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Commitments And Contingencies
9 Months Ended
Sep. 30, 2011
Commitments And Contingencies [Abstract] 
Commitments And Contingencies

8. Commitments and Contingencies

General

The Company is engaged in certain legal actions arising in the ordinary course of business. Although there can be no assurance as to the outcome of such litigation, the Company believes it has adequate legal defenses and it believes that the ultimate outcome of any of these actions will not have a material effect on the Company's consolidated financial position or results of operations. However, expenses associated with certain legal actions could result in increased operating expenses that may adversely impact the Company's future operating results and cashflows.

Revolving credit line

In early November of 2008, the Company entered into a revolving Credit Agreement with Wells Fargo Foothill and secured a revolving line of credit in the principal amount of up to $50 million. During the fourth quarter of fiscal 2008, the Company used $30 million of its cash along with $30 million of funds available through this Credit Facility to complete a $60 million common stock buyback. During the first quarter of 2010, the Company borrowed an additional $10 million of funds available through this Credit Facility to complete the acquisition of Xenos, which was completed on February 1, 2010. There are no minimum pay-down requirements under the terms of this Credit Facility so long as the Company remains in compliance with the terms of the Credit Agreement. Total costs associated with the facility, including legal and closing fees, amounted to approximately $1.1 million. Of these total costs, approximately $1 million was paid as of September 30, 2011. The remaining balance is comprised of a commitment fee totaling $125,000 that is due and payable on the third anniversary of the date of the Credit Agreement, which will be in November 2011 unless the agreement is terminated prior to that time. These costs are being capitalized and amortized over four years in the Company's Consolidated Balance Sheet as current assets if amortized within one year or non-current assets if amortized beyond one year. The Credit Agreement is for a period of four years and is scheduled to expire on November 3, 2012.

 

In May 2011 the Company paid down the outstanding balance on its revolving line of credit. The Company used $40 million in cash and short-term investments in order to pay down this outstanding debt. As of September 30, 2011, there was no balance owed on this Credit Facility and the balance available under the revolving Credit Facility was approximately $50 million. Interest is based on a floating rate plus an applicable margin based on the outstanding balance of the amount drawn under the Credit Agreement. The floating rate is determined at the Company's election and may either be (i) London Interbank Offered Rate ("LIBOR") or (ii) the greater of the Federal Funds Rate plus an applicable margin and the Prime Rate. If the Company's usage of the credit line exceeds 80% of its trailing four quarters of recurring maintenance revenue, or if the sum of available funds under the Credit Agreement plus available cash is less than $10 million, the Company is required to meet certain minimum income targets and be subject to a limit on annual capital expenditures. As of September 30, 2011, the Company was able to meet the 80% test as well as the $10 million minimum cash threshold and was therefore not subject to the income or the capital expenditures covenants. The Company was in compliance with these covenants at September 30, 2011. The Company is required to make interest payments on any outstanding balances and pay an unused commitment fee on any unused portion of the credit line on a monthly basis.

The following table represents costs related to our Credit Facility with Wells Fargo Financial ("WFF") (in thousands):

 

     Three Months Ended
September 30,		      Nine months Ended
September 30,		  
     2011      2010      2011      2010  

Interest expense

    $ —         $ 338       $ 441       $ 984   

Amortization of debt issuance costs

      72         72         216         215   

Unused line fees

      64         13         122         43   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 136       $ 423       $ 779       $ 1,242   
  

 

 

     

 

 

     

 

 

     

 

 

  

The Credit Agreement contains covenants, which, among other things, impose certain limitations with respect to lines of business, mergers, investments and acquisitions, additional indebtedness, distributions, guarantees, liens and encumbrances. In the event the Company does not meet the requirements specified above, a Triggering Event will be deemed to have occurred and the Company would be required to maintain the two financial covenants listed below:

 

  •  

achieve income before interest and taxes, measured on a quarter-end basis, of at least the required amount set forth per the Credit Agreement,

 

  •  

limit the amount of capital expenditures to an amount not exceeding that set forth per the Credit Agreement.

The Company's indebtedness under the Credit Agreement is secured by a lien on (i) substantially all of its assets and the assets of Actuate International Corporation and (ii) by a pledge of all of its stock and a portion of the stock of each of its subsidiaries.

Operating Lease Commitments

On September 1, 2007, the Company entered into a five year sublease agreement with a third party for approximately 83,000 square feet of office space in the Bridgepointe Campus in San Mateo, California. This lease is operating in nature, commenced on August 1, 2007 and ends on July 31, 2012. In addition, the lease provided for approximately nine months of free rent (rent holiday) and approximately $600,000 in landlord incentives applied by Actuate towards construction of improvements. As a result, the Company straight-lined its rent expense and recorded a deferred rent liability on its consolidated balance sheet. At September 30, 2011, the deferred rent liability balance totaled approximately $335,000 and this balance declines through 2012 when contractual cash payments exceed the straight-line lease expense. This total deferred rent liability balance was classified under the current accrued liabilities section of our consolidated balance sheet at September 30, 2011. The incentives were applied to leasehold improvements completed during the fourth quarter of fiscal 2007. Actuate also had been leasing an additional 50,400 square feet in one facility in South San Francisco, California. The lease on this facility expired in May 2011. This facility was entirely subleased through the end of its leased life. Actuate also leases smaller office facilities in various locations in the United States and abroad. All facilities are leased under operating leases. Total rent expense was approximately $862,000 and approximately $2.6 million in the third quarter and the first nine months of fiscal 2011, respectively, and approximately $853,000 and approximately $2.6 million in the third quarter and the first nine months of fiscal 2010, respectively.

Equity Incentive Plans

An individual who first joins the Board of Directors as a non-employee director is awarded an option to purchase 25,000 shares of the Company's Common Stock and a restricted stock unit award ("RSU") covering 12,500 shares of the Company's Common Stock. These options and RSUs each have a four year vesting period tied to continued Board service. Each option has an exercise price equal to the closing price of the Company's Common Stock on the day of the grant, and 25% will vest upon the non-employee directors' continued Board service through the first anniversary of the award date and on an equal, monthly basis over the next 3 years of service thereafter. The first 25% of each restricted stock unit award will vest 13 months following the award date and the remainder will vest in a series of three successive equal annual installments on each of the second, third and fourth anniversaries of the award date, provided that the non-employee director continues in Board service through each such vesting date. Each non-employee director receiving an initial 12,500-share RSU award is given the opportunity to elect to defer the receipt of the shares of Actuate Common Stock that vest and become issuable pursuant to the initial RSU award. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the initial RSU award will be issued upon his termination of Board service. In the absence of an effective deferral election, any shares of the Company's Common Stock in which the non-employee director vests under the initial RSU award will be issued as those shares vest.

Each continuing non-employee director is awarded an option to purchase 16,000 shares of the Company's Common Stock and a RSU award covering 8,000 shares of the Company's Common Stock at each annual stockholders meeting. Each option has an exercise price equal to the closing price of Actuate's Common Stock on the day of the grant, and will vest upon the non-employee director's continued Board service through the first anniversary of the award date. Each restricted stock unit award granted to a continuing non-employee director will vest upon the non-employee director's continued Board service through the first anniversary of the award date. Before the start of each calendar year, each of our non-employee directors is given the opportunity to elect to defer the receipt of any or all of the shares of Actuate Common Stock that vest and become issuable pursuant to the restricted stock unit award to be made to such non-employee director at the next annual stockholders meeting. If a non-employee director makes a timely deferral election, then the shares of Actuate Common Stock in which he or she vests under the RSU award will be issued upon his termination of Board service. In the absence of an effective deferral election, any shares of the Company's Common Stock in which the non-employee director vests under the RSU award will be issued as those shares vest.

Each restricted stock unit award and each option award granted to a new or continuing non-employee director will vest in full on an accelerated basis upon (i) an approved acquisition of the Company by merger or consolidation, (ii) a sale of all or substantially all of the Company's assets, (iii) the successful completion of a tender or exchange offer for securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities, or (iv) the death or disability of the optionee while serving as a member of the Board of Directors. Each restricted stock unit that vests will entitle the recipient to one share of the Company's common stock on the designated issuance date for that share. All grants are made under the 1998 Plan.

In connection with the Xenos acquisition, Actuate's Board of Directors duly authorized the issuance of stock options to eligible employees from the Company's 1998 Equity Incentive Plan. A total of 573,800 non-statutory stock options were issued in February of 2010 with the exercise price of $5.31. Each grant shall fully vest in four years with 25% cliff vesting at the end of year one and the remaining balance to vest in thirty-six successive monthly installments.

As an employee retention incentive, Actuate also invited Xenos employees who were holders of Xenos Options to exchange any Options that they did not exercise in connection with the Offer for options to purchase shares of common stock of Actuate on a tax-free rollover basis (an "Option Exchange"). The replacement options issued by Actuate would have the same intrinsic value as the options given up by Xenos. On February 1, 2010, 30,750 Xenos options were exchanged for 19,025 Actuate options with exercise prices ranging from $2.04 to $3.54. These options were fully vested and exercisable at the date of exchange.

All options are subject to the same vesting schedule (twenty-five percent of the option shares will vest on the one year anniversary of the option grant date and the remaining option shares will vest in thirty-six equal monthly installments over the thirty-six month period measured from the first anniversary of the option grant date, provided the optionee continues to provide services to the Company through each applicable vesting date) and all have ten year terms.

Shares issued as a result of the exercise of options under any of our plans would be fulfilled through shares currently in our existing pools. Total authorized but unissued shares were 28,920,669 as of September 30, 2011.

The weighted average grant date fair value of options granted during the quarter ended September 30, 2011 was $2.98 per option. Upon the exercise of options, the Company issues new common stock from its authorized shares. The total intrinsic value of options exercised during the quarter ended September 30, 2011 was $6.6 million.

 

All vested stock options are exercisable. The following table summarizes information about stock options outstanding and exercisable as of September 30, 2011:

 

     Options Outstanding      Options Exercisable  

Range of Exercise Prices

    Number of
Shares		      Weighted-
Average
Remaining
Contractual
Life		      Weighted-
Average
Exercise
Price		      Number of
Shares		      Weighted-
Average
Exercise
Price		  

$0.78-$1.49

      1,898,332         1.41 years       $ 1.49         1,898,332       $ 1.49   

$1.56-$2.99

      1,547,407         2.88 years       $ 2.63         1,544,258       $ 2.63   

$3.00-$3.59

      1,967,393         5.66 years       $ 3.55         1,522,272       $ 3.55   

$3.65-$4.65

      1,234,369         4.16 years       $ 4.10         997,210       $ 4.13   

$4.66-$5.10

      1,625,884         6.58 years       $ 4.81         858,592       $ 4.81   

$5.11-$5.43

      1,835,833         6.07 years       $ 5.16         1,487,219       $ 5.13   

$5.44-$6.08

      1,665,233         9.09 years       $ 5.50         74,996       $ 5.59   

$6.10-$8.39

      1,766,578         5.79 years       $ 6.29         1,619,801       $ 6.30   
  

 

 

           

 

 

     

$0.78-$8.39

      13,541,029         5.22 years       $ 4.17         10,002,680       $ 3.88   
  

 

 

           

 

 

     

 

     September 30,
2011		      September 30,
2010		  

Options Outstanding – Vested and Expected to Vest

      

Vested and expected to vest, net of expected forfeitures

      13,370,846         16,453,035   

Aggregate intrinsic value (in thousands)

    $ 19,565       $ 23,654   

Weighted average exercise price per share

    $ 4.16       $ 3.96   

Weighted average remaining contractual term (in years)

      5.17         5.32   

Options Exercisable

      

Options currently exercisable

      10,002,680         12,070,322   

Aggregate intrinsic value of currently exercisable options (in thousands)

    $ 17,701       $ 21,053   

Weighted average exercise price per share

    $ 3.88       $ 3.67   

Weighted average remaining contractual term (in years)

      4.10         4.22   

As of September 30, 2011, the number of shares reserved for future grants under all option plans was 14,994,953. The number of shares available for future purchase under the Purchase Plan was 1,751,255.

Summary of Restricted Stock Units

Restricted stock unit activity for the nine months ended September 30, 2011:

 

     RSU Activity
during
FY 2011		  

Beginning outstanding balance as of December 31, 2010:

      182,500   

Awarded

      232,500   

Released

      (5,251 ) 

Forfeited

      (25,062 ) 
  

 

 

  

Ending outstanding balance as of September 30, 2011:

      384,687   
  

 

 

  

 

     Number of
Units		      Weighted
Average
Remaining
Contractual Life
(years)		      Aggregate
Intrinsic Value
(thousands)		  

Restricted stock units outstanding

      384,687         1.53       $ 2,123   

Restricted stock units vested and expected to vest (1)

      365,154         1.49       $ 1,693   

Restricted stock units vested and deferred

      58,375         —         $ 322   

 

(1) Net of expected forfeitures