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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2014
Commitments and Contingencies | 7. Commitments and Contingencies General The Company is engaged in certain legal actions arising in the ordinary course of business, including international employment litigation arising out of restructuring activities. Although there can be no assurance as to the outcome of such litigation, the Company believes that it has adequate legal defenses and that the ultimate outcome of any of these actions will not have a material effect on the Company’s financial position or results of operations. However, expenses associated with certain of these legal actions could result in increased operating expenses that may adversely impact the Company’s future operating results and cash flow. Revolving credit line During the second quarter of 2013, the Company terminated its existing credit agreement with Wells Fargo Capital Finance (“WFCF”) and on June 30, 2013 entered into a new revolving credit agreement with U.S. Bank National Association (“US Bank”) through and until June 29, 2017. The Company intends to use the proceeds from the Credit Agreement for working capital, acquisitions, issuance of commercial and standby letters of credit, stock repurchases, capital expenditures and other general corporate purposes. The new Credit Agreement with US Bank allows for cash borrowings and the issuance of letters of credit under a secured revolving credit facility up to a maximum of $50 million. Interest accrues based on, at the Company’s election, (i) LIBOR plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio or (ii) the greater of: (a) the Federal Funds Effective Rate plus one half of one percent, (b) one month LIBOR plus one percent, and (c) U.S. Bank’s prime rate, in each case plus an applicable spread based on the Company’s consolidated total cash flow leverage ratio. The Company is required to make interest payments on a monthly basis. Following the termination of its agreement with WFCF, the Company wrote-off all remaining unamortized costs related to the old credit facility totaling approximately $188,000 in the second quarter of 2013. Costs related to the new credit facility with US Bank were not significant. As of September 30, 2014, there was no balance owed on the credit facility and the balance available under the revolving credit facility was $50 million.
|  | Three Months Ended September 30, |  |  | Nine months Ended September 30, |
|  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
(In thousands): |  |  |  |  |  |  |  |  |  |  |  |
Amortization of debt issuance costs |  | $ | 5 |  |  | $ | 3 |  |  | $ | 15 |  |  | $ | 44 |
Unused line fees |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 74 |
|  | $ | 5 |  |  | $ | 3 |  |  | $ | 15 |  |  | $ | 118 |
The Credit Agreement with US Bank 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. The Company is also required to maintain the two financial covenants listed below:
| • |  | Consolidated total cash flow leverage ratio not to exceed 2.50 to 1.00, and
| • |  | A fixed charge coverage ratio of not less than 1.75 to 1.00.
The indebtedness under the Credit Agreement is secured by (i) substantially all of the personal property (whether tangible or intangible) of Actuate Corporation and Actuate International Holding Company (as guarantor) as well as the proceeds generated by that property and (ii) by a pledge of all of its stock and a portion of the stock of certain of its subsidiaries. Notes payable Associated with the acquisition of Quiterian on October 16, 2012, the Company inherited two loan agreements that were previously executed to finance the development of the Quiterian software. The loans were offered by the Spanish government subsidy programs and are restricted for use on development of the software. One of the loans is interest free and has a principal balance of approximately $0.5 million. This loan was repaid in March of 2014. The other loan is a variable rate loan with an average rate of approximately 5% and a principal balance of approximately $0.4 million. This loan is scheduled for repayment on a quarterly basis starting June 2014 and ending December 2016 and is classified as notes payable on the Company’s Condensed Consolidated Balance Sheet at September 30, 2014. Operating Lease Commitments On November 28, 2011, the Company entered into a ten year lease agreement with a third party for approximately 58,000 square feet of office space in the BayCenter Campus in San Mateo, California. This lease is operating in nature and commenced on June 1, 2012 and will end on May 31, 2022. In addition, the lease provides for four months of free rent (rent holiday) and approximately $2.6 million in landlord incentives to be applied towards construction of improvements. At September 30, 2014, the deferred rent liability balance related to the new lease totaled approximately $3.3 million and this balance declines through May 2022 when contractual cash payments exceed the straight-line lease expense. Of this total deferred rent liability balance, approximately $261,000 was classified as short term and $3.1 million was classified as other long term liabilities on the Company’s Condensed Consolidated Balance Sheet at September 30, 2014. Actuate is using the BayCenter Campus as its corporate headquarters. Upon the execution of the new lease, Actuate delivered to the new landlord two letters of credit totaling $225,300. These letters of credit guarantee Actuate’s contractual obligations related to the BayCenter Campus in San Mateo, California. In fiscal 2012, the Company entered into a new lease agreement for one of its sales locations in Europe. Upon the execution of the new lease, Actuate delivered to the new landlord a letter of credit for approximately $88,000 in order to guarantee its contractual obligations related to this lease. Actuate leases smaller office facilities in various locations in the United States and abroad. All facilities are leased under operating leases. Total rent expense for the third quarter and first nine months of fiscal 2014 was approximately $1.1 million and $3.3 million, respectively, and unchanged compared to the same periods in the prior year. In addition, the Company incurred facility related charges of approximately $125,000 and $485,000 in the third quarter and the first nine months of fiscal 2014, respectively. During the same period last year, the Company incurred approximately $128,000 and $441,000 of facilities related charges in the third quarter and the first nine months of fiscal 2013, respectively. Stock Option 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 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. Beginning in 2013 each continuing non-employee director is granted a RSU award covering 16,000 shares of the Company’s Common Stock at each annual stockholders meeting. 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. 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 Corporation 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 20,818,660 as of September 30, 2014.
Plan Summary |  | Available for Grant |  |  | Options and Awards Outstanding(2) |  |  | Total Authorized But Unissued |
Amended and Restated 1998 Equity Incentive Plan |  |  | 9,333,879 |  |  |  | 10,708,217 |  |  |  | 20,042,096 |
2001 Supplemental Stock Plan |  |  | 714,637 |  |  |  | 19,216 |  |  |  | 733,853 |
1998 Non-Employee Director Option Plan |  |  | — |  |  |  | 95,000 |  |  |  | 95,000 |
Total Stock Plans |  |  | 10,048,516 |  |  |  | 10,822,433 |  |  |  | 20,870,949 |
Miscellaneous Stock Grant (1) |  |  | (52,289 | ) |  |  | — |  |  |  | (52,289 | )
Total Stock Plans Balance at September 30, 2014 |  |  | 9,996,227 |  |  |  | 10,822,433 |  |  |  | 20,818,660 |
(1) | Board approved stock grant on February 17, 2011 to the beneficiary of a deceased senior executive in recognition of services performed. Also included are 2,289 shares of stock granted to an employee in April 2013.
(2) | Total outstanding at September 30, 2014 includes 8,061,491 of options, 2,156,312 of RSUs and 604,630 of performance-based awards.
The weighted average grant date fair value of options granted during the quarter ended September 30, 2014 was $1.81 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, 2014 was $132,000. All vested stock options are exercisable. The following table summarizes information about stock options outstanding and exercisable as of September 30, 2014:
|  | 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 |
$1.86-$4.01 |  |  | 1,391,649 |  |  |  | 2.77 years |  |  | $ | 3.45 |  |  |  | 1,380,649 |  |  | $ | 3.44 |
$4.03-$5.09 |  |  | 1,069,881 |  |  |  | 5.17 years |  |  | $ | 4.66 |  |  |  | 964,821 |  |  | $ | 4.69 |
$5.11-$5.45 |  |  | 1,038,900 |  |  |  | 2.97 years |  |  | $ | 5.14 |  |  |  | 1,021,468 |  |  | $ | 5.14 |
$5.47-$5.65 |  |  | 1,772,230 |  |  |  | 7.16 years |  |  | $ | 5.51 |  |  |  | 1,214,970 |  |  | $ | 5.50 |
$5.66-$6.10 |  |  | 1,319,309 |  |  |  | 4.98 years |  |  | $ | 6.04 |  |  |  | 994,693 |  |  | $ | 6.09 |
$6.12-$6.29 |  |  | 147,912 |  |  |  | 4.94 years |  |  | $ | 6.22 |  |  |  | 117,822 |  |  | $ | 6.21 |
$6.30-$6.30 |  |  | 1,040,777 |  |  |  | 7.29 years |  |  | $ | 6.30 |  |  |  | 667,562 |  |  | $ | 6.30 |
$6.33-$7.91 |  |  | 280,833 |  |  |  | 7.70 years |  |  | $ | 6.96 |  |  |  | 155,584 |  |  | $ | 6.79 |
$1.86-$7.91 |  |  | 8,061,491 |  |  |  | 5.24 years |  |  | $ | 5.25 |  |  |  | 6,517,569 |  |  | $ | 5.10 |
|  | September 30, 2014 |  |  | September 30, 2013 |
Options Outstanding – Vested and Expected to Vest |  |  |  |  |  |  |  |
Vested and expected to vest, net of expected forfeitures |  |  | 8,010,016 |  |  |  | 9,767,803 |
Aggregate intrinsic value (in thousands) |  | $ | 634 |  |  | $ | 21,474 |
Weighted average exercise price per share |  | $ | 5.24 |  |  | $ | 5.15 |
Weighted average remaining contractual term (in years) |  |  | 5.22 |  |  |  | 5.67 |
Options Exercisable |  |  |  |  |  |  |  |
Options currently exercisable |  |  | 6,517,569 |  |  |  | 7,034,528 |
Aggregate intrinsic value of currently exercisable options (in thousands) |  | $ | 634 |  |  | $ | 17,346 |
Weighted average exercise price per share |  | $ | 5.10 |  |  | $ | 4.89 |
Weighted average remaining contractual term (in years) |  |  | 4.53 |  |  |  | 4.59 |
As of September 30, 2014, the number of shares reserved for future grants under all option plans was 9,996,227. The number of shares available for future purchase under the Purchase Plan was 4,249,660. Summary of Restricted Stock Units Restricted stock unit activity for the nine months ended September 30, 2014 and 2013:
|  | September 30, 2014 |  |  | September 30, 2013 |
Beginning outstanding balance |  |  | 1,003,812 |  |  |  | 577,374 |
Awarded |  |  | 1,262,500 |  |  |  | 447,500 |
Released |  |  | (55,500 | ) |  |  | (21,062 | )
Forfeited |  |  | (54,500 | ) |  |  | — |
Ending outstanding balance |  |  | 2,156,312 |  |  |  | 1,003,812 |
The weighted average grant date fair value of restricted stock units granted during the nine months ended September 30, 2014 and 2013 were $5.93 and $5.73 per unit, respectively.
|  | Number of Units |  |  | Weighted Average Remaining Contractual Life (years) |  |  | Aggregate Intrinsic Value (thousands) |
Restricted stock units outstanding (1) |  |  | 2,156,312 |  |  |  | 1.19 |  |  | $ | 8,410 |
Restricted stock units vested and expected to vest (2) |  |  | 2,080,553 |  |  |  | 1.56 |  |  | $ | 5,987 |
Restricted stock units vested and deferred (3) |  |  | 545,500 |  |  |  | — |  |  | $ | 2,127 |
(1) | Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.
(2) | Includes shares vested to-date and expected to vest shares which comprises of unvested shares net of expected forfeitures.
(3) | Vested awards with deferral elections to be released to the employee upon separation from service.
Summary of Performance-Based Restricted Stock Units
|  | September 30, 2014 |  |  | September 30 2013 |
Beginning outstanding balance |  |  | 279,630 |  |  |  | 235,000 |
Awarded |  |  | 325,000 |  |  |  | 125,000 |
Ending outstanding balance |  |  | 604,630 |  |  |  | 360,000 |
The weighted average grant date fair value of performance-based restricted stock units granted during the nine months ended September 30, 2014 and 2013 were $5.98 and $5.60 per unit, respectively.
|  | Number of Units |  |  | Weighted Average Remaining Contractual Life (years) |  |  | Aggregate Intrinsic Value (thousands) |
Performance-based units outstanding (1) |  |  | 604,630 |  |  |  | 1.40 |  |  | $ | 2,358 |
Performance-based units vested and expected to vest (2) |  |  | 581,138 |  |  |  | 1.37 |  |  | $ | 2,122 |
Performance-based units vested and deferred (3) |  |  | 37,130 |  |  |  | — |  |  | $ | 145 |
(1) | Total outstanding units include all unvested and vested but deferred shares which will be released to the employee upon separation from service.
(2) | Includes shares vested to-date and expected to vest shares which is comprised of unvested shares net of expected forfeitures.
(3) | Vested awards with deferral elections to be released to the employee upon separation from service.
Stockholder Rights Plan On June 17, 2014, we adopted a stockholder rights plan and declared a dividend of one stock purchase right (a “Right”) for each outstanding share of common stock of the Company (“Common Shares”). Each Right entitles the registered holder to purchase from the Company one thousandth of a share of the Company’s Series A Junior Participating Preferred Stock (the “Preferred Shares”) at a price of $25 per one thousandth of a Preferred Share (the “Purchase Price”), subject to adjustment. In the event that any person or group owns more than 15% of the Company’s outstanding common stock and thereby becomes an “Acquiring Person”, each holder of a Right, other than Rights beneficially owned by the Acquiring Person, will thereafter have the right to receive upon exercise and payment of the exercise price that number of shares of common stock having a market value of two times the exercise price of the Right. In the event that any person or group becomes an Acquiring Person and the Company merges into or engages in certain other business combinations with any Person, or 50% or more of its consolidated assets or earning power are sold to any Person other than the Company or one of its wholly owned Subsidiaries, each holder of a Right, other than Rights owned by an Acquiring Person (and the affiliates, associates and certain transferees of such Acquiring Person), will thereafter have the right to receive, upon exercise and payment of the exercise price, that number of shares of common stock of the acquiring company that at the time of such transaction will have a market value of two times the exercise price of the Right; provided that, if the Company fails to meet such obligation within 30 days following the date a Person becomes an Acquiring Person, the Company must deliver, upon exercise of a Right but without requiring payment of the exercise price then in effect, Common Shares (to the extent available) and cash equal in value to the difference between the value of the Common Shares otherwise issuable upon the exercise of a Right and the exercise price then in effect. The Company has determined the fair value of the dividend to be insignificant and therefore has recorded $0 on the date of declaration. Further, some provisions of our charter documents, including provisions, eliminating the ability of stockholders to take action by written consent and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or our management, which could have an adverse effect on the market price of our stock. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit an “interested stockholder” from engaging in a “business combination” with us for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner.

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