1
EXHIBIT 4.01
HNC SOFTWARE INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (this "AGREEMENT") is made
and entered into as of March 19, 1999 (the "DATE OF GRANT") between HNC Software
Inc., a Delaware corporation (the "COMPANY"), and Ward Carey, an employee of the
Company ("OPTIONEE"). Capitalized terms used herein and not otherwise defined
shall have the meanings given them in Exhibit A hereto.
OPTIONEE:
---------------------------------------------
SOCIAL SECURITY NUMBER:
---------------------------------------------
OPTIONEE'S ADDRESS:
---------------------------------------------
---------------------------------------------
TOTAL OPTION SHARES:
---------------------------------------------
EXERCISE PRICE PER SHARE:
---------------------------------------------
DATE OF GRANT:
---------------------------------------------
EXPIRATION DATE:
---------------------------------------------
1. GRANT OF OPTION. The Company hereby grants to Optionee a
nonqualified stock option (this "OPTION") to purchase up to 250,000 shares of
the Company's Common Stock, par value $0.001 (the "COMMON STOCK"), as presently
constituted, (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.
2. VESTING; EXERCISE PERIOD. Initially, this Option will not be
exercisable with respect to any of the Shares. Thereafter, this Option shall
become exercisable with respect to certain designated portions of the Shares as
provided in this Section 2, and in Exhibit B to this Agreement.
2.1 Vesting of Right to Exercise Option. If Optionee has
continuously provided services as an employee or officer (each, a "SERVICE
PROVIDER") to the Company or to any Subsidiary, Parent or Affiliate of the
Company from the Date of Grant through March 18, 2004 (the "FINAL VESTING DATE")
and has not been Terminated on or before the Final Vesting Date, then on the
Final Vesting Date, this Option shall become exercisable with respect to one
hundred percent (100%) of the Shares. Notwithstanding the foregoing, this Option
shall become exercisable as to portions of the Shares prior to the Final Vesting
Date as follows:
(a) If Optionee has continuously provided services
as a Service Provider to the Company or to any Subsidiary, Parent or Affiliate
of the Company from the Date of Grant through March 19, 2000 (the "FIRST
ANNIVERSARY") and has not been Terminated on or before the First Anniversary,
then on the First Anniversary, this Option shall become exercisable with respect
to the applicable portion of the Shares specified in Section 1 of Part B of
Exhibit B to this Agreement.
(b) Following the First Anniversary, so long as
Optionee continuously provides services as a Service Provider to the Company or
to any Subsidiary, Parent or Affiliate of the Company
2
and is not Terminated, on the second (2nd) anniversary of the Date of Grant and
on each successive anniversary of the Date of Grant, this Option shall become
exercisable with respect to the applicable portion of the Shares specified in
Section 2 of Part B of Exhibit B to this Agreement.
Notwithstanding anything herein to the contrary, (i) except as otherwise
provided in the first sentence of this Section 2.1, this Option shall in no
event become exercisable with respect to more than thirty percent (30%) of the
Shares in any twelve-month period and (ii) this Option shall in no event ever
become exercisable with respect to more than one hundred percent (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 Optionee is Terminated for any reason other than Optionee's death
or Disability, then this Option, to the extent (and only to the extent) that it
would have been exercisable by Optionee on the date of Termination, may be
exercised by Optionee no later than three (3) months after the date of
Termination, but in any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If
Optionee is Terminated because of the death or Disability of Optionee, then this
Option, to the extent that it is exercisable by Optionee on the date of
Termination, may be exercised by Optionee (or Optionee'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 this Agreement
shall confer on Optionee any right to continue in the employ of, to continue to
be a Service Provider or to have or 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 Optionee's employment or other relationship (as a Service
Provider or otherwise) at any time, with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this
Option, Optionee (or in the case of exercise after Optionee's death, Optionee'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 C, or in such other form as may be approved by the Company
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, among other
things, Optionee's election to exercise this Option, the number of Shares being
purchased upon such exercise, any restrictions imposed on the Shares and any
representations, warranties and agreements regarding Optionee's investment
intent and access to information as may be required by the Company to comply
with applicable securities laws. If someone other than Optionee exercises this
Option, then such person must submit documentation reasonably acceptable to the
Company that such person has the right to exercise this Option.
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.
2
3
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 Optionee;
(b) by surrender of shares of the Company's Common
Stock that either: (1) have been owned by
Optionee 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 Optionee in
the open public market; and (3) are clear of
all liens, claims, encumbrances or security
interests;
(c) by waiver of compensation due or accrued to
Optionee for services rendered;
(d) provided that a public market for the Company's
stock exists: (1) through a "same day sale"
commitment from Optionee and a broker-dealer
that is a member of the National Association of
Securities Dealers (an "NASD DEALER") whereby
Optionee 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 Optionee and
a NASD Dealer whereby -- Optionee 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
(e) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares
upon each exercise of this Option, Optionee must pay or provide for any
applicable federal, state or local withholding obligations of the Company
arising from such exercise. If the Committee permits, Optionee may provide for
payment of withholding taxes upon exercise of this Option by requesting in
writing in a form acceptable to the Committee 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
Optionee 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 Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
Option and the issuance and transfer of Shares shall be subject to compliance by
the Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange or
automated quotation system on which the Company's Common Stock may be listed at
the time of such issuance or transfer. Optionee 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.
3
4
6. NONTRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner, nor may it be made subject to execution, attachment
or similar process, other than by will or by the laws of descent and
distribution, and this Option may be exercised during the lifetime of Optionee
only by Optionee. The terms of this Option shall be binding upon the executors,
administrators, successors and assigns of Optionee.
7. TAX CONSEQUENCES. Set forth below is a brief summary as of
the Date of Grant of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF ANY OF THE SHARES.
7.1 Exercise of Nonqualified Stock Option. There may be
a regular federal and California income tax liability upon the exercise of this
Option. Upon exercise of this Option, Optionee 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 purchased on the date of
exercise over the Exercise Price of such Shares. Upon Optionee's exercise of
this Option, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise and Optionee hereby consents to such withholding.
7.2 Disposition of Shares. If the Shares are held for
more than twelve (12) months after the date of the sale of such Shares pursuant
to the exercise of this Option, then any gain realized on disposition of such
Shares will be treated as capital gain. As of the Date of Grant, the maximum
federal capital gain tax rate is twenty percent (20%) for Shares held more than
twelve (12) months.
8. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of
the rights of a shareholder with respect to any Shares unless and until Optionee
exercises this Option with respect to such Shares and pays the Exercise Price
for such Shares.
9. SECURITIES LAW MATTERS. Notwithstanding any other provision
in this Agreement, the Company will have no obligation to issue or deliver
certificates for Shares under this Option 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 is 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.
10. CORPORATE TRANSACTIONS.
10.1 Assumption or Replacement of the Option 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 this Option is assumed, converted or replaced by the successor
corporation, which assumption will be binding on Optionee), (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
4
5
such merger) cease to own their shares or other equity interests in the Company,
(d) the sale of all or 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), this Option may be assumed, converted or replaced
by the successor corporation (if any), which assumption, conversion or
replacement will be binding on Optionee. In the alternative, the successor
corporation may substitute an equivalent Option or provide substantially similar
consideration to Optionee as was provided to stockholders (after taking into
account the existing provisions of this Option). In the event such successor
corporation (if any) refuses to assume or substitute this Option, as provided
above, pursuant to a transaction described in this Subsection 10.1, this Option
will expire on such transaction at such time and on such conditions as the Board
will determine.
10.2 Other Treatment of the Option. Subject to any greater
rights granted to Optionee under the foregoing provisions of this Section 10, in
the event of the occurrence of any transaction described in Subsection 10.1,
this Option will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
11. ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares of the Company's Common Stock 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 (each a "CAPITAL ADJUSTMENT"), then the number of Shares
issuable upon exercise of this Option and the Exercise Price will each be
proportionately adjusted, subject to compliance with Delaware law and applicable
securities laws; provided however, that fractions of a share will not be issued
but will be rounded up to the nearest whole share.
12. INTERPRETATION. The Committee shall have full power and
authority to construe and interpret this Agreement and the terms of this Option.
Any dispute regarding the interpretation of this Agreement shall be submitted by
Optionee 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 Optionee.
13. ADMINISTRATION BY THE COMMITTEE. The Committee shall have full
power and authority to grant waivers of any conditions under this Agreement,
correct any defect, supply any omission or reconcile any inconsistency in this
Agreement and make all other determinations necessary or advisable for the
administration of this Agreement.
14. ENTIRE AGREEMENT. This Agreement and all Exhibits hereto 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.
15. 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 Optionee shall be in writing and
addressed to Optionee 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 telecopier.
5
6
16. 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
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
17. 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.
18. ACCEPTANCE. Optionee has read and understands the terms and
provisions of this Agreement, and accepts this Option subject to all the terms
and conditions of this Agreement. Optionee acknowledges that there may be
adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee 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 Optionee has
executed this Agreement in duplicate as of the Date of Grant.
HNC SOFTWARE INC. OPTIONEE
By:
---------------------------------- -------------------------------
Raymond V. Thomas Ward Carey
Chief Financial Officer
6
7
EXHIBIT A
TO
NON-QUALIFIED STOCK OPTION AGREEMENT FOR WARD CAREY
CERTAIN DEFINITIONS
"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
the Company's equity incentive and stock option plans and arrangements, or if no
such committee is appointed, the Board.
"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 this Option may
purchase the Shares issuable upon exercise of this 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.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time in question, 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.
"SEC" means the Securities and Exchange Commission.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time in
question, each of the corporations other than
7
8
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 Agreement,
that Optionee has for any reason ceased to provide services as an employee or
officer 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 Optionee has ceased to provide services as provided in this
definition and the effective date on which Optionee ceased to provide services
(the "TERMINATION DATE").
8
9
EXHIBIT B
TO
NON-QUALIFIED STOCK OPTION AGREEMENT FOR WARD CAREY
VESTING SCHEDULE
PART A. DEFINITIONS. As used in this Exhibit B, the following capitalized
terms shall have the meanings set forth below:
"YEAR" shall mean a calendar year.
"20-DAY AVERAGE" for any specified year shall mean the average of the
closing prices per share of the Company's Common Stock as quoted on the Nasdaq
National Market (or any other stock exchange or quotation system if HNC Common
Stock is then quoted on such other exchange or quotation system), and as
reported in The Wall Street Journal, for the twenty (20) successive trading days
immediately preceding (but not including) March 1 of such year. In the event of
a Capital Adjustment, the 20-Day Average will be proportionately and equitably
adjusted.
"PRICE GROWTH RATE" for a specified year shall mean the percentage
obtained by dividing (i) the amount equal to the 20-Day Average for such
specified year minus the 20-Day Average for the year immediately preceding such
specified year by (ii) the 20-Day Average for the year immediately preceding
such specified year.
"OPERATIONAL EPS" for a specified year shall mean the Company's diluted
operational earnings per share for such specified year, as calculated in
accordance with the Company's internal accounting practices.
"EPS GROWTH RATE" for a specified year shall mean a percentage obtained
by dividing (i) the amount equal to the Operational EPS for such specified year
minus the Operational EPS for the year immediately preceding such specified
year, by (ii) the Operational EPS for the year immediately preceding such
specified year. In the event of a Capital Adjustment, the Operational EPS used
in calculating the EPS Growth Rate will be proportionately and equitably
adjusted. For example, the EPS Growth Rate for 1999 would be equal to (i) the
Operational EPS for 1999 minus the Operational EPS for 1998, divided by (ii) the
Operational EPS for 1998.
"REVENUE GROWTH RATE" for a specified year shall mean a percentage
obtained by dividing (i) the Company's total revenues for such specified year,
as publicly reported by the Company minus the Company's total revenues for the
year immediately preceding such specified year, as publicly reported by the
Company, by (ii) the Company's total revenues for the year immediately preceding
such specified year, as publicly reported by the Company. For example, the
Revenue Growth Rate for 1999 would be equal to (i) the Company's total revenues
for 1999 minus the Company's total revenues for 1998 divided by (ii) the
Company's total revenues for 1998.
"AVERAGE GROWTH RATE" for a specified year shall mean a percentage
equal to the arithmetic average of the EPS Growth Rate for such specified year
and the Revenue Growth Rate for such specified year.
"INDEX GROWTH RATE" for a specified year shall mean a percentage
obtained by dividing (i) the value of the Russell 2000 Index on December 31 of
such specified year minus the value of the Russell 2000 Index on December 31 of
the year immediately preceding such specified year, by (ii) the value of the
Russell 2000 Index on December 31 of the year immediately preceding such
specified year. The
9
10
values of the Russell 2000 Index shall be those reported in The Wall Street
Journal for the specified date. For example, the Index Growth Rate for the year
2000 would be equal to the difference between the values of the Russell 2000
Index on December 31, 2000 and December 31, 1999 divided by the value of the
Russell 2000 Index on December 31, 1999.
"PRIOR THREE-YEAR INDEX GROWTH RATE" for a specified year shall mean
the arithmetic average of the Index Growth Rates for each of the three
consecutive years immediately prior to (and not inclusive of) such specified
year. For example, the Three-Year Index Growth Rate for 2000 would be the
average of the Index Growth Rates for years 1997, 1998 and 1999.
"ADJUSTMENT RATE" for a specified year shall mean a percentage equal to
the greater of (i) the Index Growth Rate for the year immediately preceding such
specified year divided by the Prior Three-Year Index Growth Rate for the year
immediately preceding such specified year and (ii) 50%.
"TARGET FIRST YEAR PRICE" shall mean $35.00, provided that if the Index
Growth Rate for 1999 is less than 80% of the Prior Three-Year Index Growth Rate
for 1999, then the Target First Year Price shall be equal to (i) $21.24 plus
(ii) the amount obtained by multiplying $13.76 by the Adjustment Rate for 1999.
In the event of a Capital Adjustment, the Target First Year Price will be
proportionately and equitably adjusted.
"MINIMUM FIRST YEAR PRICE" shall mean $26.00, provided that if the
Index Growth Rate for 1999 is less than 80% of the Prior Three-Year Index Growth
Rate for 1999, then the Minimum First Year Price shall be equal to (i) $21.24
plus (ii) the amount obtained by multiplying $4.76 by the Adjustment Rate for
1999. In the event of a Capital Adjustment, the Minimum First Year Price will be
proportionately and equitably adjusted.
"TARGET PRICE GROWTH RATE" for a specified year shall mean the Average
Growth Rate for the year immediately preceding such specified year, provided
that if the Index Growth Rate for the year immediately preceding such specified
year is less than 80% of the Prior Three-Year Index Growth Rate for such
immediately preceding year, then the Target Price Growth Rate shall be equal to
the Average Growth Rate for the year immediately preceding such specified year
multiplied by the Adjustment Rate for such specified year.
PART B. VESTING SCHEDULE
1. Vesting Upon First Anniversary (Section 2.1(a)): Subject to
the terms and conditions of Section 2 of the Agreement:
(i) If the 20-Day Average for 2000 is greater than or equal to
the Target First Year Price, then upon the First Anniversary, this
Option shall become exercisable with respect to 30% of the Shares;
(ii) If the 20-Day Average for 2000 is greater than or equal
to the Minimum First Year Price but is less than the Target First Year
Price, then upon the First Anniversary, this Option shall become
exercisable with respect to a percentage of the Shares equal to 30%
multiplied by the quotient obtained by dividing (A) the 20-Day Average
for 2000 minus the Minimum First Year Price, by (B) the Target First
Year Price minus the Minimum First Year Price; and
(iii) If the 20-Day Average for 2000 is less than the Minimum
First Year Price, then upon the First Anniversary, this Option shall
not become exercisable with respect to any of the Shares.
10
11
2. Vesting Upon Subsequent Anniversaries (Section 2.1(b)): Subject to
the terms and conditions of Section 2 of the Agreement, upon each successive
anniversary of the Date of Grant following the First Anniversary (each a
"SUBSEQUENT ANNIVERSARY"):
(i) If the Price Growth Rate for the year in which such
Subsequent Anniversary occurs is greater than or equal to the Target
Price Growth Rate for such year, then upon such Subsequent Anniversary,
this Option shall become exercisable with respect to 30% of the Shares;
(ii) If the Price Growth Rate for the year in which such
Subsequent Anniversary occurs is greater than or equal to 80% of the
Target Price Growth Rate for such year, but is less than 100% of the
Target Price Growth Rate for such year, then upon such Subsequent
Anniversary, this Option shall become exercisable with respect to a
percentage of the Shares equal to 30% multiplied by the quotient
obtained by dividing (A) the Price Growth Rate for such year, expressed
as a percentage of the Target Price Growth Rate for such year, minus
80%, by (B) 20%; and
(iii) If the Price Growth Rate for the year in which such
Subsequent Anniversary occurs is less than 80% of the Target Price
Growth Rate for such year, then upon such Subsequent Anniversary, this
Option shall not become exercisable with respect to any of the Shares.
11
12
PART C. EXAMPLE OF VESTING SCHEDULES
NOTE: The following assumptions do not reflect historical information or
projections by the Company, but are used solely for convenience in demonstrating
the operation of the vesting schedules.
1. Assumptions
Date of Grant: March 19, 1999
-------------- --------------
20-Day Average for 2002: $48.00
20-Day Average for 2001: $39.20
20-Day Average for 2000: $32.00
20-Day Average for 1999: $25.00
Index Growth Rate for 1999: 20%
Prior Three-Year Index Growth Rate for 1999: 22%
(average of 1996, 1997 and 1998)
Index Growth Rate for 2000: 23%
Prior Three-Year Index Growth Rate for 2000: 21%
(average of 1997, 1998 and 1999)
Index Growth Rate for 2001: 15%
Prior Three-Year Index Growth Rate for 2001: 21%
(average of 1998, 1999 and 2000)
Year ended Total Revenues Operational EPS
---------- -------------- ---------------
(in thousands)
December 31, 2001 $ 325,000 $ 1.75
December 31, 2000 $ 250,000 $ 1.25
December 31, 1999 $ 200,000 $ 1.00
December 31, 1998 $ 150,000 $ 0.75
2. APPLICATION OF FORMULAS
Vesting on March 19, 2000 (Section 2.1(a)). Based upon the
foregoing assumptions, the Target First Year Price would be
$35.00 (with no adjustment since the Index Growth Rate for
1999 is at least 80% of the Three-Year Index Growth Rate for
1999) and the Minimum First Year Price would be $26.00.
Because the 20-Day Average for 2000 ($32.00), is greater than
$26.00 and less than $35.00, the Option would become
exercisable on March 19, 2000 with respect to 20% of the
Shares (or 50,000 of the Shares) according to the following
formula:
PERCENT EXERCISABLE = 30% X [($32.00 - $26.00) / ($35.00 -
$26.00)] = 20.0%
Vesting on March 19, 2001 (Section 2.1(b)). Based
upon the foregoing assumptions, the Price Growth Rate for 2001
would be 22.5% [ = (39.20 - 32.00) / 32.00 ], the Revenue
Growth Rate for 2000 would be 25% [ = (250,000 - 200,000) /
200,000 ] and the EPS
12
13
Growth Rate for 2000 would be 25% [ = (1.25 - 1.00) / 1.00 ].
The Average Growth Rate for 2000 would be 25% [ = (25% + 25%)
/ 2 ] and the Target Price Growth Rate for 2001 would also be
25% (with no adjustment since the Index Growth Rate for 2000
is at least 80% of the Three-Year Index Growth Rate for 2000).
Because the Price Growth Rate for 2001 (22.5%) is greater than
80% of the Target Price Growth Rate for 2001 (80% of 25% =
20%) but less than 100% of the Target Price Growth Rate for
2001 (25%), the Option would become exercisable on March 19,
2001 with respect to 15.0% of the Shares (or 37,500 of the
Shares) as follows:
PERCENT EXERCISABLE = 30% X [((22.5% / 25%) - 80%) / 20%] =
15.0%
Vesting on March 19, 2002 (Section 2.1(b)). Based upon the
foregoing assumptions, the Price Growth Rate for 2002 would be
22.4% [ = (48.00- 39.20) / 39.20 ], the Revenue Growth Rate
for 2001 would be 30% [ = (325,000 - 250,000) / 250,000 ] and
the EPS Growth Rate for 2001 would be 40% [ = (1.75 - 1.25) /
1.25 ]. The Average Growth Rate for 2001 would be 35% [ = (30%
+ 40%) / 2 ]. The Adjustment Rate for 2002 would be 71.4%,
which is the greater of (i) (15% / 21%) and (ii) 50%. Because
the Index Growth Rate for 2001 (15%) is less than 80% of the
Three-Year Index Growth Rate for 2001 (21%), the Target Price
Growth Rate for 2002 would be adjusted to 25%, which is equal
to the Average Growth Rate for 2001 (35%) times the Adjustment
Rate (71.4%). Because the Price Growth Rate for 2002 (22.4%)
is greater than 80% of the Target Price Growth Rate for 2002
(80% of 25% = 20%) but less than 100% of the Target Price
Growth Rate for 2002 (25%), the Option would become
exercisable on March 19, 2002 with respect to 14.4% of the
Shares (or 36,000 of the Shares) as follows:
PERCENT EXERCISABLE = 30% X [((22.4% / 25%) - 80%) / 20%] =
14.4%
13
14
EXHIBIT C
HNC SOFTWARE INC.
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:
Optionee __________________________________ Number of Shares Purchased:__________
Social Security Number:____________________ Purchase Price per Share:____________
Address:___________________________________ Aggregate Purchase Price:____________
___________________________________ Date of Option Agreement:____________
Daytime Phone:_____________________________ Exact Name of Title to Shares:_______
Facsimile Number:__________________________ _____________________________________
Type of Option: Nonqualified Stock Option _____________________________________
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Stock 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 Optionee in the
amount of $_______________________;
[ ] by delivery of ___________ fully-paid, nonassessable and vested shares
of the common stock of the Company owned by Optionee 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 Optionee 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 Optionee for
services rendered in the amount of $______________________ (except that
the par value of the Shares is tendered in cash (by check) receipt of
which is acknowledged by the Company);
[ ] through a "same-day-sale" or "cashless exercise" commitment, delivered
herewith, from Optionee and the NASD Dealer ("Broker") named therein,
in the amount of $___________________ (please register the exercised
shares in the name of the broker listed in item 2 below); or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
Broker named therein, in the amount of $_____________________.
2. DELIVERY OF SHARES. Please complete the information requested below if
either of the following is applicable (if you are purchasing and
"holding" the shares and you do not complete the information requested
below, the shares will be delivered to you via a share certificate
mailed to your home address):
o You are purchasing your shares and wish to have the shares sent
electronically to your brokerage account. In such case, the
shares will be registered in the name of the Broker designated
below.
o You elect to purchase the shares through a "same-day-sale" or
"cashless exercise" or "margin" commitment (the Broker will
remit the exercise price and applicable withholding taxes, if
any, directly to the Company).
Name of Broker:__________________________ Broker Phone:_______________
Broker Account Number:___________________ Broker Fax:_________________
3. MARKET STANDOFF AGREEMENT. Participant agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Participant will not sell or otherwise dispose of any shares without the prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify for employee
shareholders generally.
14
15
4. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
5. ENTIRE AGREEMENT. The Option Agreement is incorporated herein by
reference. This Exercise Agreement and the Option Agreement (together with all
Exhibits thereto) constitute the entire agreement and understanding of the
parties and supersede in their entirety all prior understandings and agreements
of the Company and Optionee 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 Optionee
This is to verify our receipt and acceptance of the attached Exercise Agreement
and our agreement to promptly issue and deliver the shares referred to above,
subject to our receipt of the Aggregate Purchase Price, and taxes due, if any.
The shares, when so issued will be fully paid and nonassessable.
HNC Software Inc.
Date:_______________________ ---------------------------------------
Signature of Optionee
[SIGNATURE PAGE TO HNC SOFTWARE INC.
STOCK OPTION EXERCISE AGREEMENT]
15