply to deny Canco a deduction.
Performance Shares
Under the Performance Shares Deferred Stock Agreement USco provided an award letter attached to the PSDSA specifying that the employee may obtain a targeted number of Performance Shares which are earned over a 3 year period based on the employee’s performance. After the 3 year period, the employer determines the total number of Performance Shares earned by the employee and at that point the appropriate number of shares of Deferred Stock are issued and delivered to the employee. CRA stated:
Based on the PSDSA, section 7 has application as USco appears to have a legal obligation to issue shares to a Canco employee… and… does not appear to have discretion concerning how to settle Performance Shares. Accordingly…paragraph 7(3)(b) should apply.
Other
USco did not appear to have discretion concerning how to settle Deferred Stock grants, Restricted Stock and a Non-Qualified Stock Options; and the ESPP obligated it to issue the number of subscribed-for shares. Therefore, s. 7(3)(b) applied respecting these.