Paycom Software, Inc. (Form: 10-Q, Received: 08/07/2015 18:11:41)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-36393

Paycom Software, Inc.

(Exact name of registrant as specified in its charter)

Delaware

80-0957485

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

7501 W. Memorial Road

Oklahoma City, Oklahoma 73142

(Address of principal executive offices, including zip code)

(405) 722-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £		Accelerated filer	£

Non-accelerated filer S	(Do not check if a smaller reporting company)	Smaller reporting company	£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

As of August 3, 2015, the registrant had 59,110,711 shares of common stock outstanding, including 2,060,027 shares of restricted stock.

Paycom Software, Inc.

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	26
Signatures		28

PART I. FINANCI AL INFORMATION

Item 1. Financial Statements

Paycom Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

	June 30,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	42,667	$	25,144
Restricted cash		-		371
Accounts receivable		2,562		2,794
Prepaid expenses		3,212		1,952
Inventory		326		195
Income tax receivable		-		935
Deferred tax assets, net		373		1,445
Current assets before funds held for clients		49,140		32,836
Funds held for clients		542,807		660,557
Total current assets		591,947		693,393
Property and equipment, net		50,115		47,919
Deposits and other assets		941		645
Goodwill		51,889		51,889
Intangible assets, net		4,290		5,096
Total assets	$	699,182	$	798,942
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,968	$	3,042
Income tax payable		1,931		-
Accrued commissions and bonuses		2,539		5,080
Accrued payroll and vacation		4,964		1,582
Deferred revenue		2,958		2,535
Current portion of long-term debt		861		855
Accrued expenses and other current liabilities		6,467		5,121
Current liabilities before client funds obligation		22,688		18,215
Client funds obligation		542,807		660,557
Total current liabilities		565,495		678,772
Deferred tax liabilities, net		1,805		3,107
Long-term deferred revenue		20,077		16,802
Long-term debt, less current portion		25,435		26,123
Total long-term liabilities		47,317		46,032
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 57,050,684 and 53,832,782 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)		571		538
Additional paid in capital		68,195		67,937
Retained earnings		17,604		5,663
Total stockholders' equity		86,370		74,138
Total liabilities and stockholders' equity	$	699,182	$	798,942

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share and share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
		2015			2014			2015			2014
Revenues
Recurring	$	47,820		$	32,666		$	102,171		$	69,120
Implementation and other		1,153			640			2,024			1,171
Total revenues		48,973			33,306			104,195			70,291
Cost of revenues
Operating expenses		7,134			5,757			14,605			12,049
Depreciation and amortization		887			608			1,697			1,238
Total cost of revenues		8,021			6,365			16,302			13,287
Administrative expenses
Sales and marketing		16,741			13,700			37,970			29,381
Research and development		1,907			937			3,774			1,819
General and administrative		10,096			8,138			22,080			17,406
Depreciation and amortization		1,400			1,072			2,723			2,163
Total administrative expenses		30,144			23,847			66,547			50,769
Total operating expenses		38,165			30,212			82,849			64,056
Operating income		10,808			3,094			21,346			6,235
Interest expense		(392	)		(674	)		(724	)		(2,741	)
Loss on early repayment of debt		-			(4,044	)		-			(4,044	)
Other income, net		19			587			52			1,356
Income (loss) before income taxes		10,435			(1,037	)		20,674			806
Provision (benefit) for income taxes		4,489			(444	)		8,733			339
Net income (loss)	$	5,946		$	(593	)	$	11,941		$	467
Net income (loss) per share, basic	$	0.10		$	(0.01	)	$	0.21		$	0.01
Net income (loss) per share, diluted	$	0.10		$	(0.01	)	$	0.21		$	0.01
Weighted average shares outstanding:
Basic		57,038,021			50,284,362			55,900,306			48,015,577
Diluted		58,369,083			50,284,362			57,469,918			50,331,002

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2015			2014
Cash flows from operating activities
Net income	$	11,941		$	467
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,420			3,401
Amortization of debt issuance costs		85			-
Amortization of debt discount		-			74
Write off of debt issuance costs		-			4,051
Net loss on disposition of property and equipment		15			-
Non-cash stock-based compensation		289			274
Net change of derivative liability		-			(1,107	)
Deferred taxes, net		(230	)		388
Changes in operating assets and liabilities:
Accounts receivable		242			799
Prepaid expenses		(1,260	)		(132	)
Inventory		(131	)		59
Deposits and other assets		(373	)		(93	)
Accounts payable		(970	)		(2,400	)
Income taxes, net		2,866			135
Accrued commissions and bonuses		(2,541	)		(2,019	)
Accrued payroll and vacation		3,382			405
Deferred revenue		3,698			2,719
Accrued expenses and other current liabilities		1,346			(1,128	)
Net cash provided by operating activities		22,779			5,893
Cash flows from investing activities
Decrease in funds held for clients		117,750			140,150
Decrease in restricted cash		371			1
Purchases of property and equipment		(4,922	)		(9,278	)
Net cash provided by investing activities		113,199			130,873
Cash flows from financing activities
Proceeds from issuance of long-term debt		-			6,539
Principal payments on long-term debt		(682	)		(65,207	)
Decrease in client funds obligation		(117,750	)		(140,150	)
Proceeds from initial public offering, net of offering costs		-			62,196
Payments of deferred offering costs		-			645
Payment of debt issuance costs		(23	)		-
Capital impact of reorganization		-			(183	)
Net cash used in financing activities		(118,455	)		(136,160	)
Change in cash and cash equivalents		17,523			606
Cash and cash equivalents
Beginning of period		25,144			13,362
End of period	$	42,667		$	13,968

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

Description of Business

Paycom Software, Inc. (“Software”) and its wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of comprehensive, cloud-based human capital management (“HCM”) software delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we”, “our”, “us” and the “Company” refer to Software and its consolidated subsidiaries.

We provide functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications.

The Reorganization

Software and its wholly-owned subsidiary, Payroll Software Merger Sub, LLC (“Merger Sub”) were formed as Delaware entities on October 31, 2013 and December 23, 2013, respectively, in anticipation of an initial public offering (“IPO”) and were wholly-owned subsidiaries of Paycom Payroll Holdings, LLC (“Holdings”) prior to December 31, 2013.

On January 1, 2014, we consummated a reorganization pursuant to which (i) affiliates of Welsh, Carson, Anderson & Stowe X, L.P. (“WCAS X”), WCAS Capital Partners IV, L.P. (“WCAS Capital IV”) and WCAS Management Corporation (collectively, “WCAS”), contributed WCAS Paycom Holdings, Inc. (“WCAS Holdings”) and WCAS CP IV Blocker, Inc. (“CP IV Blocker”), which collectively owned all of the Series A Preferred Units of Holdings, to Software in exchange for shares of common stock of Software and (ii) the owners of outstanding Series B Preferred Units of Holdings contributed their Series B Preferred Units of Holdings to Software in exchange for shares of common stock of Software. Immediately after these contributions, Merger Sub merged with and into Holdings with Holdings surviving the merger. Upon consummation of the merger, the remaining holders of outstanding common and incentive units of Holdings received shares of common stock and restricted stock of Software for their common and incentive units by operation of Delaware law and Holdings’ ownership interest in Software was cancelled. Outstanding common units, Series B Preferred Units and incentive units of Holdings, WCAS Holdings and CP IV Blocker were contributed to Software in exchange for, or converted into, an aggregate of 45,708,573 shares of common stock and 8,121,101 shares of restricted stock of Software. Prior to the reorganization, WCAS Holdings held Series C Preferred Units of Holdings in the amount of $46.2 million and WCAS Holdings had a note payable to a related party due April 3, 2017, in the amount of $46.2 million. Following these transactions, all outstanding Series C Preferred Units were eliminated in an intercompany transaction between Holdings and WCAS Holdings, and we assumed the 14% Note due 2017 issued by WCAS Holdings (the “2017 Note”). Following the reorganization, Software became a holding company with its principal assets being the Series B Preferred Units of Holdings and the outstanding capital stock of WCAS Holdings and CP IV Blocker (collectively, the “2014 Reorganization”).

Initial Public Offering

On April 21, 2014, we closed our initial public offering whereby an aggregate of 7,641,750 shares of our common stock were sold to the public (including 4,606,882 shares of common stock issued and sold by us and 3,034,868 shares of common stock sold by certain selling stockholders) at a public offering price of $15.00 per share. We did not receive any proceeds from the sale of shares by the selling stockholders. The total gross proceeds we received from the offering were $69.1 million. After deducting underwriting discounts and commissions and offering expenses payable by us, the aggregate net proceeds we received totaled approximately $62.8 million. We used all of the net proceeds from the offering, together with approximately $3.3 million from existing cash, for the repayment in full of the 2017 Note and the 10% Senior Note due 2022 issued by us to WCAS Capital IV.

Follow-On Public Offering

On January 21, 2015, we closed our follow-on public offering, whereby 6,422,750 shares of our common stock were sold to the public by certain selling stockholders at a public offering price of $22.50 per share. We did not receive any proceeds from the sale of these shares.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Registered Block Trade Transaction

On May 20, 2015, we closed an underwritten secondary offering of 8,000,000 shares of our common stock by WCAS X, WCAS Capital IV, each of our executive officers and certain other selling stockholders at a public offering price of $36.25 per share. We did not receive any proceeds from the sale of these shares.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to fairly present our Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, our Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 and our Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014. Such adjustments are of a normal recurring nature. In addition to these normal adjustments, on the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014, we combined the accounts “Income tax receivable” and “Income tax payable” and the accounts “Deferred tax assets” and “Deferred tax liabilities” in order to conform to the current period presentation. The information in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K that was filed with the SEC on February 26, 2015. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results expected for the full fiscal year.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, contingencies, the useful life for property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under circumstances. As such, actual results could materially differ from these estimates.

Summary of Significant Accounting Policies

Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended December 31, 2014, included in the Annual Report on Form 10-K that was filed with the SEC on February 26, 2015, and have not changed.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which included a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2016, and early adoption is not permitted. In April 2015, the FASB proposed a one year deferral of the effective date of the new revenue recognition standard for public and non-public entities reporting under U.S. GAAP and on July 9, 2015, the FASB approved the one year deferral. The effective date of the amended standard will begin in periods beginning after December 15, 2017 and the FASB plans to submit its amendment to defer the effective date by the end of the third quarter of 2015. We are currently evaluating the impact that the standard will have on our condensed consolidated financial statements.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

In June 2014, the FASB issued authoritative guidance for share-based payments which requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the perform ance target will be achieved and should represent the compensation cost attributable for the period(s) in which the requisite service has already been rendered. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In April 2015, the FASB issued authoritative guidance for intangibles related to internally developed software. The new guidance will assist entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In April 2015, the FASB issued authoritative guidance which simplifies the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. The new guidance is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We are currently evaluating the impact that the standard will have on our condensed consolidated financial statements.

2.	PROPERTY AND EQUIPMENT

Property and equipment and associated accumulated depreciation and amortization were as follows:

	June 30,			December 31,
	2015			2014
Property and equipment
Buildings	$	28,154		$	28,154
Software and capitalized software costs		10,736			8,671
Computer equipment		9,275			7,638
Rental clocks		7,460			6,596
Furniture, fixtures and equipment		4,641			4,361
Vehicles		421			421
Leasehold improvements		299			174
		60,986			56,015
Less: accumulated depreciation and amortization		(20,701	)		(17,089	)
		40,285			38,926
Land		8,993			8,993
Construction in process		837			-
Property and equipment, net	$	50,115		$	47,919

Depreciation and amortization expense for property and equipment, net, was $1.9 million and $3.6 million for the three and six months ended June 30, 2015, respectively. Depreciation and amortization expense for property and equipment, net was $1.3 million and $2.6 million for the three and six months ended June 30, 2014, respectively.

For the each of the three and six months ended June 30, 2015 and 2014, we paid interest costs of $0.3 million and $0.6 million, respectively. We did not capitalize any interest costs during the three or six months ended June 30, 2015 and capitalized interest costs of $0.1 million and $0.4 million for the three and six months ended June 30, 2014, respectively.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification (“ASC”) Topic 350-40. During the three and six months ended June 30 , 20 15, we capitalized $0. 8 million and $ 1.6 million of computer software development costs related to software developed for internal use , respectively. During the three and six months ended June 30, 2014, we capitalized $0. 4 million and $ 0.7 million of comp uter software development costs related to software developed for internal use, respectively.

3.	GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill represents the excess of cost over our net tangible and identified intangible assets. We had goodwill of $51.9 million as of June 30, 2015 and December 31, 2014. We have selected June 30 as our annual goodwill impairment testing date and determined there was no impairment as of June 30, 2015. For the year ended December 31, 2014, there were no indicators of impairment.

All of our intangible assets are considered to have finite lives and, as such, are subject to amortization. The components of intangible assets were as follows:

	June 30, 2015
	Weighted Avg. Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships		2.0	$	13,997	$	(11,197	)	$	2,800
Trade name		7.0		3,194		(1,704	)		1,490
Total			$	17,191	$	(12,901	)	$	4,290

	December 31, 2014
	Weighted Avg. Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships	2.5	$	13,997	$	(10,498	)	$	3,499
Trade name	7.5		3,194		(1,597	)		1,597
Total		$	17,191	$	(12,095	)	$	5,096

The weighted average remaining useful life of our intangible assets was 3.7 years as of June 30, 2015. Amortization of intangible assets for each of the three and six months ended June 30, 2015 and 2014 was $0.4 million and $0.8 million, respectively.

4.	FUNDS HELD FOR CLIENTS AND CLIENT FUNDS OBLIGATION

As part of our payroll and tax filing application, we collect funds for federal, state and local employment taxes from clients, handle applicable regulatory tax filings, correspondence and amendments, remit the funds to appropriate tax agencies, and handle other employer-related services. Amounts collected by us from clients for their federal, state and local employment taxes earn interest during the interval between receipt and disbursement, as we invest these funds in money market funds and certificates of deposit. These collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days. These investments are shown in the Condensed Consolidated Balance Sheets as “Funds held for clients”, and the offsetting liability for the tax filings is shown as “Client funds obligation”. As of June 30, 2015 and December 31, 2014, the funds held for clients were invested in demand deposits, certificates of deposit and money market funds. The interest earned on these funds is included in “Other income, net” on the Condensed Consolidated Statements of Income.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

5.	LONG-TERM DEBT

Our long-term debt consisted of the following:

	June 30, 2015			December 31, 2014
Term note to bank due May 30, 2021 ⁽¹⁾	$	26,296		$	26,978
Total long-term debt (including current portion)		26,296			26,978
Less: Current portion		(861	)		(855	)
Total long-term debt, net	$	25,435		$	26,123

(1)

Our outstanding indebtedness consisted of a term note under the 2021 Consolidated Loan due to Kirkpatrick Bank (the “2021 Consolidated Loan”) with an outstanding principal balance of $26.3 million and $27.0 million as of June 30, 2015 and December 31, 2014, respectively. The 2021 Consolidated Loan matures on May 30, 2021. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is secured by a mortgage covering our headquarters buildings and certain personal property relating to our headquarters buildings.

The 2021 Consolidated Loan includes certain financial covenants, including maintaining a fixed charge coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions), as defined in the agreement, of greater than 1.2 to 1.0 on a quarterly basis. We were in compliance with all of the covenants as of June 30, 2015.

As of June 30, 2015, the carrying value of our total long-term debt, including current portion, was $26.3 million, which approximated its fair value. As of December 31, 2014, the carrying value of our total long-term debt, including current portion, was $27.0 million, which approximated its fair value. The fair value of fixed rate long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities. The fair value of variable rate long-term debt approximates market value because the cost of borrowing fluctuates based upon market conditions.

On May 13, 2015, we entered into a loan agreement with Kirkpatrick Bank to finance the expansion of our headquarters (the “Construction Loan”). The Construction Loan allows for the borrowing of a maximum aggregate principal amount equal to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. We did not have any outstanding borrowings under the Construction Loan as of June 30, 2015. The Construction Loan matures on the earlier of the completion of construction or November 13, 2016, with variable interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%. At maturity, the outstanding principal balance of the Construction Loan will be automatically converted to a 78-month term loan. The term loan will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate that is in effect as of the commencement date, plus 225 basis points.

6.	EMPLOYEE SAVINGS PLAN, EMPLOYEE STOCK PURCHASE PLAN AND ANNUAL INCENTIVE PLAN

Our employees that are over the age of 21 and have completed ninety (90) days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby we make a matching contribution for our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100% vested in amounts attributable to salary deferrals and rollover contributions. The QACA matching contributions will be 100% vested after two years of employment from the date of hire. If an employee terminates service prior to completing two years of employment, the employee will not be vested in these QACA matching contributions. The discretionary contributions vest 100% after two years of employment from the date of hire. Matching contributions amounted to $0.5 million and $1.2 million for the three and six months ended June 30, 2015, respectively. Matching contributions amounted to $0.4 million and $0.9 million for the three and six months ended June 30, 2014, respectively.

On May 5, 2015, our stockholders approved the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) and the Paycom Software, Inc. Annual Incentive Plan (the “Incentive Plan”). The ESPP allows, at the beginning of each offering period, eligible employees to elect to contribute, through payroll deductions, up to 10% of their compensation to purchase shares of the Company’s common stock at a price of 85% of the fair market value of the shares on the exercise date. Each offering period of the ESPP lasts six months. The shares reserved for purposes of the ESPP are shares we will purchase in the open market. Compensation expense is recognized on a straight-line basis over the requisite service period. Our compensation expense related to the ESPP was $0.1 million for both the three and six months ended June 30, 2015. The Incentive Plan provides for the payment of incentive

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

compensation that is not subject to certain federal income tax deduction limitations. Participation in the Incentive Plan is limited to certain of our employees designated by the Compensation Comm ittee of the Board of Directors.

7.	FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation approximates fair value because of the short-term nature of the instruments.

We did not have any financial instruments that were measured on a recurring basis at either June 30, 2015 or December 31, 2014.

8.	EARNINGS PER SHARE

Basic earnings per share (“EPS”) is based on the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed in a similar manner to basic EPS after assuming the issuance of shares of common stock for all potentially dilutive shares of restricted stock whether or not they are vested.

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted net income (loss) per share (dollars in thousands):

	Three Months Ended					Six Months Ended
	June 30, 2015		June 30, 2014			June 30, 2015		June 30, 2014
Numerator:
Net income (loss)	$	5,946	$	(593	)	$	11,941	$	467
Denominator:
Weighted average common shares outstanding		50,315,455		50,284,362			50,315,455		48,015,577
Adjustment for weighted average vested restricted stock		6,722,566		-			5,584,851		-
Shares for calculating basic EPS		57,038,021		50,284,362			55,900,306		48,015,577
Dilutive effect of unvested restricted stock		1,331,062		-			1,569,612		2,315,425
Shares for calculating diluted EPS		58,369,083		50,284,362			57,469,918		50,331,002
Net income (loss) per share:
Basic	$	0.10	$	(0.01	)	$	0.21	$	0.01
Diluted	$	0.10	$	(0.01	)	$	0.21	$	0.01

We excluded 1,984,938 shares of restricted stock from the diluted earnings per share calculation for the three months ended June 30, 2014 because they were anti-dilutive.

9.	STOCKHOLDERS’ EQUITY AND INCENTIVE COMPENSATION

On January 1, 2014, we consummated the 2014 Reorganization, pursuant to which (i) affiliates of WCAS contributed WCAS Holdings and CP IV Blocker, which collectively owned all of the Series A Preferred Units of Holdings, to Software in exchange for shares of common stock of Software and (ii) the owners of outstanding Series B Preferred Units of Holdings contributed their Series B Preferred Units of Holdings to Software in exchange for shares of common stock of Software. Immediately after these contributions, Merger Sub merged with and into Holdings with Holdings surviving the merger. Upon consummation of the merger, the remaining holders of outstanding common and incentive units of Holdings received shares of common stock of Software for their common and incentive units by operation of Delaware law and Holdings’ ownership interest in Software was cancelled. Outstanding common units, Series B Preferred Units and WCAS Holdings and CP IV Blocker were contributed to Software in exchange for, or converted into, 45,708,573 shares of common stock and 8,121,101 shares of restricted stock of Software.

The shares of restricted stock were issued subject to various vesting conditions. A portion of the restricted stock was subject to time-based vesting conditions, while a portion was subject to market-based vesting conditions. The market-based vesting conditions

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

were based on our total enterprise value exceeding certain specified thresholds. Following these transactions, all outstanding Series C Preferred Units were el iminated in an intercompany transaction between Holdings and WCAS Holdings, and we assumed the 2017 Note. As a result of the 2014 Reorganization, we recorded a one-time reclassification of $29.3 million of accumulated deficit to additional paid in capital on January 1, 2014. Following the 2014 Reorganization, Software became a holding company with its principal asset s being the Series B Preferred Units of Holdings and the outstanding capital stock of WCAS Holdings and CP IV Blocker .

We do not receive any cash proceeds from the vesting of our restricted stock. The capitalized non-cash stock-based compensation expense related to software developed for internal use of $2 thousand and $4 thousand was included in software and capitalized software costs in “Property and equipment, net” in our Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, respectively.

Compensation expense for restricted stock awards with time-based vesting conditions was measured based on the fair value of the award on the grant date and recognized over the requisite service period on a straight-line basis. Compensation expense relating to the issuance of restricted stock with market-based vesting conditions was measured based upon the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period based upon the probability that the vesting conditions would be met. For restricted stock with market-based vesting conditions, 50% of the restricted stock vested upon reaching a total enterprise value of $1.4 billion on December 1, 2014 and the remaining 50% of the restricted stock vested upon reaching a total enterprise value of $1.8 billion on March 2, 2015. The associated compensation expense adjusted for actual forfeitures was $0.2 million for the six months ended June 30, 2015 for the vesting of the restricted stock with market-based vesting conditions on March 2, 2015.

There was $0.4 million and $0.7 million of total unrecognized compensation cost related to unvested time-based restricted stock outstanding as of June 30, 2015 and December 31, 2014, respectively. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.3 years as of June 30, 2015.

10.	RELATED-PARTY TRANSACTIONS

For the three and six months ended June 30, 2015, we paid rent on our Dallas office space in the amounts of $0.1 million and $0.2 million, respectively. For the three and six months ended June 30, 2014, we paid rent on our Dallas office space in the amounts of $0.1 million and $0.1 million, respectively. The Dallas office building is owned by 417 Oakbend, LP, a Texas limited partnership. Our Chief Sales Officer owns a .01% general partnership interest and a 10.49% limited partnership interest in 417 Oakbend, LP.

In April 2014, we paid off the balance of the 2017 Note that was issued by WCAS Holdings and was payable to WCAS X, a related party, with proceeds from our initial public offering.

11.	COMMITMENTS AND CONTINGENCIES

Employment Agreements

We have employment agreements with certain of our executive officers. The agreements allow for annual compensation, participation in executive benefit plans, and performance-based cash bonuses.

Funding Agreement

In March 2010, we entered into a funding agreement with the Oklahoma City Economic Development Trust (the “Trust”) and the City of Oklahoma City. The Trust provided $2.0 million worth of certain public infrastructure improvements related to our newly constructed principal executive offices in northwest Oklahoma City. In exchange for the infrastructure improvements provided, we agreed to create at least 492 jobs over a five year period, with an average first year salary in excess of $37 thousand and make a minimum capital investment in the project of at least $15.0 million. We further agreed that we would be responsible for repayment of any amount that was not offset by earned job creation payments. As of December 31, 2014, we had fulfilled our obligation for these job creation payments.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Legal Proceedings

On September 23, 2014, National Financial Partners Corp. (“NFP”) filed a complaint against us in the United States District Court for the Northern District of Illinois (the “District Court”) (Civil Action No. 1:14-cv-07424). The complaint alleged trademark infringement, unfair competition, deceptive trade practices, consumer fraud and deceptive business practices related to the adoption and use of our logo and sought preliminary and permanent injunctions prohibiting us from continued infringement as well as money damages, including an accounting for sales and profits, attorneys’ fees and disgorgement of profits. NFP also moved for an order preliminarily enjoining us from using our logo. On April 30, 2015, we filed an opposition to NFP’s motion for preliminary injunction. On May 7 and 8, 2015, the District Court held a hearing on NFP’s motion for a preliminary injunction. On June 10, 2015, the District Court entered an order granting a preliminary injunction in favor of NFP and thereafter issued its preliminary injunction on June 16, 2015. On June 16, 2015, we filed an appeal of the District Court’s order and preliminary injunction to the United States Circuit Court of Appeals for the Seventh Circuit (Case No. 15-2289). We further sought a stay of the preliminary injunction pending the appeal. On June 30, 2015, the District Court granted our motion for a stay pending appeal. On June 25, 2015, we filed an offer of judgment seeking to resolve all pending claims between the parties and terminate the action with the payment of $20 thousand by Paycom Payroll, LLC and an agreement to change our logo within 60 days. Our offer of judgment was accepted by NFP and the District Court entered a judgment pursuant to the offer of judgment on July 6, 2015, terminating the District Court action. The Seventh Circuit Court of Appeals case was terminated on July 8, 2015.

We are involved in various other legal proceedings in the ordinary course of business. Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Operating Leases and Deferred Rent

We lease office space under several noncancellable operating leases with contractual terms expiring from 2015 to 2020. Minimum rent expenses are recognized over the lease term. The lease term is defined as the fixed noncancellable term of the lease plus all periods, if any, for which failure to renew the lease imposes a penalty on us in an amount that a renewal appears, at the inception of the lease, to be reasonably assured. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rent expense and the amount payable under the lease as a liability. As of June 30, 2015 and December 31, 2014, we had $0.8 million and $0.8 million, respectively, recorded as a liability for deferred rent.

Rent expense under operating leases for the three and six months ended June 30, 2015, was $1.1 million and $2.2 million, respectively. Rent expense under operating leases for the three and six months ended June 30, 2014, was $0.8 million and $1.4 million, respectively.

12.	INCOME TAXES

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Significant management judgment is required in estimating operating income in order to determine our effective income tax rate. The estimated effective income tax rate was 43.02% and 42.24% for the three and six months ended June 30, 2015, respectively. The estimated effective income tax rate was 42.82% and 42.06% for the three and six months ended June 30, 2014, respectively.

13.	SUBSEQUENT EVENTS

On July 8, 2015, we issued 742,228 shares of restricted stock to certain of our executive and non-executive employees under the Paycom Software, Inc. 2014 Long-Term Incentive Plan. Certain shares of restricted stock are subject to market-based vesting conditions and certain shares of restricted stock are subject to time-based vesting conditions. Market-based restricted stock will vest 50% when the Company reaches a total enterprise value of $2.65 billion and 50% when the Company reaches a total enterprise value of $3.5 billion. Time-based restricted stock will vest over periods of three or five years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2015, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2014 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2015 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. All amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented, other than share and per share amounts, are presented in thousands unless otherwise noted.

Forward-Looking Statements

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs of our management as well as the assumptions made by, and information currently available to us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures, assumptions and other statements contained in this report that are not historical facts. When used in this document, words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan” and “project” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements include, without limitation, that our growth will generally mirror improvements in the labor market, that our capital expenditures and investment activity will continue to increase, that we will continue with our plan and ability to open additional sales offices in the future, that our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs over the next twelve months, our ability to create additional jobs at our corporate headquarters, our ability to expand our corporate headquarters within an expected timeframe and our expectation of increasing our capital expenditures and investment activity as our business grows.

These statements reflect our current views with respect to future events, which are not guarantees of future performance, and involve risks and uncertainties that are difficult to project. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed in the Form 10-K, and in particular the section entitled “Item 1A. Risk Factors.” We disclaim any obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. You should not rely upon forward-looking statements as predictions of future events or place undue reliance on such statements.

Overview

We are a leading provider of comprehensive, cloud-based HCM software delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment life cycle from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications. Our user-friendly software allows for easy adoption of our solution by employees, enabling self-management of their HCM activities in the cloud, which reduces the administrative burden on employers and increases employee productivity.

We serve a diverse client base in terms of size and industry. None of our clients constituted more than one-half of one percent of our revenues for the six months ended June 30, 2015.

Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives who sell new applications to existing clients. We have 36 sales teams located in 23 states and plan to open additional sales offices to further expand our presence in the U.S. market. During the six months ended June 30, 2015, we opened five new sales offices, with one sales office located in each of Brooklyn, Cincinnati, Kansas City, Nashville and Pittsburgh. Our continued growth depends on attracting new clients through geographic expansion, further penetration of our existing markets and the introduction of new applications to our existing client base. We also expect a portion of our growth to generally mirror improvements in the labor market. Our principal marketing programs include telemarketing and email campaigns, search engine marketing methods and tradeshows.

Recent Developments

Registered Block Trade Transaction

On May 20, 2015, we closed an underwritten secondary offering of 8,000,000 shares of our common stock by Welsh, Carson, Anderson & Stowe, WCAS Capital Partners IV, L.P., each of our executive officers and certain other selling stockholders at a public offering price of $36.25 per share. We did not receive any proceeds from the sale of these shares.

Trends and Opportunities

Our payroll application is the foundation of our solution and all of our clients are required to utilize this application in order to access our other applications. As a result of our evolving revenue mix, coupled with the unique client benefits that our solution provides ( e.g. , enabling our clients to scale the number of HCM applications that they use on an as-needed basis), we are presented with a variety of opportunities and challenges.

We generate revenues from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed or (ii) fixed amounts charged per billing period. We do not require clients to enter into long-term contractual commitments with us. Our billing period varies by client based on when they pay their employees, which is either weekly, bi-weekly, semi-monthly or monthly.

For the six months ended June 30, 2015 and 2014, our gross margins were approximately 84% and 81%, respectively. Our total gross margin has gradually improved over time as (i) our gross margin for our other HCM applications was higher than our gross margin for payroll processing, (ii) we added additional clients, (iii) our existing clients deployed additional HCM applications and (iv) we reduced our cost of revenues as a percentage of total revenues. We do not expect our gross margins to continue to grow at the same accelerated rate as they have in the past but rather to remain more consistent from quarter-to-quarter.

Key Metrics

In addition to the accounting principles generally accepted in the United States of America (“U.S. GAAP”) metrics that we regularly monitor, we also monitor the following metrics to evaluate our business, measure our performance and identify trends affecting our business:

	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
Key Performance Indicators:
Sales Teams (at period end)	36		31		36		31
Annualized New Recurring Revenue	$	16,482	$	11,530	$	36,635	$	24,090

Sales Teams . We monitor our sales professionals by the number of sales teams at period end and each team is comprised of approximately six to nine sales professionals. Certain larger metropolitan areas can support more than one sales team. We believe that the number of sales teams is an indicator of potential revenue for future periods.

Annualized New Recurring Revenue . While we do not enter into long-term contractual commitments with our clients, we monitor annualized new recurring revenue as we believe it is an indicator of potential revenue for future periods. Annualized new recurring revenue is an estimate based on the annualized amount of the first full month of revenue attributable to new clients that were added or existing clients that purchased additional applications during the period presented. Annualized new recurring revenue only includes revenues from clients who have used our solution for at least one month during the period. Since annualized new recurring revenue is only recorded after a client uses our solution for one month, it includes revenue that has been recognized in historical periods.

Results of Operations

Three months ended June 30, 2015 as compared to the three months ended June 30, 2014.

The following tables set forth selected Condensed Consolidated Statements of Income data and such data as a percentage of total revenues for the periods presented:

	Three Months Ended June 30,
		2015			2014		% Change
Revenues
Recurring	$	47,820		$	32,666			46	%
Implementation and other		1,153			640			80	%
Total revenues		48,973			33,306			47	%
Cost of revenues
Operating expenses		7,134			5,757			24	%
Depreciation and amortization		887			608			46	%
Total cost of revenues		8,021			6,365			26	%
Administrative expenses
Sales and marketing		16,741			13,700			22	%
Research and development		1,907			937			104	%
General and administrative		10,096			8,138			24	%
Depreciation and amortization		1,400			1,072			31	%
Total administrative expenses		30,144			23,847			26	%
Total operating expenses		38,165			30,212			26	%
Operating income		10,808			3,094			249	%
Interest expense		(392	)		(674	)		-42	%
Loss on early repayment of debt		-			(4,044	)		-100	%
Other income, net		19			587			-97	%
Income (loss) before income taxes		10,435			(1,037	)
Provision (benefit) for income taxes		4,489			(444	)
Net income (loss)	$	5,946		$	(593	)

	Three Months Ended June 30,
	2015			2014
Revenues
Recurring		97.6	%		98.2	%
Implementation and other		2.4	%		1.8	%
Total revenues		100.0	%		100.0	%
Cost of revenues
Operating expenses		14.6	%		17.3	%
Depreciation and amortization		1.8	%		1.8	%
Total cost of revenues		16.4	%		19.1	%
Administrative expenses
Sales and marketing		34.2	%		41.1	%
Research and development		3.9	%		2.8	%
General and administrative		20.5	%		24.4	%
Depreciation and amortization		2.9	%		3.2	%
Total administrative expenses		61.5	%		71.6	%
Total operating expenses		77.9	%		90.7	%
Operating income		22.1	%		9.3	%
Interest expense		-0.8	%		-2.0	%
Loss on early repayment of debt		0.0	%		-12.1	%
Other income, net		0.0	%		1.8	%
Income (loss) before income taxes		21.3	%		-3.1	%
Provision (benefit) for income taxes		9.2	%		-1.3	%
Net income (loss)		12.1	%		-1.8	%

Revenues

Total revenues were $49.0 million for the three months ended June 30, 2015 as compared to $33.3 million for the three months ended June 30, 2014, representing an increase of $15.7 million, or 47%. The increase in total revenues was primarily due to the addition of clients in mature sales offices (those offices that have been open for at least 24 months). Implementation and other revenues, a component of total revenues, increased to $1.2 million for the three months ended June 30, 2015 from $0.6 million for the three months ended June 30, 2014, an increase of $0.6 million.

A combination of other factors also contributed to the increase in revenues, including the addition of new clients in more recently opened sales offices and the introduction and sale of additional applications to our existing clients. The increase in revenues was also due to an increase in the average revenue per client.

Cost of Revenues

Cost of revenues was $8.0 million for the three months ended June 30, 2015 as compared to $6.4 million for the three months ended June 30, 2014, representing an increase of $1.6 million, or 26%. The increase in cost of revenues was due primarily to increases of $1.0 million in employee costs related to additional operating personnel and $0.1 million in increased shipping fees related to increased sales, as well as a $0.1 million increase in clock costs due to increased time clock sales. In addition, depreciation and amortization expense increased by $0.3 million, or 46%, primarily due to technology and other additional assets purchased.

Administrative Expenses

Total administrative expenses were $30.1 million for the three months ended June 30, 2015 as compared to $23.8 million for the three months ended June 30, 2014, representing an increase of $6.3 million, or 26%. During the three months ended June 30, 2015, sales and marketing expense increased by $3.0 million from the comparable prior year period, primarily due to a $1.3 million increase in employee-related expenses and a $0.2 million increase in recruiting expenses, in each case resulting from an increase in the number of sales personnel, a $1.2 million increase in commission and bonuses related to increased sales and a $0.2 million increase in building rent related to new offices and additional leased space in existing offices.

During the three months ended June 30, 2015, research and development expense increased by $1.0 million from the comparable prior year period, primarily due to an increase in the number of research and development personnel and related bonus expense. We anticipate a gradual increase in research and development expense over time as we continue to increase the number of research and development personnel. During the three months ended June 30, 2015, general and administrative expense increased by $2.0 million from the comparable prior year period, primarily due to a $0.9 million increase in employee-related expenses and an increase in accounting, compliance and insurance expense of $0.4 million. During the three months ended June 30, 2015, depreciation and amortization expense increased by $0.3 million from the comparable prior year period, or 31%, primarily due to additional technology and other assets purchased.

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The timing of these capitalized expenditures may affect the amount of research and development expenses in any given period. The table below sets forth the amounts of capitalized and expensed research and development expenses for the three months ended June 30, 2015 and 2014:

	Three Months Ended
	June 30, 2015		June 30, 2014
Capitalized portion of research and development	$	890	$	451
Expensed portion of research and development		1,907		938
Total research and development costs	$	2,797	$	1,389

Results of Operations

Six months ended June 30, 2015 as compared to the six months ended June 30, 2014.

The following tables set forth selected Condensed Consolidated Statements of Income data and such data as a percentage of total revenues for the periods presented:

	Six Months Ended June 30,
		2015			2014		% Change
Revenues
Recurring	$	102,171		$	69,120			48	%
Implementation and other		2,024			1,171			73	%
Total revenues		104,195			70,291			48	%
Cost of revenues
Operating expenses		14,605			12,049			21	%
Depreciation and amortization		1,697			1,238			37	%
Total cost of revenues		16,302			13,287			23	%
Administrative expenses
Sales and marketing		37,970			29,381			29	%
Research and development		3,774			1,819			107	%
General and administrative		22,080			17,406			27	%
Depreciation and amortization		2,723			2,163			26	%
Total administrative expenses		66,547			50,769			31	%
Total operating expenses		82,849			64,056			29	%
Operating income		21,346			6,235			242	%
Interest expense		(724	)		(2,741	)		-74	%
Loss on early repayment of debt		-			(4,044	)		-100	%
Other income, net		52			1,356			-96	%
Income before income taxes		20,674			806
Provision for income taxes		8,733			339
Net income	$	11,941		$	467

	Six Months Ended June 30,
	2015			2014
Revenues
Recurring		98.1	%		98.3	%
Implementation and other		1.9	%		1.7	%
Total revenues		100.0	%		100.0	%
Cost of revenues
Operating expenses		14.0	%		17.1	%
Depreciation and amortization		1.6	%		1.8	%
Total cost of revenues		15.6	%		18.9	%
Administrative expenses
Sales and marketing		36.5	%		41.8	%
Research and development		3.6	%		2.6	%
General and administrative		21.2	%		24.8	%
Depreciation and amortization		2.6	%		3.1	%
Total administrative expenses		63.9	%		72.2	%
Total operating expenses		79.5	%		91.1	%
Operating income		20.5	%		8.9	%
Interest expense		-0.7	%		-3.9	%
Loss on early repayment of debt		0.0	%		-5.8	%
Other income, net		0.0	%		1.9	%
Income before income taxes		19.8	%		1.1	%
Provision for income taxes		8.4	%		0.5	%
Net income		11.4	%		0.6	%

R evenues

Total revenues were $104.2 million for the six months ended June 30, 2015 as compared to $70.3 million for the six months ended June 30, 2014, representing an increase of $33.9 million, or 48%. The increase in total revenues was primarily due to the addition of clients in mature sales offices (those offices that have been open for at least 24 months). Implementation and other revenues, a component of total revenues, increased to $2.0 million for the six months ended June 30, 2015 from $1.2 million for the six months ended June 30, 2014, an increase of $0.8 million, or 73%.

Revenue also benefited from an increase in the number of tax form filings on behalf of clients. A combination of other factors also contributed to the increase in revenues, including the addition of new clients in more recently opened sales offices and the introduction and sale of additional applications to our existing clients. The increase in revenues was also due to an increase in the average revenue per client.

Cost of Revenues

Cost of revenues was $16.3 million for the six months ended June 30, 2015 as compared to $13.3 million for the six months ended June 30, 2014, representing an increase of $3.0 million, or 23%. The increase in cost of revenues was due primarily to increases of $2.1 million in employee costs related to additional operating personnel and $0.3 million in shipping fees related to increased sales. In addition, depreciation and amortization expense increased by $0.5 million, or 37%, primarily due to technology and other additional assets purchased.

Administrative Expenses

Total administrative expenses were $66.5 million for the six months ended June 30, 2015 as compared to $50.8 million for the six months ended June 30, 2014, representing an increase of $15.7 million, or 31%. During the six months ended June 30, 2015, sales and marketing expense increased by $8.6 million from the comparable prior year period, primarily due to a $3.5 million increase in employee-related expenses related to an increase in the number of sales personnel, a $3.8 million increase in commission and bonuses resulting from increased sales and a $0.7 million increase in building rent and security related to new offices and additional leased space in existing offices.

During the six months ended June 30, 2015, research and development expense increased by $2.0 million from the comparable prior year period, primarily due to an increase in the number of research and development personnel and related bonus expense. We anticipate a gradual increase in research and development expense over time as we continue to increase the number of research and development personnel. During the six months ended June 30, 2015, general and administrative expense increased by $4.7 million from the comparable prior year period, primarily due to a $2.2 million increase in employee-related expenses and an increase in accounting, compliance and insurance expense of $1.4 million. During the six months ended June 30, 2015, depreciation and amortization expense increased by $0.5 million from the comparable prior year period, or 26%, primarily due to additional technology and other assets purchased.

	Six Months Ended
	June 30, 2015		June 30, 2014
Capitalized portion of research and development	$	1,642	$	736
Expensed portion of research and development		3,774		1,819
Total research and development costs	$	5,416	$	2,555

Liquidity and Capital Resources

As of June 30, 2015, our principal sources of liquidity were cash and cash equivalents totaling $42.7 million. Our cash and cash equivalents are comprised primarily of deposit accounts and money market funds. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months.

We have historically financed our operations from cash flows generated from operations, cash from the sale of equity securities and borrowings under our consolidated loans. Since inception, we have raised $125.1 million of equity capital, $62.8 million of which was received from the net proceeds raised in our initial public offering that closed in April 2014. We incurred related party debt as

part of cor porate reorganizations that occurred in April 2012 and January 2014. Such debt has since been repaid. We have also incurred indebtedness to finance the expansio n of our corporate headquarters in Oklahoma City. The first expansion of our corporate headqu arters was completed in June 2014 and we are currently constructing an approximately $13.4 million new corporate building adjacent to our corporate headquarters which we expect to be completed by mid-2016. In connection with the expansion currently in pro gress, we entered into a loan agreement with Kirkpatrick Bank on May 13, 2015 (the “Construction Loan”) and are negotiating a local incentive package with the Oklahoma City Economic Development Trust worth up to approximately $1.2 million, depending on the number of new jobs we create for local employees over the next two years and the average annual salary level for such local employees. We expect to borrow approximately $11 million of additional indebtedness under the Construction Loan within the next 18 months to finance this expansion of our corporate headquarters.

As of June 30, 2015, our only outstanding indebtedness consisted of the 2021 Consolidated Loan due to Kirkpatrick Bank that matures on May 30, 2021 (the “2021 Consolidated Loan”) and the Construction Loan, each of which is discussed in more detail below.

2021 Consolidated Loan . As of June 30, 2015, we had a term note under the 2021 Consolidated Loan with an outstanding principal amount of $26.3 million. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is secured by a mortgage covering our headquarters buildings and certain personal property relating to our headquarters buildings.

We are required to comply with certain financial and non-financial covenants under the 2021 Consolidated Loan, including maintaining a fixed coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions) greater than 1.2 to 1.0 on a quarterly basis. As of June 30, 2015, we were in compliance with all of the covenants under the 2021 Consolidated Loan.

Pursuant to the terms of the 2021 Consolidated Loan, until amounts under the 2021 Consolidated Loan are repaid, we may not, subject to certain exceptions: (i) create any mortgages or liens, (ii) make any loans, advances or extensions of credit with any affiliate or enter into any other transaction with any affiliate, (iii) lease any mortgaged property, (iv) make any distributions as long as an event of default exists, (v) make any material change in methods of accounting, (vi) enter into any sale and leaseback arrangement, (vii) amend, modify, restate, cancel or terminate our organizational documents, (viii) sell, transfer or convey any mortgaged property or (ix) incur funded outside debt.

An event of default under the 2021 Consolidated Loan includes, among other events, (i) failure to pay principal or interest when due, (ii) breaches of certain covenants, (iii) any failure to meet the required financial covenants and (iv) an institution of a bankruptcy, reorganization, liquidation or receivership.

Construction Loan . On May 13, 2015, we entered into the Construction Loan with Kirkpatrick Bank to finance the expansion of our headquarters. The Construction Loan allows for the borrowing of a maximum aggregate principal amount equal to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. We did not have any outstanding borrowings under the Construction Loan as of June 30, 2015. The Construction Loan matures on the earlier of the completion of construction or November 13, 2016, with variable interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%.

At maturity, the outstanding principal balance of the Construction Loan will be automatically converted into a 78-month term loan. The term loan will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate that is in effect as of the commencement date, plus 225 basis points.

Cash Flow Analysis

Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenue received but deferred, research and development and our investment in sales and marketing to drive growth. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenue and related cash flows or to raise additional capital could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.

As part of our payroll and payroll tax filing services, we collect funds for federal, state and local employment taxes from our clients which we remit to the appropriate tax agencies. We invest these funds in certificates of deposit and money market funds from which we earn interest income during the period between their receipt and disbursement.

As our business grows, we expect our capital expenditures and our investment activity to continue to increase. Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, acquisitions, technology and services. Actual future capital requirements will depend on many factors, including our future revenues, cash from operating activities and the level of expenditures in all areas of our business.

The following table summarizes the consolidated statement of cash flows for the six months ended June 30, 2015 and 2014:

	Six Months Ended June 30,						% Change
	2015			2014			2015 vs 2014
Net cash provided by (used in):
Operating activities	$	23,680		$	5,893			302	%
Investing activities		112,298			130,873			-14	%
Financing activities		(118,455	)		(136,160	)		-13	%
Change in cash and cash equivalents	$	17,523		$	606

Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2015 was $22.8 million. Net cash provided by operating activities consisted primarily of net income of $11.9 million, depreciation and amortization of $4.4 million, an increase in deferred revenue of $3.7 million, an increase in accrued payroll and vacation of $3.4 million, an increase in income taxes, net of $2.9 million and an increase in accrued expenses and other current liabilities of $1.3 million, partially offset by a decrease in accrued commissions and bonuses of $2.5 million, an increase in prepaid expenses of $1.3 million and a decrease in accounts payable of $1.0 million.

Net cash provided by operating activities for the six months ended June 30, 2014 was $5.9 million. Net cash provided by operating activities consisted primarily of net income of $0.5 million, write off of debt issuance costs of $4.1 million, depreciation and amortization of $3.4 million, an increase in deferred revenues of $2.7 million and a decrease in accounts receivable of $0.8 million, offset by a decrease in accounts payable of $2.4 million, a decrease in accrued commissions and bonuses of $2.0 million, a decrease in accrued expenses and other current liabilities of $1.1 million and the net change in the derivative liability of $1.1 million.

Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2015 was $113.2 million and resulted primarily from a decrease in funds held for clients of $117.7 million and a decrease in restricted cash of $0.4 million, offset by purchases of property and equipment of $4.9 million.

Net cash provided by investing activities for the six months ended June 30, 2014 was $130.9 million and resulted primarily from a decrease in funds held for clients of $140.2 million offset by purchases of property and equipment of $9.3 million.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2015 was $118.5 million. Net cash used in financing activities primarily resulted from a decrease in the client funds obligation of $117.7 million and principal payments on long-term debt of $0.7 million.

Net cash used in financing activities for the six months ended June 30, 2014 was $136.2 million. Cash flows used in financing activities primarily resulted from a decrease in the clients funds obligation of $140.2 million and principal payments on long-term debt of $65.2 million offset by proceeds from the initial public offering, net of offering costs, of $62.2 million, proceeds from the issuance of long-term debt of $6.5 million and payments of deferred offering costs of $0.6 million.

Contractual Obligations

Our principal commitments primarily consist of long-term debt and leases for office space. For additional information regarding our long-term debt and our commitments and contingencies, see “Note 5. Long Term Debt” and “Note 11. Commitments and Contingencies” in the Form 10-K and in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report. Other than the Construction Loan discussed above and in the associated notes to the condensed consolidated financial

statements, t here have been no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Off-Balance Sheet Arrangements

As of June 30, 2015, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we continually evaluate our estimates and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions.

Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are discussed in the critical accounting policies and estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

There have been no material changes in our critical accounting policies and estimates in the preparation of our condensed consolidated financial statements for the six months ended June 30, 2015 as compared to those disclosed in the Form 10-K.

Non-GAAP Financial Measures

We use EBITDA, Adjusted EBITDA and non-GAAP net income, as supplemental measures to review and assess our performance and for planning purposes. We define: (i) EBITDA as net income, plus interest expense, taxes and depreciation and amortization, (ii) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, stock-based compensation expense, certain transaction expenses that are not core to our operations and tax adjusted net loss on early repayment of debt and (iii) non-GAAP net income as net income plus tax adjusted stock-based compensation expense and certain tax adjusted transaction expenses that are not core to our operations and net loss on early repayment of debt. EBITDA, Adjusted EBITDA and non-GAAP net income are metrics that we believe are useful to investors in evaluating our performance and facilitating comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP.

EBITDA, Adjusted EBITDA and non-GAAP net income are not measures of financial performance under U.S. GAAP, and should not be considered a substitute for net income which we consider to be the most directly comparable U.S. GAAP measure. EBITDA, Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA, Adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other Condensed Consolidated Statements of Income data prepared in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA and non-GAAP net income may not be comparable to similar titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

The following tables reconcile net income (loss) to EBITDA and Adjusted EBITDA and net income (loss) to non-GAAP net income (dollars in thousands) :

	Three months ended June 30,					Six months ended June 30,
	2015		2014			2015		2014
Consolidated statements of income data:
Net income (loss)	$	5,946	$	(593	)	$	11,941	$	467
Interest expense		392		674			724		2,741
Provision (benefit) for income taxes		4,489		(444	)		8,733		339
Depreciation and amortization		2,287		1,680			4,420		3,401
EBITDA		13,114		1,317			25,818		6,948
Stock-based compensation expense		35		181			289		274
Transaction expenses		-		523			685		1,363
Net loss on early repayment of debt		-		4,044			-		4,044
Adjusted EBITDA	$	13,149	$	6,065		$	26,792	$	12,629

	Three months ended June 30,					Six months ended June 30,
	2015		2014			2015		2014
Consolidated statements of income data:
Net income (loss)	$	5,946	$	(593	)	$	11,941	$	467
Tax adjusted stock-based compensation expense ⁽¹⁾		17		104			167		159
Tax adjusted transaction expenses ⁽¹⁾		84		299			591		790
Tax adjusted net loss on early repayment of debt ⁽¹⁾		-		2,313			-		2,343
Non-GAAP net income	$	6,047	$	2,123		$	12,699	$	3,759

Non-GAAP net income per share, basic	$	0.11	$	0.04		$	0.23	$	0.08
Non-GAAP net income per share, diluted	$	0.10	$	0.04		$	0.22	$	0.07

Weighted average shares outstanding:
Basic		57,038,021		50,284,362			55,900,306		48,015,577
Diluted		58,369,083		52,269,300			57,469,918		50,331,002

(1)	Beginning in 2015, we use an individual non-GAAP tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income. Prior to 2015, we used an overall effective tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents totaling $42.7 million as of June 30, 2015. We consider all highly liquid debt instruments purchased with a maturity of three months or less and money market mutual funds to be cash equivalents. These amounts are invested primarily in deposit accounts and money market funds. The cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our cash equivalents are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected by a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

As of June 30, 2015, we did not believe that an increase or decrease in interest rates of 100-basis points would have a material effect on our operating results or financial condition.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of June 30, 2015, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2015 to ensure that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended
June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February 26, 2015, except as set forth below:

Commencing January 1, 2016, we will no longer be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies will no longer apply to us; our Annual Report on Form 10-K for the year ended December 31, 2015 will reflect this change.

We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. Because the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2015, commencing January 1, 2016 we will be deemed a large accelerated filer and, accordingly, will no longer qualify as an emerging growth company. As a large accelerated filer, we will be subject to certain disclosure requirements that apply to other public companies but have not previously applied to us due to our status as an emerging growth company. These requirements include:

·	compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting;

·	compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

·	full disclosure obligations regarding executive compensation; and

·	compliance with the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Share Repurchase Program

During the period covered by this Quarterly Report on Form 10-Q, we did not have a share repurchase program in place, and no shares of our common stock were repurchased.

Item 6. Exhibits

The following exhibits are incorporated herein by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K):

Exhibit No.		Description

2.1		Merger Agreement, by and among Paycom Software, Inc., Paycom Payroll Holdings, LLC, Paycom Payroll, LLC and Paycom Merger Sub, LLC, dated December 30, 2013 (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

2.2		Contribution Agreement, by and between WCAS Capital Partners, IV, L.P. and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.5 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

2.3		Contribution Agreement, by and among Welsh, Carson, Anderson & Stowe X, L.P., WCAS Management Corporation and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.6 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

2.4		Contribution Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated December 30, 2013 (incorporated by reference to Exhibit 2.7 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

3.1		Amended and Restated Certificate of Incorporation of Paycom Software, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).

3.2		Bylaws of Paycom Software, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).

4.2		Amended and Restated Stockholders’ Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

4.3		Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

4.4		Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.5		Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.6		Joinder to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.7*		Amendment No. 1 to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015.

10.1		Paycom Software, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 5, 2015, filed with the SEC on May 8, 2015).

10.2		Paycom Software, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 5, 2015, filed with SEC on May 8, 2015).

Exhibit No.		Description
10. 3 *		Loan Agreement, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated May 13, 2015.

31.1*		Certification of the Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of the Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**		Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Label Linkbase Document.

101.PRE*		XBRL Taxonomy Presentation Linkbase Document.

*	Filed herewith.

The certifications attached as Exhibit 32.1 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paycom Software, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNAT URE S

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PAYCOM SOFTWARE, INC.

Date: August 7, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer and Director
		(Principal Executive Officer)

Date: August 7, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer (Principal Financial Officer)

Exhibit 4.7

AMENDMENT NO. 1 TO THE

REGISTRATION RIGHTS AGREEMENT

This Amendment No. 1 (this “ Amendment ”) to the Registration Rights Agreement, dated as of December 30, 2013 (the “ Registration Rights Agreement ”), by and among Paycom Software, Inc., Paycom Payroll, LLC, Welsh, Carson, Anderson & Stowe X, L.P., WCAS Management Corporation, WCAS Capital Partners IV, L.P., WCAS Paycom Holdings, Inc., each of the Persons listed on the signature pages attached to the Registration Rights Agreement and each other Person who executed a joinder thereto, is entered into as of May 13, 2015. Capitalized terms used in this Amendment but not otherwise defined herein shall have the respective meanings assigned to them in the Registration Rights Agreement.

WHEREAS , pursuant to Section 11(c) of the Registration Rights Agreement, the provisions of the Registration Rights Agreement may be amended upon the prior written consent of the Company and the Holders of not less than a majority of the Registrable Securities.

NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the undersigned, being the Holders of not less than a majority of the Registrable Securities, give their written consent to amend the Registration Rights Agreement as follows:

1. Amendment to Section 2(d)(i) . Section 2(d)(i) of the Registration Rights Agreement is hereby deleted in its entirety and replaced with the following:

At any time that the Company is eligible to use Form S-3, upon the written request of any Holder of WCAS Registrable Securities (the “ Shelf Demand Notice ”), the Company shall use its best efforts to file with the Commission following the receipt of such Shelf Demand Notice, one or more registration statements with respect to the Registrable Securities under the Securities Act for the offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (the “ Shelf Registration Statement ”). If such Shelf Registration Statement is not automatically declared effective by the Commission or does not automatically become effective, the Company shall use its best efforts to cause such Shelf Registration Statement to be declared effective by the Commission as soon as practicable after the filing thereof. The Shelf Registration Statement shall be on an appropriate form and the registration statement and any form of prospectus included therein (or prospectus supplement relating thereto) shall reflect the plan of distribution or method of sale as the Holders may from time to time notify the Company of. Following the receipt by the Company of any Shelf Demand Notice, all of the WCAS Registrable Securities shall be included in the Shelf Registration Statement without any further action unless a smaller number is requested or a dollar amount is registered. If not all of the WCAS Registrable Securities are included, a Holder of WCAS Registrable Securities may submit subsequent Shelf Demand Notices. Other Holders shall be afforded eighteen hours following facsimile or email notice or notice by personal delivery to decide to include Registrable Securities in proportion to the WCAS Registrable Securities that are included.

2. Amendment to Section 10 . Section 10 of the Registration Rights Agreement is hereby deleted in its entirety and replaced with the following:

All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, sent via a nationally recognized overnight courier, sent via facsimile to the recipient accompanied by a certified or registered mailing or sent via email. Such notices, demands and other communications will be sent to the applicable parties hereto at such address or to the attention of such other person as is specified in the Company’s books and records or such other address or to the attention of such other Person as the recipient party shall have either directly or indirectly (through a representative of the recipient party) specified to the sending party.

3. Miscellaneous .

(a) Effect of Amendment . In the event of any inconsistency or conflict between the Registration Rights Agreement and this Amendment, the terms, conditions and provisions of this Amendment shall govern and control. Except as modified by this Amendment, the Registration Rights Agreement shall continue in full force and effect. Nothing in this Amendment shall be construed to modify any provision of the Registration Rights Agreement or in any other document or instrument delivered in connection therewith, other than those provisions of the Registration Rights Agreement specifically amended as set forth in this Amendment.

(b) Entire Agreement . This Amendment and the Registration Rights Agreement contain the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. Any reference to the Registration Rights Agreement after this Amendment is first effective shall be deemed to be a reference to the Registration Rights Agreement as amended hereby.

(c) Successors and Assigns . All covenants and agreements in this Amendment by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Amendment which are for the benefit of purchasers or Holders are also for the benefit of, and enforceable by, any subsequent Holder.

(d) Severability . Whenever possible, each provision of this Amendment will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Amendment.

(e) Counterparts . This Amendment may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Amendment.

(f) GOVERNING LAW . ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAWS OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(g) Descriptive Headings . The descriptive headings of this Amendment are inserted for convenience only and do not constitute a part of this Amendment.

* * * * *

IN WITNESS WHEREOF , the parties hereto have executed and consented to this Amendment No. 1 to the Registration Rights Agreement as of the date first above written.

	Paycom Software, Inc.

	By:	/s/ Chad Richison
		Name: Chad Richison
		Title: CEO

	Paycom Payroll, LLC

	By:	/s/ Chad Richison
		Name: Chad Richison
		Title: CEO

[ Signature Page to Amendment No. 1 to the Registration Rights Agreement ]

	Welsh, Carson, Anderson & Stowe X, L.P.

	By: WCAS X Associates LLC Its: General Partner

	By:	/s/ Jonathan Rather
		Name: Jonathan Rather
		Title: Managing Member

	WCAS Capital Partners IV, L.P.

	By: WCAS CP IV Associates LLC Its: General Partner

	By:	/s/ Jonathan Rather
		Name: Jonathan Rather
		Title: Managing Member

	WCAS Management Corporation

	By:	/s/ Jonathan Rather
		Name: Jonathan Rather
		Title: Treasurer and Assistant Secretary

	WCAS Paycom Holdings, Inc.

	By:	/s/ Jonathan Rather
		Name:
		Title:

[ Signature Page to Amendment No. 1 to the Registration Rights Agreement ]

	Ernest Group, Inc.

	By:	/s/ Chad Richison
		Name: Chad Richison
		Title: President

	The Ruby Group, Inc.

	By:	/s/ Chad Richison
		Name: Chad Richison
		Title: President

[ Signature Page to Amendment No. 1 to the Registration Rights Agreement ]

Exhibit 10.3

LOAN AGREEMENT

between

KIRKPATRICK BANK,

an Oklahoma banking association,

as Lender,

and

PAYCOM PAYROLL, LLC,

a Delaware limited liability company, as Borrower

\\CdfsO I \home\allenz\Kirkpatrick\Paycom \2015 Building 3\Loan Documents\Kirkpatrick Bank - Paycom - Loan Agreement - 7.docx

Exhibit 10.3

LOAN AGREEMENT

THIS LOAN AGREEMENT is made and entered into effective as of (but not necessarily on) May 13, 2015 (the " Effective Date" ), by and between KIRKPATRICK BANK, an Oklahoma banking association (" Lender" ), and P A YCOM PAYROLL, LLC, a Delaware limited liability company ("Borrower").

RECITALS:

A. Borrower occupies that certain property consisting of approximately fifty (50) acres of land located north of Kilpatrick Turnpike and east of Council Road in Oklahoma City, Oklahoma, such property consisting of three (3) contiguous tracts of land identified as "Tract I", " Tract 2 " and " Tract 3 " (each hereby defined as the same and collectively as the "Real Property" ) as more particularly described in Exhibit "A" attached hereto and incorporated herein.

B. Borrower and Lender previously entered into that certain Second Loan Modification Agreement, dated effective June 17, 2014, which acted to, among other things, modify that certain Loan Agreement, dated March 28, 2013, as amended (the "Existing Loan Agreement" ), for the purpose of consolidating, amended, restating and increasing all of the then-existing indebtedness of Borrower payable to Lender. Such consolidation is evidenced by that certain Consolidated, Amended, Restated and Increased Promissory Note in the maximum principal amount of$27,420,538.01 (the " Consolidated Note" ).

C. The Consolidated Note is secured by, among other things, those certain mortgages identified on Exhibit "C" attached hereto (collectively and as amended, the "Existing Mortgages").

D. Lender previously extended to Borrower an advancing loan in the maximum principal amount of $1,000,000.00 for the purpose of constructing a new parking lot (the "New Parking Lot") on the southwest portion of the Real Property within Tract 3, as evidenced by that certain Promissory Note, dated March 5, 2015, executed by Borrower and payable to the order of Lender (the " Parking Lot Note" ). No monies have been advanced on this Parking Lot Note.

E. The Parking Lot Note is secured by, among other things, (i) that certain Construction Mortgage, dated March 5, 2015, recorded in Book 12764, at Page 805 in the real property records of the Oklahoma County Clerk, and (ii) that certain Mortgage, dated March 5,

2015, recorded in Book 12764, at Page 793 in the real property records ofthe Oklahoma County

Clerk.

F. Borrower has now requested that Lender lend to Borrower Eleven Million and Noll 00 Dollars ($1 1 ,000,000.00) to finance (i) the construction of an 82,000 square foot office building ("Building 3") to be situated on a portion of Tract 1, as depicted on the map attached hereto as Exhibit "B", (ii) the expansion and renovation of the existing gymnasium building to be situated on portions of Tract 1 and Tract 2 (the " Gymnasium Expansion" ), as depicted on Exhibit "B", and (iii) the construction of the New Parking Lot, as depicted on Exhibit "B".

Subject to the terms, provisions, covenants and agreements hereinafter set forth, Lender has agreed to make the requested extensions of credit.

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Exhibit 10.3

AGREEMENT:

In consideration of the mutual covenants contained herein and the loan to be made hereunder, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lender and Borrower hereby covenant and agree as follows:

I. DEFINITIONS. Unless the context otherwise requires and except as otherwise may be provided herein, (i) accounting and financial terms used in this Agreement shall have the meanings ascribed to such terms by generally accepted accounting principles in effect from time to time, applied on a consistent basis, as set forth in opinions ofthe Accounting Principles Board of the American Institute of Certified Public Accountants and/or Statements of the Financial Accounting Standards Board which may be applicable in the circumstances as of the date involved, (ii) definitions contained in the Code (herein defined) shall apply to terms, words and phrases used herein, except that in case of any conflict between definitions contained in Article 9 of the Code and other definitions in the Code, the Article 9 definitions shall apply, (iii) the singular shall be deemed to include the plural and the plural shall be deemed to include the singular, and (iv) the terms as used herein shall be construed and controlled by the following definitions:

1.1 Account Security Agreement. "Account Security Agreement" shall have the meaning assigned to that term in paragraph 4.2 of this Agreement.

1.2 Affiliate. "Affiliate" shall mean any person or entity (including, without limitation, an individual, a corporation, a limited liability company, a partnership, a trust, or an incorporated association), which has a relationship with Borrower whereby either such person or entity or Borrower directly or indirectly controls or is controlled by or is under common control with the other, or holds or beneficially owns twenty-five percent (25%) or more of the equity interest in the other or twenty-five percent (25%) or more of any class of voting securities of the other, and shall, in addition, include all members in Borrower.

1.3 Agreement. "Agreement," and such terms as "herein," "hereof," "hereto," "hereby," "hereunder" and the like shall mean and refer to this Loan Agreement, together with any and all Exhibits attached hereto, and any and all supplements, modifications or amendments hereof.

1.4 Amortization Period. "Amortization Period" means two hundred forty (240) months.

1.5 Appraisal. "Appraisal" shall mean the meaning ascribed thereto in paragraph 5.10 of this Agreement. The Loan amount will be limited to eighty percent (80%) ofthe Appraised Value.

1.6 Appraised Value. "Appraised Value" shall mean the value set forth in the Appraisal or any updates to the Appraisal pursuant to paragraph 5.1 0.

1.7 Architect. "Architect" shall mean HSE Architects PLLC, an

Oklahoma professional limited liability company.

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Exhibit 10.3

1.8 Assignment. "Assignment" shall have the meaning ascribed to such term in paragraph 4.1 ofthis Agreement.

1.9 Building 3. "Building 3" shall mean an 82,000 square foot office building to be situated on Tract 1.

1.10 Business Day. "Business Day" shall have the meaning assigned to that term in the Note.

1.11 Code. "Code" shall mean the Uniform Commercial Code of

Oklahoma, as the same may from time to time be in effect.

1.12 Collateral Assignments. "Collateral Assignments" shall have the meaning assigned to that term in paragraph 4.3 of this Agreement.

1.13 Completion Date. "Completion Date" shall mean the date upon which all of the following conditions are fully satisfied: (i) the Construction Project has reached Substantial Completion, (ii) Borrower has delivered to Lender a final "as-built" survey of all of the Mortgaged Property which is in form, scope and substance acceptable to Lender, (iii) Borrower has delivered to Lender prepaid property, liability, business interruption, worker's compensation insurance, and other required insurance covering the Mortgaged Property, all in amount, form, scope and substance satisfactory to Lender, (iv) Borrower has delivered to Lender Certificates of Occupancy issued for the Construction Project and for occupancy ofthe premises, and (v) Borrower has accepted Building 3, the gymnasium, as improved by the Gymnasium Expansion, and the New Parking Lot.

1.14 Completion Deadline. "Completion Deadline" shall mean the date which is eighteen (18) months after the Effective Date.

1.15 Construction Account. "Construction Account" shall have the meaning assigned to that term in paragraph 5.6 of this Agreement.

1.16 Construction Period. "Construction Period" shall mean the period of time from the Effective Date until the Completion Date, but in no event later than the Completion Deadline.

1.17 Construction Consultant. "Construction Consultant" shall mean the individual or entity selected by Lender, in Lender's sole discretion and at Borrower's cost, to inspect the Construction Project, review all plans, construction budgets, time lines, permits, contracts, supporting documentation and information, and to advise Lender in regard to all aspects ofthe Construction Project.

1.18 Construction Contract. "Construction Contract" shall mean, collectively, the contracts between Borrower and the Contractor, for the Construction Project, which contract is subject to Lender's review and approval.

1.19 Construction Project. "Construction Project" shall mean construc tion of Building 3, the Gymnasium Expansion, and the New Parking Lot, or any one of the foregoing, and related improvements, pursuant to plans and specifications and the Project Budget approved by Lender and located on the Real Property.

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Exhibit 10.3

1.20 Contractor. "Contractor" shall mean Clyde Riggs Construction, L.L.C., an Oklahoma limited liability company, which shall serve as Borrower's general contractor for the Construction Project.

1.21 Dollars. "Dollars" and"$" shall mean lawful money ofthe United

States of America.

1.22 Engineer. "Engineer" shall mean Johnson and Associates, Inc., an

Oklahoma corporation.

1.23 ERISA. "ERISA" shall mean the Employee Retirement Income

Security Act of I 974, as amended and as in effect from time to time.

1.24 Event of Default. "Event of Default" shall mean the occurrence of any of the events specified in paragraph 10 of this Agreement.

1.25 Existing Mortgages. "Existing Mortgages" shall mean those mortgages referenced in Exhibit "C" attached hereto.

1.26 Financing Statements. "Financing Statements" shall have the meaning ascribed to that term in paragraph 4.1 of this Agreement.

1.27 Guarantor. "Guarantor" shall mean Paycom Software, Inc., a

Delaware corporation.

1.28 Guaranty. "Guaranty" means the Guaranty Agreement executed and delivered by the Guarantor in favor of the Lender and in form and substance acceptable to the Lender wherein Guarantor guarantees payment and performance of the Indebtedness.

1.29 Governmental Authority. "Governmental Authority" shall mean any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

1.30 Hazardous Substances Indemnity Agreement and HSIA. "Hazardous Substances Indemnity Agreement" and "HSIA" shall each mean the Hazardous Substances Indemnity Agreement which will be signed pursuant to paragraph

4.5 of this Agreement.

1.31 Interest Rate. "Interest Rate" means:

(i) commencing with the Effective Date and continuing until the Term Loan Conversion Date, a floating per annum rate of interest equal to the greater of (a) the Prime Rate plus 50 basis points (0.5%) or (b) 4.00%;

(ii) commencing with the Term Loan Conversion Date, a fixed, per annum rate of interest equal the 7/20 LIBOR Swap Rate in effect as of the Term Loan Conversion Date plus 225 basis points (2.25%).

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Exhibit 10.3

1.32 7/20 LIBOR Swap Rate. "7/20 LIBOR Swap Rate" shall mean that certain LIBOR Swap interest rate, effective as of the Term Loan Conversion Date, identified as the Swap rate for a 7-year term and a 20-year amortization the in the then-effective Weeldy Swap Pricing Indications report issued to Lender by County Club Bank pursuant to that certain SWAP Agreement by and between the same.

1.33 Indebtedness. "Indebtedness" shall mean and include all liabilities, obligations or indebtedness of Borrower to Lender of every kind and description, now existing or hereafter incurred, direct or indirect, absolute or contingent, due or to become due, matured or unmatured, and whether or not of the same or a similar class or character as the Loan and whether or not contemplated by Lender or Borrower, together with future advances and all extensions and renewals, and including (without limiting the generality of the foregoing) all indebtedness of Borrower to Lender arising out of or related to the Loan, the Note, this Agreement or any other of the Loan Documents.

1.34 Liability. "Liability" shall mean any claim on the assets of a

Person, excluding ownership equity.

1.35 Liquidity Account. "Liquidity Account" shall have the meaning ascribed to such term in paragraph 5.6 of this Agreement.

1.36 Loan. "Loan" shall mean that loan to be advanced pursuant to this

Agreement and evidenced by the Note.

1.37 Loan Documents. "Loan Documents" shall mean collectively this Agreement, the Note, the Mortgage, the Second Mortgage, the Existing Mortgages, the Financing Statements, the Guaranty, the Account Security Agreement, the Account Financing Statement, the Assignment, the Collateral Assignments, the Subordination Agreements, the Assignment of Permits, the Existing Loan Agreement, the Consolidated Note and all other instruments and documents executed or issued or to be executed or issued pursuant to this Agreement or any of said documents or in connection with the Loan, and all amendments, modifications, extensions and renewals of any of the foregoing documents.

1.38 Loan-to - Value. divided by the Appraised Value.

"Loan-to - Value" shall mean the Indebtedness

1.39 Maturity Date. "Maturity Date" Means May 7, 2023, or any earlier date on which the entire unpaid principal amount of the Note shall be paid or required to be paid in full, whether by prepayment, acceleration or otherwise.

1.40 Mortgage. "Mortgage" shall have the meaning ascribed to that term in paragraph 4.1 ofthis Agreement.

1.41 Mortgaged Property. "Mortgaged Property" shall have the meaning ascribed to such term in the Mortgage, and includes, without limitation, the Real Property described on Exhibit "A" attached to this Agreement and incorporated herein. The Mortgaged Property does not include the property or funds of Borrower's unaffiliated clients and/or customers.

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Exhibit 10.3

1.42 Note. "Note" shall mean the Promissory Note executed by Borrower and payable to the order of Lender to evidence the Loan in the maximum principal amount not to exceed the lesser of (i) Eleven Million and Noll 00 Dollars ($11,000,000.00), and (ii) eighty percent (80%) ofthe Appraised Value ofthe Mortgaged Property.

1.43 PBGC. "PBGC" shall mean the Pension Benefit Guaranty Cor poration as established pursuant to Section 4002 of ERISA or any successor thereto or substitute therefor under ERISA.

1.44 Person. "Person" shall mean any individual, corporation, company, joint venture, association, partnership, trust, unincorporated organization, Governmental Authority or other entity.

1.45 Prime Rate. "Prime Rate" shall mean the highest per annum rate of interest (expressed as a percentage) which is identified as the "Prime Rate" in the "Money Rates" section of The Wall Street Journal, adjusted as of the date of any change therein, whether or not such prime rate is actually charged by any bank or other financial institution and whether or not a lower or better rate of interest is charged by any bank or other institution.

1.46 Project Budget. "Project Budget" shall mean Borrower's detailed budget for financing the design and construction of Building 3, the Gymnasium Expansion and the New Parking Lot on the Real Property, and for all other costs related to or associated with the Construction Project, a copy of which Project Budget is attached to this Agreement as Exhibit "D" and incorporated herein.

1. 4 7 Project Cost. "Project Cost" shall mean the total cost of the

Construction Project.

1.48 Real Property. "Real Property" shall mean the certain real property located in Oklahoma County, Oklahoma, which is more particularly described on Exhibit "A" attached to this Agreement and incorporated herein by reference.

1.49 Request for Funds. "Request for Funds" shall mean the Request for Funds described in paragraph 9.3 of this Agreement.

1.50 Second Mortgage. ascribed thereto in paragraph 4.1.

"Second Mortgage" shall have the meaning

1.51 Subordination Agreements. "Subordination Agreements" shall mean the Subordination Agreements described in paragraphs 4.3 and 4.5 of this Agreement.

1.52 Substantial Completion. "Substantial Completion" or "Sub- stantially Complete" shall mean completion of the Construction Project to the point that it is legally ready for occupancy and use, as evidenced by all required governmental permits, licenses and final certificates of occupancy and by certificates of substantial completion signed by Borrower, the Architect, the Contractor, the Construction Consultant and any inspector that Lender may, in its discretion, retain at Borrower's expense.

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Exhibit 10.3

) 1.53 Term Loan Conversion Date. "Term Loan Conversion Date" shall be the date on which the Note evidencing the Loan converts to a so-called "term loan",

) which such date shall occur on the first ( 1 51

day of the first ( 1 51

month after the

Completion Date, but in no event later than the Completion Deadline.

1.54 UCC. "UCC" shall mean the Uniform Commercial Code of the

State of Oklahoma.

2. LENDING AGREEMENT.

2.1 Construction Loan. Subject to the terms, prov1s1ons, covenants and agreements set forth in this Agreement, Lender agrees to make construction loan advances to Borrower until the end of the Construction Period, in an amount equal to the lesser of (i) eighty percent (80%) of the Appraised Value of the Mortgaged Property, and (ii) Eleven Million and No/100 Dollars ($11,000,000.00), which Loan shall be used by Borrower for the purpose of: (a) paying contractors, architects, engineers, mechanics, materialmen, laborers, service agencies and suppliers pursuant to the terms of contracts for construction of the Construction Project, for services in fact performed and materials purchased for and either incorporated into the Construction Project or suitably stored on the Real Property for later incorporation, (b) refinancing, amending and restating the Parking Lot Note which has a principal balance of $0.00 as of the Effective Date, and the credit existing thereunder shall now be evidenced by the Note, (c) reimbursing Lender for expenses incurred by Lender pursuant to this Agreement and (d) paying other costs which are incidental or related to the cost of completing or financing the Construction Project as set forth in the Project Budget, subject to Lender's prior approval; provided , however, notwithstanding any other language set forth in this Agreement or any of the other Loan Documents, Loan proceeds shall not be used to pay interest, Loan fees, late charges, after default interest and/or any other similar costs, as determined by Lender. Upon the Effective Date, the Parking Lot Note shall be voided, and Lender shall have no further obligations thereunder.

2.2 Term Loan. Upon the Term Loan Conversion Date, provided such date is timely and in no event later than the Completion Deadline, and further provided no Default or Event of Default then exists and remains uncured, the outstanding principal balance of the Construction Loan shall be automatically converted to a seventy-eight (78) month term loan, with the monthly amount of principal and interest payments being calculated on the basis of a twenty (20) year (240 month) mortgage amortization schedule and payable as set forth in paragraph 3 below.

3. BORROWER'S NOTE. The Loan shall be evidenced by the Note, which Note shall be signed by Borrower and delivered to Lender concurrently with execution of this Agreement. Principal and interest shall be payable on the Note as follow:

) (a) Commencing on the first ( 1 51

day of the first calendar month following

) the Effective Date, and continuing on the first ( 1 51

day of each successive month

thereafter through and including the Term Loan Conversion Date, Borrower shall pay to Lender a monthly payment of interest only, accrued at the Interest Rate on the outstanding principal balance of the Note.

) (b) Commencing on the first ( 1 51

day of the first calendar month following

) the Term Loan Conversion Date, and continuing on the first ( 1 51

day of each successive

month thereafter through and until the Maturity Date, Borrower shall pay to Lender the amount determined by Lender to be the monthly payment of principal and interest

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Exhibit 10.3

necessary to amortize the principal balance of the Note, together with interest on such principal balance at the Interest Rate (determined on the Term Loan Conversion Date), over the Amortization Period (i.e., 240 months).

The Loan shall be subject to a prepayment premium as more particularly described in the Note.

4. COLLATERAL SECURITY. The performance of all covenants and agreements contained in this Agreement and in the other documents executed or delivered as a part of this transaction, and the payment of the Note shall be secured as follows:

4.1 Security Documents Covering Mortgaged Property. Borrower shall (a) grant to Lender a priority Construction Mortgage (With Power of Sale), Security Agreement and Financing Statement (the " Mortgage" ) in the form prescribed by Lender, subject to no other liens except for the Existing Mortgages, covering Tract 1 and Tract 2 and a first security interest in all personal property relating to such property which shall identify the Note as the indebtedness evidenced thereby and be in form acceptable to Lender; (b) grant to Lender a priority Second Mortgage (With Power of Sale), Security Agreement and Financing Statement (the " Second Mortgage" ), in the form prescribed by Lender, subject to no other liens except for the Existing Mortgages, covering Tract 3 and a first security interest in all personal property relating to such property which shall identify the Note as the indebtedness evidenced thereby and be in form acceptable to Lender; and (c) assign to Lender all leases of the Mortgaged Property and all of the rents, issues and profits of the Mortgaged Property, which assignment shall be evidenced by an Assignment of Leases, Rents and Profits (the " Assignment" ), in the form prescribed by Lender, which shall identify the Note as the indebtedness evidenced thereby.

4.2 Security Agreements Covering Borrower's Accounts With Lender. Borrower shall grant to Lender a first security interest in the Construction Account. Such security interests shall be evidenced by a Security Agreement (the " Account Security Agreement" ) in the form prescribed by Lender.

4.3 Assignment and Subordination of Architectural Agreement and Construction Contract. Borrower shall sign, and shall cause the Architect to sign, and deliver to Lender a Collateral Assignment of Architectural Agreement in the form prescribed by Lender and Borrower shall sign, and cause the Contractor to sign, and deliver to Lender a Collateral Assignment of Construction Contract in the form prescribed by Lender (collectively, the " Collateral Assignments" ). Borrower shall also provide to Lender (i) a Subordination Agreement in the form prescribed by Lender, which shall be properly signed and acknowledged by the Architect for the Construction Project, and (ii) a Subordination Agreement in the form prescribed by Lender, which shall be properly signed and acknowledged by the Contractor (collectively, the "Subordination Agreements"). If the Collateral Assignments and the Subordination Agreements are not available prior to or at the time of execution of this Agreement, Lender and Borrower agree that the Collateral Assignments and Subordination Agreements must be provided to Lender prior to any funding of the Loan.

4.4 [Reserved].

4.5 Additional Documents. Borrower shall sign and deliver to Lender a Hazardous Substances Indemnity Agreement in the form prescribed by Lender. Borrower shall also sign and deliver (i) an Assignment of Permits, Licenses and Approvals, (ii) an Assignment of Service Agreements and Maintenance Contracts, (iii) a Security Agreement covering the Borrower's Construction Account with Lender, (iv) a

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Exhibit 10.3

closing certificate, and (v) such other documents as may be required by Lender to evidence and secure the Loan, all of which will be in the forms prescribed by Lender. In addition, Borrower shall cause its manager of the Mortgaged Property to sign a Subordination Agreement in form prescribed by Lender. Any and all collateral documents executed by Borrower in favor of Lender as security for any indebtedness of Borrower to Lender shall also expressly secure Borrower's obligations hereunder and under the Note and all documents which evidence and secure payment of any of the Note.

5. CONDITIONS OF LENDING. Lender's obligations under this Agreement, including the obligation to make any advances under the Note, are subject to the performance and satisfaction of the conditions precedent listed below:

5.1 No Events of Default. There shall not have occurred and be continuing any Event of Default, and the representations and warranties set forth in the Loan Documents shall be true and accurate in all material respects.

5.2 Loan Documents and HSIA. This Agreement, and all Loan Documents required by Lender and the HSIA shall be duly authorized, executed and delivered to Lender.

5.3 Existence and Authority of Borrower. Borrower shall provide to Lender the following documents relating to Borrower: (i) Certificates of Good Standing from the Secretary of State of Delaware and the Secretary of State of Oklahoma, (ii) a Delaware Secretary of State certified copy of the transcript of the Certificate of Limited Liability Company, together with all amendments thereto, (iii) an Oklahoma Secretary of State certified copy of the qualification to transact business in Oklahoma, (iv) a certified copy of the Operating Agreement of Borrower and all amendments thereto, and (v) a Certificate of Limited Liability Company Authority, in a manner and with text acceptable to Lender, evidencing the authority of the Chief Financial Officer of Borrower to sign this Agreement and all other Loan Documents and to perform its obligations hereunder and thereunder.

5.4 Existence and Authority of Guarantor. Borrower shall provide to Lender the following documents relating to Guarantor: (i) Certificates of Good Standing from the Secretary of State of Delaware and the Secretary of State of Oklahoma, (ii) a Delaware Secretary of State certified copy of the transcript of the Certificate of Incorporation, together with all amendments thereto, (iii) an Oklahoma Secretary of State certified copy of the qualification to transact business in Oklahoma, (iv) a certified copy ofthe Certificate oflncorporation and the By-laws and all amendments thereto, and (v) an officer's certificate and resolution certified and issued by the proper authority of the Guarantor, or the like, in a manner and with text acceptable to Lender, evidencing the authority of the Chief Financial Officer of the Guarantor to sign the Guaranty and to perform its obligations thereunder.

5.5 Recording of Security Documents. The Mortgage, the Second Mortgage, and the Assignment shall be recorded in the real property records of the County Clerk of Oklahoma County, Oklahoma. The Financing Statement shall be filed in the "central" UCC records of the Secretary of State of Delaware. Borrower shall provide to Lender UCC search report on Borrower and/or such other evidence as Lender may require to evidence the senior priority of Lender's security interest perfected by the Financing Statements.

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Exhibit 10.3

5.6 Establishment of Construction Account and the Liquidity Account. Borrower shall establish a deposit account ("Construction Account") with Lender on or before the Effective Date, into which the proceeds of the Loan (but no other funds) shall be deposited as such proceeds are advanced and from which Borrower shall make only payments permitted under the terms of this Agreement. Borrower shall maintain the existing liquidity account (the " Liquidity Account" ) with Lender in which Borrower is required to and shall continue to maintain, through the Maturity Date, a deposit balance of not less than Two Million and No/100 Dollars ($2,000,000.00).

5.7 Title Evidence. Borrower shall provide to Lender (i) a Commitment for Title Insurance for the issuance of a lender or mortgagee policy covering the Mortgaged Property, (a) issued in an amount equal to the maximum principal amount ofthe Loan, (b) naming Lender as the proposed insured and containing only exceptions as are expressly approved in writing by Lender (and all requirements for such commitment shall have been satisfied and the premium therefor shall have been paid by Borrower), together with copies of all documents listed in Schedule (or Part) I and all documents listed in Schedule (or Part) II of the Commitment for Title Insurance, (ii) a proforma loan policy of title insurance complying with the foregoing requirements of Lender, together with proforma endorsements required by Lender, (iii) a Closing Protection Letter from the title insurance company which is to provide a loan policy of title insurance covering Lender's Mortgage, (iv) an ALTA Loan Policy of Title Insurance 2006, in form and substance acceptable to Lender, issued by a title insurance company acceptable to Lender, evidencing that Borrower has good and marketable fee simple title to the Mortgaged Property and that the Mortgage will constitute a valid first Mortgage on the Mortgaged Property, subject only to those matters described in Exhibit "B" attached to the Mortgage. The loan policy of title insurance shall not include an exception based upon mechanics' and materialmen's liens, or any exceptions based on discrepancies, conflicts in boundary lines, shortage in area, encroachments or other facts which would be disclosed by a proper survey. The loan policy of title insurance must be accompanied by such endorsements thereto as may be required by Lender or its counsel, including, but not limited to, an access and entry endorsement, a comprehensive endorsement, a contiguity endorsement, an endorsement deleting the arbitration provision, an environmental lien endorsement, a subdivision endorsement, a survey endorsement, a variable rate endorse ment, and a zoning endorsement. The premiums for the loan policy of title insurance and all endorsements shall be paid by Borrower prior to or at the time of the initial advance under the Note.

5.8 Survey. Borrower shall deliver to Lender a current ALTA/ACSM Land Title Survey (2 0 11) of the Real Property, prepared by a surveyor approved by Lender, which survey shall delineate all property lines, shall locate all improvements on the Real Property, shall show easements benefitting and/or affecting the Real Property and identify them by book and page of recording, shall show adjoining streets and access ways, and shall show all other physical matters affecting the title and use of the Real Property. The form of surveyor's certificate shall be acceptable to Lender and shall enable the issuer of the required loan policy of title insurance to delete all survey exceptions.

5.9 Flood Hazard Certification. Borrower shall provide to Lender a flood hazard certificate in form, scope and substance acceptable to Lender and evidencing that the Mortgaged Property does not lie in a flood hazard area.

5.10 Appraisal. Borrower shall pay for a new, independent, "as-complete" appraisal of the Mortgaged Property (or any updates thereto, the

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Exhibit 10.3

" Appraisal" ), which shall (i) be prepared by an appraiser selected and approved by Lender's appraisal committee, (ii) comply with the standards set forth by Lender's appraisal committee, (iii) reflect all existing improvements and all future improvements pursuant to the improvements which shall exist upon Substantial Completion of the Construction Project. At no time shall the Loan-to - Value exceed eighty percent (80%). Updates to the Appraisal may be required by Lender due to changes in regulatory policies and/or changes in the Mortgaged Property. If the Appraisal is not available prior to the execution of this Agreement and in the event the Appraisal does not support the Loan-to - Value condition identified in this paragraph, Lender and Borrower agree that the amount of the Loan will be adjusted in order to comply with such condition.

5.11 Insurance. Prior to commencement of the Construction Project, Borrower shall obtain, and furnish to Lender satisfactory evidence of insurance on the Mortgaged Property and evidence of payment of all premiums for such insurance, which insurance shall at all times comply with all ofthe requirements set forth in the Mortgage. Specifically, Borrower shall maintain Borrower's builder's risk insurance for the full completed project insurable value of the Construction Project ("Builder's Risk Insurance"), which Builder's Risk Insurance (i) shall meet the same requirements as Special Perils Insurance (herein defined), with whatever limits and coverage extensions Lender requires, (ii) shall be written on a "Completed Value" Form ( 1 00% non-reporting) or its equivalent and shall include an endorsement granting permission to occupy and (iii) shall cover loss of materials, equipment, machinery, and supplies whether on-site, in transit, or stored off-site, or of any temporary structure, hoist, sidewalk, retaining wall or underground property, all soft costs, plans, specifications, blueprints and models, and demolition and increased costs of construction, including costs arising from changes in laws at the time of restoration, and coverage for operation of building at the time of restoration, all subject to a sublimit satisfactory to Lender. Upon completion of the Construction Project, Borrower shall furnish to Lender satisfactory evidence of insurance on the Mortgaged Property and evidence of payment of all premiums for such insurance, which insurance shall at all times comply with all of the requirements set forth in the Mortgage. Borrower covenants and agrees to deposit with Lender and to maintain throughout the term of the Note original policies of insurance, issued by insurance companies satisfactory to Lender, in such amounts and against such risks as required by Lender, including but not limited to the following: (a) Borrower shall maintain a policy against all risks of loss to the Mortgaged Property customarily covered by "All Risk" or "Special Perils Form" policies as available in Oklahoma County, Oklahoma (collectively, "Special Perils Insurance'), in amounts and with insurers acceptable to Lender, in its sole discretion, but not less than the greater of the Secured Indebtedness (as defined in the Mortgage) or one hundred percent (100%) of the full replacement value of the Mortgaged Property, all improvements thereon, and all improvements, betterments and contents thereof, including, but not limited to, all fixtures, furnishings and equipment located in or about such improvements, which Special Perils Insurance (i) shall cover at least the following perils: building collapse, fire, flood, hurricane, impact of vehicles and aircraft, lightning, malicious mischief, mudslide, subsidence, terrorism, vandalism, water damage, windstorm, hail and such other insurable perils as, under good insurance practices, other commercial property owners from time to time insure against for property and building(s) similar to the Mortgaged Property in height, location, nature, type of construction, and use, as evidenced by written advice from Lender's insurance advisor; and (ii) shall contain an agreed amount endorsement or a coinsurance waiver and a replacement cost value endorsement without deduction for depreciation; (b) equipment and machinery (generally referred to as boiler and machinery) insurance covering all mechanical and electrical equipment against physical damage, rent loss, extra expense and expediting expense covering the Mortgaged Property and any insured leasehold property, which

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Exhibit 10.3

equipment and machinery insurance shall be maintained on a replacement cost value basis; (c) if required by Lender, Borrower shall maintain a policy of business or rent interruption insurance on an "actual sustained basis" ("Business Interruption Insurance"), providing coverage against any loss of income by reason of any hazard referred to in this paragraph; in an amount sufficient to avoid any coinsurance penalty, but in any event for not less than at least twelve (12) months of (i) Borrower's actual gross receipts from all sources of income from business operations occurring on the Real Property and (ii) all amounts which Borrower is required to pay to Lender or third parties pursuant to this Agreement, the Note, the Mortgage or any of the other Loan Documents; (d) Borrower shall maintain the following insurance for personal injury, bodily injury, death, accident and property damage: (i) public liability insurance, including commercial general liability insurance, (ii) owned (if any), hired, and non-owned automobile liability insurance, and (iii) umbrella liability insurance as necessary (collectively, "Liability Insurance"), which Liability Insurance shall provide coverage of at least $1,000,000.00 per occurrence and

$2,000,000.00 in annual aggregate, per location, and if any Liability Insurance also covers other locations, with a shared aggregate limit, the minimum Liability Insurance shall be increased to $5,000,000.00; and in any event, the Liability Insurance shall include coverage for liability arising from premises and operations, elevators, escalators, independent contractors, contractual liability (including liability assumed under contracts and leases), and products and completed operations; (e) Borrower shall at all times maintain a policy of workers' compensation and employers liability as required by applicable state law, together with satisfactory evidence of compliance with applicable state law requirements for workers' compensation coverage; (f) Borrower shall at all times maintain a policy of flood and mudslide insurance in an amount equal to the lesser

of the outstanding principal balance of the indebtedness secured hereby or the maximum amount of coverage made available with respect to the Mortgaged Property under the National Flood Insurance Program (or evidence satisfactory to Lender that the Mortgaged Property is not located in an area designated by the Secretary of Housing and Urban Development or any other governmental department agency, bureau, board or instru mentality as an area having special flood or mudslide hazards and that flood insurance is not required for this loan under the terms of any law, regulation or rule governing Lender's activities); and (g) when and to the extent required by the Lender, Borrower shall maintain a policy or policies of insurance against any other risk or risks insured against by persons operating like properties in the locality of the Mortgaged Property. All insurance policies shall be issued by an insurance company having a rating of"A" VII or better by A.M. Best Co., in Best's Rating Guide. Whenever any required insurance specifies any dollar amount, Lender may increase it periodically to reflect Lender's reasonable estimate of inflation. All deductibles, coinsurance provisions, exceptions to coverage and policy forms must be acceptable to Lender in its sole subjective discretion. Each policy shall be a so-called "occurrence" policy of insurance.

No insurance hereunder shall be a part of a "blanket" policy maintained by Borrower or any third party unless the policy expressly provides that the amount of insurance required under the Mortgage will in no way be prejudiced by other losses covered by such policy. Each policy of insurance required under this paragraph 5.12 shall provide that (i) the interest of Lender shall be insured regardless of any act or negligence by Borrower or any breach or violation by Borrower of any warranties, declarations or conditions of such policy, and (ii) the insurer under each policy of insurance required hereunder shall agree that any cancellation of its insurance policy or any endorsement of its insurance policy to effect a change in coverage for any reason shall not be effective until thirty (30) days after receipt by Lender of notice of such cancellation or such endorsement to effect a change in coverage. The Borrower further covenants and agrees that, regardless of the types or amounts of insurance required and approved by the Lender, Borrower will cause the Lender to be named as an additional insured in each policy of builder's risk insurance and

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Exhibit 10.3

all policies of Liability Insurance, which shall be evidenced by endorsements acceptable to Lender; and the Borrower will assign and deliver to the Lender all policies of insurance which insure against any loss or damage to the Mortgaged Property, as collateral and further security for the Secured Indebtedness, which policies shall contain a mortgage clause in favor of Lender, naming Lender as "Mortgagee and Loss Payee" on a standard noncontributory mortgagee endorsement (or its equivalent) naming Lender or its designee as the party to receive insurance proceeds, and shall otherwise be in form, scope and substance acceptable to Lender. In addition, Borrower shall furnish to Lender duplicate copies of each policy of insurance at execution hereof, and copies of each renewal policy, together with receipts or other evidence that premiums have been paid. In the event of a casualty to the Mortgaged Property, all hazard insurance proceeds shall be paid to the Lender. Proceeds of insurance paid to the Lender shall, at the option of the Lender, be applied to payment of the Secured Indebtedness or made available to Borrower to pay for repair, restoration and rebuilding of the Mortgaged Property, as described in the Mortgage.

5.12 Zoning and Use. Borrower shall furnish to Lender satisfactory written evidence that the Real Property is presently zoned for its intended use and that the Real Property is in full compliance with all municipal ordinances, codes, rules or regula tions. The Borrower's confirmation of zoning shall include, without limitation, a title insurance Zoning Endorsement (ALTA 3 .1-06) in form, scope and substance acceptable to Lender.

5.13 Permits. Borrower shall obtain and provide to Lender copies of all permits required for the Construction Project or any part thereof, including, without limitation, building permits issued by the City of Oklahoma City or Oklahoma County. Specifically, Borrower shall provide to Lender and its Construction Consultant, all required City of Oklahoma City Building Permits for the Construction Project, all in form, scope and substance acceptable to Lender and its Construction Consultant. If any permit(s) is not available prior to or at the time of execution of this Agreement, Lender and Borrower agree that such permit(s) must be provided to Lender prior to any funding of the Loan.

5.14 Plans and Specifications. Borrower shall submit for approval by Lender copies of the final plans and specifications for the Construction Project which have been approved in writing by Borrower, the Architect, the Contractor, and all applicable governmental authorities. Following approval by Lender, such plans and specifications shall not be substantially changed, without the prior written consent of Lender. Regardless of its review and approval of the plans and specifications, Lender shall have no responsibility, obligation or liability to Borrower or any other individual or entity based on, arising from or relating to any such review or approval, and Borrower shall at all times have exclusive control over its work on the Construction Project and sole responsibility for compliance with all governmental, quasi-governmental and private laws, rules, regulations, ordinances, codes, covenants, restrictions, easements and other matters which control, burden or apply to or otherwise affect the Mortgaged Property and/or the Construction Project.

5.15 Financial Information. Borrower shall submit to Lender in writing a satisfactory Project Budget which shall show all sources and uses of funds, and shall detail by line item all costs of acquisition of the Real Property and all costs of designing, constructing, franchising, and completing the Construction Project, and all costs of finishing, furnishing, equipping and opening the completed Construction Project for

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Exhibit 10.3

business.

The Project Budget shall contain, without limitation, an interest reserve, a contingency reserve and a working capital reserve.

5.16 Environmental Site Assessments; Hazardous Substances Indemnity Agreement. Borrower shall provide to Lender an environmental assessment report covering the Real Property, which report shall be prepared by an environmental engineering firm acceptable to Lender and shall be in form, scope and substance acceptable to Lender. In addition, Borrower shall sign and deliver to Lender a Hazardous Substances Indemnity Agreement on a form provided by and acceptable to Lender.

5.17 Geotechnical Report. Borrower shall submit for review and approval by Lender a geotechnical report (soils test) covering the Real Property, which geotechnical report shall be in form, scope and substance acceptable to Lender.

5.18 Loan Fees. Borrower shall pay to Lender a loan commitment fee equal to one-half percent (0.50%) of the proposed amount of the Loan (ie. $55,000.00) payable at the closing of the Loan, which fee shall be deemed fully earned by Lender and nonrefundable at the time Lender signs this Agreement.

5.19 Architectural Agreement and Construction Contract. Borrower shall deliver to Lender for its review and approval the architectural agreement between Borrower, as owner, and the Architect for the Construction Project, which architectural agreement (i) must be in form, scope and substance acceptable to Lender, and (ii) must be subordinated to the Loan and the Loan Documents as described in paragraph 4.3 of this Agreement. Borrower shall deliver to Lender for its review and approval the fixed price Construction Contract between Borrower, as owner, and the Contractor for the Construc tion Project, which Construction Contract (i) must be in form, scope and substance acceptable to Lender, must be collaterally assigned to Lender as described in paragraph

4.3 of this Agreement, and (iii) must be subordinated to the Loan and Loan Documents as described in paragraph 4.3 ofthis Agreement.

5.20 Opinion of Borrower's Counsel. Borrower shall provide Lender with a legal opinion from its counsel as to: (i) the due organization, powers and good standing of Borrower and Guarantor; (ii) to the best knowledge of Counsel after inquiry, the absence of any suits, proceedings or investigations pending, threatened against or affecting Borrower and Guarantor, any of which if adversely determined, would have a materially adverse effect on the financial condition, the business or the properties of Borrower and Guarantor; (iii) that Borrower and Guarantor have fully complied with all local, state, and federal requirements relative to the location and operation of the project as an office building; (iv) that the documents executed and provided by the Borrower and Guarantor pursuant to this Agreement are fully authorized under all documents which evidence the creation, existence and good standing of the Borrower and Guarantor; (v) that all Loan Documents, other than the Guaranty, have been duly executed by the Borrower, are the legal, valid and binding obligations of Borrower and are enforceable according to their respective terms; and (vi) that the Guaranty has been duly executed by the Guarantor, is a legal, valid and binding obligation of Guarantor and is enforceable according to its respective terms.

5.21 Construction Schedule; Subcontractors and Suppliers. Borrower shall deliver to Lender (i) a complete, written construction schedule for the Construction Project, (ii) a list of all subcontractors and material suppliers, together with their respective addresses and main contracts, (iii) a copy of every subcontract and material

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Exhibit 10.3

purchase order of $10,000.00 or more, and (iv) copies of all of the Performance Bonds and Payment Bonds listed on Exhibit "E" attached to this Agreement and incorporated herein by reference.

6. REPRESENTATIONS AND WARRANTIES. In addition to all other representations and warranties of Borrower to Lender, Borrower represents and warrants that:

6.1 Existence and Authority of Borrower. Borrower is and will continue to be a limited liability company duly formed and validly existing under the laws of the State of Delaware, and is duly qualified to transact business in the State of Oklahoma; Borrower has full power, authority and legal right to own, manage and hold title to the Mortgaged Property and to occupy Building 3 and the gymnasium as renovated by the Gymnasium Explansion, and Borrower has full and legal right, power and author ity to enter into and carry out the provisions of this Agreement and all documents signed by Borrower pursuant to this Agreement, to borrow money, to give security for borrowing as required by this Agreement, and to consummate the transaction contemplated by this Agreement.

6.2 Conflicting Agreements and Restrictions. Borrower is not a party to any contracts or agreements or subject to any other restrictions which materially adversely affect its business, property, assets or financial condition. To the best of Borrower's knowledge, neither the execution and delivery of the Loan Documents nor fulfillment and compliance with the terms and provisions thereof, (i) will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of any agreement, instrument, undertaking, judgment, decree, order, writ, injunction, statute, law, rule or regulation to which Borrower is subject or by which the Mortgaged Property is bound or affected, (ii) will result in the creation or imposition of any lien, charge or encumbrance on, or security interest in, any property now or hereafter included in the Mortgaged Property pursuant to the provisions of any mortgage, indenture, security agreement, contract, undertaking or other agreement other than the liens and security interests in favor of Lender created by the Loan Documents, or (iii) will require any authorization, consent, license, approval or authorization of or other action by, or notice or declaration to, or registration with, any court or administrative or governmental department, commission, board, bureau, authority, agency or body (domestic or foreign), or, to the extent that any such consent or other action may be required, it has been validly procured or duly taken.

6.3 Actions and Proceedings. Borrower has not received notice of any action or proceeding against or investigation of Borrower, pending or threatened, which questions the validity of the Loan Documents, or which is likely to result in any material adverse change in the business or operations of Borrower or which in any way materially impairs or adversely affects the ability of Borrower to perform its obligations thereunder.

6.4 Financial Condition. Borrower is an indirect, wholly-owned subsidiary of Guarantor. The financial statements of Guarantor which have been furnished to Lender, are correct and complete in all material respects and fairly reflect the financial condition of both the Borrower and the Guarantor as of the date thereof. Said financial statements have been prepared in accordance with generally accepted accounting principles consistently applied through the periods involved therein, and to the best of Borrower's knowledge, there has occurred no material adverse change in the financial condition of the Borrower or the Guarantor from the effective dates of said financial statements to the date hereof. Neither Borrower or Guarantor have any contingent obligations, unusual or long-term commitments, unrealized or anticipated losses from any

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Exhibit 10.3

unfavorable commitment or liabilities for taxes not reflected in such financial statements which are individually or in the aggregate substantial in relation to the financial condition of Borrower or Guarantor, respectively.

6.5 Full Disclosure. Neither the Loan Documents nor any statement or documents referred to therein, contemplated thereby or delivered to Lender by Borrower or any other party on its behalf contains or will contain any materially untrue statement, or omits or will omit to state a material fact necessary to make the statements therein not misleading.

6.6 No Violation of Applicable Law. To the best of its knowledge, information and belief, Borrower has not violated and is not violating any applicable statute, regulation or ordinance of the United States of America or any foreign country, or of any state, municipality or any other jurisdiction, or of any agency thereof in any respect materially adversely affecting its business, property, assets, operations or condition, financial or otherwise. To the best of its knowledge, information and belief, Borrower is in compliance with all statutes, rules, and regulations relating to environmental standards and controls in all jurisdictions where it is presently doing business.

6.7 Permits. To the best of its knowledge, Borrower has, or will be able to obtain, as needed, all governmental and private permits, certificates, consents and franchises which in any respect (i) are required for the Construction Project and the occupancy of Building 3 and the gymnasium as improved by the Gymnasium Expansion, (ii) are material to its business, property, assets, operations or condition, financial or otherwise, (iii) are necessary for it to carry on its business as now being conducted or as contemplated to be conducted, or (iv) are necessary for it to own, lease and operate the Mortgaged Property. All such governmental and private permits, certificates, consents and franchises are valid and subsisting, and to the best of its knowledge, information and belief, Borrower is not in violation thereof.

6.8 Place of Business and Certain Records. Borrower (i) presently keeps all of its records concerning its accounts and contract rights in its office at 7501

West Memorial Road, Oklahoma City, Oklahoma, 73142; (ii) intends to continue to keep the location of said records in its office in said city, county and state; and (iii) shall continue to keep said records in its office within said city, county and state or give Lender

ten (10) days' prior written notice of any relocation of its principal office to a location outside of Oklahoma City, Oklahoma, or concurrent written notice of any relocation of its principal office within Oklahoma City, Oklahoma.

6.9 No Defaults. To the best of its knowledge, information and belief, Borrower is not in default of or in breach in any respect under any material contract, agreement or instrument to which such Borrower is a party or by which it or any of its properties may be bound.

6.10 Ownership of Mortgaged Property; Liens. Borrower has good and marketable title to the Mortgaged Property, free and clear of all liens and encumbrances except as listed on Exhibit "B" attached to the Mortgage.

6.11 ERISA. To the best of its knowledge, information and belief, Borrower has not incurred any "accumulated funding deficiency" within the meaning of Section 302(a)(2) of ERISA with respect to any employee pension or other benefit plan or trust maintained by or related to Borrower. Borrower has not incurred any material liability to PBGC or otherwise under ERISA in connection with any such plan. No

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Exhibit 10.3

reportable event described in Sections 4042(a) or 4043(b) of ERISA with respect to any such plan has occurred.

6.12 Taxes. Borrower has filed all federal, state, local, county and foreign tax returns required by law to be filed, and have paid all taxes, assessments and similar charges shown to be due and payable on said returns. At the Effective Date, no extensions of time are in effect to assessments of deficiencies for Federal income taxes of Borrower.

6.13 Compliance with Federal Reserve Board Regulations. No part of the proceeds of the .Loan will be used, and no part of any loan repaid or to be repaid with the proceeds of the Loan was or will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or margin stock within the meaning of Regulations G or U of the Board of Governors of the Federal Reserve System, or in any manner or under any circumstances which would cause a violation by any person or entity of Regulations G, T, U or X of said Board. The assets of Borrower do not include any margin securities or margin stock and Borrower does not have any present intention of acquiring any such security or stock.

6.14 Investment Company Act; Public Utility Holding Company Act. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and Borrower is not a "holding company," a "subsidiary company" thereof or an "affiliate" of a "holding company" or of such a "subsidiary company," each within the meaning of the Public Utility Holding Company Act of 1935, as amended.

6.15 Availability of Utility Services. All utility services necessary for the Mortgaged Property and for the use of the Real Property for the above-described Building 3 and the gymnasium as improved by the Gymnasium Expansion, are connected to the Mortgaged Property. Such utility services include, without limitation, water supply, sanitary and storm sewers, and electric, gas, and telephone.

6.16 Survival of Representations. All representations and warranties made herein or in any other Loan Documents will survive the delivery of the Note and the making of the Loan, and any investigation at any time made by or on behalf of Lender shall not diminish Lender's right to rely thereon. All statements contained in any certif icate or other instrument delivered by or on behalf of Borrower under or pursuant to this Agreement or any other Loan Documents or in connection with the transactions contemplated hereby or thereby shall constitute representations and warranties made hereunder.

7. BORROWER'S AFFIRMATIVE COVENANTS. Until the payment in full of the Loan and unless Lender shall otherwise consent in writing, Borrower agrees to perform or cause to be performed the following:

7.1 Financial Statements. Borrower will maintain adequate and accurate books and records of account, independent of those of the Guarantor, in accordance with sound accounting principles. Lender shall have the right to examine and copy such books and records, including all books and records relating to all or any part of the Mortgaged Property, to discuss the affairs, finances and accounts of Borrower and to be informed as to the same from time to time as Lender might reasonably request. Upon Lender's request, Borrower shall furnish to Lender the year-end financial statements for the immediately prior calendar year (including an income statement and a

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Exhibit 10.3

balance sheet) together with the prior year tax returns and other financial information of the Borrower as Lender may request. No later than forty-five ( 45) days after each calendar quarter, Borrower will furnish to Lender copies of the most-recent, publically-filed financial statements of Guarantor, including the 1 0-K and 1 0-Q statements and such other statements as Lender may request from time-to-time.

7.2 Taxes. Borrower will pay prior to delinquency all taxes, assessments, governmental charges or levies, and all claims for labor, materials, supplies, rent and other obligations which, if unpaid, might become a lien against its property, except to the extent Borrower is challenging any of the foregoing in good faith and with due diligence, and has posted all required bonds or has paid the contested items "under protest," so that there shall not occur a foreclosure of any such liens.

7.3 Maintenance. Borrower will maintain its existence, remain in good standing in each jurisdiction in which it is required to be qualified or licensed, maintain all franchises, permits, intellectual properties and licenses necessary or useful in the operation of its business heretofore operated and as to be operated as contemplated hereby, maintain or cause to be maintained its properties in good and workable condition, repair, and appearance, and protect the same from deterioration, other than normal wear and tear, at all times.

7.4 Compliance with Laws. Borrower will comply with all statutes, laws, rules or regulations to which Borrower is subject or by which the Mortgaged Property is bound or affected, including without limitation, (i) ERISA, (ii) all Environmental Laws (as defined in the Mortgage), (iii) those pertaining to occupational health and safety standards, (iv) those pertaining to equal employment and credit practices and civil rights, and (v) those pertaining to its business or operations.

7.5 Further Assurances. Borrower will, from time to time, promptly cure any defects or omissions in the execution and delivery of, or the compliance with the Loan Documents, or the conditions described in paragraph 5 hereof, including the execution and delivery of additional documents reasonably requested by Lender.

7.6 Performance of Obligations. Borrower will pay the Note according to the reading, tenor and effect thereof and will do and perform every act and discharge all of the obligations provided to be performed and discharged under the Loan Documents at the time or times and in the manner therein specified.

7.7 Payment of Taxes. All taxes, assessments and governmental charges or levies imposed on Borrower or on Borrower's assets, income or profits, will be paid on or prior to the delinquency date thereof.

7.8 Lender's Access. Borrower will, during normal business hours and as often as Lender may reasonably request, permit any of Lender's officers, and any authorized representatives of Lender, to visit and inspect any part of the Mortgaged Property.

7.9 Litigation. Borrower will promptly furnish Lender with written notice of any litigation of which Borrower receives actual notice involving Borrower as a defendant where the amount sued for or the value of property involved is in excess of One Hundred Thousand and Noll 00 Dollars ($100,000.00), or which, if the outcome were adverse to Borrower, could reasonably be expected to materially adversely affect the financial condition, business or operations of Borrower.

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Exhibit 10.3

7.10 Notification of Liens. Borrower will notify Lender of the existence or asserted existence of any mortgage, pledge, lien, charge or encumbrance on any part of the Mortgaged Property, forthwith upon Borrower's receiving actual notice thereof, excluding only: (i) encumbrances in favor of Lender; (ii) deposits to secure payment of worker's compensation, unemployment insurance and similar benefits; and (iii) statutory liens arising in the ordinary course of Borrower's business which secure current obligations of Borrower which are not in default.

7.1 1 Events with Respect to ERISA. As soon as possible and in any event within thirty (30) days after Borrower knows or has reason to know that any reportable event described in Sections 4042(a) or 4043(b) of ERISA with respect to any employee pension or other benefit plan or trust maintained by or related to Borrower has occurred, or that PBGC has instituted or will institute proceedings under ERISA to terminate any such plan, Borrower will deliver to Lender (i) a certificate of a manager of Borrower setting forth details as to such event and the action which Borrower proposes to take with respect thereto, and (ii) a copy of any notice delivered by PBGC evidencing its intent to institute such proceedings. For all purposes of this covenant, Borrower shall be deemed to have all knowledge or knowledge of all facts attributable to the plan administrator of such plan under ERISA. Borrower will furnish to Lender (or cause such plan administrator to furnish to Lender) the annual report for each plan covered by ERISA maintained by or related to Borrower as filed with the Secretary of Labor not later than ten ( 1 0) days after the receipt of a request from Lender in writing for such report.

7.12 Other Notifications. Borrower will notify Lender as soon as practicable, but in any event within ten ( 1 0) days after Borrower knows that any of the following has occurred: (i) an Event of Default, (ii) any material adverse change in the nature of or any material part of the property comprising the Mortgaged Property, and (iii) any material change in the accounting practices and procedures of Borrower, including a change in Borrower's fiscal year. Borrower will notify Lender as soon as practicable, but in any event within the time limitations prescribed for Form 8-K filings pursuant to the Securities Exchange Act, of any other event, occurrence or circumstance which indicates the reasonable likelihood of the occurrence of a material adverse change in the financial condition, business or operations of Borrower.

7.13 Post-Foundation and Post-Completion Surveys. Immediately after completion of the foundations of the Construction Project, Borrower shall furnish to Lender, in form and substance acceptable to Lender, one or more surveys of the Real Property, conforming to Lender's survey criteria, showing the location of all such foundations on the Real Property in addition to those items which are required to be shown by the Lender's survey criteria, and showing no encroachment by such foundations over easements or property lines on the Property. Immediately after completion of the Construction Project, Borrower shall furnish to Lender, in form and substance acceptable to Lender, an update of the survey required in paragraph 5.8 of this Agreement, showing the location of all improvements on the Real Property in addition to those items which are required to be shown in the initial survey described in paragraph 5.8 and showing no encroachments of easements or property lines on the Real Property.

7.14 Use of Funds in Construction Account. Funds in the Construction

Account shall be used solely for the purposes set forth in this Agreement.

7.1 5 [Reserved].

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Exhibit 10.3

7.16 Completion Date. Borrower shall prosecute construction and development of the Construction Project with diligence and continuity until completion thereof (which completion shall mean that the Completion Date obligations have been satisfied) and cause the Construction Project improvements to achieve completion no later than the Completion Deadline. Borrower shall notify Lender of any cessation, stoppage or delay in the construction of the Construction Project. Except for delays or cessations covered by factors that are beyond the control of Borrower, Borrower shall not permit cessation of the work of construction for a period in excess of fifteen (15) consecutive normal working days at any one time, or in excess of forty five ( 45) normal working days in the aggregate, without the prior written consent of Lender.

7.17 Liquidity Account. Throughout the term of the Loan, Borrower shall maintain the Liquidity Account in accordance with the requirements of paragraph

5.6 herein.

8. BORROWER'S NEGATIVE COVENANTS. Until payment in full of the Loan and unless Lender shall otherwise consent in writing, Borrower will not perform or permit to be performed any of the following acts:

8.1 Creation or Existence of Liens. Borrower will not create, assume or suffer to exist any mortgage, pledge, lien, charge or encumbrance on any of the properties of Borrower, personal or real, tangible or intangible, including without limitation the Mortgaged Property, excluding only: (i) encumbrances in favor of Lender; (ii) deposits to secure payment of workmen's compensation, unemployment insurance and similar benefits; (iii) statutory liens, against which there are established reserves in accordance with generally accepted accounting principles; and (iv) liens covering tangible personal property which arise in the ordinary course of Borrower's business and secure current obligations of Borrower which are not in default.

8.2 Loans to and Transactions With Affiliates. Except as previously disclosed in writing to Lender, and approved by Lender, Borrower will not make any loan, advance or other extension of credit, directly or indirectly, to or for the benefit of any Affiliate and will not enter into any other transaction, including, without limitation, the purchase, sale or exchange of property with any Affiliate. Borrower will not make any payments to an Affiliate for services performed or equipment or materials provided to the Mortgaged Property except to reimburse the Affiliate for its actual cost of performing such services or providing such equipment or materials, which actual cost shall not, in any event, exceed the amount that would be charged by a non-Affiliate under a bona fide, arm's-length contract for performance of such services or provision of such equipment and materials. Borrower may retain an Affiliate to manage the Mortgaged Property under a management agreement or market and lease the property pursuant to a brokerage agreement on market terms, each of which is (i) expressly subordinate to the Mortgage and other Loan Documents and (ii) in form and substance reasonably acceptable to Lender.

8.3 Restriction on Leasing of Mortgaged Property. Notwithstanding any language in this Agreement or any of the other Loan Documents, Borrower shall not lease any part of the Mortgaged Property to a third party without the prior written consent of Lender.

8.4 Limitation on Dividends, Loans and Distributions of Funds. So

long as an Event of Default exists under this Agreement or any of the other LoanDocuments, Borrower will not, directly or indirectly, make, or become obligated to make, 1\CdfsO 1\Home\Ailenz\Kirkpatrick\Paycom\2015 Building 3\Loan Documents\Kirkpatrick Bank- Paycom - Loan Agreement-7.Docx -21-

Exhibit 10.3

any distributions to members or set apart any sum or any of its assets for distributions to members, or make any loans or any other distribution of funds, by reduction of capital, or otherwise.

8.5 Limitation on Contingent Liabilities. Borrower will not, directly or indirectly, guarantee, agree to purchase or repurchase or provide funds in respect, or otherwise become or remain liable with respect to indebtedness of any character of any other person or entity.

8.6 Changes to Method of Accounting. Borrower will not make any material change in its methods of accounting for purposes of the reporting requirements ofthis Agreement, except as may be mandated by sound accounting principles.

8.7 Sale-Leaseback Transactions. Borrower will not make or permit the occurrence of any sale, transfer or disposition of any of the Mortgaged Property followed by Borrower's leasing or rental of such property, or any portion thereof, as lessee.

8.8 Construction Issues. Borrower shall not (i) incur or suffer to exist any delays in completion of the Construction Project, (ii) agree to any change order which would increase the Project Cost by $20,000.00 or more, or any change order(s) which, in the aggregate, would increase the Project Cost by $100,000.00 or more without the prior written approval of Lender, or (iii) make any changes in the Construction Project to achieve cost savings without the prior written approval of Lender. Borrower shall deliver to Lender and Lender's Construction Consultant within five (5) business days after any change orders are made, a copy of such change order and an associated update of the Construction Budget which have been approved by the Architect and the Contractor.

8.9 Modification of Limited Liability Company Documents. Borrow- er shall not participate in, suffer or permit the amendment, modification, restatement, cancellation or termination of any organizational document now or hereafter evidencing or relating to Borrower without the prior written consent of Lender in each case.

8.10 Transfer of Property. Until all indebtedness of Borrower to Lender is paid in full, Borrower shall not sell, transfer or convey all or any part of the Mortgaged Property or any interest therein, except Borrower's leasing or rental of such property in the ordinary course of business, and Borrower shall not permit any change in the ownership of Borrower.

8.11 Funded Debt Limitation. Borrower shall not incur funded outside debt (except for the Loan provided under this Agreement and the Consolidated Note) in excess of $1,500,000.00 without the prior written approval of Lender.

8.12 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio (defined below) of the Guarantor shall not be less than 1.2:1.00 on a quarterly basis. The Fixed Charge Coverage Ratio shall be calculated by Lender on a quarterly basis based on the Guarantor's quarterly financial statements delivered pursuant to paragraph 7.1 of this Agreement as set forth below.

(a) Calculation. The term " Fixed Charge Coverage Ratio " means Net

Operating Income plus interest expense, depreciation expense and amortization expense, based on annualizing the income statement for the \\CdfsO l\Home\AIIenz\Kirkpatrick\Paycom\2015 Building 3\Loan Documents\Kirkpatrick Bank- Paycom - Loan Agreement-7Docx -22-

Exhibit 10.3

quarter then ended, divided by Debt Service Requirements plus rent expense and ownership distributions, fees or compensation to Affiliates (e.g., contractor or development fees).

(b) Debt Service Requirements. The term " Debt Service Requirements " shall mean all principal and interest payments which would be owing during the ensuing twelve (12) month period, as determined by Lender, based upon, (i) all debt of Guarantor payable to Lender and any other non-subordinated debt, excluding balloon payments, if any, due to Lender, and (ii) the then applicable interest rate(s) on such debt.

(c) Net Operating Income. The term " Net Operating Income " means all revenues collected from the operations of Guarantor (excluding non-recurring income, as determined by Lender) less expenses. Revenues shall be calculated by Lender by using actual effective revenues for the most recent four (4) calendar quarters, less ownership distributions, fees or compensation to Affiliates (e.g., contractor or development fees) and receipts from insurance income, security deposit forfeitures, late charges, interest income, miscellaneous income or other sources of income not directly related to the operations of Guarantor. Expenses shall be calculated by Lender by adjusting actual and customary operating expenses for the previous calendar quarter, annualized twelve (12) month period as deemed appropriate in Lender's sole discretion. Such expenses shall include, without limitation, recurring operating expenses, real estate taxes, and any management fee to the extent charged and paid.

(d) Curative Action. In the event the Fixed Charge Coverage Ratio for any calendar quarter should be less than 1.20 to 1.00, then, within fifteen (15) days after written notice from Lender to Borrower, Borrower shall pay the Curative Amount such that a minimum Fixed Charge Coverage Ratio of 1.20 to 1.00 or more is created based on (A) the actual Net Operating Income for the immediately preceding calendar quarter and (B) the hypothetical Debt Service Requirement for the then current calendar quarter which would result from a reamortization of such reduced outstanding principal balance of the Loan.

Irrespective of any hypothetical Debt Service Requirement utilized to calculate the curative amount, the actual amount of the required payments shall continue to be as provided in the Note.

9. ADMINISTRATION OF LOAN. Notwithstanding any language in this Agreement seemingly to the contrary, Borrower shall not be entitled to any disbursement of Loan proceeds hereunder unless and until Borrower has satisfied all of the conditions of lending set forth in paragraph 5 of this Agreement. Upon satisfaction of such conditions of lending to the satisfaction of Lender, Lender will make Loan disbursements up to the principal amount of the Loan provided that (i) Lender's Construction Consultant shall have completed periodic inspection(s) of the Construction Project and shall have advised Lender in writing that work to date on the Construction Project is satisfactory, (ii) there is no uncured Event of Default under any of the Loan Documents, and (iii) all of the other requirements set forth in this Loan Agreement for advancement of loan proceeds are satisfied.

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Exhibit 10.3

Subject to all of the terms, conditions and provisions of this Agreement, Lender shall make disbursements under the Loan in the following manner:

9.1 Purpose. The principal sum to be disbursed under the Note shall be used for the purposes set forth in paragraph 2.1 of this Agreement.

9.2 Compliance with Project Budget. All Loan advances under the Note shall be made in accordance with the Agreement and in amounts set forth in the Project Budget. Material deviations from the Project Budget must be approved in advance in writing by Lender. If Lender determines at any time, in its sole judgment, that the direct construction costs, plus the cost of the improvements and the estimated non-construction costs, exceed the Project Cost set forth in the Project Budget, then at the request of Lender, Borrower shall explain to Lender how the overage will be paid and will immediately deposit such funds into the Construction Account. Any such deposit so required shall be made prior to any additional advance of Loan proceeds.

9.3 Request for Funds. Loan advances will be made no more frequently than one (1) time per month. Each Loan advance request ("Request for Funds" ) (i) shall be submitted in writing on the latest version ofthe AlA G702 and G703 forms, (ii) shall be properly completed and signed by Borrower, the Contractor and the Architect, (iii) shall be delivered to Lender and the Construction Consultant at least five (5) days before the requested date of disbursement; (iv) is subject to the prior approval of the Construction Consultant and the Lender; and (v) shall be supported by copies of invoices for all work and materials covered thereby. Unless Lender wishes to inspect the Construction Project as set forth in paragraph 9.5, each Request for Funds shall be approved and funded or declined by Lender within five (5) Business Days of receipt by Lender. All approved Loan advances will be deposited into the Construction Account by Lender. Borrower shall under no circumstances be entitled to Loan advances that individually or cumulatively exceed the Project Costs completed as of the date of the request per the Project Budget. Borrower shall submit its last Request for Funds no later than fifteen (15) days before the Completion Deadline. In no event shall Lender be obligated to make any Loan advances after the Completion Deadline.

9.4 Additional Information. Upon request by Lender, each Request for Funds shall be accompanied by:

9.4.1 proof, satisfactory to Lender, that all invoices for labor and materials have been paid, except those contained in the current Request for Funds covering "hard costs;" and

9.4.2 lien waivers from all architects, professional engineers, landscape architects, land surveyors, contractors, mechanics, materialmen, landscapers and laborers; and

9.4.3 title information, in the form of an endorsement to the loan policies of title insurance held by Lender, which increases the amount of coverage and which confirms the first lien priority of the Mortgage, without additional matters affecting title to the Mortgaged Property.

All of the above information shall be obtained and submitted to Lender at Borrower's expense.

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Exhibit 10.3

9.5 Lender's Inspection. If, for any reason, Lender deems it necessary to cause the Construction Project to be examined by the Construction Consultant or any other representative of Lender prior to making any advance, it shall have a reasonable time [not exceeding ten ( 1 0) Business Days] within which to do so, at Borrower's cost, and Lender shall not be required to make any Loan advance until such examination has been made. Regardless of inspections by the Construction Consultant or any other representative of Lender, Lender shall have no responsibility, obligation or liability to Borrower or any other individual or entity based on, arising from or relating to any such inspections, and Borrower shall at all times have exclusive control over work on the Construction Project and sole responsibility for compliance with all governmental, quasi-governmental and private laws, ordinances, rules, regulations, codes, covenants, restrictions, easements and other matters which control, burden, apply to or otherwise affect either part of the Mortgaged Property and/or the Construction Project.

9.6 Disbursements. Advances under the Note may, at the option of Lender, be recorded on the Note and/or by deposits to the Construction Account, and such records shall be conclusive evidence of all advances made under the Note. Borrower shall prepare and deliver payment from the Construction Account to the Contractor or such other appropriate subcontractors or vendors as set forth in the Request for Funds. Borrower acknowledges and stipulates that only checks for payment of approved costs of the Construction Project and costs incidental thereto and approved by Lender in the Project Budget may be drawn against the Construction Account.

9.7 Termination of Advances. At the option of Lender, Loan advances shall not be made under the Note unless (i) this Agreement, the Note and the other Loan Documents are in full force and effect, and (ii) an Event of Default does not exist under the terms of this Agreement, the Note or any of the other Loan Documents.

9.8 Conditions for Benefit of Lender; No Liability to Third Parties. Any and all conditions within this Agreement to the obligations of Lender to advance the proceeds of the Loan to Borrower are imposed solely and exclusively for Lender benefit. No other person shall have any standing to require that such conditions be satisfied nor be entitled to draw any conclusions or assumptions therefrom. Such conditions may be waived, in whole or in part, by Lender at any time, in Lender's sole discretion, and Lender shall be under no obligation to require strict compliance therewith. Lender shall not be liable or responsible to any person other than Borrower for the disbursement of or failure to disburse the Loan proceeds. Neither the Contractor nor the Architect, any subcontractor, materialman or supplier on the Construction Project shall have any right or claim against Lender under this Loan Agreement or the administration thereof.

10. EVENTS OF DEFAULT. If any ofthe following events (herein so called "Events of Default") shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be affected by operation of law or otherwise), then, and in every such event, Lender may accelerate or otherwise declare the principal of and interest on all Indebtedness to be immediately due and payable, without presentment, demand, protest, notice of protest or other notice of any kind, all of which are hereby expressly waived by Borrower:

I 0.1 Nonpayment of Note. Default in payment when due of any interest on or principal or any other sum payable under the Note, or any amendment, modification or restatement thereof; provided however, prior to declaring default under this paragraph 10.1, Lender shall give Borrower five (5) days' prior written notice of the payment default, unless one ( 1) payment default notice has been provided by Lender to

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Exhibit 10.3

Borrower during the previous twelve (12) months, in which event no prior notice election to declare a default is necessary.

10.2 Breach of Covenants. Default by Borrower in the performance or observance of any covenant contained in this Agreement or any of the other Loan Documents, any other instrument delivered to Lender in connection with this Agreement, including, without limitation, the falsity or breach of any representation, warranty or covenant, and such default or breach shall not have been cured or remedied within twenty (20) days following receipt by Borrower of written notice thereof from Lender, unless such cure or remedy cannot reasonably be completed within the applicable 20-day cure period described above, in which event Borrower shall commence such cure or remedy within the applicable 20-day cure period described above and proceed with all diligence to complete such cure or remedy (provided that such grace periods shall not be deemed applicable either to the payment provisions of this Agreement or the default provisions of subsection (a) above) in any event within sixty (60) days from the initial receipt of written notice from Lender.

10.3 Default Under Funded Debt Limitations or Fixed Charge Coverage Ratio. Any failure of Borrower to comply with the funded debt limitations set forth in paragraph 8.11 of this Agreement or with the Fixed Charge Coverage Ratio described in paragraph 8.12 of this Agreement, and such default goes uncured after receipt of the notice from Lender in paragraph 8.12.

10.4 Bankruptcy. The institution of bankruptcy, reorganization, liqui

dation or receivership proceedings by or against Borrower or Guarantor.

10.5 Governmental Requirements. The issuance of any order, decree or judgment pursuant to any judicial or administrative proceeding declaring that all or any part of the Mortgaged Property is in violation of any law, ordinance, rule or regulation of any agency, department, commission, board, bureau or instrumentality of the municipality or county in which the Mortgaged Property is located.

10.6 Representation. Any representation, warranty, statement, certif icate, schedule or report made or furnished to Lender by Borrower proves to be false or erroneous in any material respect at the time of the making thereof.

10.7 Event of Default Under Other Loan Documents. The occurrence of any Event of Default (or continuance of such Event of Default after the applicable cure period, if any) under the Note, the Mortgage, the Second Mortgage, the Existing Mortgages the Assignment, the Subordination Agreements or any of the other Loan Documents.

10.8 Interest After Default. All past due obligations or indebtedness of Borrower to Lender hereunder, whether principal, costs or expenses, shall bear interest at a variable rate equal from day to day to the Default Rate as defined in the Note.

11. REMEDIES. If any one or more Events of Default shall occur and be continuing, Lender may, without any period of grace (except as otherwise provided herein), proceed to protect and enforce all or any of the rights with respect thereto contained in this Agreement or any other Loan Document, or may proceed to enforce payment of all indebtedness due hereunder or enforce any other legal or equitable rights or exercise any other legal or equitable remedies, or cure or remedy any default by Borrower for the purpose of preserving the Mortgaged Property. All rights, remedies and powers conferred upon Lender shall be

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-26-

Exhibit 10.3

cumulative and not exclusive of any other rights, remedies or powers available. No delay in exercising or failure to exercise any right, remedy or power shall impair any such right, remedy or power or shall be construed to be a waiver of any Event of Default or an acquiescence therein. Any such right, remedy or power may by exercised from time to time, independently or concurrently, and as often as shall be deemed expedient. No waiver of any Event of Default shall extend to any subsequent Event of Default. No single or partial exercise of any right, remedy or power shall preclude other or further exercise thereof. Borrower covenants that if an Event of Default shall happen and be continuing it will pay all court costs and other out-of-pocket expenses paid or incurred by Lender in collecting the amounts due pursuant to this Agreement, the Note, the Mortgage, the Second Mortgage, any other Loan Document or any other document evidencing or securing the Loan or otherwise executed in connection herewith, including attorneys' fees, together with interest on all amounts so expended from the respective dates of each expenditure at the Default Rate (as defined in the Note).

12. GENERAL PROVISIONS. Lender and Borrower agree as follows:

12.1 Expenses. Borrower agrees to pay all fees, expenses and charges in respect to the Loan contemplated by this Agreement, including, without limiting the generality thereof, the following:

12.1.1 reasonable fees and expenses of counsel employed by Lender in connection with closing or administration of the Loan and all fees and expenses actually incurred by counsel employed by Lender in regard to any litigation arising out of or relating to this transaction, each of the foregoing charged at such counsel's customary billing rates and without regard to any statutory presumptions;

12.1.2 title insurance premiums and all expenses incidental to title insurance and title evidence;

12.1.3 recording and filing fees required by applicable law;

12.1.4 all fees and expenses of the Mortgagee identified in the

Mortgage, and any successor to the Mortgagee;

12.1.5 fees and expenses of any appraisers who appraise the

Mortgaged Property for Lender; and

12.1.6 other reasonable fees and expenses involved in the closing of this loan and the reasonable fees and expenses payable by Lender which are incidental to the enforcement or defense of this Agreement or any of the other Loan Documents.

12.2 Notices. Any notices or other communications required or per mitted hereunder shall be in writing and sufficiently delivered and received for all purposes when delivered in person or deposited in the United States mail, by registered or certified mail, postage prepaid, return receipt requested and addressed as listed below or to such other address as the party concerned may substitute by written notice to the other. All notices shall be deemed received on the earlier of actual receipt or within three (3) days (excluding Saturdays, Sundays and holidays recognized by Oklahoma banking corporations headquartered in Oklahoma City, Oklahoma) after being mailed.

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Exhibit 10.3

To Borrower: Paycom Payroll, LLC

7501 West Memorial Road

Oklahoma City, Oklahoma 73142

Attn: Mr. Chad Richison

With copy to: Cheek & Falcone, PLLC

6301 Waterford Boulevard

Suite 320

Oklahoma City, Oklahoma 73118

Attn: Mr. John P. Falcone

To Lender: Kirkpatrick Bank

5801 N. Broadway Extension, Suite 101

Oklahoma City, Oklahoma 73118

Attn:

Mr. David L. Sutter, Executive Vice President

With copy to: Crowe & Dunlevy, PC

324 N. Robinson Avenue, Suite 100

Oklahoma City, Oklahoma 73102

Attn: Kari Hoffuines

12.3 Amendment and Waiver. This Agreement may not be amended or modified in any way, except by an instrument in writing executed by both parties hereto; provided, however, Lender may, in writing: (i) extend the time for performance of any of the obligations of Borrower; (ii) waive any Event of Default by Borrower; and (iii) waive the satisfaction of any condition that is precedent to the performance of Lender's obligations under this Agreement. In the event of Lender's waiver of an Event of Default, such specific Event of Default shall be deemed to have been cured and not continuing, but no such waiver shall extend to any subsequent or other Event of Default or impair any consequence of such subsequent or other Event of Default.

12.4 Non-Waiver; Cumulative Remedies. No failure on the part of Lender to exercise and no delay in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right hereunder preclude any other or further right of exercise thereof. The remedies herein provided are cumulative and not alternative.

12.5 Assignment. Neither this Agreement, nor the loan proceeds hereunder, shall be assignable by Borrower without the prior written consent of Lender.

12.6 Financing Publicity. Lender shall be permitted to obtain publicity in connection with the financing of the Mortgaged Property through press releases and any special events relating to the Mortgaged Property. Borrower will give Lender ample advance notice of such events and will give Lender as much assistance as possible in connection with obtaining such publicity as Lender desires. Lender's publicity shall be subject to the reasonable approval of Borrower, which approval shall not be unreasonably withheld or delayed.

12.7 No Partnership. Nothing in this Agreement shall be construed to constitute Lender as joint venturer with Borrower, or to constitute a partnership between the parties.

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Exhibit 10.3

12.8 Descriptive Headings. The descriptive headings of the paragraphs of this Agreement are for convenience only and shall not be used in the construction of the terms hereof.

12.9 Integrated Agreement. This Agreement and the Loan Documents signed and/or delivered pursuant to this Agreement or any of the other Loan Documents supercede and replace the Loan Commitment signed by Lender and Borrower, and they collectively constitute the entire agreement between Lender and Borrower, and there are no agreements, understandings, warranties or representations between the parties regarding the financing of the Mortgaged Property other than those set forth herein.

12.10 Time ofEssence. Time is ofthe essence ofthis Agreement.

12.11 Binding Effect. This Agreement shall be binding upon and inure to the benefit of Lender and Borrower and their respective successors, legal representatives and assigns.

12.12 Third-Party Beneficiary. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than Lender and Borrower and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.

12.13 Right to Defend. Lender shall have the right, but not the obliga tion, at Borrower's expense, to commence, to appear in or to defend any action or proceeding (initiated by a third party against Borrower) purporting to affect the rights or duties of the parties hereunder and in connection therewith pay out of proceeds of the Loan all necessary expenses, including fees of counsel, if Borrower fails to so commence, appear in or defend any such action or proceeding with counsel satisfactory to Lender.

12.14 Loan Participation Agreement. Notwithstanding any language in this Agreement or any of the Loan Documents, Lender's obligation to fund the Loan pursuant to the terms of this Agreement and the Loan Documents is conditioned upon Lender (i) securing participant lenders (acceptable to Lender) to participate in the Loan and (ii) the execution by Lender and such participants of certain Participation Agreements, in form and substance acceptable to Lender. Borrower authorizes Lender to disclose to any Purchaser or such participants or any individual or entity acquiring an interest in the Loan Documents by operation of law (each a " Transferee" ), and any prospective Transferee, any and all information in such Lender's possession concerning the credit worthiness of the Borrower and all relevant information relating to the Loan Documents and the extensions of credit evidenced and secured thereby. Closing of the Loan will evidence that Lender has loan participants acceptable to Lender.

12.15 Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender and participants and each of their respective directors, officers, agents and employees (collectively, the "Indemnitees") from and against, and agrees to defend the Indemnitees, by counsel satisfactory to the lndemnitees, against:

(a) all claims, demands and causes of action asserted against any Indemnitee by any person or entity ("Person") if the claim, demand or cause of action directly or indirectly relates to (i) a claim, demand or cause of action that the Person has or asserts against the Borrower in connection with the Mortgaged Property, except those arising out of the acts or omissions of Lender; (ii) the payment of any commission, charge or brokerage fee incurred in connection with

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Exhibit 10.3

any of the Loan Documents; (iii) any act or omiSSIOn by the Borrower, any contractor, subcontractor or material supplier, or other Person (except to the extent caused by the gross negligence or willful misconduct of Lender, its agents, servants and employees) with respect to the Mortgaged Property; (iv) the ownership, occupancy or use of the Mortgaged Property; and

(b) all liabilities, losses and other costs (including court costs and reasonable attorneys' fees) incurred by any Indemnitee as a result of any claim, demand or cause of action described in subparagraph (a).

lndemnitees' rights hereunder shall not be directly or indirectly limited, prejudiced, impaired or eliminated in any way by any finding or allegation that Lender's conduct is active, passive or subject to any other classification or that such Indemnitee is directly or indirectly responsible under any theory of any kind for any act or omission by the Borrower or any other Person other than Lender, its agents, servants or employees. BORROWER ACKNOWLEDGES AND AGREES THAT ITS INDEMNIFICATION OBLIGATIONS HEREUNDER COVER AND RELATE TO, WITHOUT LIMITATION, ANY NEGLIGENT ACTION OR OMISSION OF INDEMNITIES; PROVIDED, NOTWITHSTANDING THE FOREGOING, BORROWER SHALL NOT BE OBLIGATED TO INDEMNIFY INDEMNITEES WITH RESPECT TO ANY INTENTIONAL TORT OR ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT WHICH SUCH INDEMNITY IS PERSONALLY DETERMINED BY THE JUDGMENT OF A COURT OF COMPETENT JURISDICTION (SUSTAINED ON APPEAL, IF ANY) TO HAVE COMMITTED. Borrower's obligations under this paragraph 12.15 shall survive the repayment of the Loan and the release of the Mortgage and the other Loan Documents.

12.16 Survival of Representations and Warranties. All representations and warranties of Borrower in this Agreement and the other Loan Documents shall survive the execution and delivery of this Agreement and the Note, are material, and have been or will be relied on by Lender notwithstanding any investigation made by or on behalf of Lender. All such representations and warranties of Borrower shall be deemed to be remade as of the date of each disbursement of the proceeds of the Loan.

12.17 No Waiver; Consents. Each waiver by Lender must be in writing, and no waiver may be construed as a continuing waiver. No waiver will be implied from Lender's delay in exercising or failure to exercise any right or remedy against the Borrower or any security. Lender's consent to any act or omission by the Borrower may not be construed as a consent to any other or subsequent act or omission or as a waiver of the requirement for Lender's consent to be obtained in any future or other instance. All Lender's rights and remedies are cumulative.

12.18 Counterparts. This Agreement may be executed in multiple counterparts each of which shall be deemed an original and all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document.

12.19 Incorporation of Exhibits. All Exhibits and Schedules identified in this Agreement as exhibits to or schedules to this Agreement are hereby incorporated into this Agreement and made integral parts of it.

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Exhibit 10.3

12.20 Government Regulations. The Borrower represents, warrants and covenants to Lender as follows, and acknowledges that such representations, warranties and covenants shall be continuing representations, warranties and covenants from Borrower to Lender:

(i) The Borrower is and shall remain in compliance with the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation, regulations or executive orders relating thereto, and the Uniting and Strengthening America By Providing Appropriate Tools Required To Intercept and Obstruct Terrorism Act (USA Patriot Act of 2001 ), as amended, and any other enabling legislation, regulations or executive orders relating thereto;

(ii) The Borrower is and shall remain in compliance with 31

U.S.C., Section 5313, as amended, 31 CFR Section 103.22, as amended, and any

similar laws or regulations involving currency transaction reports or disclosures

relating to transactions in currency of more than $10,000.00, or of more than any

other minimum amount specified by any laws or regulations; and

(iii) Borrower (A) is not a party whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (B) does not engage in any dealings or transactions prohibited by Section 2 of such executive order, and are not otherwise associated with any such person in any manner violative of Section 2, or (C) is not a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury's Office of Foreign Assets Control regulation or executive order.

The Borrower covenants and agrees with Lender that no part of any loan proceeds or advances evidenced by or referenced in this Agreement, and no part of any other amounts or sums derived from any property which secures repayment of such loan proceeds or advances, including, without limitation any accounts, payment intangibles, money, rents, issues or profits, will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

12.21 Applicable Law. THIS AGREEMENT AND THE DOCUMENTS ISSUED AND EXECUTED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF OKLAHOMA AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, EXCEPT, AND WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES AND EXCEPT TO THE EXTENT PREEMPTED BY THE LAWS OF THE UNITED STATES OF AMERICA.

12.22 Consent to Jurisdiction. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL COURT OR OKLAHOMA STATE COURT HAVING THE MORTGAGED PROPERTY WITHIN ITS JUDICIAL DISTRICT, IN ANY

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Exhibit 10.3

ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS AND ANY OTHER DOCUMENTS EVIDENCING, SECURING OR RELATING TO THE LOAN, AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY W AlVES ANY OBJECTION ANY OF THEM MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BROUGHT BY BORROWER AGAINST LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANYWAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE LOAN OR ANY LOAN DOCUMENTS SHALL BE BROUGHT ONLY IN A COURT IN OKLAHOMA.

12.23 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE LOAN, ANY LOAN DOCUMENT OR ANY RELATIONSHIP ESTABLISHED THEREUNDER.

[Signatures appear on following pages]

Schedule of Exhibits

"A" -Description of Real Property

"B"- Map of Real Property with Existing and Proposed Improvements

"C" - List of Existing Mortgages

"D" - Project Budget

"E" - Required Performance Bonds and Payment Bonds

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Exhibit 10.3

IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be duly executed effective as of the day and year first above written.

3755390119443500 "Lender":

"Borrower":PA YCOM PAYROLL, L

a Delaware limited lia

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Exhibit 10.3

EXHIBIT "A"

Description of Real Property

Tract 1:

All of Lot One (1), Block One (1) and Common Area A, of Paycom, an Addition to the City of

Oklahoma City, Oklahoma County, Oklahoma, according to the recorded plat thereof.

Tract 2:

A tract of land being a part of the Southwest Quarter (SW/4) of Section Eight (8), Township Thirteen (13) North, Range Four (4) West of the Indian Meridian, Oklahoma City, Oklahoma County, Oklahoma, being more particularly described as follows:

Commencing at the Southeast (SE) Corner of said Southwest Quarter (SW/4); THENCE North

00°15'38" West, along and with the East line of said Southwest Quarter (SW/4), a distance of

1,496.10 feet to the Northeast (NE) Corner of Paycom recorded in Book PL68, Page 95, said

point being the Point of Beginning; THENCE South 89°35'06" West along and with the North

line of Paycom, a distance of 667.91 feet to the Northwest (NW) Corner of Paycom; THENCE

North 00°01'27" West, along and with the extended West line ofPaycom, a distance of 1,155.56

feet to the North line of Southwest Quarter (SW/4); THENCE South 89°52'18" East, along and

with the North line of said Southwest Quarter (S W /4), a distance of 663.15 feet to the Northeast

(NE) Corner of said Southwest Quarter (SW /4); THENCE South 00 ° 15'38" East, along and with the East line of said Southwest Quarter (SW/4), a distance of 1,149.24 feet to the Point of Beginning.

Tract 3:

Commencing at the Southeast (SE) Corner of said Southwest Quarter (SW /4);

THENCE North 00°15'38" West (North 00°15'26" West record), along and with the East line of said Southwest Quarter (SW/4), a distance of 575.51 feet (575.66 feet record) to the Southeast (SE) Corner ofPaycom recorded in Book PL68, Page 95;

THENCE North 88°41'40" West (North 88°42'11" West record), along and with the South line of said Paycom and the North line of a tract of land owned by the Oklahoma Turnpike Authority recorded in Book 7536, Page 339, a distance of 671.88 feet to the Southwest (SW) Corner of said Paycom, said point being the POINT OF BEGINNING;

THENCE continuing North 88°41'40" West (North 88°42'11" West record) along and with the North line of a tract of land owned by the Oklahoma Turnpike Authority recorded in Book 7536, Page 339, a distance of29.87 feet;

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Exhibit 10.3

THENCE North 86°46'27" West (North 86°48'46" West record), continuing along and with the North line of a tract of land owned by the Oklahoma Turnpike Authority recorded in Book 7536, Page 339, a distance of360.72 feet;

THENCE North 00°01'27" West, departing said North line, a distance of2,035.89 feet to a point on the North line of said Southwest Quarter (SW/4);

THENCE South 89°52'18" East, along and with the North line of said Southwest Quarter

(SW/4), a distance of390.00 feet to an extended West line ofPaycom;

THENCE South 00°01'27" East, along and with the extended West line ofPaycom, a distance of

2,055.99 feet to the POINT OF BEGINNING.

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Exhibit 10.3

EXHIBIT "B"

Map of Real Property with Existing and Proposed Improvements

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1$Ct-'1 ST::tt r

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Exhibit 10.3

EXHIBIT "C"

Existing Mortgages

1. Consolidated, Amended and Restated Mortgage (With Power of Sale), Security Agreement and Financing Statement, dated December 15, 2011, signed by Borrower for the benefit of Lender and recorded in Book RE 11805, Page 1581 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as amended by that certain First Amendment to Consolidated, Amended and Restated Mortgage (With Power of Sale ), Security Agreement and Financing Statement, dated June 17, 2014, signed by Borrower for the benefit of Lender and recorded on June 19,2014 in Book RE12563, Page 631 in the real estate records of the County Clerk for Oklahoma County, Oklahoma.

2. Construction Mortgage (With Power of Sale), Security Agreement and Financing Statement, dated March 28, 2013, and recorded in Book R E 12202, Page 1089 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as amended by the First Amendment to Mortgage (With Power of Sale), Security Agreement and Financing Statement and Assignment of Leases, Rents and Profits, dated December 31, 2013, and recorded in Book RE 12449, Page 230 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as further amended by that certain Second Amendment to Construction Mortgage (With Power of Sale), Security Agreement and Financing Statement and Assignment of Leases, Rents and Profits, dated June 17, 2014 and recorded on June 19, 2014 in Book RE12563, Page 636 in the real estate records ofthe County Clerk of Oklahoma County, Oklahoma.

3. Second Mortgage (With Power of Sale), Security Agreement and Financing Statement, dated March 28, 2013, signed by Borrower for the benefit of Lender and recorded in Book R E 12202, Page I 135 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as amended by that certain First Amendment to Second Mortgage (With Power ofSale), Security Agreement and Financing Statement, dated June 17,2014, recorded on June 19,2014, in Book RE12563, Page 642 in the real estate records ofthe County Clerk of Oklahoma County, Oklahoma.

4. Mortgage, dated November 1, 2013, and recorded in Book R E 12399, Page 295 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as amended by the First Amendment to Mortgage, dated December 31, 2013, and recorded in Book R E 12449, Page 235 in the real estate records of the County Clerk for Oklahoma County, Oklahoma, as further amended by that certain Second Amendment to Mortgage, dated June 17, 2014, recorded on June 19, 2014 in Book RE12563, Page 647 in the real estate records of the County Clerk of Oklahoma County, Oklahoma.

5. Construction Mortgage (With Power of Sale), Security Agreement and Financing Statement, dated March 23, 2011 and recorded on March 34, 2011 in Book R E 11596, Page 580 in the real estate records ofthe County Clerk of Oklahoma County, Oklahoma.

6. Construction Mortgage (With Power of Sale), Security Agreement and Financing

Statement, dated May 7, 2010 and recorded on May 10, 2010 in Book RE11362, Page

174 in the real estate records ofthe County Clerk of Oklahoma County, Oklahoma.

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Exhibit 10.3

7. Mortgage, dated December 21, 2012 and recorded on December 27, 2012 in Book R E 12120, Page 1496 in the real estate records of the County Clerk of Oklahoma County, Oklahoma.

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Exhibit 10.3

EXHIBIT "D"

Project Budget

[To be provided post closing.]

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Exhibit 10.3

EXHIBIT "E"

Required Performance Bonds and Payment Bonds

[To be provided post closing.]

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Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Chad Richison, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Craig E. Boelte, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Paycom Software, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: August 7, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Date: August 7, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.