REGISTRATION DOCUMENT AND FINANCIAL REPORT - Iliad

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4. RISK FACTORS 4.3 FINANCIAL RISKS worth of OCEANE convertible/exchangeable bonds. At December 31, 2007, the Group’s net cash position stood at €223.1 million, compared with €276.3 million at December 31, 2006. In view of the ratios set out below, the Group is not subject to any liquidity risk as a result of prepayment clauses in loan agreements entered into by Group companies or as a result of the breach of any financial covenants. Certain of the Group’s credit agreements contain covenants corresponding to financial ratios, particularly the confirmed syndicated line of credit representing a maximum amount of €220 million. As of December 31, 2007, the Group had never breached any of these covenants. Applicable financial ratios Consequence of breach Actual ratios at December 31, 2007 €220 million credit line Leverage ratio < 2.5 Default Leverage ratio: 0.258 (Borrower – Iliad) Interest cover ratio > 5.1 Interest cover ratio: 126.743 The Group’s debt at December 31, 2007 can be analyzed as follows: Type of borrowing Interest rate Total amount (in € millions) Maturity Hedging Loan Euribor 0.7 2008 None Credit agreement Euribor 220.0 3 2011 None OCEANE bonds Fixed rate (2.2%) 330.6 2012 None 4.3.4 Equity risks 4.3.4.1 Significant percentage of capital and voting rights held by the Company’s principal shareholder At the date this registration document was filed, Xavier Niel, the Company’s principal shareholder held 65.70% of the capital and 62.66% of the voting rights. The fact that a significant portion of the Company’s capital and voting rights is held by a single shareholder, and that said shareholder may freely dispose of all or part of his interest in the Company, could have a material adverse effect on the price of the Company’s shares. Equity risk is minimal as the Group does not have any significant equity portfolios. 4.3.4.2 Share price volatility The Company’s share price may be volatile and could be impacted by a number of events affecting the Company, its competitors, the telecommunications and Internet industry or the financial markets. The Company’s share price could fluctuate significantly in response to the following types of events: • changes in the Group’s financial performance or that of its competitors; • the announcement by the Company of the success or failure of the commercial launch of a new product; • announcements by competitors or announcements concerning the telecommunications or Internet industry; • announcements regarding changes in the Group’s management or key personnel. In the last few years, the financial markets have experienced significant volatility that, at times, has had no relationship to the financial performance of listed companies. Market volatility, as well as general economic conditions, could affect the Company’s share price. 4.3.4.3 Subsequent sale of shares by significant shareholders The Company’s principal shareholders are Xavier Niel and its managers. If any of these shareholders were to sell a large number of shares on the market, Iliad’s share price could be affected, depending on the market conditions at the time of the sale, the number of shares sold and the reasons for and the terms of the sale, as well as the public’s perception of such sales. 3 No drawdowns had been made at December 31, 2007 out of a maximum available amount of €220 million under this credit line. 8 - Iliad – Registration Document 2007
4.4 LEGAL RISKS 4.4.1 Risks relating to the Group’s relations with the incumbent operator 4. RISK FACTORS 4.4 LEGAL RISKS Despite the legal and regulatory framework requiring the incumbent operator, France Télécom, to permit the development of local loop unbundling and to grant the Group access to its installations, the Group may be confronted by situations where there is a conflict of interest with France Télécom as its dominant competitor and principal supplier. France Télécom could exercise significant influence over the Group’s operations and strategy, with potentially adverse effects, and could also restrict its capacity for growth. The Group’s profitability depends in part on the pricing and technical conditions established by France Télécom in its Reference Interconnect Offer (revised each year) and in its Reference Unbundling Offer (revised from time to time). Any significant increase in the prices or change in the technical conditions set out in the Reference Interconnect Offer or the Reference Unbundling Offer, as approved by the French telecommunications regulatory authority, ARCEP, could have a material adverse effect on the Group’s business, financial position and results of operations and its ability to meet its objectives. 4.4.2 Risks relating to liability for content In the past, a number of suits have been filed in France and other countries against Internet service or hosting providers because of the content of the information transmitted or made available online (in particular for pressrelated violations, invasion of privacy and trademark infringement). Free, Online and Dedibox may be subject to similar suits and could incur significant costs in order to defend themselves against such claims. Analysis of the claims and the preparation of an appropriate defense could prove to be costly even if Free, Online or Dedibox were not ultimately held liable. Finally, any such proceedings could have an adverse effect on the Group’s reputation. According to French rules and regulations as further described in paragraph 6.6.2 hereinafter, the Group has placed forms on the Free portal home page which can be used to report unlawful content, and has established a procedure for reporting any violation of human dignity, so that web users can report any illegal content and Free can respond promptly to any complaints. 4.4.3 Risks relating to intellectual property rights The Group can provide no assurance that measures taken in France and abroad to protect its intellectual property rights, particularly its trademarks, logos and domain names, will be effective or that third parties will not infringe or misappropriate its intellectual property rights. Furthermore, given the worldwide reach of the Internet, the Group’s trademarks – particularly Iliad, Free, and ANNU – and other forms of intellectual property, could be distributed in countries offering less intellectual property protection than European countries or the United States. Given the importance for the Group of the recognition of its trademarks, any infringement or misappropriation of this kind could adversely affect the Group’s business, results of operations, financial position and its ability to meet its objectives. Furthermore, certain of the Group’s trademarks (particularly Free and Online) co-exist with other identical trademarks registered by third parties for similar telecommunications services. Due to this situation, it is likely that the Group will be required, in the long-term, to co-exist on its market with trademarks similar to its own. There is a risk that this co-existence could result in a dilution of these trademarks on the market, which could adversely affect the Group’s business, results of operations and financial position and its ability to meet its objectives. Lastly, given the hi-tech nature of the Group’s business, it can provide no assurance that it is not infringing the intellectual property rights of third parties. This is an inherent risk for all operators in the telecommunications, audiovisual and Internet sectors and is typically resolved through licensing agreements with the holders of the relevant intellectual property rights. The Group undertakes all necessary measures to ensure that intellectual property rights – particularly concerning trademarks – are respected, and there are no significant claims or legal proceedings in progress concerning such rights. Iliad – Registration Document 2007 - 9
Page 1 and 2: Société anonyme. Share capital:
Page 3 and 4: TABLE OF CONTENTS GENERAL COMMENTS
Page 5 and 6: 16.2 SERVICE CONTRACTS ENTERED INTO
Page 7 and 8: 1. PERSONS RESPONSIBLE 1.1 PERSON R
Page 9 and 10: 3. SELECTED FINANCIAL INFORMATION 3
Page 11 and 12: 4. RISK FACTORS 4.1 RISKS RELATING
Page 13: 4. RISK FACTORS 4.3 FINANCIAL RISKS
Page 17 and 18: 4. RISK FACTORS 4.4 LEGAL RISKS The
Page 19 and 20: 5. INFORMATION ABOUT THE COMPANY AN
Page 21 and 22: 2007 • Sale of Kertel (February 2
Page 27 and 28: Considering acquisition opportuniti
Page 29 and 30: The Group’s network has been deve
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Page 33 and 34: 6. OVERVIEW OF THE GROUP’S BUSINE
Page 37 and 38: The following tables give details o
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Page 57 and 58: Local loop unbundling 6. OVERVIEW O
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6. OVERVIEW OF THE GROUP’S BUSINE
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7.2 ORGANIZATION CHART At March 31,
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9.1 KEY CONSOLIDATED FINANCIAL DATA
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9. OPERATING AND FINANCIAL REVIEW 9
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9.1.2 ADDITIONAL INFORMATION 9.1.2.
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11. RESEARCH AND DEVELOPMENT, PATEN
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13. PROFIT FORECASTS OR ESTIMATES T
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14. ADMINISTRATIVE, MANAGEMENT AND
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15. COMPENSATION AND BENEFITS 15.2
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16. FUNCTIONING OF THE COMPANY’S
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17.1 HUMAN RESOURCES 17. EMPLOYEES
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18.1 IDENTIFICATION OF SHAREHOLDERS
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19. RELATED PARTY TRANSACTIONS 19.
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20. FINANCIAL INFORMATION CONCERNIN
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2.3.4 List of subsidiaries and affi
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21.1 SHARE CAPITAL 21.1.1 Amount of
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21. ADDITIONAL INFORMATION 21.1 SHA
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21.1.8 Authorized unissued share ca
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21.4.2 Changes in the Iliad share p
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Not applicable. 23. THIRD PARTY INF
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25. INFORMATION ON SHAREHOLDINGS 25
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GLOSSARY Broadband ARPU (Average Re
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GLOSSARY IP (Internet Protocol): te
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GLOSSARY Spamming: the bulk mailing
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RR Donnelley : 01 53 45 19 00
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