8. Commitments and contingencies

Operating leases

The Company leases office space and various office equipment under cancelable and non-cancelable operating leases which expire on various dates through 2018. In general, leases relating to real estate include rent escalation clauses relating to increases in operating costs. Some leases also include renewal options of up to three years.

Operating lease expense is as follows:

	Year ended December 31,

	2013		2012		2011
Operating lease expense	$	1,509,465	$	1,515,189	$	1,396,122

Future minimum rental payments under non-cancelable operating leases are as follows:

Years ending December 31,

2014	$	1,475,095
2015		1,347,295
2016		1,266,001
2017		80,602
2018		5,489
Thereafter		—


Total minimum lease payments	$	4,174,482

Capital leases

The following is an analysis of the leased property under capital leases:

	December 31,

	2013			2012
Computer hardware	$	1,607,602		$	882,246
Computer software		258,306			—


Total capital leases, gross		1,865,908			882,246
Less: Accumulated depreciation		(662,082	)		(257,615	)


Total capital leases, net	$	1,203,826		$	624,631

Future minimum rental payments under capital leases are as follows:

Years ending December 31,

2014	$	509,083
2015		371,305
2016		123,179
2017		10,968
2018		3,620
Thereafter		—


Total minimum lease payments		1,018,155
Less: Amounts representing taxes, included in total minimum lease payments(*)		—


Net minimum lease payments		1,018,155
Less: Amounts representing interest payments		(68,559	)


Present value of net minimum lease payments	$	949,596

*: Tax amounts related to capital lease payments are inconsequential.

Acquiring bank sponsorship agreements

In order to offer merchant acquiring services for Visa and MasterCard transactions, the Company must be sponsored by a financial institution that is a principal member of the Visa and MasterCard networks.

The Company has entered into a new five year agreement with a sponsoring bank effective September 1, 2013, which replaces an existing sponsoring agreement. The Company is required to pay minimum annual sponsorship transaction fees, escalating each year, with total minimum fees of $1.8 million to be paid over the term of the agreement. Sponsorship fees are recorded to cost of sales with the total agreement minimum of $1.8 million recognized on a straight line basis over the term of the agreement.

Pursuant to the agreement, the Company is liable for all losses incurred by the sponsoring bank with respect to the activities of our merchants sponsored under the agreement. No contingent liability has been recorded as December 31, 2013 as the risk of material loss is considered remote based on historical information. The Company monitors this contingent liability on a quarterly basis and will provide for a reserve if deemed necessary.

The Company has two acquiring bank sponsoring agreements expiring at various dates through 2018. The future minimum payments under those agreements are as follows:

Years ending December 31,

2014	$	356,667
2015		316,667
2016		366,667
2017		416,667
2018		300,000
Thereafter		—


Total payments	$	1,756,668

Employment agreements

Pursuant to employment agreements with certain employees, the Company had a commitment to pay severance of approximately $2.0 million and $1.6 million as of December 31, 2013 and 2012, respectively, in the event of termination without cause, as defined in the agreements. Additionally, in the event of termination upon a change of control, as defined in the agreements, the Company had a commitment to pay severance of approximately$2.3 million and $1.9 million as of December 31, 2013 and 2012, respectively. For further information on the employment agreements activity subsequent to December 31, 2013, please refer to Note 18 Subsequent events.

Contingent liabilities

In instances where the Company is acting as the merchant acquirer, the Company bears a risk that a merchant may engage in fraud by submitting for payment certain credit card transactions that may have been manipulated, are fictitious, or are otherwise not bona fide. Similarly, the Company bears the risk that a merchant becomes insolvent, owing money to cardholders. To the extent that such fraud or insolvency occurs in circumstances where the Company is liable to make good any resultant losses, this could affect the Company's operating results and cash flows. The Company has required certain merchants to post cash reserves of approximately $0.2 million with the acquirer against such liabilities and has itself paid the acquirer a security deposit in connection therewith, as shown on the consolidated balance sheets. Under FASB ASC 460, Guarantees, the Company evaluates its ultimate risk and records an estimate of potential loss for chargebacks related to merchant fraud based upon an assessment of actual historical fraud rates compared to recent bank card processing volume levels. No contingent liability has been recorded as of December 31, 2013, as the risk of material loss is considered remote. The Company monitors this contingent liability on a quarterly basis and will provide for a reserve if deemed necessary.

Outstanding litigation

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company currently has no material legal proceedings pending against it.