NASDAQ OMX Iceland hf. (“the Exchange”) has decided to reprimand publicly and impose monetary sanctions on Exista hf. (“Exista”, “the company”, “the issuer”) in relation to two incidents where the issuer is found to have infringed provisions of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland. Exista is considered to have been in breach of Sections 1.1.7, 2.1, 2.3 and 2.4 of the Rules by the following conduct: 1. New shares' admission to trading Circumstances of the case On 8 December 2008, Exista made public an announcement to the effect that the company had decided, in accordance with a resolution of its shareholders' meeting held on 30 October, to increase the company's share capital by issuing 50 billion new shares and exchange them for 1 billion shares in Kvakkur ehf. Accordingly, Exista made public on 15 December an announcement listing the holdings of its 10 largest shareholders after the increase had been implemented. According to the announcement, the company's share capital consisted of 64,174,767,632 shares after the increase. The total number of Exista shares admitted to trading on the Exchange is 14,174,767,632. Subsequently, the Exchange requested explanations as to why the new shares had not been admitted to trading in accordance with the Exchange's rules and conditions laid down in legislation. The company's explanations stated the company's standpoint and the reason for not applying for the aforesaid shares' admission to trading. The company was of the view that there was no reasonable argument for doing so, for which reason the shares have not been admitted to trading on the Exchange. The Exchange's rules Under Section 1.1.7 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland, an application for the admission of shares to trading shall cover all issued shares in the same class. The explanatory notes for the Section clearly stipulate that such an application shall be made for the admission to trading of all shares issued in the share class in question. The second sentence thereof provides that all subsequent issuance of new shares and their admission to trading shall conform to the Exchange's practices for admission to trading and to conditions laid down in legislation. In accordance with this, it has been customary practice as well as obligatory under Article 8 of Regulation No. 245/2006 for a company that has decided to increase its share capital to apply for listing of the new shares as soon as trading in them can commence. Conclusion The Exchange finds that Exista was clearly obliged to apply for listing of the new shares issued after the company decided to raise the number of its shares by 50 billion. Nothing in the case indicates that trading in the shares could not have started as soon as they were issued. Section 1.1.7 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland allows no exemptions from the requirement that newly issued shares in the same class as other shares already traded on the Exchange must be admitted to trading as soon as their trading can commence. The Exchange finds a situation where only about 22% of a company's shares in a particular class are admitted to trading at any given time to violate fundamental principles of trading on a regulated market. It cannot be ignored that Exista appears to have wilfully ignored the requirement to have the shares in question admitted to trading, or that the Exchange was not notified about the company's intended measures. It cannot reasonably be surmised that that the planned delisting of the company's shares authorises an exemption from a clear provision of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland and the provisions of legislation. Lastly, it should be noted that, by evading the requirement to have the shares admitted to trading on the Exchange in accordance with laws and rules, the company has sidestepped its duty to disclose information in a prospectus for the shares' admission to trading. Under paragraph 2 of Article 44 of the Act on Securities Transactions, the admission of securities to trading on a regulated market is subject to the publication of a prospectus. Therefore, it is clear that, had the company met its obligation under Section 1.1.7 of the Rules for Issuers of Financial Instruments and Article 8 of Regulation No. 245/2006, it would have been required to prepare a prospectus in accordance with the aforesaid provision of the Act on Securities Transactions. Since the company has not applied for the shares' admission to trading, no prospectus has been published. In the Exchange's view, this constitutes a serious violation of investors' right to receive information about issuers of shares and securities admitted to trading. The said 50 billion shares were, according to Exista's insider trading notification published on 8 December 2008, sold at the price per share of 0.02; by comparison, the share price in the most recent previous trading, which took place on 3 October, was 4.62. It should also be pointed out that the volume-weighted average price of Exista's shares between 9 and 18 December, i.e. during the period now elapsed since trading in the shares was resumed, was 0.05. The company has disclosed very limited information on its financial position since the end of the third quarter, for which reason there is much at stake for investors and shareholders in Exista in obtaining information on the company's position required to be disclosed in a prospectus. With due regard of the investor and shareholder interests in having the aforesaid shares admitted to trading as soon as their trading can commence, as well as their interests in a prospectus being prepared in accordance with the requirements of law, one must conclude that, notwithstanding Exista's application for delisting of its shares, the failure to have the said shares admitted to trading, as required under Section 1.1.7 of the Exchange's Rules, cannot be justified. Exista has, by an agreement with the Exchange on the company's shares' admission to trading, undertaken to meet the provisions of the Exchange's Rules as regards the listing of securities and other obligations of issuers of financial instruments, in accordance with laws, regulations and the Exchange's Rules current at any given time. Therefore, the issuer had a duty, under the agreement with the Exchange, to comply with Section 1.1.7 of the Exchange's Rules, cf. the aforesaid provisions of the Act on Securities Transactions and Regulation No. 245/2006. Exista clearly failed to fulfil its duties under the aforesaid provisions and agreement with the Exchange by neglecting to apply for admission to trading of the 50 billion shares issued following the board's decision to increase the company's share capital. In light of the circumstances of the case, and with due account of the arguments submitted by Exista, the Exchange finds that the company's conduct in the case was in breach of Section 1.1.7 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland. 2. Information on Exista's financial position On 25 October 2008, Lýður Guðmundsson, chairman of the board of Exista, was interviewed by Björn Ingi Hrafnsson on Stöð 2's TV business programme Markaðurinn. Information on Exista's position and the company's claims against the Icelandic banks was provided in the interview. On these subjects, the chairman said: “…If our claims against the Icelandic banks are settled, we will survive and so will the companies working under us.” ... “The situation is unclear, to say the least. I don't even know myself where the issue stands, but obviously people have been very busy saving the economy, the national economy, that is to say in recent days, and this will probably become clearer over the coming weeks and months. In the meantime, we are operational and Exista's coffers are sufficiently robust to pay our people their wages, etc. But the situation is unclear and difficult.” On 27 October, the Exchange requested Exista to disclose information on the balance of claims against the Icelandic banks as well as the company's financial position. The issuer published an announcement on 30 October stating that the company's position was unclear, among other things owing to its substantial assets in the Icelandic banks in the form of deposits and unsettled agreements awaiting resolution. The announcement also stated that the company was in talks with domestic and foreign creditors on the resolution of its issues. On 6 November the Exchange requested explanations from the company as to why the information provided in the interview with the chairman and in the announcement dated 30 October had not been disclosed as soon as possible, in accordance with the Exchange's rules, and before the interview was broadcast. Explanation was also requested as to why Exista failed to disclose further details of the uncertainty concerning the company's financial position, in particular those details liable to affect the company's share price, such as the extent of the company's claims against the Icelandic banks, whether the company had any knowledge of how large a part of the claims would be paid and, in the event that the claims were not paid in full, what effect that would or could have on Exista's financial position and performance. Lastly, much emphasis was placed on the importance of disclosing all information that could have a significant impact on the market price of the company's securities, in accordance with the Exchange's rules and the Act on Securities Transactions. Subsequently, considerable communication took place between the Exchange and Exista, with the Exchange requesting more detailed explanations of the above issues and emphasising the importance that Exista meet its obligation, as a company admitted to trading on the Exchange, to update information on its financial position as soon as possible and immediately when it became clear that information made public did not present a true view of its financial position. Among other things, this referred to the information disclosed in the company's third-quarter interim financial statements and interim report made public on 27 November. These interim statements presented the company's position on 30 September. On 17 December, the company disclosed information that included evaluation of its claims against the banks. The Exchange's rules Section 2.1 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland stipulates that a company must, as soon as possible, disclose information on decisions or other criteria and circumstances that are price-sensitive. Under the second sentence of the Section, price-sensitive information is defined as information which there is reason to believe can have a significant impact on the market price of the company's securities. The main principle for the timing of disclosure under the Rules is set forth in Section 2.3, which states that all information covered by the Rules shall be made public as soon as possible. The Section furthermore states that, if price-sensitive information is deliberately communicated to a third-party not bound by an obligation of confidentiality, the information shall be made public simultaneously. Section 2.4 provides that, in the event that price-sensitive information is unintentionally communicated to a third party not bound by an obligation of confidentiality, disclosure shall be effected forthwith. Conclusion The Exchange finds that much uncertainty has surrounded Exista's financial position recently. The conclusion must be that this uncertainty made it particularly important that the company provide details of what the uncertainty involved and an assessment thereof in a manner ensuring that investors were adequately informed. An interview with Lýður Guðmundsson, chairman of the board of Exista, on Stöð 2's business TV programme Markaðurinn, broadcast on 25 October, intimated that Exista's future depended on the recovery of the company's claims against the Icelandic banks. At the time that the interview was broadcast, no information had been made public about Exista's financial position since the company published its first-half interim financial statements and interim report on 1 August 2008. The Exchange finds that the information provided in the interview with the company's chairman was liable to have a significant impact on the company's share price. It was not clear at that point that the company's claims against the Icelandic banks could lead to Exista's collapse. It follows that the company was obliged to make public an announcement as soon as possible stating the company's assessment of its financial position. References to general market conditions and operating difficulties experienced by financial undertakings cannot replace public disclosure of information. Even though the financial position of many Icelandic companies, in particular financial undertakings, has been challenging and their operating environment has greatly deteriorated, the Exchange finds that differences clearly exist between companies in this respect and that investors had no way of knowing how difficult Exista's position was vis-à-vis the banks or what the uncertainty regarding the company's financial position involved. It is thus clear that the company had a duty to assess what the uncertainty regarding its future involved and to make public an announcement with updated information on the company's financial position once it was clear that the basis of its operations had changed in this manner. The Exchange finds that Exista clearly infringed Sections 2.3 and 2.4 of the Exchange's Rules, as the company's chairman presented price-sensitive information before it was disclosed. Furthermore, neglecting to disclose the details revealed in the said interview until the announcement dated 30 October was published, i.e. five days after the interview was broadcast on television, must be regarded a serious violation of the Exchange's Rules. Clearly, this divulgement of information did not meet the company's disclosure requirements. In this context, it may be noted, among other things, that no information was disclosed on the company's assessment of the possible consequences in the event of non-recovery of its claims against the banks, while according to the interview with Exista's chairman, those claims could lead to the company's collapse. The Exchange finds that the company failed to fulfil its duties under Sections 2.1, 2.3 and 2.4 of the Exchange's Rules, which stipulate that all price-sensitive information must be disclosed as soon as possible. The aforesaid information on Exista's financial position and the uncertainty about the company's future should have been made public before the interview was broadcast on television. This conclusion accords with the abovementioned provisions of the Exchange's Rules. As regards the company's announcements made public on 30 October, 7 November and 27 November, the Exchange finds that the information contained therein was unsatisfactory with reference to the company's duty to make public information in accordance with the Exchange's rules. The information provided presented a very unclear view of the company's position. The announcements merely referred to the company's position being unclear, among other things because it owned substantial assets in the Icelandic banks in the form of deposits and unsettled agreements awaiting resolution. The Exchange finds the failure to make public further details of the company's position censurable. The company's third-quarter interim financial statements and interim report, made public on 27 November 2008, contained information on the company's liquidity position, among other things. This included that on 30 September Exista had sufficient committed liquidity to meet its refinancing needs for the next 51 weeks, i.e. to meet maturing liabilities until the third quarter of 2009. The interim statements furthermore stated that 51% of the company's secured liquidity consisted of cash and 49% of committed credit lines. Information on the company's financial position that has been publicly available to investors was not updated in a satisfactory manner, for which reason the information that was available, i.e. financial information from the company's financial statements and interim report, can be regarded as having been misleading given how the company's financial position has changed following the Icelandic banks' collapse. Despite general disclaimers in the interim statements regarding Exista's unclear position after the accounting period, the company must be regarded as having been obliged to update the information stated in the statements to the extent possible. The Exchange finds that a company whose shares are listed on a stock exchange must be required to assess, by some means, the company's financial position when it is so unclear, and to update public information with reference to the company's assessment of that uncertainty. In this respect, Exista could have, e.g., assessed the total value of its claims against the banks and provided information about the types of claims in question as well as the effect on the company in the event of non-recovery of the claims against the banks. Such information would have provided investors with some basis on which to value the company's shares. By evading the requirement to update key financial indicators to the extent possible, Exista has increased the risk of unequal access to information by investors. The suspension of Exista's shares from trading between October 6 and 8 December cannot be regarded as tenable grounds for non-disclosure of information. Although trading in the shares on the Exchange was suspended during this period, the shares could be traded off-Exchange. It should also be noted that, during this time, the company called a shareholders' meeting, held on 30 October, which granted the board extensive powers to take action. The company's evaluation of its financial position was first made public on 17 December, although trading in Exista shares was resumed on 9 December. Therefore, investors had only inadequate and incomplete information on which to base their assessment of the value of the company's shares and other matters to which it relates. Lastly, it must be taken into account that on 8 December the company's board decided to increase the share capital by 50 billion shares. The shares were sold for a total of ISK 1 billion at the price per share of 0.02. The most recent previous trading in the shares had taken place on 3 October at the share price of 4.62. On 9 December, trading in the shares was resumed after having been suspended since 3 October. The volume-weighted average price of Exista's shares between 9 and 18 December was 0.05. Bearing this in mind, access to information about the rationale on which the sale of the aforesaid 50 billion shares at the price per share of 0.02 was based must be regarded as having been of particular importance for investors and shareholders. At the time when these transactions took place, almost no updated information had been made public on the company's financial position, making it difficult for investors and shareholders to assess the rationale by which Exista's board arrived at the share price for the transactions. It follows that it was very important to provide investors with information on the company's financial position before the decision on the shares' sale was made. An issuer of securities is responsible for ensuring that information which may have a significant impact on the market price of its securities is disclosed in accordance with the provisions of the Exchange's rules and not reported in the media before being made public, in a satisfactory manner and in accordance with the above provisions. With due regard to investor interests, it is important that all information required to be disclosed under the Exchange's rules is made public as soon as possible and within the time limits stipulated. By its agreement with the Exchange on the company's shares admission to trading, Exista has undertaken to comply with the Exchange's rules on information disclosure. Exista thus has a duty to disclose all information covered by the rules without delay or as soon as possible, cf. Section 2.3 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland. The company clearly failed to meet the Rules' disclosure requirements, as the aforesaid information on its financial position was not made public as soon as it became available. In light of the circumstances of the case, and with due account of the arguments submitted by Exista, the Exchange finds that the company's conduct in the case was in breach of provisions 2.1, 2.3 and 2.4 of the Rules for Issuers of Financial Instruments Listed on NASDAQ OMX Iceland. The Exchange's decision regarding Exista's breaches The Exchange reprimands publicly and imposes a monetary sanction on Exista amounting to ISK 4,000,000 for the violations set forth above of the Exchange's Rules. The Exchange finds that, by its conduct, the company was in breach of Sections 1.1.7, 2.1, 2.3 and 2.4 of the Rules. The decision to issue the public reprimand and impose a monetary sanction is made on the basis of an agreement between Exista and the Exchange on the admission to trading of the issuer's financial instruments on the Exchange, cf. Section 8.3 of the Exchange's Rules. Point 4 of the Section states, inter alia, that in cases where an issuer is in breach of the Rules, the Exchange may make a public announcement on the case in question. Point 6 empowers the Exchange to impose a disciplinary sanction on the issuer in the form of a monetary penalty.
- NASDAQ OMX Iceland hf. reprimands publicly and imposes monetary sanctions on
| Source: NASDAQ Iceland hf.