Articles of Association

Chapter I

Company Name, Domicile and Object

Article 1

The Company is a statutory limited liability company. The Name of the Company is Lánasjóður sveitarfélaga ohf. The Company is established on the basis of Act No. 150/2006 on the Incorporation of Municipality Credit Iceland as a Statutory Limited Liability Company and operates pursuant to Act No. 161/2002 on Financial Undertakings, cf. the Companies Act No. 2/1995. The name of the Company in English is Municipality Credit Iceland Plc.

Article 2
The domicile of the Company is Borgartún 30, Reykjavík.

Article 3
The object of the Company is to secure for the Icelandic municipalities, their organisations and enterprises loan capital for projects of general public interest on favourable terms, to provide other financial services to the municipalities and to engage in any other activities normally connected with the principal object of the Company. The condition for the provision of credit to municipality-owned enterprises and institutions is that such enterprises and institutions must be wholly owned by municipalities or jointly owned by municipalities and the State Treasury, with both acting as guarantors to the Company for the loans.

Chapter II

Share capital

Article 4

The share capital of the Company is ISK 5,000,000,000.

The share capital of the Company is divided into shares in the amount of one króna each in nominal value. Only a shareholders' meeting may decide on an increase in share capital, whether through subscription to new shares or through the issue of bonus shares. Only a shareholders' meeting can decide on a reduction in share capital.

Article 5
The Board of Directors shall maintain a register of shares, pursuant to statutory law. The register of shares shall be preserved in the office of the Company, where all shareholders shall have access to it and permission to inspect its contents.

For the Company, the register of shares shall constitute valid proof of title to shares in the Company. Dividends, bonus shares, announcements of meetings and all notices shall be sent to the party registered at any given time in the Company's register of shares as the owner of the shares in question. Transfers of title to shares shall not take effect for the Company until the Board of Directors has been notified of the transfer of title in writing.

Article 6
Shares in the Company cannot be pledged or gifted. The Board of Directors of the Company, acting for the Company, shall have pre-emptive rights to any shares offered for sale; these rights shall prevail whether the transfer is effected by sale or enforcement of a judgment. Subsequently, shareholders shall have pre-emptive rights to shares in proportion to their shareholdings in the Company.

The above pre-emptive right becomes active on notification of the Board of Directors of a transfer of title. The Board of Directors shall, immediately upon receiving the notification of the transfer of title, send to all shareholders a written notification to the same effect and state the position of the Board of Directors, if available, regarding the exercise of pre-emptive right. If the Board of Directors has not yet taken a position when the notifications are sent out, the Board shall notify the holders of pre-emptive rights of the final decision of the Board no later than one month from the receipt of the notification of transfer of title.

The Board of Directors of the Company must decide within thirty days whether to exercise the pre-emptive rights of the Company, while other shareholders must decide within sixty days whether to exercise their pre-emptive rights. In both cases the notice period shall be calculated from the time that the Board took delivery of a notice of transfer of title specifying price and payment terms.

Article 7
No privileges are attached to shares in the Company.

Shares in the Company may only be owned by Icelandic municipalities and organisations or enterprises which are wholly owned by such parties; this shall be displayed in a clear manner on all issued share certificates.

In the event that a municipality proposes to sell, in full or in part, an organisation or enterprise which is wholly owned by the municipality, and which owns shares in the Company, to a buyer who is not an Icelandic municipality, the municipality is required, prior to the sale, to redeem the shares and the organisation or company is required to submit to such redemption. If any shares in the Company come into the possession of parties other than those specified in paragraph 2 of this Article 7, the Company is always entitled to redeem such shares. In the event that an agreement cannot be reached on the purchase price, this shall be determined by court-appointed assessors pursuant to paragraph 4 of Article 22 of Act No. 2/1995.

In other respects, shareholders are not required to submit to redemption of their shares, except as otherwise provided by law.

Article 8
Each shareholder is under obligation, without specific undertaking, to abide by the Articles of Association of the Company as current at any time.

Shareholders are not liable for the commitments of the Company in excess of their shareholdings.

Chapter III

Shareholders' Meetings

Article 9

The supreme authority in the affairs of the Company rests with shareholders' meetings, subject to the limitations imposed by statutory law and these Articles of Association.

Article 10
The Annual General Meeting of the Company shall be held before the end of the month of April each year.

Shareholders' meetings shall be called by a notice to each shareholder or by an advertisement broadcast on the radio and published in the newspapers, or by other verifiable means, with a minimum notice period of one week and a maximum notice period of four weeks. However, the Annual General Meeting shall always be called with two weeks' notice. Members of the Board of Directors, the Managing Director and auditors of the Company shall always be summoned to shareholders' meetings and representatives of the press shall be invited to the Annual General Meeting. The notice of a meeting shall state the business of the meeting.

A shareholders' meeting is valid if lawfully convened, without regard to the number of shareholders attending.

Article 11

The Annual General Meeting shall address the following items of business:

1. The report of the Board of Directors on the activities of the Company in the preceding year of activities;
2. The audited annual financial report for the past year of operation, which should include a proposal from the Board of Directors concerning the disposal of any profit or loss from the fiscal year;
3. A decision on payment of dividends;
4. Motions to amend the Articles of Association, if submitted;
5. Elections to the Board of Directors pursuant to Article 15;
6. Election of an auditor or auditing firm.
7. Decision on remuneration to the members of the Board of Directors for services rendered;
8. Any other business;

The conduct of the election to the Board of Directors shall be subject to the provisions of the Companies Act.

Article 12
Each shareholder shall be entitled to have an item of business included on the agenda of shareholders' meetings, provided that such shareholder submits a written request to such effect to the Board of Directors of the Company with sufficient advance notice for the item to be included on the agenda in compliance with these Articles.

Notices of shareholders' meetings shall specify the business to be addressed at the meeting. One week before a shareholders' meeting, at the latest, an agenda, final submissions and, in the case of Annual General Meetings, the annual accounts and the Auditor's report shall be laid open for inspection by the shareholders at the Company office.

Article 13
The chairman of the meeting shall preside over shareholders' meetings and rule on any items that are in dispute. Minutes shall be kept in which all the proceedings of shareholders' meetings shall be entered.

Article 14
At shareholders' meetings, each króna of share capital shall carry one vote. However, individual shareholders may never, on their own behalf or on behalf of others, exercise more than 15% of the total voting rights in the Company, whether the control upon which such voting rights are based derives from direct or indirect holdings. If the holdings of a single municipality, including shares held by organisations or enterprises owned by the municipality, exceed this limit, the excess voting rights shall be cancelled. In the calculation of a municipality's voting rights pursuant to this Article, the holdings in the Company of an organisation or enterprise which is jointly owned by municipalities shall be divided among its owners in proportion to the shares held.

Decisions at shareholders' meetings shall be taken by majority vote unless otherwise provided in these Articles or statutory law. In the event of an equality of votes issues shall be resolved by casting lots. Voting shall be by ballot if any attendant with voting rights so requests.

The consent of all shareholders is required to:

1. Oblige shareholders to contribute funds etc. for Company needs beyond their commitments;
2. Oblige shareholders to endure redemption of their shares, in part or in full, to a greater extent than provided for by law, unless the Company is dissolved or the share capital lawfully reduced, cf. Article 7.
3. Amend the provisions of the Articles of Association concerning voting rights or the equal status of shareholders.

Chapter IV

The Board of Directors of the Company

Article 15

The Board of Directors of the Company shall be composed of five members, to be elected at the Annual General Meeting for a term of one year; the Chairman of the Board shall be elected separately. Five alternates shall also be elected. The eligibility of members of the Board is subject to statutory law. Elections to the Board shall always be by ballot if the number of nominations exceeds the number of Members to be elected.

The Board shall elect a Vice Chairman from among its Members and allocate tasks among its members in other respects.

Article 16
The Chairman of the Board shall convene meetings of the Board of Directors and preside at Board meetings. Meetings shall be held at the discretion of the Chairman. The Chairman shall also call a meeting of the Board if requested by one Member of the Board or the Managing Director. Board Meetings shall be called with at least 24 hours' notice. Meetings of the Board of Directors are legally constituted if attended by a majority of the Board or their alternates. The Board of Directors shall keep minutes of proceedings at meetings of the Board and confirm such minutes with their signatures.

Article 17
The supreme authority in the affairs of the Company between shareholders' meetings is in the hands of the Board of Directors, except as otherwise provided in these Articles of Association; the principal tasks of the Board of Directors are the following:

To supervise the activities of the Company and monitor its operations according to law and these Articles of Association;
To approve the organisation chart of the Company;
To appoint a Managing Director for the Company and decide on the terms of his or her employment, establish his or her terms of reference and supervise his or her work.
To decide who shall be granted powers of procuration for the Company.
To establish rules of procedure for the Board of Directors, which should include provisions on the conduct of the work of the Board of Directors and Managing Director, lending, including the lending authorisation granted to the Managing Director, and rules concerning investments.
To deal with any other business provided for in the Act on Financial Undertakings at any time or other statutory law.
The signatures of the majority of the Board of Directors shall bind the Company.

Article 18
The Managing Director has charge of the day-to-day operation of the Company, and in this respect he shall observe the policy and directions of the Board of Directors. The Managing Director shall ensure that the accounts and finances of the Company conform to law and accepted principles and that all handling of the Company's assets is secure. The Managing Director shall hire the employees of the Company. He is empowered to dismiss personnel and negotiate their salaries.

Chapter V

Accounts and Auditing

Article 19

A chartered accountant or accounting firm shall be elected as Company auditor at each Annual General Meeting of the Company for a term of one year. The qualifications and eligibility of the auditor at elections are subject to statutory law.

Article 20
The operating year and fiscal year of the Company shall be the calendar year.

Article 21
The Financial Supervisory Authority shall be sent the audited accounts of the Company three months following the close of the fiscal year, at the latest.

Chapter VI

Further provisions

Article 22

These Articles of Association may be amended at a lawfully convened Annual General Meeting or shareholders' meeting with the support of a minimum of 2/3 of the cast votes, and the consent of shareholders controlling at least 2/3 of the shares in the Company represented and carrying votes at the meeting, provided that a different weight of votes is not required by these Articles or statutory law.

Motions to amend the Articles shall be specified in the notice of the meeting.

Article 23
The dissolution of the Company or its merger with other companies or organisations shall be subject to the provisions of the Act on Financial Undertakings, the Companies Act and the provisions of other statutory law, as applicable.

Article 24
Where the provisions of these Articles of Association do not provide otherwise, the provisions of the Act on Financial Undertakings, the Companies Act, the Annual Accounts Act and other acts of law shall be applied, as applicable.