Withholding Tax Disclaimer

The following is a general description of the Icelandic withholding tax considerations that arise for creditors in relation to the payment of cash (the “De Minimis Payment”) and the issue of shares in the Company (“Shares”) and bonds (“Bonds”) on the Composition (although it does not consider withholding tax that may arise subsequent to the Composition in respect of payments under, or in respect of, the Shares or Bonds).  It is based on current Icelandic law and the current practice of the Icelandic tax authorities.  It does not constitute advice by the Company or its advisers to creditors.  Creditors should consult the tax section of the Composition Proposal (which will be circulated to every creditor of the Company in due course) for further information in relation to the Icelandic tax consequences of the Composition and the holding of Shares and Bonds.  Creditors are advised to consult their own tax advisers concerning their tax position under Icelandic law and the law of their own jurisdiction.

Withholding tax on the Composition

Creditors may, depending on their circumstances, be subject to Icelandic withholding tax on the issue of the Shares and Bonds, and the payment of the De Minimis Payment, to which they are entitled on the Composition.

This will occur where a creditor’s tax base in its claims against the Company (“Composition Claims”) is less than the fair value of the Shares and Bonds, and the amount of the De Minimis Payment, which the creditor receives on the Composition.  In this case, the difference between these amounts is treated as interest income for Icelandic tax purposes and subject to withholding tax.

The Company will obtain a confirmation of its valuation of the fair value of the Shares and Bonds from its auditors in advance of the Composition for the purposes of determining any withholding tax obligation. The fair value of the Shares and Bonds will be disclosed in the Composition Proposal.

The rate of withholding tax is 18% in the case of creditors which are companies resident in Iceland for tax purposes or individuals (whether resident for tax purposes in Iceland or elsewhere), and 15% in the case of creditors which are companies not resident in Iceland for tax purposes.

Tax base

Generally, a creditor’s tax base in its Composition Claims will be at least equal to the amount it paid to acquire those claims.  For creditors whose Composition Claims arise as the result of claims the creditor has always maintained directly against the Company, this will be the par value of the claim.  For creditors who have acquired their claims by means of an acquisition or assignment from a former creditor of the Company or their successor or assignee, the acquisition price is the total consideration paid by the creditor for that claim.

In addition, a creditor’s tax base in its Composition Claim will be increased by the amount of interest income which has accrued in respect of that claim (and in respect of which discount income has arisen where the creditor acquired the claim below its par value), and on which the creditor has accounted for Icelandic tax or been subject to Icelandic withholding tax.

The effect of the above is that only creditors which acquired their Composition Claims for less than the fair value of the Shares and Bonds and the amount of the De Minimis Payment that they will receive on the Composition will be subject to the withholding tax.  In particular, this means that creditors who acquired their claims at par should not be subject to the withholding tax.

Payment of tax

The Company is responsible for accounting for the withholding tax to the Icelandic tax authorities.  Any creditor that is subject to withholding tax will be required to pay the Company an amount equal to its withholding tax liability before it is eligible to receive its Shares and Bonds.

In order for the Company to determine whether any withholding tax liability exists and, if so, the amount of such liability, every creditor will be required to verify to the Company the price it paid to acquire its Composition Claims (and the amount of any interest or discount income on which it has accounted for Icelandic tax or been subject to Icelandic withholding tax) by completing and returning to the Company a form (a "Withholding Tax Confirmation Form") which will be enclosed with the Composition Proposal.  Further information and detailed instructions outlining how to complete the Withholding Tax Confirmation Form will be set out in the Composition Proposal and in the notes to the form.

Where the Company has not received a Withholding Tax Confirmation Form from a creditor, the Company will be entitled to assume that the acquisition price paid by that creditor is zero, meaning that the creditor will be required to pay withholding tax on the full fair value of its Shares and Bonds and the amount of its De Minimis Payment.

Double tax treaties for non-residents

Creditors (whether companies or individuals) not resident in Iceland for tax purposes may be able to rely on a double tax treaty between Iceland and their territory of residence to exclude or reduce liability from the withholding tax.  In order to rely on such a treaty, a creditor is obliged to seek clearance in advance from the Icelandic tax authorities that it is entitled to rely on the treaty, and then furnish the Company with this clearance (usually in the form of a stamped document) in advance of the issue to it of its Shares and Bonds.

Liability of creditors to the Icelandic tax authorities

If the Company does not pay the Icelandic tax authorities the proper amount of withholding tax in respect of the issue of Shares and Bonds and the making of a De Minimis Payment to a creditor (which might occur if a creditor does not provide the Company with the correct information on its Withholding Tax Confirmation Form) then the Icelandic tax authorities would be entitled to pursue that creditor, as well as the Company, for any unpaid tax.