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1. Notification was made by AIB Investment Managers Ltd (AIBIM) on 30 September 1992 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of a share Subscription Agreement relating to shares in Baroncastle Ltd.

2. The notification concerns a share subscription agreement in relation to the acquisition by a designated investment fund managed by AIBIM (the AIBIM Fund) of new shares in Baroncastle Ltd. between Ramville Ltd and Green Isle Foods as covenantors, AIBIM as manager and Baroncastle Ltd.

3. The parties to the agreement are as follows:

(i) Baroncastle Ltd was incorporated in April 1989 and at the date of the agreement it had an authorised share capital of £1m divided into 925,000 ordinary shares of £1 each and 75,000 deferred ordinary shares of £1 each, of which 170,000 ordinary shares and 75,000 deferred ordinary shares had been issued. Baroncastle was commencing operations in the manufacture of value added poultry products through its wholly owned subsidiary Viking Frozen Products Ltd.

(ii) Green Isle Foods Ltd, which was incorporated in 1987, is engaged in the manufacture of frozen foods and is a wholly owned subsidiary of Poldy's Fresh Foods Ltd which is the largest manufacturer of frozen foods in the State. Green Isle was the beneficial owner of the issued share capital of Baroncastle at the date of the agreement.

(iii) Ramville Ltd is a holding company and holds the entire share capital of various companies engaged in the food processing business including,indirectly, Green Isle Foods Ltd. Ramville and each of its subsidiaries are referred to in the agreement as the Poldy Group.

(iv) AIBIM, a subsidiary of the AIB Group, is engaged in the business of Discretionary Investment Management and is manager of a designated investment fund, the AIBIM Fund. Under the notified agreement the Fund acquired 255,000 shares ordinary £1 shares in Baroncastle at a substantial premium. The shareholding in Baroncastle before and after the agreement was as follows:-

Green Isle Ltd 170,000 ordy. 170,000 ordy.

AIBIM Fund - 255,000 or dy.

total issued ordy 170,000 ordy. 425,000 ordy.

Green Isle Ltd 75,000 def.ordy 75,000 def.ordy

4. Baroncastle is engaged in the processing of value added poultry which is sold under the Green Isle brand name. The overall retail market for poultry in the State, including fresh, chilled and frozen is estimated by the company to be around £200m annually. The market for value added frozen poultry products is estimated at £24m most of which is serviced by imports. It is estimated that Birds Eye have around 50% of the retail frozen foods market in the State with Frikki, St. Bernard and Green Isle as other significant suppliers.

5. Under the BES scheme (Relief for Investments in Corporate Trades as introduced in the 1984 Finance Act with subsequent amendments) taxpayers may obtain tax relief in respect of subscription for shares in companies engaged in qualifying trades. The shares must represent new issued ordinary shares in an unquoted company and must be held for a minimum period of 5 years. Similar tax relief is also given where the subscription is made to a designated investment fund (designated by the Revenue Commissioners) where the monies subscribed are invested on the taxpayer's behalf in qualifying companies. The Designated Investment Funds Act 1985 declares that a designated investment fund is not a unit trust and requires that a prospectus should be prepared in respect of each such fund which must be first approved by the Minister for Enterprise and Employment. Approval may not be given unless the Minister is satisfied that satisfactory statements on a number of specified issues are included in the prospectus including details of the manager and of the separate trustee, that the holder of any shares issued to the Fund will be registered as nominee for a particular participant and particulars of the arrangements for transfer of the shares into the participants name after 5 years. In practice each designated investment fund is governed by a trust deed which provides for the holding of the monies subscribed by a trustee,in whose name shares purchased by the Fund are initially registered as nominee for each particular subscriber, and the management of the fund by a manager, who has responsibility for selecting the investee companies and safeguarding the subscribers interests in these companies. There are generally provisions in the trust deed for disposal of the shares after 5 years by the trustee/manager either by way of sale (with each subscriber getting his share of the proceeds) or transfer into the subscriber's name. Mechanisms may be included to facilitate the sale or redemption of the shares including Put and Call options whereby the original shareholders of the investee companies after a period of 5 years could be required to purchase the Fund's shares. If however the shares in an investee company cannot be satisfactorily disposed of, there are provisions for their transfer some time after, into the subscribers name and the trust ends. Unlike an UCIT or investment company, the individual subscriber does not hold units in the Fund but holds the beneficial interest in his proportion of the shares acquired through the fund .

6.(i) The notified agreement was made on 5 September 1990 and provides for the subscription by the AIBIM Fund for 255,000 new ordinary shares in Baroncastle i.e. 60% of the then issued ordinary shares, subject to various warranties and conditions set out in the agreement, including the amendment of the company's Memorandum and Articles of Association, safeguards to ensure BES status of the investment, the entering into of a Put and Call option agreement for the acquisition of the AIBIM shares by either Green Isle or Ramville, and a satisfactory agreement for the acquisition by Baroncastle of the assets of Viking Frozen Products Ltd (in receivership). The agreement continues until the expiry date, after 5 years for the exercise of certain Put and Call options granted to AIBIM under a separate agreement.

(ii) The agreement also provides for warranties by Ramville and Green Isle and covenants relating to the business of Baroncastle. The covenants include provisions that the company will be run in a businesslike manner with measures to ensure that AIBIM is kept informed of the company's progress. Restricted transactions are listed which require the prior consent of AIBIM. These include substantial disposal of assets, issue of loans, onerous contracts and borrowings or capital expenditure above stated limits.

(iii) The agreement also provides that as long as the AIBIM Fund is a shareholder or for the term of the agreement, whichever is the shorter, the total number of directors shall not exceed three, i.e., one appointed by Green Isle/Ramville, one by AIBIM and a managing director nominated by Green Isle/Ramville but subject to the consent of AIBIM (not to be unreasonably refused). A supplemental agreement provides for the appointment of a named person as MD. Any services required by the business which are provided by a member of the Poldy Group will be charged to the company at cost. There is also provision for the payment of an annual percentage management fee to Green Isle, subject to specified minimum profit figures being attained. Under clause 8.8 Green Isle undertakes for as long as the Fund is a shareholder or for the term of the agreement (whichever is the shorter) not to dispose of shares in Baroncastle, except to a member of the Poldy Group, without the consent of AIBIM.

(iv) Section 5 of the Agreement also contains the following restrictions on Green Isle and Ramville (the covenantors) viz.

"1. Each of the Covenantors undertakes with the Manager that:-

(A) For as long as it is and for the period of one year after the date upon which it shall cease to be a member of the Poldy Group or for the Term of this Agreement (whichever shall be the shorter) it will not (other than as a holder of shares or debentures quoted on an established securities market or any registered unit thereof) either on its own behalf or in conjunction with or on behalf of any person firm or company carry on or be engaged concerned or interested in carrying on the Business in the Republic of Ireland without the prior consent in writing of the Manager."

The Business is defined as "the manufacture and sale of frozen, breaded, flash fried processed poultry products but shall exclude pies or pie products and ready meals and shall also exclude any product or line of products being produced by the Poldy Group as at the date of this agreement;"

(B) For as long as it is and for the period of one year after the date upon which it shall cease to be a member of the Poldy Group or for the Term of this Agreement (whichever shall be the shorter) it will not either on its own behalf or in conjunction with or on behalf of any other person firm or company solicit or entice away from the Company for the time being thereof any officer manager or servant whether or not such person would commit a breach of his contract of employment by reason of leaving service.

(C) For the Term of this Agreement it shall in so far as it lies within its power procure that no company owned or controlled by the Covenantors or any one or more of them (and insofar as it is able to ensure the same none of its subsidiaries or associated companies) shall act in such a way as would be a contravention of the obligations contained in this paragraph if it were itself so to act.

(D) For the Term of this Agreement and in the event that any member of the Poldy Group shall establish or acquire outside of the Republic of Ireland a business or undertaking comprising in whole or in part the Business, then that business or undertaking shall not compete in any markets operated by the Company at that time provided however that such business or undertaking will not be precluded from operating or participating in any markets outside the Republic of Ireland in which it already operates or participates."

7. AIBIM in its submission stated that the restrictive covenants in the agreement are the standard clauses which are found in most loan, share subscription and BES agreements for corporate institutions. The covenants seek to ensure that:

- the investment made in the Company is not undermined by parties to the agreement

- the goodwill of the company is maintained

- the expert knowledge built up by the Company is available for the duration of the agreement

8. Section 4(1) of the Competition Act 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

9. Section 3(1) of the Competition Act defines an undertaking as "a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the

production, supply or distribution of goods or the provision of a service".

10. Baroncastle Ltd, Ramville Ltd and Green Isle Foods Ltd are engaged in the manufacture and processing of food products and are therefore undertakings. AIBIM is engaged in corporate finance and is manager of a designated investment fund for which it is in receipt of fees and commission. It is therefore an undertaking. The notified agreement is an agreement between undertakings. The agreement has effect within the State.

11. The Subscription Agreement constitutes an agreement whereby a designated investment fund has agreed to make a venture capital type investment to obtain a shareholding in Baroncastle. This, in effect, involves an investment by a large number of small personal investors for a combined majority stake in the company. Such an agreement is not per se anti-competitive and does not offend against Section 4(1) of the Competition Act.

12. The agreement contains continuing contractual commitments arising from the agreement including the warranties given by the original shareholders to the new investor. These do not raise issues under the Competition Act. The agreement also provides for a number of obligations on each of the parties which will govern how the company will be managed including the information requirements to keep AIBIM informed of the company's progress. These are matters internal to the management of the company which are designed to protect the new investors and do not raise issues under the Competition Act.

13. The agreement also contains a list of restricted transactions which the company may not undertake without the prior written consent of AIBIM. These include such actions as a substantial disposal of assets, the issue of loans, entering into onerous contracts and capital expenditure or borrowings above specified limits. AIBIM effectively is engaged in the management of a form of venture capital fund and is acting on behalf of many personal BES investors who subscribed to the fund which has made on their behalf a tax driven investment in Baroncastle. With no particular expertise in the frozen food business AIBIM is dependent on Green Isle for the day to day management and supervision of the business. As indicated in Cambridge - ACT/Imari [1] the Authority takes the view that providers of venture or development capital are entitled to take steps to protect their investment. The restrictions on transactions imposed on the operation of Baroncastle are designed to protect that investment by ensuring that the assets of the company are not substantially (or even artificially) diluted without their knowledge. They may be regarded as prudent protection of the new investor interest and no more than is necessary to achieve the object of protecting the investment. In any event the restrictions are more related to the internal running of the company rather than its trading activities. The Authority does not therefore regard these restrictions as offending against Section 4(1) of the Competition Act.

14. Under clause 5 of the agreement, Green Isle and Ramville undertake that as long as they are part of the Poldy Group (which is Ramville and all its wholly owned subsidiaries) and for a period of one year after that date, or for the period of the agreement, whichever shall be the shorter, they, and any other company controlled by them, will not compete directly with Baroncastle or solicit its employees. In their decision on Cambridge-ACT/Imari the Authority indicated that, in general, a restriction on parties in a business competing with it for so long as they remain part of the business, does not offend against Section 4(1). Under the notified agreement Green Isle and indirectly Ramville are participating through Green Isle's shareholding in the business of Baroncastle. Insofar therefore as the non-compete or non-solicit restrictions apply to the period when the covenantors remain shareholders in the company these provisions do not offend against Section 4(1) of the Competition Act.

15. The non-compete and non-solicit restrictions apply for the term of the agreement or for as long as the AIBIM fund holds shares in the company (whichever is the shorter) and under certain circumstances, therefore, the restrictions could continue to apply to the covenantors after a disposal of their shares in the company. These circumstances could arise if for some reason AIBIM agreed, or had to agree, to a disposal of the shares by Green Isle to another person under clauses 8.8 of the agreement, either before the Put and Call options were due, or in a situation where the options could not be exercised. Such an event would not be likely to occur except in a situation where the covenantors might not be able to meet, or might seek to avoid, financial obligations under the agreement. AIBIM claim that the restrictions in the agreement are found, inter alia, in most corporate loan agreements. The Authority accepts that in the case of a loan agreement it is not anti-competitive to have, as a condition of the loan, a restriction on the principals, for the duration of the agreement, from walking away from their company and setting up in competition with it. While for tax reasons the notified agreement involves a subscription for shares in Baroncastle the overall arrangements, with the accompanying Put and Call Option agreement, are such as to be more akin to that of a loan. Under the notified agreement substantial free capital has been put into the company with provision for its redemption by the company's principals after 5 years. It is not a purchase of business agreement. The principal objective of AIBIM is to be able to redeem the shares as soon as possible after the end of the BES statutory period of 5 years, pass the proceeds on to the subscribers and wind up the fund. The agreement is intended to apply only for a limited time. If, during this time, the original owners were able to withdraw from the business, and were then free to open another business in competition with it and solicit its employees, the business of Baroncastle could be severely damaged, putting the investment in jeopardy. The Authority believes that the application of the non-compete and non-solicit restrictions, for the term of the agreement, are in these circumstances necessary to protect the interests of the providers of the new equity capital without which the investment would not have been made and the restriction does not, therefore, offend against Section 4(1) of the Competition Act, 1991.

16. In its Cambridge-ACT/Imari decision the Authority had indicated that the position regarding non-compete restrictions changes if parties are prevented from withdrawing from such arrangements saying that if a party wishes to withdraw from such arrangements then measures designed to restrict him doing so may restrict competition. In this instance Green Isle has covenanted that without the prior written consent of AIBIM it will not sell or otherwise dispose of shares in Baroncastle to another person outside the Poldy Group. The restriction continues for the duration of the agreement.

17. The Authority is satisfied that this restriction does not have the object of preventing, restricting or distorting competition. Under the notified arrangements a large number of small investors have provided substantial additional capital to Baroncastle. There are substantial risks involved in investing in an unquoted company with limitations on the marketability of its shares. The Authority believes that the object of the restrictions is solely to reduce these risks. An essential prerequisite for the venture capitalist taking a shareholding in a small company, and advancing substantial loan finance to it on very favourable terms, is to ensure the continued commitment by the existing owners to the business. The investor is investing not only in bricks and mortar but in entrepreneurial flair and expertise as evidenced by the previous track record of the owners. If such a commitment cannot be ensured the investment risks increase with the possibility that any conflicting interests of the original owners may lead to a diversion of business or even the possibility of a diversion of the company's funds. In the absence therefore of a full commitment by the owners the outside investment would be most unlikely to proceed.

18. Neither does the Authority believe that the restrictions have the effect of preventing, restricting or distorting competition to any significant extent. The original owners derive real benefit from the BES investments with the injection of additional capital for the company's development over a minimum 5 year period and they have the prospect of regaining full control of their company after the end of that period. There is no restriction on Baroncastle from expanding its operations apart from the need for the consent of AIBIM. The Authority considers that the restrictions on the covenantors from withdrawing from the arrangements for the term of the agreement do not therefore offend against Section 4(1).

19. In the Authority's opinion, Ramville Ltd, Green Isle Foods Ltd, AIB Investment Managers Ltd and Baroncastle Ltd are undertakings within the meaning of Section 3(1) of the Competition Act, 1991 and the notified share subscription agreement is an agreement between undertakings. In the Authority's opinion the notified agreement does not offend against Section 4(1) of the Competition Act, 1991

20. The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the Subscription Agreement between Ramville Ltd, Green Isle Foods Ltd, AIB Investment Managers Ltd and Baroncastle Ltd notified under Section 7(2) on 30 September 1992 (notification no. CA/433/92E) does not offend against Section 4(1) of the Competition Act, 1991

For the Competition Authority.

Des Wall

Member.

27 April 1995