Proposals for Submission to a Shareholders' Meeting on 6 June 2002

Proposals for Submission to a Shareholders’ Meeting on 6 June 2002

Denomination of Össur hf. Share Capital in US Dollars

The Board of Directors submits the following proposals on the denomination of Össur hf. share capital in US dollars (USD), on the nominal value of the shares in USD, on the implementation of the transformation of shares from Icelandic krónur to USD, and on amendments to the Company’s Articles of Association relating to the above.

In order to implement the transformation of Össur hf. share capital from Icelandic krónur to USD, the number of shares in the Company will first be increased tenfold by dividing all the issued shares in the Company, each currently in the amount of ISK 1, into ten shares of ISK 0.10, in accordance with Paragraph 5 of Section 2.01 of the Company’s Articles of Association.	?
After this, the share capital in Össur hf. will be denominated in USD on the basis of the provisions of Paragraphs 4 and 5 of Article 1 of Act No. 2/1995 on Public Limited Liability Companies.  The nominal value of the share capital of the Company, in the amount of ISK 328.441.000, will be converted into whole USD based on the exchange rate of 31 December 2001, ISK 103,20/USD, bringing the new nominal value to USD 3,182,568.  The nominal value of each share in the Company in USD will be USD 0.50.  All existing authorisation for the Board of Directors to increase the share capital of the Company will also be converted into whole USD based on the exchange rate of 31 December 2001.  For this purpose, the Articles of Association of the Company will be amended as follows:	??a)	Paragraph 1 of Section 2.01 shall be replaced by the following paragraph:	??“The share capital of the Company amounts to USD 3,182,568 – three million one hundred and eighty-two thousand five hundred and sixty-eight US dollars, which has been paid in full.  Each share is in the amount of USD 0.50.”

b)	Paragraph 2 of Section 2.01 on the authorisation of the Board of Directors to increase the share capital of the Company is amended as follows:

The passage “ISK 5,766,895 – five million seven hundred sixty-six thousand eight hundred and ninety-five” is replaced by “USD 55,881 – fifty five thousand eight hundred and eighty-one US dollars”.

c)	Paragraph 3 of Section 2.01 on the authorisation of the Board of Directors to increase the share capital of the Company is amended as follows:

The passage “ISK 7,083,565 – seven million and eighty-three thousand five hundred and sixty-five” is replaced by “USD 68,639 – sixty-eight thousand six hundred and thirty-nine US dollars”.

The passage “ISK 10,000,000” is replaced by “USD 96,899 – ninety-six thousand eight hundred and ninety-nine US dollars.

d)	Paragraph 4 of Section 2.01 on the authorisation of the Board of Directors to increase the share capital of the Company is amended as follows:

The passage “ISK 708,540” is replaced by “USD 6,866 – six thousand eight hundred and sixty-six US dollars.

Paragraphs 5 and 6 of Section 2.01 are deleted.

f)	Paragraph 1 of Section 4.05 shall be replaced by the following paragraph:

“At shareholders’ meetings, each share carries one vote.”	?
Following these measures, the shares of Company shareholders denominated in Icelandic krónur will be exchanged for shares denominated in USD.  This will be done by exchanging shares of ISK 0.10 belonging to individual shareholders of Össur hf. for shares of USD 0.50, to the extent that the total holdings of individual shareholders in the former shares are divisible by whole USD 0.50 shares based on the exchange rate of 31 December 2001.  In instances where a remainder is created, Össur will transfer its own shares of ISK 0.10 to the shareholder in question to the extent required to bring the remainder to ISK 51.60 (USD 0.50).  At that point, the ISK 51.60 share will be exchanged for one USD 0.50 share.  Following completion of the transfer to shareholders and issue of shares pursuant to the above, Össur hf.’s own shares will be exchanged for shares of USD 0.50.	?
The Board of Directors will be entrusted with the implementation of the above decisions at the earliest opportunity.  The Board is authorised, inter alia, to decide and announce that following a certain date notices of trades in Össur hf. stock in Icelandic krónur will not be accepted, and, as applicable, to decide and announce that notices of trades in Össur hf. stock will not be accepted for a certain period of time during the implementation of the above decisions.	??

MEMORANDUM
The act amending Act No. 2/1995 on Public Limited Companies, which was approved by the Althing on 22 April 2002, permits certain public limited liability companies to denominate their share capital in a foreign currency, e.g. US dollars (USD).  On the one hand, the authorisation extends to companies which have received authorisation for listing on a regulated stock exchange, and on the other hand it extends to other companies which have obtained the authorisation of the Register of Annual Accounts to keep their accounts and conduct their financial reporting in a foreign currency.  Össur hf. meets both criteria.  The new law will take effect on 1 June 2002.  It is modelled on European legislation and intended to promote the improved competitiveness of Icelandic companies vis-à-vis foreign companies.

The Board of Directors of Össur hf. has decided to recommend denomination of the Company share capital in USD.  This is done to facilitate trading in the Company’s stock and is also consistent with the fact that the Company has obtained the authorisation of the Register of Annual Accounts to keep its accounts and conduct its financial reporting in USD.  The Board of Directors of the Company therefore submits the above proposals on the denomination of Össur hf. share capital in USD, on the nominal value of the shares in USD, on the implementation of the transformation of shares from Icelandic krónur to USD, and on amendments to the Company’s Articles of Association relating to the above.

The proposals are largely self-explanatory.  The decision has been made to use, as a basis,  the official year-end exchange rate, as posted by the Central Bank of Iceland at the end of the last fiscal year, rather than the exchange rate at the time that shares were paid in; both options are permitted under the law.  The nominal value for each share was decided, on the one hand, with a view to selecting a convenient figure, and, on the other hand, with a view to substantially raising the market price of each share; both these criteria are regarded as favourable for trading in the Company’s stock.  The nominal value of each share will rise substantially, from ISK 1 to ISK 51.60, based on the exchange rate of 31 December 2001.  The division of each share of ISK 1 into ten shares of ISK 0.10 each is not intended for implementation in the market; it is intended only as an intermediate stage to facilitate the exchange of shares denominated in Icelandic krónur for shares denominated in USD.  No advantage is perceived in having shares of differing denomination in the Company, any more than has been the case until now; for this reason the proposal is made to delete Paragraphs 5 and 6 of Section 2.01 in the Company’s Articles of Association.

In the exchange of the shares of ISK 0.10 of individual shareholders of Össur hf. for shares of USD 0.50, to the extent that total holdings of individual shareholders in the former shares are divisible by whole USD 0.50 shares, the idea is to obtain a remainder in even tens of aurar [1 ISK consists of 100 aurar] (since both the nominal value of the ISK 1 shares and the nominal value of the USD shares restated in Icelandic krónur will stand at tens of aurar, i.e. ISK 0.10 and ISK 51.60).  Since the own shares of Össur hf. would be ten aurar each, Össur hf. could then transfer shares to individual shareholders in the precise amount needed to bring the remainder to USD 0.50 (ISK 51.60).  When these last ISK 51.60 have been exchanged for one USD 0.50 share, all shareholders in the Company will have received an even number of USD 0.50 shares for the correct amount of ISK shares.  In order to make this possible, Össur hf. will of course need to transfer to most shareholders, without repayment, own shares ranging in amount from ISK 0.20 to ISK 51.50, but this transfer, which is for technical reasons only, would be insubstantial, or approximately ISK 130.000, and non-discriminatory from the outset.

Example:	The holdings of a shareholder amount to ISK 2,245.  In this case 43 shares would be issued in the amount of USD 0.50 each (ISK 51.60), for a total of ISK 2,218.8.  The remainder would be ISK 26.2.  Össur hf. transfers to the shareholder ISK 51.6 – 26.2 = ISK 25.4 of its own shares, in order to enable the shareholder to obtain one additional common share.  Össur therefore transfers 254 own shares of ISK 0.10 to the shareholder, and the shareholder thereby receives one additional USD 0.50 share bringing his total holdings to 44 shares.	

The USD 0.50 shares would then accrue to the total amount of Össur hf.’s own shares following the transfer of shares to shareholders and the issue of shares pursuant to the above, as the total share capital of the Company (USD 3,182,568) is counted in whole dollars, and since all the shareholders will then have received shares of USD 0.50 (i.e., Össur would receive the remainder of the shares).	?
Example using imaginary figures for simplification:	Shareholders in the Company have received 6 million USD 0.50 shares, totalling USD 3 million, through the exchange of shares.  The remainder is 365,136 USD 0.50 shares, totalling USD 182,568, which accrue to Össur hf. as own shares.

Since the implementation of the above decisions needs to take place in co-operation with various parties outside the Company, and since it needs to involve a minimum disturbance to the market for Össur hf. stock, it is proposed that the Board of Directors be entrusted with implementation of the above decisions at the earliest opportunity.