Item 1.01
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Entry into a Material Definitive Agreement.
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New Credit Agreement
On December 7, 2017 (the
Effective Date
), Paycom Software, Inc. (the
Company
) entered
into a senior secured term credit agreement (the
New Credit Agreement
) among Paycom Payroll, LLC (the
Borrower
), the Company and certain subsidiaries of the Company as guarantors of the obligations
under the loan documents related to the New Credit Agreement (collectively, the
Guarantors
, and together with the Borrower and any other person who becomes party to the New Credit Agreement, the
Loan
Parties
), JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank as lenders (collectively, the
Lenders
), and JPMorgan Chase Bank, N.A. as the administrative agent.
Under the New Credit Agreement, the Lenders have agreed to make certain term loans to the Borrower (the
Term Loans
)
in an aggregate principal amount of $60.0 million on or prior to September 7, 2018. Concurrently with the execution of the New Credit Agreement, the Company terminated three credit agreements under which the principal and accrued interest
outstanding, together with remaining borrowing capacity, was approximately $57.6 million in the aggregate as of the Effective Date. After giving effect to the Term Loans made on the Effective Date, there was $24.5 million of borrowing
capacity remaining under the New Credit Agreement.
The Term Loans mature on September 7, 2025. The Term Loans will bear interest, at
the Borrowers option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBO rate for the interest period in effect for such Term Loan plus 1.5%. The adjusted LIBO rate is equal to (i) the LIBO rate for the applicable
interest period multiplied by (ii) the statutory reserve rate (equal to (x) one divided by (y) one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established
by the Board of Governors of the Federal Reserve System of the United States).
Under the New Credit Agreement, the Loan Parties are
required to comply with certain financial and
non-financial
covenants, including maintaining a fixed charge coverage ratio of not less than 1.5 to 1.0 and a funded indebtedness to EBITDA ratio of not greater
than 2.0 to 1.0. Additionally, the New Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Loan Parties to, among other things, grant liens, incur debt, effect certain mergers, make
investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on their capital stock, and enter into transactions with affiliates, in each case subject
to customary exceptions for a credit agreement of this size and type.
The obligations of the Loan Parties under the Term Loans are
secured by a mortgage and first priority security interest (the
Mortgage
) in the Company headquarters property (the
Mortgaged Property
). The proceeds of the Term Loans made on the Effective Date
will be used to refinance existing indebtedness with Kirkpatrick Bank, and the proceeds of the Term Loans made after the Effective Date may be used to finance hard and soft costs relating to the completion of construction of a building on the
Mortgaged Property and any landscaping, groundwork, parking lots, and roads reasonably incidental thereto.
The events of default under
the New Credit Agreement include, among others, payment defaults, material misrepresentations, breaches of covenants, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, defaults under the Mortgage, judgment
defaults, change in control events and failures with respect to the guaranty under the New Credit Agreement. The occurrence of an event of default could result in the acceleration of the Borrowers obligations under the New Credit Agreement,
the termination of the Lenders commitments, a 2.0% increase in the rate of interest, and an obligation of the Guarantors to pay the full amount of the Borrowers obligations under the New Credit Agreement.
From time to time, the Lenders and certain of their affiliates have engaged in, and may in the
future engage in, investment banking and other commercial dealings in the ordinary course of business with the Company or the Companys affiliates. They have received, or may in the future receive, customary fees and commissions for these
transactions.
Item 1.02
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Termination of a Material Definitive Agreement.
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On the Effective Date, in connection
with its entry into the New Credit Agreement as disclosed in Item 1.01 of this Current Report on Form
8-K,
the Borrower terminated and prepaid all obligations outstanding under (i) the Consolidated,
Amended and Restated Loan Agreement with Kirkpatrick Bank dated December 15, 2011, as amended from time to time, (ii) the Loan Agreement with Kirkpatrick Bank dated May 13, 2015, as amended from time to time, and (iii) the Loan
Agreement with Kirkpatrick Bank dated August 2, 2016 (collectively, the
Existing Credit Agreements
), including applicable interest and prepayment penalties.
The terms and conditions of the Existing Credit Agreements are described in the Companys Annual Report on Form
10-K
filed on February 21, 2017, which disclosures are incorporated herein by reference.