HNC SOFTWARE INC/DE
S-8, 1998-04-21
PREPACKAGED SOFTWARE
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<PAGE>
 
   As filed with the Securities and Exchange Commission on April 21, 1998

                                                      Registration No. 333-_____
- --------------------------------------------------------------------------------

                   U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                             ------------------

                                  FORM S-8

           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                                        
                             ------------------
 

                               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, CALIFORNIA  92121-3728
                    (Address of Principal Executive Offices)


                           (1) 1998 STOCK OPTION PLAN

                                        
(2) PRACTICAL CONTROL SYSTEMS TECHNOLOGIES, INC. 1998 STOCK OPTION PLAN ASSUMED
                               BY THE REGISTRANT
                                        
                            (Full Title of the Plan)
                                        
                             ------------------

                               RAYMOND V. THOMAS
                            CHIEF FINANCIAL OFFICER
                               HNC SOFTWARE INC.
                          5930 CORNERSTONE COURT WEST
                       SAN DIEGO, CALIFORNIA  92121-3728
                                 (619) 546-8877

           (Name, Address and Telephone Number of Agent for Service)

                             ------------------
                                        
                                   Copies to:

                           KENNETH A. LINHARES, ESQ.
                               TRAM T. PHI, ESQ.
                               FENWICK & WEST LLP
                              TWO PALO ALTO SQUARE
                          PALO ALTO, CALIFORNIA  94306
                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=============================================================================================================================
    TITLE OF SECURITIES            AMOUNT TO BE    PROPOSED MAXIMUM OFFERING        PROPOSED MAXIMUM             AMOUNT OF
     TO BE REGISTERED               REGISTERED          PRICE PER SHARE         AGGREGATE OFFERING PRICE     REGISTRATION FEE
 
<S>                                  <C>           <C>                          <C>                          <C>
Common Stock, $0.001 par value       230,000 (1)         $39.06 (2)                   $8,983,800 (2)           $2,650.22 (3)
Common Stock, $0.001 par value       160,000 (4)         $39.06 (2)                   $6,249,600 (2)           $1,843.63 (3)
=============================================================================================================================
</TABLE>

(1) Additional shares available for grant under Registrant's 1998 Stock Option
    Plan and not yet subject to awarded outstanding stock options as of April
    21, 1998.
(2) Estimated as of April 17, 1998 pursuant to Rule 457(c) and Rule 457(h)
    solely for the purpose of calculating the registration fee.
(3) Fee calculated pursuant to Section 6(b) of the Securities Act of 1933, as
    amended.
(4) Shares subject to assumed Practical Control Systems Technologies, Inc. Stock
    Option Plan as of April 21, 1998.
<PAGE>
 
                               HNC SOFTWARE INC.
                       REGISTRATION STATEMENT ON FORM S-8

          PART II:  INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.  INCORPORATION OF DOCUMENTS BY REFERENCE.
- ------   --------------------------------------- 

     The following documents filed with the Securities and Exchange Commission
(the "Commission") are incorporated herein by reference:

     (a)  The Registrant's annual report on Form 10-K filed pursuant to Section
          13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
          "Exchange Act") for the fiscal year ended December 31, 1997, as
          amended.

     (b)  The description of the Registrant's Common Stock contained in the
          Registrant's Registration Statement on Form 8-A filed with the
          Commission under Section 12 of the Exchange Act on May 26, 1995,
          including any amendment or report filed for the purpose of updating
          such description.

     All documents subsequently filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-
effective amendment which indicates that all securities offered hereby have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
the filing of such documents.

ITEM 4.  DESCRIPTION OF SECURITIES.
- ------   ------------------------- 

     Not applicable.

Item 5.  INTERESTS OF NAMED EXPERTS AND COUNSEL.
- ------   -------------------------------------- 

     The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Registrant by Fenwick & West LLP, of Palo Alto,
California.  Members of the firm of Fenwick & West LLP own an aggregate of
approximately 3,314 shares of Common Stock of the Registrant.

ITEM 6.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- ------   ----------------------------------------- 

     As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability:  (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the director derived an improper personal benefit.  In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that: (i) the Registrant is required to indemnify its
directors and officers, as well as directors and officers of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise when they are serving in such capacities at the request of the
Registrant, to the fullest extent permitted by the Delaware General Corporation
Law; (ii) the Registrant may, in its discretion, indemnify other officers,
employees and 

                                      -2-
<PAGE>
 
agents as set forth in the Delaware General Corporation Law; (iii) upon receipt
of an undertaking to repay such advances if indemnification is determined to be
unavailable, the Registrant is required to advance expenses, as incurred, to its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law in connection with a proceeding (except that the Registrant is
not required to advance expenses to a person against whom it brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit);
(iv) the rights conferred in the Bylaws are not exclusive and the Registrant is
authorized to enter into indemnification agreements with its directors, officers
and employees and agents; and (v) the Registrant may not retroactively amend the
Bylaw provisions in a way that adversely affects the indemnification provided
thereunder.

     The Registrant's policy is to enter into indemnity agreements with each of
its directors and officers.  The indemnity agreements provide that directors and
officers will be indemnified and held harmless against all expenses (including
attorneys' fees), judgments, fines, ERISA excise taxes or penalties and
settlement amounts paid or reasonably incurred by them in any action, suit or
proceeding, including any derivative action by or in the right of the
Registrant, on account of their services as a director or officer of the
Registrant or as directors or officers of any other corporation, partnership or
enterprise when they are serving in such capacities at the request of the
Registrant; except that no indemnity is provided in a derivative action in which
such director or officer is finally adjudged by a court to be liable to the
Company due to willful misconduct in the performance of his or her duty to the
Company, unless the court determines that such director or officer is entitled
to indemnification.  The Registrant will not be obligated pursuant to the
agreements to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims (i) initiated voluntarily by the indemnified party and
not by way of defense, except with respect to a proceeding authorized by the
Board of Directors and successful proceedings brought to enforce a right to
indemnification and/or advancement of expenses under the indemnity agreements;
(ii) for any amounts paid in settlement of a proceeding unless the Registrant
consents to such settlement; (iii) on account of any suit in which judgment is
rendered against the indemnified party for an accounting of profits made from
the purchase or sale by the indemnified party of securities of the Registrant
pursuant to the provisions of Section 16(b) of the Exchange Act and related laws
and regulations; (iv) on account of conduct by an indemnified party that is
finally adjudged to have been in bad faith or conduct that the indemnified party
did not reasonably believe to be in, or not opposed to, the best interests of
the Registrant; (v) on account of any criminal action or proceeding arising out
of conduct that the indemnified party had reasonable cause to believe was
unlawful; or (vi) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.

     The indemnity agreement requires a director or officer to reimburse the
Registrant for expenses advanced only if and to the extent it is ultimately
determined that the director or executive officer is not entitled, under
Delaware law, the Registrant's Certificate of Incorporation, the Registrant's
Bylaws, his or her indemnity agreement or otherwise to be indemnified for such
expenses.  The indemnity agreement provides that it is not exclusive of any
rights a director or executive officer may have under the Certificate of
Incorporation, the Bylaws, other agreements, any majority-in-interest vote of
the stockholders or vote of disinterested directors, Delaware law, or otherwise.

     The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and officers, may be
sufficiently broad to permit indemnification of the Registrant's directors and
officers for liabilities arising under the Securities Act.

                                      -3-
<PAGE>
 
     The indemnity agreements require the Registrant to maintain director and
officer liability insurance to the extent readily available.  The Registrant
currently carries a director and officer insurance policy.

ITEM 7.  EXEMPTION FROM REGISTRATION CLAIMED.
- ------   ----------------------------------- 

     Not applicable.

ITEM 8.    EXHIBITS.
- ------     -------- 

 4.01      HNC Software Inc. 1998 Stock Option Plan, as amended through March
           20, 1998.
         
 4.02      Form of 1998 Stock Option Plan Stock Option Agreement and Stock
           Option Exercise Agreement./(1) /
         
 4.03      Practical Control Systems Technologies, Inc. 1998 Stock Option
           Plan./(2)/
         
 4.04      Form of Practical Control Systems Technologies, Inc. 1998 Stock
           Option Plan Stock Option Agreement and Stock Option Exercise
           Agreement.
         
 4.05      Registrant's Restated Certificate of Incorporation filed with the
           Secretary of State of Delaware on June 13, 1996./(3)/
         
 4.06      Registrant's Bylaws, as amended./(3)/
         
 4.07      Form of specimen certificate for Registrant's Common Stock./(4)/
         
 5.01      Opinion of Fenwick & West LLP.
         
23.01      Consent of Fenwick & West LLP (included in Exhibit 5.01).
         
23.02      Consent of Price Waterhouse LLP, Independent Accountants.
         
24.01      Power of Attorney (see page 7).

___________________________

     /(1)/  Incorporated by reference from Exhibit 4.02 to the Company's
            Registration Statement on Form  S-8 (File No. 333-46875) filed on
            February 25, 1998.

     /(2)/  Practical Control Systems Technologies, Inc. is an Ohio corporation
            that was acquired by the Registrant on March 31, 1998 pursuant to an
            Agreement and Plan of Reorganization dated January 30, 1998, as
            amended, under which Registrant agreed to assume Practical Control
            Systems Technologies, Inc.'s 1998 Stock Option Plan.

     /(3)/  Filed as Exhibit 3(i).04 (Restated Certificate of Incorporation) and
            Exhibit 3(ii).05 (Bylaws) with the Company's Report on Form 10-Q for
            the quarter ended June 30, 1996, as originally filed on August 13,
            1996.

     /(4)/  Incorporated by reference from Exhibit 4.01 to the Company's
            Registration Statement on Form S-1 (File No. 33-91932) filed on May
            5, 1995, and as subsequently amended.

                                      -4-
<PAGE>
 
ITEM 9.  UNDERTAKINGS.
- ------   ------------ 

     The undersigned Registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

          (i)  To include any prospectus required by Section 10(a)(3) of the
Securities Act;

          (ii)  To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in the volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low and high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;

          (iii)  To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;

provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
- --------  -------                                                              
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.

     (2)  That, for the purpose of determining any liability under the
Securities Act of 1933 (the "Securities Act"), each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

     (3)  To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

     The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 6 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.  In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereby, the Registrant 

                                      -5-
<PAGE>
 
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

                                      -6-
<PAGE>
 
                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Robert L. North and Raymond V. Thomas, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-8, and to file the same with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or it might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 21st day of
April, 1998.

                           HNC SOFTWARE INC.

                           By:   /s/ Raymond V. Thomas
                                 ---------------------
                                 Raymond V. Thomas
                                 Vice President, Finance and Administration,
                                 Chief Financial Officer and Secretary

     Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
           SIGNATURE                            TITLE                          DATE
- ------------------------------  -------------------------------------------  --------------
<S>                             <C>                                          <C>
PRINCIPAL EXECUTIVE OFFICER:

/s/ Robert L. North             President, Chief Executive Officer           April 21, 1998
- ------------------------------  and a Director
Robert L. North                 

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/ Raymond V. Thomas           Vice President, Finance and Administration   April 21, 1998
- ------------------------------  Chief Financial Officer and Secretary
Raymond V. Thomas               



ADDITIONAL DIRECTORS:

/s/ Edward K. Chandler          Director                                     April 21, 1998
- ------------------------------
Edward K. Chandler

                                Director                                     
- ------------------------------
Oliver D. Curme

/s/ Thomas F. Farb              Director                                     April 21, 1998
- ------------------------------
Thomas F. Farb

                                Director                                     
- ------------------------------
Charles H. Gaylord, Jr.
</TABLE>

                                      -7-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
                                        

EXHIBIT
NUMBER                    EXHIBIT TITLE
- ------                    -------------

4.01          HNC Software Inc. 1998 Stock Option Plan, as amended through March
              20, 1998.

4.02          Form of 1998 Stock Option Plan Stock Option Agreement and Stock
              Option Exercise Agreement./(1) /

4.03          Practical Control Systems Technologies, Inc. 1998 Stock Option
              Plan./(2)/

4.04          Form of Practical Control Systems Technologies, Inc. 1998 Stock
              Option Plan Stock Option Agreement and Stock Option Exercise
              Agreement.

4.05          Registrant's Restated Certificate of Incorporation filed with the
              Secretary of State of Delaware on June 13, 1996./(3)/

4.06          Registrant's Bylaws, as amended./(3)/

4.07          Form of specimen certificate for Registrant's Common Stock./(4)/

5.01          Opinion of Fenwick & West LLP.

23.01         Consent of Fenwick & West LLP (included in Exhibit 5.01).

23.02         Consent of Price Waterhouse LLP, Independent Accountants.

24.01         Power of Attorney (see page 7).

___________________________

     /(1)/  Incorporated by reference from Exhibit 4.02 to the Company's
            Registration Statement on Form S-8 (File No. 333-46875) filed on
            February 25, 1998.

     /(2)/  Practical Control Systems Technologies, Inc. is an Ohio corporation
            that was acquired by the Registrant on March 31, 1998 pursuant to an
            Agreement and Plan of Reorganization dated January 30, 1998, under
            which Registrant agreed to assume Practical Control Systems
            Technologies, Inc.'s 1998 Stock Option Plan.

     /(3)/  Filed as Exhibit 3(i).04 (Restated Certificate of Incorporation) and
            Exhibit 3(ii).05 (Bylaws) with the Company's Report on Form 10-Q for
            the quarter ended June 30, 1996, as originally filed on August 13,
            1996.

     /(4)/  Incorporated by reference from Exhibit 4.01 to the Company's
            Registration Statement on Form S-1 (File No. 33-91932) filed on May
            5, 1995, and as subsequently amended.

                                      -8-

<PAGE>
 
                                                                    EXHIBIT 4.01

                               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 

- ------------------
 /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>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan

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 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.

                                      -2-
<PAGE>
 
                                                               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 

                                      -3-
<PAGE>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan


              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 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.
              ----------------------------- 

                                      -4-
<PAGE>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan

          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 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.

                                      -5-
<PAGE>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan

         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 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 

                                      -6-
<PAGE>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan

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 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 

                                      -7-
<PAGE>
 
                                                               HNC Software Inc.
                                                          1998 Stock Option Plan

              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.

              "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>
 
                                                                    EXHIBIT 4.03

                  PRACTICAL CONTROL SYSTEMS TECHNOLOGIES, INC.

                             1998 STOCK OPTION PLAN

                          As Adopted January 30, 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.  Capitalized terms
not defined in the text of this Plan 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 500,000 Shares.  Subject to Sections 2.2 and 16,
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; or
(b) are issued pursuant to an Option granted hereunder but are repurchased by
the Company at the original issue price of such Shares; will again be available
for grant and issuance in connection with future Options granted 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 (a) the number of Shares reserved for issuance under this Plan, and (b) 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.  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.  NQSOs (as defined in
Section 5 below) 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-raising transaction.  No person will be eligible to
receive more than 25% of shares in plan.  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 (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 50% of shares in plan.  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:
<PAGE>
 
                                    Practical Control Systems Technologies, 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 terms of Options;

         (e)  determine the number of Shares or other consideration subject to
              Options;

         (f)  grant waivers of Plan or Stock Option Agreement conditions;

         (g)  determine the vesting and exercisability of Options and the manner
              of payment for Shares issuable upon exercise of Options;

         (h)  correct any defect, supply any omission or reconcile any
              inconsistency in this Plan, any Option or any Stock Option
              Agreement; and

         (i)  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 an 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
granted under this Plan.  The Committee may delegate to one or more officers of
the Company the authority to grant an Option under this Plan to Participants who
are not Insiders of the Company.

         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 vesting
of the right to exercise 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 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.

                                      -2-
<PAGE>
 
                                    Practical Control Systems Technologies, 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 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 Stockholder 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 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)  Except as provided in paragraph 5.6(c) below, 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.

         (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

         (c)  Notwithstanding the provisions in paragraph 5.6(a) above, if a
              Participant is terminated for Cause, neither the Participant,
              the Participant's estate nor such other person who may then hold
              the Option shall be entitled to exercise any Option with respect
              to any Shares whatsoever, after termination of service, whether
              or not after termination of service the Participant may receive
              payment from the Company or a Parent or Subsidiary for vacation
              pay, for services rendered for the day on which termination
              occurs, for salary in lieu of notice, or for any other benefits.
              In making such determination, the Board shall give the
              Participant an opportunity to present to the Board evidence on
              his behalf. For the purpose of this paragraph, termination of
              service shall be deemed to occur on the date when the Company
              dispatches notice or advice to the Participant that his service
              is terminated.


          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 vested
and exercisable.

                                      -3-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

          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.   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 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 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:

                                      -4-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

              (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, in its sole discretion,
                   ---------------                                             
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 upon
                   ---------------------                                        
the exercise 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 any rights under an Option 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
(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.

         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 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 subject to restrictions, 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 such restricted Shares; 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 18.

          8.2       Financial Statements.  The Company, if requested by the
                    --------------------                                   
Participant, will provide financial statements to each Participant prior to such
Participant's purchase of Shares under this Plan, and to 

                                      -5-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan


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.   NON-TRANSFERABILITY.  Options granted under this Plan, and any
              -------------------                                           
interest therein, will not be transferable or assignable by a 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
this Plan and the 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 (i) a right of first refusal to purchase all Shares that a Participant
(or a subsequent transferee) may propose to transfer to a third party, provided
                                                                       --------
that such right of first refusal terminates when the Company's securities become
- ----                                                                            
publicly traded, and/or (ii) a right to repurchase a portion of or all of the
Unvested 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 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 Participant,
to issue a new Option or Options to such Participant in exchange for the
surrender and cancellation of any or all outstanding Options held by such
Participant.  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 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 

                                      -6-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

that the Company determines to be necessary or advisable. The Company will be
under no obligation to register any 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 may 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 stock 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 stock option; or (b) assuming such stock option as if it
had been granted under this Plan if the terms of such assumed stock 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 stock
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 a stock option granted by another company, the terms and
conditions of such stock option will remain unchanged (except that the exercise
                                                       ------                  
price and the number and nature of Shares issuable upon exercise of any such
stock 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 stock option, such new Option may be granted with a
similarly adjusted Exercise Price.

                                      -7-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

         17.  ADOPTION AND STOCKHOLDER APPROVAL.  This Plan will become
              ---------------------------------                        
effective on the date it is adopted by the Board.  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 Options 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 Options granted hereunder will be canceled, any
Shares issued pursuant to any Options 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.

         18.  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.

         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 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.

         20.  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.

         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.

          "CAUSE" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary 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 Practical Control Systems Technologies, Inc., a
corporation organized under the laws of the State of Ohio, or any successor
corporation, including any corporation that assumes this Plan.

          "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.

                                      -8-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

          "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.

              "OPTION" means an award of an 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 Award under this
Plan.

              "PLAN" means this Practical Control Systems Technologies, Inc.
1998 Stock Option Plan, as amended from time to time.

              "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 16, and any
successor security.

              "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.

                                      -9-
<PAGE>
 
                                    Practical Control Systems Technologies, Inc.
                                                          1998 Stock Option Plan

              "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").

              "UNVESTED SHARES" means "Unvested Shares" as defined in the Stock
Option Agreement.

                                      -10-

<PAGE>
 
                                                                    EXHIBIT 4.04

                                                                    NO.
                               HNC SOFTWARE INC.
                                        
      PRACTICAL CONTROL SYSTEMS TECHNOLOGIES, 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 Practical Control Systems
Technologies, Inc. 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:                   ___________________________________________

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>
 
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.
<PAGE>
 
          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 
<PAGE>
 
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 the Option qualifies as an ISO, there
                   ---------------                                           
will be no regular federal income tax liability upon the exercise of the 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 alternative minimum tax purposes and may subject the Participant to the
alternative minimum tax in the year of exercise.
<PAGE>
 
          8.2      Exercise of Nonqualified Stock Option.  If the Option does
                   -------------------------------------                     
not qualify as an ISO, there may be a regular federal income tax liability upon
the exercise of the 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.  If Participant is a current or former employee of the Company,
the Company may 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.  The following tax consequences may
               ---------------------                                     
apply upon disposition of the Shares.

          (a) Incentive Stock Options.  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 an ISO  and are disposed of more than two (2) years after the Date
of Grant, any gain realized on disposition of the Shares will be treated as
capital gain for federal income tax purposes.  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 ("MID-TERM CAPITAL GAIN"), and
twenty percent (20%) for Shares held for more than eighteen (18) months ("LONG-
TERM CAPITAL GAIN").  If Shares purchased under an ISO are disposed of within
the applicable twelve (12) month or two (2) year period, 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.

          (b) Nonqualified Stock Options.  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 an NQSO, any gain realized on disposition of the Shares will be
treated as  Mid-Term Capital Gain or Long-Term Capital Gain, as the case may be.

          (c) Withholding.  The Company may be required to withhold from the
              -----------                                                   
Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.

         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.
<PAGE>
 
         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.

         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)
<PAGE>
 
                                   EXHIBIT A
                                   ---------

                               HNC SOFTWARE INC.
PRACTICAL CONTROL SYSTEMS TECHNOLOGIES, 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:        [_]   Incentive Stock 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 "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:
                                                              
     Name of Broker: __________________________   Broker Phone: _______________
     Broker Account Number: ___________________   Broker Fax: _________________
     
     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 

                                       7
<PAGE>
 
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 

                                       8

<PAGE>
 
                                                                    EXHIBIT 5.01
                                        
                        OPINION OF FENWICK AND WEST LLP
                                        

                                 April 21, 1998

HNC Software Inc.
5930 Cornerstone Court West
San Diego, California 92121-3728


Gentlemen/Ladies:

     At your request, we have examined the Registration Statement on Form S-8
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") on or about April 21, 1998 in connection
with the registration under the Securities Act of 1933, as amended, of:

     (i) an aggregate of 230,000 additional shares of the Common Stock, $0.001
par value (the "Common Stock") of HNC Software Inc., a Delaware corporation (the
"Company"), subject to issuance by the Company under its 1998 Stock Option Plan,
as amended through March 20, 1998 (the "HNC 1998 Option Plan"); and

     (ii) an aggregate of 160,000 shares of the Common Stock of the Company
subject to issuance by the Company under the Practical Control Systems
Technologies, Inc. ("PCS") 1998 Stock Option Plan (the "PCS Option Plan") that
has been assumed by the Company pursuant to the Agreement and Plan of
Reorganization dated as of January 30, 1998, as amended (the "Merger Plan")
among HNC, PCS, FW1 Acquisition Corp., a Delaware corporation that was a wholly-
owned subsidiary of HNC ("Sub"), and David Cook, a former shareholder of PCS.

     In rendering this opinion, we have examined the following:

     (1)  your registration statement on Form S-1 (File Number 33-91932) filed
          with and declared effective by the Commission on June 20, 1995,
          together with the Exhibits filed as a part thereof;

     (2)  your registration statement on Form 8-A filed with the Commission on
          May 26, 1995, together with the order of effectiveness issued by the
          Commission therefor on June 20, 1995;

     (3)  the Registration Statement, together with the Exhibits filed as a part
          thereof;

     (4)  the HNC 1998 Option Plan and related award grant and exercise
          agreement forms;

     (5)  the PCS Option Plan and related award grant and exercise agreement
          forms;

     (6)  the Merger Plan;

     (7)  the Prospectuses prepared in connection with the Registration
          Statement;
<PAGE>
 
     (8)  the Restated Certificate of Incorporation of the Company filed with
          the Delaware Secretary of State on June 13, 1996 and the Bylaws of the
          Company, both as filed by the Company with its Report on Form 10-Q for
          the quarter ended June 30, 1996;

     (9)  the minutes of meetings and actions by written consent of the
          stockholders and Board of Directors of the Company that are contained
          in your minute books that are in our possession;

     (10) the stock records for the Company that you have provided to us
          (consisting of a list of stockholders issued by your transfer agent,
          Boston EquiServe LLP and a list of all holders of options to purchase
          the Company's capital stock that was prepared by you and dated April
          17, 1998);

     (11) a Management Certificate addressed to us and dated of even date
          herewith executed by the Company containing certain factual
          representations.

     In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.

     As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from records included in
the documents referred to above.  We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, we are not
                                                             -------            
aware of any facts that would lead us to believe that the opinion expressed
herein is not accurate.

     Our opinions herein are given on the assumption that the Company will, at
all times in the future, reserve a sufficient number of authorized and unissued
shares of its Common Stock for issuance upon exercise of stock options granted
under the HNC 1998 Option Plan and the PCS Option Plan, after taking into
account other securities issued or reserved by the Company.

     Based upon the foregoing, it is our opinion that:

     1.  The 230,000 additional shares of Common Stock that may be issued and
sold by the Company upon the exercise of stock options to be awarded under the
HNC 1998 Option Plan, when issued and sold in accordance with the HNC 1998
Option Plan and the stock option agreements to be entered into thereunder, and
in the manner referred to in the relevant Prospectus associated with the HNC
1998 Option Plan and the Registration Statement, will be validly issued, fully
paid and nonassessable.

     2.  The 160,000 shares of Common Stock that may be issued and sold by the
Company upon the exercise of stock options to be awarded under the PCS Option
Plan, when issued and sold in the manner referred to in the Prospectus
associated with the PCS Option Plan and the Registration Statement will be
validly issued, fully paid and nonassessable.

     We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
<PAGE>
 
     This opinion speaks only as of its date and is intended solely for the your
use as an exhibit to the Registration Statement for the purpose of the above
issuance of securities referred to in the above opinions and is not to be relied
upon for any other purpose.

                              Very truly yours,



                              FENWICK & WEST LLP

<PAGE>
 
                                                                   EXHIBIT 23.02
                                                                   -------------

                      CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration 
Statement on Form S-8 of our report dated January 29, 1998, except as to Note 11
which is as of February 13, 1998, appearing on page 36 of HNC Software Inc.'s 
Annual Report on Form 10-K, as amended, for the year ended December 31, 1997. We
also consent to the incorporation by reference of our report on the Financial 
Statement Schedule, which appears on page 62 of such Annual Report on Form 10-K,
as amended.



PRICE WATERHOUSE LLP

San Diego, California
April 20, 1998


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