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Filed Pursuant to Rule 424(B)(3)
Registration No. 333-48565
April 16, 1998
2,500,560 SHARES
HNC SOFTWARE INC.
COMMON STOCK
($0.001 PAR VALUE)
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All of the 2,500,560 shares of Common Stock, $0.001 par value ("Common
Stock") of HNC Software Inc. ("HNC" or the "Company") offered hereby (the
"Shares") are being sold by the stockholders of the Company named herein under
"Selling Stockholders" and may be offered for sale from time to time by and for
the account of such stockholders (collectively, the "Selling Stockholders") as
more fully described herein. The Company will not receive any proceeds from the
sale of Shares offered hereby by the Selling Stockholders. See "Use of
Proceeds," "Selling Stockholders" and "Plan of Distribution." The Shares are
being offered on a continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended (the "Securities Act"), during a period of time
commencing on the effective date of the Registration Statement of which this
Prospectus forms a part and ending on November 28, 1998.
The Common Stock is listed on the Nasdaq National Market under the symbol
"HNCS." The shares of Common Stock offered hereby will be sold from time to time
at then prevailing market prices, at prices related to prevailing market prices
or at negotiated prices. On April 16, 1998, the closing price per share of the
Common Stock on the Nasdaq National Market was $38.75.
The shares of Common Stock offered hereby were originally issued by the
Company in a merger transaction that occurred on November 28, 1997 (the
"CompReview Merger") pursuant to which the Company acquired all of the
outstanding shares and stock options of CompReview, Inc. The shares of Common
Stock offered hereby represent approximately 10.1% of the Company's outstanding
shares of Common Stock as of the date of this Prospectus. The Selling
Stockholders, directly, through agents designated from time to time, or through
dealers or underwriters also to be designated, may sell the Shares, jointly or
severally, from time to time on terms to be determined at the time of sale. To
the extent required, the specific Shares to be sold, the public offering price,
the names of any such agent, dealer or underwriter and any applicable commission
or discount will be set forth in an accompanying supplement to this Prospectus
(a "Prospectus Supplement."). See "Selling Stockholders" and "Plan of
Distribution." Each of the Selling Stockholders, individually, reserves the sole
right to accept or reject, in whole or in part, any proposed purchase of the
Shares to be made in the manner set forth above.
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions in the over-the-counter market, in
the Nasdaq National Market or in privately negotiated transactions directly with
the purchasers, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Any
underwriters, dealers or agents that participate in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act, and any profit on the sale of the Shares by them and any
discounts, concessions or commissions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. See "Plan of Distribution" for indemnification arrangements
between the Company and the Selling Stockholders.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================
PROCEEDS TO
PRICE TO THE UNDERWRITING PROCEEDS TO SELLING
PUBLIC(1) DISCOUNT COMPANY STOCKHOLDERS(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE................. see text above none none see text above
- -------------------------------------------------------------------------------------------------------------
TOTAL..................... see text above none none see text above
=============================================================================================================
</TABLE>
(1) The shares of common stock offered hereby will be sold from time to time
at the then-prevailing market prices, at prices relating to prevailing
market prices or at negotiated prices. The company will pay expenses of
registration estimated at $55,000.
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048; and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a Web site (located at http://www.sec.gov) that
contains reports, proxy statements and other information regarding the Company.
The Company's Common Stock is quoted on the Nasdaq National Market, and
reports, proxy statements and other information concerning the Company may be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W. Washington,
D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits filed therewith or incorporated therein by reference.
Statements in this Prospectus about any contract or other document are not
necessarily complete, and in each instance in which a copy of such contract is
filed with, or incorporated by reference in, the Registration Statement as an
exhibit, reference is made to such copy, and each such statement shall be deemed
qualified in all respects by such reference. A copy of the Registration
Statement (and exhibits thereto) may be inspected, without charge, at the
offices of the Commission in Washington, D.C. and copies of all or any part of
the Registration Statement may be obtained from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Company are hereby incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K pursuant to Section
13(a) or 15(d) of the Exchange Act for the year ended December
31, 1997, as amended.
(b) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed on May 26,
1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering covered by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein (solely with respect to statements
incorporated by reference herein from a document that was filed prior to the
date of this Prospectus), or in any other subsequently filed document which also
is or is deemed to be incorporated by reference herein, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the documents that have been incorporated by reference in this
Prospectus (other than exhibits to such documents that are not specifically
incorporated by reference into such documents). Requests for such copies should
be directed to Raymond V. Thomas, Chief Financial Officer, HNC Software Inc.,
5930 Cornerstone Court West, San Diego, California 92121-3728; telephone number
(619) 546-8877.
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THE COMPANY
HNC develops, markets and supports predictive software solutions for
leading service industries. These predictive software solutions employ
proprietary neural-network predictive decision engines, profiles, traditional
statistical modeling, business models, expert rules and context vectors to
convert existing data and business experiences into meaningful recommendations
and actions. Just as manufacturing organizations have implemented manufacturing
resource planning software to automate routine transactions, leading service
industries such as the healthcare/insurance, financial services and retail
industries are using predictive software solutions to improve profitability,
competitiveness and customer satisfaction.
The Company's objective is to be the leading supplier of predictive
software solutions by leveraging its core computational intelligence technology
across a series of product lines targeted at specific service industries. In the
healthcare/insurance industry, the Company's products are used to automate
workers' compensation bill review and loss reserving, detect and prevent
workers' compensation fraud and increase workers' compensation payor and
provider effectiveness. In the financial services industry, the Company's
products are used to detect and prevent credit card fraud, manage the
profitability of credit card portfolios and automate lending decisions and
residential property valuations. In the retail industry, the Company's products
address inventory control, merchandise management, demand forecasting and
private label credit card fraud. The Company markets most of its predictive
software solutions as an ongoing service that includes software licenses,
decision model updates, application consulting and on-line or on-site support
and maintenance.
The Company was founded in 1986 under the laws of California and was
reincorporated in June 1995 under the laws of Delaware. The Company's principal
executive offices are located at 5930 Cornerstone Court West, San Diego,
California 92121-3728, and its telephone number is (619) 546-8877. In this
Prospectus, the term "HNC" or the "Company" refers to HNC Software Inc., a
Delaware corporation, unless the context otherwise requires.
RISK FACTORS
This Prospectus (including without limitation the following Risk
Factors) contains forward-looking statements (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) regarding the Company
and its business, financial condition, results of operations and prospects.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not the exclusive means of
identifying forward-looking statements in this Prospectus. Additionally,
statements concerning future matters such as the development of new products,
enhancements or technologies, possible changes in legislation and other
statements regarding matters that are not historical are forward-looking
statements.
Although forward-looking statements in this Prospectus reflect the good
faith judgment of the Company's management, such statements can only be based on
facts and factors currently known by the Company. Consequently, forward-looking
statements are inherently subject to risks and uncertainties, and actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include without limitation those discussed
below and in any documents that are incorporated into this Prospectus by
reference. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Prospectus.
The Company undertakes no obligation to revise or update any forward-looking
statements in order to reflect any event or circumstance that may arise after
the date of this Prospectus. Readers are urged to carefully review and consider
the various disclosures made by the Company in this Prospectus and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended, filed with the Commission, which attempts to advise interested parties
of the risks and factors that may affect the Company's business, financial
condition and results of operations and prospects.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and
operating results have varied significantly in the past and may do so in the
future. Because the Company's expense levels are based in part on its
expectations regarding future revenues and in the short term are fixed to a
large extent, the Company may be unable to adjust its spending in time to
compensate for any unexpected revenue shortfall. Factors affecting operating
results include market acceptance of the Company's products; the relatively
large size and small number of customer orders that may be received during a
given period; customer cancellation of long-term contracts yielding recurring
revenues or customers' ceasing their use of Company products for which the
Company's fees are usage based; the length of the Company's sale cycle; the
Company's ability to develop, introduce and market new products and product
enhancements; the timing of new product announcements and introductions by the
Company and its competitors; changes in the mix of distribution channels;
changes in the level of operating expenses; the Company's ability to achieve
progress on percentage-of-completion
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contracts; the Company's success in completing certain pilot installations for
contracted fees; competitive conditions in the industry; domestic and
international economic conditions; and market conditions in the Company's
targeted markets. In addition, as a result of recently issued guidance on
software revenue recognition, license agreements entered into during a quarter
may not meet the Company's revenue recognition criteria. Therefore, even if the
Company meets or exceeds its forecast of aggregate licensing and other
contracting activity, it is possible that the Company's revenues would not meet
expectations. Furthermore, the Company's operating results may be affected by
factors unique to certain of its product lines. For example, the Company derives
a substantial and increasing portion of its revenues from its retail products,
which are generally priced as "perpetual" license transactions in which the
Company receives a one-time license fee. The Company recognizes these fees as
revenue upon delivery of the software and acceptance by the customer. Thus,
failure to complete a perpetual license transaction during a fiscal quarter
would have a disproportionate adverse impact on the Company's operating results
for that quarter.
The Company expects fluctuations in its operating results to continue
for the foreseeable future. Accordingly, the Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an indication of future performance. The Company may not be able to maintain
profitability on a quarterly or annual basis in the future. Due to all of the
foregoing factors, it is possible that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In that event, the price of the Company's Common Stock would likely
be materially adversely affected.
LENGTHY AND UNPREDICTABLE SALES CYCLE. Due in part to the
mission-critical nature of certain of the Company's applications, potential
customers perceive high risk in connection with adoption of the Company's
products. As a result, customers have been cautious in making decisions to
acquire the Company's products. In addition, because the purchase of the
Company's products typically involves a significant commitment of capital and
may involve shifts by the customer to a new software and/or hardware platform,
delays in completing sales can arise while customers complete their internal
procedures to approve large capital expenditures and test and accept new
technologies that affect key operations. For these and other reasons, the sales
cycle associated with the purchase of the Company's products is typically
lengthy, unpredictable and subject to a number of significant risks over which
the Company has little or no control, including customers' budgetary constraints
and internal acceptance reviews. The sales cycle associated with the licensing
of the Company's products can typically range from 60 days to 18 months. As a
result of the length of the sales cycle and the typical size of customers'
orders, the Company's ability to forecast the timing and amount of specific
sales is limited. A lost or delayed sale could have a material adverse effect on
the Company's business, financial condition and results of operations.
ACQUISITIONS. Between August 1996 and April 1998, the Company acquired
five businesses. In August 1996, the Company acquired Risk Data Corporation
("Risk Data"), a company that develops, markets and supports proprietary
software decision products for use in the insurance industry. In November 1996,
the Company acquired Retek Distribution Corporation, now named Retek Information
Systems, Inc. ("Retek"), a company that develops, markets and supports
management decision software products for retailer and their vendors. In
November 1997, the Company acquired CompReview, Inc. ("CompReview"), a company
that develops, markets and supports a software product and related services
designed to assist in the management and containment of the medical costs of
workers' compensation and automobile accident medical claims. In March 1998, the
Company acquired Practical Control Systems Technologies, Inc., ("PCS") a company
that develops, markets and supports fully integrated distribution software
products that address the distribution needs of the retail, manufacturing and
wholesale industries. In April 1998, the Company acquired Financial Technology,
Inc. ("FTI"), a company that develops and markets profitability measurement and
analysis and other software products and related support services to financial
institutions. The Company believes that its future growth depends, in part, upon
the success of these and possible future acquisitions. There can be no assurance
that the Company will successfully identify, acquire on favorable terms or
integrate such businesses, products, services or technologies. The Company may
in the future face increased competition for acquisition opportunities, which
may inhibit the Company's ability to consummate suitable acquisitions and
increase the costs of completing such acquisitions. The acquisitions of Risk
Data, Retek, CompReview, PCS and FTI, as well as other potential future
acquisitions, will require the Company to successfully manage and integrate such
acquired businesses, which may be located in diverse geographic locations.
Acquiring other businesses also requires the Company to successfully develop and
market products to new industries and markets with which the Company may not be
familiar. It also requires the Company to coordinate (and possibly change) the
diverse operating structures, policies and practices of the acquired companies
and to integrate the employees of the acquired companies into the Company's
organization and culture. Failure of the Company to successfully integrate and
manage acquired businesses, to retain their employees, and to successfully
address new industries and markets associated with such acquired business, would
have a material adverse effect on the Company's business, financial condition
and results of operations. The acquisitions of Risk Data, Retek and CompReview
have been accounted for as poolings of
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interests. The acquisitions of PCS and FTI are accounted for as purchases. The
acquisition of PCS resulted in an accounting charge of approximately $3.9
million in the quarter ended March 31, 1998. The acquisition of FTI, which was
completed in the second quarter of 1998, as well as any other future
acquisitions that may be accounted for as purchases, may result in charges that
adversely affect the Company's earnings. Additional acquisitions may also
involve the issuance of shares of the Company's stock to owners of acquired
businesses, resulting in dilution in the percentage of the Company's stock owned
by other stockholders.
RISKS ASSOCIATED WITH MANAGING GROWTH. In recent years, the Company has
experienced changes in its operations that have placed significant demands on
the Company's administrative, operational and financial resources. The growth in
the Company's customer base and expansion of its product functionality, together
with its acquisition of other businesses and their employees, have challenged
and are expected to continue to challenge the Company's management and
operations, including its sales, marketing, customer support, research and
development and finance and administrative operations. The Company's future
performance will depend in part on its ability to successfully manage change,
both in its domestic and international operations, and to adapt its operational
and financial control systems, if necessary, to respond to changes in its
business and to facilitate the integration of acquired businesses with the
Company's operations. The failure of the Company's management to effectively
respond to and mange growth could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON EMERGING TECHNOLOGIES AND MARKETS. The market for
predictive software solutions is still emerging. The rate at which businesses
have adopted the Company's products has varied significantly by market and by
product within each market, and the Company expects to continue to experience
such variations with respect to its target markets and products in the future.
The Company has introduced products for the healthcare/insurance, financial
services and retail markets. The Company has recently announced several new
products, including PMAdvisor, VeriComp, SelectCast, SelectResponse and
SelectResource. To date, none of these products has achieved any significant
degree of market acceptance, and there can be no assurance that such products
will ever be widely accepted. Although businesses in the Company's target
markets have recognized the advantages of using predictive software solutions to
automate the decision-making process, many have developed decision automation
systems internally rather than licensing them from outside vendors. There can be
no assurance that the markets for the Company's products will continue to
develop or that the Company's products will be widely accepted, if at all. If
the markets for the Company's new or existing products fail to develop, or
develop more slowly than anticipated, the Company's sales would be negatively
impacted, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE AND DELAYS IN DEVELOPING NEW
PRODUCTS. The market for the Company's predictive software solutions for service
industries is characterized by rapidly changing technology and improvements in
computer hardware, network operating systems, programming tools, programming
languages, operating systems and database technology. The Company's success will
depend upon its ability to continue to develop and maintain competitive
technologies, enhance its current products and develop, in a timely and
cost-effective manner, new products that meet changing market conditions,
including evolving customer needs, new competitive product offerings, emerging
industry standards and changing technology. For example, the rapid growth of the
Internet environment creates new opportunities, risks and uncertainties for
businesses, such as the Company, which develop software solutions that now may
have to be designed to operate in Internet, intranet and other on-line
environments. The Company may not be able to develop and market, on a timely
basis, or at all, product enhancements or new products that respond to changing
technologies. The Company has previously experienced significant delays in the
development and introduction of new products and product enhancements, primarily
due to difficulties with model development, which has in the past required
multiple iterations, as well as difficulties with acquiring data and adapting to
particular operating environments. The length of these delays has varied
depending upon the size and scope of the project and the nature of the problems
encountered. Any significant delay in the completion of new products, or the
failure of such products, if and when installed, to achieve any significant
degree of market acceptance, would have a material adverse effect on the
Company's business, financial condition and results of operations. Any failure
by the Company to anticipate or to respond adequately to changing technologies,
or any significant delays in product development or introduction, could cause
customers to delay or decide against purchases of the Company's products and
would have a material adverse effect on the Company's business, financial
condition and results of operations.
PRODUCT CONCENTRATION. The Company currently has one product or product
line in each of its three target markets that accounts for a majority of the
Company's total revenues from that market. These products in the aggregate
accounted for 60.0%, 59.1% and 57.9% of the Company's total revenues in 1995,
1996 and 1997, respectively. In the healthcare/insurance market, the Company's
revenues from its CRLink product accounted for 29.8%, 24.6% and 23.0% of the
Company's total revenues in 1995, 1996 and 1997, respectively, and are expected
to account for a substantial portion of
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the Company's total revenues for the foreseeable future. Continued market
acceptance of CRLink will be affected by future product enhancements and
competition. Decline in demand for, or use of, CRLink, whether as a result of
competition, simplification of state workers' compensation fee schedules,
changes in the overall payment system or regulatory structure for workers'
compensation claims, technological change, an inability to obtain or use state
fee schedule or claims data, saturation of market demand, industry consolidation
or otherwise, could result in decreased revenues from CRLink, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, revenues from the Retek Merchandising System
("RMS"), a retail management product, accounted for 2.2%, 13.6% and 18.9% of the
Company's total revenues in 1995, 1996 and 1997, respectively, and are expected
to continue to account for a substantial portion of the Company's revenues in
the foreseeable future. Continued market acceptance of RMS will be affected by
the quality and timely introduction of future product enhancements and
competition. Decline in demand for, or use of, RMS as a result of continued
entry into the retail inventory management market by vendors that may have
significantly greater resources and a broader customer base than the Company
could result in decreased revenues from RMS, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, decline in demand for RMS, as a result of technological change,
saturation of market demand, industry consolidation or otherwise would have a
material adverse effect on the Company's business, financial condition and
results of operations. Revenues from the Company's Falcon product line for
credit card fraud detection for financial institutions accounted for 28.0%,
20.9% and 16.0% of the Company's total revenues in 1995, 1996 and 1997,
respectively, and are expected to continue to account for a substantial portion
of the Company's total revenues in the foreseeable future. Continued market
acceptance of the Falcon product line will be affected by the quality and timely
introduction of future product enhancements and competition. In addition, it is
possible that patterns of credit card fraud may change in a manner that the
Falcon product line would not detect and that other methods of credit card fraud
prevention may reduce customers' needs for the Falcon product line. As a result
of increasing saturation of market demand for the Falcon product line, the
Company may also need to rely increasingly on international sales to maintain or
increase Falcon revenue levels. Furthermore, Falcon customers are banks and
related financial institutions. Accordingly, the Company's future success
depends upon the capital expenditure budgets of such customers and the continued
demand by such customers for Falcon products. The financial services industry
tends to be cyclical in nature, which may result in variations in demand for the
Company's products. In addition, there has been and continues to be
consolidation in the financial services industry, which in some cases has
lengthened the sales cycle and may lead to reduced demand for the Company's
products. Decline in demand for, or use of, Falcon, whether as a result of
competition, technological change, change in fraud patterns, the cyclical nature
of the financial service industry, saturation of market demand, fluctuations in
interest rates, industry consolidation, reduction in capital spending or
otherwise, could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON DATA. The development, installation and support of the
Company's credit card fraud control and profitability management, loan
underwriting, home valuation and certain healthcare/insurance products require
periodic model updates. The Company must develop or obtain a reliable source of
sufficient amounts of current and statistically relevant data to analyze
transactions and update its models. For example, in the electronic payments
market, the data required by the Company are collected privately and maintained
in proprietary databases. As a result, the Company and its Falcon and ProfitMax
customers enter into agreements pursuant to which customers agree to provide the
data the Company requires to analyze transactions, report results and build new
fraud detection and profitability models. For its AREAS home valuation product,
the Company obtains data from commercial databases on available terms and
conditions. Many of the Company's healthcare/insurance products use historical
workers' compensation claims data obtained from customers. CRLink also uses data
from state workers' compensation fee schedules adopted by state regulatory
agencies, and certain third parties have asserted copyright interests in such
data. In most cases, such data must be periodically updated and refreshed to
enable the Company's predictive software products to continue to work
effectively. In addition, the development of new and enhanced products also
depends to a significant extent on the availability of sufficient amounts of
statistically relevant data to enable the Company to develop models. For
example, to expand the geographic coverage of its AREAS product, the Company
would be required to develop or obtain data on home sales in each county for
which AREAS is marketed. There can be no assurance that the Company will be able
to continue to obtain adequate amounts of statistically relevant data on a
timely basis, in the required formats or on reasonable terms and conditions,
whether from customers or commercial suppliers. Any such failure by the Company
to obtain required data when it is needed, for a reasonable price and on
reasonable terms, could have a significant negative impact on existing product
performance, new product development and product pricing which could in turn
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION. The market for predictive software solutions for service
industries is intensely competitive and subject to rapid change. Competitors,
many of which have substantially greater financial resources than the Company,
vary in size and in the scope of the products and services they offer. The
Company encounters competition from a number of
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sources, including (i) other application software companies, (ii) management
information systems departments of customers and potential customers, including
financial institutions, insurance companies and retailers, (iii) third-party
professional services organizations, including without limitation, consulting
divisions of public accounting firms, (iv) hardware suppliers that bundle or
develop complementary software (v) network and service providers that seek to
enhance their value-added services, (vi) neutral-network tool suppliers and
(vii) managed care organizations. In the healthcare/insurance market, the
Company has experienced competition primarily from National Council on
Compensation Insurance ("NCCI"), Corporate Systems and CSC Incorporated. In the
workers' compensation and medical cost administration market, the Company has
experienced competition from MediCode, Inc. ("MediCode"), Medata, Inc. and
Embassy Software with regard to software licensing, and Intracorp and Corvel
Corporation in the service bureau operations market. Additionally, the Company
has faced competition from Automatic Data Processing, Inc. ("ADP") in the
automobile accident medical claims market. In the financial services market, the
Company has experienced competition from Fair, Isaac & Co., Inc., Cogensys (a
subsidiary of Policy Management Systems Corporation), Federal National Mortgage
Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie
Mac"), International Business Machines Corporation ("IBM"), Nestor, Inc.,
NeuralTech Inc., Neuralware Inc., PMI Mortgage Services Co., VISA International
and others. In the retail market, the Company has experienced competition from
JDA Software Group, Inc., SAP AG, PeopleSoft, Inc., IBM, Manugistics Group, Inc.
and others. The Company expects to experience additional competition from other
established and emerging companies, as well as other technologies. For example,
the Company's Falcon product competes against other methods of preventing credit
card fraud, such as card activation programs, credit cards that contain the
cardholder's photograph, smart cards and other card authorization techniques.
Increased competition, whether from other products or new technologies, could
result in price reductions, fewer customer orders, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations.
The Company believes that most of its products are currently priced at a
premium when compared to its competitors' products. The market for the Company's
products is highly competitive, and the Company expects that it will face
increasing pricing pressures from its current competitors and new market
entrants. In particular, increased competition could reduce or eliminate such
premiums and cause further price reductions. In addition, such competition could
adversely affect the Company's ability to obtain new long-term contracts and
renewals of existing long-term contracts on terms favorable to the Company. Any
reduction in the price of the Company's products could materially adversely
affect the Company's business, financial condition and results of operations.
Some of the Company's current, and many of the Company's potential
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly gain
significant market share. Also, the Company relies upon its customers to provide
data, expertise and other support for the ongoing updating of the Company's
models. The Company's customers, most of which have significantly greater
financial and marketing resources than the Company, may compete with the Company
in the future or otherwise discontinue their relationships with or support of
the Company. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, financial condition and results of operations.
RISKS ASSOCIATED WITH RECRUITING AND RETAINING QUALIFIED PERSONNEL. The
Company's success depends to a significant degree upon the continued service of
members of the Company's senior management and other key research, development,
sales and marketing personnel. Accordingly, the loss of any of the Company's
senior management or key research, development, sales or marketing personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. Only a small number of employees have
employment agreements with the Company, and there can be no assurance that such
agreements will result in the retention of these employees for any significant
period of time. In addition, the untimely loss of a member of the management
team or a key employee of a business acquired by the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations, particularly if such loss occurred before the Company has
had adequate time to familiarize itself with the operating details of that
business. In the past, the Company has experienced difficulty in recruiting a
sufficient number of qualified sales and technical employees. In addition,
competitors may attempt to recruit the Company's key employees. There can be no
assurance that the Company will be successful in attracting, assimilating and
retaining such personnel.
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<PAGE> 8
The failure to attract, assimilate and retain key personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CUSTOMER CONCENTRATION. Product licenses to First Data Resources, Inc.
("First Data"), the largest provider of credit card charge receipt processing
services to banks, accounted for 8.7%, 8.6% and 7.6% of the Company's total
revenues in 1995, 1996 and 1997, respectively. The Company has licensed First
Data to provide its customers with access to the Company's ProfitMax product
pursuant to a license agreement entered into in January 1996 (the "ProfitMax
Contract"). The Company's revenues under the ProfitMax Contract represented
approximately one-quarter of the Company's revenues from First Data in 1997. In
late January 1998, First Data asserted that certain restrictive covenants under
the ProfitMax Contract violated certain intellectual property laws. First Data
also asserted that the existence of such restrictions made the ProfitMax
Contract at least temporarily unenforceable and that First Data is therefore not
obligated to pay the Company license fees due under the ProfitMax Contract. The
Company disputed First Data's claim, released and waived the above-mentioned
restrictive covenants in the ProfitMax Contract and gave First Data written
notice that the Company intended to terminate the ProfitMax Contract pursuant to
its terms unless First Data cured its failure to pay the delinquent license fees
in a timely manner. Currently, First Data and the Company are working to resolve
their dispute regarding the ProfitMax Contract by negotiating a new agreement;
however, there can be no assurance that such an agreement will be reached or
that the terms of such an agreement would be as favorable to HNC as its existing
contractual arrangements with First Data. If no such agreement can be reached
and First Data maintains it current position, it is possible that litigation or
arbitration could ensue, which would likely result in a loss of anticipated
revenue to the Company under the ProfitMax Contract and possibly other
agreements between the Company and First Data, which could have a material
adverse effect on the Company's business, financial condition and results of
operation.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. In 1995, 1996 and 1997,
international operations and export sales (including sales in Canada)
represented 12.6%, 17.7% and 16.8% of the Company's total revenues,
respectively. The Company intends to continue to expand its operations outside
the United States and to enter additional international markets, including by
adding sales and support offices in Europe and Japan, which will require
significant management attention and financial resources. For certain more
mature products, such as Falcon, the Company may need to increase international
sales in order to continue to expand the product's customer base. The Company
has committed and continues to commit significant time and development resources
to customizing certain of its products for selected international markets and to
developing international sales and support channels. There can be no assurance
that the Company's efforts to develop products, databases and models for
targeted international markets or to develop additional international sales and
support channels will be successful. The failure of such efforts, which can
entail considerable expense, could have a material adverse effect on the
Company's business, financial condition and results of operations.
International sales are subject to additional inherent risks, including
longer payments cycles, unexpected changes in regulatory requirements, import
and export restrictions and tariffs, difficulties in staffing and managing
foreign operations, the burdens of complying with a variety of foreign laws,
greater difficulty or delay in accounts receivable collection, potentially
adverse tax consequences and political and economic instability. The Company's
international sales are currently denominated predominately in United States
dollars and a small portion are denominated in British pounds sterling. An
increase in the value of the United States dollar relative to foreign currencies
could make the Company's products more expensive, and therefore potentially less
competitive, in foreign markets. In the future, to the extent that Company's
international sales are denominated in local currencies, foreign currency
translations may contribute to significant fluctuations in the Company's
business, financial condition and results of operations. If for any reason
exchange or price controls or other restrictions on foreign currencies are
imposed, the Company's business, financial condition and results of operations
could be materially adversely affected.
RISKS ASSOCIATED WITH CHANGING REGULATORY ENVIRONMENT. The Company's
customers are subject to a number of government regulations and certain other
industry standards with which the Company's products must comply. For example,
the Company's financial services products are affected by Regulation B
promulgated under the Equal Credit Opportunity Act, by regulations governing the
extension of credit to consumers and by Regulation E promulgated under the
Electronic Fund Transfers Act governing the transfer of funds from and to
consumer deposit accounts, as well as VISA and MasterCard electronic payment
standards. In the mortgage services market, the Company's products are affected
by regulations such as Fannie Mae and Freddie Mac regulations for conforming
loans, Uniform Standards of Professional Appraisal Practice and appraisal
standards for federally insured institutions under the Financial Institutions
Reform, Recovery and Enforcement Act. In addition, recent regulatory initiatives
have restricted the availability of bank and credit bureau data, reflecting a
consumer privacy trend that could limit the Company's ability to obtain or use
certain credit-related information. It is also possible that insurance-related
regulations may in the future apply to the Company's healthcare/insurance
products. In many states, including California, there have been periodic
legislative efforts to reform
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<PAGE> 9
workers' compensation laws in order to reduce the cost of workers' compensation
insurance and to curb abuses of the workers' compensation system, and such
changes, if adopted, might adversely affect the Company's healthcare/insurance
business. In addition, if state-mandated workers' compensation laws or
regulations or state workers' compensation fee schedules are simplified, such
changes would diminish the need for, and the benefit provided by, the CRLink
product. Changes in workers' compensation laws or regulations could also
adversely affect the Company's healthcare/insurance products by making them
obsolete, or by requiring extensive changes in these products to reflect new
workers' compensation rules. To the extent that the Company sells new products
targeted to markets that include regulated industries and businesses, the
Company's products will need to comply with these additional regulations. Any
failure of the Company's products to comply with existing or new regulations and
standards could result in legal action against the Company or its customers by
regulatory authorities or by third parties, including actions seeking civil or
criminal penalties, injunctions against the Company's use of data or civil
damages, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also be
liable to its customers for failure of its products to comply with such
regulatory requirements. Furthermore, changes to these regulations and standards
or the adoption of new regulations or standards that affect the Company's
products could affect the performance of such products and have a material
adverse effect on the Company's business, financial condition and results of
operations.
PROTECTION OF INTELLECTUAL PROPERTY. The Company relies on a combination
of patent, copyright, trademark and trade secret laws and confidentiality
procedures to protect its proprietary rights. The Company currently owns seven
issued United States patents and has four United States patent applications
pending. The Company has applied for additional patents for its Falcon
technology in Canada, Europe and Japan and for its MIRA product in Australia,
Canada and Europe. There can be no assurance that patents will be issued with
respect to pending or future patent applications or that the Company's patents
will be upheld as valid or will prevent the development of competitive products.
The Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. As part of its confidentiality procedures, the Company generally
enters into invention assignment and proprietary information agreements with its
employees and independent contractors and nondisclosure agreements with its
distributors, corporate partners and licensees, and limits access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise to obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition, to
ensure that customers will not be adversely affected by an interruption in the
Company's business, the Company places source code for certain of its products
into escrow, which may increase the likelihood of misappropriation or other
misuse of the Company's intellectual property. Moreover, effective protection of
intellectual property rights may be unavailable or limited in certain foreign
countries in which the Company has done and may do business. Also, the Company
has developed technologies under research projects conducted under agreements
with various United States Government agencies or subcontractors to such
agencies. Although the Company has acquired certain commercial rights to such
technologies, the United States Government typically retains ownership of
certain intellectual property rights and licenses in the technologies developed
by the Company under such contracts, and in some cases can terminate the
Company's rights in such technologies if the Company fails to commercialize them
on a timely basis. In addition, under certain United States Government
contracts, the results of the Company's research may be made public by the
government, which could limit the Company's competitive advantage with respect
to future products based on such research.
INFRINGEMENT OF PROPRIETARY RIGHTS. In the past, the Company has
received communications from third parties asserting that the Company trademarks
infringed such other parties' trademarks, none of which has resulted in
litigation or losses to the Company. Given the Company's ongoing efforts to
develop and market new technologies and products, the Company may receive
communications from third parties asserting that the Company's products
infringe, or may infringe, their intellectual property rights. If as a result of
any such claims the Company were precluded from using certain technologies or
intellectual property rights, licenses to such disputed third-party technology
or intellectual property rights might not be available on reasonable commercial
terms, if at all. Furthermore, the Company may initiate claims or litigation
against third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation, either
as plaintiff or defendant, could result in significant expense to the Company
and divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation is resolved in favor of the
Company. In the event of an adverse ruling in any such litigation, the Company
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology, and the court might
invalidate the Company's patents, trademarks or other proprietary rights. In the
event of a successful claim against the Company and the failure of the Company
to develop or license a substitute technology, the Company's business, financial
condition and results of operations would be materially and adversely affected.
As the number of software products increases and the functionality of these
products further overlaps, the Company believes that software developers may
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<PAGE> 10
become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend and could
materially and adversely affect the Company's business, financial condition and
results of operations.
RISK OF PRODUCT DEFECTS AND PRODUCT LIABILITY. Software products as
complex as those offered by the Company often contain undetected errors or
failures when first introduced or as new versions are released. In addition, to
the extent that the Company may have to develop new products that operate in new
environments, such as the Internet, the possibility for program errors and
failures may increase due to factors such as the use of new technologies or the
need for more rapid product development that is characteristic of the Internet
market. Despite pre-release testing by the Company and by current and potential
customers, there still may be errors in new products, even after commencement of
commercial shipments. The occurrence of such errors could result in delay in, or
failure to achieve, market acceptance of the Company's products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential product
liability claims, it is possible that such limitation of liability provisions
may not be effective as a result of existing or future laws or unfavorable
judicial decisions. Because the Company's products are used in business-critical
applications, any errors or failures in such products may give rise to
substantial product liability claims, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
VOLATILITY OF COMMON STOCK PRICE. The Company's Common Stock has
experienced significant price volatility and such volatility may recur in the
future. Factors such as announcements of the introduction of new products by the
Company or its competitors, acquisitions of businesses or products by the
Company, quarter-to-quarter variations in the Company's operating results and
the gain or loss of significant orders, as well as market conditions in the
technology and emerging growth company sectors, may have a significant impact on
the market price of the Company's Common Stock. Further, the stock market has
experienced extreme volatility that has particularly affected the market prices
of securities of many technology companies and that often has been unrelated or
disproportionate to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Common Stock. The trading
prices of many technology companies' stocks, including the Company's Common
Stock, reflect price/earnings ratios substantially above historical norms. The
trading price of the Company's Common Stock may not remain at or near its
current level.
YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. The Company believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company, which could result in a material adverse effect on the Company's
business, financial condition and results of operations.
FACTORS INHIBITING TAKEOVER. The Board of Directors is authorized to
issue up to 4,000,000 shares of Preferred Stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to , and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no current plans to issue shares of Preferred Stock. In addition, Section
203 of the Delaware General Corporation Law restricts certain business
combinations with any "interested stockholder" as defined by such statute. The
statute may have the effect of delaying, deferring or preventing a change in
control of the Company.
MATERIAL CHANGES
On February 26, 1998, the Company issued and sold an aggregate of $90
million principal amount of 4.75% Convertible Subordinated Notes Due 2003 (the
"Notes") in a public offering. In addition, the Company issued and sold 20,000
shares of its Common Stock and the Selling Stockholders and one other Company
stockholder sold a total of
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<PAGE> 11
2,395,000 shares of the Company's Common Stock. The net proceeds to the Company
from the issuance and sale of the Notes are approximately $87.2 million. The net
proceeds to the Company from the issuance and sale of the shares of Common Stock
are not material. The Company did not receive any proceeds from the sale of
Common Stock by existing stockholders. The Notes are convertible into Common
Stock at any time before the close of business on March 1, 2003, unless
previously redeemed or repurchased, at a conversion price of $44.85 per share
(equivalent to a conversion rate of approximately 22.30 shares per $1,000
principal amount of Notes), subject to adjustment in certain circumstances.
SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 16, 1998 by each Selling Stockholder. Each Selling Stockholder was
formerly a stockholder of CompReview who acquired the Shares in the CompReview
Merger. Except as described below, no Selling Stockholder has had any position,
office or other material relationship with the Company within the past three
years. The following table assumes that each Selling Stockholder sells all of
the Shares held by such Selling Stockholder in this offering. However, the
Company is unable to determine the exact number of Shares that will actually be
sold or when or if such sales will occur.
Certain assignees of the Selling Stockholders, if any, who acquire
Shares of Common Stock from a Selling Stockholder and satisfy certain conditions
are entitled to the same registration rights as the Selling Stockholders. If any
such assignee wishes to sell shares hereunder, this Prospectus will be amended
or supplemented to name such assignee as a Selling Stockholder.
The Selling Stockholders have advised the Company that each of them is
the beneficial owner (within the meaning of such term in Rule 13d-3 promulgated
under the Exchange Act) of their respective Shares being offered hereby.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
OFFERING(1) OFFERING(1)
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Robert L. Kaaren, M.D. (2).. 1,250,280 5.1% 1,250,280 -- --
Michael E. Munayyer,........ 1,250,280 5.1% 1,250,280 -- --
Trustee of the Michael
Munayyer Trust dated
August 11, 1995 (3)
- ------------
</TABLE>
(1) Based upon a total of 24,712,551 shares of Common Stock outstanding as of
March 16, 1998.
(2) Dr. Kaaren is the Chairman and Chief Executive Officer of CompReview. Dr.
Kaaren's address is c/o CompReview, Inc., 3200 Park Center Drive, 5th
Floor, Costa Mesa, California 92626.
(3) Mr. Munayyer, the sole trustee and beneficiary of the Michael E. Munayyer
Trust dated August 11, 1995 (the "Trust"), is the Chief Technical Officer
of CompReview. The address of Mr. Munayyer and the Trust is c/o CompReview,
Inc., 3200 Park Center Drive, 5th Floor, Costa Mesa, California 92626.
USE OF PROCEEDS
The proceeds from the sale of the Shares offered hereby will be solely
for the account of the Selling Stockholders. Accordingly, the Company will not
receive any of the proceeds from the sale of the Shares by the Selling
Stockholders.
PLAN OF DISTRIBUTION
In connection with the CompReview Merger, each Selling Stockholder
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") with the Company. The Registration Statement of which this
Prospectus forms a part has been filed pursuant to the Registration Rights
Agreement. To the Company's knowledge, no Selling Stockholder has entered into
any agreement, arrangement or understanding with any particular broker or market
maker with respect to the Shares offered hereby, nor does the Company know the
identity of the brokers or market makers that will participate in the offering.
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<PAGE> 12
The Shares may be offered and sold from time to time by the Selling
Stockholders or by pledgees, donees, transferees and other successors in
interest. The Selling Stockholders will act independently of the Company in
making decisions with respect to the timing, manner and size of each sale. Such
sales may be made over the Nasdaq National Market or otherwise, at then
prevailing market prices, at prices related to prevailing market prices or at
negotiated prices. The Shares may be sold by one or more of the following: (a) a
block trade in which the broker-dealer engaged by the Selling Stockholder will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by the
broker-dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. The Company has been
advised by the Selling Stockholders that they have not, as of the date hereof,
entered into any arrangement with a broker-dealer for the sale of Shares through
a block trade, special offering, or secondary distribution of a purchase by a
broker-dealer. In effecting sales, broker-dealers engaged by the Selling
Stockholders may arrange for other broker-dealers to participate. Broker-dealers
will receive commissions or discounts from the Selling Stockholders in amounts
to be negotiated immediately prior to the sale.
In connection with distributions of the Shares or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares covered hereby in the course of hedging the positions they assume
with Selling Stockholders. The Selling Stockholders may also sell shares short
and redeliver the Shares to close out such short positions. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares
covered hereby, which the broker-dealer may resell or otherwise transfer
pursuant to this Prospectus. A Selling Stockholder may also loan or pledge the
Shares covered hereby to a broker-dealer and the broker-dealer may sell the
Shares so loaned or, upon a default, the broker-dealer may effect sales of the
pledged Shares pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders in amounts to be
negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. The Selling Stockholders have agreed with
the Company in the Registration Rights Agreement not to sell any of the Shares
pursuant to this Prospectus in an underwritten offering without the Company's
prior written consent. In addition, any Shares covered by this Prospectus which
qualify for sale pursuant to Rule 144 or Rule 145 under the Securities Act may
be sold under Rule 144 or Rule 145 rather than pursuant to this Prospectus.
All costs, expenses and fees in connection with the registration of the
Shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the Shares will be borne by the Selling
Stockholders. The Selling Stockholders may agree to indemnify any broker-dealer
or agent that participates in transactions involving sales of the Shares against
certain liabilities, including liabilities arising under the Securities Act.
Under the Agreement, the Company and the Selling Stockholders have agreed to
indemnify each other and certain other persons against certain liabilities in
connection with the offering of the Shares, including liabilities arising under
the Securities Act.
The Selling Stockholders have advised the Company that, during such time
as they may be engaged in a distribution of the Shares, they will comply with
Regulation M under the Exchange Act and, in connection therewith, the Selling
Stockholders have agreed not to engage in any stabilization activity in
connection with any securities of the Company, to furnish copies of this
Prospectus to each broker-dealer through which the Shares of Common Stock
included herein may be offered, and not to bid for or purchase any securities of
the Company or attempt to induce any person to purchase any securities of the
Company except as permitted under the Exchange Act. The Selling Stockholders
have also agreed to inform the Company and broker-dealers through whom sales may
be made hereunder when the distribution of the Shares is completed. Regulation M
prohibits participants in a distribution from bidding for or purchasing for an
account in which the participant has a beneficial interest, any of the
securities that are the subject of the distribution and governs bids and
purchases made to stabilize the price of a security in connection with a
distribution of the security.
The Registration Rights Agreement provides that the Registration
Statement of which this Prospectus forms a part (the "Registration Statement")
will remain effective for a period commencing on the effective date of such
Registration Statement and ending on November 28, 1998 (such period being
hereinafter called the "Effectiveness Period"). Prior to any sale of Shares
pursuant to the Registration Statement, a Selling Stockholder must submit a
written notice to the Company of such Selling Stockholder's intention to sell
Shares (a "Notice of Resale"). The Company must, within seven business days
after receiving a Notice of Resale, either notify the Selling Stockholder
whether it believes this Prospectus is current (with the Company using the
notice period to supplement this Prospectus or make an appropriate filing under
the Exchange Act to update this Prospectus) or whether it believes this
Prospectus should be amended prior to use in
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<PAGE> 13
connection with such sale (with the Company to then amend the Registration
Statement as soon as practicable). Once the Company has, pursuant to such Notice
of Resale, notified the Selling Stockholders that this Prospectus is available
for use, the Selling Stockholders who made the request will have 20 consecutive
calendar days (a "Permitted Window") within which to sell Shares pursuant to
this Prospectus. Pursuant to the Registration Rights Agreement, there will be a
maximum of three Permitted Windows for the Selling Stockholders during the
Effectiveness Period and there will be at least a 60-day interval between any
two Permitted Windows. Under certain circumstances, no more than once per
calendar year during the Effectiveness Period (as such may be extended as a
result of a postponement described below), the Company is permitted to postpone
the commencement of a Permitted Window for up to 30 days after receipt of a
Notice of Resale; provided, however, that if the Company so postpones a
Permitted Window, the Effectiveness Period shall be extended by a period of time
equal to the period of postponement. The Selling Stockholders, collectively, may
not sell pursuant to this Prospectus, during any calendar quarter, an amount of
Common Stock which, in the aggregate, exceeds 5% of the outstanding shares of
the Company's Common Stock, as indicated in the Company's then most recent
published report without the Company's consent. The foregoing provisions and
restrictions may be modified or waived by the agreement of the Company and the
Selling Stockholders.
This offering will terminate as to each Selling Stockholder on the
earlier of (a) the termination of the Effectiveness Period during which the
Company is required to maintain the effectiveness of the Registration Statement,
or (b) the date on which all Shares offered hereby have been sold by the Selling
Stockholders. There can be no assurance that any of the Selling Stockholders
will sell any or all of the Shares offered hereby.
Pursuant to an Escrow Agreement between the Company and the Selling
Stockholders, a total of 244,780 of the Shares will be held in an escrow until
November 28, 1998 in order to secure certain indemnification obligations of the
Selling Stockholders to the Company under the Agreement and Plan of
Reorganization for the CompReview Merger pursuant to which the Shares were
issued. Shares held in escrow may not be sold or transferred without the
Company's consent.
The Company has agreed to pay its expenses of registering the Shares
under the Securities Act, including registration and filing fees, printing
expenses, administrative expenses and certain legal and accounting fees. Each of
the Selling Stockholders will bear their pro rata share of all discounts,
commissions or other amounts payable to underwriters, dealers or agents as well
as fees and disbursements for legal counsel retained by any such Selling
Stockholders.
The Company and the Selling Stockholders have agreed to indemnify each
other and certain other related parties for certain liabilities in connection
with the registration of the Shares offered hereby.
Upon the occurrence of any of the following events, this Prospectus will
be amended to include additional disclosure before offers and sales of the
Shares are made: (a) to the extent the Shares are sold at a fixed price or at a
price other than the prevailing market price, such price would be set forth in
the Prospectus, (b) if the Shares are sold in block transactions and the
purchaser acting in the capacity of an underwriter wishes to resell, such
arrangements would be described in the Prospectus, (c) if a Selling Stockholder
sells to a broker-dealer acting in the capacity as an underwriter, such
broker-dealer will be identified in the Prospectus and (d) if the compensation
paid to broker-dealers is other than usual and customary discounts, concessions
or commissions, disclosure of the terms of the transaction would be included in
the Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company by Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California 94306. Members of the firm of Fenwick & West LLP
own an aggregate of 3,314 shares of Common Stock of the Company.
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================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER, DEALER OR AGENT. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SUCH SECURITIES BY ANYONE IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
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PAGE
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Available Information.................................................. 2
Incorporation of Certain Documents by Reference........................ 2
The Company............................................................ 3
Risk Factors........................................................... 3
Material Changes....................................................... 10
Selling Stockholders................................................... 11
Use of Proceeds........................................................ 11
Plan of Distribution................................................... 11
Legal Matters.......................................................... 13
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2,500,560 SHARES
HNC SOFTWARE INC.
COMMON STOCK
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PROSPECTUS
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April 16, 1998
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