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Filed pursuant to
Rule 424(b)(3)
Registration No.
333-34778
237,552 SHARES
HNC SOFTWARE INC.
COMMON STOCK
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All of the 237,552 shares of common stock of HNC Software Inc. are
being sold by stockholders of HNC. HNC will not receive any proceeds from the
sale of shares offered by the selling stockholders. See "Selling Stockholders"
and "Plan of Distribution."
The common stock is listed on the Nasdaq National Market under the
symbol "HNCS." The shares of common stock offered will be sold as described
under "Plan of Distribution."
On May 11, 2000, the closing price per share of the common stock on
the Nasdaq National Market was $45.19.
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THE COMMON STOCK OFFERED INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 11, 2000
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HNC, THE
SELLING STOCKHOLDERS OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SUCH
SECURITIES BY ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
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HNC Software Inc.............................................................2
Risk Factors.................................................................3
Cautionary Note on Forward-Looking Statements...............................11
Use of Proceeds.............................................................11
Selling Stockholders........................................................11
Plan of Distribution........................................................13
Legal Matters...............................................................15
Documents Incorporated by Reference in this Prospectus......................15
Where You Can Find More Information.........................................16
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HNC SOFTWARE INC.
HNC is a business-to-business software company that develops, markets,
licenses and supports predictive software solutions for various service
industries, including companies in the insurance, financial services,
telecommunications, e-commerce and retail industries. Our predictive software
solutions help service industry companies manage and optimize their customer
relationships. Our products improve the decision-making process in functions
such as credit card fraud detection, credit application processing and insurance
claim review. By analyzing high volumes of customer transactions in real-time,
our predictive solutions help companies shift the decision-making process from a
retrospective to a prospective basis.
HNC was founded in 1986 under the laws of California and was
reincorporated under the laws of Delaware in June 1995. We completed our initial
public stock offering in June 1995. We are headquartered in San Diego,
California. Our principal executive offices are located at 5935 Cornerstone
Court, West, San Diego, California 92121-3728. Our telephone number is (858)
546-8877.
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RISK FACTORS
This offering of shares of common stock is risky. Anyone who may
receive common stock under this prospectus should carefully consider the
following risk factors in addition to the other information presented in or
incorporated by reference into this prospectus and any prospectus supplement.
We may encounter additional risks in the future, some of which may be
referred to in subsequent reports and filings that are incorporated in this
prospectus by reference. These documents should be read carefully, as they may
modify and supplement the risks referred to below.
FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE
Our revenues and operating results have varied significantly in the
past. We expect these fluctuations to continue. Consequently, we believe that
period-to-period comparisons of our financial results should not be relied upon
as an indication of future performance. It is possible that in some future
periods our revenues and operating results may fall below the expectations of
market analysts and investors, and in this event the market price of our common
stock would likely fall. Factors that affect our revenues and operating results
include the following:
- Failure of our target markets and customers to accept our products;
- Delays in large orders from customers;
- Decrease in recurring revenues;
- The lengthy sales cycle of most of our products;
- Our ability to successfully and timely develop, introduce and market
new products and product enhancements;
- The timing of our new product announcements and introductions in
comparison with our competitors;
- Changes in the mix of our distribution channels;
- Changes in the level of our operating expenses;
- Our ability to achieve progress and fulfill our obligations under
percentage-of-completion contracts;
- Our success in completing pilot product installations within contracted
fee budgets;
- Competitive conditions in the industries we serve, including the
ability of certain Internet competitors to spend larger amounts to
market their product and service offerings;
- Domestic and international economic conditions;
- Market conditions in our targeted markets;
- Changes in prevailing technologies;
- Acquisition-related expenses and charges;
- Increased operating expenses related to the development of products for
the Internet;
- Our ability to recognize revenues in accordance with generally accepted
accounting principles; and
- Factors unique to our product lines.
All of these factors are difficult to forecast.
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BECAUSE OUR PRODUCTS' SALES CYCLE IS LENGTHY AND UNPREDICTABLE, OUR SALES AND
MARKETING COSTS MAY INCREASE, AND IT IS DIFFICULT TO DETERMINE WHEN SALES WILL
OCCUR
We cannot predict the timing of the recognition of our revenues
accurately because of the length of our sales cycles. If sales forecasted from
specific customers are not realized, we may be unable to compensate for the
resulting revenue shortfall, and our operating results would be harmed. The
sales cycle to license our products can typically range from 60 days to 18
months. Customers are often cautious in making decisions to acquire our
products, because purchasing our products typically involves a significant
commitment of capital and may involve shifts by the customer to a new software
and/or hardware platform. Delays in completing sales can arise while customers
complete their internal procedures to approve large capital expenditures and
test and consider our applications. We may incur substantial sales and marketing
expenses and expend significant management effort while potential customers are
evaluating our products and before they place an order with us. If orders for
our products are not received as anticipated, our operating results could be
harmed.
WE MAY FAIL TO INTEGRATE ACQUIRED COMPANIES EFFECTIVELY, AND THE ACQUISITIONS
MAY DISRUPT OUR BUSINESS AND ADVERSELY AFFECT OUR OPERATIONS
We have acquired a number of businesses and product lines. From
mid-February to mid-April 2000, we acquired four companies, Advanced Information
Management Solutions, Inc., ONYX Technologies, Inc., The Center for Adaptive
Systems Applications, Inc. and Celerity Technologies, Inc., and we are likely to
have future acquisitions. Acquisition of these companies and other companies may
in the future result in unforeseen operating difficulties and expenditures and
other risks, including the following:
- The process of integrating acquired businesses into our own business
may absorb significant management attention that would otherwise be
available for the development of our core business;
- We might not realize the anticipated benefits of our acquisitions;
- Acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities;
- We might encounter difficulties in attempting to assimilate the
operations, technologies and products of companies we acquire;
- We might not be able to successfully manage and integrate diverse
geographic operations resulting from acquisitions;
- We might not be able to coordinate the diverse operating structures,
policies and practices of the acquired companies and to successfully
integrate their employees into our organization and culture;
- We might lose key employees of the acquired companies;
- We might not be able to acquire businesses on favorable terms;
- In the future, we might face increased competition for acquisition
opportunities, which might inhibit our ability to complete suitable
acquisitions, might increase the costs of completing acquisitions and
might preclude us from obtaining needed technologies and employees;
- We will often be entering markets in which we have limited or no prior
experience, and we might not be able to successfully develop and market
products for new industries or for markets with which we might not be
familiar;
- Despite due diligence reviews, acquired businesses might bring with
them unanticipated liabilities or risks that could adversely affect our
results of operations or business; and
- The accounting treatment of acquisitions can also adversely affect our
reported results of operations, since acquisitions generate substantial
costs as well as accounting charges and amortization of goodwill and
other intangible assets, all of which may reduce our earnings.
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GROWTH PLACES A SIGNIFICANT STRAIN ON OUR BUSINESS, AND OUR FAILURE TO
SUCCESSFULLY MANAGE OUR GROWTH COULD DISRUPT OUR CORPORATE ORGANIZATION, DIVERT
US FROM OTHER OBJECTIVES AND HURT OUR BUSINESS
In recent years, we have experienced changes in our operations that
have placed significant demands on our administrative, operational and financial
resources. These demands are expected to continue to challenge our management
and operations, and include the following:
- Growth and diversification of our customer base;
- Expansion of our product functionality and the number of products we
market and support;
- Our acquisition of other businesses and their employees;
- Expansion of our product line into new markets and technology mediums;
and
- Growth of our sales, marketing, customer support, research and
development and finance and administrative operations.
These demands highlight the following risks:
- Our future performance will depend in part on our ability to
successfully manage change and growth, both in our domestic and
international operations;
- We will need to adapt our operational and financial control systems, if
necessary, to respond to changes in the size and diversification of our
business; and
- We will need to be able to successfully integrate acquired businesses
with our operations.
OUR NEW PRODUCTS MIGHT NOT ACHIEVE MARKET ACCEPTANCE
The market for predictive software solutions is still emerging. The
rate at which businesses have adopted our products has varied significantly by
market and by product within each market, and we expect to continue to
experience variations in the degree to which our products are accepted. Although
some businesses in our target markets have recognized the advantages of using
predictive software solutions to automate the decision-making process, many
prospective customers have developed decision automation systems internally
rather than licensing them from outside vendors. Our ability to grow will depend
on the extent to which our potential customers accept our products. This
acceptance may be limited by:
- The failure of prospective customers to conclude that predictive
software solutions are valuable and should be acquired and used;
- The reluctance of our prospective customers to replace their existing
solutions with our products;
- Marketing efforts of our competitors; and
- The emergence of new technologies that could cause our products to be
less competitive or obsolete.
Because the market for predictive software solutions is still in a
relatively early stage of development, we cannot assess the size of the market
accurately, and we have limited insight into trends that may emerge and affect
our business. For example, we may have difficulty in predicting customer needs,
in developing products that could address those needs and in establishing a
distribution strategy for these products. We may also have difficulties in
predicting the competitive environment that will develop.
WE WILL NOT BE ABLE TO COMPETE SUCCESSFULLY UNLESS WE ARE ABLE TO KEEP PACE WITH
RAPIDLY CHANGING TECHNOLOGIES
In our markets, technology changes rapidly, and there are continuous
technological improvements. Our success will depend upon our ability to continue
to develop and maintain competitive technologies, enhance our current
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products and develop, in a timely and cost-effective manner, new products that
meet changing market conditions. We must respond to evolving customer needs, new
competitive product offerings, emerging industry standards and changing
technology. The rapid growth of the Internet environment creates new
opportunities, risks and uncertainties for businesses, such as ours, which
develop software solutions that must also be designed to operate in Internet,
intranet and other online environments. We have previously experienced
significant delays in the development and introduction of new products and
product enhancements, primarily due to difficulties with model development,
which has in the past required multiple iterations, as well as difficulties with
acquiring data and adapting to particular operating environments. The length of
these delays has varied depending upon the size and scope of the project and the
nature of the problems encountered. In the future, we may not be able to develop
and market product enhancements or new products that respond to changing
technologies.
WE ARE SUBSTANTIALLY DEPENDENT UPON THE SUCCESS OF A LIMITED NUMBER OF PRODUCTS
OR PRODUCT LINES, EACH OF WHICH FACES UNCERTAINTIES AND FUTURE CHALLENGES
We currently have one product or product line in each of our target
markets that accounts for a majority of our total revenues from that market.
These products accounted for 46.5% of our total revenues in 1999, 49.2% of our
total revenues in 1998 and 57.9% of our total revenues in 1997. In the insurance
market, our CompAdvisor (formerly CRLink) product accounted for 20.9% of total
revenues in 1999, 21.5% of total revenues in 1998 and 23.0% of total revenues in
1997, and we expect that we will continue to depend upon CompAdvisor for a
substantial portion of our total revenues for the foreseeable future. Revenues
from Falcon, our credit card fraud detection product line, accounted for 15.4%
of total revenues in 1999, 14.5% of total revenues in 1998 and 16.0% of total
revenues in 1997, and we expect that we will continue to depend upon Falcon
products for a substantial portion of our total revenues for the foreseeable
future. Each of these products and product lines face substantial risks,
including the following:
- Any failure to timely introduce future product enhancements may
adversely affect the continued market acceptance of CompAdvisor and the
Falcon product line, and such market acceptance may also be adversely
affected by product introductions of our competitors;
- Demand for, or use of, CompAdvisor could decline as a result of
competition, simplification of state workers' compensation fee
schedules, changes in the overall payment system or regulatory
structure for workers' compensation claims, technological change, our
inability to obtain or use state fee schedule or claims data,
saturation of market demand, industry consolidation or other factors;
- Demand for, or use of, our Falcon product line could decline as a
result of competition, technological change, changing patterns of
credit card fraud that the Falcon product line might not detect and
other methods of credit card fraud prevention that might reduce
customers' needs for the Falcon product line; demand could also be
adversely affected by fluctuations in interest rates, reduction in
capital spending or other factors;
- Due to increasing saturation of market demand for the Falcon product
line, we may also need to rely increasingly on international sales to
maintain or increase Falcon revenue levels;
- As many Falcon customers are banks and related financial institutions,
our future success depends upon the capital expenditure budgets of
these customers, their economic health and their continued demand for
Falcon products;
- The financial services industry tends to be cyclical, which may result
in reductions in demand for our products;
- Consolidation in the financial services industry has reduced the
customer base for our financial solutions products, and this may lead
to reduced demand for our products; and
- Industry consolidation also could adversely affect our base of
recurring revenues on transaction-based contracts and, if our customers
consolidate their contracts with us, could result in lower payments to
us than we would receive under a larger number of contracts.
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WE DEPEND ON THIRD PARTY DATA TO UPDATE OUR STATISTICAL MODELS AND FAILURE TO
OBTAIN THIS DATA ON A TIMELY BASIS COULD HARM THE PERFORMANCE OF OUR PRODUCTS
The development, installation and support of our products requires us
to periodically update our statistical models for applications such as credit
card fraud control and profitability management, loan underwriting and
insurance. In order to accomplish this updating, we must continually have access
to large quantities of current and statistically relevant data that are reliable
and available on a timely basis. We might not be able to continue to have timely
access to sufficient quantities of statistically relevant data in the required
formats or on reasonable terms and conditions. This risk is heightened by a
number of factors, including the following:
- Much of the data we require are not owned or controlled by us and are
collected privately and maintained in proprietary databases;
- Our customers agree to provide us the data we need to analyze
transactions, report results and build new fraud detection and
profitability models; if we fail to maintain good relationships with
our customers, we could lose access to this required data;
- CompAdvisor also uses data from state workers' compensation fee
schedules adopted by state regulatory agencies; in most cases, these
data must be periodically updated and refreshed to enable our
predictive software products to continue to work effectively; third
parties have previously asserted copyright interests in this type of
data; such an assertion in the future could threaten the continued
availability of such data.
OUR MARKETS ARE HIGHLY COMPETITIVE
The market for predictive software solutions is intensely competitive
and is constantly changing. We encounter competition from a number of sources,
including:
- Other application software companies, including enterprise software
vendors;
- Management information systems departments of customers and potential
customers, including financial institutions, insurance companies and
retailers;
- Third-party professional services organizations, including consulting
divisions of public accounting firms;
- Internet start-up companies;
- Hardware suppliers that bundle or develop complementary software;
- Network and service providers that seek to enhance their value-added
services;
- Neural-network tool suppliers; and
- Insurers and third party administrators.
We expect to face increasing competition and pricing pressures from both our
current competitors and new market entrants, as well as from other technologies.
- Our Falcon and eFalcon products compete against other methods of
preventing credit card fraud, such as credit card activation programs,
smart cards, using credit cards that contain the cardholders'
photographs and other card authorization techniques;
- Increased competition, whether from other products or new technologies,
could result in price reductions, fewer customer orders, reduced gross
margins and loss of market share, any of which could adversely affect
our business, financial condition and results of operations;
- Price competition could adversely affect our ability to obtain new
long-term contracts and renewals of existing long-term contracts on
favorable terms. Any reduction of our prices could adversely affect our
margins, business, financial condition and results of operations;
- Some of our current competitors, and many of our potential competitors,
have broader integrated product lines and significantly greater
financial, technical, marketing and other resources than we do. As a
result, they may have competitive advantages over us, including:
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-- The ability to respond more quickly to new or emerging
technologies and changes in customer requirements;
-- The ability to devote greater resources to the development,
promotion and sale of their products; and
-- The ability to sell products competitive to ours at lower prices
as part of integrated suites of related products that are vital to
the customer's computing infrastructure;
- Current and potential competitors have established or may establish
cooperative relationships to increase the ability of their products to
address the needs of our prospective customers;
- New competitors or alliances among competitors may emerge and rapidly
gain significant market share;
- We rely upon our customers to provide data, expertise and other support
for the ongoing updating of our statistical models; our customers may
compete with us in the future or otherwise discontinue their support;
- We may not be able to compete successfully against current and future
competitors, and this may adversely affect our business, financial
condition and results of operations.
IF WE DO NOT RECRUIT AND RETAIN QUALIFIED PERSONNEL, OUR BUSINESS COULD BE
HARMED
Our success depends to a significant degree upon the continued service
of members of our senior management and our key research, development, sales and
marketing personnel. Our dependence on key personnel creates risks for our
business. We have employment agreements with only a small number of employees,
and these agreements may not result in the retention of these employees for any
significant period of time. We could lose members of the management teams or key
employees of the businesses we acquire before we are able to familiarize
ourselves with the operating details of those businesses or provide suitable
replacements. We have historically had difficulty in recruiting a sufficient
number of qualified sales and technical employees. In addition, competitors and
other businesses may be successful in attempts to recruit our key employees.
Many of our employees possess unique skills and are not easily replaceable, and
their loss could adversely affect our business. We may not be successful in
attracting, assimilating and retaining personnel.
A SUBSTANTIAL PORTION OF OUR SALES ARE MADE TO INTERNATIONAL CUSTOMERS, AND
INTERNATIONAL SALES POSE UNIQUE RISKS
International operations and export sales, including sales in Canada,
represented 23.2% of our total revenues in 1999, 23.1% of our total revenues in
1998 and 18.9% of our total revenues in 1997. We intend to continue to expand
our operations outside the United States and to enter additional international
markets, which will require significant management attention and financial
resources. For more mature products, like Falcon, we may need to increase our
international sales in order to continue to expand the product's customer base.
We have committed and continue to commit significant time and development
resources to customizing our products for selected international markets, and to
developing international sales and support channels. These international
marketing efforts require us to incur increased sales, marketing and support
expenses. If these efforts are not successful in generating additional
international sales on a timely basis, our margins and earnings will be
adversely affected. In addition, we typically experience slower payment cycles
from our international customers, which adversely affects our cash flows.
International sales are more likely to be subject to other risks as well,
including: adverse changes in regulatory requirements; import and export
restrictions and tariffs; difficulties in staffing and managing foreign
operations; burdens of complying with foreign laws; greater difficulty or delay
in accounts receivable collection; potentially adverse tax consequences; reduced
protection of intellectual property rights; and political and economic
instability. Our international sales are currently denominated predominately in
United States dollars, and a small portion are denominated in the currencies of
Western Europe, Canada and Australia. An increase in the value of the United
States dollar relative to foreign currencies could make our products more
expensive, and therefore potentially less competitive, in foreign markets. In
the future, to the extent that our international sales are denominated in local
currencies, foreign currency translations may contribute to significant
fluctuations in our business, financial condition and results of operations. If
for any reason, exchange or price controls or other restrictions on foreign
currencies are imposed, our business, financial condition and results of
operations could be adversely affected.
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IF OUR PRODUCTS FAIL TO COMPLY WITH GOVERNMENT REGULATIONS AND INDUSTRY
STANDARDS, WE COULD BE EXPOSED TO LIABILITY OR THE PRODUCTS COULD BECOME
OBSOLETE
Many of our customers must comply with a number of government
regulations and industry standards. As a result, many of our key products must
comply as well. For example: our financial services products are affected by
Regulation B under the Equal Credit Opportunity Act, by regulations governing
the extension of credit to consumers and by Regulation E under the Electronic
Fund Transfers Act governing the transfer of funds from and to consumer deposit
accounts, as well as VISA and MasterCard electronic payment standards. Our
products in the mortgage services market are affected by regulations from Fannie
Mae and Freddie Mac for conforming loans, among others. The failure of our
products to comply with regulations and standards could result in legal action
against us or our customers by regulatory authorities or by third parties,
including actions seeking civil or criminal penalties, injunctions against our
use of data or civil damages. We may also be liable to our customers for failure
of our products to comply with regulatory requirements. The adoption of
insurance-related regulations could adversely affect our insurance products.
Simplification of state-mandated workers' compensation laws or regulations or
state workers' compensation fee schedules could diminish the need for, and the
benefit provided by, our CompAdvisor product. In many states, including
California, there have been periodic legislative efforts to reform workers'
compensation laws in order to reduce the cost of workers' compensation insurance
and to curb abuses of the workers' compensation system. Changes in workers'
compensation laws or regulations could adversely affect our insurance products
by making them obsolete, or by requiring extensive changes in these products to
reflect new workers' compensation rules. To the extent that we sell new products
targeted to markets that include regulated industries and businesses, our
products will need to comply with additional regulations.
OUR INTELLECTUAL PROPERTY MIGHT NOT BE PROTECTIBLE, AND, IF WE FAIL TO PROTECT
AND PRESERVE OUR INTELLECTUAL PROPERTY, WE MAY LOSE AN IMPORTANT COMPETITIVE
ADVANTAGE
We believe our intellectual property affords us a competitive
advantage. Any loss or invalidity of our intellectual property, or any failure
to protect our intellectual property, could adversely affect our competitive
position, and ultimately, our business. Despite the measures we take to protect
our intellectual property, it may be possible for third parties to copy or
otherwise to obtain and use our products or technology without authorization, or
to develop similar technology independently. There is a risk that our pending or
future patent applications may not be granted, or that our patents may not be
upheld as valid or may not prevent the development of competitive products. To
ensure that customers will not be harmed by an interruption in our business, we
often place software source code for our products into escrow, which may
increase the likelihood of misappropriation or other misuse of our intellectual
property. Effective protection of intellectual property rights may be
unavailable or limited in foreign countries in which we do business. We have
developed technologies under research projects conducted under agreements with
various United States Government agencies or subcontractors. Although we have
acquired commercial rights to these technologies, the United States Government
typically retains ownership of intellectual property rights and licenses in the
technologies developed by us under these contracts, and in some cases can
terminate our rights in these technologies if we fail to commercialize them on a
timely basis. Under our contracts with the United States Government, the results
of our research may be made public by the Government, which could limit our
competitive advantage with respect to future products based on our research.
WE ARE AT RISK OF CLAIMS THAT OUR PRODUCTS OR SERVICES INFRINGE THE PROPRIETARY
RIGHTS OF OTHERS
In November 1998, Nestor, Inc. filed a complaint against us alleging that we
infringed a United States patent issued to Nestor and seeking a declaration that
a United States patent issued to us is invalid and seeking damages and
injunctive relief. The complaint also seeks treble compensatory damages,
punitive damages and injunctive relief for alleged violations of the Sherman
Antitrust Act and the Rhode Island Antitrust Act. Although Nestor has dismissed
its claim that we infringe Nestor's patent, there is a risk that this litigation
will be resolved against us. Given our ongoing efforts to develop and market new
technologies and products, we may from time to time be served with claims from
other third parties asserting that our products or technologies infringe their
intellectual property rights. If, as a result of any claims, we were precluded
from using technologies or intellectual property rights, licenses to the
disputed third-party technology or intellectual property rights might not be
available on reasonable commercial terms, or at all. We may initiate claims or
litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. Litigation, either as
plaintiff or defendant, could result in significant expense and divert the
efforts of our technical and management personnel from productive tasks, whether
or not litigation is resolved in our favor. An adverse ruling in any litigation
might require us to pay substantial damages, to discontinue our use and sale
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of infringing products and to expend significant resources in order to develop
non-infringing technology or obtain licenses to infringing technology. A court
might also invalidate our patents, trademarks or other proprietary rights. A
successful claim against us, coupled with our failure to develop or license a
substitute technology, could cause our business, financial condition and results
of operations to be adversely affected. As the number of software products
increases and the functionality of these products further overlaps, we believe
that our risk of infringement claims will increase.
BECAUSE OUR PRODUCTS AND SERVICES ARE COMPLEX AND PERFORM MISSION-CRITICAL
FUNCTIONS, WE ARE VULNERABLE TO PRODUCT DEFECT AND PRODUCT LIABILITY CLAIMS
Our software products are complex and perform critical functions for
our customers, factors which increase the risk of product defects and product
liability claims. Our software products may contain undetected errors or
failures when first introduced or as new versions are released. To the extent
that we may have to develop new products that operate in new environments, the
possibility for program errors and failures may increase, particularly where new
technologies are involved and where there is a need for extremely rapid product
deployment, as in the case of products designed for the Internet. Since our
products are used in business-critical applications, any product errors or
failures may give rise to substantial product liability claims. Although our
license agreements with our customers typically contain provisions designed to
limit our exposure to potential product liability claims, it is possible that
limitation of our liability provisions may not be effective as a result of
existing or future laws or judicial decisions.
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE
Investment in our common stock has inherent risks. Our common stock has
had significant price volatility, which has increased since the November 1999
initial public offering of our subsidiary Retek's common stock, and this
volatility may be expected to continue in the future. The price of our common
stock may be affected by many factors, including announcements of the
introduction of new products by us or our competitors, acquisitions of
businesses or products by us, quarter-to-quarter variations in our operating
results, the gain or loss of significant orders, market conditions in the
technology and emerging growth company sectors, and other factors. The stock
market itself has been extremely volatile, particularly with respect to the
securities of technology companies. The market's volatility has often been
unrelated or disproportionate to the operating performance of the affected
companies. Market fluctuations may adversely affect the price of our common
stock.
IF WE SPIN-OFF OUR THE STOCK OF OUR RETEK SUBSIDIARY, OUR STOCKHOLDERS MAY
SUFFER DILUTION IN THE OWNERSHIP OF OUR STOCK
In March 1998, we issued $100 million in principal face amount of 4.75%
convertible notes due 2003. These notes are currently convertible into our
common stock at a price of $44.85 per share. If we spin-off our Retek subsidiary
to our stockholders, then, in accordance with the terms of the trust indenture
governing these notes, the conversion price of the notes would be reduced, which
would increase the number of shares of our common stock that are issuable upon
conversion of the notes. The reduction in the conversion price of the notes
could be substantial, depending on the ratio of the market prices of our and our
Retek subsidiary's common stock, and would result in dilution to the equity
interest of our stockholders and a reduction in our earnings per share.
OUR BOARD OF DIRECTORS CAN, WITHOUT STOCKHOLDER APPROVAL, CAUSE PREFERRED STOCK
TO BE ISSUED ON TERMS THAT ADVERSELY AFFECT COMMON STOCKHOLDERS
Under our certificate of incorporation, our board of directors is
authorized to issue up to 4,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by our stockholders.
If the board causes any preferred stock to be issued, the rights of the holders
of our common stock would be adversely affected. The board's ability to
determine the terms of preferred stock and to cause its issuance, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock. We have no
current plans to issue shares of preferred stock. In addition, Section 203 of
the Delaware General Corporation Law restricts business combinations with any
"interested stockholder" as defined by the statute. The statute may have the
effect of delaying, deferring or preventing a change in control of our company.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus (including the documents incorporated in this
prospectus by reference) contains forward-looking statements regarding HNC's
plans, expectations, estimates and beliefs. These statements involve risks and
uncertainties, and actual results could differ materially from those reflected
in the forward-looking statements. Forward-looking statements in this prospectus
are typically identified by words such as "may," "will," "should," "expects,"
"intends" "plans," "believes," "estimates," "anticipates," and other similar
expressions, or the negative of such terms. In addition, any statements that
refer to expectations, projections or other characterizations of future events
or circumstances are forward-looking statements. Readers of this prospectus are
cautioned that such forward-looking statements are subject to many known and
unknown risks and uncertainties that may cause actual results, events,
developments, achievements or performance to be materially different from the
results, events, developments or performance expressed, implied or contemplated
by the forward-looking statements. HNC will not necessarily update the
information in this prospectus if and when any forward-looking statement later
turns out to be inaccurate. Some of the important risks and uncertainties that
may affect HNC's future results and performance are described in "Risk Factors,"
above. Additional information about factors that could affect HNC's future
results and events is included in HNC's reports filed with the SEC and
incorporated by reference in this prospectus.
USE OF PROCEEDS
HNC will not receive any of the proceeds from the sale of shares by the
selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information known to HNC with
respect to the beneficial ownership of the common stock by the selling
stockholders as of April 1, 2000. The selling stockholders are the former
stockholders of ONYX Technologies, Inc. or The Center for Adaptive Systems
Applications, Inc., two corporations which HNC acquired in March 2000. The
selling stockholders have not had any position, office or other material
relationship with HNC within the three years ending on the dates of the
acquisitions. Following the acquisition of The Center for Adaptive Systems
Applications, Inc., Bruce E. Hansen, an officer of the acquired company, became
an officer of HNC with the title President, HNC Financial Solutions. Mr. Hansen
has entered into a noncompetition agreement with HNC.
The table assumes that the selling stockholders sell all of the shares
offered by them in this offering. However, we are unable to determine the exact
number of shares that will actually be sold or when or if such sales will occur.
This table also assumes that the selling stockholders do not acquire any other
shares of our common stock pending the offering.
Assignees of selling stockholders, if any, who acquire shares of our
common stock from selling stockholders and satisfy certain conditions are
entitled to the same registration rights as the selling stockholders. If any
assignee who meets these conditions notifies us that the assignee wishes to sell
shares under this prospectus, we will amend or supplement the prospectus to name
the assignee as a selling stockholder.
The selling stockholders have advised us that they are the beneficial
owners of the shares being offered under this prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BEING SHARES BENEFICIALLY
OWNED BEFORE OFFERING OFFERED OWNED AFTER OFFERING
--------------------- ------------ ---------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- --------------------------- -------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Former Stockholders of ONYX:
James Kell Canty(1) 118,308 * 30,000 88,308 *
Jeffrey A. Collins(1) 117,608 * 30,000 87,608 *
Peter C. Hoeve(1) 117,308 * 30,000 87,308 *
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BEING SHARES BENEFICIALLY
OWNED BEFORE OFFERING OFFERED OWNED AFTER OFFERING
--------------------- ------------ ---------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- --------------------------- -------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Former Stockholders of The Center for Adaptive
Systems Applications:
Stephen V. Coggeshall(2)(8) 32,724 * 32,724 -- *
John R. Davies 32,724 * 32,724 -- *
Camilo C. Gomez(2)(8) 32,724 * 32,724 -- *
Roger Jones 14,316 * 14,316 -- *
Jerry and Vardina Wind 8,726 * 8,726 -- *
Robert F. Stellingwerf 6,817 * 6,817 -- *
Colin Crook (3)(8) 10,361 * 5,408 4,953 *
Citibank, N.A.(4) 5,681 * 5,681 -- *
C. Wade Tambor (5)(8) 6,543 * 5,044 1,499 *
PS Capital, LLC 1,090 * 1,090 -- *
Guowei Wu 332 * 332 -- *
Jose Hernandez 270 * 270 -- *
Leann Griesinger 218 * 218 -- *
Csilla and Eric Tambor 436 * 436 -- *
Mary and Patrick Tambor 436 * 436 -- *
Marvin Alme 218 * 218 -- *
June Durnall 193 * 193 -- *
Xiaozhong Li (2)(6) 138 * 96 42 *
Kevin Rygg 78 * 78 -- *
Shanji Xiong (2)(7) 1,664 * 21 1,643 *
------- --- ------- ------- ---
TOTALS: 508,913 1.9% 237,552 271,361 1.0%
======= ======= =======
</TABLE>
- ---------------
* Less than 1%
(1) An employee of ONYX Technologies, Inc. Mr. Canty's shares include 1,000
shares subject to a call option expiring April 22, 2000.
(2) An employee of The Center for Adaptive Systems Applications, Inc.
(3) Includes options that are currently exercisable to purchase up to 4,953
shares.
(4) Represents shares subject to issuance upon the exercise of warrants.
(5) Includes options that are currently exercisable to purchase up to 1,499
shares.
(6) Includes options that are currently exercisable or are exercisable within
60 days to purchase up to 42 shares.
(7) Includes options that are currently exercisable or are exercisable within
60 days after April 1, 2000 to purchase up to 1,643 shares.
(8) Former director of The Center for Adaptive Systems Applications, Inc.
The shares that are beneficially owned by the former stockholders of
The Center for Adaptive Systems Applications, Inc. include 5,681 shares subject
to issuance upon the exercise of warrants. They also include approximately
38,100 shares held in escrow under an escrow agreement that was entered into in
connection with our acquisition of The Center for Adaptive Systems Applications,
Inc. The escrow is intended to secure any claims we may make based on the
representations and covenants that were made to us in the applicable acquisition
agreement. The escrow agreement continues until March 2001, except that the
escrow will not fully terminate until any claims we might make against the
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<PAGE> 13
escrow shares are resolved. As long as the escrow continues, none of the shares
held in escrow may be sold without our consent.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling stockholders
pursuant to registration rights agreements we entered into with the former
stockholders of ONYX Technologies, Inc. and The Center for Adaptive Systems
Applications, Inc. The registration statement of which this prospectus is a part
has been filed pursuant to those registration rights agreements. To our
knowledge, no selling stockholder has entered into any agreement, arrangement or
understanding with any particular broker or market maker with respect to the
sale of the shares covered by this prospectus.
The selling stockholders may offer and sell shares of common stock from
time to time. In addition, a selling stockholder's donees, pledgees, transferees
and other successors in interest may sell shares received from a named selling
stockholder after the date of this prospectus. The selling stockholders will act
independently of HNC in making decisions with respect to the timing, manner and
size of each sale. Sales may be made over the Nasdaq National Market or
otherwise, at then prevailing market prices, at prices related to prevailing
market prices or at negotiated prices. The shares may be sold in various ways,
including but not limited to the following:
- one or more block trades in which the broker-dealer engaged by a
selling stockholder will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by the broker-dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
The selling stockholders have advised HNC that they have not, as of the
date of this prospectus, entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers for the sale of shares, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
Transactions under this prospectus may or may not involve brokers or
dealers. The selling stockholders may sell shares directly to purchasers or to
or through broker-dealers, who may act as agents or principals. Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in selling shares. Broker-dealers or agents may receive compensation
in the form of commissions, discounts or concessions from the selling
stockholders in amounts to be negotiated in connection with the sale.
Broker-dealers or agents may also receive compensation in the form of discounts,
concessions or commissions from the purchasers of shares for whom the
broker-dealers may act as agents or to whom they sell as principal, or both.
This compensation as to a particular broker-dealer might exceed customary
commissions.
The selling stockholders and any participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with sales of shares covered by this prospectus. Any commission,
discount or concession received by a broker-dealer and any profit on the resale
of shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act. Because selling
stockholders may be deemed to be underwriters within the meaning of the
Securities Act, the selling stockholders will be subject to the prospectus
delivery requirements of the Securities Act.
HNC has informed the selling stockholders that the anti-manipulation
rules under the Exchange Act apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. The selling
stockholders have advised HNC that during the time they may be engaged in the
attempt to sell registered shares, they will:
- not engage in any stabilization activity in connection with any of
HNC's securities;
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<PAGE> 14
- not bid for or purchase any of HNC's securities or any rights to
acquire HNC's securities, or attempt to induce any person to
purchase any of HNC's securities or rights to acquire HNC's
securities, other than, in each case, as permitted under the
Exchange Act;
- not sell or distribute the shares until after the prospectus has
been appropriately amended or supplemented, if required, to set
forth the terms of sale or distribution; and
- make all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with
market makers or in privately negotiated transactions where no
broker or other third party (other than the purchaser) is
involved.
The selling stockholders have agreed with HNC in the registration
rights agreements not to sell any of the shares pursuant to this prospectus in
an underwritten offering without HNC's prior written consent. In addition, any
securities covered by this prospectus that qualify for sale under Rule 144 of
the Securities Act may be sold under that rule rather than under this
prospectus.
The registration rights agreements require the selling stockholders to
offer and sell shares under this prospectus only during certain permitted
"windows." Under the registration rights agreement for the acquisition of ONYX
Technologies, the ONYX selling stockholders' permitted window commences on or,
within no more than four business days after, the effective date of the
registration statement of which this prospectus is a part, and continues for 30
calendar days, except that, in certain circumstances, HNC may postpone the
permitted window before it commences or may suspend the permitted window after
it has commenced. This could happen if HNC determines in good faith that it
would be seriously detrimental to HNC and its securityholders for the permitted
window to be in effect or if a material development occurs which HNC believes
should be disclosed in this prospectus. The postponement or suspension may not
exceed 45 days. After any postponement or suspension, the permitted window will
commence, or recommence, until it has included a full 30 days.
Under the registration rights agreement for the acquisition of The
Center for Adaptive Systems Applications, there may be up to three permitted
windows for the sale of shares under this prospectus by the former stockholders
of that company, and there must be at least 30-day intervals between these
permitted windows. Each permitted window will be for a period of 30 calendar
days, and will commence after holders of at least one-third of the shares then
subject to the registration rights agreement give HNC a notice of resale stating
that they intend to sell shares during the permitted window and indicating their
intended plan of distribution. As soon as practicable after receipt of that
notice (but in any event within four business days), HNC will give notice to all
holders of shares subject to that registration rights agreement that the
permitted window will commence, or that the registration statement of which this
prospectus is a part must be amended (in which case, HNC will file the
amendment, and attempt to cause it to become effective, as soon as practicable).
As in the case of the ONYX registration rights agreement, HNC may postpone or
suspend any permitted window for the sale of shares by the former stockholders
of The Center of Adaptive Systems Applications, under certain circumstances and
for periods not exceeding 45 days. If a permitted window is postponed before it
commences, the selling stockholders may withdraw their notice of resale so that
the permitted window will not be triggered until they decide to give a new
notice. If a permitted window is suspended after it has commenced, the suspended
portion of the 30-day window can be used by the selling stockholders after they
give a new notice of resale.
The registration rights agreement for The Center for Adaptive Systems
Applications provides that HNC will use diligent efforts to cause the
registration statement to remain effective until March 17, 2001. HNC may
terminate the registration statement, and this offering will terminate, on the
earlier of (i) March 17, 2001, (ii) when HNC has already effected all required
permitted windows, (iii) with respect to any former stockholder of The Center of
Adaptive Systems Applications, the date on which, in the opinion of counsel for
HNC, all shares subject to the registration rights agreement may be sold in a
three month period without registration under the Securities Act pursuant to
Rule 144 or otherwise or (iv) when all the shares covered by this prospectus
have been sold.
Upon the occurrence of certain events, the selling stockholders may not
offer or sell shares under this prospectus unless and until the prospectus has
been supplemented or amended to include additional disclosures, as follows: (a)
to the extent the shares are sold at a fixed price or at a price other than the
prevailing market price, such price must be set forth in the prospectus, (b) if
the shares are sold in block transactions and the purchaser acting in the
capacity of an underwriter wishes to resell, such arrangements must be described
in the prospectus, (c) if a selling stockholder sells to a broker-dealer acting
in the capacity as an underwriter, the broker-dealer must be identified in the
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<PAGE> 15
prospectus, (d) if the compensation paid to broker-dealers is other than usual
and customary discounts, concessions or commissions, disclosure of the terms of
the transaction must be included in the prospectus and (e) if a donee or pledgee
of a selling stockholder intends to sell more than 500 shares, the prospectus
must so indicate.
HNC has agreed to pay the expenses of registering the shares under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and certain legal and accounting fees. The selling
stockholders will bear all discounts, commissions or other amounts payable to
underwriters, dealers or agents as well as fees and disbursements for legal
counsel retained by any selling stockholder.
HNC and the selling stockholders have agreed to indemnify each other
and other related parties against specified liabilities, including liabilities
arising under the Securities Act. The selling stockholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of shares against liabilities, including liabilities arising
under the Securities Act.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for HNC by Fenwick & West LLP, Palo Alto, California.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS
The SEC allows HNC to "incorporate by reference" in this prospectus the
information that HNC files with the SEC. This means that HNC can disclose
important information by referring the reader to those SEC filings. The
information incorporated by reference is considered to be part of this
prospectus, and later information HNC files with the SEC will update and
supersede this information. HNC incorporates by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 until termination of the
offering:
- Annual report on Form 10-K for the fiscal year ended December 31,
1999, as amended.
- Current report on Form 8-K filed March 27, 2000.
- Quarterly Report on Form 10-Q filed May 15, 2000.
- The description of HNC's common stock contained in HNC's
registration statement on Form 8-A, and any amendment or report
filed for the purpose of updating such description.
SOME OF THE INFORMATION ABOUT HNC THAT MAY BE IMPORTANT TO AN
INVESTMENT DECISION IS NOT PHYSICALLY INCLUDED IN THIS PROSPECTUS. INSTEAD, THE
INFORMATION IS "INCORPORATED" INTO THIS PROSPECTUS BY REFERENCE TO ONE OR MORE
DOCUMENTS THAT HNC FILED WITH THE SEC. THESE DOCUMENTS (INCLUDING ANY EXHIBITS
THAT ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS
PROSPECTUS INCORPORATES) ARE AVAILABLE UPON REQUEST WITHOUT CHARGE FROM INVESTOR
RELATIONS, HNC SOFTWARE INC., 5935 CORNERSTONE COURT WEST, SAN DIEGO, CALIFORNIA
92121-3728 (TELEPHONE NUMBER (858) 546-8877). RECIPIENTS SHOULD MAKE ALL
REQUESTS FOR DOCUMENTS BY THE FIFTH BUSINESS DAY BEFORE THEY MAKE THEIR FINAL
INVESTMENT DECISION, TO BE SURE THE DOCUMENTS ARRIVE ON TIME. INFORMATION THAT
HAS BEEN INCORPORATED BY REFERENCE IS CONSIDERED PART OF THIS PROSPECTUS AND
DISCLOSED TO INVESTORS, WHETHER OR NOT INVESTORS OBTAIN A COPY OF THE DOCUMENT
CONTAINING THE INFORMATION.
This prospectus may contain information that updates, modifies or is
contrary to information in one or more of the documents incorporated by
reference in this prospectus. Reports HNC files with the SEC after the date of
this prospectus may also contain information that updates, modifies or is
contrary to information in this prospectus or in documents incorporated by
reference in this prospectus. Investors should review these reports as they may
disclose a change in the business, prospects, financial condition or other
affairs of HNC after the date of this prospectus.
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<PAGE> 16
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this prospectus are
available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this prospectus, not including
exhibits to the information unless those exhibits are specifically incorporated
by reference into this prospectus, to any person, without charge, upon written
or oral request.
Requests for documents should be directed to Investor Relations, HNC
Software Inc., 5935 Cornerstone Court West, San Diego, California 92121-3728
(telephone number (858) 546-8877).
We file reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of our reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 5000 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is sec.gov.
HNC has filed a registration statement under the Securities Act with
the Securities and Exchange Commission with respect to the shares to be sold by
the selling stockholders. This prospectus has been filed as part of the
registration statement. This prospectus does not contain all of the information
set forth in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and regulations
of the SEC. The registration statement is available for inspection and copying
as set forth above.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN BY REFERENCE
OR IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS.
16
