Paycom Software, Inc. (Form: 10-Q, Received: 11/03/2016 16:18:42)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

☐	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 ☒ 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 ☒ 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 ☐	(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 ☒

As of October 26, 2016, there were 60,111,318 shares of common stock, par value of $0.01 per share, outstanding, including 2,183,176 shares of restricted stock.

Paycom Software, Inc.

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2016 and 2015	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	5
	Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
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.

Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

	September 30,			December 31,
	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	74,496		$	50,714
Accounts receivable		1,479			2,354
Prepaid expenses		3,991			3,531
Inventory		355			1,093
Income tax receivable		4,316			6,743
Current assets before funds held for clients		84,637			64,435
Funds held for clients		593,041			696,703
Total current assets		677,678			761,138
Property and equipment, net		87,285			58,858
Deposits and other assets		1,010			1,286
Goodwill		51,889			51,889
Intangible assets, net		2,274			3,484
Deferred income tax assets, net		859			-
Total assets	$	820,995		$	876,655
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,850		$	4,899
Accrued commissions and bonuses		5,381			8,687
Accrued payroll and vacation		6,680			2,898
Deferred revenue		4,821			3,726
Current portion of long-term debt		1,090			886
Accrued expenses and other current liabilities		13,031			9,735
Current liabilities before client funds obligation		35,853			30,831
Client funds obligation		593,041			696,703
Total current liabilities		628,894			727,534
Deferred income tax liabilities, net		-			641
Long-term deferred revenue		32,064			25,310
Net long-term debt, less current portion		29,000			24,856
Total long-term liabilities		61,064			50,807
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 58,386,260 and 57,119,873 shares issued at September 30, 2016 and December 31, 2015, respectively; 57,898,505 and 57,119,873 shares outstanding at September 30, 2016 and December 31, 2015, respectively)		584			571
Additional paid-in capital		91,413			71,135
Retained earnings		61,815			26,608
Treasury stock, at cost (487,755 and 0 shares at September 30, 2016 and December 31, 2015, respectively)		(22,775	)
Total stockholders' equity		131,037			98,314
Total liabilities and stockholders' equity	$	820,995		$	876,655

See accompanying notes to the unaudited consolidated financial statements

Paycom Software, Inc.

Consolidated Statements of Income

(in thousands, except per share and share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
		2016			2015			2016			2015
Revenues
Recurring	$	75,857		$	54,233		$	237,253		$	156,404
Implementation and other		1,468			1,107			4,078			3,131
Total revenues		77,325			55,340			241,331			159,535
Cost of revenues
Operating expenses		13,227			7,964			34,491			22,569
Depreciation and amortization		1,521			945			4,093			2,642
Total cost of revenues		14,748			8,909			38,584			25,211
Administrative expenses
Sales and marketing		29,274			23,774			82,702			61,744
Research and development		6,232			2,349			14,294			6,123
General and administrative		24,457			11,996			54,883			34,076
Depreciation and amortization		2,032			1,457			5,578			4,180
Total administrative expenses		61,995			39,576			157,457			106,123
Total operating expenses		76,743			48,485			196,041			131,334
Operating income		582			6,855			45,290			28,201
Interest expense		(252	)		(343	)		(733	)		(1,067	)
Other income (expense), net		(213	)		98			(63	)		150
Income before income taxes		117			6,610			44,494			27,284
(Benefit) provision for income taxes		(6,081	)		2,763			9,287			11,496
Net income	$	6,198		$	3,847		$	35,207		$	15,788
Earnings per share, basic	$	0.11		$	0.07		$	0.61		$	0.28
Earnings per share, diluted	$	0.10		$	0.07		$	0.59		$	0.27
Weighted average shares outstanding:
Basic		57,819,734			57,050,684			57,515,846			56,287,979
Diluted		58,907,281			58,367,830			58,793,479			57,771,680

See accompanying notes to the unaudited consolidated financial statements.

Paycom Software, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities
Net income	$	35,207		$	15,788
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,671			6,822
Amortization of debt issuance costs		96			108
Net loss on disposition of property and equipment		230			15
Stock-based compensation expense		18,742			1,807
Deferred income taxes, net		(1,500	)		(1,514	)
Changes in operating assets and liabilities:
Accounts receivable		875			(592	)
Prepaid expenses		(460	)		(474	)
Inventory		963			245
Deposits and other assets		276			(336	)
Accounts payable		(3,658	)		(850	)
Income taxes, net		2,427			2,543
Accrued commissions and bonuses		(3,306	)		(571	)
Accrued payroll and vacation		3,782			2,524
Deferred revenue		7,849			6,649
Accrued expenses and other current liabilities		3,241			1,965
Net cash provided by operating activities		74,435			34,129
Cash flows from investing activities
Decrease in funds held for clients		103,662			44,662
Decrease in restricted cash		-			371
Purchases of property and equipment		(32,130	)		(10,150	)
Net cash provided by investing activities		71,532			34,883
Cash flows from financing activities
Proceeds from issuance of long-term debt		5,000			-
Repurchases of common stock		(8,379	)		-
Withholding taxes paid related to net share settlements		(14,396	)		-
Principal payments on long-term debt		(702	)		(897	)
Decrease in client funds obligation		(103,662	)		(44,662	)
Payment of debt issuance costs		(46	)		(50	)
Net cash used in financing activities		(122,185	)		(45,609	)
Change in cash and cash equivalents		23,782			23,403
Cash and cash equivalents
Beginning of period		50,714			25,144
End of period	$	74,496		$	48,547

See accompanying notes to the unaudited consolidated financial statements.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(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 lifecycle, 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.

Registered Block Trade Transactions

On September 15, 2015, we closed an underwritten secondary offering of 4,500,000 shares of our common stock by Welsh, Carson, Anderson & Stowe X, L.P. (“WCAS X”), WCAS Capital Partners IV L.P. (“WCAS Capital IV”), each of our executive officers and certain other selling stockholders at a public offering price of $37.95 per share. On September 23, 2015, the underwriter exercised its option to purchase an additional 675,000 shares from WCAS X and WCAS Capital IV. We did not receive any proceeds from the sale of these shares.

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.

2.	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, 2015, included in the Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (“SEC”) on February 22, 2016.

Basis of Presentation

The accompanying unaudited interim 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 SEC regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to fairly present our consolidated balance sheets as of September 30, 2016 and December 31, 2015, our consolidated statements of income for the three and nine months ended September 30, 2016 and 2015 and our consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015. Such adjustments are of a normal recurring nature. 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 22, 2016. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the full year.

Adoption of New Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09 (“ASU 2016-09”), which simplified the accounting related to certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recognized within the income statement when restricted stock awards vest or are settled. In addition, cash flows related to excess tax benefits are not separately classified as a financing activity apart from other income tax cash flows in the statement of cash flows. This guidance allows us to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to taxing authorities on an employee’s behalf for withheld shares be presented as a financing activity in the statement of cash flows, and provides an accounting policy election to account for award forfeitures as they occur or continue to estimate forfeitures. The new guidance is effective for us beginning January 1, 2017, with early adoption permitted. We elected to early adopt the new guidance in the third quarter of 2016. As such, we are required to present any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption, although there were no such adjustments necessary in our consolidated financial statements until the three months ended September 30, 2016. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes of $6.8 million for both the three and nine months ended September 30, 2016, which otherwise would have been recognized as

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

paid -in capital. Early adoption had no impact on retained earnings as of January 1, 2016. We elected to continue to estimate expected forfeitures to determine the amount of stock compensation cost to be recognized in each period. The presentation requirements for cash flows related to excess benefits and for cash flows related to employee taxes paid for withheld shares had no impact on any of the periods previously presented in our consolidated statements of cash flows.

We adopted on a retrospective basis the recently issued guidance by the FASB Accounting Standards Update No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires companies with debt issuance costs related to a recognized debt liability to present such issuance costs in the consolidated balance sheets as a direct deduction from the carrying amount of the debt liability. Our adoption of ASU 2015-03 resulted in a reclassification that decreased deposits and other assets by $0.1 million and decreased net long-term debt, less current portion by $0.1 million on our consolidated balance sheet as of December 31, 2015. The adoption of ASU 2015-03 had no impact on our stockholders’ equity or the results of our operations.

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 of 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 the circumstances. As such, actual results could materially differ from these estimates.

Employee Stock Purchase Plan

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and recorded at the fair value of the award. Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Funds Held for Clients and Client Funds Obligation

As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities. 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 demand deposits, money market funds, certificates of deposit and commercial paper.

These investments are shown in the consolidated balance sheets as funds held for clients, and the offsetting liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the balance sheet date. As of April 1, 2016, the interest income earned on funds held for clients is recorded in recurring revenues. Prior to April 1, 2016, the interest income earned on these funds was recorded in other income, net in the consolidated income statements.

As of September 30, 2016, the funds held for clients were invested in demand deposits, certificates of deposit, money market funds and commercial paper and classified as a current asset in the accompanying balance sheets as these funds are held solely to satisfy the client funds obligation. As of December 31, 2015, the funds held for clients funds were invested in the same investments, other than commercial paper.

Stock Repurchase Plan

On May 26, 2016, we announced that our Board of Directors approved a stock repurchase plan under which we are authorized to purchase (in the aggregate) up to $50.0 million of our issued and outstanding common stock, par value $0.01 per share, over a 24-month period. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs, and the repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions and other corporate considerations. During the nine months ended September 30, 2016, we repurchased an aggregate of 487,755 shares of our common stock under our repurchase plan at an average cost of $46.69 per share, including 302,424 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted common stock.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Recently Issued Accounting Pronouncements

In May 2014, the 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 and has since issued additional amendments to this guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. 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. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

In July 2015, the FASB issued authoritative guidance which simplifies the measurement of inventory. Under the new guidance, an entity should measure inventory (as defined within the scope of the guidance) at the lower of cost or net realizable value. The new guidance applies to all inventory except inventory measured using last-in, first-out (LIFO) or the retail inventory method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predicable costs of completion, disposal and transportation. The new guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Accordingly, the standard is effective for us on January 1, 2017. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

In January 2016, the FASB issued authoritative guidance for the accounting for financial instruments. The amendments in this guidance require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this guidance also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this guidance eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The new guidance is effective for us for fiscal years, and interim periods within those years, beginning after December 15, 2017 and early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

In February 2016, the FASB issued authoritative guidance for the accounting for leases. The purpose of the update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet as well as providing additional disclosure requirements related to leasing arrangements. The new guidance is effective for us for fiscal years, and interim periods within those years, beginning after December 15, 2018, though early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

3.	PROPERTY AND EQUIPMENT, NET

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

	September 30,			December 31,
	2016			2015
Property and equipment
Buildings	$	47,855		$	28,154
Software and capitalized software costs		21,281			13,959
Computer equipment		17,071			11,346
Rental clocks		10,069			8,750
Furniture, fixtures and equipment		6,364			5,464
Vehicles		421			421
Leasehold improvements		680			358
		103,741			68,452
Less: accumulated depreciation and amortization		(33,088	)		(24,894	)
		70,653			43,558
Land		8,993			8,993
Construction in progress		7,639			6,307
Property and equipment, net	$	87,285		$	58,858

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Included in the construction in progress balance at September 30, 2016 and December 31, 2015 is $0.6 million and $0.4 million in retainage, respectively.

Depreciation and amortization expense for property and equipment, net, was $3.2 million and $8.5 million for the three and nine months ended September 30, 2016, respectively. Depreciation and amortization expense for property and equipment, net was $2.0 million and $5.6 million for the three and nine months ended September 30, 2015, respectively.

We capitalize interest incurred for indebtedness related to construction of our principal executive offices. For the three and nine months ended September 30, 2016, we incurred interest costs of $0.3 million and $1.0 million, respectively. We capitalized interest costs for the three and nine months ended September 30, 2016 of $0.1 million and $0.3 million, respectively. For the three and nine months ended September 30, 2015, we incurred interest costs of $0.3 million and $0.9 million, respectively, none of which was capitalized.

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 nine months ended September 30, 2016, we capitalized $2.9 million and $6.6 million of computer software development costs related to software developed for internal use, respectively. During the three and nine months ended September 30, 2015, we capitalized $1.1 million and $2.7 million of computer software development costs related to software developed for internal use, respectively.

4.	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 September 30, 2016 and December 31, 2015 and determined there were no indicators of impairment at either date. We have selected June 30 as our annual goodwill impairment testing date and determined there was no impairment as of June 30, 2016.

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:

	September 30, 2016
	Weighted Average Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships		0.7	$	13,997	$	(12,947	)	$	1,050
Trade name		5.8		3,194		(1,970	)		1,224
Total			$	17,191	$	(14,917	)	$	2,274

	December 31, 2015
	Weighted Average Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships	1.5	$	13,997	$	(11,897	)	$	2,100
Trade name	6.5		3,194		(1,810	)		1,384
Total		$	17,191	$	(13,707	)	$	3,484

The weighted average remaining useful life of our intangible assets was 3.4 years as of September 30, 2016. Amortization of intangible assets for both the three months ended September 30, 2016 and 2015 was $0.4 million. Amortization of intangible assets for both the nine months ended September 30, 2016 and 2015 was $1.2 million.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

5.	LONG-TERM DEBT, NET

As of the dates indicated, our long-term debt consisted of the following:

	September 30, 2016			December 31, 2015
Net term note to bank due May 30, 2021	$	25,162		$	25,742
Net term note to bank due December 31, 2022	$	4,928			-
Total long-term debt (including current portion)		30,090			25,742
Less: Current portion		(1,090	)		(886	)
Total long-term debt, net	$	29,000		$	24,856

As of September 30, 2016, our outstanding indebtedness consisted of (i) a term note under the 2021 Consolidated Loan due to Kirkpatrick Bank (the “2021 Consolidated Loan”), (ii) a 78-month term loan from Kirkpatrick Bank (the “2022 Term Loan”), which we obtained by converting the $5.0 million outstanding principal balance of a construction loan that was used to partially finance the construction of our third headquarters building (the “2015 Construction Loan”), and (iii) a new construction loan from Kirkpatrick Bank, which is available to finance the ongoing construction of a fourth headquarters building and new parking garage (the “2016 Construction Loan”).

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 and certain personal property relating to our headquarters. 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) of greater than 1.2 to 1.0, which is measured on a quarterly basis. We were in compliance with all of these covenants as of September 30, 2016.

We entered into the 2015 Construction Loan with Kirkpatrick Bank on May 3, 2015 and converted the outstanding principal balance into the 2022 Term Loan on August 1, 2016. The 2015 Construction Loan allowed us to borrow 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. The 2022 Term Loan matures on December 31, 2022 and is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters. Interest on the 2022 Term Loan is payable monthly and accrues at a fixed rate of 3.4% per annum. The 2022 Term Loan includes the same covenants as those disclosed above with respect to the 2021 Consolidated Loan. We were in compliance with all of these covenants as of September 30, 2016.

We entered into the 2016 Construction Loan with Kirkpatrick Bank on August 2, 2016. As of September 30, 2016, there were no outstanding borrowings under the 2016 Construction Loan. The 2016 Construction Loan allows us to borrow a maximum aggregate principal amount equal to the lesser of (i) $28.6 million or (ii) 80% of the appraised value of the constructed properties. The 2016 Construction Loan matures on the earlier of the completion of construction or February 2, 2019, with 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 2016 Construction Loan, if any, will be automatically converted into an 84-month term loan that will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate in effect as of the commencement date, plus 225 basis points.

As of September 30, 2016 and December 31, 2015, the carrying value of our total long-term debt, including current portion, was $30.1 million and $25.7 million, respectively, which approximated its fair value as of both dates. The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.

6.	EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE 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 an employee’s 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 as well as the discretionary matching and profit sharing contributions vest 100% after two years of employment from the date of hire. Matching contributions amounted to $0.9 million and $2.5 million for the three and nine months ended September 30, 2016, respectively. Matching contributions amounted to $0.6 million and $1.8 million for the three and nine months ended September 30, 2015, respectively.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months. At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10% of their co mpensation, subject to an annual per employee maximum. Eligible employees purchase shares of the Company’s common stock at a price equal to 85% of the fair market value of the shares on the exercise date. The maximum number of shares that may be purchase d by a participant during each offering period is 2,000 shares, subject to IRS limits. The shares reserved for purposes of the ESPP are shares we purchase in the open market. The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2,000,000 shares. During the nine months ended September 30, 2016, eligible employees purchased 90,571 shares of the Company’s common stock under the ESPP. Compensation expense related to the ESPP is recog nized on a straight-line basis over the requisite service period. Our compensation expense related to the ESPP was $0.1 million and $0.4 million for the three and nine months ended September 30, 2016 . Our compensation expense related to the ESPP was $0. 1 million and $0.2 million for the three and nine months ended September 30, 2015.

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 September 30, 2016 or December 31, 2015.

8.	EARNINGS PER SHARE

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

In accordance with ASC Topic 260 “Earnings Per Share”, the two-class method determines earnings for each class of common stock and participating securities according to an earnings allocation formula that adjusts the income available to common stockholders for dividends or dividend equivalents and participation rights in undistributed earnings. Certain unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. The outstanding shares of 2015 Restricted Stock (as defined in Note 9) are considered participating securities, while the outstanding shares of 2016 Restricted Stock (as defined in Note 9) are not considered participating securities.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

The following is a reconciliation of net income and the number of shares of common stock used in the computation of basic and diluted earnings per share:

	Three Months Ended						Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Numerator:
Net income	$	6,198		$	3,847		$	35,207		$	15,788
Less: income allocable to participating securities		(47	)		(49	)		(271	)		(205	)
Income allocable to common shares	$	6,151		$	3,798		$	34,936		$	15,583
Add back: undistributed earnings allocable to participating securities	$	47		$	49		$	271		$	206
Less: undistributed earnings reallocated to participating securities		(47	)		(49	)		(271	)		(200	)
Numerator for diluted earnings per share	$	6,151		$	3,798		$	34,936		$	15,589
Denominator:
Weighted average common shares outstanding		50,315,455			50,315,455			50,315,455			50,315,455
Weighted average common shares repurchased		(329,586	)		-			(117,296	)		-
Adjustment for vested restricted stock		7,833,865			6,735,229			7,317,687			5,972,524
Shares for calculating basic earnings per share		57,819,734			57,050,684			57,515,846			56,287,979
Dilutive effect of unvested restricted stock		1,087,547			1,317,146			1,277,633			1,483,701
Shares for calculating diluted earnings per share		58,907,281			58,367,830			58,793,479			57,771,680
Earnings per share:
Basic	$	0.11		$	0.07		$	0.61		$	0.28
Diluted	$	0.10		$	0.07		$	0.59		$	0.27

9.	STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

On January 1, 2014, we issued restricted shares of common stock (“2014 Restricted Stock”) under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”) that were subject to either time-based vesting conditions or market-based vesting conditions. Shares of 2014 Restricted Stock with time-based vesting conditions vest based on various schedules through 2018. The market-based vesting conditions were based on our total enterprise value exceeding certain specified thresholds. Compensation expense related to the issuance of 2014 Restricted Stock with time-based vesting conditions was measured based on the fair value of the award on the grant date and is recognized over the requisite service period on a straight-line basis. Compensation expense relating to the issuance of 2014 Restricted Stock with market-based vesting conditions was measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period based on the probability that the vesting conditions would be met. For 2014 Restricted Stock with market-based vesting conditions, 50% of the shares vested upon reaching a total enterprise value of $1.4 billion on December 1, 2014 and the remaining 50% of the shares vested upon reaching a total enterprise value of $1.8 billion on March 2, 2015. Our total compensation expense related to 2014 Restricted Stock was less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2016, respectively. Our total compensation expense related to 2014 Restricted Stock was $0.3 million for both the three and nine months ended September 30, 2015.

There was $0.2 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of 2014 Restricted Stock with time-based vesting conditions outstanding as of September 30, 2016. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.3 years as of September 30, 2016.

On July 8, 2015, we issued an aggregate of 741,931 restricted shares of common stock under the LTIP (“2015 Restricted Stock”) to each of our executive officers and certain non-executive employees. On April 15, 2016, we issued an aggregate of 847,928 restricted shares of common stock under the LTIP to each of our executive officers and certain non-executive employees, and on May 2, 2016, we issued an aggregate of 5,132 restricted shares of common stock under the LTIP to certain members of our Board of Directors (“2016 Restricted Stock” and, collectively with all shares of 2015 Restricted Stock, the “Post-IPO Restricted Stock”). Certain shares of Post-IPO Restricted Stock are subject to market-based vesting conditions and certain shares of Post-IPO Restricted Stock are subject to time-based vesting conditions. Shares of Post-IPO Restricted Stock subject to time-based vesting conditions will vest over periods of three or five years. Shares subject to market-based vesting conditions have vested when, or will vest if, the

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Company’s Total Enterprise Value (as defined in the applicable restricted stock award agreement) equals or exceeds certain predetermined thresholds. All share s of 2016 Restricted Stock with market-based vesting conditions vested on July 28, 2016, when the Company’s Total Enterprise Value reached $2.65 billion. With respect to shares of 2015 Restricted Stock with market-based vesting conditions, 50% of the shar es vested on August 1, 2016, when the Company’s Total Enterprise Value reached $2.65 billion, and the remaining 50% of the shares will vest if the Company’s Total Enterprise Value equals or exceeds $3.5 billion. There was a two-trading-day gap between the vesting of 2016 Restricted Stock and 2015 Restricted Stock when the Company’s Total Enterprise Value reached $2.65 billion due to differences in the number of shares outstanding at the respective grant dates, which affected the Total Enterprise Value calc ulations. Shares of 2016 Restricted Stock subject to market-based vesting conditions would have been forfeited if they did not vest within six years of the date of grant while shares of 2015 Restricted Stock subject to market-based vesting conditions are eligible for vesting indefinitely.

Compensation expense for the shares of Post-IPO Restricted Stock with time-based vesting conditions was measured based on the fair value of the underlying shares on the grant date (which was equal to the closing price of our common stock on such grant date) and will be recognized over the requisite service periods on a straight-line basis. Compensation expense for shares of Post-IPO Restricted Stock with market-based vesting conditions was measured based on the fair value of the underlying shares on the grant date, which ranged from $21.76 to $27.40. The fair value of each share of Post-IPO Restricted Stock with market-based vesting conditions was estimated on the grant date using a Monte Carlo simulation model. This model considers a range of assumptions related to volatility, risk-free interest rate, expected life and expected dividend yield. Expected volatilities used in the model are based on historical volatilities of comparable guideline companies until a sufficient trading history in our common stock exists. We are required to estimate forfeitures and only record compensation costs for those awards that are expected to vest.

The Company recognized $9.9 million of compensation cost in connection with the vesting of 490,700 shares of 2016 Restricted Stock on July 28, 2016 and $3.8 million of compensation cost in connection with the vesting of 234,350 shares of 2015 Restricted Stock on August 1, 2016. To satisfy tax withholding obligations with respect to the delivery of vested shares to certain employees, the Company withheld 199,128 shares of 2016 Restricted Stock that vested on July 28, 2016 and 90,703 shares of 2015 Restricted Stock that vested on August 1, 2016 as well as 12,593 of the 37,047 shares of 2015 Restricted Stock with time-based vesting conditions that vested on July 8, 2016. All shares withheld to satisfy tax withholding obligations are held as treasury stock.

The remaining compensation expense for the unvested shares of Post-IPO Restricted Stock with market-based vesting conditions will be recognized on a straight-line basis over the requisite service period of 4.2 years. Our total compensation expense related to Post-IPO Restricted Stock was $14.2 million and $18.7 million for the three and nine months ended September 30, 2016, respectively. There was $18.2 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of Post-IPO Restricted Stock outstanding as of September 30, 2016. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.2 years as of September 30, 2016.

We capitalized stock-based compensation costs related to software developed for internal use of $1.1 million and $1.4 million for the three and nine months ended September 30, 2016, respectively. We capitalized stock-based compensation costs related to software developed for internal use of less than $0.1 million for both the three and nine months ended September 30, 2015.

10.	RELATED-PARTY TRANSACTIONS

For each of the three- and nine-month periods ended September 30, 2016 and 2015, we paid rent on our Dallas office space in the amounts of $0.1 million and $0.3 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 accordance with the terms of the Registration Rights Agreement dated as of December 30, 2013, we paid registration and related expenses incurred by certain parties and others in the aggregate amount of $0.7 and $0.5 million in connection with the registration of shares of common stock in underwritten secondary offerings in September 2015 and May 2015, respectively.

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.

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

(unaudited)

Legal Proceedings

We are involved in various 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 2017 to 2023. 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 September 30, 2016 and December 31, 2015, we had $1.1 million and $0.8 million, respectively, recorded as a liability for deferred rent.

Rent expense under operating leases for the three and nine months ended September 30, 2016 was $1.5 million and $4.2 million, respectively. Rent expense under operating leases for the three and nine months ended September 30, 2015 was $1.1 million and $3.3 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. We recognized an income tax benefit of $6.1 million for the three months ended September 30, 2016, as compared to a $2.8 million income tax expense for the three months ended September 30, 2015. Income tax expense decreased to $9.3 million for the nine months ended September 30, 2016 from $11.5 million for the nine months ended September 30, 2015. Our effective income tax rate was 20.87% and 42.13% for the nine months ended September 30, 2016 and 2015, respectively. The lower effective income tax rate for the nine months ended September 30, 2016 and the income tax benefit for the three months ended September 30, 2016 are primarily a result of the recognition of excess tax benefits from share-based payment awards resulting from the Company’s adoption of ASU 2016-09. We recognized a discrete adjustment to income tax expense for the three and nine months ended September 30, 2016, in the amount of $6.8 million related to excess tax benefits. See Note 2 under Adoption of New Pronouncements for further discussion in connection with the adoption of ASU 20-16-09.

13.	SUBSEQUENT EVENTS

On October 4, 2016, we issued an aggregate of 721,100 restricted shares of common stock to our executive officers and certain non-executive, non-sales employees under the LTIP, consisting of 510,550 shares subject to market-based vesting conditions (“Market-Based Shares”) and 210,550 shares subject to time-based vesting conditions (“Time-Based Shares”). Market-Based Shares will vest 50% on the first date that the Company’s Total Enterprise Value (calculated as defined in the applicable restricted stock award agreement) equals or exceeds $3.9 billion and 50% on the first date that the Company’s Total Enterprise Value equals or exceeds $4.2 billion, in each case provided that (i) such date occurs on or before the sixth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company or a subsidiary on the applicable vesting date. Time-Based Shares will vest 20% on a specified initial vesting date and 20% on each of the first four anniversaries of such initial vesting date, provided that the recipient is employed by, or providing services to, the Company or a subsidiary on the applicable vesting date. The total compensation cost with respect to this issuance is expected to be approximately $24.5 million.

Item 2. Manag ement’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 consolidated financial statements and notes thereto for the three and nine months ended September 30, 2016, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2016 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2015, 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, 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. Forward-looking statements are any statements that refer to the Company’s estimated or anticipated results, other non-historical facts or future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenue generated by certain applications; the impact of future regulatory, judicial or legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our ability to create additional jobs at our corporate headquarters; our ability to expand our corporate headquarters within an expected timeframe; our expectation of increasing our capital expenditures and investment activity as our business grows; and our plans to purchase shares of our common stock through a stock repurchase plan. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “should,” “would,” “might,” “plan,” “expect,” “potential,” “possible,” “project,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q, Part I, Item 1A, “Risk Factors” of the Form 10-K and in our other reports filed with the SEC. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.

Overview

We are a leading provider of comprehensive, cloud-based human capital management (“HCM”) software delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, 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 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 nine months ended September 30, 2016.

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 42 sales teams located in 24 states and plan to open additional sales offices to further expand our presence in the U.S. market. During the nine months ended September 30, 2016, we opened six sales offices, with one new sales office located in each of Chicago, Cleveland, Pasadena, Sacramento, San Antonio and Stamford. 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 that changes in certain factors affecting our performance will correlate with improvement or deterioration in the labor market. Our principal marketing strategy utilizes email, direct mail, tradeshows, digital marketing and advertising to generate sales leads. In addition, we generate leads and build recognition of our brand and thought leadership with relevant and informative content, such as white papers and webinars.

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 typically weekly, bi-weekly, semi-monthly or monthly.

Our revenue growth and geographic expansion drive increases in our employee headcount, which in turn precipitates increases in (i) employee-related expenses such as salaries and benefits, (ii) stock-based compensation expense and (iii) costs of construction related to the expansion of our corporate headquarters.

For both the nine months ended September 30, 2016 and 2015, our total gross margin was approximately 84%. We expect our gross margin to remain relatively consistent in future periods, as compared to its historical growth rate.

Results of Operations

Three months ended September 30, 2016 as compared to the three months ended September 30, 2015.

The following tables set forth consolidated statements of income data and such data as a percentage of total revenues for the periods presented:

	Three Months Ended September 30,
		2016			2015		% Change
Revenues
Recurring	$	75,857		$	54,233			40	%
Implementation and other		1,468			1,107			33	%
Total revenues		77,325			55,340			40	%
Cost of revenues
Operating expenses		13,227			7,964			66	%
Depreciation and amortization		1,521			945			61	%
Total cost of revenues		14,748			8,909			66	%
Administrative expenses
Sales and marketing		29,274			23,774			23	%
Research and development		6,232			2,349			165	%
General and administrative		24,457			11,996			104	%
Depreciation and amortization		2,032			1,457			39	%
Total administrative expenses		61,995			39,576			57	%
Total operating expenses		76,743			48,485			58	%
Operating income		582			6,855			-92	%
Interest expense		(252	)		(343	)		-27	%
Other income (expense), net		(213	)		98			-317	%
Income before income taxes		117			6,610			-98	%
(Benefit) provision for income taxes		(6,081	)		2,763			-320	%
Net income	$	6,198		$	3,847			61	%

	Three Months Ended September 30,
		2016		2015
Revenues
Recurring		98.1	%	98.0	%
Implementation and other		1.9	%	2.0	%
Total revenues		100.0	%	100.0	%
Cost of revenues
Operating expenses		17.1	%	14.4	%
Depreciation and amortization		1.9	%	1.7	%
Total cost of revenues		19.0	%	16.1	%
Administrative expenses
Sales and marketing		37.9	%	43.0	%
Research and development		8.1	%	4.2	%
General and administrative		31.6	%	21.6	%
Depreciation and amortization		2.6	%	2.6	%
Total administrative expenses		80.2	%	71.4	%
Total operating expenses		99.2	%	87.5	%
Operating income		0.8	%	12.5	%
Interest expense		-0.3	%	-0.6	%
Other income (expense), net		-0.3	%	0.2	%
Income before income taxes		0.2	%	12.1	%
(Benefit) provision for income taxes		-7.8	%	5.0	%
Net income		8.0	%	7.1	%

Revenues

Total revenues were $77.3 million for the three months ended September 30, 2016, as compared to $55.3 million for the three months ended September 30, 2015, representing an increase of $22.0 million, or 40%. The increase in total revenues was primarily due to the addition of new clients in mature sales offices (those offices that have been open for at least 24 months) and, to a lesser extent, in more recently opened sales offices, as well as existing clients purchasing new applications. This sales growth was driven by a combination of factors, including application enhancements, improvements in client training, and increased productivity among our sales representatives.

Cost of Revenues

Cost of revenues was $14.7 million for the three months ended September 30, 2016, as compared to $8.9 million for the three months ended September 30, 2015, representing an increase of $5.8 million, or 66%. The increase in cost of revenues was primarily due to a $4.6 million increase in employee-related expenses, which consisted of a $3.3 million increase in expenses attributable to an increase in the number of operating personnel and a $1.2 million increase in stock-based compensation expense. In addition, for the three months ended September 30, 2016, fees related to ACH processing increased $0.4 million as a result of increased sales. Depreciation and amortization expense increased $0.6 million, or 61%, primarily due to the development of additional technology, purchases of other assets and the construction of assets in connection with the expansion of our headquarters.

Administrative Expenses

Total administrative expenses were $62.0 million for the three months ended September 30, 2016, as compared to $39.6 million for the three months ended September 30, 2015, representing an increase of $22.4 million, or 57%. During the three months ended September 30, 2016, sales and marketing expense increased $5.5 million from the comparable prior year period, primarily due to a $3.4 million increase in expenses attributable to an increase in the number of sales personnel, a $1.4 million increase in stock-based compensation expense and a $0.3 million increase in marketing and advertising expenses. During the three months ended September 30, 2016, research and development expense increased $3.9 million from the comparable prior year period, primarily due to a $3.4 million increase in expenses related to an increase in the number of research and development personnel and a $0.4 million increase in stock-based compensation expense. We anticipate a continued gradual increase in research and development expense as we increase the number of research and development personnel. During the three months ended September 30, 2016, general and administrative expense increased $12.5 million from the comparable prior year period, which included a $9.9 million increase in stock-based compensation expense and a $1.7 million increase in employee-related expenses. During the three months ended September 30, 2016, depreciation and amortization expense increased $0.6 million, or 39%, from the comparable prior year period, primarily due to the development of additional technology, purchases of other assets and the construction of assets in connection with the expansion of our headquarters.

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 perio d. The table below sets forth the amounts of capitalized and expensed research and development costs for the three months ended September 30, 2016 and 2015:

	Three Months Ended
	September 30, 2016		September 30, 2015
Capitalized portion of research and development	$	2,898	$	1,091
Expensed portion of research and development		6,232		2,349
Total research and development costs	$	9,130	$	3,440

Results of Operations

Nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015.

The following tables set forth consolidated statements of income data and such data as a percentage of total revenues for the periods presented:

	Nine Months Ended September 30,
		2016			2015		% Change
Revenues
Recurring	$	237,253		$	156,404			52	%
Implementation and other		4,078			3,131			30	%
Total revenues		241,331			159,535			51	%
Cost of revenues
Operating expenses		34,491			22,569			53	%
Depreciation and amortization		4,093			2,642			55	%
Total cost of revenues		38,584			25,211			53	%
Administrative expenses
Sales and marketing		82,702			61,744			34	%
Research and development		14,294			6,123			133	%
General and administrative		54,883			34,076			61	%
Depreciation and amortization		5,578			4,180			33	%
Total administrative expenses		157,457			106,123			48	%
Total operating expenses		196,041			131,334			49	%
Operating income		45,290			28,201			61	%
Interest expense		(733	)		(1,067	)		-31	%
Other income (expense), net		(63	)		150			-142	%
Income before income taxes		44,494			27,284			63	%
Provision for income taxes		9,287			11,496			-19	%
Net income	$	35,207		$	15,788			123	%

	Nine Months Ended September 30,
		2016		2015
Revenues
Recurring		98.3	%	98.0	%
Implementation and other		1.7	%	2.0	%
Total revenues		100.0	%	100.0	%
Cost of revenues
Operating expenses		14.4	%	14.1	%
Depreciation and amortization		1.7	%	1.7	%
Total cost of revenues		16.1	%	15.8	%
Administrative expenses
Sales and marketing		34.3	%	38.8	%
Research and development		5.9	%	3.8	%
General and administrative		22.7	%	21.3	%
Depreciation and amortization		2.3	%	2.6	%
Total administrative expenses		65.2	%	66.5	%
Total operating expenses		81.3	%	82.3	%
Operating income		18.7	%	17.7	%
Interest expense		-0.3	%	-0.7	%
Other income (expense), net		0.0	%	0.0	%
Income before income taxes		18.4	%	17.0	%
Provision for income taxes		3.8	%	7.2	%
Net income		14.6	%	9.8	%

Revenues

Total revenues were $241.3 million for the nine months ended September 30, 2016, as compared to $159.5 million for the nine months ended September 30, 2015, representing an increase of $81.8 million, or 51%. The increase in total revenues was primarily due to the addition of new clients in mature sales offices (those offices that have been open for at least 24 months) and, to a lesser extent, in more recently opened sales offices, as well as the introduction and sale of additional applications to existing clients, including Enhanced ACA. This sales growth was driven by a combination of factors, including application enhancements, improvements in client training, and increased productivity among our sales representatives. Revenue in the nine months ended September 30, 2016, also benefited from an increase in the number of tax form filings on behalf of clients.

Cost of Revenues

Cost of revenues was $38.6 million for the nine months ended September 30, 2016, as compared to $25.2 million for the nine months ended September 30, 2015, representing an increase of $13.4 million, or 53%. The increase in cost of revenues was primarily due to a $9.8 million increase in employee-related expenses, which consisted of an $8.1 million increase in expenses primarily related to an increase in the number of operating personnel and a $1.6 million increase in stock-based compensation expense. Additionally, for the nine months ended September 30, 2016, fees related to ACH processing and shipping increased $1.0 million and $0.6 million, respectively, from the comparable year period, as a result of increased sales. Depreciation and amortization expense increased $1.5 million, or 55%, primarily due to the development of additional technology, purchases of other assets and the construction of assets in connection with the expansion of our headquarters.

Administrative Expenses

Total administrative expenses were $157.5 million for the nine months ended September 30, 2016, as compared to $106.1 million for the nine months ended September 30, 2015, representing an increase of $51.4 million, or 48%. During the nine months ended September 30, 2016, sales and marketing expense increased $21.0 million from the comparable prior year period primarily due to a $17.1 million increase in employee-related expenses attributable to an increase in the number of sales personnel and a $2.4 million increase in stock-based compensation expense. During the nine months ended September 30, 2016, research and development expense increased $8.2 million from the comparable prior year period, consisting of a $7.5 million increase in expenses related to an increase in the number of research and development personnel and a $0.5 million increase in stock-based compensation expense. During the nine months ended September 30, 2016, general and administrative expense increased $20.8 million from the comparable prior year period, primarily due to a $12.5 million increase in stock-based compensation expense and a $6.2 million increase in employee-related expenses. During the nine months ended September 30, 2016, depreciation and amortization expense increased $1.4 million, or 33%, from the comparable prior year period, primarily due to the development of additional technology, purchases of other assets and the construction of assets in connection with the expansion of our headquarters.

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 costs for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended
	September 30, 2016		September 30, 2015
Capitalized portion of research and development	$	6,605	$	2,733
Expensed portion of research and development		14,294		6,123
Total research and development costs	$	20,899	$	8,856

Liquidity and Capital Resources

As of September 30, 2016, our principal sources of liquidity were cash and cash equivalents totaling $74.5 million. Our cash and cash equivalents are comprised primarily of deposit accounts, certificates of deposit 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 loans. Although we have funded most of the costs for ongoing construction projects at our corporate headquarters from available cash, we have incurred indebtedness for a portion of these costs. Further, to date, all purchases under our stock repurchase plan have been paid for from available cash and, to the extent we repurchase additional shares in the future, we expect to continue to use cash.

Recent Liquidity Developments

Withholding Shares to Cover Taxes. During the three months ended September 30, 2016, we withheld 302,424 shares to satisfy tax withholding obligations with respect to the delivery of vested shares of restricted stock to certain employees. Our payment of the taxes on behalf of those employees resulted in an expenditure of $14.4 million in cash and, as such, we subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.

Stock Repurchase Plan. On May 26, 2016, we announced that our Board of Directors approved a stock repurchase plan under which we are authorized to purchase (in the aggregate) up to $50 million of our outstanding common stock, par value $0.01 per share, over a 24–month period. During the nine months ended September 30, 2016, we repurchased an aggregate of 487,755 shares of common stock (including shares withheld to satisfy tax withholding obligations, as discussed above) for an aggregate cost of $22.8 million.

Oklahoma City Economic Development Trust Incentive . In the first quarter of 2016, we entered into 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 through 2021 and the average annual salary level for such local employees.

Borrowings

2021 Consolidated Loan. As of September 30, 2016, we had a term note under the 2021 Consolidated Loan due to Kirkpatrick Bank that matures on May 30, 2021 (the “2021 Consolidated Loan”) with an outstanding principal balance of $25.2 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 and certain personal property relating to our headquarters.

We are required to comply with certain financial and non-financial covenants under the 2021 Consolidated Loan, 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) of greater than 1.2 to 1.0, which is measured on a quarterly basis. Further, 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 certain affiliates or enter into any other transactions with certain affiliates, (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 bankruptcy, reorganization, liquidation or receivership. As of September 30, 2016, we were in compliance with all of the covenants under the 2021 Consolidated Loan.

2015 Construction Loan and 2022 Term Loan. On May 13, 2015, we entered into a loan agreement with Kirkpatrick Bank to partially finance the construction of our third headquarters building (the “2015 Construction Loan”). The 2015 Construction Loan allowed us to borrow 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. On August 1, 2016, we converted the $5.0 million outstanding principal balance of the 2015 Construction Loan into a 78-month term loan (“2022 Term Loan”) with interest payable monthly and accruing at a fixed rate of 3.4% per annum.

At September 30, 2016, the principal balance outstanding on the 2022 Term Loan was $4.9 million. The 2022 Term Loan matures on December 31, 2022 and is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters. The 2022 Term Loan includes the same covenants as those disclosed above with respect to the 2021 Consolidated Loan. We were in compliance with all of the cov enants as of September 30, 2016.

2016 Construction Loan. On August 2, 2016, we entered into a new construction loan with Kirkpatrick Bank, which is available to finance the ongoing construction of a fourth headquarters building and new parking garage (the “2016 Construction Loan”). As of September 30, 2016, there were no outstanding borrowings under the 2016 Construction Loan. The 2016 Construction Loan allows us to borrow a maximum aggregate principal amount equal to the lesser of (i) $28.6 million or (ii) 80% of the appraised value of the constructed properties. The 2016 Construction Loan matures on the earlier of the completion of construction or February 2, 2019, with 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 2016 Construction Loan, if any, will be automatically converted to an 84-month term loan that will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate 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, demand deposits, commercial paper 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 and may use available cash to repurchase shares of our common stock. 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 statements of cash flows for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended September 30,
	2016			2015
Net cash provided by (used in):
Operating activities	$	74,435		$	34,129
Investing activities		71,532			34,883
Financing activities		(122,185	)		(45,609	)
Change in cash and cash equivalents	$	23,782		$	23,403

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2016 was $74.4 million. Net cash provided by operating activities consisted primarily of net income of $35.2 million, depreciation and amortization of $9.7 million, stock-based compensation expense of $18.7 million, an increase in deferred revenue of $7.8 million, an increase in accrued payroll and vacation of $3.8 million, an increase in accrued expenses and other current liabilities of $3.2 million and an increase in income taxes, net of $2.4 million, partially offset by a decrease in accounts payable of $3.7 million, a decrease in accrued commissions and bonuses of $3.3 million and an increase in deferred income taxes, net of $1.5 million.

Net cash provided by operating activities for the nine months ended September 30, 2015 was $34.1 million. Net cash provided by operating activities consisted primarily of net income of $15.8 million, depreciation and amortization of $6.8 million, an increase in deferred revenue of $6.6 million, an increase in accrued payroll and vacation of $2.5 million, an increase in income taxes, net of $2.5 million, an increase in accrued expenses and other current liabilities of $2.0 million and stock-based compensation expense of $1.7 million, partially offset by an increase in deferred income taxes, net of $1.5 million, a decrease in accounts payable of $0.9 million, a decrease in accrued commissions and bonuses of $0.6 million, an increase in accounts receivable of $0.6 million and an increase in prepaid expenses of $0.5 million.

Investing and Financing Activities

Our cash flows from investing and financing activities are influenced by the amount of funds held for clients, which varies significantly from quarter to quarter. The balance of the funds we hold depends on our clients’ payroll calendars, and therefore such balance changes from period to period in accordance with the timing of each payroll cycle.

Net cash provided by investing activities for the nine months ended September 30, 2016 was $71.5 million and resulted from a decrease in funds held for clients of $103.7 million, offset by purchases of property and equipment of $32.1 million.

Net cash provided by investing activities for the nine months ended September 30, 2015 was $34.9 million and resulted from a decrease in funds held for clients of $44.7 million and a decrease in restricted cash of $0.4 million, offset by purchases of property and equipment of $10.2 million.

Net cash used in financing activities for the nine months ended September 30, 2016 was $122.2 million. Net cash used in financing activities resulted from a decrease in the client funds obligation of $103.7 million, $14.4 million of cash used to satisfy tax withholding obligations for certain employees in connection with the vesting of restricted stock and $8.4 million used for repurchases of common stock in the open market, partially offset by proceeds from the issuance of long-term debt of $5.0 million.

Net cash used in financing activities for the nine months ended September 30, 2015 was $45.6 million. Net cash used in financing activities primarily resulted from a decrease in the client funds obligation of $44.7 million and principal payments on long-term debt of $0.9 million.

Contractual Obligations

Our principal commitments primarily consist of long-term debt and leases for office space. There 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. 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 consolidated financial statements included elsewhere in this report.

Off-Balance Sheet Arrangements

As of September 30, 2016, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these 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 evaluate our estimates and assumptions to ensure that management believes them to be reasonable under the then-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 to the critical accounting policies disclosed in the Form 10-K.

Adoption of New Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09 (“ASU 2016-09”) which simplified the accounting related to certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recognized within the income statement when restricted stock awards vest or are settled. In addition, cash flows related to excess tax benefits are not separately classified as a financing activity apart from other income tax cash flows in the statement of cash flows. This guidance allows us to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made to taxing authorities on an employee’s behalf for withheld shares be presented as a financing activity in the statement of cash flows, and provides an accounting policy election to account for award forfeitures as they occur or continue to estimate forfeitures. The new guidance is effective for us beginning January 1, 2017, with early adoption permitted. We elected to early adopt the new guidance in the third quarter of 2016. As such, we are required to present any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption, although there were no such adjustments necessary in our consolidated financial statements until the three months ended September 30, 2016. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes of $6.8 million for both the three and nine months ended September 30, 2016, which otherwise would have been recognized as paid-in capital. Early adoption had no impact on retained earnings as of January 1, 2016. We elected to continue to estimate expected forfeitures to determine the amount of stock compensation cost to be recognized in each period. The presentation requirements for cash flows related to excess benefits and for cash flows related to employee taxes paid for withheld shares had no impact in any of the periods previously presented on our consolidated statements of cash flows.

We adopted on a retrospective basis the recently issued guidance by the Financial Accounting Standards Board Accounting Standards Update No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) Simplifyin g the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires companies with debt issuance costs related to a recognized debt liability to present such issuance costs in the consolidated balance sheets as a direct deduction from the carr ying amount of the debt liability. Our adoption of ASU 2015-03 resulted in a reclassification that decreased Deposits and other assets by $0.1 million and decreased Net long-term debt, less current portion by $0.1 million on our consolidated balance sheet as of December 31, 2015. The adoption of ASU 2015-03 had no impact on our stockholders’ equity or the results of our operations.

Non-GAAP Financial Measures

We use EBITDA, Adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess our performance before gains, losses or other changes that our management considers to be outside of our core business operating results 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, non-cash stock-based compensation expense and certain transaction expenses that are not core to our operations and (iii) non-GAAP net income as net income plus non-cash stock-based compensation expense and certain transaction expenses that are not core to our operations, each of which is adjusted for the effect of income taxes. EBITDA, Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by our management in its financial and operational decision-making. We believe these metrics are useful to investors because they provide period-to-period comparisons of the results of our continuing operations, and facilitate comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP. In addition, EBITDA and adjusted EBITDA are measures that provide useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes.

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 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 to EBITDA and Adjusted EBITDA and net income to non-GAAP net income:

	Three months ended September 30,					Nine months ended September 30,
	2016			2015		2016		2015
Consolidated statements of income data:
Net income	$	6,198		$	3,847	$	35,207	$	15,788
Interest expense		252			343		733		1,067
(Benefit) provision for income taxes		(6,081	)		2,763		9,287		11,496
Depreciation and amortization		3,553			2,402		9,671		6,822
EBITDA		3,922			9,355		54,898		35,173
Non-cash stock-based compensation expense		14,235			1,432		18,857		1,721
Transaction expenses		-			-		-		685
Adjusted EBITDA	$	18,157		$	10,787	$	73,755	$	37,579

	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Consolidated statements of income data:
Net income	$	6,198		$	3,847		$	35,207		$	15,788
Non-cash stock-based compensation expense		14,235			1,432			18,857			1,721
Transaction expenses		-			-			-			685
Income tax effect on non-GAAP adjustments		(11,472	)		(563	)		(13,234	)		(779	)
Non-GAAP net income	$	8,961		$	4,716		$	40,830		$	17,415

Non-GAAP net income per share, basic	$	0.15		$	0.08		$	0.71		$	0.31
Non-GAAP net income per share, diluted	$	0.15		$	0.08		$	0.69		$	0.30

Weighted average shares outstanding:
Basic		57,819,734			57,050,684			57,515,846			56,287,979
Diluted		58,907,281			58,367,830			58,793,479			57,771,680

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents totaling $74.5 million as of September 30, 2016. We consider all highly liquid debt instruments purchased with a maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. These amounts are invested primarily in deposit accounts, certificates of deposit 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. The market value of fixed rate securities may be adversely affected due to 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 September 30, 2016, 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 September 30, 2016, 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 September 30, 2016 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 disclosures.

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
September 30, 2016 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

Except as set forth below, 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 22, 2016.

Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our clients, which could increase the costs of our solution and applications and could adversely affect our business, operating results or financial condition.

As a vendor of services, we are ordinarily held responsible by taxing authorities for collecting and paying any applicable sales or other similar taxes. Additionally, the application of federal, state and local tax laws to services provided electronically like ours is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services and applications provided over the Internet. These enactments could adversely affect our sales activity, due to the inherent cost increase the taxes would represent and ultimately could adversely affect our business, operating results or financial condition.

Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time. We review these rules and regulations periodically and, when we believe we are subject to sales and use taxes in a particular state, we may voluntarily engage state tax authorities in order to determine how to comply with that state’s rules and regulations. We cannot ensure that we will not be subject to sales and use taxes or related penalties for past sales in states where we currently believe no such taxes are required.

In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our clients to pay additional tax amounts, as well as require us or our clients to pay fines or penalties and substantial interest for past amounts. If we are unsuccessful in collecting such taxes from our clients, we could be held liable for such costs, thereby adversely affecting our business, operating results or financial condition. Additionally, the imposition of such taxes on us would effectively increase the cost of our software and services we provide to clients and would likely have a negative impact on our ability to retain existing clients or to gain new clients in the jurisdictions in which such taxes are imposed.

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

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
July 1 - 31, 2016 ⁽²⁾		211,721	$	47.79		211,721	$	36,500,000
August 1 - 31, 2016 ⁽³⁾		161,375	$	48.56		161,375	$	28,600,000
September 1 - 30, 2016		29,530	$	47.23		29,530	$	27,200,000
Total		402,626				402,626

(1)	Under a stock repurchase plan announced on May 26, 2016, we are authorized to purchase up to $50.0 million of our common stock. The stock repurchase plan will expire on May 25, 2018.

(2)	Consists of shares withheld to satisfy tax withholding for certain employees upon the vesting of restricted stock.

(3)	Includes 90,703 shares withheld to satisfy tax withholding for certain employees upon the vesting of restricted stock.

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

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		Amended and Restated Bylaws of Paycom Software, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

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		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).

4.3		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).

4.4		Amendment No. 1 to the Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015 (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 7, 2015).

4.5		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and the Mackesy Family Foundation, dated as of May 27, 2015 (incorporated by reference to Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

4.6		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Anthony & Christie de Nicola Foundation, dated as of August 13, 2015 (incorporated by reference to Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

4.7		Amendment No. 2 to Registration Rights Agreement, by and between Paycom Software, Inc. and each of the signatories thereto, dated as of September 15, 2015 (incorporated by reference to Exhibit 4.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

4.8		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and The Swani Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

4.9		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Paul & Anne-Marie Queally Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).

4.10		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Scully Family Charitable Foundation, dated as of December 2, 2015 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 29, 2015, filed with the SEC on January 5, 2016).

10.1*		Promissory Note, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated May 13, 2015.

10.2*		First Loan Modification Agreement, by and between Kirkpatrick Bank and Paycom Payroll, LLC.

10.3*		Second Loan Modification Agreement, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated August 2, 2016.

10.4*		Loan Agreement, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated August 2, 2016

10.5*		Promissory Note, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated August 2, 2016.

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.

Exhibit No.		Description

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 URES

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: November 3, 2016	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 3, 2016	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit 10.1

PROMISSORY NOTE


$11,000,000.00	May 13 , 2015

As used in this Note, the following term s shall have the meanings ascribed to each:

BUSINESS DAY :		That portion of any day , othe r than a Saturday , a Sunday or a day on which Kirkpatrick Bank is perm it ted or required to be closed under the laws of the State of Oklahoma or appl icabl e Federal law, during which the Holder of this Note is ope n for s ubstantially all of such Holder’ s normal banking functions.
COMPLETION DATE :		T hi s term shall have the meaning ascribed to it in the Loan Agreement.
COMPLETION DEA DL INE :		This term sha ll have the meaning ascr ib ed to it i n the Loan Ag r eement.
DEFAULT RATE :		The lesser of (a) the Interest Rate (as adjusted from time to time pursuant to t h e term s of this Note) plus five hundred basis points (5.00%) per annum or (b) the Maximum Rate.
DISCOUNTED RATE :		A rate determined by the fo ll owing method: (1) sec ur e a n i ssue of the Wall Street Journal date five (5) Business Da ys prior to the prepayment date a nd l oca te the listing of Treasury Bonds, Notes, and Bills therein (representative mid-afternoon over-the- counter quotations supp li ed by the Federal Re se rve Bank of New York , ba se d on transactions of $ 1 million o r more) ; (2) se l ect the five (5) issues which mature closest to the Matur i ty Date of this Note (in the event there are more than five (5) issues which mature closest to the Matur it y Date , Lender s hall , in its so le discretion , se l ec t which five (5) issues to use); and (3) discard the hi ghest an d l owest yields-to -m aturity and ascertain t h e average of the remaining three (3) and add seventy -fi ve (75) ba sis points to arrive at the Discount Rate.
EFFECTIVE DATE :		The Effective Date s h all be May 1 3, 2015.
EVENTS OF D EF AULT :		This term s h a ll h ave th e m ean in g ascribed to it in paragraph 5.1 of this Note.

Exhibit 10.1

HOLDER AND PAYEE :		KIRKPATRICK BANK , an Oklahoma bank in g corporation, and its successors and ass i gns
INDEBTEDNESS :		The indebtedness evidenced by this Note.
INTEREST RATE :		The Interest Rate in effect under this Note shall be: (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%).
LATE CHARGE :		Five percent (5%) of each delinquent payment.
LOAN :		The loan from Holder to Maker evidenced by this Note and secured by the Loan Documents.
LOAN AGREEMENT :		The Loan Agreement of even date herewith between Holder, as lender, and the Maker, as borrower, as amended, modified, renewed and/or restated from time to time.
LOAN DOCUMENTS :		This term shall have the meaning ascribed to it in the Loan Agreement.
MAKER :		PAYCOM PAYROLL, LLC , a Delaware limited liability company
MAKER’S ADDRESS :		7501 West Memorial Road, Oklahoma City, Oklahoma 73142.
MATURITY DATE :		The Maturity Date shall be May 7, 2023, or any earlier date on which the entire unpaid Principal Amount shall be paid or required to be paid in full, whether by prepayment, acceleration or otherwise.
MAXIMUM RATE :		The maximum rate of interest permitted by applicable law.
MORTGAGES :		This term shall collectively mean the Mortgage, the Second Mortgage and the Existing Mortgages, each of which has the meaning ascribed to it in the Loan Agreement.
MORTGAGED PROPERTY :		Collectively, all of the real and personal property described in the Mortgages.

Exhibit 10.1

NET PRESENT VALUE :		The present value of the payments of principal and interest required under this Note calculated using a Discounted Rate over the period commencing with the date of determination of such present value and ending on the scheduled Maturity Date.
NOTE :		This Promissory Note and any amendments, modifications, renewals or extensions thereto and any substitutions thereto.
NPV DIFFERENTIAL :		The amount by which the Net Present Value of the Note exceeds the then outstanding Principal Amount.
PAYMENT ADDRESS :		Kirkpatrick Bank, 15 East 15 ^th Street, Edmond, Oklahoma 73013, or such other address as Holder may hereafter designate in writing to Maker.
PRIME RATE :		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.
PRINCIPAL AMOUNT :		Eleven Million and 01/100 Dollars ($11,000,000.00), or so much thereof as may be advanced by Holder, to or for the account of Maker, pursuant to the Loan Agreement, together with all other amounts added thereto pursuant to this Note or otherwise payable in accordance with the Loan Documents.
TERM LOAN CONVERSION DATE :		The first (1 ^st ) day of the first (1 ^st ) month after the Completion Date, but in no event later than the Completion Deadline.

1. Promise to Pay . FOR VALUE RECEIVED, Maker promises to pay to the order of Holder at the Payment Address the Principal Amount (or so much thereof as may from time to time be outstanding) on or before the Maturity Date, together with interest accrued on the outstanding Principal Amount at the Interest Rate through the Maturity Date, payable in lawful money of the United States of America as set forth in this Note.

Exhibit 10.1

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 two hundred forty (240) month amortization period. If not paid sooner, the entire unpaid principal balance of this Note and all unpaid accrued i nterest thereon shall be due and payable on the Maturity Date.

3. Application of Payments . Whenever any payment is stated to be due or a computation is to be made on a day which is not a Business Day, such payment or computation will be made on the next succeeding Business Day, and such extension of time will be included in the computation of interest. Interest due under this Note shall be calculated on the unpaid principal to the date of each installment paid. All payments of interest shall be computed on the basis of a three hundred sixty (360) day year comprised of twelve (12) equal months of thirty (30) days each.

4. Prepayment . Borrower may prepay this Note in full, but not in part, on any due date so long as: (i) Borrower provides Lender not less than sixty (60) days advance written notice thereof, and (ii) Borrower pays to Lender prior to or concurrently with such prepayment, as consideration for the privilege of making such payment, a prepayment fee equal to:

(A)

the larger of (I) 1% of the unpaid principal balance outstanding under this Note (the “1% Fee”), or (II) a prepayment premium consisting of the amount of the NPV Differential, and

(B)

all other sums payable to Lender as of the date of the prepayment, including, but not limited to, interest to the date of prepayment.

Default .

5.1. Events of Default . The Events of Default listed in the Loan Agreement and/or the Mortgages are incorporated in this Note by reference and made a part of this Note and shall constitute “Events of Default” hereunder and under each of the other Loan Documents. These Events of Default include, but are not limited to, default in payment when due of any interest on or principal of this Note. Events of Default will be subject to such respective notice and cure provisions, if any, set forth in the Loan Agreement and/or Mortgages.

5.2. After Default Interest Rate . While any Event of Default continues to exist under the Loan Agreement, this Note, the Mortgages, or any instrument now or hereafter securing payment of the indebtedness evidenced by this Note, including, without limitation, any Event of Default under the Mortgages and the failure of Maker to cure such Event of Default within the applicable cure periods, if any, at the option of the Holder, in its sole discretion, the entire unpaid principal balance hereof shall bear interest, retroactively from the date of the Event of Default, at the rate per annum equal to the Default Rate. During the existence of any such default, the Holder may apply payments received on any amounts due hereunder, or under the terms of any instrument now or hereafter evidencing or securing such indebtedness, as the Holder may determine, and if the Holder so elects, notice of election being expressly waived, the principal hereof remaining unpaid, together with accrued interest, shall at once become due and payable. Any and all additional interest which has accrued at the rate provided in this paragraph shall be due and payable at the time of, and as a condition precedent to, the curing of any default.

Exhibit 10.1

5.3. Remedies . If an Event of Default has occurred and is uncured, , then, in addition to the provisions of paragraph 5.2, Holder shall have all remedies set forth in the Loan Agreement or other Loan Documents and any or all other rights and options available to Holder at law or in equity. Holder’s rights, remedies and po wers, as provided in this Note and the other Loan Documents, are cumulative and concurrent, and may be pursued singly, successively or together against Maker, the security described in the Loan Documents, any guarantor(s) of this Note and any other securit y given at any time to secure the payment of this Note, all at the sole discretion of Holder. Additionally, Holder may resort to every other right or remedy available at law or in equity without first exhausting the rights and remedies contained herein, al l in Holder’s sole discretion. Failure of Holder, for any period of time or on more than one occasion, to exercise its option to accelerate the Maturity Date shall not constitute a waiver of the right to exercise the same at any time during the continued e xistence of any Event of Default or any subsequent Event of Default.

5.4. Attorney’s Fees . If this Note is not paid at maturity, whether by acceleration or otherwise, and is placed in the hands of an attorney for collection, or suit is filed hereon, or proceedings are had in probate, bankruptcy, receivership, reorganization, rearrangement or other legal proceedings for collection hereof, Maker and each surety, guarantor, endorser and other party now or hereafter primarily or secondarily liable upon or for the payment of any sums of money payable on this note jointly and severally agree to pay to Payee its collection costs, including a reasonable sum for attorneys’ fees, but in no event to exceed the maximum amount permitted by law.

6. Late Charge . In the event any payment provided for in this Note or in the Mortgages shall become overdue for a period in excess of fifteen (15) days, Maker shall pay, without notice or demand, both of which are hereby waived to the maximum extent permitted by applicable law, the Late Charge computed on the delinquent payment; provided, however, if such amount, when added to all other charges contracted for, charged or received hereunder which are treated as interest or loan finance charge under applicable federal or state law, is in excess of the amount permitted to be charged to Maker under applicable federal or state law, Holder shall be entitled to collect, in lieu thereof, such amount only to the maximum amount permitted by such law on the payment so overdue, computed from the original due date to the date such payment is made, which amount shall become immediately due to Holder, at Holder’s option, as liquidated damages for Maker’s failure to make prompt payment, but in no event shall such amount, when added to all other sums deemed to be interest or loan finance charge by applicable law, exceed the maximum amount allowed by law. Maker acknowledges that late payment to Holder of any sum due under this Note or the Mortgages will cause Holder to incur costs not contemplated at the time it made the Loan to Maker which is evidenced by this Note, including, without limitation, processing and accounting charges, but that actual damages to Holder would be costly, inconvenient and impracticable to ascertain. Maker agrees that the Late Charge set forth above represents a fair and reasonable estimate of such costs and represents a reasonable sum considering all of the circumstances existing on the date of this Note. The Late Charge shall be paid without prejudice to the right of Holder to collect any other amounts provided to be paid, to declare a default under this Note or under the Mortgages or to exercise any of the other rights and remedies of Holder. Further, nothing in this Note shall be construed as an obligation on the part of Holder to accept, at any time, less than the full amount then due hereunder, or as a waiver or limitation of Holder’s right to compel prompt performance.

Exhibit 10.1

7. Lawful Rate of Interest . All agreements between Maker and Holder are expressly limited so that in no event whatsoever, whether by reason of disbursement of the proceeds hereof or otherwise, shall the amount of interest or loan finance charge paid or agreed to be paid by Maker to Holder exceed the highest lawful contractual rate of interest or the maxi mum finance charge permissible under applicable federal or state law which a court of competent jurisdiction, by final non-appealable order, determines to be applicable hereto. If fulfillment of any agreement between Maker and Holder of this Note, at the t ime the performance of such agreement becomes due, involves exceeding such highest lawful contractual rate or such maximum permissible loan finance charge, then the obligation to fulfill the same shall be reduced so that such obligation does not exceed suc h highest lawful contractual rate or maximum permissible loan finance charge. If by any circumstance Holder shall ever receive as interest or loan finance charge an amount which would exceed the amount allowed by applicable federal or state law, the amount which may be deemed excessive shall be deemed applied to the principal of the indebtedness evidenced hereby and not to interest. To the extent required to comply with applicable limitations on interest or loan finance charges, all interest and loan financ e charges paid or agreed to be paid to Holder of this Note shall be prorated, allocated and spread throughout the full period of this Note. The terms and provisions of this paragraph shall control all other terms and provisions contained herein and in any of the other documents executed in connection herewith.

8. Waiver . Except with respect to such notice of an Event of Default and such opportunity to cure an Event of Default as may be required by this Note or the Loan Agreement, to the maximum extent permitted by applicable law, Maker, for itself and all endorsers, guarantors and sureties of this Note, and each of them, and their respective heirs, legal representatives, successors and assigns, hereby waives presentment for payment, demand, notice of nonpayment, notice of dishonor, protest of any dishonor, notice of protest and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, and agrees that their liability shall be unconditional and without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Holder. To the maximum extent permitted by applicable law, Maker, for itself and all endorsers, guarantors and sureties of this Note, and each of them, and their respective heirs, legal representatives, successors and assigns, hereby waives consent to every extension of time, renewal, waiver or modification that may be granted by Holder with respect to the payment or other provisions of this Note, and to the release of any collateral given to secure the payment of this Note, or any part of this Note, with or without substitution, and agrees that additional makers or guarantors or endorsers may become parties hereto without notice to Maker and without affecting the liability of Maker hereunder.

9. Continuation of Indebtedness . In the event that at any time any payment(s) received by Holder hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than Holder, then, in any such event, the obligation to make such payment(s) shall survive any cancellation of this Note and/or return thereof to Maker, shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Note but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and the amount of such payment(s) shall bear interest at the Default Rate from the date of such final order until repaid hereunder.

Exhibit 10.1

10. General Provisions .

10.1 Amendments . This Note may not be terminated or amended orally, but only by a termination or amendment in writing signed by Holder.

10.2 Records of Holder . The records of the Holder shall be prima facie evidence of the amount due hereunder.

10.3 Business Purposes . This Note is given to evidence an obligation incurred for business purposes and not for personal, residential or agricultural purposes.

10.4 Captions; Definitions . The captions of the paragraphs of this Note are for convenience only and shall not be deemed to modify, explain, enlarge or restrict any of the provisions of this Note. Each of the terms defined before paragraph l of this Note shall have the meaning set forth following such term when used throughout this Note. Any term not specifically defined in this Note shall be accorded the same meaning set forth for such term in the Loan Agreement.

10.5 Severable Provisions . Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable.

10.6 Notices . Notices and other communications shall be given under this Note in accordance with the requirements of paragraph 12.2 of the Loan Agreement.

10.7 Time of Essence . Time is of the essence of this Note and the performance of each of the covenants and agreements contained herein.

10.8 Purpose . This Note is signed to evidence an obligation incurred by Maker for business purposes and not for personal, residential or agricultural purposes.

10.9 Choice of Law . Payment of this Note is secured, without limitation, by the Mortgages, which covers real and personal property located in Oklahoma County, Oklahoma. An Event of Default under the Mortgages, the Loan Agreement or any other document securing or relating to this Note shall constitute an Event of Default under this Note. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES, AND EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

10.10 Jurisdiction and Venue . ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO THIS NOTE MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT HAVING THE MORTGAGED PROPERTY (AS DEFINED IN THE LOAN AGREEMENT) WITHIN ITS JUDICIAL DISTRICT, AS THE HOLDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS NOTE, THE MAKER IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE

Exhibit 10.1

NONEXCLUSIVE JURISDICTION (BOTH SUBJECT MATTER AND PERSON) OF EACH SUCH COURT AND IRREVOCABLY AND UNCONDITIONALLY WAIVE (I) ANY OBJECTION THAT MAKER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN EITHER OF SUCH COURTS, AND (II) ANY CLA IM THAT ANY ACTION OR PROCEEDING BROUGHT IN EITHER SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

10.11 Jury Trial Waiver . MAKER AND HOLDER, BY ITS ACCEPTANCE OF THIS NOTE, JOINTLY AND SEVERALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY MAKER, AND MAKER ACKNOWLEDGES THAT NEITHER HOLDER NOR ANY PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY HOLDER, AND HOLDER ACKNOWLEDGES THAT NEITHER MAKER NOR ANY PERSON ACTING ON BEHALF OF MAKER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL. EACH PARTY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION. THIS NOTE CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY, AND EITHER PARTY IS AUTHORIZED AND EMPOWERED TO FILE THIS NOTE WITH THE CLERK OR JUDGE OF ANY COURT OF COMPETENT JURISDICTION AS A STATUTORY WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.

[Signature appears on following page.]

Exhibit 10.1

IN WITNESS WHEREOF , Maker execu t es this Note as of t h e d a te se t forth a bo ve.

“ Maker ”:	PAYCOM PAYROLL, LLC,
	a Delaware limited liability company

	By	/s/ Craig Boelte
		Craig Boelte, Chief Financial Officer

Exhibit 10.2

AMENDMENT TO LOAN AGREEMENT

THIS AMENDMENT TO LOAN AGREEMENT (“Agreement”) is made and entered into effective as of _____________________, 2015 (the “Effective Date”), by and between KIRKPATRICK BANK , an Oklahoma banking (“Lender), and PAYCOM PAYROLL, LLC, a Delaware limited liability company (“Borrower”), with reference to the following:

RECITALS:

A. Borrower and Lender are parties to that certain Loan Agreement, dated May 13, 2015 (the “Loan Agreement”), which includes, among other things, a Fixed Charge Coverage Ratio loan covenant (the “Fixed Charge Coverage Ratio”). All capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings ascribed to those terms in the Loan Agreement, as amended hereby.

B. At Borrower’s request, Lender and Borrower mutually desire to amend the calculation of the Fixed Charge Coverage Ratio within the Loan Agreement as described herein below.

AGREEMENT:

In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Lender and Borrower hereby agree as follows:

1. Recital Paragraphs . The recital paragraphs set forth above are hereby incorporated as a part of this Agreement.

2. Modification of Loan Agreement . As of the Effective Date, Section 8.12 the Loan Agreement is hereby amended and restated in its entirety as follows:

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 actual Net Operating Income plus interest expense, depreciation expense and amortization expense for the most recent four (4) calendar quarters, divided by Debt Service Requirements plus rent expense.

(b) Debt Service Requirements . The term “ Debt Service Requirements ” shall mean principal and interest payments due and owing for the prior calendar quarter multiplied by four (4), 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.

Exhibit 10.2

(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.

(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.

3. Borrower’s Representations and Warranties . Without limitation of any obligations, representations, warranties or liabilities of Borrower pursuant to the Loan Documents, Borrower represents and warrants to Lender that:

(a) Agreements . Borrower is not a party to any agreement or instrument, materially and aversely affecting the operations or condition, financial or otherwise, of Borrower, and Borrower is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default would have a material adverse effect upon the business, properties or assets, operations or condition, financial or otherwise of Borrower.

(b) Governmental Consents . Borrower is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any governmental authority in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, the issuance and delivery of this Agreement.

(c) No Offsets . There are no defenses, offsets or counterclaims against the Loan, and no Event of Default exists under the Loan.

4. Ratification . Except as expressly modified herein or by documents signed pursuant to this Agreement, all of the terms and conditions of the Loan Agreement and Loan Documents (i) remain unmodified and in full force and effect and (ii) are hereby ratified and confirmed by Borrower.

5. Payment of Costs . Borrower shall pay or cause to be paid, at the time of execution of this Agreement, any and all fees and expenses incurred by Lender and/or its counsel in connection with the preparation and execution of this Agreement, including without limitation, all legal fees and expenses, and any unpaid sums due to Lender.

Exhibit 10.2

6. Default Under this Agreement . The failure of Bo rrower to comply with any provisions of this Agreement shall constitute a default under the Loan Documents, entitling Lender to exercise any and all remedies to which it may be entitled thereunder and hereunder, at law and/or in equity (after such notice a nd such opportunity to cure such default as may be required by the Loan Agreement).

7. Headings; Time of Essence . The headings used in this Agreement are for convenience only and shall be disregarded in interpreting the substantive provisions of this Agreement. Time is of the essence of each term of this Agreement.

8. Severability . If any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Agreement and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been a part thereof.

9. 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.

10. No Oral Agreements . THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURE PAGE FOLLOWS]

Exhibit 10.2

IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement effective as of the date set forth above.

“Borrower”:	PAYCOM PAYROLL, LLC,
	a Delaware limited liability company

	By:	/s/ Craig Boelte
		Craig Boelte, President

“Lender”:	KIRKPATRICK BANK,
	an Oklahoma state banking association

	By:	/s/ David Sutter
		David Sutter, Executive Vice President

Exhibit 10.3

SECOND LOAN MODIFICATION AGREEMENT

THIS SECOND LOAN MODIFICATION AGREEMENT (“Agreement”) is made and entered into effective as of August 2, 2016 (the “Effective Date”), by and between KIRKPATRICK BANK , an Oklahoma banking (“Lender), and PAYCOM PAYROLL, LLC , a Delaware limited liability company (“Borrower”), with reference to the following:

RECITALS:

A. Certain defined terms used in this Agreement are set forth below:

Borrower:		Paycom Payroll, LLC, a Delaware limited liability company
Lender:		Kirkpatrick Bank, an Oklahoma banking association
Loan Agreement:		Loan Agreement, dated May 13, 2015, each by and between Borrower and Lender, as amended
Note:		Promissory Note, dated May 13, 2015, executed by Borrower, as maker, and payable to the order of Lender, as holder, in the maximum principal amount of $11,000,000.00
Mortgages:		Construction Mortgage (with Power of Sale), Security Agreement and Financing Statement, dated May 13, 2015, recorded in Book RE12824 at Page 238, and Second Mortgage (with Power of Sale), Security Agreement and Financing Statement, dated May 13, 2015. recorded in Book RE12824 at Page 272, each in the real estate records of Oklahoma County, Oklahoma, each securing the Note and collectively encumbering the Mortgaged Property
Security Instruments:		Mortgages and the other documents listed in Exhibit “B” attached hereto
Existing Loan Documents:		The Loan Agreement, the Note, the Security Instruments and any and all other instruments and agreements evidencing or securing the Loan or executed in connection with the Loan
Loan Documents:		This Agreement and the Existing Loan Documents, as amended by or pursuant to this Agreement

Exhibit 10.3

Loan:		The indebtedness from Lender to Borrower currently evidenced by the Note, as amended by or pursuant to this Agreement
Mortgaged Property:		The real and personal property described in and subject to the liens and security interests granted in the Security Instruments, such real property being more particularly described as “Tract 1”, “Tract 2” and “Tract 3” in Exhibit “A” attached hereto and incorporated herein

All capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings ascribed to those terms in the Loan Agreement, as amended hereby.

B. At Borrower’s request, Lender and Borrower mutually desire to amend the Existing Loan Documents in order to, among other things, (i) reduce the maximum principal amount of the Note from $11,000,000.00 to $5,000,000.00, and (ii) modify provisions pertaining to prepayment of the Loan.

C. As of the Effective Date, the aggregate principal amount of $25,261,159.80 has been advanced under the Note.

AGREEMENT:

1. Recital Paragraphs . The recital paragraphs set forth above are hereby incorporated as a part of this Agreement.

2. Conditions Precedent to Lender’s Agreements . The following are conditions precedent to Lender’s agreements under this Agreement. Borrower shall cause such conditions precedent to be satisfied, on or before the date of this Agreement:

(a) Receipt by Lender of fully executed originals of this Agreement, the Fourth Loan Modification Agreement in connection with the modification of loan numbers 1414700 & 1498200, and all loan documents to be executed in connection with the new loan to be issued by Lender to Borrower in the maximum principal amount of $28,640,000, each in form and content acceptable to Lender.

(b) Payment by Borrower of all fees, costs and expenses relating to this modification of the Loan, including, but limited to, the fees, costs and expenses referenced in paragraph 6 of this Agreement.

Exhibit 10.3

3. Mo dification of Existing Loan Documents .

(a) Modification of Existing Loan Documents . Notwithstanding the provisions of the Existing Loan Documents, each of the Existing Loan Documents, including the Note and Loan Agreement, is hereby amended to reduce the indebtedness evidenced by the Note to FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00).

(b) Modification of Note . Section 4 of the Note is hereby amended and restated in its entirety as follows:

A= A rate per annum equal to the fixed rate that Lender determines a swap dealer would quote to Lender on the Closing Date for an interest rate swap with a maturity equal to the Matu rity Date.

B= A rate per annum equal to the fixed rate that Lender determines a swap dealer would quote to Lender on the Pre-Payment Date for paying to Lender the fixed rate side of an interest rate swap with a maturity equal to the Maturity Date.

C = The sum of the products of (i) each Affected Principal Amount for each Affected Principal Period, times (ii) the number of days in that Affected Principal Period divided by 360.

"Affected Principal Amount" for an Affected Principal Period means the principal amount of the Loan scheduled to be outstanding during that Affected Principal Period determined as of the relevant Prepayment Date by reference to the Schedule of Principal Amounts before giving effect to any Prepayment Event on that Prepayment Date, and for any Prepayment, multiplying each such principal amount times the Prepayment Fraction. For any Failure to Borrow, the Affected Principal Amount shall be adjusted, as appropriate, to reflect the amount of the relevant advance not made on the relevant Borrowing Date.

"Affected Principal Period" means each period from and including a Scheduled Due Date to but excluding the next succeeding Scheduled Due Date, provided that the first such period shall begin on and include the Pre-Payment Date.

"Prepayment Fraction" means a fraction equal to the principal amount being prepaid over the principal amount of the Loan outstanding immediately prior to that prepayment on the Pre-Payment Date.

"Present Value" is determined as of the Break Date using "B" above as the discount rate.

"Break Event" means any Prepayment or Acceleration.

Exhibit 10.3

“Acceleration” means that the Loan or any note evidencing the Loan is declared due and payable prior to the Maturity Date.

"Closing Date" means any date on which any advance of the Loan is made.

"Prepayment Date" means the date for any Prepayment, or otherwise the Acceleration date.

"Pre-Payment Event" means any Prepayment or Acceleration.

"Prepayment" means that the Loan is prepaid on any date or dates prior to the Maturity Date.

(c) Modification of Loan Agreement . Sections 10.1 and 10.8 of the Loan Agreement are hereby amended and restated in their entirety as follows:

10.1 Nonpayment of Note . Default in payment when due of any interest on or principal of the Note and/or any and all other indebtedness, of whatever kind or character, now owing or that may hereafter become owing by Borrower to Lender.

10.8 Event of Default Under Other Loan Documents . Any Event of Default occurs under the Note, the Mortgage, the Assignment, the Subordination Agreements, any other Loan Documents or any other loan documents executed by Borrower in favor of Lender pertaining to other indebtedness now owing or that may hereafter become owing by Borrower to Lender.

4. Borrower’s Representations and Warranties . Without limitation of any obligations, representations, warranties or liabilities of Borrower pursuant to the Loan Documents, Borrower represents and warrants to Lender that:

(a) No Secondary Financing . No lien or other charge upon the Mortgaged Property, other than the Mortgages and the mortgages referenced in Exhibit “C” , has been given or executed by Borrower, or has been contracted or agreed to be so given or executed.

(b) Title to Properties, Etc. Borrower has good and marketable fee title to the Mortgaged Property.

(c) Litigation . Except as disclosed to Lender on Schedule 4(c) attached hereto, there are no actions, suits or proceedings (whether or not purportedly on behalf of Borrower) pending or, to the best knowledge of Borrower, threatened against of affecting Borrower, at law or in equity or by or before any federal, state, municipal or other governmental department, commission, board, bureau, agency of instrumentality, domestic or foreign, which involve any of the transactions contemplated in this Agreement or the possibility of any judgment or liability that may result in any material adverse change in the business, operations, properties or assets, or in the condition, financial or otherwise, of Borrower; Borrower is not, to the best knowledge of Borrower, in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

Exhibit 10.3

(d) Ag reements . Borrower is not a party to any agreement or instrument, materially and aversely affecting the operations or condition, financial or otherwise, of Borrower, and Borrower is not in default in the performance, observance or fulfillment of any of th e obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default would have a material adverse effect upon the business, properties or assets, operations or condition, financial or otherwise of Borrower.

(e) Governmental Consents . Borrower is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any governmental authority in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, the issuance and delivery of this Agreement.

(f) No Offsets . There are no defenses, offsets or counterclaims against the Loan, and no Event of Default exists under the Loan.

5. Ratification . Except as expressly modified herein or by documents signed pursuant to this Agreement, all of the terms and conditions of the Existing Loan Documents (i) remain unmodified and in full force and effect and (ii) are hereby ratified and confirmed by Borrower and Lender. Borrower covenants and agrees that the indebtedness continues to be evidenced by the Note as amended hereby, that said indebtedness continues to be secured by the Loan Documents and that by acceptance of the Note pursuant to this Agreement, (i) Lender has not and does not release or relinquish any rights, remedies and/or lien priorities evidenced by or granted to Lender in any of the Existing Loan Documents, (ii) the unpaid balance of the Note, as amended hereby, remains outstanding and has not been satisfied, and (iii) the first and prior liens of the Mortgages each remain in full force and effect and are unaltered and unimpaired. Borrower waives all defenses, rights of offset, counterclaims and the like, if any, whether legal or equitable in nature, which any of them may have with respect to their respective responsibilities, obligations and liabilities under the Loan Documents. In the event of any inconsistency between the provisions of this Agreement and those of the Existing Loan Documents, the provisions of this Agreement shall control.

6. Payment of Costs . Borrower shall pay or cause to be paid, at the time of execution of this Agreement, any and all fees and expenses incurred by Lender and/or its counsel in connection with the preparation and execution of this Agreement, including without limitation, all legal fees and expenses, title insurance and endorsement fees, title search expenses, UCC search expenses, costs of filing and/or recording documents, and any unpaid sums due to Lender.

7. Additional Documentation . In addition to the instruments and agreements specified herein, Borrower shall execute and deliver to Lender such additional instruments or agreements as Lender may reasonably require for purposes of consummating or evidencing the transactions contemplated in this Agreement.

8. Default Under this Agreement . The failure of Borrower to comply with any provisions of this Agreement shall constitute a default under the Loan Documents, entitling Lender to exercise any and all remedies to which it may be entitled thereunder and hereunder, at law and/or in equity (after such notice and such opportunity to cure such default as may be required by the Loan Agreement).

Exhibit 10.3

9. Headings; Time of Essence . The headings used in this Agreement are for convenience only a nd shall be disregarded in interpreting the substantive provisions of this Agreement. Time is of the essence of each term of this Agreement.

10. Severability . If any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Agreement and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been a part thereof.

11. 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. No Oral Agreements . THIS AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURE PAGE FOLLOWS]

Exhibits & Schedules

Exhibit “A” - Mortgaged Property description

Exhibit “B” - Security Instruments

Exhibit “C” - List of Mortgages

Schedule 4(c) - Pending Litigation

Exhibit 10.3

IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement effective as of the date set forth above.

“Borrower”:	PAYCOM PAYROLL, LLC,
	a Delaware limited liability company

	By	/s/ Chad Richison
		Chad Richison, President

“Lender”:	KIRKPATRICK BANK,
	an Oklahoma state banking association

	By:	/s/ David Sutter
		David Sutter, Executive Vice President

Exhibit 10.4

[Building 4 & Parking Garage Loan]

LOAN AGREEMENT

between

KIRKPATRICK BANK,

an Oklahoma banking association,

as Lender,

and

PAYCOM PAYROLL, LLC,

a Delaware limited liability company,

as Borrow

Exhibit 10.4

LOAN AGREEMENT

THIS LOAN AGREEMENT is made and entered into effective as of (but not necessarily on) August 2, 2016 (the “ Effective Date ”), by and between KIRKPATRICK BANK, an Oklahoma banking association (“ Lender ”), and PAYCOM 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 1 ”, “ Tract 2 ” and “ Tract 3 ” (each hereby defined as the same and collectively as the “ Real Property ”) as more particularly described in Exhibit “A-1” attached hereto.

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. Pursuant to a certain Loan Agreement dated May 13, 2015, Lender has also extended to loan (the “ Building 3 Loan ”) to Borrower in an amount not to exceed Eleven Million and No/100 Dollars ($11,000,000.00) to finance (i) the construction of an 82,000 square foot office building (“ Building 3 ”) to be situated on a portion of Tract 1, (ii) the expansion and renovation of the then existing gymnasium building to be situated on portions of Tract 1 and Tract 2 (the “ Gymnasium Expansion ”), and (iii) the construction of the new parking lot (the “ New Parking Lot ”) on the southwest portion of the Real Property within Tract 3.

E. The Building 3 Loan is evidenced by a certain $11,000,000.00 Promissory Note dated May 13, 2015 from Borrower to Lender (the “ Building 3 Note ”) and secured by, among other things, certain of the Existing Mortgages.

F. Borrower has requested that Lender lend to Borrower up to Twenty Eight Million Six Hundred Forty Thousand and No/100 Dollars ($28,640,000.00) in order to (i) provide financing in an amount not to exceed Eight Million Six Hundred Thousand and No/100 Dollars ($8,600,000.00) for the construction of an approximately 345,000 square foot parking garage on portions of Tract 1 and Tract 3 (the “ Parking Garage Loan ”, and (ii) provide financing in an amount not to exceed Nineteen Million Nine Hundred Sixty Thousand and No/100 Dollars ($19,960,000.00) for the construction of an approximately 250,000 square foot office building to be situated on Tract 1 (the “ Building 4 Loan ”).

Exhibit 10.4

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

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:

1. 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 of the 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 Building 4 Loan amount will be limited to eighty percent (80%) of the Appraised Value for Building 4. The Parking Garage Loan amount will be limited to eighty percent (80%) of the Appraised Value for the Parking Garage.

Exhibit 10.4

1.6 Appraised Value . “Appraised Value” shall mean, collectively, (a) the value for the Building 4 and Parking Garage Property set forth in the Appraisal or any updates to the Appraisal pursuant to paragraph 5.10, plus (b) the most recent appraised value of the other Real Property that has been approved and accepted by Lender.

1.7 Architect . “Architect” shall mean HSE Architects PLLC, an Oklahoma professional limited liability company.

1.8 Architectural Agreements . “Architectural Agreements” shall mean, collectively, the agreements between Borrower and the Architect, for the Construction Projects, each of which agreement is subject to Lender’s review and approval.

1.9 Assignment . “Assignment” shall have the meaning ascribed to such term in paragraph 4.1 of this Agreement.

1.10 Building 4 . “Building 4” shall mean an approximately 250,000 square foot office building on portions of Tract 1, constructed in accordance plans and specifications approved by Lender in accordance with this Agreement.

1.11 Building 4 and Parking Garage Real Property . “Building 4 and Parking Garage Real Property” means the portion of the Real Property that is described in Exhibit “A-2” attached hereto, on which Building 4 and the Parking Garage will be constructed

1.12 Building 4 Loan . “Building 4 Loan” shall mean the loan to be advanced pursuant to this Agreement for the Building 4 Project and evidenced, collectively with the Parking Garage Loan, by the Note.

1.13 Building 4 Project . “Building 4 Project” shall mean construction of Building 4 and related improvements, pursuant to plans and specifications and the Project Budget approved by Lender.

1.14 Building Laws Indemnity Agreement . “Building Laws Indemnity Agreement” and “BLIA” shall each mean the building laws indemnity agreement which would be signed pursuant to Paragraph 4.5 of this Agreement.

1.15 Business Day . “Business Day” shall have the meaning assigned to that term in the Note.

1.16 Code . “Code” shall mean the Uniform Commercial Code of Oklahoma, as the same may from time to time be in effect.

1.17 Collateral Assignments . “Collateral Assignments” shall have the meaning assigned to that term in paragraph 4.3 of this Agreement.

Exhibit 10.4

1.18 Completion Date . “Completion Date” shall mean the date upon which all of the following conditions are fully satisfied with respect to each Construction Project: (i) the Construction Proj ect 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, li ability, 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 of the premises, and (v) Borrower has accepted delivery of Building 4 or the Parking Garage, as applicable.

1.19 Completion Deadline . “Completion Deadline” shall mean the date which is thirty (30) months after the Effective Date.

1.20 Construction Account . “Construction Account” shall have the meaning assigned to that term in paragraph 5.6 of this Agreement.

1.21 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.

1.22 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 of the Construction Project.

1.23 Construction Contracts . “Construction Contracts” shall mean, collectively, the contracts between Borrower and the Contractor, for the Construction Projects, each of which contract is subject to Lender’s review and approval.

1.24 Construction Projects . “Construction Projects” shall mean, collectively, the Building 4 Project and the Parking Garage Project; each a “Construction Project”, as the context maximum requirement.

1.25 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.

1.26 Dollars . “Dollars” and “$” shall mean lawful money of the United States of America.

1.27 Engineer . “Engineer” shall mean Johnson and Associates, Inc., an Oklahoma corporation.

1.28 ERISA . “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended and as in effect from time to time.

Exhibit 10.4

1.29 Event of Default . “Event of Default” shall mean the occurrence of any of the events specified in paragraph 10 of this Agreement.

1.30 Existing Mortgages . “Existing Mortgages” shall mean those mortgages referenced in Exhibit “C” attached hereto.

1.31 Financing Statement . “Financing Statement” shall have the meaning ascribed to that term in paragraph 5.5 of this Agreement.

1.32 Guarantor . “Guarantor” shall mean Paycom Software, Inc., a Delaware corporation.

1.33 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.

1.34 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.

1.35 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.

1.36 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%).

1.37 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 Weekly Swap Pricing Indications report issued to Lender by Country Club Bank pursuant to that certain SWAP Agreement by and between the same.

Exhibit 10.4

1.38 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 Loans 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 rel ated to (a) the Loan, the Note, this Agreement or any other of the Loan Documents, or (b) the Consolidated Note, the Building 3 Note and any and all instruments or agreements securing or executed in connection with such Promissory Notes.

1.39 Liability . “Liability” shall mean any claim on the assets of a Person, excluding ownership equity.

1.40 Liquidity Account . “Liquidity Account” shall have the meaning ascribed to such term in paragraph 5.6 of this Agreement.

1.41 Loan . “Loan,” and sometimes the “Loans,” shall mean, collectively, the Building 4 Loan and the Parking Garage Loan. The Building 4 Loan and the Parking Garage Loan may also be sometimes individually referred to as a “Loan,” as the context may require.

1.42 Loan Documents . “Loan Documents” shall mean collectively this Agreement, the Note, the Mortgage, the Existing Mortgages, the Financing Statement, the Guaranty, the Account Security Agreement, 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.

1.43 Loan-to-Value . “Loan-to-Value” shall mean the ratio determined by dividing the Indebtedness by the Appraised Value.

1.44 Maturity Date . “Maturity Date” means February 2, 2026, 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.

1.45 Mortgage . “Mortgage” shall have the meaning ascribed to that term in paragraph 4.1 of this Agreement.

1.46 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.

Exhibit 10.4

1.47 Note . “Note” shall me an 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) Twenty-Eight Million Six Hundred Forty Thousand and No/100 Dollars ($28,640,000.00), and (ii ) the amount that, when aggregated with all Indebtedness other than the Loans, will result in a Loan-to-Value equal to eighty percent (80%).

1.48 PBGC . “PBGC” shall mean the Pension Benefit Guaranty Corporation as established pursuant to Section 4002 of ERISA or any successor thereto or substitute therefor under ERISA.

1.49 Parking Garage . “Parking Garage” shall mean an approximately 345,000 square foot parking garage on portions of Tract 1 and Tract 3, constructed in accordance plans and specifications approved by Lender in accordance with this Agreement.

1.50 Parking Garage Loan . “Parking Garage Loan” shall mean the loan to be advanced pursuant to this Agreement for the Parking Garage Project and evidenced, collectively with the Building 4 Loan, by the Note.

1.51 Parking Garage Project . “Parking Garage Project” shall mean construction of the Parking Garage 4 and related improvements, pursuant to plans and specifications and the Project Budget approved by Lender.

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

1.53 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.

1.54 Project Budget . “Project Budget” shall mean Borrower’s detailed budget for financing the design and construction of Building 4 and the Parking Garage on the Real Property, and for all other costs related to or associated with the Construction Projects, as such Project Budget may be periodically updated in accordance herewith. A copy of current Project Budget attached to this Agreement as Exhibit “D” and incorporated herein.

1.55 Project Cost . “Project Cost” shall mean the total cost of the Construction Projects, or for each of the respective Construction Projects, as the context may require.

Exhibit 10.4

1.56 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.

1.57 Request for Funds . “Request for Funds” shall mean the Request for Funds described in paragraph 9.3 of this Agreement.

1.58 Subordination Agreements . “Subordination Agreements” shall mean the Subordination Agreements described in paragraphs 4.3 and 4.5 of this Agreement.

1.59 Substantial Completion . “Substantial Completion” or “Substantially Complete” shall mean, with respect to each of the respective Construction Projects, 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.

1.60 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 ^st ) day of the first (1 ^st ) month after the Completion Date, but in no event later than the Completion Deadline.

1.61 UCC . “UCC” shall mean the Uniform Commercial Code of the State of Oklahoma.

2. LENDING AGREEMENT .

2.1 Construction Loan . Subject to the terms, provisions, covenants and agreements set forth in this Agreement, Lender agrees to make construction loan advances to Borrower until the end of the Construction Period, for each of the respective Construction Projects, in an amount equal to the lesser of (i) the amount that, when aggregated with all Indebtedness other than the Loans, will result in a Loan-to-Value equal to eighty percent (80%), and (ii) the sum of (a) an amount not to exceed Eight Million Six Hundred Forty Thousand and No/100 Dollars ($8,640,000.00), with respect to the Parking Garage Project, and (b) an amount not to exceed Nineteen Million Nine Hundred Sixty Thousand and No/100 Dollars ($19,960,000.00), with respect to the Building 4 Loan, which Loans 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 respective Construction Projects, for services in fact performed and materials purchased for and either incorporated into the respective Construction Projects or suitably stored on the Real Property for later incorporation, (b) reimbursing Lender for expenses incurred by Lender pursuant to this Agreement and (c) paying other costs which are incidental or related to the cost of completing or financing the Construction Projects as set forth in the Project Budget,

Exhibit 10.4

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 us ed to pay interest, Loan fees, late charges, after default interest and/or any other similar costs, as determined by Lender.

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 Loans shall be automatically converted to a eighty-four (84) 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 Loans 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 ^st ) day of the first calendar month following the Effective Date, and continuing on the first (1 ^st ) 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 ^st ) day of the first calendar month following the Term Loan Conversion Date, and continuing on the first (1 ^st ) 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 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 first 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 the entire Real Property and a first priority 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 (b) 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

Exhibit 10.4

form prescribed by Lender, which shall identify the Note as the indebtedness evide nced thereby.

4.2 Security Agreements Covering Borrower’s Accounts With Lender . Borrower shall grant to Lender a first priority 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, with respect to the Architectural Agreements, a Collateral Assignment of Architectural Agreement(s) in the form prescribed by Lender and Borrower shall sign, and cause the Contractor to sign and deliver to Lender, with respect to the Construction Contracts, 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(s) in the form prescribed by Lender, which shall be properly signed and acknowledged by the Architect for each Construction Project, and (ii) a Subordination Agreement(s) in the form prescribed by Lender, which shall be properly signed and acknowledged by the Contractor for each Construction Project (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 either Loan.

4.4 [Reserved].

4.5 Additional Documents . Borrower shall sign and deliver to Lender a Hazardous Substances Indemnity Agreement and Building Laws 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 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 (if applicable) 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 with respect to each of the Construction Projects:

Exhibit 10.4

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, HSIA and BLIA . This Agreement, and all Loan Documents required by Lender, the HSIA and the BLIA 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 of the Certificate of Incorporation 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 and the Assignment shall be recorded in the real property records of the County Clerk of Oklahoma County, Oklahoma. A Financing Statement shall be filed in the “central” UCC records of the Secretary of State of Delaware to perfect Lender’s security interest in the personal property collateral pledged by the Mortgage, the Assignment, the Security Agreement and such other applicable Loan Documents. 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 Statement.

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

Exhibit 10.4

existing liquidity account (the “ Liquidity Account ”) with Lender in which Borrower is re quired 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 of the 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 discrepancies, conflicts in boundary lines, shortage in area, encroachments or other facts which would be disclosed by a proper survey. Any exception based upon mechanics’ and materialmen’s liens shall be expressly limited to the portions of the Mortgaged Property upon which the New Parking Lot, Building 3 and the Gymnasium Expansion are being constructed, and shall not in any event apply to the Building 4 and Parking Garage Property. 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 endorsement, 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 (2016) 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.

Exhibit 10.4

5.10 Appraisal . Borrower shall pay for a new, indepen dent, “as-complete” appraisal of the Building 4 and Parking Garage Property (the “ Appraisal ”), which shall (i) be prepared by an appraiser selected and approved by Lender’s apprais al 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 Proje cts. 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 executi on 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 Projects, 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 of the 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 (100% 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 each 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,

Exhibit 10.4

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 Mo rtgaged 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 endorsemen t 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 t he Mortgaged Property and any insured leasehold property, which 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 $1,000,00 0.00 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 L iability 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 operati ons; (e) Borrower shall at all times maintain a policy of workers’ compen sation 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 resp ect to the Mortgaged Property under the National Flood Insurance Program (or evidence satis factory to Lender that the Mortgaged Property is not located in an area designated by the Secretary of Housing and Urban Development or any other govern mental depa rtment 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 t he 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 iss ued by an insurance company having a rating of “A” VII or better by A.M. Best Co., in Best’s

Exhibit 10.4

Rating Guide. Whenever any required insurance specifies any dollar amount, Lender may increase it periodically to reflect Lender’s reasonable estimate of inflation . All deduc tibles, co insurance 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 par t 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 r equired 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) t he 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 af ter 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 cau se the Lender to be named as an additional insured in each policy of builder’s risk insurance and 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 Lo ss 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 sha ll 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 haza rd 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 o f 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 regulations. 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

Exhibit 10.4

permit(s) is not availa ble 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 designing, constructing, franchising, and completing each Construction Project, and all costs of finishing, furnishing, equipping and opening each completed Construction Project for 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 (i.e., $143,200.00) 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

Exhibit 10.4

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 pa ragraph 4.3 of this Agreement, and (iii) must be subordinated to the Loan and Loan Documents as described in paragraph 4.3 of this 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 each 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 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 Expansion, and Borrower has full and legal right, power and authority 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

Exhibit 10.4

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 fulfillmen t 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, instru ment, 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 inter est 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 crea ted 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, bo ard, 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 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

Exhibit 10.4

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 k nowledge, 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 each Construction Project and the occupancy of Building 4 and the Parking Garage, (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 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

Exhibit 10.4

extensions of time are in effect to assessments of deficiencies for Federal in come 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 certificate 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

Exhibit 10.4

the imme diately prior calendar year (including an income statement and a 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 10-K and 10-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

Exhibit 10.4

authorized r epre sentatives 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 No/100 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.

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.

7.11 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 (10) 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 (10) 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 each Construction Project, Borrower shall furnish to

Exhibit 10.4

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 w hich 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 Real Property. Immediately after completion of each Construction Project, Borrower shall furnish to Lend er, 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 surv ey 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.

7.15 [Reserved].

7.16 Completion Date . Borrower shall prosecute construction and development of each Construction Project with diligence and continuity until completion thereof (which completion shall mean that the Completion Date obligations have been satisfied) and cause the completion of all Construction Project improvements no later than the Completion Deadline. Borrower shall notify Lender of any cessation, stoppage or delay in the construction of either 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,

Exhibit 10.4

advance or other extension of credit, directly or indirectly, to or for the benefit of any Affiliat e 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 Loan Documents, Borrower will not, directly or indirectly, make, or become obligated to make, 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 of this 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

Exhibit 10.4

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 . Borrower 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.

(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.

Exhibit 10.4

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 respective maximum principal amounts of the Loans provided that, with respect to each Construction Project, (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.

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 Initial Borrower Funding; 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. Borrower shall initially pay with its own funds all “costs of completion” (defined below) for each Construction Project until Lender determines that the remaining cost of completion of each of the Construction Projects, after accounting for all completed work and costs of completion then paid by Borrower to date, is less than available maximum amount of the respective Loan for such Construction Project. Further, if and to the extent Lender subsequently determines at any time, in its sole judgment, that the cost of completion of the Construction Projects will 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. As used in this Agreement, the term “cost of completion” shall be deemed to include, without limitation the following: the costs of labor and materials, site and off-site improvements, amounts paid to contractors, landscaping costs, professional fees, premiums for bonds, insurance and title insurance, title examination costs and fees, appraisal fees, recording costs, interest on the Note, all amounts reimbursable to Lender for expenses incurred hereunder and the cost of all other items necessary for the proper completion of the Construction Projects.

Exhibit 10.4

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 of the AIA G702 and G703 forms, separately submitte d for each Construction Project, (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 para graph 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 circumsta nces 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 Comple tion 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 update of the Project Bu dget showing comparisons of the costs incurred to date for completed work and the projected remaining costs of completing the Construction Projects; and

9.4.2 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

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

9.4.4 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.

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 (10) 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

Exhibit 10.4

representative of Lender, Lender shall have no responsibility, obligation or liability to Borrower or any other individual or entity based on, arisi ng 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 Lender shall record each advance for the account of either the Building 4 Loan or the Parking Garage Loan. Such records shall be conclusive evidence of all advances made under the Note and the respective Loans for which such advances were disbursed. 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 of the 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:

10.1 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

Exhibit 10.4

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 two (2) payment default notices have been provided by L ender to 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, liquidation 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, certificate, 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 (a) the Note, the Mortgage, the Existing Mortgages the Assignment, the Subordination Agreements or any of the other Loan Documents, (b) the Consolidated Note, the Building 3 Note, or any instrument or agreement securing or executed in connection with such Promissory Notes or (c) any other instruments or agreements

Exhibit 10.4

evidencing or securing any other Indebtedness now existing or hereafter arising between Borrower and Lender.

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 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, 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 an d 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;

Exhibit 10.4

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 Le nder; 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 Document s.

12.2 Notices . Any notices or other communications required or permitted 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.

To Borrower:	Paycom Payroll, LLC
	7501 West Memorial Road
	Oklahoma City, Oklahoma 73142
	Attn:	Mr. Craig E. Boelte, CFO

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 Hoffhines

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

Exhibit 10.4

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.

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 of Essence . Time is of the essence of this 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.

Exhibit 10.4

12.13 Right to Defend . Lender shall have the right, but not the obliga tion, at Borrower’s expense, to c ommence, 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 Indemnitees, against:

(a) all claims, demands and causes of action asserted agai nst 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 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).

Indemnitees’ 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

Exhibit 10.4

ACKNOWLEDGES AND AGREES THAT ITS INDEMNIFICATION OBLIGATIONS HEREUNDER COVER AND RELATE TO, WITHOUT LIM ITATION, 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 IND EMNITY 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.

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

Exhibit 10.4

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 compli ance 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 a nd 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 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

Exhibit 10.4

HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION ANY OF THEM MAY NOW OR HEREAFTER HA VE 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 ANY WAY 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-1” - Description of Real Property

“A-2” - Description of Building 4 and Parking Garage 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

Exhibit 10.4

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

“Lender”:	KIRKPATRICK BANK,
	an Oklahoma banking corporation

	By	/s/ David Sutter
		David Sutter, Executive Vice President

“Borrower”:	PAYCOM PAYROLL, LLC,
	a Delaware limited liability company

	By	/s/ Craig Boelte
		Craig Boelte, Chief Financial Officer

Exhibit 10.5

PROMISSORY NOTE


$28,640,000.00	August 2, 2016

As used in this Note, the following terms shall have the meanings ascribed to each:

BUSINESS DAY :		That portion of any day, other than a Saturday, a Sunday or a day on which Kirkpatrick Bank is permitted or required to be closed under the laws of the State of Oklahoma or applicable Federal law, during which the Holder of this Note is open for substantially all of such Holder’s normal banking functions.
COMPLETION DATE :		This term shall have the meaning ascribed to it in the Loan Agreement.
COMPLETION DEADLINE :		This term shall have the meaning ascribed to it in the Loan Agreement.
DEFAULT RATE :		The lesser of (a) the Interest Rate (as adjusted from time to time pursuant to the terms of this Note) plus five hundred basis points (5.00%) per annum or (b) the Maximum Rate.
EFFECTIVE DATE :		The Effective Date shall be August 2, 2016.
EVENTS OF DEFAULT :		This term shall have the meaning ascribed to it in paragraph 5.1 of this Note.
HOLDER AND PAYEE :		KIRKPATRICK BANK , an Oklahoma banking corporation, and its successors and assigns
INDEBTEDNESS :		The indebtedness evidenced by this Note.
INTEREST RATE :		The Interest Rate in effect under this Note shall be:
		(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%).

LATE CHARGE :		Five percent (5%) of each delinquent payment.
LOAN :		The loan from Holder to Maker evidenced by this Note and secured by the Loan Documents.
LOAN AGREEMENT :		The Loan Agreement of even date herewith between Holder, as lender, and the Maker, as borrower, as amended, modified, renewed and/or restated from time to time.
LOAN DOCUMENTS :		This term shall have the meaning ascribed to it in the Loan Agreement.
MAKER :		PAYCOM PAYROLL, LLC , a Delaware limited liability company
MAKER’S ADDRESS :		7501 West Memorial Road, Oklahoma City, Oklahoma 73142.
MATURITY DATE :		The Maturity Date shall be February 2, 2026, or any earlier date on which the entire unpaid Principal Amount shall be paid or required to be paid in full, whether by prepayment, acceleration or otherwise.
MAXIMUM RATE :		The maximum rate of interest permitted by applicable law.
MORTGAGE :		This term shall mean the Mortgage which has the meaning ascribed to it in the Loan Agreement.
MORTGAGED PROPERTY :		Collectively, all of the real and personal property described in the Mortgage.
NOTE :		This Promissory Note and any amendments, modifications, renewals or extensions thereto and any substitutions thereto.
PAYMENT ADDRESS :		Kirkpatrick Bank, 15 East 15 ^th Street, Edmond, Oklahoma 73013, or such other address as Holder may hereafter designate in writing to Maker.
PRIME RATE :		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.

PRINCIPAL AMOUNT :

Twenty-Eight Million, Six Hundred Forty Thousand and 00/100 Dollars ($28,640,000.00), or so much thereof as may be advanced by Holder, to or for the account of Maker, pursuant to the Loan Agreement, together with all other amounts added thereto pursuant to this Note or otherwise payable in accordance with the Loan Documents.

TERM LOAN CONVERSION

DATE :

The first (1 ^st ) day of the first (1 ^st ) month after the Completion Date, but in no event later than the Completion Deadline.

2. Payment Requirements . Subject to paragraph 5.2, interest shall accrue on the outstanding Principal Amount at the Interest Rate. Commencing on the first (1 ^st ) day of the first calendar month following the Effective Date, and continuing on the first (1 ^st ) 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. Commencing on the first (1 ^st ) day of the first calendar month following the Term Loan Conversion Date, and continuing on the first (1 ^st ) 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 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 two hundred forty (240) month amortization period. If not paid sooner, the entire unpaid principal balance of this Note and all unpaid accrued interest thereon shall be due and payable on the Maturity Date.

A rate per annum equal to the fixed rate that Lender determines a swap dealer would quote to Lender on the Closing Date for an interest rate swap with a maturity equal to the Maturity Date.

B =

A rate per annum equal to the fixed rate that Lender determines a swap dealer would quote to Lender on the Pre-Payme nt Date for paying to Lender the fixed rate side of an interest rate swap with a maturity equal to the Maturity Date.

C =

The sum of the products of (i) each Affected Principal Amount for each Affected Principal Period, times (ii) the number of days in that Affected Principal Period divided by 360.

" Affected Principal Amount " for an Affected Principal Period means the principal amount of the Loan scheduled to be outstanding during that Affected Principal Period determined as of the relevant Prepayment Date by reference to the Schedule of Principal Amounts before giving effect to any Prepayment Event on that Prepayment Date, and for any Prepayment, multiplying each such principal amount times the Prepayment Fraction. For any Failure to Borrow, the Affected Principal Amount shall be adjusted, as appropriate, to reflect the amount of the relevant advance not made on the relevant Borrowing Date.

" Affected Principal Period " means each period from and including a Scheduled Due Date to but excluding the next succeeding Scheduled Due Date, provided that the first such period shall begin on and include the Pre-Payment Date.

" Prepayment Fraction " means a fraction equal to the principal amount being prepaid over the principal amount of the Loan outstanding immediately prior to that prepayment on the Pre-Payment Date.

" Present Value " is determined as of the Break Date using "B" above as the discount rate.

" Break Event " means any Prepayment or Acceleration.

“ Acceleration” means that the Loan or any note evidencing the Loan is declared due and payable prior to the Maturity Date.

"Closing Date" means any date on which any advance of the Loan is made.

" Prepayment Date " means the date for any Prepayment, or otherwise the Acceleration date.

" Pre-Payment Event " means any Prepayment or Acceleration.

" Prepayment " means that the Loan is prepaid on any date or dates prior to the Maturity Date.

5. Default .

5.1. Events of Default . The Events of Default listed in the Loan Agreement and/or the Mortgage are incorporated in this Note by reference and made a part of this Note and shall constitute “Events of Default” hereunder and under each of the other Loan Documents. These Events of Default include, but are not limited to, default in payment when due of any interest on or principal of this Note. Events of Default will be subject to such respective notice and cure provisions, if any, set forth in the Loan Agreement and/or Mortgage.

5.2. After Default Interest Rate . While any Event of Default continues to exist under the Loan Agreement, this Note, the Mortgage, or any instrument now or hereafter securing payment of the indebtedness evidenced by this Note, including, without limitation, any Event of Default under the Mortgage and the failure of Maker to cure such Event of Default within the applicable cure periods, if any, at the option of the Holder, in its sole discretion, the entire unpaid principal balance hereof shall bear interest, retroactively from the date of the Event of Default, at the rate per annum equal to the Default Rate. During the existence of any such default, the Holder may apply payments received on any amounts due hereunder, or under the terms of any instrument now or hereafter evidencing or securing such indebtedness, as the Holder may determine, and if the Holder so elects, notice of election being expressly waived, the principal hereof remaining unpaid, together with accrued interest, shall at once become due and payable. Any and all additional interest which has accrued at the rate provided in this paragraph shall be due and payable at the time of, and as a condition precedent to, the curing of any default.

5.3. Remedies . If an Event of Default has occurred and is uncured, , then, in addition to the provisions of paragraph 5.2, Holder shall have all remedies set forth in the Loan Agreement or other Loan Documents and any or all other rights and options available to Holder at law or in equity. Holder’s rights, remedies and powers, as provided in this Note and the other Loan Documents, are cumulative and concurrent, and may be pursued singly, successively or together against Maker, the security described in the Loan Documents, any guarantor(s) of this Note and any other security given at any time to secure the payment of this Note, all at the sole discretion of Holder. Additionally, Holder may resort to every other right or remedy available at law or in equity without first exhausting the rights and remedies contained herein, all in Holder’s sole discretion. Failure of Holder, for any period of time or on more than one occasion, to exercise its option to accelerate the Maturity Date shall not constitute a waiver of the right to exercise the same at any time during the continued existence of any Event of Default or any subsequent Event of Default.

6. Late Charge . In the event any payment provided for in this Note or in the Mortgage shall become overdue for a period in excess of fifteen (15) days, Maker shall pay, without notice or demand, both of which are hereby waived to the maximum extent permitted by applicable law, the Late Charge computed on the delinquent payment; provided, however, if

such amount, when added to all other charges contracted for, charged or received hereunder which are treated as interest or loan finance charge under applicable federal or state law, is in excess of the amount permitted to be charged to Maker under applicable federal or state law, Holder shal l be entitled to collect, in lieu thereof, such amount only to the maximum amount permitted by such law on the payment so overdue, computed from the original due date to the date such payment is made, which amount shall become immediately due to Holder, at Holder’s option, as liquidated damages for Maker’s failure to make prompt payment, but in no event shall such amount, when added to all other sums deemed to be interest or loan finance charge by applicable law, exceed the maximum amount allowed by law. M aker acknowledges that late payment to Holder of any sum due under this Note or the Mortgage will cause Holder to incur costs not contemplated at the time it made the Loan to Maker which is evidenced by this Note, including, without limitation, processing and accounting charges, but that actual damages to Holder would be costly, inconvenient and impracticable to ascertain. Maker agrees that the Late Charge set forth above represents a fair and reasonable estimate of such costs and represents a reasonable s um considering all of the circumstances existing on the date of this Note. The Late Charge shall be paid without prejudice to the right of Holder to collect any other amounts provided to be paid, to declare a default under this Note or under the Mortgage or to exercise any of the other rights and remedies of Holder. Further, nothing in this Note shall be construed as an obligation on the part of Holder to accept, at any time, less than the full amount then due hereunder, or as a waiver or limitation of Ho lder’s right to compel prompt performance.

7. Lawful Rate of Interest . All agreements between Maker and Holder are expressly limited so that in no event whatsoever, whether by reason of disbursement of the proceeds hereof or otherwise, shall the amount of interest or loan finance charge paid or agreed to be paid by Maker to Holder exceed the highest lawful contractual rate of interest or the maximum finance charge permissible under applicable federal or state law which a court of competent jurisdiction, by final non-appealable order, determines to be applicable hereto. If fulfillment of any agreement between Maker and Holder of this Note, at the time the performance of such agreement becomes due, involves exceeding such highest lawful contractual rate or such maximum permissible loan finance charge, then the obligation to fulfill the same shall be reduced so that such obligation does not exceed such highest lawful contractual rate or maximum permissible loan finance charge. If by any circumstance Holder shall ever receive as interest or loan finance charge an amount which would exceed the amount allowed by applicable federal or state law, the amount which may be deemed excessive shall be deemed applied to the principal of the indebtedness evidenced hereby and not to interest. To the extent required to comply with applicable limitations on interest or loan finance charges, all interest and loan finance charges paid or agreed to be paid to Holder of this Note shall be prorated, allocated and spread throughout the full period of this Note. The terms and provisions of this paragraph shall control all other terms and provisions contained herein and in any of the other documents executed in connection herewith.

respective heirs, legal representatives, successors and assigns, hereby waives consent to every extension of time, renewal, waiver or modification that may be granted by Holder with respect to the payment or other provisions of this Note, and t o the release of any collateral given to secure the payment of this Note, or any part of this Note, with or without substitution, and agrees that additional makers or guarantors or endorsers may become parties hereto without notice to Maker and without aff ecting the liability of Maker hereunder.

10. General Provisions .

10.1. Amendments . This Note may not be terminated or amended orally, but only by a termination or amendment in writing signed by Holder.

10.2. Records of Holder . The records of the Holder shall be prima facie evidence of the amount due hereunder.

10.3. Business Purposes . This Note is given to evidence an obligation incurred for business purposes and not for personal, residential or agricultural purposes.

10.4. Captions; Definitions . The captions of the paragraphs of this Note are for convenience only and shall not be deemed to modify, explain, enlarge or restrict any of the provisions of this Note. Each of the terms defined before paragraph 1 of this Note shall have the meaning set forth following such term when used throughout this Note. Any term not specifically defined in this Note shall be accorded the same meaning set forth for such term in the Loan Agreement.

10.5. Severable Provisions . Every provision of this Note is intended to be severable. If any term or provision hereof is declared by a court of competent jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever, such illegality, invalidity or unenforceability shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable.

10.6. Notices . Notices and other communications shall be given under this Note in accordance with the requirements of paragraph 12.2 of the Loan Agreement.

10.7. Time of Essence . Time is of the essence of this Note and the performance of each of the covenants and agreements contained herein.

10.8. Purpose . This Note is signed to evidence an obligation incurred by Maker for business purposes and not for personal, residential or agricultural purposes.

10.9. Choice of Law . Payment of this Note is secured, without limitation, by the Mortgage, which covers real and personal property located in Oklahoma County, Oklahoma. An Event of Default under the Mortg age, the Loan Agreement or any other document securing or relating to this Note shall constitute an Event of Default under this Note. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES, AND EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

10.10. Jurisdiction and Venue . ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO THIS NOTE MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT HAVING THE MORTGAGED PROPERTY (AS DEFINED IN THE LOAN AGREEMENT) WITHIN ITS JUDICIAL DISTRICT, AS THE HOLDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS NOTE, THE MAKER IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION (BOTH SUBJECT MATTER AND PERSON) OF EACH SUCH COURT AND IRREVOCABLY AND UNCONDITIONALLY WAIVE (I) ANY OBJECTION THAT MAKER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN EITHER OF SUCH COURTS, AND (II) ANY CLAIM THAT ANY ACTION OR PROCEEDING BROUGHT IN EITHER SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

10.11. Jury Trial Waiver . MAKER AND HOLDER, BY ITS ACCEPTANCE OF THIS NOTE, JOINTLY AND SEVERALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY MAKER, AND MAKER ACKNOWLEDGES THAT NEITHER HOLDER NOR ANY PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY HOLDER, AND HOLDER ACKNOWLEDGES THAT NEITHER MAKER NOR ANY PERSON ACTING ON BEHALF OF MAKER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL. EACH PARTY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION. THIS NOTE CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY, AND EITHER PARTY IS AUTHORIZED AND EMPOWERED TO FILE THIS NOTE WITH THE CLERK OR JUDGE OF ANY COURT OF COMPETENT JURISDICTION AS A STATUTORY WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY.

[Signature appears on following page.]

IN WITNESS WHEREOF, Maker executes this Note as of the date set forth above.

“Maker”:	PAYCOM PAYROLL, LLC,
	a Delaware limited liability company

	By:	/s/ Craig Boelte
		Craig Boelte, Chief Financial Officer

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: November 3, 2016	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)

(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)

(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: November 3, 2016	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 September 30, 2016 (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: November 3, 2016	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 3, 2016	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.