COMMITMENTS, CONTINGENCIES AND LITIGATION

New Credit Agreement

On April 6, 2017, we entered into a new Credit Agreement (the “2017 Credit Agreement”), which provides for a $300 million term loan facility ("2017 term loan") and a $25 million revolving credit facility (" 2017 revolving credit facility"). The proceeds of the term loan were used to refinance the Company’s existing credit facility and to pay costs and expenses associated with the 2017 Credit Agreement.

Certain potions of refinancing transaction were considered an extinguishment of debt and certain portions were considered a modification. A total of $5.7 million was paid for debt issuance costs related to the 2017 Credit Agreement. Of the $5.7 million in costs paid, $1.9 million related to the exchange of debt and was expensed, $3.3 million related to term loan third party costs and will be amortized over the term of the loan and $0.4 million are prepaid debt issuance costs related to the revolving credit facility and will be amortized over the term of the revolving credit facility. In addition, $4.8 million of debt discount and debt issuance costs related to the previous credit facility were expensed due to the extinguishment of that credit facility.

The maturity date of the term loan is April 6, 2022 and the maturity date of the 2017 revolving credit facility is October 6, 2021. As of December 31, 2017, the balance of the term loan and the revolver was $298.5 million and $5.0 million, respectively. As of December 31, 2017, the interest rate on the 2017 term loan and the revolver was 8.4% and 10.3%, respectively.

Borrowings under the amended credit agreement bear interest at a rate per annum equal to an applicable margin plus, at our option, a base rate or an adjusted LIBOR rate. The applicable margin for loans under the revolving credit facility is 4.5%for loans bearing interest calculated using the base rate (“Base Rate Loans”) and 5.50% for loans bearing interest calculated using the adjusted LIBOR rate (“Adjusted LIBOR Loans”). The applicable margin for loans under the term loan is 5.00% for Base Rate Loans and 6.00% for Adjusted LIBOR Rate loans. The base rate is equal to the highest of (a) the adjusted U.S. Prime Lending Rate as published in the Wall Street Journal, (b) with respect to term loans issued on the closing date, 2.00%, (c) the federal funds effective rate from time to time, plus 0.50%, and (d) the adjusted LIBOR rate, as defined below, for a one-month interest period, plus 1.00%. The adjusted LIBOR rate is equal to the rate per annum (adjusted for statutory reserve requirements for Eurocurrency liabilities) at which Eurodollar deposits are offered in the interbank Eurodollar market for the applicable interest period (one, two, three or six months), as quoted on Reuters screen LIBOR (or any successor page or service). The financing commitments of the Lenders extending the revolving credit facility are subject to various conditions, as set forth in the credit agreement.

First Amendment

On June 28, 2017, the Company entered into an amendment to the 2017 Credit Agreement (“First Amendment”), by and among the Company, each of the lenders party thereto, and Jefferies Finance LLC, as Administrative Agent. The First Amendment clarified that for all purposes the Company’s liabilities pursuant to any lease that was treated as rental and lease expense, and not as a capital lease obligation or indebtedness on the closing date of the 2017 Credit Agreement, would continue to be treated as a rental and lease expense, and not as a capital lease obligations or indebtedness, for all purposes of the 2017 Credit Agreement, notwithstanding any amendment of the lease that results in the treatment of such lease as a capital lease obligation or indebtedness for financial reporting purposes.

Previous Credit Agreement

During 2013, we entered into a $350 million credit agreement (the “previous credit agreement”), which provides for a senior secured first lien term loan facility of an initial $300 million (“term loan”) and a second secured first lien revolving credit facility of $50 million (“revolving credit facility”). The revolving credit facility is due November 26, 2018. The term loan is due in installments of $750,000 on the last day of each fiscal quarter, with the remaining unpaid balance due November 26, 2019.

Second Amendment

During the three months ended June 30, 2016, we entered into an amendment to our credit agreement (the “Second Amendment”), which among other things, amended the interest coverage ratio and leverage ratio covenants to make them less restrictive and increased the applicable margin for revolving credit facility and term loan by 1.0%. We paid a one-time aggregate fee of $1.7 million to the lenders for the Second Amendment. Absent the Second Amendment we would not have been able to comply with our covenants in the credit agreement.

Third Amendment

During the three months ended March 31, 2017, we entered into an amendment to our previous credit agreement, which, among other things, amended the credit agreement (i) to make each of the interest coverage ratio and leverage ratio covenants less restrictive and (ii) to decrease the maximum level of permitted capital expenditures. We paid a one-time aggregate fee of $2.6 million to the lenders for the Third Amendment, which we recorded as a debt discount of $2.2 million related to the term loan and prepaid debt issuance costs of $0.4 million related to the revolving credit facility. In addition, we paid $0.3 million in third-party fees, which we recorded as expense of $0.3 million related to the term loan and as prepaid debt issuance costs of less than $0.1 million related to the previous revolving credit facility.

The Third Amendment was effective on February 28, 2017, upon the closing of the equity sale, which is described in note 15 "Equity" below. The effectiveness of the covenant amendments was conditioned on the Company completing one or more equity offerings on or before June 30, 2017 for gross cash proceeds of not less than $40 million, and net cash proceeds of not less than $37 million and the application of the net cash proceeds to the repayment of indebtedness under the previous agreement. The Company paid a fee of approximately $0.9 million to the lenders on January 26, 2017 and paid an additional fee of $1.6 million on February 28, 2017. Absent the Third Amendment, we may not have been able to comply with our covenants in the previous agreement.

A summary of our credit agreement as of December 31, 2017 and December 31, 2016 is as follows (dollars in thousands):



	December 31,
	2017			2016
Outstanding principal balance on the term loan, less unamortized discount and prepaid costs of $9.8 million and $6.8 million, respectively	$	288,712		$	284,178
Outstanding balance on the revolving credit facility	5,000			35,500
Letters of credit issued with proceeds from revolving credit facility	5,361			4,209
Borrowing capacity	14,639			10,291
Interest rate – term loan	8.4		%	7.0		%
Interest rate – revolving credit facility	10.3		%	6.1		%

Maturities of the term loan are as follows:
				$	3,000
2019				3,000
2020				3,000
2021				3,000
2022				286,500
				$	298,500

The terms of our 2017 Credit Agreement specify certain events which would be considered an event of default. These events include if we do not comply with the financial covenants, a failure to make a payment under the credit agreement, a change of control of the Company or other proceedings related to insolvency. Upon the occurrence and continuation of an event of default, after completion of any applicable grace or cure period, lenders may demand immediate payment in full of all indebtedness outstanding under the credit facility, terminate their obligations to make any loans or advances or issue any letter of credit, set off and apply any and all deposits held by any lender for the credit or account of any borrower.

The credit agreement, as amended, includes customary representations, warranties, negative and affirmative covenants, including certain financial covenants relating to maximum total leverage ratio, minimum consolidated interest coverage ratio and limitation on capital expenditures.

The table below sets forth information with respect to the current financial covenants as of December 31, 2017.



	Covenants Requirements
Maximum total leverage ratio (the ratio of Consolidated Indebtedness to Consolidated EBITDA as defined in the 2017 Credit Agreement) should be equal to or less than:	5.9	⁽¹⁾
Minimum consolidated interest coverage ratio (the ratio of Consolidated EBITDA to Consolidated Interest Expense as defined in the 2017 Credit Agreement) should be equal to or greater than:	2.0	⁽²⁾



	2017 Annual Limit	Twelve Months Ended December 31, 2017
Limitation on capital expenditures	No limit	$36 million

⁽¹⁾

The maximum total leverage ratio decreases to 5.9 to 1 as of March 1, 2018, 5.9 to 1 as of June 30, 2018, 5.9 to 1 as of September 30, 2018, 5.9 to 1 as of December 31, 2018, 5.9 to 1 as of March 31, 2019, 5.9 to 1 as of June 30, 2019, 5.5 to 1 as of September 30, 2019, 5.5 to 1 as of December 31, 2019, 5.5 to 1 March 31, 2020, 5.25 to 1 as of June 30, 2020, 5.25 to 1 September 30, 2020, 4.75 to 1 as of December 31, 2020, 4.75 to 1 as of March 31, 2021, 4.75 to 1 as of June 30, 2021 and 4.5 to 1 as of September 30, 2021 and thereafter.

⁽²⁾

The minimum consolidated interest coverage ratio increases to 2.00 to 1 as of March 31, 2018, 2.00 to 1 as of June 30, 2018, 2.00 to 1 as of September 30, 2018, 2.00 to 1 as of December 31, 2018, 2.00 to 1 as of March 31, 2019, 2.00 to 1 as of June 30, 2019, 2.00 to 1 September 30, 2019, 2.00 to 1 as of December 31, 2019, 2.00 to 1 as of March 31, 2020, 2.00 to 1 as of June 30, 2020, 2.00 to 1 as of September 30, 2020, 2.25 to 1 December 31, 2020, 2.25 to 1 as of March 31, 2021, 2.25 to 1 as of June 30, 2021, 2.25 to 1 as of September 30, 2021 and thereafter.

Asset Retirement Obligations

In prior years, we recorded asset retirement obligations (“ARO”) related to future estimated removal costs of leasehold improvements for certain data center leased properties. We were able to reasonably estimate the liabilities on these properties in order to record the ARO and the corresponding asset retirement cost in our data center services segment at its fair value. We calculated the fair value by discounting the estimated amount to present value using the applicable Treasury bill rate adjusted for our credit non-performance risk. As of December 31, 2017 and 2016, the balance of the present value ARO was $1.9 million and $2.8 million. For the balance at December 31, 2017, $0.2 million and $1.7 million were included in "Other current liabilities" and “Other long-term liabilities,” respectively, in the consolidated balance sheets. At December 31, 2016, the entire balance was included in "Other long-term liabilities." We included all asset retirement costs in “Property and equipment, net” in the consolidated balance sheets as of December 31, 2017 and 2016, and depreciated those costs using the straight-line method over the remaining term of the related lease.

We have other capital lease agreements that require us to decommission physical space for which we have not yet recorded an ARO. Due to the uncertainty of specific decommissioning obligations, timing and related costs, we cannot reasonably estimate an ARO for these properties and we have not recorded a liability at this time for such properties.

Capital Leases

We record capital lease obligations and leased property and equipment at the lesser of the present value of future lease payments based upon the terms of the related lease or the fair value of the assets held under capital leases. As of December 31, 2017, our capital leases had expiration dates ranging from 2017 to 2039.

Future minimum capital lease payments and the present value of the minimum lease payments for all capital leases as of December 31, 2017, are as follows (in thousands):



2018	$	32,511
2019	31,021
2020	26,754
2021	26,350
2022	24,346
Thereafter	434,947
Remaining capital lease payments	575,929
Less: amounts representing imputed interest	(340,469		)
Present value of minimum lease payments	235,460
Less: current portion	(11,711		)
	$	223,749

Operating Leases

We have entered into leases for data center, private network access points (“POPS”) and office space that are classified as operating leases. Initial lease terms range from three to 25 years and contain various periods of free rent and renewal options. However, we record rent expense on a straight-line basis over the initial lease term and any renewal periods that are reasonably assured. Certain leases require that we maintain letters of credit. Future minimum lease payments on non-cancelable operating leases having terms in excess of one year were as follows at December 31, 2017 (in thousands):



2018	$	11,700
2019	5,077
2020	2,538
2021	2,467
2022	2,523
Thereafter	3,492
	$	27,797

Rent expense was $15.6 million, $21.8 million and $21.6 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Other Commitments

We have entered into commitments primarily related to IP, telecommunications and data center services. Future minimum payments under these service commitments having terms in excess of one year were as follows at December 31, 2017 (in thousands):



2018	$	2,357
2019	1,221
2020	131
2021	—
2022	—
Thereafter	—
	$	3,709

Litigation and Other Regulatory Inquiries

In August 2016, the Company received a request for information as part of a broad-based inquiry regarding the Company’s use of non-GAAP measures from the Securities and Exchange Commission (the “SEC”). The Company is cooperating with the SEC. At this time, the Company is unable to predict the likely outcome.

We are subject to other legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.