Irish Competition Authority Decisions

1. Notification was made 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 Subscription Agreement relating to the acquisition of shares in Mentec Ltd.

2. The notification concerns the subscription agreement between Alibank Nominees Ltd (Alibank), Industrial Credit Corporation plc (ICC) and Mulroy Securities (as subscribers), M.Peirce, K.Flynn, J Maybury, C. Fairclough, C.Meehan, F.Waters, T.Murphy (as shareholders) and Mentec Ltd in relation to the subscription by the subscribers for new shares in Mentec Ltd.

3.(i) Mentec Ltd, a private limited company, was incorporated on 15 July 1980. It is engaged in the production of computer systems and designs, and manufactures and distributes computer products worldwide. Mentec has 5 operating subsidiaries located in Dublin, Manchester and London. At the date of the agreement it had an issued share capital of £597,114 made up of 2,371,140 ordinary shares of 10p each and 360,000 preference shares of £1 each which were held as follows:-

M.Peirce 1,249,520 64,188

K.Flynn 463,530 40,312

J.Maybury 321,200

C.Fairclough 107,050 5,500

C.Meehan 66,230

F.Waters 23,710

T.Murphy 23,710

IDA 116,190 250,000

Total 2,371,140 360,000

There were also commitments for conversion of preference shares and the exercise of options.

(ii) Messrs. Flynn, Peirce, Fairclough, Meehan and Waters were also executive directors of Mentec.

(iii) ICC, which changed its name to ICC Bank plc, is State owned and is engaged in the provision of banking services, including the investment of venture and development capital. Alibank Nominees Ltd and Mulroy Securities are engaged in the private placing of investment funds on behalf of personal clients.

4.(i) The notified agreement was made on 26 January 1990 to provide for the private placing of 364,703 new A ordinary shares in Mentec Ltd to be allocated as follows:-

Alibank Nominees Ltd 121,568

ICC 60,784

Mulroy Securities 182,351

364,703

The 364,703 new shares represented 12.5% of the company's equity after providing for preference share conversions (134,360 ordinary shares) and the exercise of share options (47,420 ordinary shares).

(ii) The agreement makes provision for the subscription for and issue of the new shares to the subscribers. The agreement provides for the arrangements for completion of the share transactions and for warranties by Mentec in relation to the trading and asset etc position of the company. It provides for a ratchet mechanism whereby further free shares up to a total of 103,584 would be allocated to the new subscribers if profits do not reach specified levels over 1990 and 1991 and for dividend payments and loans by shareholders to Mentec. Details of an employee/directors share option scheme were also provided.

5. 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.

6. 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".

7. At the date of the notified agreement Mentec was engaged for gain in the manufacture and supply of computer hardware and software and is an undertaking. The shareholders of Mentec, Messrs M. Peirce, K.Flynn, J.Maybury, C. Fairclough, C.Meehan, F.Waters and T.Murphy collectively held 95% of the equity of Mentec, effectively owned and controlled the company and were therefore undertakings. Alibank, ICC and Mulroy Securities were engaged in the investment of funds for gain and are therefore undertakings. The notified agreement is an agreement between undertakings. The agreement has effect within the State.

8. The Share Subscription Agreement constitutes an agreement whereby three venture capital companies make a venture capital type investment by way of subscription for a minority equity shareholding in Mentec. The Authority considers that the investment of venture capital by a venture capital company to obtain a minority shareholding in a company is not, per se, anti-competitive and does not offend against Section 4(1) of the Competition Act.

9. The agreement contains a very limited number of continuing contractual commitments including the warranties given by the original shareholders to the new investors and arrangements for the distribution of the company's profits. These do not raise issues under the Competition Act. There are no other restrictive covenants or obligations in the notified agreement.

10. In the Authority's opinion, Mentec Ltd, its shareholders, Messrs M. Peirce, K.Flynn, C. Fairclough, C.Meehan, F.Waters, J.Maybury and T.Murphy , and Alibank Nominees Ltd, ICC Bank plc and Mulroy Securities were 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

11. 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 share subscription agreement between Mentec Ltd, its shareholders , Messrs M. Peirce, K. Flynn, C. Fairclough, C.Meehan, F.Waters, J.Maybury and T.Murphy, and Alibank Nominees Ltd, ICC Bank plc and Mulroy Securities notified under Section 7(2) on 30 September 1992 (notification no. CA/848/92E) does not offend against Section 4(1) of the Competition Act, 1991

For the Competition Authority.

Des Wall

Member.

12 April 1995