10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One) 

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

For the quarterly period ended June 30, 2015

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

For the transition period from ______ to ______

Commission File Number: 001-36393

Paycom Software, Inc.

(Exact name of registrant as specified in its charter)

Delaware	80-0957485
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7501 W. Memorial Road

Oklahoma City, Oklahoma  73142

(Address of principal executive offices, including zip code)

(405) 722-6900

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

Paycom Software, Inc.

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

2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Paycom Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

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

See accompanying notes to the unaudited condensed consolidated financial statements.

3

Paycom Software, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share and share amounts)

(unaudited)

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

See accompanying notes to the unaudited condensed consolidated financial statements.

4

Paycom Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

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

See accompanying notes to the unaudited condensed consolidated financial statements.

5

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Description of Business

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

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

The Reorganization

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

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

Initial Public Offering

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

Follow-On Public Offering

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

6

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Registered Block Trade Transaction

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

Basis of Presentation

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

Use of Estimates

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

Summary of Significant Accounting Policies

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

Recently Issued Accounting Pronouncements

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

7

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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

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

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

2. PROPERTY AND EQUIPMENT

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

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

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

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

8

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification (“ASC”) Topic 350-40.  During the three and six months ended June 30, 2015, we capitalized $0.8 million and $1.6 million of computer software development costs related to software developed for internal use, respectively.During the three and six months ended June 30, 2014, we capitalized $0.4 million and $0.7 million of computer software development costs related to software developed for internal use, respectively.

3. GOODWILL AND INTANGIBLE ASSETS, NET

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

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

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

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

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

4. FUNDS HELD FOR CLIENTS AND CLIENT FUNDS OBLIGATION

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

9

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

5. LONG-TERM DEBT

Our long-term debt consisted of the following:

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

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

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

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

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

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

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

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

10

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

8. EARNINGS PER SHARE

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

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

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

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

9. STOCKHOLDERS’ EQUITY AND INCENTIVE COMPENSATION

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

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

11

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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

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

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

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

10. RELATED-PARTY TRANSACTIONS

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

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

11. COMMITMENTS AND CONTINGENCIES

Employment Agreements

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

Funding Agreement

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

12

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Legal Proceedings

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

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

Operating Leases and Deferred Rent

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

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

12. INCOME TAXES

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

13. SUBSEQUENT EVENTS

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

13

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

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

Forward-Looking Statements

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

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

Overview

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

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

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

14

Recent Developments

Registered Block Trade Transaction

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

Trends and Opportunities

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

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

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

Key Metrics

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

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

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

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

15

Results of Operations

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

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

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

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

16

Revenues

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

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

Cost of Revenues

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

Administrative Expenses

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

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

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

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

17

Results of Operations

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

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

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

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

18

Revenues

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

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

Cost of Revenues

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

Administrative Expenses

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

Cash Flow Analysis

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

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

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

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

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

Operating Activities

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

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

Investing Activities

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

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

Financing Activities

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

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

Contractual Obligations

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

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statements, 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.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

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

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

Non-GAAP Financial Measures

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

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

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

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

	Three months ended June 30,					Six months ended June 30,
	2015		2014			2015		2014
Consolidated statements of income data:
Net income (loss)	$	5,946	$	(593	)	$	11,941	$	467
Tax adjusted stock-based compensation expense(1)		17		104			167		159
Tax adjusted transaction expenses(1)		84		299			591		790
Tax adjusted net loss on early repayment of debt(1)		-		2,313			-		2,343
Non-GAAP net income	$	6,047	$	2,123		$	12,699	$	3,759
Non-GAAP net income per share, basic	$	0.11	$	0.04		$	0.23	$	0.08
Non-GAAP net income per share, diluted	$	0.10	$	0.04		$	0.22	$	0.07
Weighted average shares outstanding:
Basic		57,038,021		50,284,362			55,900,306		48,015,577
Diluted		58,369,083		52,269,300			57,469,918		50,331,002

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

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

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

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

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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Item 1A. Risk Factors

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

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

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

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

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

· full disclosure obligations regarding executive compensation; and

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

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

Recent Sales of Unregistered Securities

None.

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Share Repurchase Program

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

Item 6. Exhibits

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

Exhibit No.	Description
2.1	Merger Agreement, by and among Paycom Software, Inc., Paycom Payroll Holdings, LLC, Paycom Payroll, LLC and Paycom Merger Sub, LLC, dated December 30, 2013 (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
2.2	Contribution Agreement, by and between WCAS Capital Partners, IV, L.P. and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.5 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
2.3	Contribution Agreement, by and among Welsh, Carson, Anderson & Stowe X, L.P., WCAS Management Corporation and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.6 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
2.4	Contribution Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated December 30, 2013 (incorporated by reference to Exhibit 2.7 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
3.1	Amended and Restated Certificate of Incorporation of Paycom Software, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).
3.2	Bylaws of Paycom Software, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).
4.2	Amended and Restated Stockholders’ Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
4.3	Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
4.4	Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).
4.5	Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).
4.6	Joinder to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).
4.7*	Amendment No. 1 to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015.
10.1	Paycom Software, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 5, 2015, filed with the SEC on May 8, 2015).
10.2	Paycom Software, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 5, 2015, filed with SEC on May 8, 2015).

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Exhibit No.	Description
10.3*	Loan Agreement, by and between Kirkpatrick Bank and Paycom Payroll, LLC, dated May 13, 2015.
31.1*	Certification of the Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of the Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**	Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Label Linkbase Document.
101.PRE*	XBRL Taxonomy Presentation Linkbase Document.

* Filed herewith.

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

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SIGNATURES

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

	PAYCOM SOFTWARE, INC.
Date:     August 7, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer and Director
		(Principal Executive Officer)
Date:     August 7, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer (Principal Financial Officer)

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EX-4.7

Exhibit 4.7

AMENDMENT NO. 1 TO THE  

REGISTRATION RIGHTS AGREEMENT

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

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

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

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

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

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

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

3.   Miscellaneous.

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

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

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

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

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

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

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

* * * * *

2

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

Paycom Software, Inc.
By:	/s/ Chad Richison
	Name:   Chad Richison
	Title:     CEO
Paycom Payroll, LLC
By:	/s/ Chad Richison
	Name:   Chad Richison
	Title:     CEO

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

Welsh, Carson, Anderson & Stowe X, L.P.
By: WCAS X Associates LLC Its: General Partner
By:	/s/ Jonathan Rather
	Name:   Jonathan Rather
	Title:     Managing Member
WCAS Capital Partners IV, L.P.
By:  WCAS CP IV Associates LLC Its: General Partner
By:	/s/ Jonathan Rather
	Name:   Jonathan Rather
	Title:     Managing Member
WCAS Management Corporation
By:	/s/ Jonathan Rather
	Name:   Jonathan Rather
	Title:     Treasurer and Assistant Secretary
WCAS Paycom Holdings, Inc.
By:	/s/ Jonathan Rather
	Name:
	Title:

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

Ernest Group, Inc.
By:	/s/ Chad Richison
	Name:   Chad Richison
	Title:      President
The Ruby Group, Inc.
By:	/s/ Chad Richison
	Name:   Chad Richison
	Title:      President

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

EX-10.3

Exhibit 10.3

LOANAGREEMENT

between

KIRKPATRICK BANK,

anOklahomabankingassociation,

asLender,

and

PAYCOMPAYROLL,LLC,

aDelawarelimitedliabilitycompany, asBorrower

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Exhibit 10.3

LOANAGREEMENT

THISLOANAGREEMENT ismadeandenteredintoeffectiveas of(butnot necessarilyon)May13,2015(the"Effective Date"), byandbetweenKIRKPATRICK BANK, anOklahoma banking association ("Lender"), andPAYCOM PAYROLL, LLC, aDelaware limitedliabilitycompany("Borrower").

RECITALS:

A.       Borrower occupies thatcertain propertyconsisting ofapproximately fifty (50)acresoflandlocated northofKilpatrick Turnpike andeastofCouncil RoadinOklahoma City, Oklahoma, such property consisting of three (3) contiguous tracts of land identified as "Tract I","Tract2"and"Tract3"(eachherebydefinedasthesameandcollectively  asthe"Real Property")asmoreparticularlydescribedinExhibit"A"attachedheretoandincorporatedherein.

B.       BorrowerandLenderpreviouslyenteredinto thatcertainSecondLoan Modification Agreement, dated effective June 17,2014, which acted to, among other things, modifythatcertainLoanAgreement,datedMarch28,2013,as amended(the"ExistingLoan Agreement"), for the purpose of consolidating,  amended, restating and increasing all of the then-existing indebtedness ofBorrowerpayabletoLender.  Suchconsolidation isevidenced by thatcertainConsolidated, Amended,RestatedandIncreasedPromissoryNotein themaximum principalamountof$27,420,538.01(the"Consolidated Note").

C.       The Consolidated Note issecured by,among other things, those certain mortgagesidentifiedonExhibit"C"attached hereto(collectivelyandasamended,  the"Existing Mortgages").

D.       Lender  previously  extended  to  Borrower  an  advancing  loan  in the maximumprincipalamount of$1,000,000.00forthepurposeofconstructing anewparkinglot (the "New Parking Lot") on the southwest portion of the Real Property within Tract 3, as evidenced bythat certain Promissory Note, dated March 5,2015, executed byBorrower and payabletotheorderofLender(the"Parking LotNote").  Nomonieshavebeenadvancedonthis ParkingLotNote.

E.       TheParkingLotNoteissecuredby, amongotherthings,(i)thatcertain Construction Mortgage, dated March5,2015, recordedinBook12764,atPage805  inthereal propertyrecordsoftheOklahoma CountyClerk,and(ii)thatcertainMortgage, datedMarch5,

2015,recordedinBook12764,atPage793intherealpropertyrecordsoftheOklahomaCounty

Clerk.

F.        BorrowerhasnowrequestedthatLenderlendtoBorrower ElevenMillion andNoll00Dollars ($11,000,000.00)tofinance (i)theconstruction ofan82,000 square foot office building("Building 3") to besituated on a portionofTract 1,asdepicted onthemap attached hereto as Exhibit "B", (ii) the expansion and renovation ofthe existing gymnasium building to besituated on portions ofTract 1 andTract 2(the"Gymnasium  Expansion"), as depicted on Exhibit "B", and (iii) the construction of the New Parking Lot, as depicted on Exhibit"B".

Subject totheterms, provisions, covenants andagreements hereinafter setforth, Lenderhasagreedtomaketherequestedextensionsofcredit.

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Exhibit 10.3

AGREEMENT:

Inconsideration ofthemutualcovenantscontainedhereinandtheloantobemade hereunder,andforothergoodandvaluableconsideration, thereceiptandadequacy ofwhichare herebyacknowledged, LenderandBorrowerherebycovenantandagreeasfollows:

I.        DEFINITIONS.    Unless the context otherwise  requires and except as otherwise maybeprovided herein, (i)accounting andfinancial terms used inthis Agreement shall  havethemeanings ascribed tosuch terms bygenerally accepted accounting principles in effectfromtimetotime,appliedonaconsistent basis,assetforthinopinionsoftheAccounting PrinciplesBoardoftheAmerican InstituteofCertifiedPublicAccountants and/orStatements of theFinancial Accounting Standards Boardwhich  maybeapplicable inthecircumstances asof thedateinvolved, (ii)definitions contained inthe Code (herein defined) shall applytoterms, wordsandphrasesusedherein,exceptthatincaseofanyconflict betweendefinitions contained inArticle9oftheCodeandotherdefinitions intheCode,theArticle9definitions shallapply, (iii)thesingularshall  bedeemedtoincludethepluralandthepluralshall bedeemedtoinclude thesingular,and(iv)thetermsasusedhereinshallbeconstruedandcontrolled bythefollowing definitions:

1.1      Account  Security  Agreement.    "Account  Security  Agreement" shallhavethemeaningassignedtothatterminparagraph4.2ofthisAgreement.

1.2      Affiliate.   "Affiliate"shall mean any person orentity (including, withoutlimitation,anindividual,acorporation, alimitedliabilitycompany,apartnership, atrust,oranincorporated association), whichhasarelationship withBorrower whereby eithersuchpersonorentityorBorrowerdirectlyorindirectlycontrols oriscontrolled by or  isundercommon control withthe other, or  holds or beneficially owns twenty-five percent(25%)ormoreoftheequityinterestintheotherortwenty-five percent(25%)or more  ofanyclass of voting securities of the other, and shall, inaddition, include all membersinBorrower.

1.3      Agreement.   "Agreement,"andsuch terms as"herein," "hereof," "hereto,""hereby,""hereunder"andthelikeshallmeanandrefertothisLoanAgreement, together  with any and all Exhibits  attached  hereto, and any and all supplements, modificationsoramendments hereof.

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

1.5      Appraisal.   "Appraisal"shall mean the meaning ascribed thereto inparagraph5.10ofthisAgreement.   TheLoanamountwillbelimitedtoeightypercent (80%)oftheAppraisedValue.

1.6      AppraisedValue.        "Appraised Value"shall meanthevalueset forthintheAppraisaloranyupdatestotheAppraisalpursuanttoparagraph5.10.

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

Oklahomaprofessional limitedliabilitycompany.

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Exhibit 10.3

1.8      Assignment.    "Assignment"shall have the meaning ascribed to suchterminparagraph4.1ofthisAgreement.

1.9      Building3.  "Building 3"shallmeanan82,000 squarefootoffice buildingtobesituatedonTract1.

1.10    BusinessDay.  "Business Day"shallhavethemeaningassignedto thattermintheNote.

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

Oklahoma,asthesamemayfromtimetotimebeineffect.

1.12    Collateral Assignments.   "Collateral Assignments"shall havethe meaningassignedtothatterminparagraph4.3ofthisAgreement.

1.13    Completion Date.   "CompletionDate" shall mean thedate upon whichallofthefollowing conditions arefullysatisfied: (i)theConstruction Projecthas reachedSubstantial Completion, (ii)Borrower hasdelivered toLender afinal"as-built" surveyofalloftheMortgagedPropertywhichisinform,scopeandsubstanceacceptable toLender,(iii)Borrowerhas deliveredtoLenderprepaidproperty,liability,business interruption,worker'scompensation insurance,andotherrequiredinsurancecoveringthe MortgagedProperty,allinamount,form,scopeandsubstance satisfactorytoLender,(iv) Borrowerhasdelivered toLenderCertificates ofOccupancy issuedfortheConstruction Projectandforoccupancy ofthepremises,and(v)BorrowerhasacceptedBuilding3,the gymnasium,asimprovedby theGymnasiumExpansion,andtheNewParkingLot.

1.14    Completion  Deadline.    "Completion Deadline"  shall mean the datewhichiseighteen(18)monthsaftertheEffectiveDate.

1.15    Construction  Account.    "Construction Account"  shall have the meaningassignedtothatterminparagraph5.6ofthisAgreement.

1.16    Construction Period.  "Construction Period"shallmeantheperiod oftimefromtheEffective  DateuntiltheCompletion Date,butinnoeventlaterthanthe Completion Deadline.

1.17    Construction  Consultant.   "Construction Consultant" shall mean theindividualorentityselected byLender,inLender's solediscretion andatBorrower's cost, to inspect the Construction  Project, review all plans, construction budgets, time lines,permits,contracts,supportingdocumentation andinformation, andtoadviseLender inregardtoallaspectsoftheConstruction Project.

1.18  Construction Contract.   "Construction Contract"  shallmean, collectively, the contracts between Borrower and the Contractor, for the Construction Project,whichcontract issubjecttoLender'sreviewandapproval.

1.19    Construction Project.  "Construction Project"shallmeanconstruc­ tionofBuilding 3,theGymnasium Expansion, andtheNewParking  Lot,oranyoneof theforegoing, and related improvements,pursuant to  plans and specifications and the ProjectBudgetapprovedbyLenderandlocatedontheRealProperty.

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Exhibit 10.3

1.20    Contractor.   "Contractor"shall mean Clyde Riggs Construction, L.L.C., an Oklahomalimitedliabilitycompany,whichshallserveasBorrower'sgeneral contractorfortheConstruction Project.

1.21Dollars.   "Dollars"and"$"shallmeanlawfulmoneyoftheUnited

StatesofAmerica.

1.22Engineer.   "Engineer"shallmeanJohnson andAssociates,Inc.,an

Oklahomacorporation.

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

SecurityActofI974,asamendedandasineffectfromtimetotime.

1.24    EventofDefault.   "EventofDefault"shallmeantheoccurrenceof anyoftheeventsspecifiedinparagraph10ofthisAgreement.

1.25    Existing  Mortgages.       "Existing  Mortgages"  shall mean those mortgagesreferencedinExhibit"C"attachedhereto.

1.26    Financing  Statements.    "Financing  Statements" shall have the meaningascribedtothatterminparagraph4.1ofthisAgreement.

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

Delawarecorporation.

1.28    Guaranty.    "Guaranty"meanstheGuaranty Agreement executed and delivered  by the Guarantor  in favor of the Lender and in form and substance acceptable totheLenderwhereinGuarantor guarantees paymentandperformanceofthe Indebtedness.

1.29    Governmental  Authority.   "Governmental Authority" shall mean anynationorgovernment, anyfederal,  state, localorother political subdivision thereof and any entity exercising executive,  legislative, judicial,   regulatory or administrative functionsoforpertainingtogovernment.

1.30    Hazardous    Substances    Indemnity    Agreement    and    HSIA. "Hazardous   Substances  Indemnity  Agreement"   and  "HSIA" shall  each  mean  the HazardousSubstances IndemnityAgreement whichwillbesignedpursuant  toparagraph

4.5ofthisAgreement.

1.31InterestRate."InterestRate"means:

(i) commencing  with the Effective   Date and continuing untiltheTermLoanConversion Date,afloatingperannum rateof  interest equal tothegreater of(a)thePrime Rate plus50basispoints(0.5%)or(b)4.00%;

(ii) commencing with theTerm Loan Conversion Date,a fixed, per annum rate of interest equal the 7/20 LIBOR Swap RateineffectasoftheTerm LoanConversion Date plus225basispoints(2.25%).

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Exhibit 10.3

1.32    7/20 LIBOR Swap Rate.  "7/20 LIBOR Swap Rate" shall mean thatcertainLIBORSwapinterestrate, effectiveasoftheTermLoanConversionDate, identified as the Swap rate for a 7-year term and a 20-year amortization  the in the then-effective WeeldySwapPricingIndications reportissuedtoLenderbyCountyClub BankpursuanttothatcertainSWAPAgreement byandbetweenthesame.

1.33    Indebtedness.      "Indebtedness"  shall   mean   and   include    all liabilities,  obligations  or indebtedness  of  Borrower  to Lender  of every  kind and description, nowexisting orhereafter  incurred,directorindirect,absolute orcontingent, dueortobecomedue,maturedorunmatured,andwhetherornotofthesameorasimilar classorcharacter astheLoanandwhetherornotcontemplated byLenderorBorrower, together with future advances andallextensions and renewals, and including (without limitingthegenerality oftheforegoing) allindebtedness ofBorrower toLenderarising out of or related to the Loan, the Note, this Agreement  or any other of the Loan Documents.

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

Person,excludingownershipequity.

1.35    Liquidity Account.   "Liquidity Account" shall havethemeaning ascribedtosuchterminparagraph5.6ofthisAgreement.

1.36Loan.  "Loan"shallmeanthatloantobeadvancedpursuanttothis

Agreementandevidenced bytheNote.

1.37    LoanDocuments.   "Loan  Documents" shallmeancollectively this Agreement,the Note,theMortgage,theSecondMortgage,theExistingMortgages,the Financing Statements,  the Guaranty, the Account  Security Agreement,  the Account FinancingStatement,theAssignment,the CollateralAssignments,the Subordination Agreements, theAssignment ofPermits,theExistingLoanAgreement, theConsolidated Noteandallother instruments anddocuments executed orissued ortobeexecuted or issued pursuant tothis Agreement oranyofsaiddocuments or inconnection withthe Loan, and all amendments,  modifications,  extensions  and renewals  of any of the foregoingdocuments.

1.38Loan-to-Value. dividedbytheAppraisedValue.

"Loan-to-Value"shall mean the Indebtedness

1.39    Maturity Date.     "Maturity  Date" Means May 7, 2023, or any earlier date on which theentire unpaid principal amount oftheNote shall bepaidor requiredtobepaidinfull,whetherbyprepayment,accelerationorotherwise.

1.40    Mortgage.   "Mortgage"shall have the meaning ascribed to that terminparagraph4.1ofthisAgreement.

1.41    Mortgaged   Property.     "Mortgaged   Property"  shall  have  the meaningascribedtosuchtermintheMortgage,andincludes,withoutlimitation,theReal Propertydescribed onExhibit"A" attached tothisAgreement and incorporated herein. TheMortgagedPropertydoesnotincludethepropertyorfundsofBorrower'sunaffiliated clientsand/orcustomers.

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Exhibit 10.3

1.42    Note.    "Note"  shall  mean  the Promissory  Note executed  by Borrower and payable to the order of Lender to  evidence the Loan inthe maximum principal amount not to exceed the lesser of (i) Eleven Million and Noll00 Dollars ($11,000,000.00),and(ii)eightypercent(80%)oftheAppraised ValueoftheMortgaged Property.

1.43    PBGC.   "PBGC"shall mean thePension Benefit Guaranty Cor­ porationas establishedpursuanttoSection4002ofERISAoranysuccessortheretoor substitutethereforunderERISA.

1.44    Person.      "Person" shall  mean  any  individual,   corporation, company, jointventure,association,partnership,trust,unincorporatedorganization, Governmental Authorityorotherentity.

1.45    PrimeRate.    "Prime Rate"shallmeanthehighestperannumrate of interest (expressed asapercentage) which isidentified asthe"Prime Rate" inthe "Money Rates"sectionofTheWallStreetJournal,adjustedasofthedateofanychange therein,whetherornotsuchprimerateisactuallychargedbyanybankorotherfinancial institutionandwhetherornotalowerorbetterrateofinterestischarged byanybankor otherinstitution.

1.46    ProjectBudget.  "Project Budget"shallmeanBorrower'sdetailed budget for  financing  the design  and  construction  of Building  3, the Gymnasium Expansion andtheNewParkingLotontheRealProperty, andforallothercostsrelated toorassociatedwiththeConstruction Project,acopyofwhichProjectBudgetisattached tothisAgreementasExhibit"D"andincorporatedherein.

1.47Project Cost."Project  Cost" shall mean the total cost of the

ConstructionProject.

1.48    Real  Property.     "Real  Property"  shall  mean  the certain  real propertylocated inOklahoma County, Oklahoma, which ismore particularly described onExhibit"A"attachedtothisAgreementandincorporatedhereinbyreference.

1.49    Request forFunds.   "Request forFunds" shall meantheRequest forFundsdescribed inparagraph9.3ofthisAgreement.

1.50SecondMortgage. ascribedtheretoinparagraph4.1.

"Second Mortgage" shall havethemeaning

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

1.52    Substantial  Completion.      "Substantial   Completion" or  "Sub- stantiallyComplete"shallmeancompletion oftheConstruction Projecttothepointthatit is legally ready for occupancy  and use, as evidenced  by all required governmental permits,licensesandfinalcertificates  ofoccupancyandby certificates ofsubstantial completion  signed  by  Borrower,  the  Architect,  the  Contractor,  the  Construction Consultant and any inspector that Lender may, in itsdiscretion, retain at Borrower's expense.

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Exhibit 10.3

)1.53TermLoanConversion Date."TermLoanConversion Date"shall bethedateonwhichtheNoteevidencing theLoanconverts toaso-called "term loan",

)which such date shall occur on the first (151

day of the first (151

month after the

CompletionDate,butinnoeventlaterthantheCompletion Deadline.

1.54UCC.  "UCC" shall mean theUniform Commercial Codeofthe

StateofOklahoma.

2.LENDINGAGREEMENT.

2.1      Construction  Loan.   Subject to the terms, prov1s1ons,covenants andagreements set forth inthis Agreement, Lender agrees to make construction loan advancestoBorroweruntiltheendoftheConstruction Period,inanamountequaltothe lesserof(i)eightypercent(80%)oftheAppraised ValueoftheMortgaged Property,and (ii)Eleven Million andNo/100 Dollars ($11,000,000.00),whichLoanshall beusedby Borrowerfor thepurposeof:(a)payingcontractors,architects,engineers,mechanics, materialmen, laborers, service agencies andsuppliers pursuant tothetermsofcontracts forconstruction oftheConstruction Project,forservices infactperformed andmaterials purchasedforandeither incorporated intotheConstruction Projectorsuitablystoredon the Real Property for later incorporation, (b) refinancing, amending and restating the ParkingLotNotewhichhasaprincipalbalanceof$0.00asoftheEffectiveDate,andthe creditexistingthereunder shallnowbe evidenced bytheNote,(c)reimbursing Lenderfor expensesincurredbyLenderpursuanttothisAgreementand(d)payingothercostswhich areincidentalorrelatedtothecostofcompleting orfinancingtheConstruction Projectas setforthin theProjectBudget,subjecttoLender's priorapproval; provided,however, notwithstanding anyotherlanguagesetforthinthisAgreement oranyoftheotherLoan Documents, Loanproceedsshallnotbeusedtopayinterest,Loanfees,latecharges,after default interest and/or any other similar costs, as determined  by Lender.   Upon the Effective Date,theParking LotNoteshall bevoided,andLender shall havenofurther obligationsthereunder.

2.2      TermLoan.    Upon the Term Loan Conversion  Date, provided such date istimely and in no event later than the Completion  Deadline, and further providednoDefaultorEventofDefaultthenexistsandremainsuncured,theoutstanding principal  balance  of the Construction  Loan  shall be automatically  converted  to a seventy-eight(78)monthtermloan,withthemonthlyamountof principalandinterest paymentsbeingcalculatedonthebasisofa twenty(20)year(240month)mortgage amortization scheduleandpayableassetforthinparagraph3below.

3.        BORROWER'SNOTE.  TheLoanshallbeevidenced by theNote,which Noteshallbe signedbyBorroweranddeliveredtoLenderconcurrentlywithexecutionofthis Agreement.   PrincipalandinterestshallbepayableontheNoteasfollow:

)(a)Commencing onthefirst(151

dayofthefirstcalendarmonthfollowing

)the Effective Date, and continuing  on the first (151

day of each successive  month

thereafterthrough  andincludingtheTermLoanConversion Date,Borrower shallpayto Lenderamonthlypaymentofinterestonly,accruedattheInterestRateontheoutstanding principalbalanceoftheNote.

)(b)Commencing onthefirst(151

dayofthefirstcalendarmonthfollowing

)theTermLoanConversion Date,andcontinuing onthefirst(151

dayofeachsuccessive

monththereafter through and untiltheMaturity  Date,Borrower shall paytoLenderthe amount determined  by Lender to be the monthly payment of principal and interest

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Exhibit 10.3

necessary  toamortize the principal balance  oftheNote, together with interest onsuch principal balance attheInterest Rate(determined ontheTerm LoanConversion Date), overtheAmortization Period(i.e.,240months).

TheLoanshallbesubjecttoaprepaymentpremiumasmoreparticularlydescribedintheNote.

4.        COLLATERAL  SECURITY.    The performance  of all covenants  and agreementscontained inthisAgreement and intheotherdocuments executed ordelivered asa partofthistransaction,andthepaymentoftheNoteshallbesecuredasfollows:

4.1        Security  Documents  Covering  Mortgaged  Property.    Borrower shall(a)granttoLenderapriorityConstruction Mortgage(WithPowerofSale),Security AgreementandFinancing Statement (the"Mortgage")intheformprescribed byLender, subjecttonootherliensexceptfortheExisting Mortgages, coveringTract1 andTract2 andafirstsecurity interest inallpersonal property relatingtosuchpropertywhichshall identifythe Note asthe indebtedness evidenced thereby and be  inform acceptable to Lender;  (b)granttoLendera prioritySecondMortgage(WithPowerofSale),Security AgreementandFinancingStatement(the"Second Mortgage"), intheformprescribed by Lender,subjecttonootherliensexceptfortheExistingMortgages,coveringTract3and a first security interest in  all personal property relating to such property which shall identifythe Note asthe indebtedness evidenced thereby and beinform acceptable to Lender;and(c)assigntoLenderallleasesoftheMortgaged Propertyandalloftherents, issuesandprofitsoftheMortgagedProperty,whichassignment shallbeevidenced byan Assignment ofLeases, RentsandProfits(the"Assignment"),intheform prescribed by Lender,whichshallidentifytheNoteastheindebtednessevidenced thereby.

4.2        SecurityAgreements CoveringBorrower'sAccounts WithLender. BorrowershallgranttoLenderafirstsecurity interestintheConstruction Account.Such securityinterestsshallbe evidencedby aSecurityAgreement(the"Account Security Agreement") intheformprescribedbyLender.

4.3     Assignmentand Subordination ofArchitecturalAgreementand Construction Contract.   Borrower shallsign,andshallcause theArchitect tosign, and deliver to Lender a Collateral  Assignment  of Architectural  Agreement  in the form prescribed byLender and Borrower shall sign, and cause the Contractor tosign, and deliver  to Lender  a Collateral  Assignment  of   Construction    Contract  in the form prescribed byLender (collectively, the"Collateral Assignments").  Borrower shallalso providetoLender(i)aSubordination Agreement intheformprescribed byLender,which shallbeproperlysignedandacknowledged bytheArchitectfortheConstruction Project, and(ii)  aSubordination  Agreement inthe form prescribed byLender, which shall be properlysignedandacknowledged by theContractor (collectively, the"Subordination Agreements").   IftheCollateral Assignments andtheSubordination Agreements arenot available priortooratthetimeofexecution ofthisAgreement, Lender and Borrower agreethattheCollateral Assignments andSubordination Agreements mustbeprovidedto LenderpriortoanyfundingoftheLoan.

4.4[Reserved].

4.5      Additional Documents.   BorrowershallsignanddelivertoLender a Hazardous  Substances  Indemnity  Agreement  in the form  prescribed  by Lender. Borrower shall also sign and deliver  (i) an Assignment  of Permits,  Licenses  and Approvals,(ii)anAssignmentof ServiceAgreementsandMaintenanceContracts,(iii)a SecurityAgreement covering the  Borrower'sConstruction Account with Lender,(iv)a

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Exhibit 10.3

closing certificate,  and (v) such other documents  as may be required  by Lender to evidenceandsecuretheLoan,allofwhichwillbeintheformsprescribed byLender.  In addition,  Borrower  shall  cause  its manager  of the  Mortgaged  Property  to sign a Subordination  Agreement  in form prescribed  by Lender.     Any   and  all collateral documents executed byBorrower infavorofLenderassecurityforanyindebtedness of Borrower to Lender shall also expressly secure Borrower'sobligations hereunder and undertheNoteandalldocuments whichevidenceandsecurepaymentofanyoftheNote.

5.        CONDITIONS   OF  LENDING.      Lender's  obligations under  this Agreement,includingthe obligationtomake any advancesunderthe Note,are subjectto theperformanceandsatisfactionoftheconditionsprecedentlisted below:

5.1      No Events of Default.    There shall not have occurred and be continuing anyEventofDefault,  andtherepresentations andwarranties setforthinthe LoanDocumentsshallbetrueandaccurateinallmaterialrespects.

5.2      Loan Documents  and HSIA.    This  Agreement,  and all Loan Documents required byLender and the HSIA shall beduly authorized, executed and deliveredtoLender.

5.3      Existence andAuthority ofBorrower.  Borrower shall provideto Lenderthefollowingdocuments relatingtoBorrower:   (i)Certificates ofGoodStanding fromtheSecretary ofStateofDelaware andtheSecretary ofStateofOklahoma, (ii)a DelawareSecretary ofStatecertified copyofthetranscript oftheCertificate ofLimited LiabilityCompany,togetherwithallamendments thereto,(iii)anOklahoma Secretaryof Statecertifiedcopyofthequalification totransact businessinOklahoma, (iv)acertified copyofthe Operating Agreement of Borrower and allamendments thereto, and(v) a CertificateofLimited LiabilityCompanyAuthority, inamannerandwithtextacceptable toLender,evidencing  theauthorityoftheChiefFinancialOfficerofBorrowertosignthis Agreement andallother LoanDocuments andtoperform itsobligations hereunder and thereunder.

5.4      Existence andAuthority ofGuarantor.   Borrower shallprovideto LenderthefollowingdocumentsrelatingtoGuarantor:   (i)Certificates ofGoodStanding fromtheSecretary ofStateofDelaware andtheSecretary ofStateofOklahoma, (ii)a Delaware  Secretary  of State  certified  copy of the transcript  of the Certificate  of Incorporation, togetherwithallamendments thereto,(iii)anOklahoma SecretaryofState certifiedcopyofthequalification totransact businessinOklahoma, (iv)acertified  copy oftheCertificateoflncorporationandtheBy-lawsandallamendments thereto,and(v)an officer's  certificate and resolution certified and issued bythe proper authority of the Guarantor, orthe like, inamanner and  withtextacceptable toLender, evidencing the authority of the Chief Financial Officer ofthe Guarantor tosign the Guaranty and to performitsobligations thereunder.

5.5      Recording of Security Documents.    The Mortgage, the Second Mortgage, and the Assignment shall be recorded in the real property records of the CountyClerkofOklahoma County, Oklahoma.  TheFinancing Statement shallbefiled inthe"central"UCC records of the Secretary of State of Delaware.   Borrower shall providetoLenderUCCsearchreportonBorrowerand/orsuchotherevidenceasLender mayrequiretoevidence theseniorpriorityofLender's security interest perfectedbythe FinancingStatements.

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Exhibit 10.3

5.6      Establishment ofConstruction AccountandtheLiquidityAccount. Borrower shallestablish adepositaccount ("Construction Account") withLenderonor beforetheEffective Date,intowhichtheproceedsoftheLoan(butnootherfunds)shall bedeposited assuch  proceedsareadvanced andfromwhichBorrower shall makeonly payments permitted under the terms of this Agreement.   Borrower shall maintain the existing liquidity account (the"Liquidity Account") withLender inwhich Borrower is requiredtoandshallcontinue tomaintain, throughtheMaturity Date,adeposit balance ofnotlessthanTwoMillionandNo/100Dollars($2,000,000.00).

5.7      Title  Evidence.      Borrower   shall  provide   to  Lender  (i)  a Commitment  forTitleInsurancefortheissuanceofalenderormortgageepolicycovering theMortgagedProperty,(a)issuedinanamountequaltothemaximum principalamount oftheLoan,(b)namingLenderastheproposedinsuredandcontainingonlyexceptionsas areexpresslyapproved inwritingbyLender(andallrequirements forsuchcommitment shallhave beensatisfied andthepremium therefor shall have beenpaid byBorrower), together withcopies ofalldocuments listed inSchedule (orPart) Iandalldocuments listedinSchedule(orPart)IIoftheCommitment forTitleInsurance,(ii)aproformaloan policyoftitleinsurancecomplying withtheforegoing requirements ofLender,together withproformaendorsements requiredbyLender,(iii)aClosingProtectionLetterfromthe title insurance company which isto provide a loan policy oftitle insurance covering Lender's Mortgage, (iv) an ALTA Loan Policy of Title Insurance 2006, inform and substanceacceptabletoLender,issuedbyatitleinsurancecompanyacceptabletoLender, evidencing that Borrower has good and marketable fee  simple title to the Mortgaged PropertyandthattheMortgagewillconstitutea validfirstMortgageontheMortgaged Property,subjectonlytothosemattersdescribedinExhibit"B"attachedtotheMortgage. Theloanpolicyoftitleinsuranceshallnotincludeanexception baseduponmechanics' andmaterialmen'sliens,oranyexceptions basedondiscrepancies, conflicts inboundary lines, shortage in area, encroachments  or other facts which would bedisclosed bya proper survey.  The  loan policy of title  insurance  must  be accompanied  by such endorsements thereto as may berequired byLender or itscounsel, including, but not limitedto,anaccessandentryendorsement, acomprehensive endorsement, acontiguity endorsement,an endorsementdeletingthearbitrationprovision,anenvironmental lien endorsement, asubdivision endorsement, asurveyendorsement, avariable  rateendorse­ ment,andazoningendorsement. Thepremiumsfortheloanpolicyoftitleinsuranceand allendorsements shall bepaidbyBorrower priortooratthetimeoftheinitialadvance undertheNote.

5.8      Survey.  BorrowershalldelivertoLenderacurrentALTA/ACSM Land Title Survey (2011) of the Real Property, prepared byasurveyor approved by Lender,whichsurveyshalldelineateallproperty lines,shall locateallimprovements on theReal  Property, shall show easements benefitting and/or affecting the Real Property andidentifythembybookandpageofrecording,shallshowadjoining streetsandaccess ways,andshall show all  other physical matters affecting thetitleand useoftheReal Property.   The form of surveyor'scertificate shall beacceptable 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 toLender a floodhazardcertificate inform,scopeandsubstanceacceptabletoLenderandevidencing thattheMortgagedPropertydoesnotlieinafloodhazardarea.

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

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Exhibit 10.3

"Appraisal"), which  shall  (i) be prepared  by an appraiser selected  and approved  by Lender's appraisal committee, (ii) comply  with the standards set forth  by Lender's appraisal committee,(iii) reflect allexistingimprovementsand all future improvements pursuant  to the improvements which shall  exist  upon Substantial Completion of the ConstructionProject.At notime shall the Loan-to-Valueexceed eighty percent (80%). Updates totheAppraisalmayberequired byLenderduetochangesinregulatorypolicies and/or changesinthe MortgagedProperty.  IftheAppraisalisnotavailableprior tothe execution of this  Agreement and  in the  event  the  Appraisal does  not support  the Loan-to-Valueconditionidentified inthis paragraph, Lender andBorroweragreethatthe amount oftheLoanwillbeadjusted inorder tocomply withsuchcondition.

5.11    Insurance. PriortocommencementoftheConstruction Project, Borrower shall obtain,and furnish to Lender satisfactoryevidenceof insuranceon the MortgagedPropertyandevidenceofpayment ofallpremiumsforsuch insurance,which insuranceshall atalltimes comply withallofthe requirementssetforth intheMortgage. Specifically, Borrower shall  maintain  Borrower'sbuilder's risk insurancefor the full completed  project   insurable  value   of  the  Construction  Project   ("Builder's  Risk Insurance"), which  Builder'sRisk Insurance(i) shall meet the same  requirementsas Special Perils Insurance(herein defined),with whateverlimits and coverageextensions Lender requires,(ii)shall bewritten ona"CompletedValue"Form (100% non-reporting) oritsequivalentandshall include anendorsementgrantingpermissiontooccupy and(iii) shall cover  loss of materials,equipment, machinery,and supplieswhether  on-site,  in transit, orstored off-site,orofanytemporarystructure,hoist, sidewalk,retaining wall or underground property,  all soft costs,  plans, specifications, blueprintsand models, and demolitionand increased costs ofconstruction,includingcosts arising from changes in laws at the time of restoration,and coveragefor operationof buildingat the time of restoration,all subjectto a sublimit  satisfactoryto Lender.    Upon  completion of the ConstructionProject,Borrowershall furnish toLender satisfactoryevidenceofinsurance ontheMortgagedProperty andevidenceofpayment ofallpremiumsforsuch insurance, which insuranceshall at all times comply with all of the requirementsset forth inthe 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 companiessatisfactorytoLender, insuch amountsand against such risks asrequired by Lender, includingbutnotlimited tothefollowing:  (a)Borrowershall maintain apolicy against all risks oflosstotheMortgagedProperty customarilycovered by"All Risk" or "SpecialPerils Form"policies asavailableinOklahomaCounty, Oklahoma(collectively, "SpecialPerils Insurance'),inamountsandwith insurers acceptabletoLender, initssole discretion,but not less than the greater of the Secured  Indebtedness(as defined in the Mortgage)oronehundred percent (100%) ofthefullreplacementvalue oftheMortgaged Property,  all improvements thereon,  and all improvements, betterments and contents thereof, including,butnotlimited to,allfixtures,furnishingsandequipmentlocated inor about such  improvements,which Special  Perils Insurance(i) shall cover at least the followingperils:   buildingcollapse,fire,flood, hurricane,impact ofvehicles andaircraft, lightning, maliciousmischief,mudslide,subsidence,terrorism,vandalism,waterdamage, windstorm,hailand such other insurableperils as,under good insurancepractices,other commercialproperty owners fromtimetotime insure against forproperty andbuilding(s) similar tothe MortgagedPropertyin height, location,nature, type of construction,and use, as evidenced by written  advice  from Lender's insuranceadvisor;and (ii) shall contain anagreed amount endorsementoracoinsurancewaiver and areplacementcost value endorsement without  deduction for depreciation;(b) equipmentand machinery (generally  referred  to as boiler and machinery) insurancecovering all mechanical and electrical  equipmentagainst  physical  damage,  rent loss, extra expenseand expediting expense  covering the Mortgaged Property  and any insured  leasehold  property,  which

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Exhibit 10.3

equipment and machinery insurance shall bemaintained on a replacement cost value basis;  (c) ifrequired byLender, Borrower shall maintain a policy of business or  rent interruptioninsuranceonan"actual sustained basis"("Business Interruption Insurance"), providingcoverageagainstanylossofincomebyreasonofanyhazardreferredtointhis paragraph;inanamountsufficienttoavoidanycoinsurance penalty,butinanyeventfor notlessthanatleasttwelve(12)monthsof(i)Borrower'sactualgross receiptsfromall sourcesofincomefrom business operations occurring ontheReal Property and(ii)all amounts which Borrower isrequired to  paytoLender orthird parties pursuant tothis Agreement, theNote,theMortgage oranyoftheother LoanDocuments; (d)Borrower shallmaintain thefollowing insuranceforpersonal injury,bodilyinjury,death,accident andpropertydamage:(i)publicliabilityinsurance,includingcommercial generalliability insurance, (ii)owned (ifany),hired,andnon-owned automobile liability insurance,and (iii)umbrella liabilityinsurance asnecessary(collectively, "Liability Insurance"), which LiabilityInsuranceshall providecoverage ofatleast$1,000,000.00peroccurrence and

$2,000,000.00inannualaggregate,perlocation,andifanyLiabilityInsurancealsocovers otherlocations, withasharedaggregate limit,theminimum Liability Insuranceshall be increased to $5,000,000.00; and in any event, the Liability Insurance shall include coverage  for  liability  arising  from  premises  and  operations,  elevators,  escalators, independentcontractors, contractual liability(including liabilityassumed undercontracts and leases), and products and completed  operations; (e) Borrower shall at all times maintain a policy of workers'  compensation  and employers  liability as required by applicable state law,together withsatisfactory evidence ofcompliance withapplicable state law requirements  for workers' compensation coverage; (f) Borrower shall at all timesmaintainapolicyoffloodandmudslide insuranceinanamountequaltothelesser

oftheoutstanding principal balanceoftheindebtedness secured herebyorthemaximum amount ofcoverage made available with respect tothe Mortgaged Property underthe NationalFloodInsurance  Program(orevidencesatisfactorytoLenderthattheMortgaged Property is not located inan area designated bytheSecretary of Housing and Urban Development or any other governmental  department agency, bureau, board or instru­ mentalityasanareahavingspecialfloodormudslidehazardsandthatfloodinsuranceis not required for this loan under the terms of any law, regulation or rule governing Lender's activities); and (g) when andtotheextent required bytheLender, Borrower shall maintain a policyor policies of insurance against anyother riskor risks insured against bypersons operating like properties inthelocality ofthe  Mortgaged Property. Allinsurancepoliciesshallbeissuedbyaninsurancecompanyhavingaratingof"A"VII orbetterbyA.M. BestCo., inBest's Rating Guide. Whenever anyrequired insurance specifies any dollar amount, Lender may increase it periodically  to reflect Lender's reasonableestimate ofinflation.  Alldeductibles, coinsurance provisions, exceptions to coverageandpolicyformsmustbeacceptable toLenderinitssolesubjective discretion. Each policy shall  be a so-called "occurrence" policy of insurance. No insurance hereundershallbeapartofa"blanket"policymaintainedbyBorroweroranythirdparty unless the policy expressly provides that the amount of insurance required under the Mortgage will innoway beprejudiced byother lossescovered bysuch policy.  Each policyofinsurancerequiredunderthisparagraph5.12shallprovidethat(i)theinterestof LendershallbeinsuredregardlessofanyactornegligencebyBorroweroranybreachor violation byBorrower ofanywarranties, declarations orconditions ofsuch policy,and (ii)theinsurer undereach policyof insurance required hereunder shall agree thatany cancellation ofitsinsurancepolicyoranyendorsement ofitsinsurancepolicytoeffecta changeincoverageforanyreasonshallnotbeeffectiveuntilthirty(30)daysafterreceipt byLender of notice of such cancellation  or such endorsement  to effect a change in coverage.  The Borrower further covenants and agrees that, regardless ofthetypesor amounts of insurance required and approved bythe Lender, Borrower will cause the Lendertobenamedasanadditional insuredineachpolicyofbuilder's riskinsuranceand

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Exhibit 10.3

allpoliciesofLiability Insurance,whichshall  beevidenced byendorsements acceptable toLender;andtheBorrowerwillassignanddelivertotheLenderallpoliciesofinsurance which insure against any lossor damage tothe Mortgaged Property, ascollateral and further security for the Secured Indebtedness, which policies shall contain amortgage clauseinfavorofLender,namingLenderas"Mortgagee andLossPayee"onastandard noncontributory mortgageeendorsement (oritsequivalent) namingLenderoritsdesignee asthe partyto receive insurance proceeds, and shall otherwise beinform, scope and substanceacceptable toLender.  Inaddition, BorrowershallfurnishtoLenderduplicate copiesofeachpolicyofinsuranceatexecution hereof,andcopiesofeachrenewalpolicy, togetherwithreceiptsorotherevidencethatpremiumshavebeenpaid.  Intheeventofa casualtytotheMortgaged Property, all hazard insurance proceeds shall bepaidtothe Lender.  Proceeds ofinsurance  paidtotheLendershall,attheoption oftheLender,be appliedtopaymentoftheSecuredIndebtedness ormadeavailable toBorrowertopayfor repair, restoration  and  rebuilding  of the  Mortgaged  Property,  as described  in the Mortgage.

5.12    Zoning and Use.   Borrower shall furnish to Lender satisfactory writtenevidencethattheRealPropertyispresentlyzonedforitsintendeduseandthatthe RealPropertyisinfullcompliance withallmunicipalordinances, codes,rulesorregula­ tions.  TheBorrower'sconfirmation ofzoning shall include, without limitation, atitle insuranceZoning Endorsement (ALTA3.1-06) inform,scopeandsubstance acceptable toLender.

5.13    Permits.   Borrower shall obtain and provide toLender copies of allpermitsrequiredfortheConstruction  Projectoranypart thereof,including,without limitation,buildingpermitsissuedby theCityofOklahomaCityorOklahomaCounty. 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,scopeandsubstance acceptable toLenderanditsConstruction Consultant.    Ifany permit(s) isnotavailable priortooratthetimeofexecution ofthisAgreement, Lender andBorroweragreethatsuchpermit(s) mustbeprovidedtoLenderpriortoanyfunding oftheLoan.

5.14    PlansandSpecifications.   Borrower shall submit forapproval by Lendercopies of thefinal plans andspecifications for  the Construction Project which have been approved  in writing by Borrower, the Architect,  the Contractor, and all applicablegovernmental authorities.   Followingapprovalby Lender,suchplansand specifications shall not besubstantially changed, without the prior written consent of Lender.  Regardless ofitsreview andapproval oftheplans and specifications, Lender shallhavenoresponsibility, obligationorliabilitytoBorroweroranyotherindividualor entitybasedon,arising fromorrelating toanysuchreview orapproval, andBorrower shallatalltimes haveexclusive control over itswork ontheConstruction Project and soleresponsibility forcompliance withallgovernmental, quasi-governmentalandprivate laws, rules,regulations, ordinances, codes, covenants, restrictions, easements andother matters which control, burden orapply toorotherwise affect the Mortgaged Property and/ortheConstruction Project.

5.15    FinancialInformation.  BorrowershallsubmittoLenderinwriting asatisfactory Project Budgetwhich  shallshowallsources and usesoffunds, andshall detailbylineitemallcostsofacquisition oftheRealPropertyandallcostsofdesigning, constructing,  franchising,  and completing  the Construction  Project, and all costs of finishing, furnishing,  equipping  and opening the completed  Construction  Project for

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Exhibit 10.3

business. The Project Budget shall contain, without limitation, an interest reserve, a contingencyreserveandaworkingcapitalreserve.

5.16    EnvironmentalSite Assessments;HazardousSubstancesIndemnity 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 aform provided byandacceptable to Lender.

5.17    Geotechnical  Report.    Borrower  shall  submit  for review and approvalbyLendera geotechnicalreport(soilstest)coveringtheRealProperty,which geotechnicalreportshallbeinform,scopeandsubstanceacceptabletoLender.

5.18    LoanFees.  BorrowershallpaytoLenderaloancommitment fee equaltoone-half percent(0.50%) oftheproposedamount oftheLoan(ie.$55,000.00) payableattheclosingoftheLoan,whichfeeshallbedeemedfullyearnedbyLenderand nonrefundableatthetimeLendersignsthisAgreement.

5.19    Architectural  Agreement  and Construction  Contract.    Borrower shalldelivertoLenderforits reviewandapprovalthearchitectural agreementbetween Borrower,as owner,andtheArchitectfortheConstructionProject,whicharchitectural agreement(i)mustbeinform,scopeandsubstanceacceptabletoLender,and(ii)mustbe subordinatedtotheLoanandtheLoanDocumentsasdescribedinparagraph4.3 ofthis Agreement.   BorrowershalldelivertoLenderforitsreviewandapprovalthefixedprice Construction Contract betweenBorrower,asowner,andtheContractor fortheConstruc­ tion Project, which Construction  Contract (i) must be in form, scope and substance acceptable toLender, mustbecollaterally assigned  toLenderasdescribed inparagraph

4.3ofthisAgreement,and(iii)mustbesubordinated totheLoanandLoanDocumentsas describedinparagraph4.3ofthisAgreement.

5.20    Opinion ofBorrower'sCounsel.   Borrower shall provide Lender withalegalopinion fromitscounsel asto:  (i)thedueorganization, powersandgood standingofBorrowerandGuarantor;   (ii)tothebestknowledgeofCounselafterinquiry, theabsence of any suits, proceedings or investigations pending, threatened against or affectingBorrowerandGuarantor,anyofwhichif adverselydetermined, wouldhavea materially adverse effect on the financial condition, the business or the properties of BorrowerandGuarantor; (iii)thatBorrowerandGuarantor havefullycomplied withall local,state,andfederalrequirements relativetothelocationandoperation oftheproject asanofficebuilding;(iv)thatthedocumentsexecutedandprovided bytheBorrowerand Guarantor pursuant tothis Agreement are fully authorized underall documents which evidence  thecreation, existence andgood standing oftheBorrower andGuarantor; (v) that all Loan Documents,  other than the Guaranty, have been duly executed by the Borrower,are thelegal, validandbindingobligationsofBorrowerandareenforceable accordingtotheirrespectiveterms;and(vi)thattheGuarantyhasbeendulyexecutedby theGuarantor,is alegal,validandbindingobligationofGuarantorandisenforceable accordingtoitsrespectiveterms.

5.21    Construction Schedule; Subcontractorsand Suppliers.   Borrower shalldelivertoLender(i)acomplete,writtenconstruction schedulefortheConstruction Project, (ii) a list of all subcontractors  and material suppliers,  together  with their respective addresses and maincontracts, (iii) acopyofeverysubcontract andmaterial

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Exhibit 10.3

purchaseorderof$10,000.00 ormore,and(iv)copies ofallofthe  Performance Bonds andPayment Bonds listedonExhibit"E" attached tothisAgreement and incorporated hereinbyreference.

6.REPRESENTATIONS AND WARRANTIES.In addition to all other representationsandwarrantiesofBorrowertoLender,Borrowerrepresentsandwarrantsthat:

6.1      Existence  and Authority  of Borrower.    Borrower  is and will continuetobe alimitedliabilitycompanydulyformedandvalidlyexistingunderthelaws of the State of Delaware, and is  duly qualified to transact   business in the State of Oklahoma; Borrower hasfullpower,authority andlegalrighttoown,manageandhold titletotheMortgagedPropertyandtooccupyBuilding3andthegymnasiumasrenovated bytheGymnasium Explansion, andBorrower hasfullandlegalright,powerandauthor­ itytoenterintoandcarryouttheprovisions ofthisAgreementandalldocumentssigned byBorrowerpursuanttothisAgreement, toborrowmoney,togivesecurityforborrowing asrequired  bythisAgreement, andtoconsummate thetransaction contemplated bythis Agreement.

6.2      Conflicting Agreements andRestrictions.   Borrower isnotaparty to any contracts or agreements or subject to any other restrictions  which materially adversely affect its business, property, assets or financial condition.   To the best of Borrower's knowledge,neitherthe executionanddeliveryoftheLoanDocumentsnor fulfillmentandcompliance withthetermsandprovisionsthereof,(i)willconflictwith,or resultinabreachoftheterms,conditions orprovisions of,orconstitute adefaultunder, orresultinanyviolation ofanyagreement, instrument, undertaking, judgment, decree, order,writ,injunction, statute, law,ruleorregulationtowhichBorrower issubjectorby which the Mortgaged Property isbound oraffected, (ii) will result inthe creation or imposition ofanylien,charge orencumbrance on,orsecurity interest in,anyproperty noworhereafterincludedin theMortgagedPropertypursuanttotheprovisionsofany mortgage,  indenture, securityagreement, contract, undertaking orother agreement other thantheliensandsecurityinterestsinfavorofLendercreatedbytheLoanDocuments,or (iii)willrequireanyauthorization, consent,license,approval orauthorization oforother actionby,ornoticeordeclaration to,orregistration with,anycourtoradministrative or governmental  department,   commission,   board,  bureau,  authority,  agency  or  body (domestic or foreign), or, to the extent that anysuch consent orother action may be required,ithasbeenvalidlyprocuredordulytaken.

6.3      ActionsandProceedings.   Borrowerhasnotreceivednoticeofany actionor proceedingagainstorinvestigationof Borrower,pendingorthreatened,which questionsthevalidityoftheLoanDocuments, orwhichislikelytoresultinanymaterial adversechangeinthebusinessoroperations ofBorrowerorwhichinanywaymaterially impairsoradverselyaffectstheabilityofBorrowertoperformitsobligationsthereunder.

6.4      Financial  Condition.     Borrower  is an  indirect,  wholly-owned subsidiary  of  Guarantor.  The  financial  statements  of Guarantor  which  have  been furnishedtoLender,arecorrectandcompleteinallmaterialrespectsandfairlyreflectthe financialconditionofboththeBorrowerandtheGuarantoras ofthedatethereof.  Said financialstatementshavebeenpreparedinaccordancewithgenerallyacceptedaccounting principlesconsistently appliedthroughtheperiodsinvolvedtherein,andtothebest of Borrower'sknowledge,therehasoccurrednomaterialadversechangein thefinancial condition of the Borrower or the Guarantor from theeffective dates ofsaid financial statements to the date hereof.   Neither  Borrower or Guarantor   have any contingent obligations, unusualorlong-termcommitments, unrealizedoranticipated lossesfromany

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Exhibit 10.3

unfavorablecommitmentorliabilitiesfortaxesnotreflected insuchfinancial statements whichareindividuallyorintheaggregatesubstantial inrelationtothefinancialcondition ofBorrowerorGuarantor, respectively.

6.5      FullDisclosure.   Neither theLoanDocuments noranystatement or documents  referred to therein,  contemplated  thereby  or delivered  to Lender   by Borroweroranyotherparty onitsbehalfcontainsorwillcontainanymateriallyuntrue statement,oromitsorwillomittostateamaterialfactnecessarytomakethestatements thereinnotmisleading.

6.6     NoViolationofApplicableLaw. Tothebestofits knowledge, information and belief, Borrower has not violated and isnot violating anyapplicable statute,regulationorordinanceoftheUnitedStatesofAmericaoranyforeigncountry,or ofanystate,municipalityoranyotherjurisdiction, orofanyagencythereofinanyrespect materially adversely affecting   its business,  property, assets, operations  or condition, financialorotherwise.   Tothebestofitsknowledge,informationandbelief,Borroweris incompliance withallstatutes,rules,andregulations relatingtoenvironmental standards andcontrolsinalljurisdictions whereitispresentlydoingbusiness.

6.7      Permits.   Tothebestofitsknowledge, Borrower has,orwill be abletoobtain,asneeded,allgovernmental andprivatepermits,certificates, consentsand franchises which in any respect (i) are required for the Construction  Project and the occupancyofBuilding3andthegymnasium asimproved  bytheGymnasium Expansion, (ii) are material to its business, property, assets, operations or condition, financial or otherwise,(iii)arenecessaryforittocarryonitsbusinessasnowbeingconductedoras contemplated tobeconducted, or(iv)arenecessaryforittoown, leaseandoperate the Mortgaged Property.   Allsuch governmental and private permits, certificates, consents andfranchisesarevalidandsubsisting, andtothebestofitsknowledge, information  and belief,Borrowerisnotinviolationthereof.

6.8      Place of Business and Certain Records.   Borrower (i) presently keepsallofitsrecords concerning itsaccounts andcontract rights initsofficeat7501

WestMemorial Road,Oklahoma City,Oklahoma,  73142;(ii)intendstocontinuetokeep the location of said records in itsoffice insaid city, county and state; and (iii) shall continuetokeepsaidrecordsinitsofficewithinsaidcity,countyandstateorgiveLender

ten(10)days' priorwritten noticeofanyrelocation ofitsprincipal officetoalocation outsideofOklahoma City,Oklahoma,orconcurrentwrittennoticeofanyrelocationofits principalofficewithinOklahomaCity,Oklahoma.

6.9      NoDefaults.   Tothebestofitsknowledge,informationandbelief, Borrower isnot indefault ofor inbreach inany respect underanymaterial contract, agreementorinstrument towhichsuchBorrower isapartyorbywhich itoranyofits propertiesmaybebound.

6.10    OwnershipofMortgagedProperty;Liens.  Borrowerhasgoodand marketabletitletotheMortgaged Property,freeandclearofallliensandencumbrances exceptaslistedonExhibit"B"attachedtotheMortgage.

6.11    ERISA.   To the best of its knowledge, information and belief, Borrowerhasnotincurredany"accumulated fundingdeficiency" within themeaningof Section302(a)(2)ofERISAwithrespecttoanyemployeepensionorotherbenefitplanor trust maintained  byor related to Borrower.   Borrower has not incurred any material liability to PBGC or otherwise under ERISA inconnection with any such plan.  No

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Exhibit 10.3

reportableeventdescribed inSections 4042(a) or4043(b) ofERISAwithrespecttoany suchplanhasoccurred.

6.12    Taxes.   Borrower has filed all federal, state, local, county and foreigntaxreturns requiredbylawtobefiled,andhavepaidalltaxes, assessments and similarchargesshown tobedueandpayableonsaidreturns.  AttheEffective Date,no extensionsoftimeareineffecttoassessments ofdeficienciesforFederalincometaxesof Borrower.

6.13    Compliance withFederal Reserve Board Regulations.  Nopartof theproceedsofthe.Loanwillbeused,andnopartofanyloanrepaidortoberepaidwith the proceedsoftheLoanwas orwillbeused,directlyorindirectly,forthepurposeof purchasing or carrying any margin security or margin stock within the meaning of RegulationsGorUoftheBoardofGovernors oftheFederalReserveSystem,orinany mannerorunderanycircumstances whichwouldcauseaviolationbyanypersonorentity ofRegulations G,T,UorXofsaidBoard.   TheassetsofBorrower donotincludeany margin securitiesormarginstockandBorrowerdoesnothaveanypresentintentionof acquiringanysuchsecurityorstock.

6.14   InvestmentCompanyAct; PublicUtilityHoldingCompanyAct. Borrowerisnotan"investment company" oracompany"controlled"byan"investment company"withinthemeaningoftheInvestmentCompanyActof1940,asamended,and Borrowerisnota"holding company,"a"subsidiary company"thereoforan"affiliate"of a"holding company"orofsucha"subsidiary company,"eachwithinthemeaningofthe PublicUtilityHoldingCompanyActof1935,asamended.

6.15    Availability ofUtilityServices.   Allutilityservices necessaryfor the Mortgaged Property and for the use  of  the Real Property for the above-described Building3andthegymnasiumasimproved bytheGymnasiumExpansion, areconnected totheMortgagedProperty.Suchutilityservicesinclude,withoutlimitation, watersupply, sanitaryandstormsewers,andelectric,gas,andtelephone.

6.16    Survival of Representations.  All representations and warranties madehereinorinanyotherLoanDocuments willsurvivethedeliveryoftheNoteandthe makingoftheLoan,andanyinvestigation atanytimemade byoronbehalfofLender shallnotdiminish Lender'srighttorelythereon.  Allstatements contained inanycertif­ icateorotherinstrument delivered byoronbehalfofBorrower underorpursuanttothis Agreement  or any other  Loan Documents  or in connection  with  the transactions contemplated herebyortherebyshallconstituterepresentations andwarrantiesmade hereunder.

7.        BORROWER'SAFFIRMATIVE COVENANTS.  Until the payment in full of the Loan and unless Lender shall otherwise consent in writing, Borrower agrees to performorcausetobeperformedthefollowing:

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.   Lendershall have the righttoexamine andcopysuchbooks  andrecords, including allbooksandrecords relatingtoallorany partoftheMortgaged Property,todiscusstheaffairs,financesandaccountsofBorrower andtobeinformedastothesamefromtimetotimeasLendermightreasonablyrequest. Upon  Lender's request,  Borrower  shall  furnish  to  Lender  the  year-end  financial statements fortheimmediately priorcalendaryear(including anincomestatementanda

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Exhibit 10.3

balancesheet)together withtheprioryeartaxreturnsandotherfinancial 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 statementsandsuchotherstatementsasLendermayrequestfromtime-to-time.

7.2      Taxes.     Borrower  will  pay  prior  to  delinquency    all  taxes, assessments, governmental chargesorlevies,andallclaimsforlabor,materials,supplies, rentand other obligations which, ifunpaid, might become alien against itsproperty, excepttotheextent  Borrower ischallenging anyoftheforegoing ingoodfaithandwith duediligence, andhaspostedallrequired bondsorhaspaidthecontested items"under protest,"sothatthereshallnotoccuraforeclosureofanysuchliens.

7.3      Maintenance.    Borrower will maintain  its existence,  remain in good standing ineach jurisdiction in which it isrequired to bequalified or licensed, maintainallfranchises, permits,intellectual propertiesandlicensesnecessaryorusefulin theoperation ofitsbusiness heretofore operated andasto  beoperated ascontemplated hereby,maintainorcausetobemaintained itspropertiesingoodandworkablecondition, repair,andappearance, andprotectthesamefromdeterioration, otherthannormal  wear andtear,atalltimes.

7.4      Compliance with Laws.  Borrower will comply with allstatutes, laws, rules or regulations to which Borrower is subject or by which the Mortgaged Property isbound oraffected, including  without limitation, (i)ERISA, (ii)all Environmental Laws(asdefined intheMortgage), (iii)thosepertaining tooccupational healthandsafetystandards,(iv)thosepertainingtoequalemployment andcreditpractices andcivilrights,and(v)thosepertainingtoitsbusinessoroperations.

7.5      Further Assurances.   Borrower will,from time totime, promptly cureanydefectsoromissions intheexecutionanddeliveryof,orthecompliance withthe Loan Documents,  or the conditions  described  in paragraph 5 hereof, including the executionanddeliveryofadditionaldocuments reasonablyrequestedbyLender.

7.6      Performance   of  Obligations.      Borrower  will  pay  the  Note according tothereading,tenorandeffectthereofandwilldoandperformeveryactand dischargealloftheobligations providedtobeperformedanddischarged undertheLoan Documentsatthetimeortimesandinthemannerthereinspecified.

7.7      Payment  of Taxes.    All taxes, assessments  and governmental chargesorleviesimposedonBorroweroronBorrower'sassets,incomeorprofits,willbe paidonorpriortothedelinquencydatethereof.

7.8      Lender's  Access.   Borrower will, during normal business hours andasoftenasLendermayreasonablyrequest,permitanyofLender'sofficers,andany authorized representativesof Lender, to visit and inspect any part of the Mortgaged Property.

7.9      Litigation.   Borrower will promptly furnish Lender with written noticeofanylitigationofwhichBorrowerreceivesactualnoticeinvolvingBorrowerasa defendant wheretheamount sued fororthevalueofproperty involved isinexcess of One Hundred Thousand and Noll00 Dollars ($100,000.00),or which, iftheoutcome wereadversetoBorrower,couldreasonablybeexpectedtomateriallyadverselyaffectthe financialcondition, businessoroperationsofBorrower.

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Exhibit 10.3

7.10    Notification   of  Liens.     Borrower  will  notify  Lender  of  the existenceorasserted existence ofanymortgage, pledge,lien,chargeorencumbrance on anypartoftheMortgaged Property,forthwith uponBorrower'sreceiving actual notice thereof, excluding only: (i) encumbrances  in favor of Lender; (ii) deposits to secure paymentofworker'scompensation,  unemployment insurance andsimilar benefits; and (iii)statutory liensarising intheordinary course ofBorrower'sbusiness whichsecure currentobligationsofBorrowerwhicharenotindefault.

7.11      Events withRespect toERISA.  Assoon aspossible and inany event within thirty (30) days after Borrower knows or has reason to know that any reportableeventdescribed inSections4042(a) or4043(b) ofERISA withrespecttoany employeepensionorotherbenefitplanortrustmaintained byorrelatedtoBorrowerhas occurred, or that PBGC has instituted or will institute proceedings under ERISA to terminateanysuchplan,BorrowerwilldelivertoLender(i)acertificate ofamanagerof BorrowersettingforthdetailsastosucheventandtheactionwhichBorrowerproposesto takewithrespectthereto,and(ii)acopyofanynoticedelivered byPBGCevidencing its intenttoinstitutesuchproceedings.   Forallpurposesofthiscovenant,Borrowershallbe deemed to have all knowledge  or knowledge  of all facts attributable  to the plan administratorofsuchplanunderERISA.  BorrowerwillfurnishtoLender(orcausesuch plan administrator  to furnish to Lender) the annual report for each plan covered by ERISAmaintainedbyorrelatedtoBorrowerasfiledwiththeSecretaryofLabornotlater thanten(10)daysafterthereceiptofarequestfromLenderinwritingforsuchreport.

7.12    Other Notifications.   Borrower  will notify Lender as soon as practicable,butin anyeventwithinten(10)daysafterBorrowerknowsthatanyofthe following hasoccurred: (i)anEventofDefault,  (ii)anymaterial adverse change inthe natureoforanymaterialpartofthepropertycomprising theMortgagedProperty,and(iii) anymaterialchange intheaccounting practicesandprocedures ofBorrower,includinga changeinBorrower'sfiscalyear.  BorrowerwillnotifyLenderassoonaspracticable, but inanyeventwithinthetimelimitations prescribed forForm8-Kfilings pursuanttothe SecuritiesExchange Act,ofanyotherevent,occurrence orcircumstance whichindicates thereasonable likelihood oftheoccurrence ofamaterialadversechange inthefinancial condition,businessoroperationsofBorrower.

7.13    Post-Foundationand Post-CompletionSurveys.  Immediatelyafter completion of the foundations of the Construction  Project, Borrower shall furnish to Lender, inform and substance acceptable toLender, oneor more surveys oftheReal Property, conforming  to Lender's  survey criteria,   showing  the location of all such foundations on theReal Property inaddition to those items which are required to be shownbytheLender'ssurveycriteria,andshowingnoencroachment by suchfoundations over easementsorpropertylinesontheProperty.  Immediatelyaftercompletionofthe Construction Project,BorrowershallfurnishtoLender,informandsubstanceacceptable toLender,anupdateofthesurveyrequiredinparagraph 5.8ofthisAgreement, showing thelocationofallimprovements ontheRealPropertyinadditiontothoseitemswhichare requiredtobeshownin theinitialsurveydescribedinparagraph5.8andshowingno encroachments ofeasements  orpropertylinesontheRealProperty.

7.14UseofFundsinConstruction Account.FundsintheConstruction

AccountshallbeusedsolelyforthepurposessetforthinthisAgreement.

7.15[Reserved].

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Exhibit 10.3

7.16  CompletionDate.  Borrower shallprosecuteconstructionand developmentoftheConstructionProjectwithdiligenceandcontinuityuntilcompletion thereof(whichcompletionshallmeanthattheCompletionDateobligationshavebeen satisfied)andcausetheConstructionProjectimprovementstoachievecompletionno laterthantheCompletionDeadline.  Borrower shallnotifyLenderofanycessation, stoppageordelayintheconstructionoftheConstructionProject.  Exceptfordelaysor cessationscoveredby factorsthatarebeyondthecontrolofBorrower,Borrowershallnot permit cessationoftheworkofconstructionforaperiodinexcessoffifteen(15) consecutive normalworkingdaysatanyonetime,orinexcessoffortyfive(45)normal workingdaysintheaggregate,withoutthepriorwritten consentofLender.

7.17    LiquidityAccount.  ThroughoutthetermoftheLoan,Borrower shallmaintaintheLiquidityAccountinaccordancewiththerequirementsofparagraph

5.6herein.

8.        BORROWER'S NEGATIVECOVENANTS.  Until paymentinfullof theLoanandunlessLendershallotherwiseconsentinwriting,Borrowerwillnotperformor permittobeperformed anyofthefollowingacts:

8.1      CreationorExistenceofLiens.  Borrowerwillnotcreate,assume orsuffertoexistanymortgage,pledge,lien,chargeorencumbranceonany ofthe properties of Borrower, personal or real, tangible or intangible, including without limitation theMortgagedProperty,excludingonly:(i)encumbrancesinfavorofLender; (ii)depositstosecurepaymentofworkmen's compensation,unemploymentinsurance andsimilarbenefits;(iii)statutoryliens,againstwhichthereareestablishedreservesin accordancewithgenerallyacceptedaccountingprinciples;and(iv)lienscoveringtangible personalpropertywhichariseintheordinarycourseofBorrower's businessandsecure currentobligationsofBorrowerwhicharenotindefault.

8.2      LoanstoandTransactionsWithAffiliates.  Exceptaspreviously disclosedinwritingtoLender,andapproved byLender,Borrowerwillnotmakeany loan,advanceorotherextensionofcredit,directlyorindirectly,toorforthebenefitof anyAffiliateandwillnotenterintoanyothertransaction,including,withoutlimitation, thepurchase,saleorexchangeofpropertywithanyAffiliate.  Borrowerwillnotmake anypaymentstoanAffiliateforservicesperformedorequipmentormaterialsprovidedto theMortgagedPropertyexcepttoreimbursetheAffiliate foritsactualcostofperforming suchservicesorprovidingsuchequipmentormaterials,whichactualcostshallnot,in anyevent,exceedtheamountthatwouldbechargedbyanon-Affiliateunderabonafide, arm's-length contractforperformanceofsuchservicesorprovisionofsuchequipment and  materials.  Borrower mayretainan Affiliatetomanagethe MortgagedProperty underamanagementagreementormarketandleasethepropertypursuanttoabrokerage agreementonmarketterms,eachofwhichis(i)expresslysubordinatetotheMortgage andother LoanDocuments and (ii) in form  andsubstance reasonablyacceptableto Lender.

8.3      RestrictiononLeasingofMortgagedProperty.  Notwithstanding anylanguageinthisAgreementoranyoftheotherLoanDocuments,Borrowershallnot leaseany partoftheMortgagedPropertytoathirdpartywithoutthepriorwrittenconsent ofLender.

8.4LimitationonDividends,LoansandDistributionsofFunds.So

longasan Event of Default exists underthis Agreementor anyof theotherLoanDocuments,Borrowerwillnot,directlyorindirectly,make,orbecomeobligatedtomake,1\CdfsO1\Home\Ailenz\Kirkpatrick\Paycom\2015 Building3\LoanDocuments\KirkpatrickBank-Paycom-LoanAgreement-7.Docx-21-

Exhibit 10.3

anydistributions tomembersorsetapartanysumoranyofitsassetsfordistributions to members,ormakeanyloansoranyotherdistribution offunds,byreductionofcapital,or otherwise.

8.5      Limitation on Contingent Liabilities.   Borrower will not,directly orindirectly,guarantee,agreetopurchaseorrepurchaseorprovidefundsin respect,or otherwise becomeorremain liablewith respecttoindebtedness ofanycharacter ofany otherpersonorentity.

8.6      Changes toMethod ofAccounting.   Borrower willnotmakeany materialchange initsmethodsofaccounting forpurposes ofthereporting requirements ofthisAgreement,exceptasmaybemandatedbysoundaccounting principles.

8.7      Sale-Leaseback Transactions.   Borrower will notmake  orpermit the occurrence of any sale, transfer or disposition of any of the Mortgaged Property followed by  Borrower'sleasing or rental of such property, or any portion thereof, as lessee.

8.8      Construction Issues.  Borrowershallnot(i)incurorsuffertoexist anydelaysincompletion oftheConstruction Project,(ii)agreetoanychangeorderwhich wouldincreasetheProjectCostby$20,000.00 ormore,oranychangeorder(s)which,in theaggregate,wouldincreasetheProjectCostby$100,000.00 ormorewithouttheprior 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 toLender and Lender'sConstruction Consultant within five (5) business days afteranychangeordersaremade,acopyofsuchchangeorderandanassociated update of the Construction  Budget  which  have been approved  by the  Architect  and the Contractor.

8.9      Modification ofLimitedLiabilityCompany Documents.   Borrow- er shallnotparticipatein,sufferorpermittheamendment, modification, restatement, cancellation ortermination ofanyorganizational document noworhereafterevidencing orrelatingtoBorrowerwithoutthepriorwrittenconsentofLenderineachcase.

8.10    Transfer  of Property.    Until all indebtedness  of Borrower  to Lenderis paidinfull,Borrowershallnotsell,transferorconveyalloranypartofthe MortgagedPropertyoranyinteresttherein,exceptBorrower's leasingorrentalofsuch propertyintheordinarycourseofbusiness, andBorrowershallnotpermitanychangein theownershipofBorrower.

8.11    FundedDebtLimitation.   Borrowershallnotincurfundedoutside debt(exceptfortheLoanprovided underthisAgreementandtheConsolidated Note)in excessof$1,500,000.00withoutthepriorwrittenapprovalofLender.

8.12    Fixed ChargeCoverageRatio. TheFixedChargeCoverageRatio (definedbelow)oftheGuarantorshallnotbelessthan1.2:1.00onaquarterly basis.The FixedChargeCoverageRatioshallbecalculated byLenderonaquarterly basisbasedon theGuarantor'squarterlyfinancialstatements delivered pursuanttoparagraph7.1ofthis Agreementassetforthbelow.

(a)Calculation.   Theterm"Fixed ChargeCoverageRatio"meansNet

Operating   Income  plusinterest  expense,  depreciation   expense  and amortization expense, basedonannualizing theincomestatement forthe\\CdfsOl\Home\AIIenz\Kirkpatrick\Paycom\2015 Building3\LoanDocuments\Kirkpatrick Bank-Paycom-LoanAgreement-7Docx-22-

Exhibit 10.3

quarter  then ended,  divided  by Debt Service  Requirements  plus rent expense and ownership distributions,  feesorcompensation toAffiliates (e.g.,contractorordevelopment fees).

(b)    Debt  Service  Requirements. The   term  "Debt  Service Requirements"shallmeanallprincipalandinterestpaymentswhichwould be owingduringtheensuingtwelve(12)monthperiod,asdeterminedby Lender,based upon,(i)alldebtofGuarantor payabletoLenderandany other non-subordinated  debt, excluding balloon payments, ifany,dueto Lender,and(ii)thethenapplicable interestrate(s)onsuchdebt.

(c)       NetOperating Income.  Theterm"Net Operating Income"means all  revenues  collected  from  the  operations  of   Guarantor  (excluding non-recurring income,asdetermined byLender)lessexpenses.   Revenues shall becalculated byLender byusingactual effective revenues for  the mostrecentfour(4)calendarquarters,lessownershipdistributions, feesor compensation  to Affiliates   (e.g., contractor  or development  fees) and receiptsfrominsuranceincome,securitydepositforfeitures,late charges, interest income, miscellaneous  income or other sources of income not directly  related  to the operations  of Guarantor.     Expenses  shall be calculated  by  Lender  by  adjusting  actual  and  customary  operating expenses fortheprevious  calendarquarter,annualized twelve(12)month periodasdeemedappropriate inLender's solediscretion.   Suchexpenses shall include,without limitation, recurring operating expenses, realestate taxes,andanymanagementfeetotheextentchargedandpaid.

(d)       Curative Action.   Intheevent theFixed Charge Coverage Ratio for any calendar quarter should beless than 1.20 to 1.00, then, within fifteen (15)daysafterwritten noticefromLendertoBorrower, Borrower shall  pay the Curative  Amount  such that a minimum  Fixed Charge Coverage Ratioof1.20to1.00ormoreiscreated basedon(A)theactual NetOperating Incomefortheimmediately precedingcalendarquarterand (B) the hypothetical  Debt  Service  Requirement  for the then current calendarquarterwhichwouldresultfromareamortization ofsuchreduced outstandingprincipal  balanceoftheLoan.

Irrespective  of any hypothetical  Debt Service Requirement  utilized to calculatethecurativeamount,theactualamountoftherequiredpaymentsshallcontinue tobeasprovidedintheNote.

9.        ADMINISTRATION  OF LOAN.    Notwithstanding any language  in this  Agreement  seemingly  to  the  contrary,  Borrower  shall  not  be  entitled  to  any disbursementofLoanproceedshereunder unlessanduntilBorrower hassatisfiedallofthe conditionsoflendingsetforthinparagraph5ofthisAgreement.Uponsatisfaction ofsuch conditions oflending tothesatisfaction ofLender, Lenderwillmake Loandisbursements uptotheprincipalamount  oftheLoanprovidedthat(i)Lender's Construction Consultant shall have completed  periodic inspection(s)  of the Construction  Project and shall have advisedLenderinwritingthatworktodateontheConstruction Projectissatisfactory, (ii) thereisnouncuredEventofDefault underanyoftheLoanDocuments, and(iii)allofthe otherrequirementssetforthinthisLoanAgreement  foradvancementofloanproceedsare satisfied.

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Exhibit 10.3

Subjecttoalloftheterms,conditions andprovisions ofthisAgreement, Lender shallmakedisbursements undertheLoaninthefollowingmanner:

9.1      Purpose.  The principal sumtobedisbursed undertheNoteshall beusedforthepurposessetforthinparagraph2.1ofthisAgreement.

9.2      Compliance with Project Budget.   All Loan advances under the Noteshall bemade inaccordance with theAgreement and inamounts setforth inthe Project Budget.    Material deviations  from the Project Budget must be approved in advance inwriting byLender.  IfLender determines atanytime, initssolejudgment, thatthedirect construction costs, plusthecostoftheimprovements andtheestimated non-construction costs,exceedtheProjectCostsetforthintheProjectBudget,thenatthe requestofLender, Borrower shallexplain toLenderhowtheoverage willbepaidand willimmediatelydepositsuchfundsintotheConstruction Account.   Anysuchdepositso requiredshallbemadepriortoanyadditional advanceofLoanproceeds.

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)shallbesubmitted inwritingonthelatestversionofthe AlAG702andG703 forms,(ii)shall beproperlycompleted andsigned byBorrower, theContractor andthe Architect,(iii)shall bedelivered toLenderandtheConstruction Consultant atleastfive (5)daysbeforetherequesteddateofdisbursement; (iv)issubjecttothepriorapprovalof the  Construction  Consultant and the Lender; and (v) shall be  supported bycopies of invoicesforallworkandmaterialscoveredthereby.UnlessLenderwishestoinspectthe Construction   Project as set forth in paragraph 9.5, each Request for Funds shall be approvedandfundedordeclined byLenderwithinfive(5)Business Daysofreceiptby Lender.Allapproved Loanadvances willbedeposited intotheConstruction Account by Lender. Borrower  shall  under no circumstances  be entitled  to Loan advances that individually orcumulatively exceed the Project Costs completed asofthedate ofthe requestpertheProjectBudget.  BorrowershallsubmititslastRequestforFundsnolater than fifteen (15) days before the Completion  Deadline. In no event shall Lender be obligatedtomakeanyLoanadvancesaftertheCompletionDeadline.

9.4      Additional Information.   Upon request by Lender, each Request forFundsshallbeaccompanied by:

9.4.1   proof,satisfactory toLender,thatallinvoicesforlaborand materials havebeenpaid,exceptthosecontained inthecurrentRequestforFunds covering"hardcosts;"and

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

9.4.3   titleinformation, intheformofanendorsement totheloan policiesoftitleinsuranceheldbyLender,whichincreasestheamountofcoverage and which confirms the first lien priority of the Mortgage, without additional mattersaffectingtitletotheMortgagedProperty.

Alloftheabove information shall beobtained andsubmitted toLender atBorrower's expense.

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Exhibit 10.3

9.5      Lender'sInspection.   If,foranyreason,Lenderdeemsitnecessary tocausetheConstruction Projecttobeexamined bytheConstruction Consultant orany otherrepresentative of Lender priortomaking anyadvance, itshall haveareasonable time[notexceeding ten(10)Business Days]withinwhichtodoso,atBorrower'scost, andLendershallnotberequiredtomakeanyLoanadvance untilsuchexamination has beenmade.Regardlessofinspections by theConstruction Consultantoranyother representative of Lender, Lender shall have noresponsibility, obligation or liability to Borroweroranyother individual orentitybasedon,arisingfromorrelatingtoanysuch inspections,andBorrowershallatall timeshaveexclusivecontroloverworkonthe Construction  Project  and sole   responsibility  for compliance  with all governmental, quasi-governmentalandprivatelaws, ordinances,rules,regulations,codes,covenants, restrictions, easements and other matters which control, burden, apply toorotherwise affecteitherpartoftheMortgagedPropertyand/ortheConstruction Project.

9.6      Disbursements.   Advances under the Note may,at  theoption of Lender,berecordedontheNoteand/orbydepositstotheConstruction Account,andsuch recordsshall beconclusive evidence ofalladvances made under theNote.  Borrower shallprepare anddeliver payment from theConstruction Account totheContractor or suchotherappropriatesubcontractors orvendorsassetforthin theRequestforFunds. Borroweracknowledges andstipulatesthatonlychecksforpaymentofapprovedcostsof the Construction  Project and costs incidental thereto and approved  byLender in the ProjectBudgetmaybedrawnagainsttheConstruction Account.

9.7      Termination   of  Advances.     At  the  option  of  Lender,  Loan advancesshallnotbemade undertheNote unless(i)thisAgreement, theNoteandthe otherLoanDocuments areinfullforceandeffect,and(ii)anEventofDefaultdoesnot existunderthetermsofthisAgreement,theNoteoranyoftheotherLoanDocuments.

9.8      Conditions for Benefit of Lender; No Liability to Third Parties. Anyandallconditions withinthisAgreement totheobligations ofLendertoadvancethe proceedsoftheLoantoBorrowerareimposedsolelyandexclusively forLenderbenefit. Nootherpersonshallhaveanystandingtorequirethatsuchconditions besatisfiednorbe entitled to draw any conclusions or assumptions therefrom.   Such conditions may be waived, in whole or inpart, byLender atany time, inLender'ssole discretion, and Lendershallbeundernoobligationtorequirestrictcompliance therewith.   Lendershall notbeliableorresponsible toanypersonotherthanBorrowerforthedisbursement ofor failuretodisbursetheLoanproceeds.  NeithertheContractornor theArchitect,any subcontractor, materialman orsupplierontheConstruction Projectshallhaveanyrightor claimagainstLenderunderthisLoanAgreementortheadministration thereof.

10.      EVENTSOFDEFAULT.   Ifanyofthefollowingevents(hereinsocalled "EventsofDefault")shalloccurandbecontinuing foranyreasonwhatsoever(andwhethersuch occurrenceshallbevoluntaryorinvoluntaryorcomeaboutorbeaffected  byoperationoflawor 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 orother notice ofany kind, all of which are herebyexpresslywaivedbyBorrower:

I0.1    Nonpayment  of Note.    Default  in payment when due of any interestonorprincipaloranyothersumpayableunderthe Note,orany amendment, modification orrestatement thereof; provided however, priortodeclaring default under thisparagraph10.1,LendershallgiveBorrowerfive(5)days' priorwrittennoticeofthe paymentdefault, unlessone(1)paymentdefault noticehasbeenprovided byLenderto

1\CdfsO1\Home\Allenz\Kirkpatrick\Paycom\2015Building  3\Loan Documents\KirkpatrickBank·Paycom-LoanAgreement-7.Docx

Exhibit 10.3

Borrowerduringtheprevioustwelve(12)months,inwhicheventnopriornoticeelection todeclareadefaultisnecessary.

10.2    BreachofCovenants.   DefaultbyBorrower intheperformance  or observance of any covenant contained  in this Agreement  or any of the other Loan Documents,anyotherinstrumentdeliveredtoLenderinconnection withthisAgreement, including, without limitation, the falsity or breach of any representation, warranty or covenant,andsuchdefaultorbreachshallnothavebeencuredorremediedwithintwenty (20)daysfollowing receipt byBorrower ofwritten notice thereof from Lender, unless suchcureorremedy cannot reasonably becompleted withintheapplicable 20-daycure perioddescribed above, inwhicheventBorrower shallcommence suchcureorremedy withintheapplicable 20-daycureperioddescribed aboveandproceed withalldiligence tocomplete suchcureorremedy(provided thatsuchgraceperiodsshallnotbedeemed applicableeithertothepaymentprovisionsofthisAgreementorthedefaultprovisionsof subsection(a)above)inanyeventwithinsixty(60)daysfromtheinitialreceiptofwritten noticefromLender.

10.3    DefaultUnderFundedDebtLimitationsorFixedChargeCoverage Ratio.  AnyfailureofBorrowerto complywiththefundeddebtlimitationssetforthin paragraph8.11 ofthisAgreement orwiththeFixedChargeCoverage Ratiodescribed in paragraph 8.12 of  this Agreement, and such default goes uncured after receiptof the noticefromLenderinparagraph8.12.

10.4Bankruptcy.   The institution ofbankruptcy, reorganization, liqui­

dationorreceivership proceedingsbyoragainstBorrowerorGuarantor.

10.5    Governmental Requirements.   Theissuanceofanyorder,decreeor judgment pursuant toanyjudicial oradministrative proceeding declaring thatallorany partoftheMortgagedPropertyisinviolationofanylaw,ordinance, ruleorregulationof anyagency,department,commission, board,bureauorinstrumentality ofthemunicipality orcountyinwhichtheMortgagedPropertyislocated.

10.6    Representation.    Any representation,  warranty, statement, certif­ icate,schedule orreportmadeorfurnished toLenderbyBorrower provestobefalseor erroneousinanymaterialrespectatthetimeofthemakingthereof.

10.7    EventofDefaultUnderOther LoanDocuments.   Theoccurrence ofanyEventofDefault(orcontinuanceofsuchEventofDefaultaftertheapplicablecure period, if any) under the Note, the Mortgage,  the Second  Mortgage,  the Existing Mortgages the Assignment, the Subordination  Agreements or any of the other Loan Documents.

10.8    InterestAfterDefault.  Allpastdueobligations orindebtednessof BorrowertoLenderhereunder,whetherprincipal,costsorexpenses, shallbearinterestat avariablerateequalfromdaytodaytotheDefaultRateasdefinedintheNote.

11.      REMEDIES.   If  anyone 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 anyof  the rights with respect thereto contained inthis AgreementoranyotherLoanDocument, ormayproceedtoenforce paymentofallindebtedness due hereunder or enforce any other legal or equitable rights or exercise any other legal or equitableremedies,orcureorremedyanydefault byBorrowerforthepurposeofpreservingthe Mortgaged  Property.    All  rights,  remedies  and  powers  conferred  upon  Lender  shall  be

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Exhibit 10.3

cumulative andnotexclusive ofanyother rights, remedies orpowers available.  Nodelay in exercisingorfailuretoexercise anyright,remedyorpowershallimpairanysuchright,remedy orpowerorshallbeconstrued tobeawaiverofanyEventofDefaultoranacquiescence therein. Any such right, remedy or power may by exercised  from time to time,  independently or concurrently, andasoften asshall bedeemed expedient.  Nowaiver ofanyEvent ofDefault shall extend to  anysubsequent Event of Default.  Nosingle or partial exercise ofany right, remedyorpowershallprecludeotherorfurtherexercise  thereof.  Borrower covenants thatifan Event of Default  shall  happen  and be continuing  it will pay all court  costs and other out-of-pocketexpenses paidorincurredbyLenderincollectingtheamounts duepursuanttothis Agreement, theNote, theMortgage, the  Second Mortgage, anyother Loan Document orany otherdocumentevidencing orsecuringtheLoanorotherwise executed inconnection herewith, includingattorneys' fees,togetherwithinterestonallamountssoexpended fromtherespective datesofeachexpenditureattheDefaultRate(asdefinedintheNote).

12.GENERAL  PROVISIONS.  LenderandBorroweragreeasfollows:

12.1    Expenses.   Borrower agreestopayallfees,expenses andcharges inrespecttotheLoancontemplated bythis Agreement, including, without limiting the generalitythereof,thefollowing:

12.1.1 reasonable  fees and expenses  of counsel  employed  by Lender inconnection withclosingoradministration oftheLoanandallfeesand 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 statutorypresumptions;

12.1.2 titleinsurancepremiumsandallexpenses incidentaltotitle insuranceandtitleevidence;

12.1.3 recordingandfilingfeesrequiredbyapplicable law;

12.1.4 all fees and expenses of the Mortgagee identified in  the

Mortgage,andanysuccessortotheMortgagee;

12.1.5 fees and expenses  of any appraisers  who appraise  the

MortgagedPropertyforLender;and

12.1.6 otherreasonable feesandexpenses involved intheclosing ofthisloanandthereasonablefeesandexpensespayableby Lenderwhichare incidental totheenforcement ordefense ofthis Agreement oranyoftheother LoanDocuments.

12.2    Notices.   Any notices orother communicationsrequired or per­ mitted hereunder shall be in writing and sufficiently delivered  and received for all purposeswhendelivered inpersonordeposited intheUnitedStatesmail,byregisteredor certifiedmail,postage prepaid,returnreceipt requestedandaddressed aslistedbelowor tosuchotheraddressasthepartyconcerned maysubstitutebywrittennoticetotheother. Allnoticesshallbedeemed received ontheearlierofactual receiptorwithinthree(3) days(excluding Saturdays,Sundaysandholidaysrecognized by Oklahoma  banking corporationsheadquartered inOklahomaCity,Oklahoma)afterbeingmailed.

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Exhibit 10.3

ToBorrower:Paycom Payroll, LLC

7501 WestMemorialRoad

OklahomaCity,Oklahoma73142

Attn:Mr.Chad Richison

Withcopyto:Cheek &Falcone,PLLC

6301 Waterford Boulevard

Suite 320

OklahomaCity,Oklahoma73118

Attn:Mr.John P.Falcone

ToLender:KirkpatrickBank

5801 N.Broadway Extension,Suite 101

OklahomaCity,Oklahoma73118

Attn: Mr.David  L.Sutter, ExecutiveVicePresident

Withcopyto:Crowe &Dunlevy, PC

324N.RobinsonAvenue,Suite 100

OklahomaCity,Oklahoma  73102

Attn:KariHoffuines

12.3    AmendmentandWaiver.   ThisAgreementmaynotbeamended or modified inanyway,except byaninstrumentinwriting executed  bybothparties hereto; provided,however,Lender may, inwriting:   (i)extend the  time for performanceofany ofthe obligationsof Borrower;(ii) waive any Event of Default  byBorrower;and (iii) waive thesatisfactionofany  conditionthat isprecedenttothe performanceofLender'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,butnosuch waiver shall extend toanysubsequentorother Event ofDefault orimpair anyconsequenceofsuchsubsequentorotherEvent ofDefault.

12.4    Non-Waiver; Cumulative Remedies.  No failure  on the part of Lender to exerciseand no delay in exercisingany right hereundershall operate  as a waiver thereof,norshall anysingle orpartial exercise byLender ofany right hereunder preclude anyother orfurther rightofexercisethereof.   Theremediesherein provided are cumulativeandnotalternative.

12.5    Assignment.   Neither this  Agreement, nor  the  loan  proceeds hereunder,shall beassignablebyBorrowerwithout thepriorwritten consent ofLender.

12.6    FinancingPublicity.  Lender shall bepermitted toobtain publicity inconnectionwith the financingofthe MortgagedProperty through press releases and anyspecial events relating totheMortgagedProperty.   BorrowerwillgiveLender ample advance notice of such events and will give Lender as much assistanceas possible  in connectionwith obtainingsuch publicity as  Lender desires.  Lender'spublicity shall be subject tothereasonableapproval ofBorrower,which approval shall notbeunreasonably withheld ordelayed.

12.7    NoPartnership. NothinginthisAgreement shallbeconstruedto constituteLender asjoint venturer with Borrower,ortoconstituteapartnershipbetween theparties.

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Exhibit 10.3

12.8    Descriptive Headings.  Thedescriptive headingsoftheparagraphs ofthisAgreement areforconvenience onlyandshallnotbeusedintheconstruction of thetermshereof.

12.9    IntegratedAgreement.   ThisAgreement andtheLoanDocuments signedand/ordeliveredpursuanttothisAgreementorany oftheotherLoanDocuments supercedeandreplacetheLoanCommitment signed byLenderandBorrower, andthey collectivelyconstitute theentireagreement between LenderandBorrower, andthereare no  agreements,  understandings,   warranties  or  representations   between  the  parties regardingthefinancingoftheMortgagedPropertyotherthanthosesetforthherein.

12.10  TimeofEssence.  TimeisoftheessenceofthisAgreement.

12.11  Binding Effect.  ThisAgreement shall bebinding uponandinure tothe benefit of Lender and Borrower and  their respective successors, legal representativesandassigns.

12.12  Third-Party Beneficiary.   Nothing inthis Agreement, express or implied,isintendedtoconferuponanyperson,otherthanLenderandBorrowerandtheir respective successors and assigns, any rights or remedies under or by reason of this Agreement.

12.13  RighttoDefend.  Lendershallhavetheright,butnottheobliga­ tion, at Borrower'sexpense, to commence,  to appear in or to defend any action or proceeding(initiated byathirdpartyagainstBorrower) purporting toaffecttherightsor dutiesofthe parties hereunder and inconnection therewith payoutofproceeds ofthe Loanallnecessaryexpenses, includingfeesofcounsel,ifBorrowerfailstosocommence, appearinordefendanysuchactionorproceedingwithcounselsatisfactory toLender.

12.14  LoanParticipation Agreement.   Notwithstandinganylanguage in this Agreement or any ofthe Loan Documents, Lender'sobligation to  fund theLoan pursuant totheterms ofthisAgreement andtheLoanDocuments isconditioned upon Lender(i)securing participant lenders(acceptable toLender) toparticipate intheLoan and  (ii)  the  execution   by  Lender  and  such  participants   of  certain  Participation Agreements,informandsubstanceacceptabletoLender.  BorrowerauthorizesLenderto disclose toany Purchaser orsuch participants orany  individual orentity acquiring an interest in the Loan Documents  byoperation of law (each a "Transferee"),and any prospectiveTransferee, anyandallinformation insuchLender'spossession concerning the creditworthinessoftheBorrowerandallrelevantinformationrelatingtotheLoan Documents andtheextensions ofcreditevidenced andsecured thereby.  Closingofthe LoanwillevidencethatLenderhasloanparticipantsacceptabletoLender.

12.15  Indemnity.     Borrower  hereby  agrees  to  indemnify  and  hold harmless Lenderand participants andeach oftheir respective directors, officers,agents andemployees (collectively, the"Indemnitees")fromandagainst, andagreestodefend theIndemnitees, bycounselsatisfactorytothelndemnitees, against:

(a)       allclaims, demands andcauses ofaction asserted against anyIndemnitee byanypersonorentity("Person") iftheclaim, demandorcause ofactiondirectlyorindirectlyrelatesto(i)aclaim,demandorcauseofactionthat thePersonhasorassertsagainsttheBorrower inconnection withtheMortgaged Property, except those arising out of  the acts or omissions of Lender; (ii) the paymentofanycommission, chargeorbrokeragefeeincurred inconnectionwith

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Exhibit 10.3

any of the Loan Documents; (iii) any act or omiSSIOn by the Borrower, any contractor, subcontractor  or material supplier, or other Person (except to the extentcausedbythegrossnegligenceorwillfulmisconduct ofLender,itsagents, servants  and  employees)  with  respect  to the Mortgaged  Property;  (iv) the ownership,occupancyoruseoftheMortgagedProperty;and

(b)      allliabilities, lossesandother costs (including courtcosts and reasonable attorneys' fees) incurred byany Indemnitee as a result of any claim,demandorcauseofactiondescribedinsubparagraph (a).

lndemnitees' rights hereunder shall not be directly or indirectly limited, prejudiced, impairedoreliminated inanywaybyanyfindingorallegation thatLender'sconduct is active,passiveorsubjecttoanyotherclassification orthatsuchIndemnitee isdirectlyor indirectly responsible  under any theory of any kind for any act or omission  by the BorroweroranyotherPersonotherthanLender,its agents,servantsoremployees. BORROWER ACKNOWLEDGES AND AGREES THAT  ITS INDEMNIFICATION OBLIGATIONS HEREUNDER COVER AND RELATE TO,WITHOUTLIMITATION,ANYNEGLIGENTACTIONOROMISSIONOF INDEMNITIES;PROVIDED, NOTWITHSTANDINGTHE FOREGOING, BORROWERSHALLNOTBEOBLIGATEDTOINDEMNIFYINDEMNITEES WITH RESPECTTOANYINTENTIONALTORTORACTOFGROSS NEGLIGENCEORWILLFULMISCONDUCTWHICHSUCHINDEMNITYIS PERSONALLYDETERMINEDBYTHEJUDGMENTOF ACOURTOF COMPETENT JURISDICTION(SUSTAINEDONAPPEAL,IFANY)TOHAVE COMMITTED.   Borrower's obligations underthisparagraph12.15shallsurvivethe repaymentoftheLoanandthereleaseoftheMortgageandtheotherLoanDocuments.

12.16  Survival of Representationsand Warranties.   All representations and warranties of Borrower in this Agreement and the other Loan Documents shall survivetheexecution anddeliveryofthisAgreementandtheNote,arematerial,andhave beenor will be  relied on byLender notwithstanding any investigation made byor  on behalfofLender.    Allsuchrepresentations andwarranties ofBorrower shallbedeemed toberemadeasofthedateofeachdisbursement oftheproceedsoftheLoan.

12.17  NoWaiver;Consents.   EachwaiverbyLendermustbeinwriting, andnowaivermaybe construedasacontinuing waiver.  Nowaiverwillbeimpliedfrom Lender's  delay in exercising  or failure to exercise any right or remedy against the Borroweroranysecurity.  Lender'sconsenttoanyactoromission bytheBorrowermay notbe construedasaconsenttoanyotherorsubsequentactoromission orasawaiverof therequirement forLender's consenttobeobtained inanyfutureorotherinstance.  All Lender's rightsandremediesarecumulative.

12.18Counterparts.   ThisAgreementmaybe executed inmultiple 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 physicallyformonedocument.

12.19  Incorporation of Exhibits.   All Exhibits and Schedules identified inthisAgreement asexhibits toorschedules tothisAgreement areherebyincorporated intothisAgreementandmadeintegralpartsofit.

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Exhibit 10.3

12.20 GovernmentRegulations. The Borrowerrepresents,warrantsand covenants toLenderasfollows, andacknowledges thatsuch representations,warranties and covenants  shall  be continuing  representations,  warranties  and  covenants  from BorrowertoLender:

(i)       The Borrower isandshall remain incompliance with the TradingwiththeEnemyAct,asamended,andeachof theforeignassetscontrol regulations  of the United States  Treasury  Department  (31 CFR, Subtitle  B, Chapter  V, as amended)  and any other enabling  legislation,  regulations  or executiveordersrelatingthereto,and theUnitingandStrengtheningAmericaBy Providing Appropriate Tools Required ToIntercept andObstruct Terrorism Act (USA Patriot Act of 2001), as amended, and any other enabling  legislation, regulationsorexecutiveordersrelatingthereto;

(ii)The Borrower isand shall remain incompliance with 31

U.S.C.,Section 5313,asamended, 31CFRSection103.22, asamended,andany

similar lawsorregulations involving currency transaction reports ordisclosures

relatingtotransactions incurrencyofmorethan$10,000.00,orofmorethanany

otherminimumamountspecifiedbyanylawsorregulations; and

(iii)     Borrower (A) isnotapartywhose property or  interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224of September 23, 2001 Blocking Property and  Prohibiting Transactions  With Persons  Who Commit,  Threaten  to Commit,  or Support Terrorism(66Fed.Reg.49079(2001)),(B)doesnotengagein anydealingsor transactions prohibitedbySection2ofsuchexecutiveorder,andarenototherwise associated withanysuchpersoninanymannerviolativeofSection2,or(C)isnot aperson on the listofSpecially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions  under any other U.S. Department of Treasury'sOfficeofForeignAssetsControlregulationorexecutiveorder.

The  Borrower covenants and agrees with Lenderthat nopart ofany loan proceedsor advancesevidenced byorreferencedinthisAgreement, andnopartofanyotheramounts orsums derived from anyproperty which secures repayment ofsuch loan proceeds or advances, including, without limitation anyaccounts, paymentintangibles, money,rents, issues  or  profits,  will  be  used,  directly  or  indirectly,  for  any  payments  to  any governmental official oremployee, political party,officialofapolitical party,candidate forpoliticaloffice,oranyoneelseacting inanofficialcapacity,inordertoobtain, retain ordirect business orobtain anyimproper advantage, inviolation of the United States ForeignCorruptPracticesActof1977,asamended.

12.21 Applicable   Law.        THIS  AGREEMENT  AND  THE DOCUMENTS ISSUED AND EXECUTED HEREUNDER SHALL BEDEEMED TO BEACONTRACT MADE UNDER THE LAWSOFTHE STATE OFOKLAHOMA AND SHALL BE CONSTRUED  IN ACCORDANCE  WITH THE LAWS OF THE STATE OF  OKLAHOMA,EXCEPT, AND WITHOUT GIVING EFFECT TO CONFLICTOFLAWSPRINCIPLES ANDEXCEPTTOTHEEXTENTPREEMPTED BYTHELAWSOFTHEUNITEDSTATESOFAMERICA.

12.22 Consent    to    Jurisdiction.           BORROWER    HEREBY IRREVOCABLYSUBMITSTOTHENON-EXCLUSIVE JURISDICTION OFANY UNITEDSTATES FEDERAL COURT OROKLAHOMA STATE COURT HAVING THE  MORTGAGED  PROPERTY  WITHIN  ITS JUDICIAL  DISTRICT,  IN ANY

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Exhibit 10.3

ACTIONORPROCEEDING ARISINGOUTOFORRELATINGTO THELOAN DOCUMENTS ANDANYOTHERDOCUMENTS EVIDENCING,SECURING OR RELATINGTOTHELOAN,ANDBORROWER HEREBY IRREVOCABLY AGREES THATALLCLAIMS INRESPECT OFSUCHACTIONORPROCEEDING MAYBE HEARD  AND  DETERMINED   IN ANY  SUCH  COURT  AND  IRREVOCABLY WAlVES ANY OBJECTION ANY OFTHEM MAY NOW OR HEREAFTER HAVE ASTOTHEVENUEOFANYSUCHSUIT,ACTIONORPROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT  FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF  LENDER TO  BRING PROCEEDINGS AGAINSTBORROWER IN THECOURTSOFANYOTHER JURISDICTION.   ANYJUDICIAL  PROCEEDING BROUGHTBYBORROWER AGAINSTLENDERINVOLVING,DIRECTLYOR INDIRECTLY,ANYMATTERIN ANYWAYARISINGOUTOF,RELATEDTO,ORCONNECTEDWITHTHELOAN ORANYLOANDOCUMENTS SHALLBEBROUGHT ONLYIN ACOURTIN OKLAHOMA.

12.23Waiverof JuryTrial.  TOTHEEXTENTPERMITTEDBY APPLICABLE  LAW, BORROWER  AND LENDER HEREBY  WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING  INVOLVING,   DIRECTLY OR INDIRECTLY, ANYMATTER (WHETHER SOUNDING INTORT, CONTRACT OR OTHERWISE) INANY WAYARISINGOUTOF,RELATED TO,ORCONNECTED WITH THE LOAN, ANY LOAN DOCUMENT  OR  ANY RELATIONSHIP ESTABLISHEDTHEREUNDER.

[Signaturesappearonfollowingpages]

ScheduleofExhibits

"A"-DescriptionofRealProperty

"B"-MapofRealPropertywithExistingandProposedImprovements

"C"-ListofExistingMortgages

"D"-ProjectBudget

"E"-RequiredPerformanceBondsandPaymentBonds

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Exhibit 10.3

INWITNESSWHEREOF,LenderandBorrowerhavecausedthisAgreementtobeduly executedeffectiveasofthedayandyearfirstabovewritten.

3755390119443500"Lender": "Borrower":PAYCOMPAYROLL,L

aDelawarelimitedlia

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Exhibit 10.3

EXHIBIT"A"

DescriptionofRealProperty

Tract1:

AllofLotOne(1),BlockOne(1)andCommon AreaA,ofPaycom,anAddition totheCityof

OklahomaCity,OklahomaCounty,Oklahoma,accordingtotherecordedplatthereof.

Tract2:

AtractoflandbeingapartoftheSouthwest Quarter (SW/4) ofSection Eight (8),Township Thirteen (13)North, Range Four(4) Westofthe IndianMeridian, Oklahoma City, Oklahoma County,Oklahoma,beingmoreparticularlydescribedasfollows:

Commencing attheSoutheast (SE)CornerofsaidSouthwest Quarter(SW/4); THENCE North

00°15'38" West,alongandwiththeEastlineofsaidSouthwest Quarter (SW/4), adistance of

1,496.10 feettotheNortheast (NE) Corner ofPaycom recorded inBook PL68, Page95,said

pointbeingthePointofBeginning; THENCE South89°35'06" WestalongandwiththeNorth

lineofPaycom,adistance of667.91 feettotheNorthwest (NW)Corner  ofPaycom;THENCE

North00°01'27"West,alongandwiththeextended WestlineofPaycom,adistanceof1,155.56

feettotheNorthlineofSouthwest Quarter(SW/4); THENCE South89°52'18" East,alongand

withtheNorthlineofsaidSouthwest Quarter(SW/4),adistanceof663.15feettotheNortheast

(NE)CornerofsaidSouthwest Quarter(SW/4);THENCESouth00°15'38"East,alongandwith the East line of said Southwest Quarter (SW/4), adistance of 1,149.24 feet to the Point of Beginning.

Tract3:

Atractofland beingapartoftheSouthwest Quarter (SW/4) ofSection Eight(8),Township Thirteen (13)North, RangeFour(4) WestoftheIndianMeridian, Oklahoma City,Oklahoma County,Oklahoma,beingmoreparticularlydescribedasfollows:

CommencingattheSoutheast(SE)CornerofsaidSouthwestQuarter(SW/4);

THENCENorth00°15'38" West(North00°15'26"Westrecord),alongandwiththeEastlineof saidSouthwest Quarter (SW/4), adistance of575.51 feet(575.66 feetrecord)  totheSoutheast (SE)CornerofPaycomrecordedinBookPL68,Page95;

THENCENorth88°41'40" West(North88°42'11" Westrecord),alongandwiththeSouth line ofsaidPaycomandtheNorthlineofatractoflandownedbytheOklahoma Turnpike  Authority recordedinBook7536,Page339,adistanceof671.88feettotheSouthwest(SW)Cornerofsaid Paycom,saidpointbeingthePOINTOFBEGINNING;

THENCEcontinuing North88°41'40" West(North88°42'11"Westrecord)alongandwiththe NorthlineofatractoflandownedbytheOklahomaTurnpikeAuthority recordedinBook7536, Page339,adistanceof29.87feet;

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Exhibit 10.3

THENCENorth86°46'27" West(North86°48'46"Westrecord),continuing alongandwiththe NorthlineofatractoflandownedbytheOklahoma TurnpikeAuthority recordedinBook7536, Page339,adistanceof360.72feet;

THENCENorth00°01'27" West,departingsaidNorthline,adistanceof2,035.89feettoapoint ontheNorthlineofsaidSouthwest Quarter(SW/4);

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

(SW/4),adistanceof390.00feettoanextended WestlineofPaycom;

THENCESouth00°01'27" East,alongandwiththeextended WestlineofPaycom,adistanceof

2,055.99feettothePOINTOFBEGINNING.

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Exhibit 10.3

EXHIBIT"B"

MapofRealPropertywithExistingandProposedImprovements

0w

1$Ct-'1ST::tt r

C:'

'

"

u;

8

"

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Exhibit 10.3

EXHIBIT"C"

ExistingMortgages

1. Consolidated,  Amended  and  Restated  Mortgage  (With  Power  of  Sale),  Security AgreementandFinancingStatement, datedDecember 15,2011,signed byBorrowerfor thebenefitofLenderandrecordedinBookRE11805,Page1581intherealestaterecords oftheCountyClerkforOklahoma County,Oklahoma, asamended bythatcertain First Amendment toConsolidated, Amended andRestated Mortgage (With PowerofSale), SecurityAgreement andFinancing Statement, datedJune17,2014,signed byBorrower forthebenefitofLenderandrecordedonJune19,2014inBookRE12563, Page631in therealestaterecordsoftheCountyClerkforOklahomaCounty,Oklahoma.

2.  Construction  Mortgage  (With  Power  of Sale),  Security  Agreement  and Financing Statement,datedMarch28,2013,andrecordedinBookRE12202, Page1089inthereal estaterecordsoftheCountyClerkforOklahoma County,Oklahoma, asamended bythe First AmendmenttoMortgage(WithPowerofSale),SecurityAgreementandFinancing StatementandAssignmentof Leases,RentsandProfits,datedDecember31,2013,and recordedinBookRE12449, Page230intherealestaterecordsoftheCountyClerkfor OklahomaCounty,Oklahoma,  asfurtheramended bythatcertainSecond Amendmentto Construction  Mortgage  (With  Power  of Sale),  Security  Agreement  and  Financing Statement and Assignment  of Leases, Rents and Profits, dated June 17, 2014 and recordedonJune19,2014 inBookRE12563, Page636intherealestate recordsofthe CountyClerkofOklahomaCounty,Oklahoma.

3.  Second Mortgage (With Power ofSale), Security Agreement and Financing Statement, dated March 28, 2013, signed byBorrower for  the benefit of Lender and recorded in BookRE12202, Page I135intherealestate recordsoftheCounty ClerkforOklahoma County, Oklahoma, asamended bythat certain First Amendment toSecond Mortgage (WithPowerofSale),SecurityAgreementandFinancingStatement, datedJune17,2014, recordedonJune19,2014,inBookRE12563, Page642intherealestaterecordsofthe CountyClerkofOklahomaCounty,Oklahoma.

4.  Mortgage,datedNovember 1,2013,andrecordedinBookRE12399, Page295inthereal estaterecordsoftheCountyClerkforOklahoma County,Oklahoma, asamended bythe First Amendment  to Mortgage,  dated  December  31, 2013,  and  recorded  in Book RE12449,Page235intherealestaterecordsoftheCountyClerkforOklahomaCounty, Oklahoma, asfurther amended bythat certain Second Amendment toMortgage, dated June17,2014,recordedonJune19,2014inBookRE12563, Page647intherealestate recordsoftheCountyClerkofOklahomaCounty,Oklahoma.

5.  Construction  Mortgage  (With  Power  of Sale),  Security  Agreement  and Financing Statement, dated March 23,2011 and recorded on March 34,2011 inBookRE11596, Page580intherealestaterecordsoftheCountyClerkofOklahomaCounty,Oklahoma.

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

Statement, dated May7,2010 and recorded onMay10,2010 inBook RE11362, Page

174intherealestaterecordsoftheCountyClerkofOklahomaCounty,Oklahoma.

1\CdfsOI \Home\AIIenz\Kirkpatrick\Paycom\2015Building 3\Loan Documents\KirkpatrickBank-Paycom-LoanAgreement-7.Docx

Exhibit 10.3

7.  Mortgage, dated December  21, 2012 and recorded on December 27, 2012 in Book RE12120,Page1496intherealestaterecordsoftheCountyClerkofOklahomaCounty, Oklahoma.

1\CdfsOI \Home\AIIenz\Kirkpatrick\Paycom\2015Building 3\Loan Documents\KirkpatrickBank-Paycom-LoanAgreement-7.Docx

Exhibit 10.3

EXHIBIT"D"

ProjectBudget

[Tobeprovidedpostclosing.]

\\CdfsO1\Home\Allenz\Kirkpatrick\Paycom\2015Building  3\Loan Documents\KirkpatrickBank-Paycom-LoanA6>reement-7.Docx

Exhibit 10.3

EXHIBIT"E"

RequiredPerformanceBondsandPaymentBonds

[Tobeprovidedpostclosing.]

1\CdfsO1\Home\Allenz\Kirkpauick\Paycom\20I5Building3\LoanDocuments\KirkpatrickBank·Paycom-LoanAweement-7.Docx

EX-31.1

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;

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

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

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

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

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

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

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

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

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

EX-31.2

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;

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

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

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

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

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

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

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

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

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

EX-32.1

Exhibit 32.1

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

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

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

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

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

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

XML

Income Taxes - Additional Information (Detail)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Income Tax Disclosure [Abstract]
Estimated effective income tax rate	43.02%	42.82%	42.24%	42.06%

XML

Employee Savings Plan, Employee Stock Purchase Plan and Annual Incentive Plan - Additional Information (Detail) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	May. 05, 2015	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Defined Contribution Plan Disclosure [Line Items]
401(k) eligibility minimum service period				90 days
401(k) description of plan contributions				Contribution equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of salary each plan year for our employees.
Employee vested percentage in salary deferrals and roll over contributions				100.00%
Minimum period for vesting 100% contributions				2 years
Minimum period for vesting of discretionary contributions				2 years
Matching contribution amount		$ 0.5	$ 0.4	$ 1.2	$ 0.9
Employee Stock Purchase Plan [Member]
Defined Contribution Plan Disclosure [Line Items]
Employees Company's common stock shares purchase limit percentage	10.00%
Purchase price of common stock expressed as a percentage of its fair market value	85.00%
Compensation expense related to ESPP		$ 0.1		$ 0.1
After Two Years Of Employment [Member]
Defined Contribution Plan Disclosure [Line Items]
Matching contributions, vesting percentage				100.00%
One Hundred Percent Match For Percent Of Participants Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer contribution percentage				100.00%
Percentage of salary deferrals				1.00%
50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer contribution percentage				50.00%
Minimum [Member]
Defined Contribution Plan Disclosure [Line Items]
401(k) eligible age of employee				21 years
Minimum [Member] | 50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals				2.00%
Maximum [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals				3.50%
Maximum [Member] | 50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals				6.00%

XML

Property and Equipment - Schedule of Property and Equipment and Associated Accumulated Depreciation and Amortization (Detail) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Property Plant And Equipment [Line Items]
Property and equipment, gross	$ 60,986	$ 56,015
Less: accumulated depreciation and amortization	(20,701)	(17,089)
Property and equipment, net	50,115	47,919
Buildings [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	28,154	28,154
Software and Capitalized Software Costs [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	10,736	8,671
Computer Equipment [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	9,275	7,638
Rental Clocks [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	7,460	6,596
Furniture, Fixtures and Equipment [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	4,641	4,361
Vehicles [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	421	421
Leasehold Improvements [Member]
Property Plant And Equipment [Line Items]
Property and equipment, gross	299	174
Excluded Land and Construction in Process [Member]
Property Plant And Equipment [Line Items]
Property and equipment, net	40,285	38,926
Land [Member]
Property Plant And Equipment [Line Items]
Property and equipment, net	8,993	$ 8,993
Construction in Process [Member]
Property Plant And Equipment [Line Items]
Property and equipment, net	$ 837

XML

Related-Party Transactions - Additional Information (Detail) - 417 Oakbend, LP [Member] - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Related Party Transaction [Line Items]
Payments for rent	$ 0.1	$ 0.1	$ 0.2	$ 0.1
Chief Sales Officer [Member]
Related Party Transaction [Line Items]
General partnership ownership interest in related party, percentage	0.01%		0.01%
Limited partnership interest in related party, percentage	10.49%		10.49%

XML

Funds Held for Clients and Client Funds Obligation

6 Months Ended

Jun. 30, 2015

Accounts Payable And Accrued Expenses [Abstract]

Funds Held for Clients and Client Funds Obligation

4. FUNDS HELD FOR CLIENTS AND CLIENT FUNDS OBLIGATION

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

XML

Funds Held for Clients and Client Funds Obligation - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2015
Accounts Payable And Accrued Expenses [Line Items]
Maximum holding period for funds collected from clients	120 days
Minimum [Member]
Accounts Payable And Accrued Expenses [Line Items]
Disbursement period of funds collected from clients	1 day
Maximum [Member]
Accounts Payable And Accrued Expenses [Line Items]
Disbursement period of funds collected from clients	30 days

XML

Goodwill and Intangible Assets, Net - Components of Intangible Assets (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Finite Lived Intangible Assets [Line Items]
Gross	$ 17,191	$ 17,191
Accumulated amortization	(12,901)	(12,095)
Net	$ 4,290	$ 5,096
Customer Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Weighted average remaining useful life	2 years	2 years 6 months
Gross	$ 13,997	$ 13,997
Accumulated amortization	(11,197)	(10,498)
Net	$ 2,800	$ 3,499
Trade Name [Member]
Finite Lived Intangible Assets [Line Items]
Weighted average remaining useful life	7 years	7 years 6 months
Gross	$ 3,194	$ 3,194
Accumulated amortization	(1,704)	(1,597)
Net	$ 1,490	$ 1,597

XML

Long-Term Debt - Schedule of Long-Term Debt (Detail) - USD ($) $ in Thousands		Jun. 30, 2015	Dec. 31, 2014
Schedule Of Capitalization Longterm Debt [Line Items]
Total long-term debt (including current portion)		$ 26,296	$ 26,978
Less: Current portion		(861)	(855)
Total long-term debt, net		25,435	26,123
2021 Consolidated Loan [Member]
Schedule Of Capitalization Longterm Debt [Line Items]
Term note to bank due May 30, 2021	[1]	26,296	26,978
Total long-term debt (including current portion)		$ 26,300	$ 27,000

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

XML

Long-Term Debt - Schedule of Long-Term Debt (Parenthetical) (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Schedule Of Capitalization Longterm Debt [Line Items]
Total long-term debt (including current portion)	$ 26,296	$ 26,978
2021 Consolidated Loan [Member]
Schedule Of Capitalization Longterm Debt [Line Items]
Debt instrument maturity date	May 30, 2021
Total long-term debt (including current portion)	$ 26,300	$ 27,000
Debt instrument, interest rate	4.75%

XML

Goodwill and Intangible Assets, Net

6 Months Ended

Jun. 30, 2015

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets, Net

3. GOODWILL AND INTANGIBLE ASSETS, NET

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

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

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

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

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

XML

Long-Term Debt - Additional Information (Detail)		6 Months Ended
	May. 13, 2015 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Debt Instrument [Line Items]
Total long-term debt, including current portion		$ 26,296,000	$ 26,978,000
Construction Loan [Member]
Debt Instrument [Line Items]
Loan, principal amount	$ 11,000,000
Construction loan, outstanding borrowings	$ 0
Construction loan, percentage of appraised value of constructed property	80.00%
Construction loan, maturity date description		The Construction Loan matures on the earlier of the completion of construction or November 13, 2016, with variable interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%.
Debt Instrument, floor interest rate	4.00%
Construction Loan [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Construction loan, maturity date description		At maturity, the outstanding principal balance of the Construction Loan will be automatically converted to a 78-month term loan.
Maturity period of term loan	78 months
Prime Rate | Construction Loan [Member]
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	0.50%
London Interbank Offered Rate L I B O R | Construction Loan [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	2.25%
2021 Consolidated Loan [Member]
Debt Instrument [Line Items]
Debt instrument, restrictive covenants		Maintaining a fixed charge coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions), as defined in the agreement, of greater than 1.2 to 1.0
Total long-term debt, including current portion		$ 26,300,000	$ 27,000,000
2021 Consolidated Loan [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt coverage ratio of indebtedness		1.2

XML

Subsequent Events - Additional Information (Detail) - Jul. 08, 2015 - Subsequent Event [Member] - Restricted Stock [Member] - USD ($) $ in Millions	Total
Subsequent Event [Line Items]
Shares issued	742,228
Vest 50% when Company reaches a total enterprise value of $2.65 billion [Member]
Subsequent Event [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 2,650
Vest 50% when Company reaches a total enterprise value of $3.5 billion [Member]
Subsequent Event [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 3,500
Minimum [Member]
Subsequent Event [Line Items]
Time-based restricted stock, vesting period	3 years
Maximum [Member]
Subsequent Event [Line Items]
Time-based restricted stock, vesting period	5 years

XML

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

XML

Organization and Description of Business

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Organization and Description of Business

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Description of Business

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

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

The Reorganization

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

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

Initial Public Offering

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

Follow-On Public Offering

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

Registered Block Trade Transaction

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

Basis of Presentation

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

Use of Estimates

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

Summary of Significant Accounting Policies

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

Recently Issued Accounting Pronouncements

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

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

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

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

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Earnings Per Share - Additional Information (Detail)	3 Months Ended
	Jun. 30, 2014 shares
Restricted Stock [Member]
Earnings Per Share Diluted [Line Items]
Anti-dilutive securities excluded from dilutive earning per share calculation	1,984,938

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Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Schedule of Long-Term Debt

Our long-term debt consisted of the following:

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

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

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Stockholders' Equity and Incentive Compensation - Additional Information (Detail) - USD ($)				6 Months Ended	12 Months Ended
	Mar. 02, 2015	Dec. 01, 2014	Dec. 31, 2013	Jun. 30, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reclassification adjustment recorded of deficit to additional paid in capital			$ 29,300,000
Cash proceeds from conversion of restricted stock				$ 0
Compensation expense recognized				200,000
Total unrecognized compensation cost related to unvested restricted stock				$ 400,000	$ 700,000
Unrecognized compensation expected to be recognized				2 years 3 months 18 days
Vest 50% upon reaching a total enterprise value of $1.4 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market-based vesting percentage, restricted shares		50.00%
Total enterprise value		$ 1,400,000,000
Vest 50% upon reaching a total enterprise value of $1.8 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 1,800,000,000
Software and Capitalized Software Costs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Capitalized compensation cost				$ 2,000	$ 4,000
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Conversion of units to shares			45,708,573
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Conversion of units to shares			8,121,101

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Organization and Description of Business - Additional Information (Detail) - USD ($)					6 Months Ended
	May. 20, 2015	Jan. 21, 2015	Apr. 21, 2014	Dec. 31, 2013	Jun. 30, 2015	Jun. 30, 2014
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Gross proceeds received from public offering						$ 62,196,000
IPO [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Common stock issued, shares			7,641,750
Offering price per share			$ 15.00
Proceeds from sale of shares received from selling stockholders			$ 0
Gross proceeds received from public offering			69,100,000
Proceeds from initial public offering, net of offering costs			$ 62,800,000
Public Offering [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Common stock issued, shares		6,422,750
Offering price per share		$ 22.50
Proceeds from sale of common stock under public offering		$ 0
Secondary Offering [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Common stock issued, shares	8,000,000
Offering price per share	$ 36.25
Proceeds from sale of common stock under public offering	$ 0
Paycom Software, Inc. [Member] | IPO [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Common stock issued, shares			4,606,882
Selling Shareholders [Member] | IPO [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Common stock sold by selling stockholders			3,034,868
Restricted Stock [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Conversion of units to shares				8,121,101
Series C Preferred Units [Member] | WCAS Capital Partners IV, L.P., [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Preferred units held, amount				$ 46,200,000
Common Stock [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Conversion of units to shares				45,708,573
14% Note due 2017 [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Debt instrument, interest rate				14.00%
14% Note due 2017 [Member] | WCAS Capital Partners IV, L.P., [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Notes payable, due date					Apr. 03, 2017
Notes payable, amount				$ 46,200,000
10% Senior Note due 2022 [Member] | WCAS Capital Partners IV, L.P., [Member] | IPO [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Debt instrument, interest rate			10.00%
Repayment for senior notes			$ 3,300,000

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Property and Equipment

6 Months Ended

Jun. 30, 2015

Property Plant And Equipment [Abstract]

Property and Equipment

2. PROPERTY AND EQUIPMENT

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

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

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

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

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification (“ASC”) Topic 350-40.  During the three and six months ended June 30, 2015, we capitalized $0.8 million and $1.6 million of computer software development costs related to software developed for internal use, respectively. During the three and six months ended June 30, 2014, we capitalized $0.4 million and $0.7 million of computer software development costs related to software developed for internal use, respectively.

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Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Statement Of Financial Position [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	57,050,684	53,832,782
Common stock, shares outstanding	57,050,684	53,832,782

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Income Taxes

6 Months Ended

Jun. 30, 2015

Income Tax Disclosure [Abstract]

Income Taxes

12. INCOME TAXES

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

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 03, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Trading Symbol	PAYC
Entity Registrant Name	Paycom Software, Inc.
Entity Central Index Key	0001590955
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		59,110,711

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Subsequent Events

6 Months Ended

Jun. 30, 2015

Subsequent Events [Abstract]

Subsequent Events

13. SUBSEQUENT EVENTS

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

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

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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Employee Savings Plan, Employee Stock Purchase Plan and Annual Incentive Plan

6 Months Ended

Jun. 30, 2015

Compensation Related Costs [Abstract]

Employee Savings Plan, Employee Stock Purchase Plan and Annual Incentive Plan

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

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

On May 5, 2015, our stockholders approved the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) and the Paycom Software, Inc. Annual Incentive Plan (the “Incentive Plan”).  The ESPP allows, at the beginning of each offering period, eligible employees to elect to contribute, through payroll deductions, up to 10% of their compensation to purchase shares of the Company’s common stock at a price of 85% of the fair market value of the shares on the exercise date.  Each offering period of the ESPP lasts six months.  The shares reserved for purposes of the ESPP are shares we will purchase in the open market.  Compensation expense is recognized on a straight-line basis over the requisite service period.  Our compensation expense related to the ESPP was $0.1 million for both the three and six months ended June 30, 2015.  The Incentive Plan provides for the payment of incentive compensation that is not subject to certain federal income tax deduction limitations.  Participation in the Incentive Plan is limited to certain of our employees designated by the Compensation Committee of the Board of Directors.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2015

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Income (Loss) Per Share

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

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

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Organization and Description of Business (Policies)

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Description of Business

Description of Business

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

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

The Reorganization

The Reorganization

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

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

Initial Public Offering

Initial Public Offering

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

Follow-On Public Offering

Follow-On Public Offering

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

Registered Block Trade Transaction

Registered Block Trade Transaction

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

Basis of Presentation

Basis of Presentation

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

Use of Estimates

Use of Estimates

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

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

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

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

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

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

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

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

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Related-Party Transactions

6 Months Ended

Jun. 30, 2015

Related Party Transactions [Abstract]

Related-Party Transactions

10. RELATED-PARTY TRANSACTIONS

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

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

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Earnings Per Share

6 Months Ended

Jun. 30, 2015

Earnings Per Share [Abstract]

Earnings Per Share

8. EARNINGS PER SHARE

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

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

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

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

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Stockholders' Equity and Incentive Compensation

6 Months Ended

Jun. 30, 2015

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stockholders' Equity and Incentive Compensation

9. STOCKHOLDERS’ EQUITY AND INCENTIVE COMPENSATION

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

The shares of restricted stock were issued subject to various vesting conditions. A portion of the restricted stock was subject to time-based vesting conditions, while a portion was subject to market-based vesting conditions. The market-based vesting conditions were based on our total enterprise value exceeding certain specified thresholds. Following these transactions, all outstanding Series C Preferred Units were eliminated in an intercompany transaction between Holdings and WCAS Holdings, and we assumed the 2017 Note. As a result of the 2014 Reorganization, we recorded a one-time reclassification of $29.3 million of accumulated deficit to additional paid in capital on January 1, 2014. Following the 2014 Reorganization, Software became a holding company with its principal assets being the Series B Preferred Units of Holdings and the outstanding capital stock of WCAS Holdings and CP IV Blocker.  

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

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

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

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

11. COMMITMENTS AND CONTINGENCIES

Employment Agreements

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

Funding Agreement

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

Legal Proceedings

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

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

Operating Leases and Deferred Rent

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

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

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Earnings Per Share - Computation of Basic and Diluted Net Income (Loss) Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Numerator:
Net income (loss)	$ 5,946	$ (593)	$ 11,941	$ 467
Denominator:
Weighted average common shares outstanding	50,315,455	50,284,362	50,315,455	48,015,577
Adjustment for weighted average vested restricted stock	6,722,566		5,584,851
Shares for calculating basic EPS	57,038,021	50,284,362	55,900,306	48,015,577
Dilutive effect of unvested restricted stock	1,331,062		1,569,612	2,315,425
Shares for calculating diluted EPS	58,369,083	50,284,362	57,469,918	50,331,002
Net income (loss) per share:
Basic	$ 0.10	$ (0.01)	$ 0.21	$ 0.01
Diluted	$ 0.10	$ (0.01)	$ 0.21	$ 0.01

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Goodwill and Intangible Assets, Net (Tables)

6 Months Ended

Jun. 30, 2015

Goodwill And Intangible Assets Disclosure [Abstract]

Components of Intangible Assets

The components of intangible assets were as follows:

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

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

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Property and Equipment - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Property Plant And Equipment [Line Items]
Depreciation and amortization	$ 1,400,000	$ 1,072,000	$ 2,723,000	$ 2,163,000
Interest cost paid	300,000	300,000	600,000	600,000
Interest costs capitalized	0	100,000	0	400,000
Computer software development costs capitalized	800,000	400,000	1,600,000	700,000
Property and Equipment [Member]
Property Plant And Equipment [Line Items]
Depreciation and amortization	$ 1,900,000	$ 1,300,000	$ 3,600,000	$ 2,600,000

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

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Long-Term Debt

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Long-Term Debt

5. LONG-TERM DEBT

Our long-term debt consisted of the following:

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

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

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

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

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

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Goodwill and Intangible Assets, Net - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill	$ 51,889,000		$ 51,889,000		$ 51,889,000
Goodwill, Impairment Loss			$ 0		$ 0
Weighted average remaining useful life			3 years 8 months 12 days
Amortization of intangible assets	$ 400,000	$ 400,000	$ 800,000	$ 800,000

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Commitments and Contingencies - Additional Information (Detail)		1 Months Ended	3 Months Ended		6 Months Ended
	Jun. 25, 2015 USD ($)	Mar. 31, 2010 USD ($) Job	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Other Commitments [Line Items]
Payments for legal settlements	$ 20,000
Logo change agreement period	60 days
Liability for deferred rent			$ 800,000		$ 800,000		$ 800,000
Operating lease rent expense			$ 1,100,000	$ 800,000	$ 2,200,000	$ 1,400,000
Minimum [Member]
Other Commitments [Line Items]
Operating lease expiration year					2015
Maximum [Member]
Other Commitments [Line Items]
Operating lease expiration year					2020
Oklahoma City Economic Development Trust [Member]
Other Commitments [Line Items]
Up-front job creation payment from Trust		$ 2,000,000
Term of agreement		5 years
Oklahoma City Economic Development Trust [Member] | Minimum [Member]
Other Commitments [Line Items]
Number of jobs created within a 5 year period | Job		492
Average first year wage		$ 37,000
Capital investment in the project		$ 15,000,000

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2015

Property Plant And Equipment [Abstract]

Schedule of Property and Equipment and Associated Accumulated Depreciation and Amortization

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

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