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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______ .
COMMISSION FILE NUMBER 0-26146
HNC SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0248788
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5930 CORNERSTONE COURT WEST
SAN DIEGO, CA 92121
(Address of principal executive offices, including zip code)
(619) 546-8877
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO_____
AS OF JULY 31, 1998, THERE WERE 25,673,082 SHARES OF REGISTRANT'S COMMON STOCK,
$0.001 PAR VALUE, OUTSTANDING.
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INDEX LISTING
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Consolidated Balance Sheet at June 30, 1998 (unaudited) 3
and December 31, 1997
Consolidated Statement of Operations and Comprehensive Income (unaudited) 4
for the three and six months ended June 30, 1998 and 1997
Consolidated Statement of Cash Flows (unaudited) for 5
the six months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements (unaudited) 6
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
Item 2: CHANGES IN SECURITIES 17
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
Item 5: OTHER INFORMATION 18
Item 6: EXHIBITS AND REPORT ON FORM 8-K 19
Signatures 20
Exhibit Index 21
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
HNC SOFTWARE INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,450 $ 18,068
Investments available for sale 50,137 24,878
Accounts receivable, net 43,712 32,980
Current portion of deferred income taxes 8,873 11,310
Other current assets 5,062 2,802
--------- ---------
Total current assets 153,234 90,038
Property and equipment, net 13,183 12,102
Deferred income taxes, less current portion 19,476 15,322
Long-term investments available for sale 52,316 --
Debt issuance costs, net 2,885 --
Other assets 8,066 2,415
--------- ---------
$ 249,160 $ 119,877
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,848 $ 5,728
Accrued liabilities 12,767 5,933
Deferred revenue 8,606 3,883
Other current liabilities 150 191
--------- ---------
Total current liabilities 27,371 15,735
Convertible Subordinated Notes 100,000 --
Other non-current liabilities 94 239
Minority interest in consolidated subsidiary 103 43
Stockholders' equity:
Preferred stock, $0.001 par value - 4,000 shares authorized:
No shares issued or outstanding --
--------- ---------
Common stock, $0.001 par value - 50,000 shares authorized:
25,515 and 24,538 shares issued and outstanding, respectively 26 25
Paid-in capital 124,362 95,919
Retained earnings (2,672) 8,029
Accumulated other comprehensive income (124) (113)
--------- ---------
Total stockholders' equity 121,592 103,860
--------- ---------
$ 249,160 $ 119,877
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License and maintenance $ 33,796 $ 22,311 $ 60,678 $ 40,643
Installation and implementation 3,623 2,188 6,819 4,134
Contracts and other 3,584 1,805 6,476 4,531
Service bureau 2,138 1,289 4,249 2,357
-------- -------- -------- --------
Total revenues 43,141 27,593 78,222 51,665
-------- -------- -------- --------
Operating expenses:
License and maintenance 8,333 5,036 14,305 9,030
Installation and implementation 2,756 1,251 4,619 2,052
Contracts and other 2,829 1,454 4,705 3,304
Service bureau 1,327 919 2,360 1,783
Research and development 7,803 4,930 14,664 9,361
In-process research and development 19,083 -- 22,783 --
Sales and marketing 8,846 5,233 16,487 9,786
General and administrative 3,693 2,768 7,024 5,227
-------- -------- -------- --------
Total operating expenses 54,670 21,591 86,947 40,543
Operating (loss) income (11,529) 6,002 (8,725) 11,122
Other income, net 2,037 503 2,829 957
Interest expense (1,396) (22) (1,787) (47)
Minority interest in income of consolidated subsidiary (38) -- (60) --
-------- -------- -------- --------
Total other income, net 603 481 982 910
(Loss) income before income tax provision (10,926) 6,483 (7,743) 12,032
Income tax provision 1,790 1,524 2,958 2,861
-------- -------- -------- --------
Net(loss)income $(12,716) $ 4,959 $(10,701) $ 9,171
======== ======== ======== ========
Other comprehensive income, net of tax:
Foreign currency translation adjustments (124) 107 (3) (9)
Unrealized (losses) gains on securities available for sale (1) 48 (8) 81
-------- -------- -------- --------
Total other comprehensive income (125) 155 (11) 72
-------- -------- -------- --------
Comprehensive income (12,841) 5,114 (10,712) 9,243
-------- -------- -------- --------
Earnings per share:
Basic net (loss) income per common share $ (0.50) $ 0.20 $ (0.43) $ 0.38
======== ======== ======== ========
Diluted net (loss) income per common share $ (0.50) $ 0.19 $ (0.43) $ 0.36
======== ======== ======== ========
Shares used in computing basic net (loss) income per common share share 25,290 24,207 24,987 24,143
======== ======== ======== ========
Shares used in computing diluted net (loss) income per common share 25,290 25,521 24,987 25,464
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (10,701) $ 9,171
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 3,672 2,141
Purchased research and development 22,782 --
Tax benefit from stock option transactions 2,958 2,427
Changes in assets and liabilities:
Accounts receivable, net (8,573) (2,933)
Other assets (993) (443)
Deferred income taxes 1,571 2,410
Accounts payable (317) (303)
Accrued liabilities 2,502 (802)
Deferred revenue 203 1,089
Other liabilities (217) (73)
--------- ---------
Net cash provided by operating activities 12,887 12,684
--------- ---------
Cash flows from investing activities:
Purchases of investments (99,030) (21,546)
Maturities of investments 17,504 6,350
Proceeds from sale of investments 4,000 5,038
Cash purchased in business acquisition 648 --
Acquisitions, net of cash acquired (6,249)
Acquisitions of property and equipment (3,399) (2,786)
--------- ---------
Net cash used in investing activities (86,526) (12,944)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuances of common stock 4,900 1,698
Proceeds from issuances of Convertible Subordinated Notes 100,000 --
Debt issuance costs (2,933) --
Repayment of bank line of credit (770)
Repayment of capital lease obligations (105) (252)
Distributions to CompReview Stockholders -- (3,599)
--------- ---------
Net cash provided by (used in) financing activities 101,092 (2,153)
--------- ---------
Effect of exchange rate changes on cash (71) (9)
--------- ---------
Net increase (decrease) in cash and cash equivalents 27,382 (2,422)
Cash and cash equivalents at the beginning of the period 18,068 8,121
--------- ---------
Cash and cash equivalents at the end of the period $ 45,450 $ 5,699
========= =========
Significant non-cash investing activities:
Assets assumed in acquisitions of PCS, FTI, and ATACS $ 9,929 $-
========= =========
Liabilities assumed in acquisitions of PCS, FTI, and ATACS $ 7,297 $-
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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HNC SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 GENERAL
In management's opinion, the accompanying unaudited consolidated
financial statements for HNC Software Inc. (the "Company") for the three months
and six months ended June 30, 1998 and 1997 have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and include all adjustments (consisting only of normal recurring accruals) that
the Company considers necessary for a fair presentation of its financial
position, results of operations, and cash flows for such periods. However, the
accompanying financial statements do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All such financial statements are unaudited except the
December 31, 1997 balance sheet. This Report and the accompanying unaudited and
audited financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto presented in its Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1997 (the "1997 Annual
Report"). Footnotes that would substantially duplicate the disclosures in the
Company's audited financial statements for the fiscal year ended December 31,
1997 contained in the 1997 Annual Report have been omitted. The interim
financial information contained in this Report is not necessarily indicative of
the results to be expected for any other interim period or for the full fiscal
year ending December 31, 1998.
NOTE 2 BASIS OF PRESENTATION
The consolidated financial statements and related notes contained in
this Report give retroactive effect to the Company's November 28, 1997
acquisition of CompReview, Inc., accounted for as a pooling of interests, for
all periods presented. The acquisitions of Practical Control Systems
Technologies, Inc. ("PCS") and Financial Technology, Inc. ("FTI") were completed
on March 31, 1998 and April 7, 1998, respectively, and accounted for as
purchases as of the respective acquisition dates. In addition, the acquisition
of the Advanced Telecommunications Abuse Control System ("ATACS") product line
of Bedford Associates, Inc., which is a wholly owned subsidiary of British
Airways plc, was completed on June 11, 1998 and accounted for as a purchase as
of that date. In connection with these acquisitions, acquired in-process
research and development in the aggregate amount of $22.8 million was charged to
operations at the respective acquisition dates.
NOTE 3 ACQUISITIONS
On March 31, 1998, the Company acquired PCS, based in Cincinnati,
Ohio. PCS, founded in 1985, is a supplier of fully integrated distribution
center management software that addresses the distribution business needs of the
retail, manufacturing and wholesale industries. HNC acquired PCS in exchange for
142,868 shares of HNC common stock, 14,286 of which are subject to an escrow to
secure certain indemnification obligations of the former PCS stockholders plus
the contingent right, subject to PCS' achievement of certain financial
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objectives during calendar 1998 and 1999, to receive certain additional shares
of HNC common stock.
On April 7, 1998, the Company acquired FTI. Incorporated in 1982, FTI
is a provider of profitability measurement and decision-support software to the
financial services industry and serves a substantial user base in the United
States, Canada, and Europe. HNC acquired FTI in exchange for the issuance of
396,617 shares of HNC common stock, 97,390 of which are subject to an escrow to
secure certain indemnification obligations of the former FTI stockholders; a
cash payment of $1.5 million; and the contingent right, subject to FTI's
achievement of certain financial objectives during calendar 1998, to receive up
to $5,590,000 of HNC common stock.
On June 11, 1998, the Company acquired the ATACS product line. ATACS,
a subsidiary of Bedford Associates, Inc., which is a wholly owned subsidiary of
British Airways plc, is a fraud-management software solution for wireline,
wireless and Internet telecommunication service providers. HNC acquired the
ATACS product line for a cash payment of $4.75 million.
NOTE 4 COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS
130"). FAS 130 requires the Company to report in the financial statements, in
addition to net income, comprehensive income and its components including
foreign currency items and unrealized gains and losses on certain investments in
debt and equity securities. Comprehensive income is defined as "the change in
equity (net assets) of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners."
NOTE 5 RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to
the current period presentation.
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NOTE 6 RECONCILIATION OF NET (LOSS) INCOME AND SHARES USED IN PER SHARE
COMPUTATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET (LOSS) INCOME USED:
Net (loss) income used in computing
basic and diluted net (loss) income
per common share $(12,716) $ 4,959 $(10,701) $ 9,171
======== ======== ======== ========
SHARES USED:
Shares used in computing basic net
(loss) income per common share 25,290 24,207 24,987 24,143
Weighted average options to purchase
common stock as determined by
application of the treasury stock
method -- 1,297 -- 1,304
Purchase Plan common stock
equivalents -- 17 -- 17
-------- -------- -------- --------
Shares used in computing diluted net
(loss) income per common share 25,290 25,521 24,987 25,464
======== ======== ======== ========
</TABLE>
For the three and six month periods ended June 30, 1998, common stock
equivalents of approximately 1,385,000 and 1,449,000 shares, respectively, were
not used to calculate diluted net (loss) income per share because of their
anti-dilutive effect. The conversion of the Company's 4.75% convertible
subordinated notes for the three and six month periods ended June 30, 1998 of
2,230,000 and 1,319,000 shares, respectively, were not used to calculate diluted
net (loss) income per share as their effect would be anti-dilutive.
NOTE 7 NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133") which the Company will be required to adopt
for its 2000 annual financial statements. This statement establishes a new model
for accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company had not determined the impact of the adoption of this new
accounting standard on its consolidated financial position or results of
operations.
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HNC SOFTWARE INC.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS: NO ASSURANCES INTENDED
This Report (including without limitation the following section
regarding Management's Discussion and Analysis of Financial Condition and
Results of Operations) contains certain forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) regarding the Company and its business,
financial condition, results of operations and prospects. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks" and
"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 Report. 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 Report 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 or
anticipated by the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include without
limitation those discussed in "Potential Fluctuations in Operating Results" as
well as those discussed elsewhere in this Report. Readers are urged not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Report. 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 Report. Readers are urged to carefully
review and consider the various disclosures made by the Company in this Report,
which attempt to advise interested parties of the risks and factors that may
affect the Company's business, financial condition, 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. Factors affecting the
Company's revenues and operating results include, but are not limited to: the
degree of acceptance of the Company's products; by the markets and industries
served by the Company; the historical tendency of the Company to receive, during
a given fiscal period, a small number of relatively large customer orders, such
that failure to recognize revenue from any such order in that fiscal period may
disproportionately and adversely affect the Company's revenues and operating
results for that fiscal period; customer cancellation of long-term contracts
that yield recurring revenues or customers' ceasing their use of Company
products for which the Company receives recurring, usage-based fees and disputes
with customers regarding fees payable to the Company; the lengthy sales cycle of
most of the Company's products; the Company's ability to successfully and timely
develop, introduce and market new products and product enhancements; the timing
of new product announcements and
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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 timely achieve progress and fulfill its obligations under contracts
on which revenue is recognized in the percentage-of-completion basis; the
Company's success in completing certain pilot installations within contracted
fee budgets; competitive conditions in the enterprise software 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, with the result
that, even if the Company meets or exceeds its forecast of aggregate licensing
and other contracting activity for a given fiscal period, it is possible that
the Company's revenues for that fiscal period would not meet expectations.
Furthermore, the Company's operating results may be affected by factors unique
to certain of its product lines. For example, although in the past a large
portion of the Company's revenues were derived from contracts providing for
periodic, recurring fees, the Company now derives a substantial and increasing
portion of its revenues from products (particularly products for the retail
industry) priced as "perpetual" license transactions in which the Company
receives a one-time license fee that is recognized 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 that fluctuations in its operating results will
continue for the foreseeable future. Consequently, the Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an indication of future performance. Because the Company's expense levels are
based in part on its expectations regarding future revenues and are fixed to a
large extent in the short term, in the event of an unexpected revenue shortfall
during a fiscal period, the Company may be unable to adjust spending in time to
maintain anticipated operating results for that fiscal period. Accordingly, the
Company may not be able to maintain profitability on a quarterly or annual basis
in the future. Due to some or all of the foregoing factors, or other 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 market price of the Company's common stock and, in turn, the market price of
the Company's 4.75% convertible subordinated notes due 2003 (the "Notes"), would
likely be materially adversely affected.
YEAR 2000 COMPLIANCE
It is generally anticipated that many organizations will experience
operational difficulties at the beginning of the Year 2000 as a result of the
fact that many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Significant
uncertainty exists in the software and other industries concerning the scope and
magnitude of problems associated with the century change. Based on the Company's
assessment to date, the Company believes that the current version of each of its
material products is Year 2000 compliant. However, there can be no assurance
that all of the Company's customers will install the Year 2000 compliant version
of the Company's products in a timely manner, which could lead to failure of
customer systems and product liability claims against the Company. The Company
is assessing the products it has acquired in its recent acquisitions for Year
2000 compliance. The inability of the Company to complete its assessment and any
necessary modifications to these recently acquired products could
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have a material adverse effect on the Company's business, financial condition
and results of operations. Even if the Company's products are Year 2000
compliant, the Company may in the future be subject to claims based on Year 2000
issues in the products of other companies, or issues arising from the
integration of multiple products within a system. The costs of defending and
resolving Year 2000-related disputes, and any liability of the Company for Year
2000-related damages, including consequential damages, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, the Company's products are generally used with enterprise
systems involving complicated software products developed by other vendors,
which may not be Year 2000 compliant. In particular, many of the Company's
customers are financial institutions, insurance companies and other companies
with insurance and financial services businesses, all of which use legacy
computer systems that are expected to be particularly susceptible to Year 2000
compliance issues. If the Company's customers are unable to use their
information systems because of the failure of such noncompliant systems or
software or for any other reason, there would be a decrease in the volume of
transactions that the Company's customers process using the Company's products.
As a result, the Company's recurring revenue in the form of transactional fees
from customers in the insurance and financial services markets would decline,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Such failure could also affect the
perceived performance of the Company's products, which could have a negative
effect on the Company's competitive position. In addition, 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.
The Company is reviewing its major internal corporate systems for
Year 2000 compliance and intends to take appropriate action based on the results
of such review. The Company's plan for the Year 2000 calls for compliance
verification of external vendors supplying software and information systems to
the Company and communication with significant suppliers to determine the
readiness of third parties' remediation of their own Year 2000 issues. As part
of its assessment, the Company is evaluating the level of validation it will
require of third parties to ensure their Year 2000 readiness. To date, the
Company has not encountered any material Year 2000 issues concerning its
computer systems. The Company plans to complete its Year 2000 research and
testing by the end of 1998. All costs associated with carrying out the Company'
plan for the Year 2000 compliance are being expensed as incurred. The total cost
associated with preparation for the Year 2000 has not been, and is not expected
to be, material to the Company's business, financial condition or results of
operations. Nevertheless, the Company may not timely identify and remediate all
significant Year 2000 problems and remedial efforts may involve significant time
and expense. There can be no assurance that any Year 2000 compliance problems of
the Company or its customers or suppliers will not have a material adverse
effect on the Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
HNC develops, markets and supports predictive software solutions for
several leading service industries. These predictive software solutions may
employ proprietary neural-network predictive decision engines, profiles,
traditional statistical modeling, business models, expert
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rules and context vectors to convert existing data and business experiences into
meaningful recommendations and actions. HNC has developed a growing family of
predictive software products that provide specific solutions for each of the
healthcare/insurance, financial services and retail markets. The Company's
healthcare/insurance products, which are developed and marketed by its Insurance
Solutions subsidiary, emphasize the workmen's compensation field and provide a
variety of solutions to insurers, parties who administer insurance claims and
health care administrators. HNC's products for the financial services market
include products targeted at bank and private label payment card issuers and
payment processors and products that allow lenders to automate the loan approval
decision process. For the retail industry, HNC has developed a group of products
that address inventory control, merchandise management and financial control
management.
The Company's revenues are comprised of license and maintenance
revenues, installation and implementation revenues, contracts and other revenues
and service bureau revenues. The Company's revenues for the three months ended
June 30, 1998 were $43.1 million, an increase of 56% over revenues of $27.6
million for the same period in the prior year. The Company's revenues for the
six months ended June 30, 1998 were $78.2 million, an increase of 51% over
revenues of $51.7 million for the same period in the prior year.
LICENSE AND MAINTENANCE REVENUES. License and maintenance revenues
were $33.8 million for the quarter ended June 30, 1998, an increase of 51% from
$22.3 million for the comparable quarter in 1997. License and maintenance
revenues were $60.7 million for the six months ended June 30, 1998, an increase
of 49% from $40.6 million for the comparable period in 1997. The Company's
license and maintenance revenues are derived from periodic recurring license and
maintenance fees and perpetual license fees. These increases in license and
maintenance revenues were due primarily to the growth of license fee revenues
from the retail and financial services industry segments. The increase in
license and maintenance revenues in the retail industry was primarily due to an
increase in sales of the Retek suite of products and sales related to the
recently acquired company, PCS. The increase in the financial services industry
is attributable to an increase in sales of the Falcon and Capstone product lines
and sales of the ProfitMax product. Sales generated by the recently acquired
company, FTI, also contributed to this increase.
INSTALLATION AND IMPLEMENTATION REVENUES. Installation and
implementation revenues for the quarter ended June 30, 1998 were $3.6 million,
an increase of 66% from $2.2 million for the quarter ended June 30, 1997.
Additionally, installation and implementation revenues for the six months ended
June 30, 1998 were $6.8 million, an increase of 65% from $4.1 million for the
six months ended June 30, 1997. These increases were primarily due to new
installations within the financial services industry, primarily related to the
ProfitMax and Capstone product lines. Revenues from installation and
implementation services are generally recognized as the services are performed
using the percentage of completion method based on costs incurred to date
compared to total estimated costs at completion.
CONTRACTS AND OTHER REVENUES. Contracts and other revenues for the
three months ended June 30, 1998 were $3.6 million, an increase of 99% from $1.8
million for the same period in the prior year. Likewise, contracts and other
revenues for the six months ended June 30, 1998 were $6.5 million, an increase
of 43% from $4.5 million for the same period in the prior year. Contracts and
other revenues are derived primarily from development and consulting contracts
with commercial customers and, to a lesser extent, research and development
contracts with the
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United States Government. Revenues for new product pilots (i.e., the first
production installation of a new product) are also reported as contract and
other revenues. Revenues from contract services are generally recognized as the
services are performed using the percentage of completion method based on costs
incurred to date compared to total estimated costs at completion. These
increases were attributable to increases in consulting contracts with commercial
customers primarily in the retail industry segment.
SERVICE BUREAU REVENUES. Service bureau revenues for the three months
ended June 30, 1998 were $2.1 million, an increase of 66% from $1.3 million for
the same period in the prior year. Service bureau revenues for the six months
ended June 30, 1998 were $4.2 million, an increase of 80% from $2.4 million for
the same period in the prior year. This increase was attributable to an increase
in the number of customers utilizing the Company's CRLink service bureau
operations.
LICENSE AND MAINTENANCE EXPENSES. License and maintenance expenses
primarily consist of the Company's expenses for personnel engaged in customer
support activities, costs of travel to customer sites and the costs of
documentation materials. License and maintenance expenses for the second quarter
of 1998 were $8.3 million and constituted 25% of license and maintenance
revenues for the quarter, whereas such expenses were $5.0 million and
represented 23% of license and maintenance revenues in the second quarter of
1997. Additionally, license and maintenance expenses for the six months ended
June 30, 1998 were $14.3 million and represented 24% of license and maintenance
revenues for that six-month period, whereas such expenses were $9.0 million and
represented 22% of license and maintenance revenues for the six months ended
June 30, 1997. The primary reason for the increase in these expenses, in
absolute dollars and as a percent of revenues, was increased staffing and
associated costs in client services to support an increased volume of business.
INSTALLATION AND IMPLEMENTATION EXPENSES. Installation and
implementation expenses for the second quarter of 1998 were $2.8 million and 76%
of installation and implementation revenues, whereas such expenses were $1.3
million and 57% of installation and implementation revenues during the second
quarter of 1997. Installation and implementation expenses for the first six
months of 1998 were $4.6 million and 68% of installation and implementation
revenues, whereas such expenses were $2.1 million and 50% of installation and
implementation revenues during the first six months of 1997. The primary reason
for the increase in these expenses in absolute dollars was increased staffing
and associated costs to support an increased volume of business. Installation
and implementation expenses as a percent of installation and implementation
revenues increased during the quarter and six months ended June 30, 1998,
respectively, as compared to the respective periods in 1997. The associated
decrease in gross margins was a result of a shift in the mix of implementations
within the financial services segment due primarily to an increase in Capstone
implementations, which have substantially lower margins than implementations of
the Falcon products.
CONTRACTS AND OTHER EXPENSES. Contracts and other expenses consist
primarily of personnel-related expenses associated with the Company's
performance of such development, consulting, and research and development
contracts. Contracts and other expenses in the second quarter of 1998 were $2.8
million or 79% of contracts and other revenues as compared to $1.5
13
<PAGE> 14
million or 81% of such revenues in the second quarter of 1997. Contracts and
other expenses for the first six months of 1998 were $4.7 million or 73% of
contracts and other revenues as compared to $3.3 million or 73% of such revenues
for the first six months of 1997. The decreases in the second quarter expenses
as a percentage of contracts and other revenues were due to the increase in
revenue from commercial consulting contracts in the retail industry out pacing
the increase in costs to support the increased volume in business. The remaining
development contracts were primarily retail consulting contracts, government
contacts and on-going model development projects, which typically yield lower
margins than commercial new product pilot contracts.
SERVICE BUREAU EXPENSES. Service bureau expenses during the second
quarter of 1998 were $1.3 million or 62% of service bureau revenues as compared
to $919,000 or 71% of such revenues during the second quarter of 1997. Service
bureau expenses during the first six months of 1998 were $2.4 million or 56% of
service bureau revenues as compared to $1.8 million or 76% of such revenues
during the first six months of 1997. The associated increases in gross margins
were the result of increases in the number of "complex" bills processed, which
typically yield higher margins than normal bills.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
in the second quarter of 1998 were $7.8 million or 18% of total revenues
compared to $4.9 million or 18% of total revenues in the second quarter of the
prior year. Research and development expenses for the first six months of 1998
were $14.7 million or 19% of total revenues compared to $9.4 million or 18% of
total revenues for the first six months of the prior year. The increase in these
expenses in absolute dollars was due primarily to increases in staffing and
related costs to support increased product development activities, primarily
related to enhancements to the healthcare/insurance and retail segment products
and, to a lesser extent, the financial services segment products.
IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES. In-process research and
development expenses were $19.1 million and $22.8 million for the three and six
month periods ended June 30, 1998, respectively. These one-time write-offs were
related to the acquisitions of PCS and FTI and the asset purchase of ATACS
during the first six months of 1998.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $8.8
million or 21% of total revenues in the second quarter of 1998 compared to $5.2
million or 19% of total revenues in the second quarter of 1997. Sales and
marketing expenses were $16.5 million or 21% of total revenues in the first six
months of 1998 compared to $9.8 million or 19% of total revenues in the first
six months of 1997. The increases in sales and marketing expenses were due
primarily to increases in staffing related to the Company's expansion of its
direct sales and marketing staff, including opening sales offices in Canada,
Germany, South Africa, France and Japan.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses were $3.7 million or 9% of total revenues in the second quarter of
1998, compared to $2.8 million or 10% of total revenues in the second quarter of
the prior year. General and administrative expenses were $7.0 million or 9% of
total revenues in the first six months of 1998, compared to $5.2 million or 10%
of total revenues in the first six months of the prior year. General and
14
<PAGE> 15
administrative expenses, excluding acquisition related costs of $428,000, were
$3.3 million or 8% of total revenues in the second quarter of 1998, compared to
$2.8 million or 10% of total revenues in the second quarter of the prior year.
General and administrative expenses, excluding acquisition related costs of
$673,000, were $6.4 million or 8% of total revenues in the first six months of
1998, compared to $5.2 million or 10% of total revenues in the first six months
of the prior year. The increase in absolute dollars was due primarily to
increased staffing and related expenses, including recruiting costs, to support
higher levels of sales and development activity of the Company resulting in part
from the Company's recent acquisitions.
TOTAL OTHER INCOME, NET. Other income for the second quarter of 1998
was $603,000 compared to $481,000 in the second quarter of the prior year. Other
income for the first six months of 1998 was $982,000 compared to $910,000 in the
first six months of the prior year. Other income is comprised primarily of
interest income earned on cash and investment balances, net of interest expense
related to the 4.75% convertible subordinated notes due 2003. The increase is
the result of increased interest income related to the increase in investments,
partially offset by the interest expense related to the notes.
INCOME TAX PROVISION. The income tax provisions of $1.8 million and
$1.5 million in the second quarters of 1998 and 1997, respectively, and the
income tax provisions of $3.0 million and $2.9 million during the first six
months of 1998 and 1997, respectively, are based on management's estimates of
the effective tax rates to be incurred by the Company during those respective
full fiscal years. The income tax provisions of $1.8 million and $3.0 million
for the three and six month periods ended June 30, 1998, respectively, include
the tax effects for the permanent differences generated by the one-time
write-offs of in-process research and development related to the purchase of FTI
in the second quarter of 1998 and the purchase of both PCS and FTI during the
six months ended June 30,1998. The income tax provision of $1.5 million in the
second quarter of 1997 and $2.9 million during the first six months of 1997 was
lower than 1997 taxes at statutory rates primarily as a result of CompReview's
subchapter S corporation status prior to the acquisition, which resulted in
CompReview's tax liability being borne by its former stockholders. As of the
date of the acquisition, CompReview's tax status was changed to C corporation.
In the future, the Company expects that the effective tax rate will be
reflective of the tax rate of other California-based companies.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the first six months
of 1998 was $12.9 million, which primarily represented net income before
non-cash charges for purchased research and development and depreciation and
amortization of approximately $15.8 million, offset in part by an increase in
accounts receivable. Net cash used in investing activities was $86.5 million
during the first six months of 1998, primarily due to net purchases of
investments of $81.5 million. Net cash provided by financing activities of
$101.1 million during the first six months of 1998 was primarily related to
proceeds from the issuance of the Company's 4.75% convertible subordinated notes
due 2003 of $100.0 million issued in conjunction with the Company's debt
offering in March 1998 and net proceeds of $4.9 million from the issuance of
common stock. This was partially offset by costs of approximately $2.9 million
related to the issuance of the above-mentioned convertible subordinated notes.
15
<PAGE> 16
At June 30, 1998, the Company had $147.9 million in cash, cash
equivalents and investments available for sale. The Company believes that its
current cash, cash equivalents and investments available for sale balances,
borrowings under its credit facility and net cash provided by operating
activities, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment-grade securities. A portion of the
Company's cash could also be used to acquire or invest in complementary
businesses or products or otherwise to obtain the right to use complementary
technologies or data. From time to time, in the ordinary course of business, the
Company evaluates potential acquisitions of such businesses, products,
technologies or data.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 2: CHANGES IN SECURITIES
(c) As disclosed in the Report on Form 10-Q filed by HNC for its
fiscal quarter ended March 31, 1998 and in its report on Form
8-K filed April 22, 1998, on April 7, 1998 HNC issued 396,617
shares of its Common Stock as consideration for HNC's
acquisition of Financial Technology, Inc. ("FTI"), a provider
of profitability measurement and decision support software to
the financial services industry. These shares were issued by
HNC in a merger transaction in which FTI became a wholly-owned
subsidiary of HNC. Of the 396,617 shares of common stock
issued to the former FTI shareholders, 97,390 are subject to
an escrow to secure certain indemnification obligations of
such shareholders to HNC. The FTI shareholders also have the
contingent right, subject to FTI's achievement of certain
financial objectives during calendar 1998, to receive up to an
additional $5,590,000 of HNC common stock based on a formula.
The shares issued by HNC in this transaction were offered and
sold solely to the shareholders of FTI in exchange for the
transfer of their entire ownership interests in FTI in the
merger. The shares of HNC common stock issued in the FTI
merger were issued without registration under the 1933 Act in
reliance on the exemptions afforded by Section 4(2) of the
1933 Act and Rule 506 of Regulation D promulgated under the
1933 Act. In relying upon the foregoing exemptions, HNC took
into account, among other things, the limited number of FTI's
shareholders (3 shareholders in total), the manner of HNC's
offering to such shareholders, the information regarding FTI,
HNC and the merger furnished to such shareholders, the
representation of FTI by its legal counsel and the
representations and warranties made by FTI and the FTI
shareholders to HNC in connection with the transaction.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1997 Annual Meeting of Stockholders on May 21,
1998 (the "Annual Meeting"). At the Annual Meeting, the Company's stockholders
elected the Company's Board of Directors and approved the proposals described
more fully below. Proxies were solicited by the Company pursuant to Regulation
14A under the Securities and Exchange Act of 1934, as amended.
As of March 27, 1998, the record date for the Annual Meeting, there
were approximately 24,727,776 shares of the Company's Common Stock outstanding
and entitled to vote, of which 21,472,944 shares were present in person or by
proxy at the Annual Meeting. The directors of the Company who were elected at
the Annual Meeting were: Edward K. Chandler, Oliver D. Curme, Thomas F. Farb,
Charles H. Gaylord, Jr. and Robert L. North.
The proposals considered at the Annual Meeting were voted on as
follows:
1. Election of Directors. Proposal to elect five directors of the
Company, each to serve until the next Annual Meeting of Stockholders
and until his successor is duly elected and qualified or until his
earlier resignation or removal.
17
<PAGE> 18
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Nominees
Edward K. Chandler 21,240,886 232,058
Oliver D. Curme 21,241,186 231,758
Thomas L. Farb 21,252,766 220,178
Charles H. Gaylord, Jr. 21,254,177 218,767
Robert L. North 21,255,724 217,220
</TABLE>
2. Amendment to the 1995 Equity Incentive Plan. Proposal to amend the
Company's 1995 Equity Incentive Plan to increase the number of shares
of the Company's Common Stock reserved for issuance thereunder by
1,000,000.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
13,552,043 7,878,067 42,834
</TABLE>
3. Ratification of Auditors. Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's auditors for the
Company's fiscal year ending December 31, 1998.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
21,344,302 77,895 50,747
</TABLE>
Item 5: OTHER INFORMATION
The following statement is provided pursuant to Rule 14a-5
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended: Proxies solicited by the Company for the
Company's 1999 Annual Meeting of Stockholders will be voted in the discretion of
the persons voting such proxies with respect to all proposals presented by
stockholders for consideration at such meeting after March 23, 1999.
QUALIFIED SMALL BUSINESS STOCK
The Company is currently conducting a study to determine if
it was a qualified small business within the meaning of Internal Revenue Code
("IRC") Section 1202 from the period beginning after August 10, 1993 through
December 14, 1995. The Company's preliminary analysis indicates its tax
bases of gross assets exceeded the statutory limit after December 14, 1995 and
therefore does not meet the qualified small business test after that date.
If the Company determines it is a qualified small business, qualified
stockholders who acquired their shares at original issue after August 10, 1993
and before December 14, 1995 and who meet a holding period requirement may be
eligible for special income tax treatment upon the sale (or reimbursement of
sale proceeds) of their shares. Additionally, qualified stockholders who
acquired shares of the Company's stock in connection with the Company's
acquisition of their company may be eligible for special income tax treatment
upon the sale of their shares of the Company's stock if the acquired company was
a qualified small business within the meaning of IRC Section 1202.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i).01 Registrant's Bylaws, as amended.
10.01 Registrant's 1995 Equity Incentive Plan and related
documents, as amended.
10.02 Registrant's 1998 Stock Option Plan, as amended.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
On April 21, 1998, the Company filed a Report on Form 8-K filed
with respect to an event dated April 7, 1998 (the acquisition
of Financial Technology, Inc. described in Item 2). No other
reports on Form 8-K were filed during the quarter ended June
30, 1998.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
HNC SOFTWARE INC.
Date: August 14, 1998 By: /s/ Raymond V. Thomas
---------------------
Raymond V. Thomas
Vice President, Finance &
Administration and
Chief Financial Officer
(for Registrant as duly authorized
officer and as Principal
Financial Officer and Principal
Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
3(i).01 Registrant's Bylaws, as amended.
10.01 Registrant's 1995 Equity Incentive Plan and related documents, as
amended.
10.02 Registrant's 1998 Stock Option Plan, as amended.
27.01 Financial Data Schedule.
</TABLE>
20
<PAGE> 1
EXHIBIT 3(i).01
================================================================================
BYLAWS
OF
HNC SOFTWARE INC.
(A DELAWARE CORPORATION)
AS ADOPTED APRIL 19, 1995
AND AMENDED MARCH 20, 1998
================================================================================
<PAGE> 2
BYLAWS
OF
HNC SOFTWARE INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS ............................................................ 1
Section 1.1: Annual Meetings............................................. 1
Section 1.2: Special Meetings............................................ 1
Section 1.3: Notice of Meetings.......................................... 1
Section 1.4: Adjournments................................................ 1
Section 1.5: Quorum...................................................... 2
Section 1.6: Organization................................................ 2
Section 1.7: Voting; Proxies............................................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record................................................... 3
Section 1.9: List of Stockholders Entitled to Vote....................... 3
Section 1.10: Action by Written Consent of Stockholders.................... 4
Section 1.11: Inspectors of Elections..................................... 5
Section 1.12: Notice of Stockholder Business; Nominations................. 6
ARTICLE II - BOARD OF DIRECTORS......................................................... 8
Section 2.1: Number; Qualifications...................................... 8
Section 2.2: Election; Resignation; Removal; Vacancies................... 8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.3: Regular Meetings............................................ 8
Section 2.4: Special Meetings............................................ 8
Section 2.5: Telephonic Meetings Permitted............................... 9
Section 2.6: Quorum; Vote Required for Action............................ 9
Section 2.7: Organization................................................ 9
Section 2.8: Written Action by Directors................................. 9
Section 2.9: Powers...................................................... 9
Section 2.10: Compensation of Directors................................... 9
ARTICLE III - COMMITTEES ............................................................ 10
Section 3.1: Committees.................................................. 10
Section 3.2: Committee Rules............................................. 10
ARTICLE IV - OFFICERS ............................................................ 11
Section 4.1: Generally................................................... 11
Section 4.2: Chief Executive Officer..................................... 11
Section 4.3: Chairman of the Board....................................... 12
Section 4.4: President................................................... 12
Section 4.5: Vice President.............................................. 12
Section 4.6: Chief Financial Officer..................................... 12
Section 4.7: Treasurer................................................... 12
Section 4.8: Secretary................................................... 12
Section 4.9: Delegation of Authority..................................... 12
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.10: Removal..................................................... 13
ARTICLE V - STOCK ............................................................ 13
Section 5.l: Certificates................................................ 13
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate................................. 13
Section 5.3: Other Regulations........................................... 13
ARTICLE VI - INDEMNIFICATION............................................................ 13
Section 6.1: Indemnification of Officers and Directors................... 13
Section 6.2: Advance of Expenses......................................... 14
Section 6.3: Non-Exclusivity of Rights................................... 14
Section 6.4: Indemnification Contracts................................... 14
Section 6.5: Effect of Amendment......................................... 14
ARTICLE VII - NOTICES ............................................................ 15
Section 7.l: Notice...................................................... 15
Section 7.2: Waiver of Notice............................................ 15
ARTICLE VIII - INTERESTED DIRECTORS..................................................... 15
Section 8.1: Interested Directors; Quorum................................ 15
ARTICLE IX - MISCELLANEOUS ............................................................ 16
Section 9.1: Fiscal Year................................................. 16
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.2: Seal........................................................ 16
Section 9.3: Form of Records............................................. 16
Section 9.4: Reliance Upon Books and Records............................. 16
Section 9.5: Certificate of Incorporation Governs........................ 16
Section 9.6: Severability................................................ 16
ARTICLE X - AMENDMENT ............................................................ 17
Section 10.1: Amendments.................................................. 17
</TABLE>
-iv-
<PAGE> 6
BYLAWS
OF
HNC SOFTWARE INC.
(a Delaware corporation)
As Adopted April 19, 1995
and Amended March 20, 1998
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President, the holders of shares of the Corporation
that are entitled to cast not less than ten percent (10%) of the total number of
votes entitled to be cast by all shareholders at such meeting, or by a majority
of the members of the Board of Directors. Special meetings may not be called by
any other person or persons. If a special meeting of stockholders is called by
any person or persons other than by a majority of the members of the Board of
Directors, then such person or persons shall call such meeting by delivering a
written request to call such meeting to each member of the Board of Directors,
and the Board of Directors shall then determine the time, date and place of such
special meeting, which shall be held not more than one hundred twenty (120) nor
less than thirty-five (35) days after the written request to call such special
meeting was delivered to each member of the Board of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the
<PAGE> 7
adjournment is taken; provided, however, that if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, then a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting. At the adjourned
meeting the Corporation may transact any business that might have been
transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, at the
meeting may adjourn the meeting. Shares of the Corporation's stock belonging to
the Corporation (or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation are held,
directly or indirectly, by the Corporation), shall neither be entitled to vote
nor be counted for quorum purposes; provided, however, that the foregoing shall
not limit the right of the Corporation or any other corporation to vote any
shares of the Corporation's stock held by it in a fiduciary capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided over
by such person as the Board of Directors may designate, or, in the absence of
such a person, the Chairman of the Board, or, in the absence of such person, the
President of the Corporation, or, in the absence of such person, such person as
may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken by
written ballot, then each such ballot shall state the name of the stockholder or
proxy voting and such other information as the chairman of the meeting deems
appropriate. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of
-2-
<PAGE> 8
Incorporation or these Bylaws, every matter other than the election of directors
shall be decided by the affirmative vote of the holders of a majority of the
shares of stock entitled to vote thereon that are present in person or
represented by proxy at the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
(a) Generally. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Stockholder Request for Action by Written Consent. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent without a meeting shall, by written notice to the Secretary of
the Corporation, request the Board of Directors to fix a record date for such
consent. Such request shall include a brief description of the action proposed
to be taken. The Board of Directors shall, within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
Such record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and shall not be more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the Board
of Directors within ten (10) days after the date on which such a request is
received, then the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, to its principal place of business, or to any officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by applicable law, then
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such prior
action.
-3-
<PAGE> 9
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
(a) Procedure. Unless otherwise provided by the Certificate of
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Written stockholder consents shall bear the date of signature of each
stockholder who signs the consent and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, to its principal
place of business or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent shall
be effective to take the action set forth therein unless, within sixty (60) days
of the earliest dated consent delivered to the Corporation in the manner
provided above, written consents signed by a sufficient number of stockholders
to take the action set forth therein are delivered to the Corporation in the
manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a "Certificate Action"), then if the Delaware General Corporation Law so
requires, the certificate so filed shall state that written stockholder consent
has been given in accordance with Section 228 of the Delaware General
Corporation Law and that written notice of the taking of corporate action by
stockholders without a meeting as described herein has been given as provided in
such section.
Section 1.11: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of
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this Section 1.11 shall apply only if and when the Corporation has a class of
voting stock that is: (i) listed on a national securities exchange; (ii)
authorized for quotation on an interdealer quotation system of a registered
national securities association; or (iii) held of record by more than 2,000
stockholders; in all other cases, observance of the provisions of this Section
1.11 shall be optional, and at the discretion of the Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
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information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual meeting
(except in the case of the 1995 annual meeting, for which such notice shall be
timely if delivered in the same time period as if such meeting were a special
meeting governed by subparagraph (b) of this Section 1.12); provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, and (2) the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
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(iii) Notwithstanding anything in the second sentence of
subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
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(ii) For purposes of this Section 1.12, the term "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
of one or more members. The current number of directors shall be five (5),* and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of
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* Amendment on March 20, 1998 changed the number of directors from six (6) to
five (5).
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Delaware, as the person or persons calling the meeting shall fix. Notice of the
time, date and place of such meeting shall be given, orally or in writing, by
the person or persons calling the meeting to all directors at least four (4)
days before the meeting if the notice is mailed, or at least twenty-four (24)
hours before the meeting if such notice is given by telephone, hand delivery,
telegram, telex, mailgram, facsimile or similar communication method. Unless
otherwise indicated in the notice, any and all business may be transacted at a
special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
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ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of a
Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not designated
any other officer to be the Chief Executive Officer, then the Chairman of the
Board shall be the Chief Executive Officer.
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Section 4.3: Chairman of the Board. The Chairman of the Board shall have
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive Officer
of the Corporation unless the Board of Directors shall have designated another
officer as the Chief Executive Officer of the Corporation. Subject to the
provisions of these Bylaws and to the direction of the Board of Directors, and
subject to the supervisory powers of the Chief Executive Officer (if the Chief
Executive Officer is an officer other than the President), and subject to such
supervisory powers and authority as may be given by the Board of Directors to
the Chairman of the Board and/or to any other officer, the President shall have
the responsibility for the general management the control of the business and
affairs of the Corporation and the general supervision and direction of all of
the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies and
securities of the Corporation. The Treasurer shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
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Section 4.10: Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation. Any or all of the signatures on the certificate
may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion
and registration of stock certificates shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who was
or is made a party to, or is threatened to be made a party to, or is involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he or she (or a
person of whom he or she is the legal representative), is or was a director or
officer of the Corporation or a Reincorporated Predecessor (as defined below) or
is or was serving at the request of the Corporation or a Reincorporated
Predecessor (as defined below) as a director or officer of another corporation,
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, shall be indemnified and held harmless
by the Corporation to the fullest extent permitted by the Delaware General
Corporation Law, against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to
be paid in settlement) reasonably
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incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Corporation shall indemnify any such
person seeking indemnity in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. As used herein, the
term "Reincorporated Predecessor" means a corporation that is merged with and
into the Corporation in a statutory merger where (a) the Corporation is the
surviving corporation of such merger; (b) the primary purpose of such merger is
to change the corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person
in this Article VI shall not be exclusive of any other right that such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote or consent of stockholders or
disinterested directors, or otherwise. Additionally, nothing in this Article VI
shall limit the ability of the Corporation, in its discretion, to indemnify or
advance expenses to persons whom the Corporation is not obligated to indemnify
or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
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<PAGE> 20
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, on the first business day after such
notice is dispatched, and (iv) in the case of delivery via telegram, telex,
mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the
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<PAGE> 21
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof,
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not
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<PAGE> 22
themselves invalid, illegal, unenforceable or in conflict with the Certificate
of Incorporation) shall remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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<PAGE> 1
Exhibit 10.01
HNC SOFTWARE INC.
1995 EQUITY INCENTIVE PLAN
As Adopted May 4, 1995
As Amended January 11, 1996 (effective as of July 27,1995),
December 6, 1996, November 25, 1997 and May 21, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 4,550,000(1) Shares plus any Shares that are made
available for grant and issuance under this Plan pursuant to the following
sentence. Any Shares remaining unissued under the 1987 Stock Option Plan adopted
by HNC Software Inc., a California corporation that is the Company's predecessor
(the "PRIOR PLAN") on the Effective Date (as defined below) and any Shares
issuable upon exercise of options granted pursuant to the Prior Plan that expire
or become unexercisable for any reason without having been exercised in full,
will no longer be available for grant and issuance under the Prior Plan, but
will also be available for grant and issuance under this Plan. Subject to
Sections 2.2 and 18, Shares that: (a) are subject to issuance upon exercise of
an Option but cease to be subject to such Option for any reason other than
exercise of such Option; (b) are subject to an Award granted hereunder but are
forfeited or are repurchased by the Company at the original issue price; or (c)
are subject to an Award that otherwise terminates without Shares being issued;
will again be available for grant and issuance in connection with future Awards
under this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-
- ----------
(1) Adjusted to reflect (i) the 2-for-1 split of the Company's capital stock
effected in April 1996; (ii) the authorization of 1,500,000 additional
shares of Common Stock for issuance under the Plan approved by the
Company's stockholders on December 6, 1996; (iii) the authorization of
750,000 additional shares of Common Stock for issuance under the Plan
approved by the Company's stockholders on November 25, 1997; and (iv) the
authorization of 1,000,000 additional shares of Common Stock for issuance
under the Plan approved by the Company's stockholders on May 21, 1998.
<PAGE> 2
HNC Software Inc.
1995 Equity Incentive Plan
raising transaction. No person will be eligible to receive more than 500,000(2)
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent, Subsidiary or
Affiliate of the Company (including new employees who are also officers and
directors of the Company or any Parent, Subsidiary or Affiliate of the Company)
who are eligible to receive up to a maximum of 700,000(3) Shares in the calendar
year in which they commence their employment. A person may be granted more than
one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject
to Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent, Subsidiary or
Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
4.3 Exchange Act Requirements. If two or more members of the
Board are Outside Directors, the Committee will be comprised of at least two (2)
members of the Board, all of whom are Outside Directors and Disinterested
Persons. During all times that the Company is subject to Section 16 of the
Exchange
- ----------
(2) Adjusted to reflect the 2-for-1 split of the Company's capital stock
effected in April 1996.
(3) Adjusted to reflect the 2-for-1 split of the Company's capital stock
effected in April 1996.
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<PAGE> 3
HNC Software Inc.
1995 Equity Incentive Plan
Act, the Company will take appropriate steps to comply with the disinterested
administration requirements of Section 16(b) of the Exchange Act, which will
consist of the appointment by the Board of a Committee consisting of not less
than two (2) members of the Board, each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options will be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number of Shares or percentage
of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
100% of the Fair Market Value of the Shares on the date of grant; provided that:
the Exercise Price of any ISO granted to a Ten Percent Shareholder will not be
less than 110% of the Fair Market Value of the Shares on the date of grant.
Payment for the Shares purchased may be made in accordance with Section 8 of
this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
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<PAGE> 4
HNC Software Inc.
1995 Equity Incentive Plan
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than because of
Participant's death or disability), then Participant's
Options may be exercised only to the extent that such
Options would have been exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee)
no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's death or Disability, deemed
to be an NQSO), but in any event no later than the
expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000. If the
Fair Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of this Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit will be automatically incorporated herein and will apply to any Options
granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISOs will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock
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<PAGE> 5
HNC Software Inc.
1995 Equity Incentive Plan
will be accepted by the Participant's execution and delivery of the Restricted
Stock Purchase Agreement and full payment for the Shares to the Company within
thirty (30) days from the date the Restricted Stock Purchase Agreement is
delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee and will be at
least 100% of the Fair Market Value of the Shares on the date the Restricted
Stock Award is granted. Payment of the Purchase Price may be made in accordance
with Section 8 of this Plan.
6.3 Restrictions. Restricted Stock Awards will be subject to
such restrictions (if any) as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company (provided that the Participant pays the
Company the par value of the Shares awarded by such Stock Bonus in cash)
pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in
such form (which need not be the same for each Participant) as the Committee
will from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of
such performance goals as are set out in advance in the Participant's individual
Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Stock Bonuses may vary from Participant to Participant
and between groups of Participants, and may be based upon the achievement of the
Company, Parent, Subsidiary or Affiliate and/or individual performance factors
or upon such other criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant and whether such Shares will
be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of
performance goals pursuant to a Performance Stock Bonus Agreement, then the
Committee will determine: (a) the nature, length and starting date of any period
during which performance is to be measured (the "PERFORMANCE PERIOD") for each
Stock Bonus; (b) the performance goals and criteria to be used to measure the
performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may be
fixed or may vary in accordance with such performance goals and criteria as may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash,
whole Shares, including Restricted Stock, or a combination thereof, either in a
lump sum payment or in installments, all as the Committee will determine.
7.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or
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<PAGE> 6
HNC Software Inc.
1995 Equity Incentive Plan
otherwise) with respect to the Stock Bonus only to the extent earned as of the
date of Termination in accordance with the Performance Stock Bonus Agreement,
unless the Committee will determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections
483 and 1274 of the Code; provided, however, that Participants
who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the
note is adequately secured by collateral other than the Shares;
provided, further, that the portion of the Purchase Price equal
to the par value of the Shares, if any, must be paid in cash;
(d) by waiver of compensation due or accrued to the Participant for
services rendered; provided, further, that the portion of the
Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares so
purchased to pay for the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or
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HNC Software Inc.
1995 Equity Incentive Plan
certificates for such Shares. Whenever, under this Plan, payments in
satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE"). All elections by a Participant to have Shares withheld for
this purpose will be made in writing in a form acceptable to the Committee and
will be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, then except as provided below, the election will be
irrevocable as to the particular Shares as to which the
election is made;
(c) all elections will be subject to the consent or disapproval of
the Committee;
(d) if the Participant is an Insider and if the Company is subject
to Section 16(b) of the Exchange Act: (1) the election may not
be made within six (6) months of the date of grant of the
Award, except as otherwise permitted by SEC Rule 16b-3(e) under
the Exchange Act, and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6) months
prior to the Tax Date (although such election may be revoked at
any time at least six (6) months prior to the Tax Date) or (B)
the exercise of the Option or election to use stock withholding
must be made in the ten (10) day period beginning on the third
day following the release of the Company's quarterly or annual
summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six (6) months
after the delivery of Shares under Section 83(b) of the Code,
the Participant will receive the full number of Shares with
respect to which the exercise occurs, but such Participant will
be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's original Purchase Price pursuant to Section
12.
10.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar
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<PAGE> 8
HNC Software Inc.
1995 Equity Incentive Plan
process, otherwise than by will or by the laws of descent and distribution or as
consistent with the specific Plan and Award Agreement provisions relating
thereto. During the lifetime of the Participant an Award will be exercisable
only by the Participant, and any elections with respect to an Award, may be made
only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award Agreement), the higher of: (l) Participant's original Purchase Price,
or (2) the Fair Market Value of such Shares on Participant's Termination Date,
provided, that such right of repurchase (i) must be exercised as to all such
"Vested" Shares unless a Participant consents to the Company's repurchase of
only a portion of such "Vested" Shares and (ii) terminates when the Company's
securities become publicly traded; or (B) with respect to Shares that are not
"Vested" (as defined in the Award Agreement), at the Participant's original
Purchase Price, provided, that the right to repurchase at the original Purchase
Price lapses at the rate of at least 20% per year over five (5) years from the
date the Shares were purchased (or from the date of grant of options in the case
of Shares obtained pursuant to a Stock Option Agreement and Stock Option
Exercise Agreement), and if the right to repurchase is assignable, the assignee
must pay the Company, upon assignment of the right to repurchase, cash equal to
the excess of the Fair Market Value of the Shares over the original Purchase
Price.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from
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<PAGE> 9
HNC Software Inc.
1995 Equity Incentive Plan
governmental agencies that the Company determines are necessary or advisable;
and/or (b) completion of any registration or other qualification of such Shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company (other than any stockholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the stockholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the stockholders of the Company), any or all outstanding Awards may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Options will expire on such transaction at such time and
on such conditions as the Board will determine.
18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
18.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
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<PAGE> 10
HNC Software Inc.
1995 Equity Incentive Plan
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"); provided, however, that if the Effective Date does not occur on or
before December 31, 1995, this Plan will terminate as of December 31, 1995
having never become effective. This Plan shall be approved by the stockholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the stockholders of the Company; and (c) in the event that stockholder approval
of such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
So long as the Company is subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to stockholder approval.
20. TERM OF PLAN. Unless earlier terminated as provided herein, this
Plan will terminate ten (10) years from the date this Plan is adopted by the
Board or, if earlier, the date of stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
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<PAGE> 11
HNC Software Inc.
1995 Equity Incentive Plan
"COMPANY" means HNC Software Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the Code,
as determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the
period that person is a member of the Committee and for one year prior to
commencing service as a member of the Committee, been granted or awarded equity
securities pursuant to this Plan or any other plan of the Company or any Parent,
Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation
thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as
such rule is amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination (if such day is a trading day) as
reported in The Wall Street Journal, and, if such date of
determination is not a trading day, then on the last trading
day prior to the date of determination;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the last
trading day prior to the date of determination on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading as reported in The Wall Street
Journal;
(c) if such Common Stock is publicly traded but is not quoted on
the Nasdaq National Market nor listed or admitted to trading on
a national securities exchange, the average of the closing bid
and asked prices on the last trading day prior to the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in
good faith.
"INSIDER" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a current
employee of the Company or any Parent, Subsidiary or Affiliate of the Company;
(b) a former employee of the Company or any Parent, Subsidiary or Affiliate of
the Company who is receiving compensation for prior services (other than
benefits under a tax-qualified pension plan); (c) a current or former officer of
the Company or any Parent, Subsidiary or Affiliate of the Company; or (d)
currently receiving compensation for personal services in any capacity, other
than as a director, from the Company or any Parent, Subsidiary or Affiliate of
the Company; provided, however, that at such time as the term "Outside
Director", as used in Section 162(m) of the Code is defined in regulations
promulgated under Section 162(m) of the Code, "Outside Director" will have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5.
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HNC Software Inc.
1995 Equity Incentive Plan
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Award under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PLAN" means this HNC Software Inc. 1995 Equity Incentive Plan,
as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, director, consultant, independent contractor or
advisor to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick leave, military leave, or any other leave of absence
approved by the Committee, provided that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
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<PAGE> 13
ADDENDUM 1 AS ADOPTED BY THE BOARD ON JULY 22, 1998
TO THE HNC SOFTWARE INC. 1995 EQUITY INCENTIVE PLAN
This Addendum to the Plan concerns Awards granted to employees of the Company or
of a Parent, Subsidiary or Affiliate of the Company residing in Australia
("Australian Participants"). Capitalized terms are defined in the 1995 Equity
Incentive Plan.
A Section 5.11 will be added to the Plan as follows:
Awards will be treated as nonqualified stock options for Australian tax
purposes if immediately after the acquisition of the Share or Option,
the Participant directly or by attribution owns more than five percent
(5%) of all classes of stock of the Company or of any Parent or
Subsidiary of the Company; or immediately after the acquisition of the
Share or Option, the Participant is in a position to vote, or control
the voting of more than five percent (5%) of the maximum number of
votes that may be cast at a general meeting of the Company.
All provisions of the Plan which are not expressly changed by this Addendum
shall remain unchanged. In the event of any conflicts between the provisions of
the Plan and this Addendum with respect to Awards of "Australian Participants,"
the terms of this Addendum shall be controlling.
ADDENDUM 2 AS ADOPTED BY THE BOARD ON JULY 22, 1998
TO THE HNC SOFTWARE INC. 1995 EQUITY INCENTIVE PLAN
This Addendum to the Plan concerns Awards granted to employees of the Company or
of a Parent, Subsidiary or Affiliate of the Company residing in Canada
("Canadian Participants"). Capitalized terms are defined in the 1995 Equity
Incentive Plan.
Section 2.2 of the Plan shall be modified immediately following
"provided, however" by replacing the remaining text of that Section 2.2
with the language set forth below:
that fractions of a Share will not be issued but will either be
replaced by a cash payment equal to the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share,
as determined by the Committee.
All provisions of the Plan which are not expressly changed by this Addendum
shall remain unchanged. In the event of any conflicts between the provisions of
the Plan and this Addendum with respect to Awards of "Canadian Participants,"
the terms of this Addendum shall be controlling.
<PAGE> 14
NO.
HNC SOFTWARE INC.
1995 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and
entered into as of the date of grant set forth below (the "DATE OF GRANT") by
and between HNC Software Inc., a Delaware corporation (the "COMPANY"), and the
participant named below ("PARTICIPANT"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1995 Equity Incentive
Plan, as amended (the "PLAN").
PARTICIPANT:
------------------------------------------------
SOCIAL SECURITY NUMBER:
------------------------------------------------
PARTICIPANT'S ADDRESS:
------------------------------------------------
------------------------------------------------
TOTAL OPTION SHARES:
------------------------------------------------
EXERCISE PRICE PER SHARE:
------------------------------------------------
DATE OF GRANT:
------------------------------------------------
VESTING START DATE:
------------------------------------------------
EXPIRATION DATE:
------------------------------------------------
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an option
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above (collectively, the "SHARES") at the Exercise Price
Per Share set forth above (the "EXERCISE PRICE"), subject to all of the terms
and conditions of this Agreement and the Plan. If designated as an Incentive
Stock Option above, this Option is intended to qualify as an "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE").
2. VESTING; EXERCISE PERIOD.
2.1 Vesting of Right to Exercise Option. This Option shall
become exercisable as to portions of the Shares as follows: (a) this Option
shall not be exercisable with respect to any of the Shares until _________ (the
"FIRST VESTING DATE"); (b) if Participant has continuously provided services to
the Company or any Subsidiary, Parent or Affiliate of the Company from the Date
of Grant through the First Vesting Date and has not been Terminated on or before
the First Vesting Date, then on the First Vesting Date this Option shall become
exercisable as to twenty-five percent (25%) of the Shares; and (c) thereafter,
so long as
<PAGE> 15
HNC Software Inc.
Stock Option Agreement
Participant continuously provides services to the Company or any Subsidiary,
Parent or Affiliate of the Company and is not Terminated, on the first
anniversary of the First Vesting Date and on each successive anniversary of the
First Vesting Date thereafter, this Option shall become exercisable as to an
additional twenty-five percent (25%) of the Shares; provided that this Option
shall in no event ever become exercisable with respect to more than 100% of the
Shares.
2.2 Expiration. This Option shall expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3.
3. TERMINATION.
3.1 Termination for Any Reason Except Death or Disability. If
Participant is Terminated for any reason, except Participant's death or
Disability, then this Option, to the extent (and only to the extent) that it
would have been exercisable by Participant on the date of Termination, may be
exercised by Participant no later than three (3) months after the date of
Termination (or seven (7) months after the date of Termination if the Company is
then subject to Section 16 of the Exchange Act and Participant's transactions in
securities of the Company were subject to Section 16(b) of the Exchange Act on
the date of Termination), but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant
is Terminated because of death or Disability of Participant, then this Option,
to the extent that it is exercisable by Participant on the date of Termination,
may be exercised by Participant (or Participant's legal representative) no later
than twelve (12) months after the date of Termination, but in any event no later
than the Expiration Date.
3.3 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent, Subsidiary or Affiliate of
the Company, or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Participant's employment or
other relationship at any time, with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option,
Participant (or in the case of exercise after Participant's death, Participant's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
from time to time (the "EXERCISE Agreement"), which shall set forth, inter alia,
Participant's election to exercise this Option, the number of Shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
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<PAGE> 16
HNC Software Inc.
Stock Option Agreement
4.2 Limitations on Exercise. This Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that
either: (1) have been owned by Participant for more than six (6)
months and have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect to
such shares); or (2) were obtained by Participant in the open
public market; and (3) are clear of all liens, claims,
encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who
are not employees of the Company shall not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares; and
provided further that the portion of the Exercise Price equal to
the par value of the Shares, if any, must be paid in cash;
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(e) provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Participant
irrevocably elects to exercise this Option and to sell a portion
of the Shares so purchased to pay for the exercise price and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price directly to the Company; or
(2) through a "margin" commitment from Participant and a NASD
Dealer -- whereby Participant irrevocably elects to exercise
this Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the exercise price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
exercise of this Option, Participant must pay or provide for any applicable
federal or state withholding
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<PAGE> 17
HNC Software Inc.
Stock Option Agreement
obligations of the Company. If the Committee permits, Participant may provide
for payment of withholding taxes upon exercise of this Option by requesting that
the Company retain Shares with a Fair Market Value equal to the minimum amount
of taxes required to be withheld. In such case, the Company shall issue the net
number of Shares to the Participant by deducting the Shares retained from the
Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option is
an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Participant upon exercise of this Option, then Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Participant only by Participant. The terms
of this Option shall be binding upon the executors, administrators, successors
and assigns of Participant.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the Date
of Grant of some of the federal and California tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
8.1 Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal or California income tax liability upon the exercise
of this Option, although the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Participant
to the alternative minimum tax in the year of exercise.
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<PAGE> 18
HNC Software Inc.
Stock Option Agreement
8.2 Exercise of Nonqualified Stock Option. If this Option does
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of this Option. Participant will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. The Company will be required to withhold from
Participant's compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 Disposition of Shares. If the Shares are held for more than
twelve (12) months after the date of the transfer of the Shares pursuant to the
exercise of this Option (and, in the case of an ISO, are disposed of more than
two (2) years after the Date of Grant), then any gain realized on disposition of
the Shares will be treated as long term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within one
(1) year of exercise or within two (2) years after the Date of Grant, then any
gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price.
The Company will be required to withhold from Participant's compensation or
collect from Participant and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the
rights of a shareholder with respect to any Shares until Participant exercises
this Option and pays the Exercise Price.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This
Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
12. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
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<PAGE> 19
HNC Software Inc.
Stock Option Agreement
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to
that body of law pertaining to choice of law or conflict of law.
15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of the
Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of this Option or disposition of
the Shares and that the Company has advised Participant to consult a tax advisor
prior to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Participant has executed
this Agreement in duplicate as of the Date of Grant.
HNC SOFTWARE INC. PARTICIPANT
By:
---------------------------- --------------------------------------------
(Signature)
Raymond V. Thomas
- ------------------------------- --------------------------------------------
(Please print name) (Please print name)
Chief Financial Officer
- -------------------------------
(Please print title)
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<PAGE> 20
EXHIBIT A
HNC SOFTWARE INC.
1995 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of HNC SOFTWARE
INC. (the "Company") as set forth below:
Participant ___________________________ Number of Shares Purchased:_______
Social Security Number:________________ Purchase Price per Share:_________
Address:_______________________________ Aggregate Purchase Price:_________
_______________________________ Date of Option Agreement:_________
Daytime Phone:_________________________ Exact Name of Title to Shares:____
Facsimile Number:____________________________ __________________________________
Type of Option: [ ] Incentive Stock Option __________________________________
[ ] Nonqualified Stock Option
1. DELIVERY OF PURCHASE PRICE. Participant hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $__________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Participant in the
amount of $-----------------------;
[ ] by delivery of ___________ fully-paid, nonassessable and vested shares
of the common stock of the Company owned by Participant for at least six
(6) months prior to the date hereof (and which have been paid for within
the meaning of SEC Rule 144), or obtained by Participant in the open
public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_________ per share;
[ ] by the waiver hereby of compensation due or accrued to Participant for
services rendered in the amount of $______________________ (except that
the par value of the Shares is tendered in cash (by check) receipt of
which is acknowledged by the Company);
[ ] through a "cashless exercise" commitment, delivered herewith, from
Participant and the NASD Dealer ("Broker") named therein, in the amount
of $___________________; or
[ ] through a "margin" commitment, delivered herewith from Participant and
the Broker named therein, in the amount of $_____________________.
Please complete the following if you elect to exercise your option
through a "cashless exercise" or "margin" commitment:
Exercised shares shall be registered in the name of:
Broker Phone:_____________
Name of Broker:__________________________ Broker Fax:_______________
Broker Account Number:___________________
The Broker will remit the exercise price and applicable withholding
taxes directly to the Company.
2. MARKET STANDOFF AGREEMENT. Participant, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Participant during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar
<PAGE> 21
HNC Software Inc.
Stock Option Agreement
agreements. Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or other securities) subject to the foregoing
restriction until the end of such period.
3. TAX CONSEQUENCES. PARTICIPANT UNDERSTANDS THAT PARTICIPANT MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF PARTICIPANT'S PURCHASE OR DISPOSITION OF THE
SHARES. PARTICIPANT REPRESENTS THAT PARTICIPANT HAS CONSULTED WITH ANY TAX
CONSULTANT(S) PARTICIPANT DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT PARTICIPANT IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement constitute
the entire agreement and understanding of the parties and supersede in their
entirety all prior understandings and agreements of the Company and Participant
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to choice of law or conflict of law.
Date: _________________________ ______________________________________________
Signature of Participant
This is to verify our receipt and acceptance of the attached Exercise Agreement
and our agreement to promptly issue and deliver the shares referred to above,
subject to our receipt of the Aggregate Purchase Price, and taxes due, if any.
The shares, when so issued will be fully paid and nonassessable.
HNC Software Inc.
Date: _________________________ ______________________________________________
Authorized Signature
[SIGNATURE PAGE TO HNC SOFTWARE INC.
1995 EQUITY INCENTIVE PLAN STOCK OPTION EXERCISE AGREEMENT]
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<PAGE> 1
Exhibit 10.02
HNC SOFTWARE INC.
1998 STOCK OPTION PLAN
As Adopted February 13, 1998
and Amended March 20, 1998(1)
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options. Capitalized terms
not defined in the text are defined in Section 21.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 16,
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,230,000 Shares plus any Shares that are made
available for grant and issuance under this Plan pursuant to the following
sentence. Subject to Sections 2.2 and 16, Shares that are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option will again be available for grant and
issuance in connection with future Options under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then the number of Shares reserved for issuance under this Plan and the Exercise
Prices of and number of Shares subject to outstanding Options will be
proportionately adjusted, subject to any required action by the Board or the
stockholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share will not be issued but will either
be replaced by a cash payment equal to the Fair Market Value of such fraction of
a Share or will be rounded up to the nearest whole Share, as determined by the
Committee.
3. ELIGIBILITY. All Options issued under the Plan shall be nonqualified
stock options. Options may be granted to employees, officers, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company; provided that Options awarded to officers of the
Company or any Parent, Subsidiary or Affiliate of the Company may not exceed 30%
of all Options that are available for grant under the Plan and provided further
that such consultants, independent contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction. No person will be eligible to receive more than
50,000 Shares in any calendar year under this Plan pursuant to the grant of
Options hereunder, other than new employees of the Company or of a Parent,
Subsidiary or Affiliate of the Company who are eligible to receive up to a
maximum of 75,000 Shares in the calendar year in which they commence their
employment. A person may be granted more than one Option under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
- --------
(1) The Plan was amended on March 20, 1998 solely to increase the number of
shares reserved under the Plan from 1,000,000 to 1,230,000 shares.
<PAGE> 2
HNC Software Inc.
1998 Stock Option Plan
(a) construe and interpret this Plan, any Stock Option
Agreement and any other agreement or document executed
pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration
subject to Options;
(f) determine whether Options will be granted singly, in
combination with, in tandem with, in replacement of, or
as alternatives to, other Options under this Plan or any
other incentive or compensation plan of the Company or
any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of
Options;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Option or any Stock
Option Agreement;
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Option will be made in its sole discretion at the
time of grant of the Option or, unless in contravention of any express term of
this Plan or Option, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Option under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant Options under this Plan.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by a Stock Option Agreement, which will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options will be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted. The Committee also may provide for the exercise of Options to become
exercisable at one time or from time to time, periodically or otherwise, in such
number of Shares or percentage of Shares as the Committee determines.
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<PAGE> 3
HNC Software Inc.
1998 Stock Option Plan
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
100% of the Fair Market Value of the Shares on the date of grant. Payment for
the Shares purchased may be made in accordance with Section 6 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer
time period not exceeding five (5) years as may be determined by
the Committee), but in any event, no later than the expiration
date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than because of Participant's death or
disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee), but in any
event no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. The Committee may reduce the Exercise Price
of outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
6. PAYMENT FOR SHARE PURCHASES.
6.1 Payment. Payment for Shares purchased pursuant to this Plan
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the public market;
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<PAGE> 4
HNC Software Inc.
1998 Stock Option Plan
(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections 483
and 1274 of the Code; provided, however, that Participants who
are not employees of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
provided, further, that the portion of the Exercise Price equal
to the par value of the Shares, if any, must be paid in cash;
(d) by waiver of compensation due or accrued to the Participant for
services rendered; provided, further, that the portion of the
Exercise Price equal to the par value of the Shares, if any,
must be paid in cash;
(e) provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects
to exercise the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
6.2 Loan Guarantees. The Committee may help the Participant pay
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
7. WITHHOLDING TAXES.
7.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Options are to be made in cash, such payment will be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
7.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Option that is subject to tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may allow
the Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have Shares withheld for this
purpose will be made in writing in a form acceptable to the Committee.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the
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<PAGE> 5
HNC Software Inc.
1998 Stock Option Plan
Participant, the Participant will be a stockholder and have all the rights of a
stockholder with respect to such Shares, including the right to vote and receive
all dividends or other distributions made or paid with respect to such Shares;
provided, that the Participant will have no right to retain such stock dividends
or stock distributions with respect to Shares that are repurchased at the
Participant's original Exercise Price pursuant to Section 10.
8.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Options granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as consistent with the specific
Plan and Stock Option Agreement provisions relating thereto. During the lifetime
of the Participant an Option will be exercisable only by the Participant, and
any elections with respect to an Option, may be made only by the Participant.
10. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase a portion of or all unvested Shares previously
received upon exercise of an Option and held by a Participant following such
Participant's Termination at any time within ninety (90) days after the later of
Participant's Termination Date and the date Participant purchases Shares under
this Plan, for cash and/or cancellation of purchase money indebtedness, at the
Participant's Exercise Price.
11. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Options in exchange for the surrender and
cancellation of any or all outstanding Options. The Committee may at any time
buy from a Participant an Option previously granted with payment in cash, Shares
or other consideration, based on such terms and conditions as the Committee and
the Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Option will not
be effective unless such Option is in compliance with all applicable federal and
state securities laws, rules and
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<PAGE> 6
HNC Software Inc.
1998 Stock Option Plan
regulations of any governmental body, and the requirements of any stock exchange
or automated quotation system upon which the Shares may then be listed or
quoted, as they are in effect on the date of grant of the Option and also on the
date of exercise or other issuance. Notwithstanding any other provision in this
Plan, the Company will have no obligation to issue or deliver certificates for
Shares under this Plan prior to: (a) obtaining any approvals from governmental
agencies that the Company determines are necessary or advisable; and/or (b)
completion of any registration or other qualification of such Shares under any
state or federal law or ruling of any governmental body that the Company
determines to be necessary or advisable. The Company will be under no obligation
to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have no
liability for any inability or failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
16. CORPORATE TRANSACTIONS.
16.1 Assumption or Replacement of Options by Successor. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company (other than any stockholder
which merges (or which owns or controls another corporation which merges) with
the Company in such merger) cease to own their shares or other equity interests
in the Company, (d) the sale of substantially all of the assets of the Company,
or (e) any other transaction which qualifies as a "corporate transaction" under
Section 424(a) of the Code wherein the stockholders of the Company give up all
of their equity interest in the Company (except for the acquisition, sale or
transfer of all or substantially all of the outstanding shares of the Company
from or by the stockholders of the Company), any or all outstanding Options may
be assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative, the successor corporation may substitute equivalent Options or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Options).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this
Subsection 16.1, such Options will expire on such transaction at such time and
on such conditions as the Board will determine.
16.2 Other Treatment of Options. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
16.3 Assumption of Options by the Company. The Company, from
time to time, also may substitute or assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Option under this Plan in substitution
of such other company's option; or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (except that the exercise
-6-
<PAGE> 7
HNC Software Inc.
1998 Stock Option Plan
price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted appropriately pursuant to Section 424(a) of the Code).
In the event the Company elects to grant a new Option rather than assuming an
existing option, such new Option may be granted with a similarly adjusted
Exercise Price.
17. ADOPTION AND EFFECTIVE DATE. This Plan will become effective on the
date that it is adopted by the Board (the "EFFECTIVE DATE").
18. TERM OF PLAN. Unless earlier terminated as provided herein, this
Plan will terminate ten (10) years from the Effective Date.
19. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Stock Option Agreement or instrument to be executed
pursuant to this Plan; provided, however, that no amendments may be made to
outstanding Options without the consent of the Participant.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
21. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no such committee is appointed, the Board.
"COMPANY" means HNC Software Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination (if such day is a trading day) as reported
in The Wall Street Journal, and, if such date of determination
is not a trading day, then on the last trading day prior to the
date of determination;
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<PAGE> 8
HNC Software Inc.
1998 Stock Option Plan
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the last
trading day prior to the date of determination on the principal
national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the last trading day prior to the date of
determination as reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"OPTION" means an award of a nonqualified stock option to
purchase Shares pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Option under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Option under this
Plan.
"PLAN" means this HNC Software Inc. 1998 Stock Option Plan, as
amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 16, and any
successor security.
"STOCK OPTION AGREEMENT" means, with respect to each Option, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Option.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, consultant, independent contractor or
advisor to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick leave, military leave, or any other leave of absence
approved by the Committee, provided that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
-8-
<PAGE> 9
HNC Software Inc.
1998 Stock Option Plan
ADDENDUM 1 AS ADOPTED BY THE BOARD ON JULY 22, 1998
TO THE HNC SOFTWARE INC. 1998 STOCK OPTION PLAN
This Addendum to the Plan concerns Awards granted to employees of the Company or
of a Parent, Subsidiary or Affiliate of the Company residing in Australia
("Australian Participants"). Capitalized terms are defined in the 1998 Stock
Option Plan.
A Section 5.9 will be added to the Plan as follows:
Options will be treated as nonqualified stock options for Australian
tax purposes if immediately after the acquisition of the Share or
Option, the Participant directly or by attribution owns more than five
percent (5%) of all classes of stock of the Company or of any Parent or
Subsidiary of the Company; or immediately after the acquisition of the
Share or Option, the Participant is in a position to vote, or control
the voting of more than five percent (5%) of the maximum number of
votes that may be cast at a general meeting of the Company.
All provisions of the Plan which are not expressly changed by this Addendum
shall remain unchanged. In the event of any conflicts between the provisions of
the Plan and this Addendum with respect to Awards of "Australian Participants,"
the terms of this Addendum shall be controlling.
ADDENDUM 2 AS ADOPTED BY THE BOARD ON JULY 22, 1998
TO THE HNC SOFTWARE INC. 1998 STOCK OPTION PLAN
This Addendum to the Plan concerns Awards granted to employees of the Company or
of a Parent, Subsidiary or Affiliate of the Company residing in Canada
("Canadian Participants"). Capitalized terms are defined in the 1998 Stock
Option Plan.
Section 2.2 of the Plan shall be modified immediately following
"provided, however" by replacing the remaining text of that Section 2.2
with the language set forth below:
that fractions of a Share will not be issued but will either be
replaced by a cash payment equal to the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share,
as determined by the Committee.
All provisions of the Plan which are not expressly changed by this Addendum
shall remain unchanged. In the event of any conflicts between the provisions of
the Plan and this Addendum with respect to the subject matter of Awards of
"Canadian Participants," the terms of this Addendum shall be controlling.
-9-
<PAGE> 10
NO.
HNC SOFTWARE INC.
1998 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "AGREEMENT") is made and entered
into as of the date of grant set forth below (the "DATE OF GRANT") by and
between HNC Software Inc., a Delaware corporation (the "COMPANY"), and the
participant named below ("PARTICIPANT"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1998 Stock Option Plan
(the "PLAN").
PARTICIPANT:
------------------------------------------------
SOCIAL SECURITY NUMBER:
------------------------------------------------
PARTICIPANT'S ADDRESS:
------------------------------------------------
------------------------------------------------
TOTAL OPTION SHARES:
------------------------------------------------
EXERCISE PRICE PER SHARE:
------------------------------------------------
DATE OF GRANT:
------------------------------------------------
VESTING START DATE:
------------------------------------------------
EXPIRATION DATE:
------------------------------------------------
1. GRANT OF OPTION. The Company hereby grants to Participant a
nonqualified stock option (this "OPTION") to purchase up to the total number of
shares of Common Stock of the Company set forth above (collectively, the
"SHARES") at the Exercise Price Per Share set forth above (the "EXERCISE
PRICE"), subject to all of the terms and conditions of this Agreement and the
Plan.
2. VESTING; EXERCISE PERIOD.
2.1 Vesting of Right to Exercise Option. This Option shall
become exercisable as to portions of the Shares as follows: (a) this Option
shall not be exercisable with respect to any of the Shares until _________(the
"FIRST VESTING DATE"); (b) if Participant has continuously provided services to
the Company or any Subsidiary, Parent or Affiliate of the Company from the Date
of Grant through the First Vesting Date and has not been Terminated on or before
the First Vesting Date, then on the First Vesting Date this Option shall become
exercisable as to twenty-five percent (25%) of the Shares; and (c) thereafter,
<PAGE> 11
HNC Software Inc.
Stock Option Agreement
so long as Participant continuously provides services to the Company or any
Subsidiary, Parent or Affiliate of the Company and is not Terminated, on the
first anniversary of the First Vesting Date and on each successive anniversary
of the First Vesting Date thereafter, this Option shall become exercisable as to
an additional twenty-five percent (25%) of the Shares; provided that this Option
shall in no event ever become exercisable with respect to more than 100% of the
Shares.
2.2 Expiration. This Option shall expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3.
3. TERMINATION.
3.1 Termination for Any Reason Except Death or Disability. If
Participant is Terminated for any reason, except Participant's death or
Disability, then this Option, to the extent (and only to the extent) that it
would have been exercisable by Participant on the date of Termination, may be
exercised by Participant no later than three (3) months after the date of
Termination (or seven (7) months after the date of Termination if the Company is
then subject to Section 16 of the Exchange Act and Participant's transactions in
securities of the Company were subject to Section 16(b) of the Exchange Act on
the date of Termination), but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant
is Terminated because of death or Disability of Participant, then this Option,
to the extent that it is exercisable by Participant on the date of Termination,
may be exercised by Participant (or Participant's legal representative) no later
than twelve (12) months after the date of Termination, but in any event no later
than the Expiration Date.
3.3 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent, Subsidiary or Affiliate of
the Company, or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Participant's employment or
other relationship at any time, with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option,
Participant (or in the case of exercise after Participant's death, Participant's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, inter alia,
Participant's election to exercise this Option, the number of Shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
-2-
<PAGE> 12
HNC Software Inc.
Stock Option Agreement
4.2 Limitations on Exercise. This Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares of the Company's Common Stock that either:
(1) have been owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the open public market; and (3) are
clear of all liens, claims, encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274
of the Code; provided, however, that Participants who are not
employees of the Company shall not be entitled to purchase Shares
with a promissory note unless the note is adequately secured by
collateral other than the Shares; and provided further that the
portion of the Exercise Price equal to the par value of the Shares,
if any, must be paid in cash;
(d) by waiver of compensation due or accrued to Participant for services
rendered;
(e) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby Participant
irrevocably elects to exercise this Option and to sell a portion of
the Shares so purchased to pay for the exercise price and whereby
the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or (2) through a
"margin" commitment from Participant and a NASD Dealer whereby
Participant irrevocably elects to exercise this Option and to pledge
the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the
exercise price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
exercise of this Option, Participant must pay or provide for any applicable
federal or state withholding
-3-
<PAGE> 13
HNC Software Inc.
Stock Option Agreement
obligations of the Company. If the Committee permits, Participant may provide
for payment of withholding taxes upon exercise of this Option by requesting that
the Company retain Shares with a Fair Market Value equal to the minimum amount
of taxes required to be withheld. In such case, the Company shall issue the net
number of Shares to the Participant by deducting the Shares retained from the
Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Participant understands that the Company is under no obligation to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Participant only by Participant. The
terms of this Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
7. TAX CONSEQUENCES. Set forth below is a brief summary as of the
Date of Grant of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
7.1 Exercise of Nonqualified Stock Option. There may be a
regular federal and California income tax liability upon the exercise of this
Option. Participant will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the fair
market value of the Shares on the date of exercise over the Exercise Price. The
Company will be required to withhold from Participant's compensation or collect
from Participant and pay to the applicable taxing authorities an amount equal to
a percentage of this compensation income at the time of exercise.
-4-
<PAGE> 14
HNC Software Inc.
Stock Option Agreement
7.2 Disposition of Shares. If the Shares are held for more than
twelve (12) months after the date of the transfer of the Shares pursuant to the
exercise of a nonqualified stock option, any gain realized on disposition of the
Shares will be treated as capital gain. The maximum federal capital gain tax
rates are twenty-eight percent (28%) for Shares held more than twelve (12)
months, but not more than eighteen (18) months, and twenty percent (20%) for
Shares held for more than eighteen (18) months.
8. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of
the rights of a shareholder with respect to any Shares until Participant
exercises this Option and pays the Exercise Price.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
10. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
11. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
-5-
<PAGE> 15
HNC Software Inc.
Stock Option Agreement
12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Participant and Participant's heirs, executors, administrators, legal
representatives, successors and assigns.
13. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
14. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of this Option or disposition of
the Shares and that the Company has advised Participant to consult a tax advisor
prior to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Date of Grant.
HNC SOFTWARE INC. PARTICIPANT
By:
-------------------------------- ---------------------------------------
(Signature)
Raymond V. Thomas
- ------------------------------------ ---------------------------------------
(Please print name) (Please print name)
Chief Financial Officer
- ------------------------------------
(Please print title)
-6-
<PAGE> 16
EXHIBIT A
HNC SOFTWARE INC.
1998 STOCK OPTION PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock of HNC SOFTWARE
INC. (the "Company") as set forth below:
<TABLE>
<S> <C>
Participant _________________________________________ Number of Shares Purchased: ______________________________________
Social Security Number: _____________________________ Purchase Price per Share: ______________________________________
Address: ____________________________________________ Aggregate Purchase Price: ______________________________________
____________________________________________ Date of Option Agreement: ______________________________________
Daytime Phone: ______________________________________ Exact Name of Title to Shares: ___________________________________
Facsimile Number: ___________________________________ __________________________________________________________________
Type of Option: Nonqualified Stock Option __________________________________________________________________
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Participant hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $__________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Participant in the
amount of $______________________;
[ ] by delivery of ___________ fully-paid, nonassessable and vested shares
of the common stock of the Company owned by Participant for at least
six (6) months prior to the date hereof (and which have been paid for
within the meaning of SEC Rule 144), or obtained by Participant in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_________ per share;
[ ] by the waiver hereby of compensation due or accrued to Participant for
services rendered in the amount of $______________________ (except that
the par value of the Shares is tendered in cash (by check) receipt of
which is acknowledged by the Company);
[ ] through a "same-day-sale" or "cashless exercise" commitment, delivered
herewith, from Participant and the NASD Dealer ("Broker") named
therein, in the amount of $___________________ (please register the
exercised shares in the name of the broker listed in item 2 below); or
[ ] through a "margin" commitment, delivered herewith from Participant and
the Broker named therein, in the amount of $_____________________.
2. DELIVERY OF SHARES. Please complete the information requested below if either
of the following is applicable (if you are purchasing and "holding" the shares
and you do not complete the information requested below, the shares will be
delivered to you via a share certificate mailed to your home address):
- You are purchasing your shares and wish to have the shares sent
electronically to your brokerage account. In such case, the shares
will be registered in the name of the Broker designated below.
- You elect to purchase the shares through a "same-day-sale" or
"cashless exercise" or "margin" commitment (the Broker will remit
the exercise price and applicable withholding taxes, if any,
directly to the Company).
<PAGE> 17
Name of Broker: _______________________ Broker Phone: ______________
Broker Account Number: ________________ Broker Fax: ________________
3. MARKET STANDOFF AGREEMENT. Participant agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Participant will not sell or otherwise dispose of any shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify for employee
shareholders generally.
-2-
<PAGE> 18
4. TAX CONSEQUENCES. PARTICIPANT UNDERSTANDS THAT PARTICIPANT MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF PARTICIPANT'S PURCHASE OR DISPOSITION OF THE
SHARES. PARTICIPANT REPRESENTS THAT PARTICIPANT HAS CONSULTED WITH ANY TAX
CONSULTANT(S) PARTICIPANT DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT PARTICIPANT IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
5. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement constitute
the entire agreement and understanding of the parties and supersede in their
entirety all prior understandings and agreements of the Company and Participant
with respect to the subject matter hereof, and are governed by California law
except for that body of law pertaining to choice of law or conflict of law.
Date:
------------------------------ -----------------------------------
Signature of Participant
This is to verify our receipt and acceptance of the attached Exercise Agreement
and our agreement to promptly issue and deliver the shares referred to above,
subject to our receipt of the Aggregate Purchase Price, and taxes due, if any.
The shares, when so issued will be fully paid and nonassessable.
HNC Software Inc.
Date:
------------------------------ -----------------------------------
Signature of Participant
[SIGNATURE PAGE TO HNC SOFTWARE INC.
1998 STOCK OPTION PLAN STOCK OPTION EXERCISE AGREEMENT]
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
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