A shareholders’ meeting has been called in Icelandair Group Holding hf. on Friday 29 December. The agenda for the meeting is included in the attached notice of the meeting.

The principal business of the meeting consists in a motion for a proposed merger of Icelandair Group Holding hf. and its subsidiary, Icelandair Group hf., under the name of the subsidiary, all in accordance with a plan that was presented in the prospectus for Icelandair Group Holding hf. submitted to the Iceland Stock Exchange hf. dated 27 November 2006. Icelandair Group Holding hf. is the company that acquired Icelandair Group hf. from FL-Group hf. in October 2006. Through the proposed merger these two holding companies of the Icelandair Group will be combined. For practical reasons, the subsidiary will constitute the take-over company in the merger, which means that the shares of the merged company will need to by listed in the Iceland Stock Exchange hf., followed by the de-listing of the recently listed shares in Icelandair Group Holding hf. This measure is scheduled for implementation in January 2007.

The agenda of the meeting also includes two motions for empowerment of the Board of Directors, on the one hand by an authorisation to approve a stock option plan for key managers of the company and/or its subsidiaries, including authorisation for the issue and sale of new shares in connection with the stock option plan amounting to a maximum of 6% of the total shares in the company and, on the other hand, by an authorisation to buy treasury shares in the company.

Attached are the motions for the meeting:

I.
The Board of Directors of Icelandair Group Holding hf. proposes to the shareholders’ meeting held on Friday, 29 December 2006, that Icelandair Group Holding hf. and Icelandair Group hf. should be merged in accordance with the merger plan of the companies dated 15 November 2006. The Articles of Association of Icelandair Group hf. will apply to the merged company. The merger will be effective from 1 November 2006, but listing of the shares in the merged company will be effective from the date of their listing in the Iceland Stock Exchange; on the same day, shares in Icelandair Group Holding hf. will be de-listed. By its approval of this motion, and the attached merger plan and accompanying documents, the Board of Directors of Icelandair Group Holding hf. is furthermore authorised by the shareholders’ meeting to submit a new prospectus to the Iceland Stock Exchange hf. for approval of the merged company and to request the listing of its shares in the Iceland Stock Exchange hf. concurrently with the de-listing of the shares of Icelandair Group Holding in the Iceland Stock Exchange hf. 

II.
The Board of Directors of Icelandair Group Holding hf. is authorised to approve a stock option plan for the key managers of the company and/or its subsidiaries, which entails their permission to buy further specified shares in the company. For the purpose of fulfilling the said stock option plan, the Board of Directors of Icelandair Group Holding hf. is authorised to increase the company’s share capital by up to ISK 60,000,000 – sixty million Icelandic krónur – in nominal value, or up to 6% of the listed shares of the company at any time, which shall be used in fulfilment of the stock option contracts of the key managers of the company and/or its subsidiaries pursuant to the said stock option plan. The selling price of shares in Icelandair Group Holding hf. to stock option holders shall be decided by the Board of Directors of the company at any time; the rate shall not be lower than 27, but shall in other respects be determined by the average price of market trading in the company's share ten days prior to the signature of the stock option contract. This authorisation to increase the company’s share capital is effective for five years from its approval and may be exercised by the Board in part or in full. Shareholders’ pre-emptive rights pursuant to the Company’s Articles of Association do not apply to the increase in share capital pursuant to the above authorisation to the Board of Directors. In the event that the share capital is increased during the period of the authorisation beyond ISK 1,000,000,000, the above stock option shall be increased so as to remain always at the level of 6% of the total share capital of the Company at any time. The shares in question are not subject to trading restrictions. The new shares shall carry rights in the company from the date of their listing. The approval of this proposal entails an amendment to the Articles of Association of Icelandair Group Holding hf., in that a new paragraph 3 is added to Article 4, as follows:

“The Board of Directors of the Company is authorised to approve a stock option plan for the key managers of the company and/or its subsidiaries, which entails their permission to buy further specified shares in the company. For the purpose of fulfilling the said stock option plan, the Board of Directors of the Company is authorised to increase the company’s share capital by up to ISK 60,000,000 – sixty million Icelandic krónur – in nominal value, or up to 6% of the listed shares of the company at any time, which shall be used in fulfilment of the said stock option contracts. The selling price of shares in the Company to holders of stock options shall be decided by the Board of Directors of the Company at any time; the price shall not be lower than 27 times nominal, but shall in other respects be determined by the average rate of market trading in the company's share ten days prior to the signature of each stock option contract. This authorisation to increase the company’s share capital is effective for five years from its approval and may be exercised by the Board in part or in full, at the discretion of the Board. Shareholders’ pre-emptive rights pursuant to the Company’s Articles of Association do not apply to the increase in share capital pursuant to the above authorisation to the Board of Directors. In the event that the share capital of the Company is increased during the period of the authorisation beyond ISK 1,000,000,000, the authorisation shall be increased so as to remain always at the level of 6% of the total share capital of the Company at any time. The shares in question are not subject to trading restrictions. The new shares shall carry rights in the company from the date of their listing.”

III.
The Board of Directors of Icelandair Group Holding is authorised to purchase treasury shares in the company.  This authorisation shall be effective for 18 months from the date of the shareholders’ meeting held on 29 December 2006 with the restriction that the acquired shares shall not exceed 10% of the total shares in the Company at any time. The buying price shall be, at the lowest, 20% below and, at the highest, 20% above the price posted by the Iceland Stock Exchange hf.

For further information, please contact Mr. Jón Karl Ólafsson, CEO or Guðjón Armgrímsson, VP corporate communications
 

Notice: Shareholders’ meeting of Icelandair Group Holding hf.

The Board of Directors of Icelandair Group Holding announces a meeting of shareholders in the company on 29 December 2006 at 4 p.m. in Hotel Nordica on Sudurlandsbraut, Reykjavík, in the meeting room marked I on the second floor.

The agenda of the meeting is as follows:

1. Motion of the Board of Directors on the merger of Icelandair Group ehf. and Icelandair Group Holding hf. in accordance with the current merger plan of the companies dated 15 November 2006.
2. A motion to authorise the Board of Directors to approve a stock option plan for key managers of the Company, and/or its subsidiaries, and issue new shares accordingly, amounting to a maximum of 6% of the outstanding shares in the company at any time.
3. Authorisation to the Board of Directors to purchase treasury shares.
4. Discussion of any other lawfully submitted business.

Shareholders are informed that the documents relating to the proposed merger, pursuant to paragraph 5 of Article 124 of the Companies Act, have been laid open for inspection by shareholders in the offices of the Company since 20 November 2006. The documents consist of the merger plan itself, the annual financial statement of the taken-over company and the take-over company as available in compliance with the provisions of law, the interim statements of the merging companies for the first ten months of 2006 – the merger of the companies, if executed, will be effective as of 1 November 2006 – the joint initial balance sheet of the companies, the joint report of the boards of directors of the merging companies, and an assessor's report. Shareholders may submit a request for the documents to be sent to them prior to the meeting, or obtain them at the company office, but it should be noted that the documents will also be available for inspection at the shareholders’ meeting itself.

Shareholders attention is drawn to the fact that if the shareholders of the merging companies approve the motion on the merger of the companies with the increased majority required by law on the basis of the merger plan, the merged company will take over the operation and assets of the merging companies once the listing of the merged company has been approved and taken effect in the Iceland Stock Exchange hf.
 

Reykjavík, 20 December 2006

For the Board of Directors of Icelandair Group Holding hf.

Jón Karl Ólafsson, CEO