TECHNICOLOR_REGISTRATION_DOCUMENT_2017

- 3 RISKS, LITIGATION AND CONTROLS Risk factors

For further information on the terms of these debt facilities and instruments, see Chapter 2: “Operating and Financial Review and Prospects”, section 2.10.3: “Financial Resources” of this Registration Document and note 8 to the consolidated financial statements. The level of its debt may have significant negative consequences for the Group and its shareholders. For example the terms of the debt require the Group to dedicate a large portion of any excess cash flow towards repayment of outstanding principal, thereby reducing the availability of cash flow for other purposes. In addition, the significant level of debt: increases the Group’s vulnerability to adverse general economic ■ conditions and industry developments; may limit the Group’s flexibility in planning for, or reacting to, ■ changes in the business and the industries in which the Group operates; may limit the Group’s ability to raise additional debt or equity ■ capital; may limit the Group’s ability to make strategic acquisitions and take ■ advantage of business opportunities; and may place the Group at a competitive disadvantage compared to ■ competitors with less debt. Any of the foregoing could limit the Group’s ability to grow its business. Restrictions in the documentation of the Group’s debt and credit lines The documentation of the term loan from the European Investment Bank contains a single affirmative financial covenant which requires that the total gross debt be not more than 4 times EBITDA on a trailing twelve month basis on June 30 and December 31 of each financial year. A large number of factors, many of which are outside the control of the Group (including a downturn in the industries in which the Group operates, a general economic downturn, or any of the other risks identified in this document), could cause the Group to fail to comply with this covenant. Failure to comply with this covenant constitutes an event of default under the European Investment Bank documentation. In addition, the financial loans documentation includes provisions which limit the Group’s flexibility in operating its business (as further described in note 8.3.3.5), a breach of which may (in certain cases following the expiration of a grace period) constitute a default hereunder.

The Term Loan Debt documentation includes so-called “cross default” clauses which, absent a waiver from the senior creditors under the Term Loan Debt, would provide them with the right to declare amounts that are outstanding thereunder at the time of any default under other financial loans documentation (plus accrued interest, fees and other amounts due hereunder) immediately due and payable. Upon the occurrence of a change of control in the Company (see Chapter 2: “Operating and Financial Review and Prospects”, section 2.10.3: “Financial Resources”), any outstanding amounts under the financial loans documentation would become immediately due and payable. The Group cannot assure that it would have sufficient liquidity to repay or the ability to refinance all or any of the amounts outstanding under the financial loans documentation if they were to become payable following the occurrence of an event of default or change of control hereunder. Risk management The risks related to indebtedness are managed by a close monitoring of the level of the Group’s debt and debt maturity schedule, and the compliance with all covenants and restrictions (including operational restrictions) in the Group’s debt documentation. This regular monitoring may lead the Group to take action such as reducing debt levels, refinancing or renegotiating its debt, or raising equity. Moreover the Group pursues policies with the objectives of having continued uninterrupted access to the financial markets at reasonable conditions (see “Risks Related to Liquidity” below). Interest rate and exchange rate fluctuations Risk description Interest rate fluctuations may lead to decreases in the Group’s financial results. The Group is mainly exposed to interest rate risk on its deposits and indebtedness. At December 31, 2017, 90% of the Group’s debt was at floating rate. Failure to manage interest rate fluctuations effectively in the future, or changes in interest rates, may have a material adverse impact on the Group’s financial charges. A 1% increase in short-term interest rates would cause the Group’s net cash interest payments to increase by 9 million. See note 8.2.2.2 to the consolidated financial statements of this Registration Document for more information about this risk.

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TECHNICOLOR

REGISTRATION DOCUMENT 2017