- NASDAQ OMX Iceland hf. reprimands publicly and imposes monetary sanctions on

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.