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1 Prospctus Prospectu Prospects Prospe PROSPECTUS AUGUST 2006

2 INFORMATION This consists of three documents: Summary, Registration Document and Securities Note. For the timeframe of 12 month from the date of the (lifetime of the document), the is available on the website: The prospectus has been filed with the Iceland Stock Exchange for purposes of listing the new shares on the Iceland Stock Exchange.

3 Prospctus Prospectu Prospects Prospe PROSPECTUS AUGUST 2006 SUMMARY

4 SUMMARY THE FOLLOWING INFORMATION IS EXTRACTED FROM, AND SHOULD BE READ AS AN INTRODUCTION TO THE FULL TEXT OF THE PROSPECTUS. Any investment decision relating to the Shares should be based on a consideration of the as a whole. Where a claim relating to information contained in the is brought before a court, a plaintiff investor might, under the national legislation of the EEA States, have to bear the costs of translating the before legal proceedings are initiated. Civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with other parts of the. THE SHARE ISSUE FL Group hf.'s total issued share capital amounts to 6,141,029,413 shares before the New Share issue, each with a nominal value of ISK 1.0. All issued shares of FL Group hf. are traded on the ICEX Main List and are included in the ICEX-15 index. This Summary concerns FL Group hf's issue of 1,803,956,507 New Shares, which represents a 29.4% increase in share capital, and the admission of these New Shares to trading on the ICEX Main List. The New Shares will be used as a part of a payment for 2,506,561,955 shares in Straumur-Burðarás Fjárfestingabanki hf., as announced on 28 June The New Shares were issued on 2 August 2006 and are expected to be admitted to trading on 4 August The Share Issue will dilute current shareholdings in the Issuer by 22.7%. The board of directors of FL Group hf. is authorised to increase additional share capital of the Issuer by up to 999,151,471 shares, each with a nominal value of ISK 1, on the basis of authorisations granted by shareholders. COST OF THE ISSUE The total cost of the issue and admission to trading of this share capital on the Main list of ICEX is estimated at ISK 42 million. Approximately ISK 9 million of this amount is due to the payment of stamp duty, which amounts to 0.5% of the nominal value of any new capital share. RISK FACTORS An investment in the shares of FL Group involves risks, including risks relating to securities in which the Issuer invests, i.e. aviation and tourism industries, banking and financial services. The risk should be assessed by potential investors before making an investment in the shares. Among the important risks to which FL Group is exposed are: Operational risk Market risk Exchange rate and interest rate Key employees Securities regulation Applicable Law Liquidity risk Covenants Contractual risk Litigation Trademarks and intellectual property

5 INFORMATION ON FL GROUP The legal name of the Issuer is FL GROUP hf. and its commercial name is FL Group. The Issuer is registered with the Registry of Enterprises in Iceland, registration number FL Group s domicile and headquarters are at Suðurlandsbraut 12, IS-108 Reykjavík, Iceland, telephone number FL Group is a public limited company incorporated in Iceland and operates pursuant to the Icelandic Companies Act. The date of incorporation is 20 July The Issuer is listed on the Iceland Stock Exchange and the ticker is FL. FL Group, which was called Flugleiðir hf. at that time, was established in Reykjavik on 20 July 1973 by a merger of Flugfélag Íslands hf. and Loftleiðir hf. Flugleiðir s main operations during the period were in aviation. At the Issuer s annual general meeting 2005, its name was changed to FL Group hf. Currently FL Group hf. s focus is on investment activities. The Group has two main functions: Private Equity, managing operating companies and strategic investments owned by the Group, and Asset Management, managing short-term investments and investments in listed securities. Today FL Group has holdings in companies in various sectors in Iceland, the UK, the Netherlands and the Nordic countries. The majority of investments are in listed companies in the banking and financial services in Iceland. Other investments in listed companies are in beverages, airlines and luxury retail. Board of Directors Hannes Smárason CEO Private Equity Asset Management Finance / Administration Sveinbjörn Indriðason Jón Sigurðsson - Operating companies - Private equity Investments - Strategic Investments Albert Jónsson - Short-term investments - Investments in listed securities Nordics Martin Niclasen Operation Management Thorsteinn Örn Gudmundsson UK Adam Shaw Figure 1. The organizational structure of FL Group. DIRECTORS AND MANAGEMENT The Board of Directors of FL Group hf. has the supreme authority in the Issuer s general affairs between shareholders' meetings and endeavours to keep the organization and operations on course. The Issuer presently has 7 board members and two alternate board members. Skarphéðinn Berg Steinarsson, Chairman of the Board Þorsteinn M. Jónsson, Vice-Chairman of the Board Jón Ásgeir Jóhannesson, Director Magnús Ármann, Director Smári Sigurdsson, Director Kristinn Björnsson, Director Paul Richmond Davidson, Director Magnús Kristinsson, Alternate Director Peter Mollerup, Alternate Director SENIOR MANAGEMENT The senior management team under the leadership of the CEO Hannes Smárason comprises five managing directors in addition to managing directors of foreign offices.

6 Hannes Smárason, CEO Sveinbjörn Indridason, Chief Financial Officer (CFO) Jón Sigurdsson, Managing Director of Private Equity Albert Jónsson, Managing Director of Asset Management Thorsteinn Örn Gudmundsson, Managing Director of Operation Management Martin Niclasen, Managing Director of the Nordics Operations Adam Shaw, Managing Director of the UK Operations STATUTORY AUDITORS The Issuers auditors for the period covered by the historical financial information in this Summary were Sæmundur Valdimarsson, State authorised public accountant, Icelandic ID No and Jón Sigurdur Helgason, State authorised public accountant, Icelandic ID No at KPMG Endurskodun hf., Icelandic ID No , Borgartún 27, IS-105 Reykjavík, Iceland. MANAGER Glitnir banki hf., Kirkjusandi 2, 155 Reykjavík, Iceland. The Manager has been advisor to the Issuer on the preparation of the. LIST OF MAJOR SHAREHOLDERS The fifteen largest shareholders of FL Group owned over 86% of the share capital as of 2 August The major shareholders and their holdings are listed in Table 1. Table 1. Major Shareholders of FL Group as of 2 August FL Group hf. - Share register FL Group hf. - Share register not corrected for forward contracts corrected for forward contracts Shareholders Shares % Shareholders Shares % Eignarhaldsfélagið Oddaflug ehf 1,451,183, % Eignarhaldsfélagið Oddaflug ehf 1,451,183, % ** BG Capital ehf 762,317, % Baugur Group hf 1,416,934, % *** Glitnir banki hf 550,464, % Icon ehf 448,487, % **** Icon ehf 448,487, % Materia Invest ehf 404,411, % **** Materia Invest ehf 404,411, % Arion safnreikningur 305,877, % Arion safnreikningur 305,877, % Fons Eignarhaldsfélag hf 295,735, % Fons Eignarhaldsfélag hf 295,735, % FL GROUP hf 267,512, % * FL GROUP hf 267,512, % * Gildi -lífeyrissjóður 146,897, % Landsbanki Íslands hf,aðalstöðv 265,671, % Saxbygg ehf 79,287, % Gildi -lífeyrissjóður 146,897, % Lífeyrissjóður verslunarmanna 74,423, % Straumur - Burðarás Fjárfesting 132,892, % Ten largest shareholders total 79.6% Saxbygg ehf 79,287, % Lífeyrissjóðir Bankastræti 7 78,570, % Lífeyrissjóður verslunarmanna 74,423, % SJ1 ehf 41,673, % Fifteen largest shareholders total 86.4% Other shareholders total 13.6% *) FL Group has agreed to deliver to Magnús Kristinsson and Kristinn Björnsson 107 million shares on 4 August. This will decrease own holdings to million shares. **) Eignarhaldsfélagið Oddaflug: Owned by Fl Group's CEO, Hannes Smárason ***) Baugur Group hf.: Headed by Jón Ásgeir Jóhannesson which is also a large shareholder in Baugur Group hf. ****) Icon ehf and Materia Invest ehf.: Holding companies owned by Þorsteinn M. Jónsson, Magnús Ármann and Kevin Stanford

7 BORROWING REQUIREMENTS AND FUNDING STRUCTURE Due to the Issuer s focus as an investment company, it is in the business of investing in companies and therefore its borrowing requirements are a never-ending feature of its operations. Currently there are no unusual borrowing requirements. Table 2. The Consolidated capitalization and indebtedness in the interim report ( ). million ISK Ordinary shares 6,073 Share premium account 46,394 Capital reserve 24,907 Toal capitalization: 77,374 Cash 7,812 Other financial assets 1 98,487 Total financial assets: 106,299 Interest bearing loans -52,725 Non interest bearing loans 2-4,499 Bonds issued -10,224 Financial indebtedness: 3-67,448 Net financial assets: 38,851 TREND INFORMATION The Issuer has a large portion of its capital tied up in listed companies, mainly in Iceland and the Nordic countries. Therefore, stock market trends will influence the Issuer s profit. SELECTED FINANCIAL INFORMATION This section presents the consolidated financial statements for FL Group for the period , and interim financial statements for the three months ending 31 March 2005 and In general, the shift in strategy from pure aviation and tourism-related activities to operations with focus on investments is clearly reflected in the Issuer's consolidated financial statements, as income from investments has gradually become a larger component of overall income and the balance sheet now includes a larger portion of non-operating assets. This means that all comparison between years must take this change in focus into account. The historical annual financial information for the years 2003, 2004 and 2005 has been audited. However, FL Group s 2005 and 2006 Interim Reports had limited review from the auditors. The last year of audited financial information is from the year 2005 and is audited. The key financial information extracted from the consolidated financial statements of FL Group for the period is presented in Table 3. 1 Financial assets are: marketable securities, net positive mark to market (MTM) of forward contract, restricted cash, and other investments in companies 2 This is net negative mark to market (MTM) of forward contracts 3 This includes ISK 32 billion in secured loans. No loans have guarantees.

8 Table 3. Key financial information extracted from the consolidated financial statements of FL Group. Figures in million ISK. INVESTMENT OPERATING ACTIVITIES COMPANIES GROUP Profit and loss account Investment revenues 19,794 2,560 (204) (406) 19,590 2,154 Operating revenues ,412 42,586 47,644 42,586 37,561 Operating cost (1,652) (150) (42,631) (37,832) (44,283) (37,982) (33,771) before depreciation Depreciation 0 0 (2,408) (2,440) (2,408) (2,440) (1,807) EBITDA (1,420) (150) 4,781 4,754 3,361 4,604 3,790 EBIT (1,420) (150) 2,373 2, ,164 1,983 Pre-tax profit 18,374 2,410 2,169 1,908 20,543 4,318 1,406 Income tax (2,969) (530) (323) (183) (3,292) (713) (285) Annual profit 15,405 1,880 1,846 1,725 17,251 3,605 1,121 Balance sheet Total assets 132,618 43,482 37,296 Liabilities 58,175 28,721 28,086 Equity capital 74,443 14,761 9,210 Cash flow From operating activities (278) 329 5,699 4,267 5,421 4,596 5,564 Key figures Profit per share Equity ratio 62,9%* 33.9% 25% Return on equity 55.2% 31.6% 13% * Less pre-payments for 15 Boeing s

9 Interim report Key financial information extracted from the interim reports of FL Group for the periods Q and Q is presented in Table 4. Table 4. Key financial information extracted from the Q and Q interim reports of FL Group. Figures in million ISK. INVESTMENT OPERATING COMPANIES ACTIVITIES ICELAND DENMARK CONSOLIDATED Q Q Q Q Q12006 Q Q Profit and loss account Investment revenues 10,458 1, (159) (77) 10,449 1,594 Operating revenues 0 0 9,846 7,816 7,719 17,566 7,816 Operating cost before depreciation (485) (37) (10,119) (8,803) (10,133) (20,738) (8,840) Depreciation 0 0 (850) (542) (96) (633) (542) EBITDA (485) (37) (273) (987) (2,414) (3,172) (1,024) EBIT (485) (37) (1,123) (1,529) (2,510) (3,805) (1,566) Pre-tax profit 9,973 1,716 (742) (1,688) (2,587) 6, Income tax (1,684) (314) (805) (3) Profit for the period 8,289 1,402 (609) (1,377) (1,841) 5, Balance sheet 31 Mar '06 31 Dec '05 Total assets 188, ,618 Liabilities 110,715 58,175 Equity capital 77,383 74,443 Cash flow Flow from operating activities (837) 1,407

10 INVESTMENTS INVESTMENTS IN LISTED COMPANIES FL Group has engaged in many investments this year as detailed in the Registration Document. Among the largest investments are the acquisition of shares in Glitnir and the acquisition of Sterling at the beginning of the year In June 2006, FL Group acquired 24.2% share in Straumur-Burdaras Investment bank hf. The stake was acquired from Magnus Kristinsson, Kristinn Björnsson and parties related to them. The transaction value amounts to ISK 47 billion, which represents 24.2% of Straumur-Burðaras's share capital. The shares will be paid for with a combination of FL Group's shares in Kaupthing Bank and shares in FL Group. Table 5. Major holdings as of 30 June All figures in ISK million unless otherwise stated. Domestic Market value 30 June 2006 Shareholdings 30 June 2006 Market value Shareholdings Glitnir banki 4 62, % 22, % Kaupþing banki 28, % 31, % Straumur-Burðarás 4, % 10, % Other 8,165-20, Total Domestic 102,616 (71.2%) 84,661 (74.3%) Foreign Market value 30 June 2006 Shareholdings 30 June 2006 Market value Shareholdings Bang & Olufsen 11, % 0 0% Finnair 11, % - - Royal Unibrew 11, % 0 0% Aktiv Kapital 8, % 0 0% easyjet 0 0% 26, % Other 3,272-2,636 6 Total Foreign 41,782 (28.8%) 29,333 (25.7%) Total Holdings 145,033 (100%) 113,994 (100%) No major changes have been made to the portfolio since 30 June On 4 July 2006 FL Group acquired 90 million shares in Dagsbrún, a company listed on the Iceland Stock Exchange. FL Group s holdings in Dagsbrún after the transaction were 5.48%. Table 3 does not reflect the investment and payment for shares Straumur-Burðarás Fjárfestingabanki hf., nor changes in share prices and currency for the companies listed therein. Glitnir banki is a leading specialist Nordic bank offering comprehensive banking services. Kaupþing banki is a northern European bank operating in ten countries, Iceland, the UK, Denmark, Sweden, Finland, Luxembourg, Norway, Faroe Islands, the US and Switzerland. Straumur-Burðarás is a focused investment bank offering a wide range of corporate finance, lending, and brokerage services to both Icelandic and international companies. Bang & Olufsen A/S develops, designs and produces technically advanced music systems, TVs, home theater systems and audio and video recorders. Finnair Oyj operated scheduled passenger traffic, technical and ground handling operations, catering, travel agencies, and reservation services. Royal Unibrew A/S is Scandinavia s second largest brewery. Aktiv Kapital ASA operates a collection agency in Norway. 4 The holding is subject to the approval of FME. FL Group's voting right is restricted to 9.99% until the approval is granted. FL Group is still providing the FME with information with regards to its holding in Glitnir. Under Art. 43 of the Financial Undertakings Act, No. 161/2002, the FME is to make a decision within one month of the date on which it receives satisfactory information, together with supporting documentation, from FL Group. 5 Among other listed companies are Landsbankinn (ISK 11,375 million) and Kögun (ISK 2,134 million) 6 Includes 2.4% share in Finnair Oyj.

11 INVESTMENTS IN PRIVATE COMPANIES FL Group s subsidiaries are the airlines Icelandair Group hf. and Sterling Airlines AS (which was acquired in January 2006). Operating income for these two companies from 1 January to 31 March 2006 amounted to ISK 17.5 billion. Operating income for Icelandair Group hf. in 2005 amounted to ISK 47.4 billion and pretax income to ISK 2.2 million. FL Group holds a 49% share in Refresco Holding BV, a manufacturer of non-alcoholic drinks, with operating income of EUR 606 million and a net profit of EUR 11 million in DOCUMENTS FOR DISPLAY The following documents shall be deemed to be incorporated in, and to form part of, the : The Issuer s audited consolidated annual financial statements for each of the financial years ending 31 December 2003, 31 December 2004 and 31 December 2005 (including the audit reports issued in respect thereof). The Issuer s interim report for Q (including the audit reports issued in respect thereof). The Issuer s Articles of Association For the life of the Summary, the following documents may be inspected: the Registration Document, Securities Notes and Summary of the Issuer may be inspected on the ICEX news website, dated 3 August 2006 and on FL Group s website, These documents are filed with the Iceland Stock Exchange. The Issuer s Articles of Association may be inspected on the ICEX news webpage, and on FL Group s website, the historical financial information for the Issuer and its subsidiary undertakings for more than tree financial years preceding the publication of the Summary may be inspected on FL Group s website, FURTHER INFORMATION For more detailed information on the Issuer and the shares, investors are advised to read the Securities Note and Registration document dated 3 August 2006.

12 Prospctus Prospectu Prospects Prospe PROSPECTUS AUGUST 2006 REGISTRATION DOCUMENT

13 REGISTRATION DOCUMENT DOCUMENTS INCORPORATED BY REFERENCE The following documents shall be deemed to be incorporated in, and to form part of, this Registration Document: The Issuer s audited consolidated annual financial statements for each of the financial years ended 31 December 2003, 31 December 2004 and 31 December 2005 (including the audit reports issued in respect thereof). The Issuer s interim report for Q (including the audit reports issued in respect thereof). The Issuer s Articles of Association Copies of documents incorporated by reference in this Registration Document can be obtained from the registered office of the Issuer and electronically from the Company's website The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Registration Document which is capable of affecting the assessment of the offered shares, prepare a supplement to this Registration Document in accordance with Article 24 of the Securities Transaction Act, No. 33/2003, or publish a new Registration Document for use in connection with any subsequent issue of shares. If a supplement is prepared, statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Registration Document or in a document which is incorporated by reference in this document. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this document. DOCUMENTS FOR DISPLAY For the life of the registration document, the following documents may be inspected: the Registration Document, Securities Notes and Summary of the Issuer may be inspected on the ICEX news webpage, dated 3 August 2006 and on FL Group s website, These documents are filed with the Iceland Stock Exchange. The Issuer s Articles of Association may be inspected on the ICEX news webpage, and on FL Group s website, the historical financial information for the Issuer and its subsidiary undertakings for more than three financial years preceding the publication of the Registration Document may be inspected on FL Group s website, CONFIRMATION RELATING TO THIRD PARTY INFORMATION Information sourced from BLOOMBERG L.P. has been accurately reproduced and that as far as the Issuer is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Where third party information has been used in this prospectus, the source of such information has been identified. 2

14 NOTICE TO INVESTORS FL Group s total issued share capital amounts to 6,141,029,413 shares before the New Share issue, each with a nominal value of ISK 1.0. All issued shares of FL Group are traded on the ICEX Main List and are included in the ICEX-15 index. This Registration Document concerns FL Group s issue of and admission to trading 1,803,956,507 New Shares on the ICEX, which represents a 29.4% increase in share capital. The New Shares will be used as a part payment for 2,506,561,955 shares in Straumur-Burðarás Fjárfestingabanki hf., as announced on 28 June For further information on the purchase and payment of the shares in Straumur-Burðarás Fjárfestingabanki hf., see Chapter 13. The admission to trading will proceed pursuant to Icelandic law and regulations. Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 has been implemented into Icelandic Law. The ICEX has, in its authority under agreement between it and the Icelandic Financial Supervisory Authority regarding the review and approval of prospectuses, reviewed and approved this Registration Document, which is published in English only. This Registration Document has been prepared to provide clear and thorough information on the consolidated company FL Group. Investors are advised to consider all announcements and communications from the Issuer. Investors are encouraged to acquaint themselves thoroughly with the Registration Document. They are advised to pay particular attention to the Chapter Risk Factors. They are reminded of the risk related to the fact that the Issuer has recently changed its focus from being a holding company of aviation and tourism-related companies to an investment company and has therefore undergone fundamental organizational changes, which reduces the usefulness of reference to its historical success. The information provided in this Registration Document is based on premises that are current on the date of its publication. These premises may change from the date of publication. Investors are therefore advised to study all public information issued by or relating to FL Group and not to rely exclusively on information in this Registration Document. This Registration Document, and any document forming a part of the, is not being distributed in, and must not be mailed or otherwise distributed or sent in or into any country in which distribution would require any additional registration measures or other measures to be taken, other than as applicable under Icelandic law and regulations, or would be in conflict with any law or regulation in such country. This Registration Document should by no means be viewed or construed as a promise by the Issuer, Glitnir banki hf. (the Manager) or other parties of future success either in operations or return on investments. Investors are reminded that investing in shares entails risk, as the decision to invest is based on expectations and not promises. Investors must rely primarily on their own judgement regarding any decision to invest in FL Group shares, bearing in mind the business environment in which the Issuer operates, anticipated profits, external conditions and the risk inherent in the investment itself. Prospective investors are advised to contact experts such as licensed financial institutions to assist them in their assessment of the shares in FL Group as an investment option. Investors are advised to consider their legal status, including taxation issues that may concern the purchase or sale of shares in FL Group and seek external and independent advice in that respect. Attention is drawn to the Issuer s shareholdings in the Manager. FL Group holds a 24.42% share in Glitnir banki as of 2 August 2006 and is the largest shareholder. Glitnir banki holds an 8.96% share in the Issuer as of 2 August However, the holdings of Glitnir banki in FL Group, totalling 536,400,226 shares or 8.73%, have been sold with a forward agreement under which buyer has rights to dividents and voting rights. 3

15 REFERENCES AND GLOSSARY OF TERMS AND ABBREVIATIONS References to the Issuer in this Registration Document shall be construed as referring to FL GROUP hf., Icelandic ID No , unless otherwise clear from the context. References to FL Group hf., FL Group, the Group and the Company shall be construed as referring to FL GROUP hf. and its subsidiaries and affiliates, unless otherwise clear from the context. FL GROUP hf. is the legal Icelandic name of the Issuer. References to "the Share Issue" and/or New Shares in this Registration Document shall be construed as referring to the issuing of 1,803,956,507 new shares in FL Group as decided by a shareholders meeting on 7 July 2006, and which this Registration Document covers, unless otherwise clear from the context. The new Share Issue is described in the Securities Note dated 3 August 2006 which can be found on the ICEX news page, References to the ICEX in this Registration Document shall be construed as referring to the Iceland Stock Exchange, i.e. to Kauphöll Íslands hf., Icelandic ID No , unless otherwise clear from the context. References to the ICEX Main List" in this Registration Document shall be construed as referring to the Main List at the Iceland Stock Exchange, unless otherwise clear from the context. References to the ISD in this Registration Document shall be construed as referring to Icelandic Securities Depository, i.e. to Verðbréfaskráning Íslands hf., Icelandic ID No , unless otherwise clear from the context. References to the Manager in this Securities Note shall be construed as referring to Glitnir banki hf. Corporate Finance division, Icelandic ID No , unless otherwise clear from the context. ABBREVIATIONS USED IN THIS SHARE REGISTRATION DOCUMENT Companies Act Act No. 2/1995 on Public Limited Companies CEO Chief Executive Officer EBIT Earnings before interest and tax EBITDA Earnings before interest, tax, depreciation and amortization EUR Euro, the currency of many European Union countries GAAP Generally Accepted Accounting Principles FME The Financial Supervisory Authority, Iceland ICEX Iceland Stock Exchange ICEX 15 ICEX-15 is comprised of companies listed on the ICEX Main List. The index is reviewed twice annually, in June and December. The selection is based on on-exchange turnover over the prior 12-month period and the companies' market value. IFRS International Financial Reporting Standards IRR Internal Rate of Return ISD Icelandic Securities Depository ISK Icelandic króna, the currency of Iceland Securities Act Act No. 33/2003 on Securities Transactions 4

16 TABLE OF CONTENTS 1 PERSONS RESPONSIBLE STATUTORY AUDITORS MANAGER SELECTED FINANCIAL INFORMATION...8 IFRS Highlights... 9 Profit from Investment Activities in Profit from Operating Companies in Balance Sheet... 9 Q Highlights...10 Balance Sheet...10 Recent Developments...11 Financial Position RISK FACTORS Operational Risk...11 Market Risk...11 Exchange Rate and Interest Rate...12 Key Employees...12 Securities Regulation...12 Applicable Law...12 Liquidity Risk...12 Covenants Contractual Risk...12 Litigation...12 Trademarks and Intellectual Property...12 Internal Controls...13 Tax...13 The Airline Industry...13 The Banking and Financial Services Industry INFORMATION ABOUT THE ISSUER History and Development...14 Name and Place of Registration and Registration Number...14 Key Milestones ORGANIZATIONAL STRUCTURE Investment Strategy...15 FL Group Investments Today INVESTMENTS IN LISTED COMPANIES Principal investments after 30 June Description and Key Figures of Listed Companies INVESTMENTS IN PRIVATE COMPANIES New Products and Services ICELANDAIR GROUP Icelandair...22 Loftleiðir - Icelandic...23 Icelandair Cargo, Bluebird and Blue Cargo...23 Air Iceland...23 Icelease...23 Other Subsidiaries...23 THE FLEET STERLING SUBSIDIARIES AND ASSOCIATES PRINCIPAL INVESTMENTS Principal Investments in Principal Investments in Principal Investments in Principal Investments in Principal Investments in Progress PROPERTY, PLANT AND EQUIPMENT CAPITAL RESOURCES Cash Flow Provided by Operating Activities

17 Cash Flow Used in Investing Activities...29 Cash Provided from Financing Activities...29 Borrowing Requirements and Funding Structure...30 Anticipated Sources of Funds Needed to Fulfil Commitments TREND INFORMATION BOARD OF DIRECTORS AND MANAGEMENT Board of Directors...31 Senior Management...34 Conflicts of Interests...36 Other Directorships and Partnerships...37 ConfIrmations EMPLOYEES, REMUNERATION AND BENEFITS Board of Directors...40 FL Group s Management...40 Pension Liability...41 Number of Employees...41 Arrangements for Involving the Employees in the Capital of the Issuer BOARD PRACTICES Date of Expiration...42 Service Contracts...42 Audit Committee and Remuneration Committee...42 Auditors...42 Compliance MAJOR SHAREHOLDERS List of Major Shareholders...43 Voting Rights...43 Change in Control of the Issuer...43 Direct or Indirect Ownership or Control by Individual Shareholders...43 Shareholders after the Straumur-Burðarás settlement FINANCIAL INFORMATION Auditing of Historical Financial Information...47 Dividend Policy...47 Legal and Arbitration Proceedings...47 Significant Change in the Issuer s Financial or Trading Position ADDITIONAL INFORMATION Share Capital...48 Share capital increase authorisation...48 History of Share Capital MEMORANDUM AND ARTICLES OF ASSOCIATION Object and Purposes...50 Provisions of the Issuer's Articles of Association, Statutes, Charter or Bylaws...50 Rights, Preferences and Restrictions of Shares...50 Action Necessary to Change The Rights of Holders of Shares...51 General Meetings

18 1 PERSONS RESPONSIBLE The Issuer, the Directors and the CEO, whose names appear below, accept responsibility for the information contained in this registration document, having taken all reasonable care to ensure that such is the case the information contained in the Registration Document is, to the best of their knowledge in accordance with the facts and contains no omission likely to affect its import. Reykjavík, 3 August On behalf of the Board of Directors and FL GROUP hf. Suðurlandsbraut 12, 108 Reykjavík, Iceland Skarphédinn Berg Steinarsson Hannes Smárason Chairman of the Board of Directors President & CEO Icelandic ID No Icelandic ID No STATUTORY AUDITORS The Issuers auditors for the period covered by the historical financial information in this Registration Document were Sæmundur Valdimarsson, State authorised public accountant, Icelandic ID No and Jón Sigurdur Helgason, State authorised public accountant, Icelandic ID No at KPMG Endurskodun hf., Icelandic ID No , Borgartún 27, IS-105 Reykjavík, Iceland. The auditors did not resign and were not removed during the period covered by the historical information. 3 MANAGER Glitnir banki hf., Kirkjusandi 2, 155 Reykjavík, Iceland The Manager has been advisor to the Issuer as to the preparation of this Registration Document. 7

19 4 SELECTED FINANCIAL INFORMATION This section presents the consolidated financial statements for FL Group for the period , and interim financial statements for the three months ending 31 March 2005 and In general, the shift in strategy from pure aviation and tourism-related activities to operations with focus on investments is clearly reflected in the Issuer's consolidated financial statements, as income from investments has gradually become a larger component of overall income and the balance sheet now includes a larger portion of non-operating assets. This means that all comparison between years must take this change in focus into account. More detailed information on the listed companies FL Group has invested in can be found in Chapter 8. Detailed information on FL Group s operating companies is presented in Chapter 9. The Issuer did not have any material investment activities in the year The key financial information extracted from the consolidated financial statements of FL Group for the period is presented in Table 1. Table 1. Key financial information extracted from the consolidated financial statements of FL Group. Figures in million ISK. INVESTMENT OPERATING ACTIVITIES COMPANIES GROUP Profit and loss account Investment revenues 19,794 2,560 (204) (406) 19,590 2,154 Operating revenues ,412 42,586 47,644 42,586 37,561 Operating cost (1,652) (150) (42,631) (37,832) (44,283) (37,982) (33,771) before depreciation Depreciation 0 0 (2,408) (2,440) (2,408) (2,440) (1,807) EBITDA (1,420) (150) 4,781 4,754 3,361 4,604 3,790 EBIT (1,420) (150) 2,373 2, ,164 1,983 Pre-tax profit 18,374 2,410 2,169 1,908 20,543 4,318 1,406 Income tax (2,969) (530) (323) (183) (3,292) (713) (285) Annual profit 15,405 1,880 1,846 1,725 17,251 3,605 1,121 Balance sheet Total assets 132,618 43,482 37,296 Liabilities 58,175 28,721 28,086 Equity capital 74,443 14,761 9,210 Cash flow From operating activities (278) 329 5,699 4,267 5,421 4,596 5,564 Key figures Profit per share Equity ratio 62,9%* 33.9% 25% Return on equity 55.2% 31.6% 13% * Less pre-payments for 15 Boeing s 8

20 IFRS Since the beginning of 2005 the Issuer has reported in accordance with IFRS. Thus, the interim financial statements for 2005 and 2006 and the full-year financial statements for 2005 and comparative figures for 2004 presented in this Chapter are in accordance with IFRS, while the full-year financial statements for the year 2003 are in accordance with Icelandic GAAP at the time of reporting HIGHLIGHTS FL Group s profitability in 2005 was good: Its after-tax profit came to ISK 17.3 billion, which is the best performance in the history of the Issuer. After-tax profit in 2004 came to ISK 3.6 billion and ISK 1.1 billion in Pre-tax profit stood at ISK 20.5 billion in 2005 versus ISK 4.3 billion in 2004 and ISK 1.4 billion in The 2005 results reflect the Issuer s changed focus as an investment company. PROFIT FROM INVESTMENT ACTIVITIES IN 2005 Pre-tax profit from investment activities in 2005 came to ISK 18.4 billion, most of which was due to the Issuer s investments in listed securities. The ICEX 15 index of the Iceland Stock Exchange rose by 19.5% in the fourth quarter of This increase substantially benefited FL Group s portfolio in the domestic market, since the Issuer s largest stock positions were in domestic financial companies. At the end of December, 74% of the Issuer s portfolio was invested domestically and 26% abroad. Information on FL Group s current investments in listed companies can be found in Chapter 8. PROFIT FROM OPERATING COMPANIES IN 2005 The operational subsidiaries owned by FL Group at the end of 2005 were all in international aviation operations and Icelandic tourism. These companies produced a pre-tax profit of ISK 2.2 billion (including profit from aircraft trading) in 2005, which is a better result than the year before when the pre-tax profit was ISK 1.9 billion. The EBITDA of the companies was ISK 4.8 billion during the year, which is a slightly better result than in Profit from the aviation and tourism industry has been somewhat volatile in recent years. The airline industry is volatile by nature, as demand for air travel is cyclical and airlines generally have a high level of operational gearing, which means that they are very dependent on top-line growth for maintaining profitability. FL Group has made substantial efforts to decrease the level of operational gearing by leasing further aircraft during peak months. The results in 2005 can be viewed as very good in the light of the difficult operating environment. High fuel costs, a high ISK exchange rate and wage increases negatively impacted all of their operations. The companies compete on the international flight and tourism markets, and cost increases in the home market can therefore make things difficult for them. The Companie s good performance in a difficult year shows their strength and capability to adapt their operations to changing conditions. Profit from aircraft trading operations topped ISK 200 million during 2005, but it must be noted that the revenue from aircraft trading will be recognised when delivery occurs. Part of the revenues from the 15 Boeing s 1 will therefore be recognised in , and the remainder over the lifetime of the aircraft. It is to be noted that Aircraft Trading is currently managed by Icelease, a subsidiary of Icelandair Group. Information on FL Group s current operating companies can be found in Chapter 9. BALANCE SHEET The large increase of the Balance Sheet between 2004 and 2005 is due to a share issue in November 2005 related to a change in the main focus to an increased emphasis on investments new Boeing aircraft were purchased during Please refer to Capter 13 in this Registration Document for further information. 9

21 Q HIGHLIGHTS Pre-tax profit of FL Group in first quarter 2006 came to ISK 6.6 billion, compared to ISK 28 million in the same period in The after-tax profit for the period came to ISK 5.8 billion, compared to ISK 25 million the year before. Pre-tax profit on FL Group s investment activities reached ISK 10 billion for the period, compared to ISK 1.8 billion in After-tax profit came to ISK 8.3 billion, compared to ISK 1.4 billion in Pre-tax loss on FL Group s aviation operations in Iceland (including aircraft trading) stood at ISK 0.7 billion for the period, compared to a loss of ISK 1.7 billion in After-tax loss for the period came to ISK 0.6 billion, compared to a loss of ISK 1.4 billion in These results are better than expected, but are negative due to seasonality in scheduled airline operations. Pre-tax loss on FL Group s aviation operations in Denmark (Sterling Airlines A/S) came to ISK 2.6 billion, after-tax loss came to ISK 1.8 billion and EBITDA was negative by ISK 2.4 billion which was in line with the management s expectations. The key financial information extracted from the interim reports of FL Group for the periods Q and Q is presented in Table 2. Table 2. Key financial information extracted from the Q and Q interim reports of FL Group. Figures in million ISK. INVESTMENT OPERATING COMPANIES ACTIVITIES ICELAND DENMARK CONSOLIDATED Q Q Q Q Q12006 Q Q Profit and loss account Investment revenues 10,458 1, (159) (77) 10,449 1,594 Operating revenues 0 0 9,846 7,816 7,719 17,566 7,816 Operating cost before depreciation (485) (37) (10,119) (8,803) (10,133) (20,738) (8,840) Depreciation 0 0 (850) (542) (96) (633) (542) EBITDA (485) (37) (273) (987) (2,414) (3,172) (1,024) EBIT (485) (37) (1,123) (1,529) (2,510) (3,805) (1,566) Pre-tax profit 9,973 1,716 (742) (1,688) (2,587) 6, Income tax (1,684) (314) (805) (3) Profit for the period 8,289 1,402 (609) (1,377) (1,841) 5, Balance sheet 31 Mar '06 31 Dec '05 Total assets 188, ,618 Liabilities 110,715 58,175 Equity capital 77,383 74,443 Cash flow Flow from operating activities (837) 1,407 BALANCE SHEET On 31 March 2006, total assets of the Group amounted to ISK 188 billion, compared with ISK 133 billion at the end of This increase can primarily be explained by good return on the stock market and the acquisition of Sterling Airlines A/S. 10

22 Since the beginning of the year, the Issuer has increased its investments. Current shareholdings and investments in 2006 are detailed in Chapters 8 and 13. RECENT DEVELOPMENTS Since the publishing of the first quarter financial statements in 2006, the Issuer has entered into a few engagements which will have an effect on its financial statements. In April 2006 FL Group realised profit from its easyjet investment. The realised profit from time of initial investment amounted to approx. EUR 140 million. The sale increased FL Group s liquid funds available for new investment. FL Group s share in easyjet was 16.9% prior the transaction. Also in April, FL Group acquired a 49% share in Refresco Holding B.V. and Icelandair Group ordered two additional Boeing aircraft. The Issuer invested in Straumur-Burðarás Fjárfestingabanki hf. and increased its holdings in Glitnir banki hf. since the publishing of the first quarter financial statement The investments are described in more detail in Chapter 13. FINANCIAL POSITION No significant change has occurred in the financial or trading position of the group since the end of the last financial period for which interim financial information has been published 5 RISK FACTORS Investing in shares is subject to numerous risks. Prior to making any investment decision regarding shares in FL Group, please consider all the information in this document and, in particular, the risks and uncertainties described below. The risks and uncertainties described below are some of those that may materially affect the Issuer and any investment made in its shares. If any combination of these events occurs, the trading price of the shares could decline and investors might lose part or even all of their investment. Additional risks and uncertainties that do not currently exist, that are not presently considered material, or of which the Issuer is unaware, may also impair the business and operation of the Issuer. These risks and uncertainties could have a material adverse impact on the business, income, profits, assets, liquidity and share price of the Issuer. OPERATIONAL RISK The risk related to the Issuer s operations is primarily linked to the domestic and foreign securities in which the Issuer invests, although there are a considerable number of other factors which can also affect its operations and performance, such as employee negligence, violations of rules, problems with information systems and loss of key personnel. Investors are reminded of the risk related to the fact that FL Group has recently changed its focus of operation and undergone fundamental organisational changes, which reduces the usefulness of reference to its historical success and could increase the risk of the investment. Also that its main subsidiaries operate in a market that is highly dependent on the development of external factors that are outside the Issuer's control and that a high proportion of the Issuer's costs are fixed in the short to medium term. One of the Issuer s subsidiaries, Sterling Airlines A/S, is currently going through a turnaround. Sterling was created through a merger of two loss-making companies, Sterling and Maersk. Although the turnaround has gone well in 2006 there is no guarantee for success. MARKET RISK Currently, the majority of the Issuer's assets consist of securities issued by other companies. One of the principal risks facing the Issuer is market risk on domestic and foreign securities markets. Should the market value of the securities drop, this could have a significant impact on the Issuer's profitability. In the event of the bankruptcy of the issuers of the relevant securities, their value might be eliminated altogether. 11

23 Furthermore, attention is drawn to the fact that some of the individual assets form quite a substantial portion of the Issuer's total assets. Regarding the market risk, the Issuer endeavours to invest in securities in markets that are most likely to develop favourably. Decisions regarding larger investments are always presented to the Issuer s Board of Directors for approval. The Issuer s Board also sets out a framework for daily transactions in market securities and position taking in currencies. EXCHANGE RATE AND INTEREST RATE The Issuer is exposed to the effect of foreign exchange rate and interest-rate fluctuations. The Issuer is actively managing its currency balance and interest rate risk actively. Fluctuations in exchange rates and interest rates, and exchange-rate risk posed by trading between Group companies with different functional currencies, can materially impact the Issuer's profitability. KEY EMPLOYEES The Issuer is dependent on its key employees and their willingness to continue working for it. There is, however, no guarantee that it will be able to retain all of them in the future. If the Issuer loses any of its key employees, it could be adversely affected. The Issuer offers competitive salary packages to its key employees to reduce this risk. Should members of key personnel decide to join competitors or start competing independently with the Issuer, this may have consequences for the Issuer's business. SECURITIES REGULATION Since the Issuer's shares are traded on the Iceland Stock Exchange, the Issuer is subject to the provisions of Icelandic regulations on securities, contained, i.a. in the Icelandic Securities Act, governmental regulations and rules adopted by the Iceland Stock Exchange. The Issuer endeavours to comply with the said provisions, and any violation of these provisions may have a financial impact on it. Serious breaches may result in the Iceland Stock Exchange s ceasing to list the Issuer's securities. Should the Issuer violate the relevant rules, this may furthermore impact its reputation and consequently result in the price of its shares dropping. APPLICABLE LAW The Issuer and its subsidiaries are subject to various laws and regulations. Changes to the Group's applicable laws, or its becoming subject to different laws, might have an impact on how its continues to conduct its business. LIQUIDITY RISK The Issuer faces the risk of having insufficient funds to meet current liabilities and finance future projects, e.g. due to inability or difficulties in liquidating its assets. This risk is mitigated to some extent by maintaining liquid assets. COVENANTS CONTRACTUAL RISK The Issuer is contractually bound to honour various contracts in leasing and financing agreements. These include, e.g., provisions relating to a change of control of the Group's entities and to what extent the Issuer remains the owner of the share capital of its subsidiaries. Should the Issuer become unable to fulfil the relevant covenants, or for some reason discontinue to do so, the lessors and financiers may become entitled to rescind the agreements which might have financial consequences for the Issuer. LITIGATION Given the Issuer's size and the scope of its operations, it tends to be involved in some form of litigation at any given time. The Issuer is not involved in litigation that could have material effect on the Issuer s operations. TRADEMARKS AND INTELLECTUAL PROPERTY The Issuer owns a number of trademarks and other intellectual property through its operational subsidiaries. It has used all means available to secure legal rights to such trademarks and intellectual property. Should it, for some reason, be unable to continue to rely on the relevant intellectual property rights, this could impact its business. 12

24 An Air Operators Certificate has been issued to subsidiaries of the Issuer authorising it to conduct its airline operations. There is no guarantee, however, that the Issuer will be issued such licenses in the future. INTERNAL CONTROLS The Issuer is dependent on having sufficient internal controls in place on various dimensions, including controls relating to the handling of electronic documents. The Issuer has focused on strengthening such controls. Should such controls prove, however, to be insufficient, this may have a negative impact on the Issuer. As the Issuer's balance sheet and its scope of operations grow, the need for sound internal controls will grow to prevent any kind of fraud will grow. TAX The Issuer could be affected by changes in tax legislation in any country that affect its financial results. FL Group is not aware of any current tax inspection concerning the Group's subsidiaries which may have a material impact on its shares and has no reason to believe that any such inspection is imminent. Investigation of the Issuer's tax filings, as for any other company, may be initiated at a later stage in accordance with relevant regulations and affect the prospects of the Issuer. The Issuer and the tax authorities may potentially have different opinions on how various financial arrangements within the Issuer should be treated from a tax perspective. THE AIRLINE INDUSTRY FL Group has two subsidiaries that operate within the airline industry. The airline industry is heavily competitive. Pricing decisions are dependent on competition from other airlines, and in some markets also from other forms of transportation. Air transportation is subject to intensive regulations. There is no guarantee that the necessary licences will be issued in the future, or that rules will not be changed, resulting in significant cost for the Issuer. The airline industry is an inherently labour-intensive industry. The workers are unionized and when contracts are up for renegotiation there is a risk that the parties will not reach an agreement and that the disagreement will lead to a strike. All the Issuer s aircraft operations are heavily dependent on jet fuel prices and availability. The travel industry is seasonal and dependent on the state of the economy in the countries in which it operates. Unfavourable weather can have costly effects. The Issuer carries insurance for passenger liability, property damage, public liability and all-risk coverage for damaged aircraft. There may be losses which the business may suffer that are not covered by insurance. The Issuer s favourable market share places some restriction on its ability to grow in the Icelandic market. Pricing of aircraft and aircraft leasing can also affect the Issuer s performance. THE BANKING AND FINANCIAL SERVICES INDUSTRY A large part of the Issuer s investments are in banking and financial services. Additional risk factors facing these industries are credit risk, solvency risk and refinancing risk. Credit risk refers to the danger that a client of the bank may fail to fulfil its obligations, resulting in a partial or total loss of the bank s claim against it. Banks must always have sufficient liquidity to meet both foreseeable as well as unexpected payment obligations. Financial undertakings may be subject to heavy fines, or liability for compensation, and lose their operating licences if they are found guilty of negligence or a violation of the laws under which they operate, or other types of punishable offence. Risk management is used to strike a balance between risk of loss and binding of equity, on the one hand, and maximisation of income on the other. Currency exchange rates, market interest rates and share prices are highly dependent upon the current economic situation and can have a major impact on the performance of financial undertakings. Banks are subject to risks of changes in market interest rates and interest spread in addition to changes in the market value of trading bonds. 13