Note 13 to the January 25, 2014, financial statements of Le Château Inc. is shown in Exhibit 11-9. All dollar amounts are in thousands.

Required:
a. Describe the differences between the Class A subordinate voting shares and Class B voting shares with respect to the following:
i. Their ability to influence the selection of management and to influence company decision making
ii. The amount and priority of expected dividends.
b. If you owned 100,000 Class A subordinate voting shares at January 25, 2014, what proportion of total votes would you control? If you owned 100,000 Class B voting shares, what proportion of total votes would you control?
c. Why would investors choose to purchase the Class A rather than the Class B shares? Or vice versa?
d. Why might Class A shareholders choose to convert their shareholdings into Class B shares, as described in Principal features part [e]?

Transcribed Image Text:

11-9 | EXCERPT FROM LE CHATEAU INC. 2013 ANNUAL REPORT 13. SHARE CAPITAL Authorized An unlimited number of non-voting first, second and third preferred shares issuable in series, without par value An unlimited number of Class A subordinate voting shares, without par value An unlimited number of Class B voting shares, without par value Principal features aj With respect to the payment of dividends and the return of capital, the shares rank as follows: First preferred Second preferred Third preferred Class A subordinate voting and Class B voting. bl Subject to the rights of the preferred shareholders, the Class A subordinate voting shareholders are entitled to a non-cumulative preferential dividend of $0.0125 per share, after which the Class B voting shareholders are entitled to a non-cumulative dividend of $0.0125 per share; any further dividends declared in a fiscal year must be declared and paid in equal amounts per share on all the Class A subordinate voting and Class B voting shares en outstanding c Subject to the foregoing, the Class A subordinate voting and Class B voting shares rank equally, share for share, in earmings [d The Class A subordinate voting shares cary one vote per share and the Class B voting shares carry 10 votes per share [e] The Articles of the Company provide that if there is an accepted or completed offer for more than 20% of the Class B voting shares or an accepted or completed offer to more than 14 holders there of at a price in excess of 1 15% of their market value [as defined in the Articles of the Corporation, each Class A subordinate voting share will be, at the option of the holder, converted into one Class B voting share for the purposes of accepting such offer, unless at the same time an offer is made to all holders of the Class A subordinate voting shares for a percentage of such shares at least equal to the percentage of Class B voting shares which are the subject of the offer and otherwise on terms and conditions not less favourable. In addition, each Class A subordinate voting share shall be converted into one Class B voting share if at any time the principal shareholder of the Company or any corporation controlled directly or indirectly by him ceases to be the beneficial owner, directly or indirectly, and with full power to exercise in all circumstances the voting rights attached to such shares, of shares of the Company having attached thereto more than 50% of the votes attached to all outstanding shares of the Company Issued and outstanding January 25, 2014 Number of shares January 26, 2013 Number of shares Class A subordinate voting shares Balance-beginning of year Issuance of subordinate voting shares 22,682,961 42,338 20,228,864 37,327 upon conversion of long-term debt Issuance of subordinate voting shares 2,454,097 5,011 upon exercise of options Reclassification from contributed surplus 99,500 159 due to exercise of share options Balance, end of year Class B voting shares Balance, end of year All issued shares are fully paid 22,782,461 42,558 22,682,96 42,338 402 27.342461 42,960 27,242.96 42,740 4,560,000 402 4,560,000 During the year ended January 26, 2013, a $5.0 milion loan payable to a company that is directly controlled by a director was converted into 2,454,097 Class A subordinate voting shares [note 19]