10-K405

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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
 (Mark One)
         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1996
                                       or

         [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from _____ to _____.
 
                         COMMISSION FILE NUMBER 0-26146

                                HNC SOFTWARE INC.
             (Exact name of registrant as specified in its charter)

       DELAWARE                                                NO. 33-0248788
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                5930 Cornerstone Court West, San Diego, CA 92121
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (619) 546-8877

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value
                                (Title of Class)

       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
        Yes  X     No    .
            ---       ---           
       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

       The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing price as reported on the Nasdaq Stock
Market at February 28, 1997, was approximately $440 million. The number of
shares of the registrant's Common Stock outstanding at February 28, 1997 was
19,230,575 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

       Parts of the following documents are incorporated by reference in Parts
II, III and IV of this Annual Report on Form 10-K: (1) Registrant's Annual
Report to Stockholders for the fiscal year ended December 31, 1996 - Parts II
and IV, and (2) Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders to be filed with the Commission on or before April 30, 1997 - Part
III. With the exception of those portions which are specifically incorporated by
reference in this Annual Report on Form 10-K, such Annual Report to Stockholders
and Proxy Statement shall not be deemed filed as part of this Report or
incorporated by reference herein.


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                                TABLE OF CONTENTS


ITEM NO.                                                                PAGE NO.
- --------                                                                --------

PART I

Item 1. Business                                                               3
Item 2. Properties                                                            18
Item 3. Legal Proceedings                                                     19
Item 4. Submission of Matters to Vote of Security Holders                     19


PART II

Item 5. Market for Company's Common Equity and Related
        Stockholder Matters                                                   20
Item 6. Selected Financial Data                                               20
Item 7. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                                   20
Item 8. Financial Statements and Supplementary Data                           20
Item 9. Changes in and Disagreements with Accountants
        on Accounting and Financial Disclosure                                20


PART III

Item 10. Directors and Executive Officers of the Company                      21
Item 11. Executive Compensation                                               21
Item 12. Security Ownership of Certain Beneficial Owners
         and Management                                                       21
Item 13. Certain Relationships and Related Transactions                       21


PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
         on Form 8-K                                                          22



    Trademarks or trade names referred to in this Report are the property of
                            their respective owners.

The latest news and information about the Company can be found on the HNC
Software World Wide Web site: http://www.hncs.com and can also be accessed by
calling our Stockholder Information Line at 1-800-396-8052.


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                                     PART I

ITEM 1. BUSINESS

GENERAL

       HNC Software Inc. and its subsidiaries (together, "HNC" or "the Company")
develop, market and support intelligent client-server software solutions for
mission-critical decision applications in real-time environments. HNC employs
proprietary neural-network predictive models in many of its products to convert
existing data and business experiences into meaningful recommendations and
actions. The Company has leveraged its client-server software architecture to
address a wide range of markets.

       On August 30, 1996 the Company consummated its acquisition of Risk Data
Corporation ("Risk Data"), a company based in Irvine, California that is engaged
in the business of developing and marketing proprietary software decision
products for the workers' compensation insurance industry. Under the terms of
the acquisition, which was accounted for as a pooling of interests, the Company
exchanged 1,891,456 of its common shares for all the outstanding shares of Risk
Data and Risk Data became a wholly owned subsidiary of the Company. See Note 2
of Notes to Consolidated Financial Statements that are incorporated by reference
from HNC's Annual Report to Stockholders for its fiscal year ended December 31,
1996 (the "Consolidated Financial Statements"). In addition, on November 29,
1996, the Company consummated its acquisition of Retek Distribution Corporation
("Retek"), a company that develops and markets merchandise management products
for retailers and their vendors. Under the terms of the Retek agreement, which
was accounted for as a pooling of interests, the Company exchanged 1,367,196
shares of its Common Stock for all of Retek's outstanding shares and Retek
became a wholly owned subsidiary of the Company. See Note 2 of Notes to
Consolidated Financial Statements. The Company anticipates that in the future it
will from time to time continue to consider acquisitions of other businesses in
order to expand the markets served by the Company and to acquire complementary
technologies, products and personnel.

       During 1996, the Company also established Aptex Software, Inc. ("Aptex"),
a partially owned subsidiary, in order to exploit certain text analysis
technology that is being used to develop products for the Internet environment
and other markets, such as the education market. Aptex develops commercial
applications of the Company's Content Vector modeling techniques that were
originally developed by the Company under U.S. Government contracts. During
1996, Aptex introduced three new products; Convectis, an intelligent document
categorization and routing server; VITAL ResourceMiner, an interactive textbook
correlation system for publishers and school districts; and SelectCast, an
Internet advertising placement server.


FORWARD-LOOKING STATEMENTS

       The following discussion contains forward-looking statements regarding
the Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by, or described in, such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation: the Company's ability to successfully
develop new products for its current markets or new markets; the Company's loss
of a large customer; the Company's inability to secure new government contracts
for technology development; the impact of competition on the Company's revenues,
market share or ability to maintain its premium usage-based pricing terms and to
generate recurring revenue; the availability to the Company, at reasonable cost,
of data required to operate or update its intelligent decision software
products; changes in law or regulatory requirements that adversely affect or
preclude customers from using the Company's products for certain applications;
delays in the Company's introduction of new products; and failure by the Company
to keep pace with emerging technologies.

       When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements, which speak only as of the date of this report.
The Company undertakes no obligation to revise any forward-


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looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
reports on Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that may affect the Company's business.


BACKGROUND

       Businesses continually seek new ways of making better decisions by
collecting and analyzing data. Consequently, business have made, and continue to
make, significant investments in computer systems to gather and store ever
increasing amounts of data. In most cases, these computerized systems automate
manual, paper-based tasks and activities, resulting in the conversion of
significant amounts of corporate data from paper to electronic form. However,
these systems generally do not synthesize this data in ways that help businesses
analyze the data in order to make better real-time decisions.

       Historically, the development of intelligent decision software solutions
was inhibited by the lack of computing standards and effective computational
intelligence techniques. The emergence of client-server standards, including
relational database management systems, the Windows(R) operating system and
network communications protocols, has fostered the transmission and
dissemination of data within and among businesses. In addition, in recent years
new technologies have emerged that enable intelligent decision software
solutions to extract meaningful insights from historical databases and
transaction data. Neural networks and other computational intelligence
techniques enable data to be transformed into decision algorithms. Using these
techniques, intelligent decision software recognizes patterns and relationships
in electronic data. The predictive power of this software can be improved with
experience as transaction-fed databases increase in size.

       The convergence of competitive pressures and enabling technology has
driven businesses to demand intelligent software solutions for making better
business decisions. These solutions must leverage data resources and integrate
computational intelligence technology in real-time, client-server environments.


THE HNC SOLUTION

       HNC's products and support services provide solutions for
mission-critical decision applications in real-time environments. For example,
HNC's current line of software products includes products that detect
credit/debit card fraud (Falcon), manage credit card profitability (ProfitMax),
process credit card applications (Capstone), automate lending decisions
(Colleague), automate home valuations (AREAS), manage retail inventories
(SkuPLAN), provide management solutions to retailers (the Retek Merchandising
System), and estimate loss reserves for workers' compensation insurance claims
(MIRA). The Company also performs contract research and development using neural
networks and other computational intelligence methods. HNC believes that its
technology and software architecture are well suited for intelligent decision
applications that convert existing data and business experiences into meaningful
recommendations and actions.


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HNC'S STRATEGY

       HNC's objective is to be the leading supplier of intelligent decision
software solutions for the worldwide electronic payments, financial services,
insurance services and retail markets, while seeking to broaden its product line
into new applications and markets. The Company's strategy for achieving these
objectives contains the following key elements:

       Earn recurring revenues through long-term contracts. The Company markets
most of its intelligent decision software solutions as an ongoing service that
includes software licenses, decision model updates, application consulting and
on-line or on-site support and maintenance. Since many of the Company's
applications are enhanced by periodic model updates, customers realize high
value in the Company's ongoing services. In addition, the mission-critical
nature of many of HNC's software solutions creates customer demand for long-term
support commitments. Accordingly, the Company's customers typically pay for this
package of software and services with a monthly usage fee and a three to seven
year contract commitment.

       Broaden product line into new applications and markets. The Company
believes that its core product architecture can be utilized across a wide range
of applications and markets. For example, during fiscal 1996, HNC introduced 
four new major product applications for the financial and electronic payments
markets: ProfitMax, a profitability management system for payment card industry;
ProfitMax Bankruptcy, a bankruptcy prediction system; Falcon Sentry, a credit
card application fraud detection system; and Capstone, an application decision
processing system. In the retail market, the Company expanded its existing
product offerings through its acquisition of Retek Distribution Corporation on
November 29, 1996. Since its acquisition of Retek, the Company has released two
new retail products: Retek Data Warehouse and the Active Retail Intelligence
system, which allows a retailer to conduct detailed operational analysis.

       The Company has also expanded its product offerings to new markets beyond
the electronic payments, financial services and retail markets. The Company
continues to believe that its technology and software architecture are well
suited for other intelligent client-server decision applications addressing a
variety of other markets, including medical payments, context-based text
analysis, Internet commerce and database marketing. HNC's strategy is to broaden
its product offerings to address these markets while also seeking other new
markets. Through its August 1996 acquisition of Risk Data Corporation, the
Company expanded its product line to the insurance market, and following this
acquisition, HNC introduced two new insurance products: CompCompare, a
benchmarking product for comparative analysis between the customer's claims and
an industry data set, ProviderCompare, that profiles healthcare provider
performance.

       Leverage database assets. The Company maintains several industry
databases that it believes are unique in their size, completeness and
proprietary nature. These databases allow the Company to provide
industry-specific modeling solutions. HNC also offers proprietary profiling
technology that allows, for example, the HNC customer to capture the behavior of
its customers for real-time decisions with each transaction. The technology also
provides the basis for benchmarking products that allow the customer to compare
samples of its data against similar samples from industry databases. The Company
intends to leverage these database assets to enhance and expand its product and
service offerings.

       Expand worldwide distribution. The Company is expanding its worldwide
direct sales, distribution and service. The Company intends to continue
developing existing markets while augmenting its international growth,
particularly in the Pacific Rim and Europe. HNC uses a combination of sales
agents and direct sales offices in Europe, Australia, Japan and North America.
To accelerate its North American market penetration, the Company has established
distribution agreements with suppliers of products and services to its target
markets, and also intends to increase its direct sales effort.

       Maintain technology leadership in developed solutions. The Company
intends to continue to commit substantial resources to maintain its technology
leadership and competitive position in the development of neural-network and
computational intelligence techniques and the implementation of these models in
real-time, client-server application solutions. Research efforts are supported
by revenue-generating contracts with various United States Government agencies
and commercial firms.


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MARKETS AND PRODUCTS

       HNC's intelligent decision software systems apply to numerous markets and
sub-markets. Until recently, the Company's products had primarily addressed
certain needs of the electronic payments, financial services and retail markets.
As a result of internal development and acquisitions, the Company has expanded
its product offerings in these markets and has entered new markets. Through
fiscal 1996, HNC's revenue growth resulted primarily from increased license fees
for Falcon, the Retek Merchandising System, MIRA and, to a lesser extent, from
increased license and installation fees for Colleague, AREAS and SkuPLAN.
Because of the sales, development and customization cycle associated with the
Company's products, the Company has not received significant revenues to date
from more recently released products including Falcon Select, Falcon Expert,
ProfitMax, ProfitMax Bankruptcy, Capstone, Sentry, Convectis, VITAL
ResourceMiner, SelectCast, CompCompare, ProviderCompare, Retek Data Warehouse
and Active Retail Intelligence (ARI). The Company also provides custom modeling
and customer support through its DataBase Mining Workstation, an advanced
neural-network modeling tool.


    ELECTRONIC PAYMENTS MARKET AND PRODUCTS

       The electronic payments market has grown rapidly because of the trend
toward a cashless economy and consumers' increasing ability to perform their own
financial/electronic commerce services through means such as home banking and
credit/debit card-reading terminals. The increasing volume of electronic
financial transactions requires mission-critical decision-making in real time
for applications such as credit card charge authorization that carry a
substantial risk of consumer and merchant fraud. The Company's electronic
payments product line addresses these trends by providing high-speed, real-time
responses (directly affecting profits) for each cardholder transaction.

       Falcon, Falcon Debit, Falcon Select, Falcon Sentry, and Falcon Expert.
Falcon, a credit card fraud detection system introduced in September 1992,
addresses fraud losses, which were estimated by The Nilson Report for March 1994
to be approximately $1.8 billion worldwide in 1994. Falcon has been purchased by
18 of the 20 largest United States bank credit card issuers as identified in The
Nilson Report for August 1994 and is used to monitor over 100 million credit
card accounts. Falcon employs a neural-network fraud detection model combined
with profile models of individual cardholders to identify fraudulent
transactions. The Company believes Falcon was the first commercial system to
detect fraud in real time (i.e., while the customer transaction is being
authorized). Falcon employs a client-server architecture consisting of an
interface into the customer's legacy authorization system, a decision engine, a
cardholder profile database, a case management database and a fraud workstation.
Falcon is invisible to the fraud perpetrator and adapts to changing environments
through updated cardholder profiles and periodic HNC fraud model updates. In
addition, certain Falcon customers join the Falcon fraud control consortium, a
cardholder-transaction data repository maintained by HNC that allows the Company
to analyze transactions, report results and build new fraud detection models.
License and installation of the Company's Falcon product have accounted for
35.7%, 59.9% and 52.4% of the Company's software license and installation
revenues in 1996, 1995 and 1994, respectively.

       In September 1994, HNC announced Falcon Debit, a product designed to
bring the benefits of Falcon to the rapidly growing debit card market. Debit
cards authorize electronic payment for a transaction to be charged directly to
the cardholder's bank account, without any extension of credit. Although fraud
losses on debit cards are lower than losses on credit cards, the Company
believes that demand exists for debit card fraud control because the bank issuer
wants to avoid the customer relations problem of a cardholder's checking account
being depleted by fraudulent activity.

       Falcon Select, introduced in September 1995, is a software product that
enables Falcon to select automatically from multiple scoring models when
evaluating suspected bank card fraud transactions. Users can select between
standard models, such as the Credit Model and Debit Model, or custom models
designed to meet specialized fraud detection requirements. This flexible design
allows Falcon to provide fraud detection for specific portfolio subsets, such as
Gold cards, and also for other domains of the financial industry, such as
gasoline cards.

       Falcon Sentry, introduced in February 1996, uses neural networks,
intelligent consistency checking, and a verification-management rules base to
attack the problem of application fraud. It features two specialized
fraud-detection models. The Application


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Fraud model runs within an issuer's application processing environment to screen
out fraudulent applications, using application information and credit bureau
data. The New Account Fraud model runs within the bank's Falcon payment card
fraud detection system to look for fraudulent transactions. Falcon Sentry
includes an application verification workstation capability that enables
suspected application fraud cases to be uniformly treated and tracked.

       Falcon Expert, released in February 1996, is a flexible software package
that lets fraud managers easily define and deploy rules to automate various
fraud prevention procedures. The customer uses a rule editor to develop rules
for creating cases based on Falcon transaction fields and the Falcon score. For
example, rules can be written to open a case at a lower fraud score threshold if
the cardholder has changed address and requests a new card during the past 30
days. Because all Falcon case creation is performed in accordance with the
Falcon Expert rules, the custom can apply different score thresholds to
different sets of cards.

       Eagle. Eagle, a merchant profitability management system that was
introduced in September 1994, has been installed at two customer sites and, as
of March 1997, is being installed at two other customer sites. Eagle is designed
to predict the probability that the merchant will generate chargebacks to its
acquiring bank. In addition, Eagle can also predict merchant attrition (the
likelihood that the merchant will sign with a new bank). These two capabilities
allow the merchant's bank to make decisions on the trade-offs necessary to price
services to the merchant. Eagle's functionality is important to these banks,
since the combination of chargeback and attrition losses represents a
significant percentage of their profits from merchant credit card transactions.
Eagle consists of a decision engine, chargeback risk assessment model, attrition
assessment model and profitability management software.

       ProfitMax. In September 1995, the Company announced ProfitMax, a product
that provides transaction-based, real-time credit authorization decisions from
within an infrastructure for managing the profitability of credit card
portfolios. Three neural network-based custom models -- Credit Risk, Revenue and
Attrition Risk -- will be used along with historical data to analyze the
expected profitability of each account in an issuer's portfolio. The profit
evaluation is also customized to the issuer's definition of financial profit.
Transaction-based scoring enables on-line, real-time credit authorization
decisions. The product has been installed at First Data Resources, as well as
two other customer sites, and is currently being installed at three additional
customer locations.

       ProfitMax Bankruptcy. An addition to the ProfitMax product family that 
was announced in September 1996. ProfitMax Bankruptcy provides transaction-based
account monitoring for indications of potential bankruptcy. The product gives
issuers advance warning of a cardholder's risky behavior and allows them to
mitigate potential losses.


    FINANCIAL SERVICES MARKET AND PRODUCTS

       The financial services market consists of banks, savings and loan
institutions, mortgage banks, consumer lenders and purchasers of asset-backed
securities in the secondary market. A recent special report on technology in
banking produced by Ernst & Young LLP for the American Bankers Association
estimated that banks spent $4.7 billion in 1995 and would increase spending
nearly 15% to $5.4 billion in 1996, on discretionary endeavors such as
modernizing processes and improving customer service and decision making. The
Company believes that this spending is in response to three competitive
pressures: cost reduction; rapid loan approval; and the potential of home
banking. The Company believes these trends compel lenders to automate loan
origination in order to lower costs, improve customer service and provide remote
access to lending services. HNC is among the first suppliers to meet this need
by integrating expert judgment, automated home valuation, predictive modeling,
rule-based strategies and workflow process automation through its Colleague and
AREAS products.


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       Colleague. Colleague is an automated mortgage underwriting decision
product for first mortgage and home equity lenders that automates the
labor-intensive process of credit, employment and appraisal evaluation. The
Company estimates that loan underwriting costs in the United States currently
exceed $1 billion each year. Colleague applies both neural-network and
rule-based decision technologies to screen loan applicants against loan
criteria, validate compliance with lending regulations, review the loan package
against underwriting guidelines and predict loan performance. Colleague employs
a client-server architecture consisting of an on-line or batch interface into
the legacy loan origination system, an intelligent decision engine (executing in
NT or Windows), a loan file database (in Sybase, Informix, Watcom or Oracle) and
an underwriter's workbench (operating under Windows). Four current Colleague
users participated in the Aquarius underwriting data consortium, which combined
member lender files and underwriter expertise to produce a turnkey automated
mortgage decision package. Colleague users can obtain predictive mortgage
underwriting models for Colleague either by subscribing to the Aquarius
neural-network models and rules-based service or by integrating custom models
and building custom rules-bases.

       Colleague 2.0, which the Company released in the first quarter of 1996,
incorporates the changes necessary to make Colleague a generic platform for both
mortgage and consumer lending decisions. Designed with a modular architecture,
Colleague 2.0 can be customized to achieve the level and type of automation
appropriate for either mortgage or consumer lending. The Company believes that
the product can be used with equal effectiveness by consumer lenders and
mortgage lenders through the deployment of different models that reflect the
risks historically associated with the various loan types.

       AREAS. The AREAS property valuation product provides lenders with rapid
valuations of residential real estate with personal computer "front-end"
interfaces. The user enters an address and AREAS recalls the subject property
information, evaluates the most likely sales price, provides a range of values,
reports recent price trend information and lists recent similar sales in the
geographic area. AREAS is currently available in 20 California counties and
selected counties in 18 other states. HNC intends to expand the geographic
regions covered by AREAS as the Company acquires rights to additional relevant
data for such geographic regions. The Company obtains data from commercial
databases on available terms and conditions. To expand the coverage of AREAS,
the Company would be required to develop or obtain data on home sales in each
county for which AREAS is marketed. There can be no assurance that the Company
will be able to continue to obtain adequate amounts of statistically relevant
data on a timely basis in the required formats or on reasonable terms and
conditions.

       Capstone. Capstone is an automated system that tracks bank card
applications from initiation through decisioning. It interfaces with various
external sources to accomplish such tasks as importing the applications, pulling
credit, and exporting a list of cards to be generated. Capstone software
components include a Configuration Workstation, a Server and an Analyst
Workstation. The Configuration Workstation is used to define application
processing decision strategies that will be executed on the Server. The small
percentage of applications that cannot be automatically decided on the Server
are routed to the Analyst Workstation for manual review. Capstone lets the user
define its own rules and derived variables, enabling card issuers to customize
the decisioning logic to meet their card portfolio goals.


    RETAIL MARKET AND PRODUCTS

       Rapid changes in consumer buying patterns have caused merchants to place
increased emphasis on predicting consumer demand and managing retail
inventories. Suppliers to merchants purchase the Company's retail products to
address reductions in inventory carrying costs for retail inventories nationwide
(estimated by the United States Census Bureau to be approximately $290 billion
at the end of 1994 on a seasonally adjusted basis). The change from mass to
individual retail marketing has multiplied the number of promotional offers and
stock-keeping units ("SKUs") required to address market opportunities. Although
retailers have made significant investments in customer information file, point
of sale and quick response ordering systems, these applications often do not
include the intelligent analysis and forecasting capability required to optimize
profits and respond to competition through "in store" replenishment, electronic
networking and quick response initiatives. HNC has developed the use of
neural-network models to forecast market response and retail demand and manage
inventories through its SkuPLAN system and DataBase Mining Workstation product.
With its acquisition of Retek and its Merchandise Management System, HNC has
expanded its retail inventory forecasting system to address inventory control,
merchandise management and financial control management.


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       SkuPLAN. SkuPLAN forecasts consumer demand for retail products at the
store level (by SKU) or at any summary level. The system automates the
labor-intensive process of estimating demand in stores (for example, a large
department store can contain nearly one million SKUs). It uses neural-network
and statistical technologies to provide forecasting in three dimensions: product
hierarchy; location hierarchy; and time. SkuPLAN employs a client-server
architecture consisting of an on-line or batch interface into the legacy
product-ordering system, a decision engine, a relational database and
analysis/forecasting workstations. SkuPLAN directly affects retailer profits by
reducing forecasting errors while improving purchasing, promotion and logistics
efficiency. When used in conjunction with quick-response ordering techniques,
SkuPLAN can substantially reduce inventory carrying costs. SkuPLAN users can
subscribe to a model-update service or rebuild their own models with the
Company's DataBase Mining Workstation.

       DataBase Mining Workstation. The DataBase Mining Workstation ("DMW")
provides data analysis and neural-network modeling functionality. Its capability
includes data preparation, data relationship discovery, variable selection,
sensitivity analysis, automated neural-network modeling and model evaluation. To
date, the DMW has been used primarily by customers in the retail industry to
build demand forecasting and marketing models from their own data. The DMW
provides retail customers with the ability to rebuild forecasting models
employed by SkuPLAN in order to predict demand and manage inventory.

       DataBase Mining Marksman. The DataBase Mining Marksman is a predictive
modeling and customer profiling system based on the DMW technology and enhanced
specifically for use by database marketers. High-speed modeling is provided by a
specially designed PCI bus parallel coprocessor that delivers 640 Mflops of
processing power to a standard Pentium PC on the desktop.

       Retek Merchandising System. The Retek Merchandising System is designed to
meet the needs of department store, mass merchandisers and specialty retail
chains in a multi-store, multi-warehouse environment, and allows for both
centralized or distributed processing. The system can be broadly defined in
three parts; inventory control, merchandise management and financial control.
Inventory control addresses the definition and management of merchandise
assortment at item level (SKU level). Merchandise management addresses the
process by which a retailer carries out day-to-day buying and selling
activities. And, finally, financial control provides a mechanism to report the
results of the inventory and merchandise process through stock ledgers.


    INSURANCE SERVICES MARKET

       With its acquisition of Risk Data Corporation, HNC now offers and is
developing products in the insurance services market with personal computer
"front-end" interfaces. These products are targeted to insurance carriers, state
insurance funds, third party administrators and self insureds. Risk Data
Corporation began sales of its first product, MIRA, during 1991 and in 1996
introduced two new products, CompCompare and ProviderCompare. A fourth product,
PMAdvisor, is currently in a pre-deployment stage.

       MIRA is an automated loss reserving system that uses proprietary
statistical modeling techniques to convert historical workers' compensation
insurance claims data into predictive models which are used in combination with
rules-based technology that factors in state laws and customer policies. MIRA is
used by insurance carriers, third-party administrators and state insurance funds
in the workers' compensation insurance market to estimate workers' compensation
insurance loss reserves. MIRA benefits these entities by providing an accurate
and supportable cost prediction in a fully automated environment. MIRA helps
prevent the increase of loss reserves, which directly impacts earnings and the
financial condition of the carrier.

       CompCompare, released in May 1996, is a workers' compensation
benchmarking product that allows the user to generate detailed comparative
analyses between their workers' compensation claims data and industry claims
data on a case mix adjusted basis. This product utilizes Risk Data's unique
industry database of workers' compensation claims compiled over years of its
sales of MIRA. This information allows the user to measure/demonstrate the
effectiveness of its managed care programs, allow comparative analysis among
similar employers and insurance companies, independently calculate
performance-based pricing arrangements and supplement internal data for pricing
and underwriting.


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       ProviderCompare is a provider profiling product that allows users to
track the financial outcomes, by provider, to measure claim cost and treatment
pattern differences on a case mix adjusted basis. Developed specifically for the
workers' compensation industry, it uses a credible methodology based on data
collected from the customer's claims system to effectively compare and rank
physicians' financial outcomes and treatment patterns. This makes it possible to
instantly identify those providers who achieve the best outcomes for a given
diagnosis, which can dramatically assist in controlling costs.

       PMAdvisor is a utilization review software program that evaluates
chiropractic and physical therapy treatment against established clinical
guidelines. It is estimated that insurers now incur the cost of approximately
1.3 million physical medicine visits each day. In response to this, the industry
is turning more and more to the utilization of review programs. PMAdvisor is
designed to assist insurance companies, utilization review organizations, PPOs,
HMOs, TPAs, self-insured employers and other related companies in evaluating the
appropriate care in physical medicine. PMAdvisor provides the ability to perform
pre-certification, concurrent, or retrospective review and incorporates all
relevant and verifiable research, reports and consensus data when developing the
guidelines. More specifically, PMAdvisor controls medical cost by determining
clinically appropriate medical treatment plans, insuring quality through the use
of arduously researched clinical guidelines, providing a consistent review
process, rendering objective decisions through well documented and clearly
formatted reports, thereby, reducing complaints and litigation in otherwise
potentially adversarial situations.


COMMERCIAL AND GOVERNMENT CONTRACTS

       The Company generates substantial revenues through commercial and, to a
lesser extent, government contract work. Commercial contracts include
pre-introduction product-related activities, product customization and work
related to the Company's technology but not related to its existing products.
Current government contracts typically relate to work concerning image and text
processing. See "Research and Development" below.


EMERGING MARKET OPPORTUNITIES

       The Company's experience and technology capabilities in the electronic
payments, financial services and retail markets often lead to new product ideas
and concepts. The Company also evaluates new market opportunities that arise
through its commercial and government contract work. As contracts are completed,
the end products are evaluated for commercialization. For example, contracts for
the Advanced Research Projects Agency, United States Army Research Laboratory,
United States Air Force, Office of Naval Research, DataTimes Corporation and
Tracer Applied Sciences, Inc. generated a context-based text analysis technology
called MatchPlus. This core text analysis technology has been under development
at HNC Software for the last four years for Department of Defense applications.

       During 1996, the Company formed Aptex Software Inc. ("Aptex"), to
commercialize HNC's MatchPlus text analysis technology for emerging markets.
Aptex has developed a strategic partner with Infoseek Corporation, a leading
Internet search and navigation service, to deliver products using this text
analysis technology to the Internet market. To date, two new Internet products
have been launched; Convectis and SelectCast. Convectis automates document
analysis and routing, while SelectCast was developed for advertising servers to
analyze audiences and user behavior. In the education market, Aptex introduced
VITAL ResourceMiner during 1996. VITAL ResourceMiner is a software solution that
correlates the content of educational publishers' material to state and district
textbook standards and objectives.

       Most of the Company's software license and installation revenues in
recent years have been attributable to sales of intelligent decision software
solutions and services, and these products and services are currently expected
to continue to account for a substantial amount of the Company's future software
license and installation revenues. The market for intelligent decision software
solutions is still emerging. The rate at which businesses have adopted the
Company's products has varied significantly by market and by product within each
market, and the Company expects to continue to experience such variations with
respect to its target markets and products in the future. The Company has
recently announced several new products, including Capstone, Falcon Sentry,
Falcon Expert, ProfitMax, ProfitMax Bankruptcy, PMAdvisor, Retek Data Warehouse
and Active Retail Intelligence. To date none


                                       10
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of these products has achieved any significant degree of market acceptance, and
there can be no assurance that such products will ever be widely accepted.
Although businesses in the Company's target markets have recognized the
advantages of automation, many have developed automation systems internally
rather than licensing them from outside vendors. There can be no assurance that
the market for the Company's products will continue to develop or that the
Company's products will be widely accepted. If the markets for the Company's new
or existing products fail to develop, or develop more slowly than anticipated,
the Company's sales would be negatively impacted, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.


CUSTOMER SERVICE AND SUPPORT

       A high level of continuing maintenance, service and support is critical
to maintaining intelligent decision system performance. Service and support are
also essential to the Company's objective of developing long-term relationships
with, and obtaining recurring revenues from, customers. The Company's service
and support activities are related to system installation, performance
validation and ongoing consultation on the optimal use of HNC products. With the
exception of the DataBase Mining Workstation, which includes a 90-day warranty,
the Company's products generally do not include performance warranties, although
many product and service agreements include acceptance test procedures.

       Model and Rulebase Updates. Most HNC product license agreements include
periodic data, model and/or rulebase updates to maintain system performance. In
the case of AREAS, these updates are shipped to the customer for user
installation. In the case of the Company's other products, HNC technical
personnel assist the customer with installation. The Company makes commitments
to update models at varying intervals, from fixed times (such as quarterly and
annually) to unscheduled times, provided the customer has met its commitments to
provide data to HNC.

       Education. The Company offers comprehensive education and training
programs to its customers. The Company provides on-site training services
associated with many of its products. In addition, the Company provides basic
training classes concerning neural-network modeling and the DataBase Mining
Workstation. Fees for education and training services are generally included in
usage-priced products, but may be charged separately in other cases.

       Consulting. The Company's consultants are available to work with
customers' user application groups and information systems organizations.
Customers who buy consulting services are usually planning large implementations
or want to optimize performance of the Company's products in their operating
environments. Fees for consulting are generally included in usage-priced
products, but may be charged separately in other cases.


CUSTOMERS AND APPLICATIONS

       The Company has over 100 customers most of whom are relatively large
customers, such as banks, insurance carriers, and retailers. While the sales
cycle varies substantially from customer to customer, given the nature of the
Company's products and customer base, it typically requires six to twelve
months. Product licenses to First Data Resources, Inc., the largest provider of
credit card charge receipt processing services to banks, accounted for 11.4 %,
12.4% and 11.6% of the Company's total revenues during 1996, 1995 and 1994,
respectively. The loss of First Data Resources, Inc. as a customer for any
reason could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, approximately one-third of
Retek's sales of the Retek Merchandising System are referred to Retek by
Andersen Consulting LLP. The loss or deterioration of Retek's relationship with
Andersen Consulting LLP would have a material adverse effect on Retek's results
of operations.

       United States Government contracts accounted for 3.0%, 7.3% and 11.3% of
the Company's total revenues during 1996, 1995 and 1994, respectively.Over the
past two years, in excess of 90% of the Company's total revenues from the United
States Government were derived from research projects performed for various
government defense agencies and companies under contract to such agencies.
Consequently, any change in the pattern of government spending, reduced demand
from the defense industry or the loss of any of the Company's major government
contracts would have an adverse effect on the Company's business, financial
condition and results of operations. Furthermore, United States Government
contracts may subject the Company to risks that are not typically present in
commercial contracts, such as retroactive price adjustments and potential
penalties, and are terminable at the


                                       11
   12
convenience of the government. Although the Company has not experienced any
material cancellations in the past, there can be no assurance that such
cancellations will not occur in the future. Also, because many of the Company's
government contracts were awarded under programs available only to certain small
businesses, the Company may not be eligible for additional contracts under such
programs in the future. The Company, through its Risk Data subsidiary, has
derived a significant amount of its revenue through sales of its products to
state insurance funds. Generally, these contracts have funding clauses that
permit the state governmental unit to terminate the contract should funds not be
appropriated by the state's budget. To date, only one such state insurance fund
has not renewed its contract due to budgetary reasons, although this does not
diminish the risk of this problem occurring again.


PRICING

       The Company generally establishes prices in one of two ways: usage-based
fees and fixed-fee licenses with maintenance. The Company employs usage-based
pricing for Falcon, Falcon Debit, Eagle, ProfitMax, AREAS Colleague, Capstone,
MIRA and PMAdvisor. Under the usage-based pricing structure, HNC generally
provides a fixed-term software license, software maintenance, model updates (in
the case of HNC supplied models) and ongoing consulting services in exchange for
recurring revenue based on usage. Usage-based term contracts typically include
annual price index adjustments. The Company employs fixed-fee license pricing
for SkuPLAN, Retek Merchandising System, DataBase Mining Marksman and the
DataBase Mining Workstation. Under the fixed-fee license pricing structure, the
Company generally licenses the product for the customer's internal use on a
perpetual basis. In most cases, the user can separately contract for maintenance
services on an annual basis. The Company typically offers early adopter pricing
for its usage-based products to customers that agree to be part of pilot or
other early product life cycle installations. Early adopter pricing might
include reduced-fee perpetual licenses, reduced-fee services or both.

       The Company often contracts for installation services associated with its
intelligent decision systems. Products requiring installation are Falcon, Falcon
Debit, Falcon Sentry, Eagle, ProfitMax, Colleague, SkuPLAN, MIRA, CompCompare,
ProviderCompare, and PMAdvisor. The Company provides user-specific proposals
priced at either fixed-fee levels or on a time and materials basis. In nearly
all cases, travel expenses are billed separately at cost.

       The Company offers contract consulting services. Because of the
complexity associated with intelligent decision software solutions, users often
request that HNC help them to develop models or analyze problems. Also, the
Company from time to time accepts engagements not associated with current
product offerings in order to become more familiar with a new application area
and determine the potential for new product development. Although consulting
services are included with many of the Company's usage-based products, customers
may request additional consulting, often associated with custom modeling.


SALES AND MARKETING

       The Company sells and markets its software and services in North America
and internationally through its direct sales organization, joint marketing and
distribution agreements. The sales cycle begins with the generation of a sales
lead or the receipt of a request for proposal from a prospect. After the lead is
qualified, the Company makes a presentation to the prospective customer,
executes a mutual confidentiality agreement, determines the customer's operating
environment, prepares and presents a sales proposal, conducts one or more
presentations/demonstrations, negotiates a contract and obtains a commitment
from the customer.

       Due in part to the mission-critical nature of certain of the Company's
applications, potential customers perceive high risk in connection with adoption
of the Company's neural-network technology. As a result, customers have been
cautious in making product acquisition decisions. In addition, the purchase of
the Company's products involves a significant commitment of capital, with the
attendant delays frequently associated with customers' internal procedures to
approve large capital expenditures and test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with the purchase of the Company's products is typically lengthy and subject to
a number of significant risks, including customers' budgetary constraints and
internal acceptance reviews and delays, over which the Company has little or no
control. Because of the lengthy sales cycle, if revenues forecasted from a
specific customer for a particular quarter are not realized in that quarter, the
Company


                                       12
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likely would not be able to generate revenues from alternate sources in time to
compensate for the shortfall. As a result, and due to the typical size of
customers' orders, a lost or delayed sale could have a material adverse effect
on the Company's quarterly operating results. In addition, the Company has
entered into certain contracts for pilot installations of new products for a
fixed fee. If the Company is not able to complete such pilot installations for
the contracted fees, it would realize losses on these contracts, which could
have a material adverse effect on quarterly results.

       The Company's world wide sales and marketing organization consisted of 57
employees as of December 31, 1996. The sales staff is based at the Company's
corporate headquarters in San Diego and in North American field sales offices in
Canada, Connecticut, Colorado, Georgia, Minnesota, New York, Pennsylvania and
Virginia. Internationally, the Company has field sales offices in the United
Kingdom and Japan. To support its sales force, the Company conducts
comprehensive marketing programs, which include direct mail, public relations,
advertising, seminars, trade shows and ongoing customer communication programs.
The Company also sponsors an annual users' group meeting for its intelligent
decision software solutions customers. The sales staff is generally product
based, and each representative is assigned a geographic territory.

       The Company has licensed First Data Resources, Inc. and Electronic Data
Systems to act as service bureaus to provide an alternate channel of
distribution for end-users to utilize the Falcon product to process credit card
receipts for banks and other credit card issuers. These service bureaus pay the
Company monthly usage fees based on the volume of transactions processed for
such credit card issuers. First Data Resources, Inc., which is the largest
provider of credit card charge receipt processing services to banks, accounted
for 11.4%, 12.4% and 11.6% of the Company's total revenues during 1996, 1995 and
1994, respectively. Licensed service bureaus for the AREAS product include
Freddie Mac, Computer Power, Inc. and Market Intelligence, Inc., which provide
appraisal services to other customers. The Company also maintains reseller
agreement with Customer Insight Company, Inc. for the DataBase Mining
Workstation and Policy Management Systems Corporation for its MIRA and
CompCompare products. The Company generally assists its service bureau partners
in the sales effort, often employing the Company's direct sales force in the
process. Company sales representatives earn a commission for service bureau
sales in their territory.

       The Company also uses representative agents for some territories outside
of North America. The Company has agents covering Australia, Austria, France,
Germany, Italy, New Zealand, Spain and Switzerland. For 1996, 1995 and 1994,
international sales represented 23.5%, 17.9% and 11.4% of the Company's total
revenues, respectively. International sales result primarily from Falcon product
sales and Retek's sales. Retek is currently more focused in international
markets than HNC historically. The Company intends to continue to expand its
operations outside the United States and to enter additional international
markets, including the addition of sales and support offices in France, Germany
and South Africa, which will require significant management attention and
financial resources. The Company has committed and continues to commit
significant time and development resources to customizing its products for
selected international markets and to developing international sales and support
channels. There can be no assurance that the Company's efforts to develop
databases and models for targeted international markets or to develop
international sales and support channels will be successful. The failure of such
efforts could have a material adverse effect on the Company's business,
financial condition and results of operations. International sales are subject
to inherent risks, including longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burdens of
complying with a variety of foreign laws, greater difficulty or delay in
accounts receivable collection, potentially adverse tax consequences and
political and economic instability. The Company's export sales are currently
denominated predominantly in United States dollars. An increase in the value of
the United States dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, potentially less competitive in foreign
markets. In the future, if more of the Company's export sales are denominated in
local currencies, foreign currency translations may contribute to significant
fluctuations in the Company's business, financial condition and results of
operations. If for any reason exchange or price controls or other restrictions
on foreign currencies are imposed, the Company's business, financial condition
and results of operations could be materially adversely affected. As the Company
increases its international sales, its total revenues may also be affected to a
greater extent by seasonal fluctuations resulting from lower sales that
typically occur during the summer months in Europe and other parts of the world.


                                       13
   14
TECHNOLOGY

       The Company seeks to develop innovative products by combining industry
and application knowledge with its core neural-network technology to address
specific market needs. The Company's systems also employ rule-based technology
to implement customer strategy, policy and procedures. These technologies are
incorporated in computer software and hardware architectures, including
client-server hardware, relational databases and object-oriented programming.
The Company intends to continue to develop state-of-the-art technologies to
enhance its current products and broaden development opportunities.

       Neural-Network Technology. Neural networks have predictive power that can
be improved with experience as the historical database increases in size. The
term "neural networks" refers to a family of nonlinear, statistical modeling
techniques, sometimes called "computational intelligence." These techniques
distinguish themselves through a process of automated "learning" or "training"
that replaces the time-consuming manual techniques of traditional nonlinear,
statistical modeling. The neural-network architecture itself consists of groups
of "processing elements," or equations with several inputs and a single output.
The output of each element becomes either the input to another element or part
of the dependent output. Each input receives a "weight," or value, in the
equation, which is adjusted during the training process. The actual result from
each training record is compared with the answer from the neural network, and
the weights are adjusted to reduce the error between the two. This process can
become computationally intensive, as thousands or millions of training data
records must be processed hundreds or thousands of times. HNC has developed
proprietary high-speed and parallel-processor boards to accelerate training and
execution of its neural-network software. The Company also believes that the
rapid model development afforded by its technology provides a competitive
advantage in the development of intelligent decision software solutions.

       Rule-Based Technology. The Company's systems also employ rule-based
technology to implement customer strategy, policy and procedures. The rules are
implemented as part of intelligent decision processes. The Company believes that
its combination of neural networks and rule-bases in a single decision engine
represents a significant competitive advantage over more traditional approaches
to decision automation.

       Leverage Industry Standards. The Company believes that its business has
been aided by a convergence of industry standards for client-server
architecture, relational databases and electronic networks. HNC was one of the
early suppliers of electronic payments software products on the UNIX operating
system and was among the first to use C compilers on mainframe computers. The
Company believes it is among the few suppliers to offer client-server options on
NetWare, NT, UNIX and CICS platforms and that the breadth of this platform
support currently provides a meaningful competitive advantage in the electronic
payments business. The Company intends to support future client and server
environments as they achieve customer acceptance. HNC's products benefit from
standard data interchange environments, such as ISO 8583 for transaction
processing, X.12 for lending-data interchange and the Internet for consumer
information routing.

       The Company's success depends upon its ability to enter new markets by
developing new products on a timely and cost-effective basis. The Company's
products often require customer data for decision model development and system
installation. As a result, the completion of new products may be delayed while
the Company extracts sufficient amounts of statistically relevant data and
develops the models. During this development process, the Company relies on its
potential customers in the new market to provide data and to help train Company
personnel in the use and meaning of the data in the specific industry. These
relationships also assist the Company in establishing presence and credibility
in the new market. There can be no assurance that these companies, most of which
have significantly greater financial and marketing resources than the Company,
will not compete with the Company in the future or will not otherwise
discontinue their relationships with or support of the Company, either during
development of the Company's products or thereafter. The failure by the Company
to obtain adequate third-party support for new product development or to obtain
relevant data for model development would have a material adverse effect on the
Company's ability to extend its product line into new markets and to develop new
products, and would have a material adverse effect on the Company's business,
financial condition and results of operations.


                                       14
   15
RESEARCH AND DEVELOPMENT

       The Company believes that its future success depends in part on its
ability to maintain and improve its core technologies, enhance its existing
products and develop new products that meet an expanding range of markets and
customer requirements. The Company intends to expand its existing product
offerings and to introduce new intelligent decision software solutions. In the
development of new products and enhancements to existing products, the Company
uses its own tools extensively. Until 1996, the Company had relied primarily on
internal development of its products and expects to continue to do so. Based on
timing and cost considerations though, it may consider acquiring technology or
products from third parties or consultants. The Company performs all quality
assurance and develops documentation internally. The Company intends to continue
to support industry standard operating environments, client-server architectures
and network protocols.

       The Company's specialists in neural-network model development, software
engineering, user interface design, product documentation and quality
improvement are responsible for maintaining and enhancing the performance,
quality and usability of all HNC intelligent decision systems. The marketing
services organization is responsible for authoring and updating all user
documentation and other publications.

       The Company strategically targets its long-term research projects. In
addition to funds allocated by the Company for research, HNC receives research
contracts from a range of commercial sources and the United States Government.
Government and commercial contract customers include the Advanced Research
Projects Agency, United States Army Research Laboratory, United States Air
Force, Office of Naval Research, DataTimes Corporation and Tracor Applied
Sciences, Inc. The Company believes that these contracts augment its ability to
maintain existing technologies and investigate new technologies that may or may
not become part of its products. The United States Government typically retains
certain intellectual property rights and licenses in the technologies the
Company develops under research contracts directly or indirectly sponsored by
the government, and in some cases can terminate the Company's rights in such
technologies if the Company fails to commercialize them on a timely basis.
Historically, these contracts have not resulted in development of products
contributing to the Company's revenues in the fiscal year in which the research
contract is performed, or in the subsequent fiscal year. Such activities
currently constitute approximately 10.6% of the Company's combined research and
development expenses and government contract costs. Research and development
expenses for fiscal 1996, 1995 and 1994 as a percentage of total revenues were
24.7%, 21.5%, 21.0%, respectively. The primary reason for the increase in fiscal
1996 was greater staffing to support new product development programs, primarily
for ProfitMax, Capstone, CompCompare, ProviderCompare and Retek Merchandising
6.0.

       The market for intelligent decision software solutions is characterized
by rapidly changing technology and improvements in computer hardware, network
operating systems, programming tools, programming languages, operating systems
and database technology. The Company's success will depend upon its ability to
maintain competitive technologies, enhance its current products and develop new
products in a timely and cost-effective manner that meet changing market
conditions, including evolving customer needs, new competitive product
offerings, emerging industry standards and changing technology. There can be no
assurance that the Company will be able to develop and market, on a timely
basis, if at all, product enhancements or new products that respond to changing
market conditions or that will be accepted by customers. The Company has
previously experienced significant delays in the development and introduction of
new products and product enhancements, primarily due to difficulties with model
development, which has in the past required multiple iterations, as well as
difficulties with acquiring data and adapting to particular operating
environments. The length of these delays has varied depending upon the size and
scope of the project and the nature of the problems encountered. Any failure by
the Company to anticipate or to respond adequately to changing market
conditions, or any significant delays in product development or introduction,
could cause customers to delay or decide against purchases of the Company's
products and would have a material adverse effect on the Company's business,
financial condition and results of operations.


INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

       The Company relies on a combination of patent, copyright, trademark and
trade secret laws and confidentiality procedures to protect its proprietary
rights. The Company currently owns six issued United States patents and has four
United States patent applications pending. The Company has applied for
additional patents for its Falcon


                                       15
   16
technology in Canada, Europe and Japan and its MIRA product in Australia,
Canada and Europe. There can be no assurance that patents will be issued with
respect to pending or future patent applications or that the Company's patents
will be upheld as valid or will prevent the development of competitive products.
The Company seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. As part of its confidentiality procedures, the Company generally
enters into invention assignment and proprietary information agreements with its
employees and independent contractors and nondisclosure agreements with its
distributors and corporate partners, and limits access to and distribution of
its software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise to obtain
and use the Company's products or technology without authorization, or to
develop similar technology independently. In addition, to ensure that customers
will not be adversely affected by an interruption in the Company's business, the
Company places source code for its products into escrow, which may increase the
likelihood of misappropriation or other misuse of the Company's intellectual
property. Moreover, effective protection of intellectual property rights may be
unavailable or limited in certain foreign countries. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not develop similar technology
independently. The Company frequently develops technologies under research
projects conducted under agreements with various United States Government
agencies or subcontractors to such agencies. Although the Company often acquires
certain commercial rights to such technologies, the United States Government
typically retains ownership of certain intellectual property rights and licenses
in the technologies developed by the Company under such contracts, and in some
cases can terminate the Company's rights in such technologies if the Company
fails to commercialize them on a timely basis. In addition, under certain United
States Government contracts, the results of the Company's research may be made
public by the government, which could limit the Company's competitive advantage
with respect to future products based on such research.

       In the past, the Company has received communications from third parties
asserting that Company trademarks infringe other parties trademarks, and given
the Company's ongoing efforts to develop and market new technologies and
products, there can be no assurance that in the future the Company will not
receive other communications from third parties asserting that the Company's
products infringe, or may infringe, third parties' intellectual property rights.
There can be no assurance that licenses to disputed third-party technology or
intellectual property rights will be available on reasonable commercial terms,
if at all. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation, either
as plaintiff or defendant, could result in significant expense to the Company
and divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation is resolved in favor of the
Company. In the event of an adverse ruling in any such litigation, the Company
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology or the court might
invalidate the Company's patents, trademarks or other proprietary rights. In the
event of a successful claim against the Company and the failure of the Company
to develop or license a substitute technology, the Company's business, financial
condition and results of operations would be materially and adversely affected.

       As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, can be time consuming and expensive to
defend and could materially and adversely affect the Company's business,
financial condition and results of operations.


COMPETITION

       The market for intelligent decision software solutions and other software
products marketed by the Company is intensely competitive and subject to rapid
change. Competitors vary in size and in the scope of the products and services
they offer. The Company encounters competition from a number of sources,
including (i) other application software companies, (ii) management information
systems departments of customers and potential customers, (iii) third-party
professional services organizations, including without limitation consulting
divisions of public accounting firms, (iv) hardware suppliers that bundle or
develop complementary software, (v) network and service providers that seek to
enhance their value-added services and (vi) neural-network tool suppliers. In
the electronic


                                       16
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payments market, the Company has experienced competition from Fair, Isaac & Co.,
Inc., Nestor, Inc., Neuralware Inc., NeuralTech Inc., International Business
Machines Corporation ("IBM"), Visa International and others. In addition,
Mastercard International is developing a computer model utilizing neural network
technology for detecting credit card fraud that would compete with the Company's
products. In the financial services market, the Company has experienced
competition from Cogensys (a subsidiary of Policy Management Systems
Corporation), Fannie Mae, Freddie Mac, PMI Mortgage Services Co., CLM
Technologies, Ltd., Norwest Bank Minnesota, N.A., PSAR Systems, Inc. and others.
In the retail market, the Company has experienced competition from Manugistics
Group, Inc., IBM, SAP, JDA Software Group, Inc., PeopleSoft, Inc. and others. In
the insurance market, the Company experiences competition primarily from NCCI,
Corporate Systems and CSC Incorporated. Because there are relatively low
barriers to entry, the Company expects to experience additional competition from
other established and emerging companies. In addition, the Company's fraud
detection product competes against other methods of preventing credit card
fraud, such as card activation programs, credit cards that contain the
cardholder's photograph, smart cards and other card authorization techniques.
For example, Eastman Kodak announced a technology that digitally encodes the
cardholder's photograph on the card for access by the issuing bank or merchant
for fraud prevention. The introduction of these and other new technologies will
result in increased competition for the Company and its products. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations.

       The Company believes that its products are currently priced at a premium
when compared to its competitors' products. The market for the Company's
products is highly competitive, and the Company expects that it will face
increasing pricing pressures from its current competitors and new market
entrants. In particular, increased competition could reduce or eliminate such
premiums and cause further price reductions. In addition, such competition could
adversely affect the Company's ability to obtain new long-term contracts and
renewals of existing long-term contracts on terms favorable to the Company. Any
reduction in the price of the Company's products could materially adversely
affect the Company's business, financial condition and results of operations.

       The Company believes that the principal competitive factors affecting its
market include technical performance (for example, accuracy in detecting credit
card fraud or evaluating residential property), access to unique proprietary
databases and product attributes such as adaptability, scalability, ability to
integrate with products produced by other vendors, functionality, ease-of-use,
product reputation, quality, performance, price, customer service and support,
the effectiveness of sales and marketing efforts and company reputation.
Although the Company believes that its products currently compete favorably with
respect to such factors, there can be no assurance that the Company can maintain
its competitive position against current and potential competitors, especially
those with significantly greater financial, marketing, service, support,
technical and other resources.

       Some of the Company's current, and many of the Company's potential,
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly gain
significant market share. Also, the Company relies upon its customers to provide
data and other support for the ongoing updating of the Company's models. There
can be no assurance that its customers, most of which have significantly greater
financial and marketing resources than the Company, will not compete with the
Company in the future or will not otherwise discontinue their relationships with
or support of the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.


EMPLOYEES

       As of December 31, 1996, the Company had a total of 385 employees,
including 210 in product development and support, 58 in customer service, 57 in
sales and marketing and 60 in finance, administration and MIS. Thirty-five of
these employees have earned Ph.D. degrees. Almost all of these employees are
located in the United States. None of the Company's employees are represented by
a labor union. The Company has experienced no work stoppages and believes that
its employee relationships are generally good.

       The Company's success depends to a significant degree upon the continued
service of members of the Company's senior management and other key research,
development, sales and marketing personnel. Accordingly, the loss of any of the
Company's senior management or key research, development, sales or marketing
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. Only Michael Thiemann, President
of the Company's Aptex subsidiary, Mark Hammond, President of Risk Data
Corporation and John Buchanan, President of Retek Distribution Corporation, are
subject to employment


                                       17
   18
agreements with the Company; however, there can be no assurance that such
agreements will result in the retention of these employees for any significant
period of time. In particular, as of February 1, 1997, Neil Thall, former
President of the Company's wholly-owned subsidiary, Neil Thall Associates, Inc.,
terminated his employment with the Company, though he is continuing to serve as
a consultant to the Company on a temporary basis. The Company believes that its
future success will depend upon its ability to attract and retain highly skilled
managerial, research, development, sales and marketing personnel, for whom the
competition is intense. In particular, in the past, the Company has experienced
difficulty in recruiting a sufficient number of qualified sales people. In
addition, competitors may attempt to recruit the Company's key employees. There
can be no assurance that the Company will be successful in attracting,
assimilating and retaining such personnel, and the failure to attract,
assimilate and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.


HISTORY

       HNC Software Inc. was founded in 1986 by Robert Hecht-Nielsen and Todd W.
Gutschow as a neural-network technology company under the name Hecht-Nielsen
Neurocomputer Corporation. The Company initially offered technology training
courses and later provided neural network software and hardware tools for users
who wished to design and build their own applications. In 1987, the Company
changed its name to HNC, Inc. and began offering consulting services in
conjunction with its tools sales. These consulting engagements formed the
genesis of end-user application concepts. In 1989, the Company began business
planning for the development of intelligent decision software solutions. In
1990, as part of a decision to change its business strategy from tools to
solutions, the Company formed two commercial business units, Decision Systems
and Data Entry Products. The Data Entry unit's key products and core technology
were licensed to Mitek Systems, Inc. in 1992, and the Decision Systems unit was
divided into Payment Systems, Lender Systems and Retail Systems groups. In
conjunction with the commencement of Neil Thall's employment with the Company in
January 1992, the Company formed Neil Thall Associates, Inc. ("NTA") to develop,
market and sell inventory control products to the retail market. In 1994, the
Company changed its name to HNC Software Inc. During 1996, HNC Software Inc.
acquired Risk Data Corporation and Retek Distribution Corporation. The Company
plans to merge the operations of its NTA subsidiary into Retek in fiscal 1997.


STOCK SPLIT

       On March 5, 1996, the Company announced that its Board of Directors had
approved a two-for-one stock split effected in the form of a common stock
dividend. The stock dividend was paid to the Company's stockholders of record at
the close of business on March 18, 1996. See Note 1 in Notes to Consolidated
Financial Statements.


ITEM 2. PROPERTIES

FACILITIES

       The Company's principal administrative, sales, marketing, support,
research and development facilities are located in approximately 80,000 square
feet of space in San Diego, California. These facilities are leased to the
Company through the year 2003, with a five-year renewal option. The Company
leases an additional 7,000 square feet of space in San Diego, California, for
its subsidiary, Aptex Software Inc. The Company also leases another facility of
approximately 5,300 square feet in Atlanta, Georgia, sales offices in Westport,
Connecticut, the United Kingdom and Japan, and maintains a customer support
office in King of Prussia, Pennsylvania. Risk Data Corporation's principal
facilities are located in Irvine, California in an approximately 22,000 square
foot building, with sales offices in Reston, Virginia and Denver, Colorado.
Retek Distribution Corporation has headquarters in Minneapolis, Minnesota and
additional sales offices in the United Kingdom, Canada, Australia and South
Africa. Retek plans to relocate into new facilities in Minneapolis in fiscal
1997. The Company believes that its current facilities are adequate to meet its
needs for the foreseeable future. The Company believes that suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.


                                       18
   19
ITEM 3. LEGAL PROCEEDINGS

        None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       A Special Meeting of Stockholders was held on December 6, 1996 to approve
a proposal to amend the Company's 1995 Equity Incentive Plan increasing the
number of shares of the Company's Common Stock reserved for issuance thereunder
by 1,500,000 shares. The proposal passed by the following vote:


                                                            ABSTENTIONS
                                                            AND BROKER
     VOTES FOR                VOTES AGAINST                  NON-VOTES
     ---------                -------------                 -----------
     10,906,858                 1,446,043                     65,735


                                       19
   20
                                     PART II

ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

       The information required by this item, which appears under the captions
"Dividend Policy" and "Stock Market Data" on pages 15 and 17 in the Company's
1996 Annual Report to stockholders, is incorporated herein by reference.


ITEM 6. SELECTED FINANCIAL DATA

       The information required by this Item, which appears under the caption
"Selected Consolidated Financial Data" on page 15 in the Company's 1996 Annual
Report to Stockholders, is incorporated herein by reference.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

       The information required by this item, which appears under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 18 to 23 in the Company's 1996 Annual Report to
Stockholders, is incorporated herein by reference.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       The information required by this item appears under the caption "Selected
Consolidated Quarterly Operating Results (Unaudited)" on page 16 in the
Company's 1996 Annual Report to Stockholders and in the Consolidated Financial
Statements appearing on pages 24 to 36 in the Company's 1996 Annual Report to
Stockholders, and is incorporated herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

       Not applicable.


                                       20
   21
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

       The information required by this Item, which will be set forth under the
captions "Proposal No. 1 Election of Directors," "Executive Officers" and
"Compliance Under Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, is
incorporated herein by reference.


ITEM 11. EXECUTIVE COMPENSATION

       The information required by this Item, which will be set forth under the
captions "Director Compensation," "Executive Compensation," "Compensation
Committee Interlocks and Insider Participation," "Report on Executive
Compensation" and "Company Stock Price Performance" in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders, is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       The information required by this Item, which will be set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, is
incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       The information required by this Item, which will be set forth under the
caption "Certain Transactions" in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders, is incorporated herein by reference.


                                       21
   22
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

   (a) The following documents are filed as part of this report:
       1. Financial Statements

          The financial statements of the Company listed below are incorporated
          herein by reference to the following pages of the 1996 Annual Report
          to Stockholders:



                                                                                            Page in
                                                                                          Annual Report
                                                                                          -------------
                                                                                            
          Consolidated Balance Sheet as of December 31, 1996 and 1995                          24
          Consolidated Statement of Income for the years ended December 31,
                 1996, 1995 and 1994                                                           25
          Consolidated Statement of Cash Flows for the years ended December 31,
                 1996, 1995 and 1994                                                           26
          Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
                 the years ended December 31, 1996, 1995 and 1994                              27

          Notes to Consolidated Financial Statements                                           28

          Report of Independent Accountants                                                    37


       2. Financial Statement Schedules:

          The financial statement schedules of the Company are included in Part
          IV of this report on the pages indicated:



                                                                                            Page in
                                                                                           Form 10-K
                                                                                           ---------
                                                                                            
          Report of Independent Accountants on Financial Statement Schedule                    29

          For the three fiscal years ended December 31, 1996--
                 Schedule II  -  Valuation and Qualifying Accounts and Reserves                30


          All other schedules are omitted because they are not applicable, not
          required, or the required information is shown in the Financial
          Statements or notes thereto.

       3. Exhibits:

          2.01      Agreement and Plan of Merger by and between the Registrant
                    and HNC Software Inc., a California corporation (1)
          2.02      Agreement and Plan of Reorganization dated as of July 19,
                    1996 by and among the Registrant, HNC Merger Corp. and Risk
                    Data Corporation, as amended (2)
          2.03      Agreement of Merger dated August 30, 1996 by and between HNC
                    Merger Corp. and Risk Data Corporation (2)
          2.04      Exchange Agreement dated as of October 25, 1996 by and among
                    the Registrant, Retek Distribution Corporation and the
                    shareholders of Retek Distribution Corporation (3)
          2.05      Form of Option Exchange Agreement between the Registrant and
                    each person who held outstanding options to purchase shares
                    of Retek Distribution Corporation on November 29, 1996 (3)
          3(i).01   Registrant's Certificate of Designation of Preferred Stock
                    (1)


                                       22
   23
          3(i).02   Registrant's Certificate of Elimination (4)
          3(i).03   Registrant's Restated Certificate of Incorporation filed
                    with the Secretary of State of Delaware on June 13, 1996 (5)
          3(ii).04  Registrant's Bylaws (1) 3(ii).05 Registrants Bylaws, as
                    amended (5)
          4.01      Form of Specimen Certificate for Registrant's Common Stock
                    (1)
          4.02      Third Amended Registration Rights Agreement dated March 10,
                    1993, as amended (1)
          4.03      Second Waiver and Amendment to Third Amended Registration
                    Rights Agreement (4)
          4.04      Registration Rights Agreement dated as of August 30, 1996 by
                    and among the Company and the former shareholders of Risk
                    Data Corporation (2)
          4.05      Registration Rights Agreement dated as of October 25, 1996
                    by and among registrant and the former shareholders of Retek
                    Distribution Corporation (3)
          10.01     Registrant's 1987 Stock Option Plan and related documents
                    (1)
          10.02     Registrant's 1995 Equity Incentive Plan and related
                    documents (1)
          10.03     Registrant's 1995 Directors Stock Option Plan and related
                    documents (1)
          10.04     Registrant's 1995 Employee Stock Purchase Plan and related
                    documents (1)
          10.05     Form of Indemnity Agreement entered into by Registrant with
                    each of its directors and executive officers (1)
          10.06     Office Building Lease dated as of December 1, 1993, as
                    amended effective February 1, 1994 and June 1, 1994, between
                    Registrant and PacCor Partners (1)
          10.07     Marketing Agreement dated as of June 24, 1993 between
                    Registrant and First Data Resources, Inc. (1) (6)
          10.08     License Agreement dated as of June 24, 1993, as amended
                    October 18, 1993, September 16, 1994 and by letter
                    amendment, with Addendum dated January 21, 1994, as amended
                    February 15, 1995, between Registrant and First Data
                    Resources, Inc. (1) (6)
          10.09     Loan and Security Agreement dated as of September 23, 1992,
                    as amended October 28, 1993, July 21, 1994, May 26, 1995 and
                    August 31, 1995, between Registrant and Silicon Valley Bank
                    (4)
          10.10     Amended Loan and Security Agreement dated as of July 10,
                    1996, between
          10.11     the Company and Silicon Valley Bank (7)
          10.12     Office Building Lease dated as of June 17, 1996, between
                    Registrant and Williams Properties I, LLC & Williams
                    Properties II, LLC
          10.13     Employment Agreement dated as of September 10, 1996, by and
                    between Aptex Software Inc. and Michael A. Thiemann (8)
          10.14     Investors' Rights Agreement dated as of September 10, 1996,
                    by and among Aptex Software Inc., HNC Software Inc. and
                    Michael A. Thiemann (8)
          10.15     Restricted Stock Purchase Agreement dated as of September
                    10, 1996, by and between Aptex Software Inc. and Michael
                    Thiemann (8)
          10.16     Aptex Software Inc.'s 1996 Equity Incentive Plan and related
                    documents
          11.01     Statement Regarding Computation of Per Share Earnings
          13.01     1996 Annual Report to Stockholders (to be deemed filed only
                    to the extent provided in Item 6.01(b) (13) of Regulation
                    S-K)
          21.01     List of Registrant's subsidiaries
          23.01     Consent of Price Waterhouse LLP, Independent Accountants
          24.01     Power of Attorney (See "Signatures")
          27.01     Financial Data Schedule

- ----------

          (1) Incorporated by reference to the Registrant's Form S-1
              Registration Statement (File No. 33-91932).


                                       23
   24
          (2) Incorporated by reference to the Registrant's Report on Form 8-K
              filed on September 12, 1996.
          (3) Incorporated by reference to the Registrant's Report on Form 8-K
              filed on December 12, 1996.
          (4) Incorporated by reference to the Registrant's Form S-1
              Registration Statement (File No. 33-99980).
          (5) Incorporated by reference to the Registrant's Quarterly Report on
              Form 10-Q for the quarter ended June 30, 1996 as originally filed
              on August 13, 1996.
          (6) Confidential treatment has been granted for certain portions of
              this document. Such portions have been omitted from the filing and
              have been filed separately with the Securities and Exchange
              Commission.
          (7) Incorporated by reference to the Registrant's Quarterly Report on
              Form 10-Q for the quarter ended September 30, 1996 as originally 
              filed on November 14, 1996.
          (8) Management Contract.

   (b) Reports on Form 8-K

   (i) A Report on Form 8-K was filed on December 12, 1996 with respect to an
       event dated November 29, 1996 (the acquisition of Retek Distribution
       Corporation).

  (ii) A Report on Form 8-K was filed on December 19, 1996 to file the
Consolidated Balance Sheet as of December 31, 1996 and 1995, the Consolidated
Statement of Income for the years ended December 31, 1996, 1995 and 1994, the
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995
and 1994, the Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the years ended December 31, 1996, 1995 and 1994, the Notes to
Consolidated Financial Statements, and the Report of Independent Accountants, in
order to satisfy the financial statement requirements for a Registration
Statement on Form S-8 that was filed subsequent to the filing of this Report on
Form 8-K, which incorporated this Report on Form 8-K by reference.


                                       24
   25
                                   SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date:  March 28, 1997

                                    HNC SOFTWARE INC.



                                    BY: /s/ RAYMOND V. THOMAS
                                        ----------------------------------------
                                        Raymond V. Thomas
                                        Vice President, Finance & Administration
                                          and Chief Financial Officer






                                POWER OF ATTORNEY

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


                                       25

   26
                                   SIGNATURES


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.





        SIGNATURE                                    TITLE                                              DATE
        ---------                                    -----                                              ----
                                                                                             
/s/ Robert L. North                         President and Chief Executive Officer                  March 28, 1997
- ------------------------------              (Principal Executive Officer)
Robert L. North


/s/ Raymond V. Thomas                       Vice President, Finance & Administration               March 28, 1997
- ------------------------------              and Chief Financial Officer (Principal
Raymond V. Thomas                           Financial Officer and Principal Accounting
                                            Officer)


/s/ Edward K. Chandler                      Director                                               March 28, 1997
- ------------------------------
Edward K. Chandler



/s/ Oliver D. Curme                         Director                                               March 28, 1997
- ------------------------------
Oliver D. Curme



/s/ Roger L. Evans                          Director                                               March 28, 1997
- ------------------------------
Roger L. Evans



/s/ Thomas F. Farb                          Director                                               March 28, 1997
- ------------------------------
Thomas F. Farb



/s/ Charles H. Gaylord, Jr.                 Director                                               March 28, 1997
- ------------------------------
Charles H. Gaylord, Jr.



                                       26
   27
                                  EXHIBIT INDEX

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

   2.01     Agreement and Plan of Merger by and between the Registrant and HNC
            Software Inc., a California corporation (1)
   2.02     Agreement and Plan of Reorganization dated as of July 19, 1996 by
            and among the Registrant, HNC Merger Corp. and Risk Data
            Corporation, as amended (2)
   2.03     Agreement of Merger dated August 30, 1996 by and between HNC Merger
            Corp. and Risk Data Corporation (2)
   2.04     Exchange Agreement dated as of October 25, 1996 by and among the
            Registrant, Retek Distribution Corporation and the shareholders of
            Retek Distribution Corporation (3)
   2.05     Form of Option Exchange Agreement between the Registrant and each
            person who held outstanding options to purchase shares of Retek
            Distribution Corporation on November 29, 1996 (3)
   3(i).01  Registrant's Certificate of Designation of Preferred Stock (1)
   3(i).02  Registrant's Certificate of Elimination (4)
   3(i).03  Registrant's Restated Certificate of Incorporation filed with the
            Secretary of State of Delaware on June 13, 1996 (5)
   3(ii).04 Registrant's Bylaws (1)
   3(ii).05 Registrant's Bylaws, as amended (5)
   4.01     Form of Specimen Certificate for Registrant's Common Stock (1)
   4.02     Third Amended Registration Rights Agreement dated March 10, 1993, as
            amended (1)
   4.03     Second Waiver and Amendment to Third Amended Registration Rights
            Agreement (4)
   4.04     Registration Rights Agreement dated as of August 30, 1996 by and
            among the Company and the former shareholders of Risk Data
            Corporation (2)
   4.05     Registration Rights Agreement dated as of October 25, 1996 by and
            among registrant and the former shareholders of Retek Distribution
            Corporation (3)
   10.01    Registrant's 1987 Stock Option Plan and related documents (1)
   10.02    Registrant's 1995 Equity Incentive Plan and related documents (1)
   10.03    Registrant's 1995 Directors Stock Option Plan and related documents
            (1)
   10.04    Registrant's 1995 Employee Stock Purchase Plan and related documents
            (1)
   10.05    Form of Indemnity Agreement entered into by Registrant with each of
            its directors and executive officers (1)
   10.06    Office Building Lease dated as of December 1, 1993, as amended
            effective February 1, 1994 and June 1, 1994, between Registrant and
            PacCor Partners (1)
   10.07    Marketing Agreement dated as of June 24, 1993 between Registrant and
            First Data Resources, Inc. (1) (6)
   10.08    License Agreement dated as of June 24, 1993, as amended October 18,
            1993, September 16, 1994 and by letter amendment, with Addendum
            dated January 21, 1994, as amended February 15, 1995, between
            Registrant and First Data Resources, Inc. (1) (6)
   10.09    Loan and Security Agreement dated as of September 23, 1992, as
            amended October 28, 1993, July 21, 1994, May 26, 1995 and August 31,
            1995, between Registrant and Silicon Valley Bank (4)
   10.10    Amended Loan and Security Agreement dated as of July 10, 1996,
            between
   10.11    the Company and Silicon Valley Bank (7)
   10.12    Office Building Lease dated as of June 17, 1996, between Registrant
            and Williams Properties I, LLC & Williams Properties II, LLC
   10.13    Employment Agreement dated as of September 10, 1996, by and between
            Aptex Software Inc. and Michael A. Thiemann (8)
   10.14    Investors' Rights Agreement dated as of September 10, 1996, by and
            among 


                                       27
   28
            Aptex Software Inc., HNC Software Inc. and Michael A. Thiemann (8)
   10.15    Restricted Stock Purchase Agreement dated as of September 10, 1996,
            by and between Aptex Software Inc. and Michael Thiemann (8)
   10.16    Aptex Software Inc.'s 1996 Equity Incentive Plan and related
            documents
   11.01    Statement Regarding Computation of Per Share Earnings
   13.01    1996 Annual Report to Stockholders (to be deemed filed only to the
            extent provided in Item 6.01(b) (13) of Regulation S-K)
   21.01    List of Registrant's subsidiaries
   23.01    Consent of Price Waterhouse LLP, Independent Accountants
   24.01    Power of Attorney (See "Signatures")
   27.01    Financial Data Schedule

- ----------

(1)   Incorporated by reference to the Registrant's Form S-1 Registration
      Statement (File No. 33-91932).
(2)   Incorporated by reference to the Registrant's Report on Form 8-K filed on
      September 12, 1996.
(3)   Incorporated by reference to the Registrant's Report on Form 8-K filed on
      December 12, 1996.
(4)   Incorporated by reference to the Registrant's Form S-1 Registration
      Statement (File No. 33-99980).
(5)   Incorporated by reference to the Registrant's Quarterly Report on Form
      10-Q for the quarter ended June 30, 1996 as originally filed on August 13,
      1996.
(6)   Confidential treatment has been granted for certain portions of this
      document. Such portions have been omitted from the filing and have been
      filed separately with the Securities and Exchange Commission.
(7)   Incorporated by reference to the Registrant's Quarterly Report on Form
      10-Q for the quarter ended September 30, 1996 as originally filed on
      November 14, 1996.
(8)   Management Contract.


                                       28
   29
                                                                 EXHIBIT 11.01

                                HNC SOFTWARE INC.

                               STATEMENT REGARDING
                        COMPUTATION OF PER SHARE EARNINGS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)





                                                          YEAR ENDED DECEMBER 31,
                                                        1996       1995       1994     
                                                       -------    -------    -------
                                                                        
NET INCOME                                             $ 6,376    $ 2,123    $   548
                                                       =======    =======    =======

SHARES (1)
      Weighted average common shares outstanding        18,666     10,309      3,756


      Weighted average common stock options and
      warrants as determined by application of the
      treasury stock method (2)                          1,701      2,138      1,562


      Weighted average preferred shares outstanding
      assuming conversion to common stock (3)               --      4,454      8,552
                                                       -------    -------    -------


      Pro forma weighted average common and common
      equivalent shares outstanding                                16,901     13,870
                                                                  =======    =======


      Weighted average common and common
      equivalent shares outstanding                     20,367
                                                       =======


PRO FORMA NET INCOME PER SHARE OF COMMON STOCK                    $  0.13    $  0.04
                                                                  =======    =======

NET INCOME PER SHARE OF COMMON STOCK                   $  0.31
                                                       =======





- ----------

(1)   All share and per share amounts have been adjusted to give retroactive
      effect to the stock split, which occurred on April 3, 1996.

(2)   Includes an adjustment for options pursuant to SAB No. 83 using the
      treasury stock method at the initial public offering price of $7.00 per
      share for all periods presented prior to or including the Company's public
      offering date of June 26, 1995.

(3)   All outstanding shares of the Company's preferred stock automatically
      converted into shares of common stock upon the consummation of the
      Company's initial public offering on June 26, 1995.
   30
        REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE





To the Board of Directors
of HNC Software Inc.


Our audits of the consolidated financial statements referred to in our report
dated January 21, 1997 appearing on page 37 of the 1996 Annual Report to
Stockholders of HNC Software Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.





PRICE WATERHOUSE LLP

San Diego, California
January 21, 1997


                                       29
   31
                                                                     SCHEDUEL II


                                HNC SOFTWARE INC.

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996





                                                                  DEFERRED TAX
                                               ALLOWANCE FOR     ASSET VALUATION
                                             DOUBTFUL ACCOUNTS      ALLOWANCE
                                                 ---------         ----------
                                                                    
Balance at December 31, 1993                     $ 292,000         $4,658,000
     Provision                                     484,000            972,000
     Write-off                                    (262,000)                --
     Recovery                                           --         (1,392,000)
                                                 ---------         ----------

Balance at December 31, 1994                       514,000          4,238,000
     Provision                                     479,000            702,000
     Write-off                                    (472,000)                --
     Recovery                                      (18,000)        (2,223,000)
                                                 ---------         ----------

Balance at December 31, 1995                     $ 503,000         $2,717,000
     Provision                                     243,000                 --
     Write-off                                     (94,000)                --
     Recovery                                      (29,000)        (2,717,000)
                                                 ---------         ----------

Balance at December 31, 1996                     $ 623,000         $      -0-
                                                 =========         ==========



                                       30

EX-10.12

   1
                                                                   EXHIBIT 10.12

                                 LEASE AGREEMENT


         THIS LEASE AGREEMENT is made as of the 17th day of June, 1996, by and
between, Williams Properties I, LLC & Williams Properties II, LLC, California
Limited Liability Companies ("Landlord") and HNC Software, Inc., a Delaware
Corporation ("Tenant"), who agree as follows:

                             ARTICLE 1. DEFINITIONS

          As used herein, the following terms shall have the following meanings:

          1.1     PREMISES: Approximately 31,269 rentable square feet,
consisting of approximately 13,556 rentable square feet with a portion of the
second floor and the entire third floor consisting of approximately 17,713
rentable square feet of the Building (which term is defined in Article 2 hereof)
as depicted on Exhibit A attached hereto and incorporated herein.

          1.2     PROPERTY: The real properly which the Building is located as
described in Exhibit A-1 attached hereto and incorporated herein and commonly
referred to as 6020 Cornerstone Court West, San Diego, California 92121.

          1.3     TERM: Eighty-one (81) months commencing on the Commencement
Date (which is defined in Article 3 hereof).

          1.4     BASIC RENT: Shall refer to a monthly amount of Thirty Five
Thousand Three Hundred Thirty Three and 97/100ths ($35,333.97) Dollars during
the first twelve (12) months of the Lease Term, which is subject to adjustments
as set forth in Article 4 hereof.

          1.5     INITIAL DIRECT OPERATING EXPENSES: Tenant's initial Direct
Operating Expenses shall be the actual Direct Operation Expenses incurred for
the Building during the first twelve (12) months after the Commencement Date
which shall be computed as though the Building had been ninety-five percent
(95%) occupied, provided that any Direct Operating Expenses attributable to
improvements to the Premises costing in excess of the Tenant Improvement
Allowance (as defined below) shall not be included as part of the base year
calculation but shall be included for any subsequent years. In addition, any
maintenance, repairs and/or replacement of specialized improvements and/or
improvements not included in Landlord's Tenant Improvement Allowance shall not
be included in defining expenses herein.

          1.6     TENANT'S PRO RATA SHARE: 72.24% which percentage represents
the proportion that the number of approximate rentable square feet of the
Premises bears to the total number of rentable square feet of the Building
(31,269 rentable square feet / 43,285 rentable square feet in the Building).

          1.7     ESTIMATED COMPLETION DATE: September 1, 1996

          1.8     SECURITY DEPOSIT: Thirty Thousand and No/lOOths ($30,000.00)
Dollars

          1.9     PERMITTED USE: General Office and software/research &
development purposes only

          1.10    TENANT'S NOTICE ADDRESS: For purposes of Article 19 of this
Lease shall be

         PRIOR TO OCCUPANCY:                         AFTER OCCUPANCY:

         5930 Cornerstone Court West                 5930 Cornerstone Court West
         San Diego, CA 92121                         San Diego, CA 92121

          1.11    LEASE: Shall collectively refer to this Agreement of Lease
together with the fol1owing Exhibits and Addenda, attached hereto and
incorporated herein by this reference:

         Exhibit A-1       Premises Floor Plan
         Exhibit A-1       Property Legal Description
         Exhibit B         Rules and Regulations
         Exhibit C         Work Letter Agreement
         Exhibit D         Preliminary Space Plan/Final Plans & Specifications
         Addenda           Addendum

          1.12    BROKER: Landlord and Tenant recognize that The Irving Hughes
Group, Inc. represents Tenant and CB Commercial Real Estate Group, Inc.
represents the Landlord.

                                                               Initials /s/ EJC
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                               ARTICLE 2. PREMISES

         Subject to the terms, provisions and conditions of this Lease, Landlord
hereby leases to Tenant, and Tenant hereby takes and hires from Landlord, the
Premises located in Landlord's Building 6020 Cornerstone Court West, San Diego,
California ("Building"). The location of the Premises, within the Building, is
more particularly shown on the attached Exhibit A-1.

                                 ARTICLE 3. TERM

         3.1      TERM: The term of this Lease ("Term") shall be for the period
specified in Section 1.3 hereof.

         3.2      COMMENCEMENT DATE: The Commencement Date shall be the date of
Substantial Completion of the Tenant Improvements (as such terms are defined in
the Work Letter Agreement).

                                 ARTICLE 4. RENT

         From and after the Commencement Date, Tenant agrees to pay Landlord, in
advance, on the first day of each and every calendar month during the Term, the
Basic Rent, together with rental adjustments as defined below. Such rent for any
fraction of a month at the beginning of the Term will be prorated and paid at
the Commencement Date. Payment of all such rent and other charges shall be
without offset or demand, shall be in lawful money of the United States of
America and shall be made to Landlord at the following address, or at such place
Landlord may direct from time to time by written notice to Tenant:

                        William's Properties I & II, LLC
                        Attention: Elizabeth J. Clarquist
                        6170 Cornerstone Court East, Suite 140
                        San Diego, CA 92121

         Such rent and other charges shall include the following:

         4.1      BASIC RENT: Subject to annual increases pursuant to Section
4.2 below, Tenant agrees to pay Landlord on the first day of each month Basic
Rent in the amount specified in Section 1.4 hereof. Tenant shall pay to
Landlord, immediately upon execution of this Lease (in addition to the Security
Deposit required pursuant to Section 4.7 below), the sum of one (1) month's
prepaid Basic Rent which shall be applied to the first full calendar month of
the Term for which payment of Basic Rent is due.

         4.2      ANNUAL INCREASE OF BASIC RENT: Commencing on the first day of
the thirteenth (13th) calendar month immediately following the Commencement
Date, the remaining Term of the Lease shall be divided into consecutive one year
periods (each of which, including the initial twelve (12) calendar months of the
Term, shall be referred to as "Lease Year"). The Basic Rent provided in Section
4.1 above, shall be increased on the first day of each such Lease Year (i.e., on
the first day of the thirteenth (13th), twenty-fifth (25th), thirty seventh
(37th), forty-ninth (49th), sixty-first (61st), seventy-second (72nd), etc.,
months following the Commencement Date or, if the Commencement Date is the first
day of a calendar month, on each anniversary of the Commencement Date
("Adjustment Date"). Each such increase shall be as set forth in Section 1 of
the attached Addendum.

                  (i)      The increase in Basic Rent provided by this Section
4.2 shall be in addition to any Excess Direct Operating Expenses Rent increases
provided in Section 4.3. All references in this Lease to Basic Rent shall
include any increase in Basic Rent.

         4.3      EXCESS DIRECT OPERATING EXPENSES RENT:

                  (a)      Subject to any limitations or exceptions stated in
Section 1.5 or elsewhere provided, from and after the Commencement Date, Tenant
agrees to pay to Landlord, as additional rent, Tenant's Pro Rata Share of Excess
Direct Operating Expenses (hereinafter defined) incurred by Landlord ("Excess
Direct Operating Expenses Rent"). Tenant shall pay to Landlord, Tenant's Excess
Direct Operating Expenses Rent pursuant to the following procedures:

                           (i)      Landlord  shall  provide to Tenant a good
faith estimate of the annual Direct Operating Expenses and the total amount of
annual Excess Direct Operating Expenses Rent with respect to each lease year of
the Term. Each such estimate shall be provided by Landlord to Tenant as soon as
possible following the first day of such lease year;

                                                               Initials /s/ EJC
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                           (ii)     Each estimate of total annual Excess Direct
Operating Expenses Rent determined by Landlord pursuant to this Section, shall
be divided into twelve (12) equal monthly installments. Tenant shall pay to
Landlord such monthly installment of Excess Direct Operating Expenses Rent with
each monthly payment of Basic Rent pursuant to Section 4.1 above. In the event
the estimated amount of Excess Direct Operating Expenses Rent has not yet been
determined for any lease year, Tenant shall pay the monthly installment in the
estimated amount determined for the preceding lease year until the estimate for
the current lease year has been provided to Tenant, at which time Tenant shall,
within thirty (30) days following receipt of the notice pay to Landlord any
existing shortfall and, thereafter, make the monthly installment payment in
accordance with the current estimate;

                           (iii)    As soon as reasonably possible following the
end of each lease year of the term including the end of any initial particular
lease year, Landlord shall determine and provide to Tenant a statement of the
amount of Direct Operating Expenses actually incurred (except in the event that
the Building is less than ninety-five percent (95%) occupied, in which case the
Direct Operating Expenses shall be computed as though the Building had been
ninety-five percent (95%) occupied) and the amount of Excess Direct Operating
Expenses Rent payable by Tenant with respect to such lease year. In the event
the amount of such Excess Direct Operating Expenses Rent exceeds the sum of the
monthly installments actually paid by Tenant, pursuant to Section 4.3(a)(ii)
above, for such lease year, Tenant shall pay to Landlord, on the first day of
the calendar month immediately following receipt of such statement, the
difference. In the event the sum of such installments exceeds the amount of
Excess Direct Operating Expenses Rent actually due and owing, the difference
shall be applied as a credit to Excess Direct Operating Expenses Rent payable by
Tenant pursuant to Section 4.3(a)(ii). In no event shall the adjustment of
Excess Direct Operating Expenses Rent decrease the amount of Basic Rent due and
payable to Landlord under this Lease.

                  (b)      For purposes of this Section, the following terms
shall have the following prescribed meanings:

                           (i)      The term "Building" means the Building as
defined in Article 2, and the parking areas and other structures servicing the
Building, and the Property upon which the Building and parking area such other
structures are located.

                           (ii)     The term "Direct Operating Expenses" as used
herein means all operating costs and expenses associated with the operation and
maintenance of the Building, exterior landscaping for the Building and such
additional facilities relating to operations of the Property as are now in use
or in subsequent years may be determined by Landlord to be reasonably desirable.
Direct Operating Expenses shall include, by way of illustration, but not
limitation, the following:

                                    (1) Reasonable costs of wages and salaries
of all employees engaged in operating and maintenance or security of the
Building, including taxes, insurance and benefits relating thereto, and the
reasonable rental value of the Building office.

                                    (2) All supplies and materials used in
operation and maintenance or security of the Building.

                                    (3) Costs of all utilities other than
separately metered electricity not utilized for common areas, including
surcharges of the Building (including the cost of water, sewer, gas, power,
heating, lighting, air conditioning and ventilating for the Building).

                                    (4) Costs of all reasonable maintenance and
service agreements for the Building, and equipment therein, including, but not
limited to, common area utility and maintenance charges (including, but not
limited to, assessments or contributions to maintenance associations or special
benefit districts); security and energy management services; window cleaning;
road, sidewalk, driveways and parking facility maintenance or cleaning; elevator
maintenance; HVAC equipment maintenance and janitorial services. Tenant shall be
responsible for any costs associated with its specialized equipment or other
improvements not provided in Landlord's Tenant Improvement Allowance including,
but not limited to, any service maintenance or repair costs.

                                    (5) Cost of all insurance relating to the
Building/Property, including the cost of casualty and liability insurance
applicable to the Building together with Landlord's personal property used in
connection therewith. Landlord agrees to commercially insure the
Building/Property with a reputable insurance company at industry acceptable
levels.

                                    (6) Costs of repairs and general maintenance
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties).

                                    (7) A management fee for the manager of the
Building not to exceed four percent (4%) of the gross annual rent of the
Building.

                                                               Initials /s/ EJC
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                                    (8) The costs of any additional services not
provided to the Building at the Commencement Date but thereafter provided by
Landlord in prudent management of the Building or at the direction of or
resulting from statutes or regulations, or interpretations thereof, promulgated
by any governmental authority in connection with the use or occupancy of the
Building that was not applicable when such improvements were originally
constructed.

                                    (9) The costs of any capital improvements or
alterations made to the Building after the Commencement Date that reduce other
operating expenses or are required at the direction of or resulting from,
statutes or regulations, or interpretations thereof, promulgated by any
governmental authority in connection with the use or occupancy of the Building
that were not applicable when such improvements were originally constructed,
such cost thereof to be amortized over such reasonable period, i.e., generally
acceptable accounting practices, as Landlord shall determine, together with
interest on the unamortized balance at the actual rate paid by Landlord on funds
borrowed for the purpose of constructing said capital improvements plus any
financing costs.

                                    (10) All taxes and assessments levied on the
Building (including, without limitation, the land upon which it is located),
including, but not limited to, real property taxes and assessments, and personal
property taxes and assessments on all personal property of Landlord used in
connection with the maintenance and operation of the Building and the reasonable
costs incurred by Landlord in contesting, in good faith and by appropriate
proceedings the amount or validity of any such tax or assessment.

                           (iii)    The term "Excess Direct Operating Expenses"
shall mean the amount, if any, that Direct Operating Expenses paid or incurred
by Landlord during a lease year, exceeds the Initial Direct Operating Expenses.

         4.4      ADDITIONAL RENT: Tenant shall pay to Landlord as additional
rent ("Additional Rent") and without notice, abatement, deduction or set off,
all sums, costs and expenses which Tenant, in any of the provisions of this
Lease, or through a separate agreement relating to the Premises and/or the
Building, assumes or agrees to pay, including, but not limited to, tenant
improvement work, whether or not any of such sums, costs and expenses are
specifically described in Additional Rent. In the event of any nonpayment of
Additional Rent when required under this Lease, the Landlord shall have (in
addition to all other rights and remedies) all the rights and remedies provided
herein or by law in the case of non-payment of Basic Rent and Excess Direct
Operating Expenses Rent. All references in this Lease to Rent shall mean and
collectively refer to Basic Rent, Excess Direct Operating Expenses Rent and
Additional Rent

         4.5      LATE CHARGES: Tenant's failure to pay Rent promptly on the
first day of each month may cause Landlord to incur unanticipated costs, the
exact amount of which are impractical or extremely difficult to ascertain. Such
costs may include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by any ground lease, mortgage or
trust deed encumbering the Building. Therefore, if Landlord does not receive any
Rent payment within ten (10) days after it becomes due, Tenant shall pay
Landlord a late charge equal to six percent (6%) of the overdue amount. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of such late payment.

         4.6      INTEREST: Any amount owed by Tenant to Landlord which is not
paid when due shall bear interest at the rate of twelve percent (12%) per annum
from the due date of such amount. However, interest shall not be payable on late
charges to be paid by Tenant under this Lease. The payment of interest on such
amounts shall not excuse or cure any default by Tenant under this Lease. If the
interest rate specified in this Lease is higher than the rate permitted by law,
the interest rate is hereby decreased to the maximum legal interest rate
permitted by law.

         4.7      SECURITY DEPOSIT: Tenant shall pay to Landlord, immediately
upon execution of this Lease, the Security Deposit, which shall be held by
Landlord as security for the faithful performance by Tenant of all of the terms,
covenants and conditions of this Lease to be kept and performed by Tenant during
the Term hereof. If Tenant defaults with respect to any provision of the Lease,
including but not limited to, the provisions relating to the payment of Rent,
Landlord may (but shall not be required to) use, apply or retain all or any part
of the Security Deposit for the payment of any Rent or any other sum in default,
or for the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, upon demand therefor, deposit with Landlord cash, in an amount sufficient
to restore the Security Deposit to its original amount and Tenant's failure to
do so shall be a material breach of this Lease. Landlord shall not be required
to keep the Security Deposit separate from its general funds, and Tenant shall
not be entitled to interest on the Security Deposit. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option to the last assignee of Tenant's interest hereunder) within
thirty (30) days following expiration of the Term, provided that Landlord may
retain the Security Deposit until such time as any amount due from Tenant in
accordance hereof has been determined paid in full.

                                                               Initials /s/ EJC
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                                 ARTICLE 5. USE

         5.1      PERMITTED USE: Tenant may use the Premises solely for the
Permitted Use and for no other use without the written consent of Landlord,
which may be withheld in Landlord's sole and absolute discretion.

         5.2      COMPLIANCE WITH LAWS: Tenant shall comply with all laws,
ordinances, rules and regulations pertaining to the use of the Premises, and/or
Building. Tenant shall not do or permit anything to be done in or about the
Premises which will, in any way, obstruct or interfere with the rights of other
tenants or occupants of the Building, or injure them, or allow the Premises to
be used for any immoral or unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant agrees to abide by all
reasonable rules and regulations established by Landlord from time to time with
respect to the Building. A copy of the rules and regulations in existence on the
date of this Lease is attached hereto as Exhibit B, but Landlord reserves the
right to amend the rules and regulations at any time by giving notice of
amendment to Tenant, if Landlord determines such amendments to be in the best
interest of the Building and its tenants.

         With respect to any floor of the Building that is entirely leased by
Tenant, including initially the third floor, Tenant shall be responsible for
ensuring, at its sole cost and expense, that all areas within such floor
(including restroom and lobby areas) comply with all applicable laws. Landlord
shall be responsible for ensuring that any common areas within the Building
other than on floors that are entirely leased to Tenant comply with all
applicable laws. Notwithstanding the foregoing, Tenant shall be solely
responsible for all costs relating to compliance with legal requirements to the
extent triggered, caused or made applicable by any alteration, addition or
improvement made by Tenant

         5.3      INSURANCE USE REQUIREMENTS: Tenant shall neither use nor
occupy the Premises in any manner, nor commit or omit any act, which would
result in a cancellation or reduction of any insurance or increase in premiums
on any insurance policy covering the Premises, or the property or Building.
Tenant shall, at its expense, comply with all requirements of any insurer
pertaining to use of the Premises and any other requirement which are reasonably
necessary for the maintenance of economic and proper fire, liability and other
insurance desired to be carried by Landlord

                     ARTICLE 6. IMPROVEMENTS TO THE PREMISES

         6.1      LANDLORD'S WORK: INTENTIONALLY DELETED.

         6.2      TENANT IMPROVEMENTS: Improvements to the Premises beyond that
supplied as part of Landlord's Work, including, but not limited to, closures,
ceilings, partitions, air conditioning components within the Premises, window
coverings, carpet, lighting fixtures, electric systems, fire detection systems
and, if required by Tenant's plans and specifications, modifications to the fire
sprinkler system shall be made by or at the direction of Landlord pursuant to
plans and specifications to be approved in writing by Landlord and Tenant
("Tenant Improvements"). The Tenant Improvements and the responsibility for
preparation of plans and specifications required to construct the same are
described in the Work Letter Agreement, attached hereto as Exhibit C. Landlord
shall have complete and absolute discretion to select such persons and companies
as it reasonably deems proper for designing, constructing or supplying all
Tenant Improvements. By accepting occupancy of the Premises, Tenant acknowledges
completion of all improvements constituting the Premises, including, but not
limited to, Tenant Improvements and Landlord's Work.

         6.3      PAYMENT FOR TENANT IMPROVEMENTS: Landlord shall pay, pursuant
to the terms and conditions of the Work Letter Agreement, the cost and expense
of Tenant Improvements in an amount not to exceed the Tenant Improvement
Allowance. The cost and expense of any Tenant Improvements in excess of the
Tenant Improvement Allowance, shall be paid by the Tenant in accordance with the
provisions of the Work Letter Agreement.

         6.4      ESTIMATED COMPLETION DATE: The Tenant Improvements shall be
completed on or before the Estimated Completion Date. Landlord shall endeavor to
give Tenant minimum thirty (30) day notice of the Estimated Completion Date. In
the event that the Tenant Improvements are not completed on or before the
Estimated Completion Date, for any cause or reason, Landlord, its agents and
employees, shall not be liable or responsible for any damages or liabilities in
connection therewith incurred by Tenant as a result thereof, nor shall the
obligations of Tenant provided herein be excused by reason of any such delay,
except that the failure to complete construction of the Tenant's Improvements on
the Estimated Completion Date is due solely to the unexcused actions of Landlord
hereunder, then, in such event, Tenant's sole remedy and right shall be to delay
the Commencement Date by the number of days that completion of construction of
the Tenant Improvements were delayed solely by the unexcused actions of
Landlord, but in no event shall the Commencement Date be later than the date on
which Tenant takes possession or

                                                               Initials /s/ EJC
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                                        5
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commences business operations at the Premises or part thereof. Notwithstanding
the foregoing, if Landlord has not completed construction of the Tenant
Improvements and tendered possession of the Premises to Tenant within one
hundred fifty (150) days from the Estimated Completion Date, and such delay was
not the result of either (i) delays caused by force majeure or (ii) act or
omission of Tenant or anyone for whom Tenant is responsible, then Tenant may, at
its option, by notice in writing to Landlord given within thirty (30) days
thereafter, cancel this Lease. If Tenant cancels this Lease in accordance with
the foregoing, the Landlord shall return to Tenant, without interest, the first
installment of Basic Rent, paid pursuant to Section 4.1 above, plus the Security
Deposit (if previously deposited by Tenant) and the parties shall be discharged
from any and all obligations hereunder. Notwithstanding the foregoing, the
Commencement Date shall be the date when Landlord would otherwise have been able
to tender possession of the Premises or complete construction thereof except for
the delay which was caused by the acts or omissions of Tenant or anyone for whom
Tenant is responsible, even though (i) Tenant may not, in fact, occupy the
Premises on such date; (ii) the Tenant Improvements were not, in fact, completed
on the Estimated Completion Date, and (iii) Landlord actually completes the
Tenant Improvements after the Estimated Completion Date and delivers possession
of the Premises after the Commencement Date. See Work Letter Section 5.

         6.5      EARLY OCCUPANCY: Provided Landlord gives Tenant a minimum
thirty (30) days prior notice and if Tenant occupies the Premises prior to the
Commencement Date, Tenant's occupancy of the Premises shall be subject to all of
the provisions of this Lease. Early occupancy of the Premises shall not advance
the Termination Date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the early occupancy period.

            ARTICLE 7. MAINTENANCE, REPAIR AND ALTERATION OF PREMISES

         7.1      MAINTENANCE: Subject to Article 6 and Work Letter Agreement,
by taking possession of the Premises, Tenant shall be deemed to have accepted
the Premises as being in good, sanitary order, condition, and repair except for
punch list items. Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises and every part thereof in good condition and repair,
ordinary wear and tear excepted. Except as specifically provided in Section 6.1
of this Lease, Landlord shall have no obligation whatsoever to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof, and the
parties hereto affirm that Landlord has made no representations to Tenant
respecting the condition of the Premises or the Building.

         7.2      REPAIRS: Notwithstanding the provisions of Section 7.1 above,
Landlord shall repair and maintain the structure portions, structural walls,
utilities underground, sewer, roof structure, foundation and sub-flooring of the
Building unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault, or omission of any duty by the Tenant, its agents,
servants, employees, contractors, licensees or invites, in which case Tenant
shall pay Landlord the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any such repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Article 13 hereof, there shall be no abatement of any item of Rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations, or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances, and equipment therein. Tenant waives the right to make
repairs at Landlord's expense under any law, statute, or ordinance now or
hereafter in effect.

         7.3      ALTERATIONS: Subject to the removal/nonremoval qualifications
stated in Section 7.5, Tenant shall not make any alteration, addition, or
improvement to the Premises (whether structural or nonstructural) without the
prior written consent of Landlord, which consent will not be unreasonably
withheld. Tenant may, with notice to Landlord, make nonstructural
modifications/alterations (to exclude, but not be limited to, base building,
electrical, power, sewer, roof, etc.) if Tenant's expenditure per occurrence is
less than $5,000.00 cumulative. In the event Landlord gives its consent, such
consent may be conditioned upon the requirement that Tenant (i) supply to
Landlord, plans and specifications which must be approved by Landlord in writing
prior to commencement of any work; and (ii) provide, prior to the commencement
of any work, a lien free completion bond in the form and amount satisfactory to
Landlord. Any alteration, addition, or improvement for which Landlord gives its
written consent shall be accomplished by Tenant in a good and workmanlike
manner; in conformity with all applicable laws and regulations and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide to Landlord "as-built" plans, copies, and proof of payment of all labor
and materials. Tenant shall pay, when due, all claims for such labor and
materials and shall give Landlord at least ten (10) days prior written notice of
the commencement of any such work. Landlord may enter upon the Premises, in such
case, for the purpose of posting appropriate notices, including, but not limited
to, notices of non-responsibility. Any Tenant alterations which cause or trigger
an increase in Landlord's tax assessment shall be incrementally passed directly
through to Tenant. Further, the tax increase shall not be computed in
calculating the Initial Base Operating Expenses per Article 1.5 or as provided.
See Addendum Paragraph 6 for other requirements.

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         7.4      LIENS: Tenant shall keep the Premises free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by or for Tenant. In the event that Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of or defense against the claim giving rise to such
lien. All sums paid by Landlord and all expenses incurred by it in connection
therewith shall create automatically an obligation of Tenant to pay an
equivalent amount as additional rent, which additional rent shall be payable by
Tenant on Landlord's demand with interest at the maximum rate per annum
permitted by law until paid.

         7.5      CONDITION ON TERMINATION: Upon the expiration, or sooner
termination, of the Lease, Tenant shall surrender the Premises to Landlord,
broom clean, and in the same condition as received, except for ordinary wear and
tear which Tenant was not otherwise obligated to remedy, under any provision of
this Lease. Except for the improvements constructed pursuant to Article 6
hereof, Landlord may require Tenant to remove any alterations, additions or
improvements made by Tenant prior to the termination of the Lease and to restore
the Premises to its prior condition (i.e., the condition as of the Commencement
Date), all at Tenant's expense. All alterations, additions, and improvements
which Landlord does not require Tenant to remove shall become Landlord's
property and shall be surrendered to Landlord upon termination of the Lease. In
no event shall Tenant remove any materials or equipment (excluding trade
fixtures) from the Premises without Landlord's prior written consent, including,
but not limited to, any power wiring or power panels, lighting or lighting
fixtures, wall coverings, window coverings, carpets, other floor coverings,
heaters, air conditioners or any other heating or air conditioning equipment,
fencing or security gates or other similar Building operating equipment and
decorations. Notwithstanding, if Landlord approves a Tenant alteration as
described in Section 7.3, then Landlord, with its consent, shall condition its
approval either (i) to be removed at Lease expiration at Tenant's expense or
(ii) not be removed.

                        ARTICLE 8. UTILITIES AND SERVICES

         8.1      UTILITIES AND SERVICES FURNISHED BY LANDLORD: Provided Tenant
is not in default hereunder, Landlord shall furnish air conditioning and heating
services to the Premises and common areas, i.e., Building cooling/heating tower.
Such services shall be furnished between the hours of 6:00 a.m. and 8:00 p.m.,
Monday through Friday, and 8:00 a.m. to 6:00 p.m. on Saturday (generally
accepted legal holidays excluded but not to exceed New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Day after Thanksgiving, Christmas
Eve and Christmas Day) excepting electricity to the Premises which shall be
furnished by Tenant. All of the foregoing utilities and services provided by
Landlord shall be included in the Direct Operating Expenses. The common area
electrical, air conditioning and heating services furnished by Landlord are not
represented by Landlord to be adequate for any purpose other than the permitted
use. It is acknowledged that the Landlord does not provide an uninterrupted
source of electrical power and other services. Under no circumstance shall
Landlord be liable to Tenant if any utility service to the Premises and/or
Building is interrupted or terminated because of repairs, installations,
improvements or causes beyond Landlord's control, nor shall any such
interruption or termination be construed as an eviction (actual or constructive)
of Tenant, nor entitle Tenant to an abatement of any item of Rent, nor relieve
Tenant from fulfillment of any covenant or condition of this Lease. Tenant
requested services shall be provided by Landlord, at an hourly rate established
by Landlord from time to time, during additional hours on reasonable notice to
Landlord, at Tenant's sole cost and expense, and payable by Tenant, as billed,
as Additional Rent. See Addendum Paragraph 4 for additional utilities. Any
specialized HVAC including, but not limited to, separate package units shall be
one hundred percent (100%) Tenant's responsibility which includes maintenance,
repairs, replacement and/or removal of said equipment. SEE ADDENDUM ATTACHED
HERETO AND MADE A PART HEREOF.

         8.2      OTHER UTILITIES AND SERVICES: Except as set forth in Sections
8.1 and 8.3 and the Addendum, Tenant shall furnish and pay to the local utility
vendor, at Tenant's sole expense, all electrical service inside the Premises,
all special electrical and Tenant provided HVAC requirements, telephone, cable
and other services which Tenant requires with respect to the Premises.

         8.3      JANITORIAL SERVICES PROVIDED BY LANDLORD: Landlord shall
provide five (5) days per week janitorial services for the Premises and the
common area of the Building consistent with practices found in similar office
buildings. The cost of all such services shall be included in the Direct
Operating Expenses.

                                ARTICLE 9. TAXES

         Tenant shall pay, prior to delinquency, all personal property taxes and
license fees levied, assessed or imposed by reason of Tenant's use of the
Premises, and all taxes on Tenant's personal property located on the Premises.
Landlord shall pay all property taxes or assessment with respect to the
Building, which shall be included in Direct Operating Expenses.

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                 ARTICLE 10. LANDLORD'S RIGHT TO ALTER BUILDING

         10.1     LANDLORD'S RIGHT TO ALTER BUILDING: Landlord reserves and
shall, at any and all times, have the right to alter the Building (including,
but not limited to, the parking garage and/or areas, and adjoining common areas)
or add thereto, and may for the purpose erect scaffolding and all other
necessary structures, and Tenant shall not, in that event, claim or be allowed,
or paid, any damage for any injury or inconveniences occasioned thereby nor
shall there be any abatement in any item of Rent. Landlord also reserves the
right to install, use, maintain, repair and replace pipes, ducts, conduits,
wires and appurtenant meters and equipment for service to other parts of the
Building above the ceiling surfaces, below the floor surfaces, within the walls
and in the central core areas, and to relocate any pipes, ducts, conduits, wires
and appurtenant meters and equipment which are located within the Premises or
outside the Premises.

                                ARTICLE 11. SIGNS

         11.1     Landlord shall paint, attach, or affix tenant's trade name
and/or the individual names of its authorized representatives to the first floor
lobby directory that is the principal entry to the Premises, the cost of the
sign and its installation to be paid by Landlord and contained and accounted for
as an initial operating expense.

         11.2     Landlord has the sole right to determine the type of
directory, bulletin board, and sign, and the content of each (including, without
limitation, size of letters, style, color, and whether affixed or painted).

         11.3     Tenant shall not place or permit to be placed, any sign,
advertisement, notice or other similar matter on the doors, windows, exterior
walls, roof or other areas of the Premises and/or Building which are open to the
view of persons in the common area of the Building or grounds, except with the
advance written consent of Landlord, which consent may be withheld for any
reason. If any sign, advertisement, notice or similar matter is improperly
placed by Tenant, Landlord shall have the right to remove the same, and Tenant
shall be liable for any and all expenses incurred by Landlord by the removal.
Any signs, advertisement, notice or similar matter (including, but not limited
to, directories and nameplates) approved by Landlord shall be at the sole cost
and expense of Tenant, except as otherwise provided.

                  ARTICLE 12. LIABILITY INSURANCE AND INDEMNITY

         12.1     TENANT INSURANCE: Tenant, at its own expense, shall provide
and keep in force with companies reasonably acceptable to Landlord or Landlord's
lender/beneficiary the following insurance policies:

                  (a)      Broad form commercial general liability insurance, or
equivalent, written on an occurrence form against liability for bodily injury
and property damage arising out of or in connection with the use, occupancy or
maintenance by Tenant of the Premises (including, without limitation, personal
injury coverage and contractual liability insurance specifically covering
liability with respect to the indemnity described in Section 12.4 below) in the
amount of not less than Three Million Dollars ($3,000,000.00) in respect to
injuries or death, and in the amount of not less than Three Hundred Thousand
Dollars ($300,000.00) per occurrence in respect to damage to property;

                  (b)      Fire insurance with standard form extended coverage
endorsement to the extent of at least one hundred percent (100%) of the full
insurable value of the Tenant Improvements, other additions, alterations and
improvements to the Premises, and all trade fixtures, fixtures, equipment and
other personal property which may, from time to time, be located upon the
Premises; and

                  (c)      Such other insurance as Tenant or Landlord or any
beneficiary of any deed of trust encumbering the Building or the Property of
which the Premises are a part, may from time to time, reasonably require, in
form, amount and protecting against such risks as would be obtained by a prudent
person.

         Each of the foregoing policies of insurance shall name the Landlord and
any mortgagee as an additional insured. The policy limits herein specified shall
be increased, from time to time, upon written demand from Landlord, if Tenant's
use reasonably justifies such increases and/or Landlord's lender/beneficiary or
other third party requires said increase. Tenant may maintain such insurance as
part of blanket policies containing a "per project, per location" endorsement.
Landlord makes no representation that the minimum insurance amounts specified
above are adequate to protect Tenant, and the amount of insurance obtained by
Tenant shall not limit Tenant's liability under this Lease. Tenant shall furnish
Landlord with a certificate of such policy prior to taking possession of the
Premises or occupying any part thereof and whenever requested shall satisfy
Landlord that such policy is in full force and effect. Each policy shall be
primary and non-contributing with any insurance carried by Landlord. Each policy
shall further provide that it shall not be canceled or materially altered
without thirty (30) days prior written notice to Landlord.

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         12.2     LANDLORD INSURANCE: Landlord shall carry such insurance with
respect to the Building, of the type and amounts as Landlord, in its sole
discretion, shall deem reasonably appropriate. The cost of any such insurance
shall be included in the Direct Operating Expenses. In addition, in the event
Tenant fails to provide or keep in force any of the insurance as required
pursuant to Section 12.1 above, Landlord, in its discretion, may provide such
insurance, in which event, the cost thereof shall be payable by Tenant to
Landlord, as additional rent on the first day of the calendar month immediately
following demand therefor from Landlord. Notwithstanding, Landlord agrees to
commercially insure the Building/Property with a reputable insurance company at
industry acceptable levels.

         12.3     WAIVER OF LIABILITY OF LANDLORD: Landlord shall not be liable
to Tenant for any injury or damage that may result to any person or property by
or from any cause whatsoever (including, without limiting the generality of the
foregoing, injury or damage due to water leakage of any character from the
walls, basement or other portion of the Premises or Building or caused by gas,
fire, oil, electricity or any use whatsoever, in, on or about the Premises or
Building or any part thereof, or theft), other than injury or damage resulting
from the gross negligence or willful misconduct of Landlord.

         12.4     WAIVER OF SUBROGATION: Tenant and Landlord waive any rights or
claims against the other for property damage to the extent covered by any of the
waiving party's insurance policies required to be maintained hereunder and waive
any right of subrogation against Landlord or Tenant under any insurance policy.
Tenant and Landlord shall cause the insurance carriers to waive all such rights
and to so notify Landlord and Tenant

         12.5     INDEMNITY BY TENANT OF LANDLORD: Tenant agrees to indemnify,
hold Landlord and its agents, employees, affiliates, officers, directors and
shareholders (collectively, the "Indemnities") harmless from and defend Landlord
and the Indemnities against any and all claims, damages, costs, expenses
(including attorneys' fees and costs incurred in connection therewith or to
enforce this indemnity obligation) and liabilities for any injury or damage to
any person or property (i) occurring in, on or about the Premises or any part
thereof, or (ii) occurring in, on or about any part of the Property (including,
without prejudice to the generality of the term "Property", passageways or
hallways) the use of which Tenant may have in conjunction with other tenants of
the Building, when such injury or damage shall be caused in part or in whole, by
the act, negligence or fault of, or omission of any duty with respect to the
same by Tenant, its agents, servants or employees. In case any action, suit or
proceeding is brought against Landlord and/or the Indemnities for which Tenant
is required to provide indemnity pursuant to this Section, Tenant, upon
Landlord's request and at Tenant's sole cost and expense, will resist and defend
such action, suit or proceeding or cause the same to be resisted and defended by
counsel designated by Tenant and approved by Landlord, or counsel designated by
the insurer whose policy covers the cost, claim, damage or liability. At
Landlord's election, Landlord may select and employ counsel to resist and defend
the action, suit or proceeding and Tenant will reimburse Landlord for any
reasonable legal fees or costs incurred by Landlord in connection therewith. The
obligations of Tenant under this Section will survive the expiration or any
termination of this Lease.

                        ARTICLE 13. DAMAGE OR DESTRUCTION

         13.1     DUTY TO RESTORE: In the event the Premises or the Building of
which the Premises are a part are damaged as a result of any cause, then
Landlord shall forthwith repair the same, provided the extent of the destruction
be less than twenty percent (20%) of the full replacement cost of the Premises
or the Building of which the Premises are a part and the insurance proceeds
available to Landlord are adequate to complete such repairs. In the event the
destruction of the Premises or the Building is to an extent greater than twenty
percent (20%) of the full replacement cost, then Landlord shall have the option
(i) to repair or restore such damage and this Lease will continue in full force
and effect provided such repairs may be completed no more than nine (9) months
after said occurrence, except that Tenant shall be entitled to a proportionate
reduction of Basic Rent while such repairs are being made, such proportionate
reduction to be based upon the extent to which the making of such repairs shall
materially interfere with the business carried on by Tenant in the Premises
(provided, however, that if the damage is due to the fault or neglect of Tenant
or its employees, there shall be no abatement of Basic Rent); or (ii) give
notice to Tenant at any time within sixty (60) days after such damage
terminating this Lease as of the date specified in such notice, which date shall
be no more than thirty (30) days after the giving of such notice. In the event
of giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and Rent
shall be paid up to date of such termination.

         13.2     EXCLUSIONS FROM DUTY TO RESTORE: Notwithstanding anything to
the contrary contained in this Article:

                  (a)      Landlord shall not have any obligation whatsoever to
repair, reconstruct or restore the Premises when the damage resulting from any
casualty covered under this article occurs during the last twelve (12) months of
the term of this Lease or any extension thereof.

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                  (b)      Landlord shall not be required to repair any damage
by fire or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or any other
property installed in the Premises by Tenant.

                  (c)      Tenant shall not be entitled to any compensation or
damages from Landlord for loss of the use of the whole or any part of the
Premises. Tenant's personal property or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.

         13.3     TOTAL TAKING: If the whole of the Premises or so much thereof
as to render the balance unusable by Tenant shall be taken under power of
eminent domain, this Lease shall automatically terminate as of the date of such
condemnation, or as of the date possession is taken by the condemning authority,
whichever is earlier. If a partial taking so renders the balance of the Premises
unusable by Tenant, Tenant shall give written notice thereof to Landlord within
thirty (30) days of the taking. No award of any partial or entire taking shall
be apportioned and Tenant hereby assigns to Landlord any award which may be made
in such taking or condemnation, together with any and all rights of Tenant now
or hereafter arising in or to the same or any part thereof; provided, however,
Tenant shall be entitled to any award made to Tenant for the taking of personal
property and fixtures belonging to Tenant or for Tenant's relocation costs or
business interruption compensation.

         13.4     PARTIAL TAKING: In the event of a partial taking of the
Premises which does not result in a termination of this Lease pursuant to
Section 13.3, rent shall be abated, effective as of the date possession of the
Premises is required to be surrendered, in proportion to the part of the
Premises so made unusable by Tenant. Landlord shall, at its expense, restore the
portion of the Premises remaining usable to as near its former condition as
reasonably possible using that portion of the condemnation award attributable to
such restoration costs.

         13.5     TEMPORARY TAKING: No temporary taking of the Premises and/or
of Tenant's rights therein or under this Lease shall terminate this Lease or
give Tenant any right to any abatement of rent hereunder. Any award made to
Tenant by reason of any such temporary taking shall belong entirely to Tenant
and Landlord shall not be entitled to share therein.

         13.6     SALE: A sale by Landlord to any authority having the power of
eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes under this Article 13.

         13.7     WAIVER: Tenant hereby waives any right under any statutes,
ordinances, court decisions or other application law, whether existing now or in
the future, to terminate this Lease following any taking, condemnation, damage
or destruction of the Premises and/or the Building except as provided in this
Lease.

                          ARTICLE 14. DEFAULT BY TENANT

         14.1     REMEDIES UPON DEFAULT: Tenant agrees that (i) if Tenant fails
to make a payment of any item of Rent and such failure continues for a period of
five (5) days after receipt of written notice thereof; or (ii) if Tenant fails
to faithfully perform or observe this Lease Agreement and such failure continues
for a period of thirty (30) days after written notice thereof; or (iii) if the
Premises be vacated or abandoned; or (iv) if Tenant makes a general assignment
for the benefit of its creditors and becomes unable to pay its debts as they
become due in the normal course, or shall file a petition for bankruptcy or
other reorganization, liquidation, dissolution or similar relief and tenant does
not make payment of any item of rent; or (v) a proceeding is filed against
Tenant seeking any relief mentioned in (iv) above; or (vi) a trustee, receiver
or liquidator shall be appointed for Tenant or a substantial part of its
property; or (vii) if Tenant's lease interest is sold under execution, then any
such events shall constitute a breach of this Lease and Landlord may, at
Landlord's option, exercise any or all rights available to a Landlord under the
laws of the State of California, including, without limitation, the right to do
any of the following:

                  (a)      Terminate the Lease and recover:

                           (i) The worth at the time of the award of unpaid rent
and other charges which had been earned at the time of such termination; plus

                           (ii) The worth at the time of the award of the amount
by which the unpaid rent and other charges which would have been earned after
termination until the time of award exceeds the amount of such rental loss,
which Tenant proves could have been reasonably avoided; plus

                           (iii) The worth at the time of the award of the
amount by which the unpaid rent and other charges for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss, which
Tenant proves reasonably could be avoided; plus

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                           (iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligation under this Lease or which in the ordinary course of things would
be likely to result therefrom, including but not limited to the cost of
restoring the Premises to the condition required in Article 7.5 of this Lease;
plus

                           (v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law

                  (b)      Utilize the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations), as follows:

                           (i) Landlord can continue this Lease in full force
and effect without terminating Tenant's right of possession, and Landlord shall
have the right to collect rent and other monetary charges when due and to
enforce all other obligations of Tenant hereunder. Landlord shall have the right
to enter the Premises to do acts of maintenance and preservation of the
Premises, to make alterations and repairs in order to relet the Premises, and /
or to undertake other efforts to relet the Premises. Landlord may also remove
personal property from the Premises and store the same in a public or private
warehouse at Tenant's expense and risk. No act by Landlord permitted under this
Paragraph shall terminate this Lease unless a written notice of termination is
given by Landlord to Tenant or unless the termination is decreed by a court of
competent jurisdiction

                           (ii) In furtherance of the remedy set forth in this
Section, Landlord may relet the Premises or any part thereof for Tenant's
account, for such term (which may extend beyond the Lease term), at such rent,
and on such other terms and conditions as Landlord may deem advisable in its
sole discretion. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in reletting the Premises. Any rents received by Landlord from
such reletting shall be applied to the payment of: (a) first, any indebtedness
other than rent due hereunder from Tenant to Landlord; (b) second, the costs of
such reletting, including brokerage and attorney's fees and the cost of any
alterations and repairs to the Premises; and (c) third, the payment of rent due
and unpaid hereunder. Any remainder shall be held by Landlord and applied in
payment of future amounts as the same become due and payable hereunder. In no
event shall Tenant be entitled to any excess rent received by Landlord after a
breach of this Lease by Tenant and the exercise of Landlord's remedies
hereunder. If the rent from such reletting during any month is less than the
rent payable hereunder, Tenant shall pay such deficiency to Landlord immediately
upon demand.

         14.2     WORTH AT THE TIME OF AWARD. As used in Sections 14.1(a)(i) and
14.1(a)(ii) above, the "worth at the time of award" shall be computed by
allowing interest at the lesser of twelve percent (12%) per annum or the maximum
rate permitted by law. As used in Section 14.1 (a) (iii), above, the "worth at
the time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percentage point.

         14.3     NOTIFICATION OF RELETTING: In the event Landlord terminates
this Lease pursuant to Section 14.1(a) above, and Tenant has made an advance
payment of rent as defined in California Civil Code Article 1951.7, and Tenant
has requested in writing that Landlord notify it of any initial reletting of
Premises, then and only then must Landlord notify Tenant pursuant to California
Civil Code Article 1951.7(c) that the Premises have been relet.

         14.4     RIGHT OF LANDLORD TO RE-ENTER: In the event of any termination
of this Lease, Landlord shall have the immediate right to enter upon and
repossess the Premises, and any personal property of Tenant may be removed from
the Premises and stored in any public warehouse at the risk and expense of
Tenant.

         14.5     LANDLORD'S LIEN: INTENTIONALLY DELETED

         14.6     LANDLORD'S RIGHT TO PURSUE OTHER REMEDIES: In the event of any
breach of this Lease, Landlord may pursue any of the foregoing remedies, and
Landlord may consecutively or concurrently therewith pursue any other remedy or
enforce any right to which Landlord may be entitled by law.

                            ARTICLE 15. SUBORDINATION

          15.1    This Lease and the leasehold estate created hereby are and
shall be, at the option and upon written declaration of Landlord, subject,
subordinate and inferior to the lien and estate of any liens, trust deeds and
encumbrances, and all renewals, extensions or replacements thereof, now or
hereafter imposed by Landlord upon the Premises or any part of the Building.
Landlord hereby expressly reserves the right, at its option and declaration, to
place liens, trust deeds and encumbrances upon and against the Premises

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and/or any part thereof and/or the Building, superior in lien and effect to this
Lease and the estate created hereby. The execution by Landlord and the recording
in the Office of the County Recorder of the county in which the Premises are
situated, of a declaration that this Lease and leasehold estate are subject,
subordinate and inferior to any lien, trust deed or encumbrance placed by
Landlord upon or against the Premises, and/or any part thereof and/or the
Building, shall, of and by itself (in favor of any lien or, mortgagee,
beneficiary, trustee or title insurance company insuring the interest of any
such person) and without further notice to or act or agreement of Tenant, make
this Lease and the estate created hereby subject, subordinate and inferior
thereto. Notwithstanding the foregoing, Tenant agrees, on request of Landlord,
to forthwith execute and acknowledge any reasonable subordination agreement or
other documents required to establish of record the priority of any such
encumbrance over this Lease, and also to execute and deliver to Landlord,
promptly on request, any reasonable estoppel certificate or other statement to
be furnished to any prospective purchaser or lender against the Premises stating
the matters specified in Article 27 hereof.

          15.2    In the event any proceedings are brought for foreclosure, or
in the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Premises, the Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease.

          15.3    The provisions of this Article to the contrary
notwithstanding, and so long as Tenant is not in default hereunder, this Lease
shall remain in full force and effect for the full term hereof.

          15.4    Landlord agrees to use reasonable best efforts to obtain and
deliver to Tenant, at Tenant's expense, a commercially reasonable
non-disturbance agreement from any lender with a lien on the Building senior to
this Lease.

                           ARTICLE 16. ATTORNEY'S FEES

          In case any suit shall be brought for any unlawful detainer of the
Premises, for the recovery of any Rent due under this Lease, or because of the
breach or alleged breach of any other covenant herein contained on the part of
either party to be kept or performed, the prevailing party shall recover from
the non-prevailing party all costs and expenses incurred therein, including
reasonable attorney's fees, and reasonable attorney's fees and expenses incurred
in enforcing any judgment. Further, (i) if for any reason Landlord consults
legal counsel or otherwise incurs any reasonable costs or expenses as a result
of its rightful attempt to enforce the provisions of this Lease, even though no
litigation is commenced, or if commenced is not pursued to final judgment or
(ii) Landlord is named as a defendant in any suit brought against Tenant in
connection with or arising out of Tenant's occupancy hereunder, Tenant shall be
obligated to pay to Landlord, in addition to all other amounts for which Tenant
is obligated hereunder, all of Landlord's reasonable costs and expenses incurred
in connection with any such acts, including reasonable attorneys' fees.

                     ARTICLE 17. ASSIGNMENT AND SUBLETTING

          17.1    LANDLORD'S CONSENT REQUIRED: The purpose of this Lease is to
transfer possession of the Premises to Tenant for Tenant's personal use and
Tenant has not entered into this Lease for the purpose of obtaining the right to
convey the leasehold to others. The ability of Tenant to assign or sublet the
Premises is subsidiary and incidental to the underlying purpose of this Lease.
Tenant will not, either voluntarily or by operation of law, assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, and
will not sublet the Premises or any part thereof or any right or privilege
appurtenant thereto, or allow any other person (the employees, agents, servants
and invitees of Tenant excepted) to occupy or use the Premises or any portion
thereof, without the prior written consent of Landlord, which consent will not
be unreasonably withheld. Provided Tenant has received Landlord's consent
herein, Tenant agrees throughout the term of this Lease not to sublease to more
than four (4) tenants total. Any cumulative transfer of more than thirty percent
(30%) of the voting stock will be deemed to be an assignment by Tenant of this
Lease which requires the prior written notice to Landlord provided the
controlling entity has a consolidated net worth equal to or greater than
Tenant's. If notice is given to Landlord, then the controlling entity shall
submit to Landlord for its approval all reasonably required financial
documentation to support the financial qualifications.

          Any transfer or subletting attempted or concluded without Landlord's
prior written consent will be void and will constitute a default under this
Lease. Consent by Landlord to any transfer (including, but not limited to, an
assignment or subletting), shall be limited to the particular transfer approved
by Landlord and shall not be deemed to be Landlord's consent to any subsequent
transfer. Tenant acknowledges Landlord shall have no obligation to sublessees
and Tenant agrees to be responsible for such parties' compliance with all rules,
regulations, and other covenants.

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         17.2     LANDLORD'S ELECTION: Tenant's request for consent to any
transfer, described in Section 17.1 above must be accompanied by a written
statement setting forth the details of the proposed transfer, including the
name, type of business and financial condition (supported by financial
statements) of the prospective transferee, financial details of the proposed
transfer (e.g. the terms of the transaction, the rent and security deposit
payable under any assignment or sublease), copies of all agreements and other
writings pertaining in any way to the proposed transfer. Tenant, in addition to
the foregoing information which must be delivered to Landlord at the time Tenant
requests Landlord's consent to the proposed transfer, shall deliver to Landlord
any additional information concerning the proposed transfer or prospective
transferee as Landlord may reasonably request. Landlord will have the right (i)
to reasonably withhold consent; (ii) to grant written consent to the transfer;
or (iii) to terminate this Lease as of the date of the proposed transfer as to
that portion of the Premises affected by the proposed transfer provided the
third party transfer term is greater than thirty-nine (39) months long. Within
fifteen (15) business days after submission of all required information for the
request for consent of proposed transfer, Landlord shall give notice to Tenant
of its election under this Section. If Landlord does waive in writing its right
to terminate this Lease, such waiver shall be effective only for the transfer
specifically covered in Tenant's notice for a period of sixty (60) days after
the date of the waiver. If Landlord elects to terminate this Lease under Section
1 7.2(iii) above, Tenant shall have the right to withdraw its request to the
proposed transfer within fifteen (15) days after Landlord's election to
terminate this Lease, in which case Landlord shall have no right to terminate
this Lease or any portion thereof. If Landlord does duly exercise its rights
under Section 1 7.2(iii) above to terminate this Lease or any portion thereof,
Landlord shall have the right to enter into a lease or other occupancy agreement
directly with the prospective transferee, and Tenant shall have no right to any
of the rents or other consideration payable by such prospective transferee under
such other lease, even if such rents and other consideration exceed the rent
payable under this Lease by Tenant. If Landlord elects to exercise its rights
under Section 17.2(iii), then Landlord shall have the right to lease the
Premises to any other tenant, or not lease the Premises, in its sole discretion.
in the event of a sublease or assignment of a portion of the Premises, to which
Landlord has elected to exercise its rights under Section 1 7.2(iii) above,
Landlord and Tenant shall enter into an amendment of this Lease to effect a
proportionate reduction in the size of the Premises and in the Basic Rent or
other Additional Rent payable hereunder.

         17.3     WITHHOLDING CONSENT: Under Section 17.2(i), Landlord may
withhold its consent to the proposed transfer on any reasonable ground. Such
reasonable grounds shall include, without limitation, any one or more of the
following:

                  (i)      That the prospective transferee's financial condition
is or may become insufficient to support all of the financial and other
obligations of this Lease;

                  (ii)     That the use to which the Premises will be put by the
prospective transferee is inconsistent with the terms of this Lease or other
existing leases or is otherwise not suitable for a first class office building;

                  (iii)    That the nature of the prospective transferee's
proposed or likely use of the Premises would involve any increased risk of the
use, release or mishandling of hazardous materials;

                  (iv)     That the prospective transferee is not likely to
conduct on the Property a business of a nature substantially equal to that
conducted by Tenant or other tenants on the Property;

                  (v)      That Landlord has not received assurances acceptable
to Landlord in its sole discretion that all past due amounts owing from Tenant
to Landlord (if any) will be paid and all other defaults on the part of Tenant
(if any) will be cured prior to the effectiveness of the proposed transfer.

         If Landlord withholds its consent to the proposed transfer pursuant to
Section 17.2(i), and if Tenant shall so request in writing, Landlord shall
provide to Tenant a statement of the basis on which Landlord denied its consent
within a reasonable time, however, no greater than ten (10) days after the
receipt of Tenant's notice. Landlord and Tenant agree that Tenant shall have the
burden of proving that Landlord's consent to the proposed transfer was withheld
unreasonably, and that such burden may be satisfied if Landlord fails to provide
a statement of a reasonable basis for withholding its consent within a
reasonable time after Tenant's request therefor. Tenant acknowledges and agrees
that each of the rights of Landlord in the event of proposed transfer set forth
in this Article is a reasonable restriction on transfer for purposes of
California Civil Code Section 1951.4.

         17.4     TENANT'S OBLIGATIONS CONTINUING: No transfer within the scope
of this article, whether with or without Landlord's consent, will release Tenant
or change Tenant's primary liability to pay Rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of Rent from any
other person is not a waiver of any provision of this Section. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent to
subsequent assignments or modifications of this Lease by Tenant's transferee,
without noticing Tenant or obtaining its consent, and such action will not
relieve Tenant of its liability under this Lease.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                       13
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         17.5     EXCESS RENTAL: With respect to any sublease entered into by
Tenant with Landlord's consent as herein provided, if the rent and other
compensation paid by the subtenant to Tenant under such sublease, and all
agreements and other instruments pertaining in any way thereto, exceeds the Rent
being paid by Tenant to Landlord computed on a square foot basis (i.e., the
amount by which the rent and other compensation being paid by the subtenant to
Tenant exceeds the Rent being paid by Tenant to Landlord under this Lease for
each square foot leased by such subtenant) then Landlord will be entitled to the
amount of such excess ("Excess Rent") and Tenant will pay to Landlord such
Excess Rent within five (5) days after receipt by Tenant of the same. If Tenant
receives any fee, bonus or other payment (whether payable in one or more
installments) from any assignee or sublessee as partial consideration for the
making of such sublease or assignment ("Bonus Payment"), the entire amount of
such Bonus Payment shall be paid over to Landlord as additional rent hereunder.
Notwithstanding the foregoing, Tenant shall be entitled to receive from any
Excess Rent or Bonus Payment otherwise required to be paid to the Landlord the
amount of out-of-pocket expenses actually incurred by Tenant for reasonable and
customary brokerage commissions, tenant improvements, non-monetary lease
concessions or other expenses in connection with sublease or assignment provided
Tenant delivers sufficient evidence of such expenses to Landlord.

         17.6     SECURITY INTEREST: Tenant immediately and irrevocably assigns
to Landlord as security for Tenant's obligations under this Lease all rent from
any subletting of all or a part of the Premises as permitted by this Lease, and
Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for
Tenant appointed on Landlord's application, may collect such rent and apply it
toward Tenant's obligations under this Lease; except that, until the occurrence
of an event of default by Tenant, Tenant will have the right to collect such
rent.

         17.7     TRANSFER FEE: In the event Landlord consents to a sublease or
assignment hereunder, Tenant shall reimburse Landlord for all attorney's fees
incurred by Landlord in connection with review and preparation of documents in
connection with such sublease or assignment and will pay Landlord a reasonable
fee, not to exceed $250.00, for Landlord's processing of documents necessary to
the giving of such consent and/or assumption by the assignees.

                               ARTICLE 18. PARKING

         Tenant shall have the right to park automobiles in connection with its
use and occupancy of the Premises as more particularly described in the Addendum
attached hereto.

                               ARTICLE 19. NOTICES

         19.1     MANNER OF SERVICE: All notices, demands or requests from one
party to another shall be personally delivered or sent by mail, certified or
registered, postage prepaid, to the address stated in this Article.

         19.2     NOTICE OF LANDLORD: All such notices, demands or requests from
Tenant to Landlord shall be given to Landlord, addressed as follows:

                         Williams Properties I & II, LLC
                         Attention: Elizabeth J. Clarquist
                         6170 Cornerstone Court East, Suite 140
                         San Diego, CA 92121

        with copy to:    Fisher Thurber, Ltd.
                         Attn.: David A. Fisher
                         4225 Executive Square, Suite 1600
                         La Jolla, CA 92037

         Landlord may change its address for notices by giving written notice of
such change to Tenant in the manner provided by this Article 19.

         19.3     NOTICE TO TENANT: All such notices, demands or requests from
Landlord to Tenant shall be given to Tenant, addressed, if prior to the
Commencement Date, to Tenant's Notice Address and, after the Commencement Date,
to 5930 Cornerstone Court West, San Diego, CA 92121.

                       ARTICLE 20. HOLDING OVER BY TENANT

         Tenant agrees upon the expiration or termination of this Lease,
immediately and peaceably to yield up and surrender the Premises, notice to quit
or vacate is hereby expressly waived. Tenant shall be liable to Landlord for any
and all damages incurred by Tenant as the result of any failure by Tenant,
timely, to surrender possession of the Premises as required herein. If Tenant
shall hold over after the expiration of this Lease for any cause, such holding
over shall be deemed a tenancy at sufferance or, at the sole discretion of
Landlord, a tenancy from month-to-month only, in which event such month-to-month
tenancy shall be upon the same terms, conditions and provisions as in this Lease
contained, at one hundred forty percent (140%) of the monthly Rent as was in
effect immediately prior to the termination.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


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                               ARTICLE 21. WAIVER

         One or more waivers by Landlord of any breach of any covenant or
condition shall not be construed as a waiver of a subsequent or continuing
breach of the same or of any covenant or condition, and the consent or approval
by Landlord to any act by Tenant requiring Landlord's consent or approval shall
not be deemed to waive or render unnecessary Landlord's consent or approval to
or of any subsequent act. No waiver of any provision of this Lease shall be
deemed to have been made, unless it be in writing and signed by the party to be
charged therewith.

                      ARTICLE 22. LANDLORD'S RIGHT OF ENTRY

         Landlord and its agents may enter upon the Premises at any reasonable
time with prior notice, except in the event of emergencies, to post such notices
as Landlord may reasonably deem necessary to exempt Landlord and Landlord's
title from responsibility on account of any work or repairs done by Tenant upon
or in connection with the Premises; to inspect and examine the Premises and see
that the covenants hereof are being kept and performed; to make such repairs,
additions or improvements as Landlord shall deem necessary; or, to exhibit the
Premises to prospective lessees or purchasers thereof.

                         ARTICLE 23. TIME OF THE ESSENCE

         Time is expressly declared to be of the essence of this Lease, and of
all covenants and conditions herein contained.

                       ARTICLE 24. SUCCESSORS AND ASSIGNS

         The covenants and conditions herein contained shall, subject to the
provisions of Article 17 and this Article, apply to and bind the heirs,
successors, executors, administrators and assigns of the respective parties
hereof. If this Lease is signed by more than one person as Tenant, their
obligation shall be joint and several.

         Landlord may freely and fully assign its interest hereunder. The term
"Landlord" shall mean only the owner at the time in question of the Building or
of a lease of the Building, so that in the event of any transfer or transfers of
title to the Building or of Landlord's interest in a lease of the Building, the
transferor shall be and hereby is relieved and freed of all obligation of
Landlord under this Lease accruing after such transfer, and it shall be deemed,
without further agreement, that such transferee has assumed and agreed to
perform and observe all obligations of Landlord herein during the period it is
the holder of Landlord's interest under this Lease. Tenant shall attorn to and
recognize as its landlord under this Lease any transferee of the Building or
Landlord's interest hereunder. In any event, Tenant shall look only to
Landlord's estate and property in the Building and the land on which it is
located for satisfaction of Tenant's remedies for the collection of a judgment
(or other judicial process) requiring the payment of money by Landlord in the
event of any default by Landlord hereunder, and no other property or assets of
Landlord or its partners or principals, disclosed or undisclosed, shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Premises and
no such parties shall be named in any action or suit by Tenant against Landlord.

                            ARTICLE 25. BUILDING NAME

         Tenant shall not use the name of the Building or words to that effect
in connection with any business on the Premises without the written consent of
Landlord. Landlord may change the name of the Building at any time without
consent of or notice to Tenant.

                                ARTICLE 26. KEYS

         Two (2) keys to the Premises will be furnished to Tenant by Landlord.
Additional keys will be furnished upon Tenant paying Landlord the cost thereof.
No additional lock or locks shall be placed by Tenant on any door in the
Premises or Building unless written consent of Landlord shall have been first
obtained; and, should such consent be so obtained, Landlord shall be supplied
with keys to each such lock. Only the employees of Landlord or those it has
authorized in writing shall work on or modify any lock which is part of the
Premises. Tenant shall not cause or allow any keys to be possessed by any person
other than an authorized agent of Tenant. Tenant agrees, at the termination of
the tenancy, to return all keys of all doors and any security cards.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                       15
   16
                        ARTICLE 27. ESTOPPEL CERTIFICATES

         Tenant agrees, at any time and from time to time, upon not less than
five (5) days prior written notice by Landlord, to execute, acknowledge and
deliver to Landlord, a statement in writing (i) certifying this Lease is
unmodified and in full force and effect, or, if there have been modifications,
this Lease is in full force and effect as modified, and stating any such
modifications; (ii) certifying that Tenant has accepted possession of the
Premises, and that any improvements required by the terms of this Lease to be
made by the Landlord have been completed to the satisfaction of the Tenant;
(iii) stating that no rent under this Lease has been paid more than thirty (30)
days in advance of its due date; (iv) stating the address to which notices to
Tenant should be sent; (v) certifying, if applicable, that Tenant, as of the
date of any such certification, has no charge, lien or claim of set-off under
this Lease, or otherwise, against rents or other charges due or to become due
hereunder, (vi) stating whether or not, to the best of Tenant's knowledge,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which Tenant may have knowledge and (vii) stating such other matters as Landlord
may reasonably request. Any such statement delivered pursuant hereto may be
relied upon by Landlord, any owner of the Building, any prospective purchaser of
the Building, any mortgagee or prospective mortgagee of the Building or of
Landlord's interest, or any prospective assignee of any such mortgagee.

        Provided Tenant has received written notice of the mailing address 
of any mortgagee of Landlord, Tenant further agrees that, from the date of
execution of this Lease, it will not seek to terminate this Lease by reason of
any act or omission of the Landlord, until the Tenant shall have given written
notice of such act or omission to Landlord's mortgagee and until a reasonable
period of time shall have elapsed following the giving of such notice, during
which period of time Landlord's mortgagee shall have the right, but shall not be
obligated, to remedy such action or omission.

                            ARTICLE 28. FORCE MAJEURE

         Landlord shall not be required to perform any of its obligations under
this Lease, nor be liable for loss or damage for failure to do so, nor shall
Tenant thereby be released from any of its obligations under this Lease, where
such failure arises from or through acts of God, strikes, lockouts, labor
difficulties, explosions, sabotage, accidents, riots, civil commotions, acts of
war, results of any warfare or warlike conditions in this or any foreign
country, fire and casualty, legal requirements, energy shortage, or causes
beyond the reasonable control of Landlord, unless such loss or damage results
solely from willful misconduct or negligence of Landlord or its employees.

                   ARTICLE 29. NO REPRESENTATIONS BY LANDLORD

         Neither Landlord nor any agent or employee of Landlord, has made any
representations or promises, with respect to the Premises or the Building except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as herein set forth.

                               ARTICLE 30. BROKER

         Tenant warrants to Landlord that there are no other brokerage
commissions or fees payable in connection with this Lease except to the Broker
named in Section 1.13 of this Lease, whose commission shall be paid by Landlord.
Tenant agrees to indemnify and hold Landlord harmless from any cost, liability
and expense (including attorney's fees) which Landlord may incur as the result
of any breach of the warranty contained in this Article 30.

                            ARTICLE 31. ANNOUNCEMENTS

         Tenant shall not cause or permit to be disseminated, published or
released, by itself or through any of its brokers, employees, agents or
contractors, any public announcements, advertisements or other communication
which, in any way, describes or refers to the general or specific Lease terms or
conditions hereof, without the prior written consent of Landlord, which consent
may be withheld for any reason, except for those announcements required under
Tenant's securities laws.

                            ARTICLE 32. COUNTERPARTS

         This Lease may be executed in two (2) or more counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument.

                                                               Initials /s/ EJC
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                                                               Initials
                                                                        --------


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                       ARTICLE 33. GOVERNING LAW AND VENUE

         This Lease has been negotiated and entered into in the State of
California, and shall be governed by, construed and enforced in accordance with
the internal laws of the State of California applied to contracts made in
California by California domiciliaries to be wholly performed in California.
Venue for any action by any party pertaining to this Lease shall be in the
appropriate court located in San Diego County, California.

                    ARTICLE 34. CAPTIONS AND INTERPRETATIONS

         Articles, Sections, paragraph titles or other captions contained in
this Lease are inserted as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of this Lease or any provision
here of No provision in this Lease is to be interpreted for or against either
party because that party or its legal representative drafted such provision.

                            ARTICLE 35. SEVERABILITY

         If any term, covenant, condition or provision of this Lease is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the provisions shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.

                 ARTICLE 36. LEASE NOT EFFECTIVE UNTIL EXECUTED

         Submission by Landlord of this Lease for examination or signature by
Tenant shall not constitute adoption and this Lease shall not become effective
until executed by both Tenant and Landlord and delivery made of the fully
executed instrument to such parties. The Lease shall not be deemed to be
executed by Landlord until signed by an authorized General Partner of Landlord.

                       ARTICLE 37. LIMITATION OF REMEDIES

         Anything herein to the contrary notwithstanding, Tenant shall look
solely to Landlord's interest in the Premises for the satisfaction of any claim,
judgment or decree based upon any default hereunder by Landlord, and no other
property or assets of Landlord shall be subject to levy, execution or other
enforcement procedure for the satisfaction of such claim, judgment or decree and
no partner, master lessor, officer, agent, affiliate or employee of Landlord
shall be sued or earned as a party in any suit or action, or served with
process, or required to answer or otherwise plead to any service of process,
except to the extent required to bring Landlord under the jurisdiction of the
applicable court, nor will any judgment be take against any partner, master
lessor, officer, agent, affiliate or employee of Landlord.

                        ARTICLE 38. HAZARDOUS SUBSTANCES

         38.1     HAZARDOUS SUBSTANCE RESTRICTION: Tenant shall not cause or
permit any Hazardous Substance to be used, stored, generated, or disposed of on
or in the Premises by Tenant, Tenant's agents, employees, contractors,
licensees, or invitees. If Hazardous Substances are used, stored, generated, or
disposed of on or in the Premises in violation of the foregoing sentence, or if
the Premises become contaminated in any manner due to an act or omission of
Tenant, Tenant's agents, employees, contractors, licensees or invitees, Tenant
shall indemnify and hold harmless Landlord from any and all claims, damages,
fumes, judgments, penalties, costs, liabilities, or losses (including, without
limitation, a decrease in value of the Premises, damages caused by loss or
restriction of rentable or usable space), or any damages caused by adverse
impact on marketing of the space, and any and all sums paid for settlement of
claims, litigation expenses, attorney's fees, consultation, and expert fees of
whatever kind or nature, known or unknown, contingent or otherwise arising
therefrom. This indemnification includes, without limitation any and all costs
incurred because of any investigation of the site or any cleanup, removal, or
restoration mandated by a federal, state, or local agency or political
subdivision. Without limitation of the foregoing, if Tenant caused or permits
the presence of any Hazardous Substances on the Premises and that results in
contamination, Tenant shall promptly, at its sole expense, take any and all
actions necessary to return the Premises to the condition existing prior to the
presence of any such Hazardous Substance on the Premises. Tenant shall first
obtain Landlord's approval for any such remedial action. The provisions of the
Paragraph 37.1 shall be in addition to any other obligations and liabilities
Tenant may have to Landlord under this Lease or at law or equity and shall
survive the transactions contemplated herein and shall survive the termination
of this Lease. Landlord, as of the date of this Lease, has no actual knowledge
of the presence of Hazardous Materials.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


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         38.2     HAZARDOUS SUBSTANCE DEFINED: As used in Section 37.1,
("Hazardous Substance" means any substance that is toxic, ignitable, reactive,
or corrosive and that is regulated by any local government, the State of
California, or the United States Government. "Hazardous Substance" includes any
and all material or substances that are defined as "hazardous waste", "extremely
hazardous waste", or a "hazardous substance" or similar term pursuant to state,
federal, or local governmental law now or hereafter enacted. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorobiphenyls
("PCB's), and petroleum products.

                        ARTICLE 39. RULES AND REGULATIONS

         Tenant agrees to abide by all rules and regulations of the Building
imposed by Landlord as set forth in Exhibit B attached to the Lease, as the same
may be reasonably changed from time to time upon reasonable notice to Tenant.
Any violation of such Rules and Regulations which continues after written notice
by Landlord shall constitute a default by Tenant. Landlord shall not be liable
for the failure of any Tenant, or its servants, employees, agents, contractors,
licensees or invitees to conform to and comply with such rules and regulations.

                          ARTICLE 40. ENTIRE AGREEMENT

         This Lease constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof, and no oral statements or
representations or prior written matter not contained or referred to herein
shall have any force or effect. This Lease fully supersedes any and all prior
understandings, representations, warranties and agreements between the parties
hereto, or any of them, pertaining to the subject matter hereof, and may be
modified only by written agreement, signed by all of the parties hereto.

LANDLORD:                                    TENANT:

WILLIAMS PROPERTIES I, LLC                   HNC Software Inc., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist               By: /s/ Raymond V. Thomas
   -----------------------------                ------------------------
   Elizabeth J. Clarquist                       Raymond V. Thomas

Title: Vice President                        Title: Chief Financial Officer
   19
ADDENDUM TO OFFICE BUILDING LEASE AGREEMENT DATED JUNE 17, 1996 BY AND BETWEEN
WILLIAMS PROPER'S I, LLC & WILLIAMS PROPERTIES II, LLC, CALIFORNIA LIMITED
LIABILITY COMPANIES, AS LANDLORD AND HNC SOFTWARE, INC., A DELAWARE CORPORATION,
AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 6020 CORNERSTONE COURT
WEST, IN THE CITY OF SAN DEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.

This Addendum is attached to and forms a part of the Lease. In the event of any
conflict between the terms of the Lease and the terms of this Addendum, the
terms of this Addendum shall govern and control.

1.       BASIC RENT:

         Tenant's Basic Rent per month shall be adjusted pursuant to Section 4.2
         of the Lease as followings:

         Months 13-24    $36,747.33 per month net of utilities    11/97 - 10/98
         Months 25-36    $38,217.22 per month net of utilities    11/98 - 10/99
         Months 37-48    $39,745.91 per month net of utilities    11/99 - 10/00
         Months 49-60    $41,335.75 per month net of utilities    11/00 - 10/01
         Months 61-72    $42,989.18 per month net of utilities    11/01 - 10/02
         Months 73-81    $44,708.74 per month net of utilities    11/02 - 07/03

2.       PARKING:

         Tenant shall have the right to use four (4) parking spaces per 1,000
         square feet of usable area leased, subject to the reasonable rules and
         regulations adopted by Landlord from time to time. Parking shall be
         free of charge for the initial Term and provided on-site on an
         unreserved basis. However, in the event of governmental or governing
         agency imposed fees relating to parking, Tenant shall be required to
         pay any such fees. Should any violation of parking privileges occur,
         Landlord shall notify Tenant and request Tenant to immediately enforce
         internal procedures to comply with its parking obligations. If the
         Tenant's internal procedures do not resolve the parking violation, then
         Landlord, by necessity, may impose reasonable measures to control the
         parking obligations at Tenant's expense which payment shall be due upon
         invoicing to Tenant.

3.       SIGNAGE:

         Subject to all governmental laws, ordinances and regulations, any
         covenants, conditions and restrictions affecting the Premises, and
         space availability Tenant shall have the right, at Tenant's sole cost
         and expense, to install and maintain up to two (2) exclusive building
         signs at locations to be mutually agreed upon. The sign, its
         specifications, size, method of attachment and installation, and design
         shall be subject to the Landlord's reasonable approval. The sign shall
         not be illuminated at night, it is not transferable and is personal
         exclusively to Tenant such that no assignee or sublessee of Tenant
         shall be entitled to any such signage rights. All signage shall read'
         HNC" or '~NC Software". If eighteen (18) months after the Commencement
         Date, Tenant has not installed its sign, Tenant shall have no further
         right to install any signs.

4.       BUILDING HOURS OF OPERATION (HEATING, VENTILATION & AIR CONDITIONING
         [HVAC]).

         SECTION 8.1 OF THE LEASE IS MODIFIED AS FOLLOWS:

         The hours of operation for the Building will be 6:00 am. to 8:00 p.m.
         Monday through Friday and 8:00 am. to 6:00 p.m. on Saturdays, except
         holidays. Tenant may request after hour heating, ventilation and air
         conditioning (HVAC) service. The minimum request for such service shall
         be four (4) hours. Landlord's currently hourly charge to Tenant for
         after hours HVAC shall be equal to Twenty-Five and No/lOOths ($25.00)
         Dollars per hour, subject to increase from time to time. Tenant agrees
         to pay Landlord for such service on the earlier occurrence of: (a)
         within five (5) days after the date on which Tenant receives a written
         invoice from Landlord for site service or (b) the first day of the
         calendar month following the month during which the service is
         rendered.

5.       OPTION TO RENEW LEASE EXTENSION RIGHT:

         Landlord hereby grants to Tenant one (1) option (the "Option") to renew
         the Term for a renewal period of five (5) years (the "Extension").
         During any Extension, the terms and conditions set forth in this Lease
         shall apply, except that Basic Rent for the Extension shall be adjusted
         to an amount agreed upon by the parties in their sole and absolute
         discretion. If, for any reason, the parties do

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        1
   20
ADDENDUM TO OFFICE BUILDING LEASE AGREEMENT DATED JUNE 17, 1996 BY AND BETWEEN
WILLIAMS PROPERTIES I, LLC & WILLIAMS PROPERTIES II, LLC, CALIFORNIA LIMITED
LIABILITY COMPANIES, AS LANDLORD AND HNC SOFTWARE, INC., A DELAWARE CORPORATION,
AS TENANT, FOR THAT CERTAIN PROPERTY COMMONLY KNOWN AS 6020 CORNERSTONE COURT
WEST, IN THE CITY OF SAN DEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.

         not reach agreement on the amount of Basic Rent applicable during the
         Extension within forty-five (45) days after Tenant's notice of exercise
         of the Option, then the Option shall be of no further force or effect,
         Tenant shall have no right to extend the Term and the Term shall end on
         the date specified in Section 3.1 of the Lease. The Option shall be
         exercised only by written notice delivered to Landlord at least six (6)
         months, but not more than twelve (12) months, before the expiration of
         the initial Term of this Lease. If Tenant fails to timely deliver
         written notice of exercise of the Option to Landlord, the Option shall
         lapse and Tenant shall have no further right to extend the Term of this
         Lease. If Tenant so exercises any Option, then, effective on the
         commencement date of the Extension, all references herein to the Term
         of this Lease shall include such Extension, except for references to
         the "initial Term." Tenant's exercise of the Option shall be subject to
         the express conditions that (i) at the time of exercise, and at all
         times prior to, commencement of the Extension, no Event of Default by
         Tenant shall have occurred and (ii) Tenant has not been ten (10) or
         more days late in the payment of rent more than a total of three (3)
         times during the Term of this Lease and (iii) the Tenant named in this
         Lease occupies the entire Premises as of the date of exercise of the
         Option and the date the Extension commences. The Option is personal to
         Tenant and cannot be transferred to any assignee or sublessee.

6.       FIRST RIGHT OF NEGOTIATION:

         Provided Tenant is not in material default of the terms and conditions
         of this Lease, Tenant shall have a first right of negotiation on the
         terms and conditions described below on all available space on the
         first and second floors of the Building, subject to any existing
         renewal, expansion or similar rights of existing tenants. In the event
         Landlord receives an offer to lease any said available space, Landlord
         shall notify Tenant of such offer. If Tenant delivers written notice of
         Tenant's exercise of the right of first negotiation within five (5)
         business days after delivery of Landlord's notice, Landlord and Tenant
         shall meet and attempt negotiate in good faith terms which are
         acceptable to the parties, each in their sole and absolute discretion.
         If, within fifteen (15) days after Landlord's notice of an offer to
         Tenant, the parties have not entered into a lease agreement for any
         expansion, Tenant's first right of negotiation on available space shall
         be of no further force or effect for said space and Landlord shall have
         the absolute right at any time thereafter to lease such space free of
         any rights of Tenant. If Tenant does not elect to exercise its first
         right of negotiation within five (5) business days after delivery of
         Landlord's notice, then Tenant's right of first negotiation shall be of
         no further force or effect as to such space and Landlord shall have the
         absolute right at any time thereafter to lease such space free of any
         rights of Tenant.

LANDLORD:                                    TENANT:

WILLIAMS PROPERTIES I, LLC                   HNC Software Inc., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies


By: /s/ Elizabeth J. Clarquist               By: /s/ Raymond V. Thomas
   -----------------------------                ------------------------
   Elizabeth J. Clarquist                       Raymond V. Thomas

Title: Vice President                        Title: Chief Financial Officer

                                                                Initial /s/ EJC
                                                                        --------
                                                                Initial
                                                                        --------


                                       2
   21
                                  EXHIBIT "A-1"
                                   SITE PLAN


                             [DIAGRAM OF SITE PLAN]


         SITE PLAN IS FOR ILLUSTRATION PURPOSES ONLY AND ACTUAL SITE PLAN,
         PARKING, BUILDINGS, LANDSCAPING ETC MAY VARY FROM TIME TO TIME.


                                                                Initial /s/ EJC
                                                                        --------
   22


                                 EXHIBIT "A-1"
                          3RD FLOOR PLAN & "AS-BUILTS"


                   [DIAGRAM OF 3RD FLOOR PLAN & "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE 
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST 
         AND EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------
   23


                                 EXHIBIT "A-1"
                          2ND FLOOR PLAN & "AS-BUILTS"


                    [DIAGRAM OF 2ND FLOOR PLAN & "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST AND
         EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------
   24


                                 EXHIBIT "A-1"
                          2ND FLOOR "AS-BUILTS"


                    [DIAGRAM OF 2ND FLOOR "AS-BUILTS"]


         "AS-BUILT" PLANS ARE FOR REFERENCE PURPOSES ONLY AND ACTUAL FIELD
         CONDITIONS MAY VARY SLIGHTLY. ALL EQUIPMENT, FURNISHINGS, TRADE 
         FIXTURES ETC BUT NOT LIMITED TO ARE PROVIDED BY TENANT AT ITS COST 
         AND EXPENSE, IF APPLICABLE.


                                                                Initial /s/ EJC
                                                                        --------

   25
                                    EXHIBIT B
                              RULES AND REGULATIONS

         Any violation of these rules and regulations, which continues after
written notice by Landlord, shall constitute a default by Tenant.

         Landlord may upon request by Tenant, waive the compliance by Tenant
with any of the following rules and regulations, providing that (i) no waiver
shall be effective unless signed by Landlord or Landlord's authorized agent,
(ii) any such waiver shall not relieve Tenant from the obligation to comply with
such rule or regulation in the future unless expressly consented to, in writing,
by Landlord, and (iii) no waiver granted to any other tenant shall relieve
Tenant from the obligation of complying with the following rules and regulations
unless Tenant has received a similar waiver in writing from Landlord.

1.       Tenant and Tenants employees, shall not loiter in the entrances or
corridors of the Building, or in any way obstruct the sidewalks, walkways,
stairways and elevators, and shall use same only as a means of ingress and
egress from the Premises.

2.       Landlord shall have the right to control and operate the public
portions of the Building, and the facilities furnished for the common use of the
tenants, in such manner as Landlord deems best for the benefit of the tenants
generally. Tenant shall not permit the visit to the Premises of persons in such
numbers or under such conditions as to interfere with the use and enjoyment by
other tenants of the entrances, corridors, elevators and other public portions
or facilities of the Building.

3.       The directory board at the entrance to the Building is provided for the
exclusive display of the name and location in the Building of each tenant, and
Landlord reserves the right to exclude any other name therefrom, and to make a
charge for each and every name in addition to the name of Tenant, placed on the
directory board at the request of Tenant.

4.       The water and janitor closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown "herein. All
damages resulting from any misuse of the fixtures by Tenant or its tenants,
employees, agents, visitors or licensees shall be borne by Tenant.

5.       Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Premises, and must observe strict care and caution
that all water faucets or water apparatus are shut off before Tenant or Tenant's
employees leave and that all electricity shall likewise be carefully shut off,
so as to prevent waste or damage, and for any default or carelessness Tenant
shall make good all injuries sustained by other tenants or occupants of the
Building or Landlord.

6.       All furniture, equipment and freight shall be moved into and out of the
Building only during such hours and pursuant to such rules as shall be
established by Landlord in its reasonable discretion and shall, if Landlord so
requests, be done under the supervision of Landlord. Such moving and deliveries
shall be done through such delivery entrances, and using such freight elevators,
as Landlord may designate from time to time. Landlord will not be responsible
for loss of or damage to any furniture, equipment or freight from any cause.

7.       Except for normal office fixtures and decorations customarily utilized,
Tenant shall not mark, paint, drill into or in any way deface or damage walls,
ceilings, partitions, floors, wood, paint, stone or metal work of the Premises
or the Building. Boring, cutting or stringing of wires is not permitted. Tenant
is not permitted to construct, maintain, use or operate, within the Premises, or
elsewhere within or on the outside of the Building, any electrical device,
wiring or apparatus in connection with a loud speaker system or other sound
system audible outside the Premises. Tenant shall not permit noise (whether
mechanically, electrically, or manually created) to emanate from the Premises.

8.       All electric and telephone wiring shall be installed in a manner
reasonably acceptable to the Landlord. Boring or cutting of floors and
partitions for wiring will not be permitted, except with written consent of
Landlord.

9.       Tenant shall not install or use any machinery in the Premises which may
cause any unreasonable noise, jar or tremor to the floors or walls, or which by
its weight might injure the floors of the Building. Landlord may restrict the
weight, size and position of all files, safes and heavy equipment used in the
Building, and may require such items to be mounted on a wood or metal base
acceptable to Landlord. All damage to the Building caused by installing or
removing any safe, furniture, equipment or other property shall be repaired at
the expense of Tenant.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        1
   26
10.      Bicycles,  vehicles,  animals,  birds, or pets of any kind are not
permitted in the Building except guide dogs for the blind. Bicycles may be
stored in bicycle racks if provided within the Building

11.      Tenant shall not use, keep or permit to be used, in the Premises, any
inflammable, combustible or explosive substances, paints, chemicals or any toxic
or hazardous materials or substances or other potentially dangerous or offensive
substances or use or permit the use of dangerous or offensive substances or use
or permit the use of the Premises in a manner offensive or objectionable to the
Landlord or occupants of the Building by reason of noise, odors and/or
vibrations.

12.      Tenant shall not use the Building or the Premises for manufacturing or
the storage of merchandise or for the sale of merchandise, goods, or property of
any kind at auction.

13.      Removal and disposal of trash, rubbish or other refuse must take place
during the hours and using such procedures which Landlord or its agent may from
time to time determine.

14.      Contractors or persons employed by Tenant to perform work within the
Premises must obtain Landlord's consent prior to commencing such work, and such
person shall, while in the Building and outside of said Premises, comply with
all instructions issued by the manager/superintendent of the Building.

15.      No more than three (3) vending machines or similar machines of any
description shall be installed, maintained, or operated upon the Premises
without the written consent of the Landlord. Tenant shall not permit any cooking
other than microwave cooking on the Premises.

16.      Landlord reserves the right to exclude from the Building any person
who, in the judgment of the Landlord, is intoxicated or under the influence of
liquor or drugs or who is not known or does not property identify himself to the
Building management or watchman on duty. landlord may, at its option, require
all persons admitted to or leaving the Building during secured hours to register
with Building security guards. Each tenant shall be responsible for all persons
for whom he authorizes entry into the Building, and shall be liable to Landlord
for all acts of such persons.

17.      Canvassing, soliciting or peddling in the Building is prohibited and
Tenant shall cooperate to prevent same.

18.      Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Building or its desirability as a Building for offices, and upon written notice
from Landlord, Tenant shall refrain from or discontinue such advertising.

19.      Tenant shall not install blinds, shades, awnings or other form of
inside or outside window coverings, or window ventilators or similar devices
without the prior written consent of Landlord.

20.      Tenant shall give Landlord prompt notice of any accidents to or defects
in the water pipes, gas pipes, electric lights and fixtures, heating apparatus
or any other service equipment in the Premises or Building.

21.      Landlord reserves the right to close and keep locked all doors of the
Building during hours Landlord may reasonable deem advisable for the adequate
protection of the property. Use of the Building before 7:00 am. or after 6:00
p.m. on Monday through Friday, and before 9:00 a.m. or after 2:00 p.m. on
Saturday, or at any other time during weekends or generally accepted legal
holidays, shall be permissive and subject to the rules and regulations Landlord
may reasonably prescribe. Landlord assumes no responsibility and shall not be
liable for any damage resulting from the entry of any authorized or unauthorized
person to the Building.

22.      Tenant's use of the property is governed by a Declaration of
Restrictions which has been recorded in the Official Records, in the Office of
the County Recorder of San Diego County, a copy of which is included as an
Exhibit to this Lease, and Tenant shall comply with the terms thereof.

23.      Landlord shall have the right to prohibit any use of the Building by
Tenant which in Landlord's opinion impairs the appearance of the Building.

24.      The Building Engineer must be in attendance during all move-ins and
move-outs and for all deliveries of furniture and equipment in order to install
and remove elevator pads, lock off freight elevator, key off security system and
generally oversee moving/delivery operation as appropriate. The hours charge for
the Building Engineer is its actual costs not to exceed Forty Dollars ($40.00)
per hour. This charge does not apply to Tenant's initial move-in. The foregoing
shall also apply to moves of Tenant's subtenants and/for assignees of Tenant.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                       2
   27
25.      The smoking of cigarettes or use of cigarettes or use of tobacco
products in any form whatsoever is prohibited within the confines of 6020
Cornerstone Court West.

26.      Landlord reserves the right, from time to time, to make reasonable
amendments to the foregoing rules and regulations by giving notice to Tenant.

LANDLORD:                                   TENANT:

WILLIAMS PROPERTIES I, LLC                  HNC SOFTWARE, INC., a Delaware Corp.
& WILLIAMS PROPERTIES II, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist              By: /s/ Raymond V. Thomas
   -----------------------------               ------------------------
   Elizabeth J. Clarquist                      Raymond V. Thomas

Title: Vice President                       Title: Chief Financial Officer
   28
                                    EXHIBIT C
                              WORK LETTER AGREEMENT

         THIS WORK LETTER AGREEMENT is attached to and forms a part of that
certain Lease dated June 17,1996 (the "Lease"), by and between Williams
Properties I, LLC & Williams Properties II, LLC, California Limited Liability
Companies ("Landlord") and HNC Software, Inc., a Delaware Corporation ("Tenant")
and relates to the construction of certain improvements ("Tenant Improvements")
to the Premises which shall be constructed by Landlord as described below. All
terms not defined herein shall have the respective meanings set forth in the
Lease.

1.       TENANT IMPROVEMENT ALLOWANCE

         (a)      Landlord agrees to provide Tenant with the following tenant
improvement allowance (the "Tenant Improvement Allowance"): (i) Fifteen Dollars
($15) per rentable square foot within the portion of the Premises on the third
floor of the Building, or a total of Two Hundred Sixty-Five Thousand Six Hundred
Ninety-Five Dollars ($265,695), (ii) Twenty Dollars ($20) per usable square foot
within the portion of the Premises on the portion of the second floor of the
Building that is unimproved shell space, or a total of One Hundred Fifty-Six
Thousand Nine Hundred Sixty Dollars ($156,960), and (iii) Seven Dollars ($7) per
usable square foot for the portion of the Premises on the portion of the second
floor of the Building that has been previously improved, or a total of Thirty
Thousand Two Hundred Forty-Seven Dollars ($30,247). The allowances described in
clauses (i), (ii) and (iii) are specifically allocated to the applicable
portions of the Premises and may not be used for Tenant Improvements to any
other portion of the Premises, provided that Tenant may transfer up to five
percent (5%) of the amounts allocated in such clauses from one such portion of
the Premises to another. For example, Tenant may use not more than One Thousand
Five Hundred Twelve Dollars and Thirty-Five Cents ($1,512.35) of the allowance
for previously improved space on the second Door for Tenant Improvements to
other portions of the Premises. Any other transfers of the Tenant Improvement
Allowance from one portion of the Premises to another shall be subject to
Landlord's prior written approval. All soft costs including, but not limited to,
fees, contractor overhead, profit, processing, permits, architectural
engineering and reimbursables attributable directly or indirectly to the Tenant
Improvements shall be allocated between the portions of the Premises described
above based upon their proportional Tenant Improvement Allowance expenditures.

         (b)      The Tenant Improvement Allowance may be used to pay for the
construction by Landlord's Contractor (as defined below) of Tenant Improvements
permanently installed and incorporated into the realty of the Premises,
including costs of material and labor, fees for permits and licenses paid to any
governmental agency in connection with such construction, and other actual
out-of-pocket costs paid, directly or indirectly, by Landlord for such
construction, but specifically excluding payment for Tenant's fixtures,
furniture, cabling and other personal property, which shall be constructed and
installed at Tenant's sole cost and expense and in accordance with the
requirements of the Lease. Landlord shall not impose any charge upon the Tenant
Improvement Allowance for Landlord's profit, overhead or supervision of the
construction of the Tenant Improvements. Notwithstanding the foregoing, if
Landlord engages any consultants to review specialized or upgraded improvements
requested by Tenant, the reasonable costs incurred by Landlord shall be charged
against the Tenant Improvement Allowance.

         (c)      The Tenant Improvement Allowance may also be used to pay for
the services of the Space Planner (as defined below) to prepare the Space Plan
and the Plans and Specifications (as such terms are defined below) and to
provide construction administration, millwork plans and other space
planning/architectural services customarily provided for similar projects,
provided that the total amount of the Tenant Improvement Allowance that may be
used to pay the Space Planner shall not exceed One Dollar and Forty-Five Cents
($1.45) per usable square foot within the Premises ("Architectural Cap"). Tenant
shall be solely responsible for any fees or other amounts payable to the Space
Planner in excess of the Architectural Cap.

         (d)      Tenant shall be solely responsible for the cost of any Tenant
Improvements in excess of the Tenant Improvement Allowance (or in excess of the
portion of the Tenant Improvement Allowance allocated to each portion of the
Premises, subject to Tenant's limited right to reallocate such amounts as
described in (a) above), for the cost of any fees and costs of the Space Planner
in excess of the Architectural Cap and the cost of any decorating devices,
Tenant's fixtures, cabling, such as nonstandard items requested by Tenant to be
incorporated in the Tenant Improvements. Tenant shall pay to Landlord fifty
percent (50%) of any such excess cost upon presentation of an invoice to Tenant
and the remaining fifty percent (50%) upon Substantial Completion (as defined
below). Any such payments shall be collectible as additional obligations of
Tenant pursuant to the Lease and, in default of payment thereof, Landlord shall
(in addition to all other remedies) have the same rights as in the event of
default in payment of rent. Any portion of the Tenant Improvement Allowance that
is not used by Tenant upon Substantial Completion of the Tenant Improvements
shall be retained by Landlord and Tenant shall have no right or claim, then or
in the future, to any unused portion. The parties agree that the intent of the
Tenant Improvement Allowance is to cause to be constructed generic/building
standard Tenant Improvements throughout the Premises.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        1
   29
         (e)      Tenant hereby agrees to accept the existing improvements
within the previously improved portion of the Premises on the second floor and
entire third floor in an "as-is, where-is" basis subject to Exhibit "A". On
existing improvements, Landlord shall be responsible, at its cost, for the
proper working order of all systems prior to Lease Commencement for only those
improvements which are not to be modified or planned to be modified by the
Landlord provided Tenant Improvement Allowance.

2.       SPACE PLANNER

         (a)      Tenant shall contract directly with Jackson & Bryan (the
"Space Planner") to prepare the Space Plan the Plans and Specifications and
other architectural documentation (collectively, the "Design Documents") and to
provide other space planning services in connection with the Tenant
Improvements.

         (b)      Tenant and the Space Planner shall be solely responsible for
ensuring that the Design Documents are architecturally sound and fully comply
with all applicable building codes, rules, regulations, ordinances and other
applicable laws. Tenant shall indemnify, defend and hold Landlord and its
Indemnitees harmless from all damages, liabilities, claims, penalties, fines,
costs and expenses (including attorneys' fees and costs incurred in connection
therewith or to enforce this indemnity agreement) arising from or relating to
any defects in the Design Documents or the failure of the Design Documents to
comply with all applicable building codes, rules, regulations, ordinances or
other laws.

         (c)      Landlord will disburse payments from the Tenant Improvement
Allowance to the Space Planner, subject to the Architectural Cap, within thirty
(30) days after presentation of invoices and lien releases and waivers
reasonably satisfactory to Landlord.

         (d)      Tenant shall meet with the Space Planner as soon as reasonably
possible following the execution of the Lease for the purpose of advising the
Space Planner of the nature and extent of the Tenant Improvements which Tenant
requests. On or before June 19, 1996, Tenant shall cause the Space Planner to
prepare and deliver to Landlord a space layout and improvement plan for the
Premises which shall have been previously approved by Tenant (the "Space Plan").
The Space Plan and the Final Plans and Specifications shall be attached to the
Lease as Exhibit D.

         (e)      Within twenty-one (21) days after Landlord's approval of the
Space Plan, Tenant shall cause the Space Planner to prepare and deliver to
Landlord the plans and specifications (the "Plans and Specifications") for the
Tenant Improvements which shall have been previously approved by Tenant. The
Plans and Specifications shall include complete architectural drawings and
specifications required to construct the Tenant Improvements, including detailed
plans for doors, partitioning, reflected ceilings, electrical fixtures, outlets
and switches, telephone and computer outlets, plumbing fixtures, extraordinary
floor loads and other special requirements.

         (f)      All Design Documents are subject to Landlord's prior written
approval, which the Landlord agrees shall not be unreasonably withheld, delayed
or conditioned. If Landlord disapproves any Design Documents, Tenant shall cause
the Space Planner to deliver revised Design Documents to Landlord within ten
(10) days. Without limiting the foregoing, Landlord may withhold its approval of
any Design Documents which require work which:

                  (i)      exceeds or affects the structural integrity of the
Building or any part of the heating, ventilating, air conditioning, plumbing,
mechanical, electrical, communication or other systems of the Building;

                  (ii)     violates any agreement which affects the Building or
which binds Landlord;

                  (iii)    Landlord reasonably believes will disproportionately
increase the cost of operation or maintenance of any of the systems of the
Building;

                  (iv)     Landlord reasonably believes will materially reduce
the market value of the Building at the end of the Lease Term;

                  (v)      does not conform to applicable building codes or is
not approved by any governmental authority with jurisdiction over the Premises
and/or the Building; or

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        2
   30
                  (vi)     does not conform to the standards prepared by
Landlord, includes designs that are not generic or upgrades which are
specialized, or requires demolition of existing improvements or improvements
that may adversely impact the Building. Any upgrades or specialized improvements
shall be detailed and specified on an initial single line hand sketch to be
approved by Landlord before any such items may charged against the Tenant
Improvement Allowance.

         (g)      Landlord's review and approval of any Design Documents for the
Tenant Improvements shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with laws,
rules, and regulations of governmental agencies or authorities and shall not
relieve Tenant of its obligations under Section 2(b). Landlord makes no warranty
or representation as to the adequacy, efficiency, performance or desirability of
the Tenant Improvements.

         (h)      After approval of the Plans and Specifications, Tenant may
authorize changes in the work during construction only by written instructions
from Tenant to Landlord on a form approved by Landlord. All such changes shall
be subject to Landlord's prior written approval. Tenant shall be solely
responsible for the cost of any such changes, and such costs shall be chargeable
against the Tenant Improvement Allowance provided Landlord consents to such
requested change. Prior to commencing any change, Landlord shall prepare and
deliver to Tenant, for Tenant's approval, a change order (the "Change Order")
setting forth the additional time required to perform the change and the total
cost of such change, which will include associated architectural, engineering
and construction contractor's fees. If Tenant fails to approve such Change Order
in writing within two (2) business days after such delivery by Landlord, Tenant
shall be deemed to have withdrawn the proposed Change Order and Landlord shall
not proceed to perform the change. Upon Landlord's receipt of Tenant's approval,
Contractor shall proceed to perform the change and Tenant shall pay for such
Change Order in accordance with Section 1 (d) above. Notwithstanding any minor
change order request(s), in the event Tenant substantially changes the scope of
work, Landlord reserves the right to charge a reasonable administration fee not
to exceed Forty and No/1 00ths ($40.00) Dollars per hour relating to the
administration of the change order(s). Upon Landlord's approval of change
orders, it shall state the fee, if applicable, and then Tenant shall pay
Landlord the fee within ten (10) days of written commencement of the change
order. Change orders caused by existing conditions or unknown conditions shall
be excepted from Landlord's fees.

3.       TENANT IMPROVEMENT CONTRACTOR

         Landlord, based upon approved Plans and Specifications, shall
competitively bid the construction among the following contractors or other
approved contractors: FCC Construction, Bycor and Johnson & Jennings. Landlord
shall select a contractor (the "Contractor") and subcontractors in its
reasonable discretion based upon pricing, reputation and selection of
subcontractors and other factors Landlord deems relevant, and shall seek the
input of Tenant. Landlord will review with Tenant relevant contractor bids.

4.       CONSTRUCTION OF IMPROVEMENTS

         (a)      If the estimated cost ("Estimated Cost") to design and
construct the Tenant Improvements, including the Contractor's bid ("Bid
Amount"), is more than the amount of the Tenant Improvement Allowance, Landlord
shall notify Tenant in writing. Within three (3) business days following receipt
of such notice, Tenant shall either (i) agree in writing to pay the amount by
which the Estimated Cost exceeds the amount of the Tenant Improvement Allowance
in accordance with Section 1 (d) above or (ii) notify Landlord in writing of
Tenant's election to cause the Space Planner to revise the Plans and
Specifications to reduce the Estimated Cost. The revised Plans and
Specifications shall not be rebid, but shall instead be provided to the
Contractor for Contractor to revise the Bid Amount. This procedure shall be
repeated until the Plans and Specifications, the Bid Amount and the Estimated
Cost have been approved by Tenant and Landlord, but all revisions of the Plans
and Specifications and all revised Bid Amounts pursuant to this Section 4.A.
shall be a Tenant delay pursuant to Section 6.4 of the Lease and elsewhere
provided.

         (b)      Contractor shall construct the Tenant Improvements pursuant to
a contract with Landlord. Following approval of the Plans and Specifications,
the Bid Amount and the Estimated Cost by Landlord and Tenant, Contractor will
cause application to be made to the appropriate governmental authorities for
necessary approvals and building permits. Upon receipt of the necessary
approvals and permits, Contractor shall begin construction of the Tenant
Improvements.

         (c)      Landlord shall furnish Tenant, as soon as is reasonably
practicable after Substantial Completion (as defined below) of the Tenant
Improvements, a cost breakdown for the Tenant Improvements. Landlord shall also
provide any reasonable supporting data requested by Tenant in writing.

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        3
   31
5.       SUBSTANTIAL COMPLETION

         As used herein and in the Lease, the terms "Substantial Completion" or
"Substantially Complete" (or any other variant of such terms) with respect to
the Tenant Improvements shall mean that (i) the Premises have been approved to
occupy by the City of San Diego Building Inspection Department, and (ii) it has
been determined by a joint inspection of the Premises by a representative of the
Landlord and the Tenant that the Tenant Improvements have been constructed
substantially in accordance with the Plans and Specifications, except for
finishing details of construction, mechanical and other adjustments and other
items of the type commonly found on an architectural punch list, none of which
materially interfere with Tenant's use or occupancy of the Premises for Tenant's
intended normal business operation. Based on such joint inspection, Landlord
shall present to Tenant a Suite Acceptance Letter in Landlord's standard form
which Tenant shall promptly execute and deliver to Landlord. Any items of work
required by the Plans and Specifications and approved change order(s) that have
not been completed upon Substantial Completion shall be listed in the Suite
Acceptance Letter. Landlord shall promptly proceed to complete such items.

         If Substantial Completion is delayed as a result of (a) Tenant's
failure to comply with any time frames set forth herein or in the Lease, (b) any
changes to the approved Plans and Specifications requested by Tenant, (c)
Tenant's failure to furnish any documents required hereby, to approve any item
as required hereby or to perform any other act or obligation imposed on Tenant
by the Lease or this Work Letter as and when required, or (d) any other delay
caused by Tenant, its agents, employees or contractors (collectively, "Tenant
Delay"), then the Commencement Date and Tenant's obligation to pay Rent shall
begin on the date when Substantial Completion would have occurred but for the
Tenant Delay.

6.       AMERICANS WITH DISABILITIES ACT (ADA)/TITLE 24/CODE COMPLIANCE

         In order to establish a baseline, Landlord agrees that it will be
responsible at its sole cost for ensuring the compliance with applicable laws of
all existing unimproved areas and existing improvements within the common areas
of the Building and Premises, including all restrooms, corridors and access
areas. Landlord shall also be responsible for the cost of compliance with
applicable laws relating to areas affected by the Tenant Improvements to the
extent such Tenant Improvements are standard and generic, and such costs shall
not be charged against the Tenant Improvement Allowance. However, Tenant shall
be responsible for such cost of compliance, and such cost shall be charged
against the Tenant Improvement Allowance, to the extent the Tenant Improvements
(i) include special or upgraded improvements beyond those that are standard and
generic and trigger code compliance obligations for previously conforming areas
of the Building and (ii) require replacement and/or modification of the existing
fire rated corridors on floors two and three of the Building.

7.       UNAVOIDABLE DELAYS

         Performance by either party hereunder shall not be deemed to be in
default where delays or defaults are due to war, insurrection, strikes,
lock-outs, riots, floods, earthquakes, fires, casualties, acts of God, acts of
the public enemy, epidemics, quarantine restrictions, freight embargoes, lack of
transportation, governmental restrictions, moratoriums, third party litigation,
unusually severe weather, inability to secure necessary labor, materials or
tools, delays of any contractor or subcontractor or supplier, acts of the other
party, acts or failure to act of any public, private or governmental agency or
entity or any other causes beyond the control or without the fault of the party
claiming an extension of time to perform ("Unavoidable Delays").

LANDLORD:                             TENANT:

WILLIAMS PROPERTIES I, LLC            HNC SOFTWARE, INC., a Delaware Corporation
& WILLIAMS PROPERTIES n, LLC,
California Limited Liability Companies

By: /s/ Elizabeth J. Clarquist        By: /s/ Raymond V. Thomas
   -----------------------------         ------------------------
   Elizabeth J. Clarquist                Raymond V. Thomas

Title: Vice President                 Title: Chief Financial Officer

                                                               Initials /s/ EJC
                                                                        --------
                                                               Initials
                                                                        --------


                                        4
   32
                                    EXHIBIT D
               PRELIMINARY SPACE PLAN/FINAL PLANS & SPECIFICATIONS
                                (TO BE ATTACHED)


                                                               Initials
                                                                        --------
                                                               Initials
                                                                        --------


                                        1

EX-10.13

   1
                                                                   EXHIBIT 10.13


                              EMPLOYMENT AGREEMENT

         This Agreement is entered into as of September 10, 1996 (the "EFFECTIVE
DATE") by and between Aptex Software Inc., a California corporation (the
"COMPANY"), and Michael A. Thiemann ("EMPLOYEE").

                               W I T N E S S E T H

         WHEREAS, pursuant to a Restricted Stock Purchase Agreement dated of
even date herewith (the "RESTRICTED STOCK PURCHASE AGREEMENT"), Employee is
purchasing 1,000,000 shares of the Company's Common Stock, and has agreed to
subject such shares to the restrictions stated in the Restricted Stock Purchase
Agreement, including certain restrictions relating to Employee's continued
employment with the Company; and

         WHEREAS, the Company and Employee desire that Employee be employed by
the Company upon the terms set forth below;

         NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties agree as follows:

         1. EMPLOYMENT AND TERM OF EMPLOYMENT. The Company hereby employs
Employee, and Employee hereby accepts such employment, subject to the terms and
conditions of this Agreement.

         2. OFFICE AND DUTIES. Employee will hold the office of President and
Chief Executive Officer of the Company, reporting to the Company's Board of
Directors (the "BOARD"). Employee will have such duties as the Board may from
time to time designate for Employee. At the discretion and direction of the
Board, Employee will also serve in such other additional capacities with the
Company as the Board may from time to time designate.

         3. EXCLUSIVE SERVICE. Employee agrees that, so long as he is employed
by the Company, he will devote his full time and efforts exclusively to his
employment with the Company and will apply all his skill and experience to the
performance of his duties for the Company. During his employment with the
Company, except with the prior written approval of the Board, Employee will not
engage in, be employed by, or be a significant investor in, any business other
than that of the Company or HNC Software Inc. ("HNC"), except: (i) as a passive
investor owning less than one percent (1%) of the voting stock or voting
interests in a company with securities listed on a national securities exchange
or automated quotation system or registered under the Securities Exchange Act of
1934; or (ii) as a passive investor owning less than five percent (5%) of the
voting stock or voting interests in a privately-held company conducting a
business which in the reasonable judgment of the Board is not competitive with
the business conducted by the Company or HNC. In addition, Employee will not
engage in any consulting activity except with the prior written approval of the
Company, or at the direction of the Company, and Employee will otherwise do
nothing inconsistent with the performance of his duties hereunder. Employee has
executed an agreement regarding proprietary information and inventions with the
Company in the form attached hereto as Exhibit 1 (the "EMPLOYEE
ASSIGNMENT/CONFIDENTIALITY AGREEMENT").
   2
         4. COMPENSATION AND BENEFITS. In consideration of Employee's
performance of his services for the Company hereunder, so long as Employee is
employed by the Company as its President and Chief Executive Officer, the
Company will pay Employee, and Employee accepts as full compensation for all
services to be rendered to the Company, the following compensation and benefits:

                  (a) Salary. The Company will pay Employee an initial base
salary at the rate of One Hundred Fifty Thousand Dollars ($150,000) per annum.
Such salary will be paid in equal installments in accordance with the Company's
customary payroll schedule. It is understood that Employee's salary will be
reviewed periodically by the Board and may be increased by the Board from time
to time in its sole discretion.

                  (b) Cash Bonus. Employee will be eligible to earn a cash
incentive bonus with respect to his services to the Company during calendar year
1996 in accordance with the terms and conditions of the Bonus Program set forth
in Exhibit 2 hereto. For so long as Employee remains employed by the Company as
its Chief Executive Officer, the parties agree that for each fiscal year of the
Company they will in good faith negotiate an incentive bonus program for
Employee for that fiscal year with a target of a $50,000 bonus payable if the
Company meets (but does not exceed) its financial plan for that fiscal year.

                  (c) Deductions. The Company will deduct and withhold from any
compensation payable to Employee the sums which it is required by law to deduct
and withhold, including but not limited to federal and state withholding taxes,
social security taxes and state disability insurance.

                  (d) Employee Benefits. Employee will be eligible to
participate in the Company's employee benefit plans of general application,
including without limitation those plans (if any) covering pension and profit
sharing, executive bonuses, stock purchases, stock options, and those plans
covering life, health and dental insurance in accordance with the rules
established for the individual participation in any such plan. However, inasmuch
as the Company has not yet adopted any employee benefit plans (other than its
1996 Equity Incentive Plan), initially Employee will (but only to the extent
that, and for so long as, permitted by HNC's employee benefit plans of general
application ("HNC PLANS")) be eligible to participate in such HNC Plans in
accordance with the rules established for individual participation in such HNC
Plans; provided, however, that Employee shall not participate in and/or shall
cease to participate in, any HNC Plan that: (i) does not permit participation by
employees of the Company; (ii) is terminated by HNC, or (iii) which provides
benefits that are of the same general type as the benefits provided under any
employee benefit plan that may be adopted by the Company (whether or not the
scope, level or amount of such benefits is the same).

                  (e) Vacation. Employee initially be entitled to twenty-five
(25) days of paid vacation per year; increasing on July 1, 1999 to thirty (30)
days of paid vacation for each one-year period commencing with the one-year
period that begins on July 1, 1999.

         5. REIMBURSEMENT FOR EXPENSES. The Company will promptly reimburse
Employee for all reasonable and necessary business expenses actually incurred by
Employee in carrying out his duties under this Agreement to the extent that such
expenses are deductible as business expenses on the Company's federal and state
income tax returns provided Employee furnishes to the Company adequate records
to substantiate such deductions.

         6. TERMINATION.


                                       -2-
   3

                  (a) Events of Termination. Employee's employment with the
Company will terminate upon the first to occur of any of the following events:

                           (i) Employee's death;

                           (ii) the good faith determination by the Board that
Employee suffers from any mental or physical illness, disability, incapacity or
incompetency that prevents Employee (or is reasonably likely to prevent
Employee) from performing Employee's duties hereunder for 120 days or more
during any 180-day period;

                           (iii) the determination by the Board that "CAUSE" for
termination exists, which will mean a good faith determination by the Board that
Employee has: (A) committed a material breach of any material term of this
Agreement or the Employee Assignment/Confidentiality Agreement, which breach
continues uncured for a period of thirty (30) days after Employee receives
notice of such breach from the Company; (B) committed an act of fraud or
embezzlement; (C) habitually failed to report for work during normal work hours;
(D) willfully and wrongfully disclosed or permitted any other party to in any
manner use any of the Company's trade secrets; (E) committed an act of willful
misconduct which is seriously prejudicial to the best interests of the Company;
(F) committed a felony; or (G) been under the influence of any unlawful drugs,
controlled substances or alcohol at any time while performing his duties under
this Agreement;

                           (iv) the determination by the Board to terminate
Employee without Cause, which termination will become effective thirty (30) days
following the date of a written notice of termination given by the Company to
Employee; or

                           (v) the voluntary termination or resignation of
employment by Employee, which will become effective thirty (30) days following
the date of a notice of termination or resignation given by Employee to the
Company.

                  (b) Constructive Termination Without Cause. If the Company
changes the duties assigned to Employee solely to duties not reasonably
comparable with those duties typically assigned to a president or chief
executive officer, then such changes in Employee's duties shall be deemed to be
a termination without Cause under Section 6(a)(iv), unless Employee voluntarily
continues his employment with the Company notwithstanding such change in duties.

                  (c) Treatment of Voluntary Termination. If Employee
voluntarily terminates or resigns his employment with the Company, then such
voluntary termination or resignation will be treated in the same manner as a
termination for Cause under Section 6(a)(iii).

                  (d) Compensation Payable Upon Termination.

                           (i) Termination For Cause. If Employee's employment
is terminated with Cause under Section 6(a)(iii) or is treated as having been
terminated for Cause under Section 6(c), then Employee will not be entitled to
any severance compensation, employment benefits or stock or option vesting
(under the Restricted Stock Purchase Agreement or otherwise) after the date of
notice of termination except as provided in Section 6(d)(iii).

                           (ii) Termination Without Cause. If Employee's
employment is terminated without Cause under Section 6(a)(iv) or is treated as
having been terminated without Cause under 


                                       -3-
   4
Section 6(b), then Employee will be entitled to severance pay equal to salary
continuation for six (6) months at his then-current base salary, payable in six
(6) equal monthly installments, and the Company's standard life, health and
dental insurance policies will continue in effect during that six (6) month
period to the extent permitted by such policies. No other compensation will be
payable upon such termination without Cause except as expressly provided in
Section 6(d)(iii).

                           (iii) General Termination Provisions. Upon any
termination of Employee's employment with the Company (whether with Cause or
without Cause), Employee shall be entitled, in addition to any payment called
for by Section 6(d)(i) or 6(d)(ii) above, to receive payment of: (A) any accrued
and earned salary as of the Termination Date; (B) any accrued and unused
vacation pay accrued as of the Termination Date; and (C) the portion (if any) of
any bonus that was, under the terms and conditions of the applicable bonus
program, fully accrued and earned by Employee as of the Termination Date without
any risk of forfeiture due to termination of employment.

                           (iv) Termination Date. The term "TERMINATION DATE"
means the effective date of termination of Employee's employment with the
Company. In case of any doubt or dispute, the Board shall have the sole and
exclusive discretion to in good faith determine the Termination Date.

                  (f) Survival of Obligations. Upon any termination of
Employee's employment with the Company, all obligations of the Company under
this Agreement (including without limitation the Company's obligations under
Section 4 hereof), and all rights and obligations of Employee under this
Agreement, will cease and terminate, except for (i) those contained in this
Section 6; and (ii) those contained in the Employee Assignment/Confidentiality
Agreement.

         7. ASSIGNMENT. Since this Agreement is based upon the unique abilities
of and Employee's personal relationship with the Company, Employee will have no
right to assign this Agreement or any of his rights hereunder without the
written consent of the Company, other than the right to cash payments payable to
Employee hereunder, and the Company will have no right to assign any of its
rights hereunder except to a parent, subsidiary or purchaser of substantially
all of the assets of the Company or a company that merges or consolidates with
or into the Company.

         8. ENTIRE AGREEMENT. This Agreement and the Restricted Stock Purchase
Agreement embrace and include the entire employment agreement between the
parties hereto and any prior contract, agreement, letter of intent, term sheet
or other understanding between the parties hereto, is hereby superseded,
canceled and will be of no further force or effect. This Agreement may not be
modified, altered, changed or amended in any respect except by a writing by both
parties hereto.

         9. SEVERABILITY. If any provision of this Agreement is found invalid by
any court of competent jurisdiction, such finding will not affect the validity
of the other provisions hereof, and the invalid provision will be deemed to have
been severed from this Agreement.

         10. NOTICES. Any notice required or permitted to be given under this
Agreement will be sufficient if delivered personally or if given in writing and
sent by certified mail, return receipt requested, to his residence in the case
of Employee or to its principal office in the case of the Company.

         11. GOVERNING LAW. This Agreement is executed in one or more duplicate
original counterparts in the State of California and will be governed by the
internal laws of the State of California.


                                       -4-
   5
         12. FUTURE EMPLOYMENT. Employee agrees that upon termination of his
employment with the Company, the Company may notify anyone thereafter employing
Employee of the existence and provisions of this Agreement.

         13. INJUNCTIVE RELIEF. Employee acknowledges that failure to perform
any duties, obligations, covenants or agreements provided in this Agreement may
result in irreparable injury to the Company. Accordingly, Employee agrees that,
in addition to remedies otherwise available, any or all of said duties,
obligations, covenants and agreements may be enforced by suit, restraining order
and/or injunction.

         14. ATTORNEYS' FEES. In the event of any litigation or other legal
proceeding brought by either party to enforce this Agreement, the prevailing
party will be entitled to recover its reasonable expenses, including attorneys'
fees, incurred in the proceeding, in addition to any damages or other relief
that may be awarded.

         IN WITNESS WHEREOF, Employee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer
as of the date and year first written above.

APTEX SOFTWARE INC.,                EMPLOYEE
  A CALIFORNIA CORPORATION



By:____________________________     ____________________________
                                    Michael A. Thiemann
Name:__________________________

Its:___________________________


ATTACHMENTS

Exhibit 1:        Employee Assignment/Confidentiality Agreement
Exhibit 2:        Calendar 1996 Bonus Program


                                       -5-
   6
                    [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]


                                       -6-
   7
                                        Michael A. Thiemann Employment Agreement


                                    Exhibit 1
                                    ---------

           EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT
   8
                                        Michael A. Thiemann Employment Agreement

                                    Exhibit 2
                                    ---------

                           CALENDAR 1996 BONUS PROGRAM

EX-10.14

   1

                                                                   EXHIBIT 10.14

                           INVESTORS' RIGHTS AGREEMENT



      This Investors' Rights Agreement (this "AGREEMENT") is made and entered
into as of September 10, 1996 (the "EFFECTIVE DATE") by and among Aptex Software
Inc., a California corporation (the "COMPANY"), HNC Software Inc., a Delaware
corporation ("HNC") and Michael A. Thiemann ("THIEMANN"). HNC and Thiemann are
collectively hereinafter referred to as the "INVESTORS" and each is individually
sometimes hereinafter referred to as an "INVESTOR."

                                 R E C I T A L S

            A. Concurrently herewith, HNC has agreed to purchase from the
Company, and the Company has agreed to sell to HNC, shares of the Company's
Series A Preferred Stock ("SERIES A PREFERRED STOCK") on the terms and
conditions set forth in that certain Series A Preferred Stock Purchase Agreement
dated of even date herewith by and between the Company and HNC (the "HNC
PURCHASE AGREEMENT").

            B. In addition, concurrently herewith, Thiemann has agreed to
purchase from the Company, and the Company has agreed to sell to Thiemann,
1,000,000 shares of the Company's Common Stock on the terms and conditions set
forth in that certain Restricted Stock Purchase Agreement dated of even date
herewith by and between the Company and Thiemann (the "THIEMANN PURCHASE
AGREEMENT") and pursuant to the terms and conditions of the Company's 1996
Equity Incentive Plan.

            C.    The HNC Purchase Agreement and the Thiemann Purchase
Agreement each provide that the parties shall enter into this Agreement.

      NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

      1.    RIGHT OF FIRST REFUSAL.

            1.1 GENERAL. Subject to the terms and conditions of this Agreement,
the Company hereby grants to each Investor the right of first refusal to
purchase such Investor's Pro Rata Share (as defined below), of all (or any part)
of any "New Securities" (as defined in Section 1.2) that the Company may from
time to time issue after the Effective Date of this Agreement (the "RIGHT OF
FIRST REFUSAL"). For purposes of this Right of First Refusal, an Investor's "PRO
RATA SHARE" is the percentage obtained by dividing (a) the number of "Rights
Securities" (as defined in Section 1.3) held of record (or issuable upon the
conversion, exchange or exercise of other securities held of record) by such
Investor on the date the applicable "Issue Notice" (as defined in Section 1.4)
is given (the "NOTICE DATE"), by (b) the number of shares of Common Stock equal
to the sum of (i) the total number of shares of Common Stock of the Company


   2



outstanding on the applicable Notice Date, plus (ii) the total number of shares
of Common Stock of the Company into which all shares of Preferred Stock or other
convertible securities (including but not limited to convertible debt
securities) of the Company that are outstanding on the applicable Notice Date
are then convertible, plus (iii) the number of shares of Common Stock of the
Company (other than outstanding shares of Common Stock described in clause (i)
above) that are reserved for issuance under any stock purchase, stock option
and/or stock bonus plans of the Company on the applicable Notice Date, plus (iv)
the number of shares of Common Stock of the Company reserved for issuance under
any stock options, stock warrants or similar securities (other than shares
described in the immediately preceding clause (iii)).

            1.2 NEW SECURITIES. As used herein, the term "NEW SECURITIES" shall
mean any Common Stock or Preferred Stock of the Company of any class or series,
whether now authorized or not, and any options, warrants or other rights to
purchase or acquire any shares of such Common Stock or Preferred Stock, and
securities of any other type whatsoever (including without limitation debt
securities) that are, or may become, convertible or exchangeable into shares of
such Common Stock or Preferred Stock; provided, however, that the term "New
Securities" does not include:

                  (i) the shares of the Company's Series A Preferred Stock
purchased by HNC under the HNC Purchase Agreement, or any stock or securities
into which such shares of Series A Preferred Stock may be converted by their
terms, and the shares of the Company's Common Stock purchased by Thiemann under
the Thiemann Purchase Agreement;

                  (ii) any shares of the Company's Common Stock (and/or options
or warrants to purchase Common Stock) that, pursuant to the approval of the
Company's Board of Directors, are issued or issuable to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to the
Company's 1996 Equity Incentive Plan, as such may be amended, or any other
similar equity incentive plans, agreements or arrangements that are
affirmatively approved by at least eighty percent (80%) of the authorized
members of the Board of Directors of the Company;

                  (iii) any shares of Common Stock or other securities of the
Company that are issuable upon conversion of or with respect to any then
outstanding shares of Preferred Stock of the Company or upon the conversion of
or with respect to any other then outstanding securities of the Company held or
owned by HNC;

                  (iv) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;

                  (v) securities offered by the Company to the public pursuant
to a registration statement filed under the Securities Act of 1933, as amended,
or any successor law thereto (the "1933 ACT"); and

                  (vi) securities issued by the Company pursuant to the
acquisition of another corporation or business by the Company, whether by
consolidation, merger, purchase of 



                                       -2-
   3



assets, or purchase of stock or other securities; provided that such acquisition
transaction is duly approved by the Company's Board of Directors.

            1.3 RIGHTS SECURITIES. The term "RIGHTS SECURITIES" means: (i) the
shares of Common Stock of the Company issuable upon the conversion of any then
outstanding shares of Series A Preferred Stock issued to HNC under the HNC
Purchase Agreement; (ii) the shares of Common Stock of the Company issued to
Thiemann under the Thiemann Purchase Agreement (the "THIEMANN SHARES"); or (iii)
any other shares of Common Stock of the Company then owned by HNC or Thiemann or
issuable upon the conversion or exchange of any shares of Preferred Stock or
other securities of the Company then owned by HNC or Thiemann, or upon the
exercise of warrant, option or other right to acquire securities of the Company
then owned by HNC or Thiemann. For purposes of this Section 1, an Investor shall
be deemed to own all Rights Securities issuable upon the conversion, exchange or
exercise of any shares or other securities of the Company owned by such
Investor.

            1.4 PROCEDURE. In the event that the Company proposes to undertake
an issuance of New Securities, it shall give to each Investor written notice of
its intention to issue such New Securities (the "ISSUE NOTICE"), describing the
type and amount of such New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Investor shall
have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Investor's Pro Rata Share of such New Securities for
the price and upon the general terms specified in the Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Investor's Pro Rata Share). If any Investor fails
to so agree in writing within such ten (10) day period to purchase such
Investor's full Pro Rata Share of an offering of New Securities (a
"NONPURCHASING Investor"), then such Nonpurchasing Investor shall forfeit such
Nonpurchasing Investor's Right of First Refusal hereunder to purchase that part
of such Nonpurchasing Investor's Pro Rata Share of such New Securities that such
Nonpurchasing Investor did not so agree to purchase and the Company shall
promptly give the other Investor (provided that such other Investor has timely
agreed to purchase such Investor's full Pro Rata Share of such offering of New
Securities) written notice of the failure of the Nonpurchasing Investor to
purchase such Nonpurchasing Investor's full Pro Rata Share of such offering of
New Securities (the "OVERALLOTMENT NOTICE"), and the other Investor shall then
have the right to agree to purchase all or any portion of the Nonpurchasing
Investor's unpurchased Pro Rata Share of such offering of New Securities at any
time within five (5) days after receiving the Overallotment Notice.

            1.5 FAILURE TO EXERCISE. In the event that the Investors fail to
exercise in full the Right of First Refusal within such ten (10) plus five (5)
day period described in Section 1.4, then the Company shall have 120 days
thereafter to sell the New Securities with respect to which the Investors'
Rights of First Refusal hereunder were not exercised, at a price and upon
general terms not materially more favorable to the purchasers thereof than
specified in the Company's Issue Notice to the Investors. In the event that the
Company has not issued and sold the New Securities within such 120 day period,
then the Company shall not thereafter issue or sell any 



                                      -3-
   4


New Securities without again first offering such New Securities to the Investors
in accordance with this Section 1.

            1.6 ALTERNATIVE RIGHT TO MAINTAIN OWNERSHIP RATIO RELATIVE TO HNC.
If at any time during the Maintenance Period (as defined below) HNC purchases
from the Company any newly issued New Securities (an "HNC Purchase") and
Thiemann does not exercise his Right of First Refusal under Section 1 to
purchase any of such New Securities on the terms that such New Securities were
offered in such HNC Purchase then, subject to the terms and conditions of this
Section 1.6, Thiemann shall have the non-transferable right, at his option, to
purchase from the Company, within thirty (30) days after the Company gives
Thiemann written notice of such HNC Purchase and the date on which such HNC
Purchase occurred (the "HNC PURCHASE DATE"), that number of shares of the
Company's Common Stock (the "MAINTENANCE NUMBER") that, when added to the number
of Rights Securities held of record (or issuable upon the conversion, exchange
or exercise of other securities held of record) by Thiemann immediately prior to
such HNC Purchase Date (the "PRE-PURCHASE SHARES"), would enable Thiemann to
maintain exactly the same Ownership Ratio (as defined below) immediately after
such HNC Purchase Date as Thiemann has immediately prior to such HNC Purchase
Date (assuming no transfer, disposition or loss by Thiemann of any securities of
the Company owned by him immediately prior to such HNC Purchase Date); provided,
however, that notwithstanding the foregoing, the Maintenance Number may not
exceed that number of shares of Common Stock that, when added to the
Pre-Purchase Shares, would cause Thiemann's Pro Rata Share (as defined in
Section 1.1 hereof) as of immediately after such HNC Purchase Date to be greater
than Thiemann's Pro Rata Share as of immediately prior to such HNC Purchase
Date. As used herein, the term "OWNERSHIP RATIO" means the ratio, as of a given
date, between (i) the number of Rights Securities held of record (or issuable
upon the conversion, exchange or exercise of other securities held of record) by
Thiemann on such date and (ii) the number of Rights Securities held of record
(or issuable upon the conversion, exchange or exercise of other securities held
of record) by HNC on such date.

            The following terms and conditions apply to any purchase by Thiemann
of shares of the Company's Common Stock pursuant to the provisions of this
Section 1.6.

                  (a) Maintenance Period Defined. The "MAINTENANCE PERIOD" means
that time period (1) beginning after the Company has issued to HNC, and HNC has
purchased, the shares of Series A Preferred Stock issuable to HNC under the HNC
Purchase Agreement, and (2) ending on the earlier to occur of: (i) the first
date on which the aggregate cumulative amount of consideration paid by HNC to
the Company for all New Securities originally purchased by HNC from the Company
equals or exceeds Three Million Dollars ($3,000,000), where, for this purpose,
the amount of non-cash consideration paid by HNC for New Securities shall be
conclusively deemed to be the value ascribed to such consideration in good faith
by the Company's Board of Directors; (ii) the termination of this Agreement
under any of the provisions of Section 3 hereof; (iii) the termination of HNC's
rights and obligations under Section 3.2 hereof; (iv) the termination of
Thiemann's rights under this Agreement under the provisions of Section 3.3
hereof; (v) the termination of this Agreement by HNC under Section 3.5 hereof;
or (vi) the termination of this Agreement for any other reason.



                                      -4-
   5

                  (b) Other Terms of Purchase. Any shares of the Company's
Common Stock purchased by Thiemann pursuant to this Section 1.6 ("MAINTENANCE
SHARES") must be purchased on the same terms and conditions as the original
terms and conditions of the Thiemann Purchase Agreement (including without
limitation the Right of First Refusal, the Vesting Repurchase Option and the
General Repurchase Option in favor of HNC (as those terms are defined in the
Thiemann Purchase Agreement)), except that: (i) the Purchase Price Per Share at
which Maintenance Shares are purchased by Thiemann shall be the fair market
value per share of the Company's Common Stock as of the date such shares are
purchased by Thiemann, as determined in good faith by the Company's Board of
Directors; (ii) all Maintenance Shares purchased by Thiemann shall be paid for
in full in cash on the date of purchase; (iii) the vesting schedule on which
such Maintenance Shares are released from the Company's Vesting Repurchase
Option to repurchase such shares at their original purchase price upon
termination of Thiemann's employment shall be identical to the vesting schedule
set forth in Section 5 of the Thiemann Purchase Agreement applicable to the
Thiemann Shares (i.e., so that, regardless of the date on which the Maintenance
Shares are actually purchased, the percentage of the Maintenance Shares that are
"Vested Shares" that are not subject to the Company's Vesting Repurchase Option
will be the same as the percentage of the Thiemann Shares that are then "Vested
Shares" within the meaning of the Thiemann Purchase Agreement).

                  (c) Restrictions. Thiemann's right to purchase any Maintenance
Shares arising from a particular HNC Purchase shall forever lapse and expire if
Thiemann has not consummated the purchase of such Maintenance Shares within
thirty (30) days after the Company gives Thiemann the written notice of such HNC
Purchase and HNC Purchase Date (a "PURCHASE NOTICE") as provided above in
accordance with the notice provisions of Section 5.1 of this Agreement.

                  (d) Intent. The intention of the parties is that Thiemann's
rights under this Section 1.6 and Thiemann's Right of First Refusal under
Section 1.1 are alternative and mutually exclusive rights.

      2.    VOTING AGREEMENT.

            2.1 ELECTION OF BOARD OF DIRECTORS. Subject to the terms and
conditions of this Agreement, each Investor agrees to vote all shares of capital
stock of the Company now or hereafter directly or indirectly owned (of record or
beneficially) by such Investor in such manner as may be necessary to elect (and
maintain in office) as members of the Company's Board of Directors (the
"BOARD"), the following persons:

                  (a)   the person who is then the Chief Executive Officer
of the Company (the "CEO").

                  (b)   two (2) individuals designated by HNC who are each
executive officers of HNC (the "HNC DESIGNEES");



                                      -5-
   6

                  (c) one (1) individual designated by HNC who is an outside
member of the Board of Directors of HNC and is not employed by HNC or its
affiliates (the "HNC OUTSIDE DIRECTOR DESIGNEE"); and

                  (d) one (1) individual nominated by a majority of the other
four Board nominees, who shall not be an employee of the Company or HNC or any
of their respective affiliates (the "SELECTED DIRECTOR").

                  For purposes of this Agreement: (i) any individual who is
designated for election to the Board pursuant to the foregoing provisions of
this Section 2.1 is hereinafter referred to as a "BOARD DESIGNEE"; and (ii) any
person or corporation or group of directors who has or have the right to
designate one or more Board Designees for election to the Board pursuant to the
foregoing provisions of this Section 2.1 is hereinafter referred to as a
"DESIGNATOR" or as "DESIGNATORS", as applicable.

                  The parties agree that the CEO shall fill the seat on the
Company's Board of Directors that, pursuant to the currently effective
provisions of Section 4.5 of Article VI of the Company's Restated Articles of
Incorporation, is to be filled by the vote of the holders of the Company's
outstanding Common Stock, voting together as a single class, and that the HNC
Designees, the HNC Outside Director Designee and the Selected Director will fill
the four seats on the Company's Board of Directors that, pursuant to the
currently effective provisions of Section 4.5 of Article VI of the Company's
Restated Articles of Incorporation, are to be filled by the vote of the holders
of the Company's outstanding Series A Preferred Stock, voting together as a
single class. In the event the Company's Articles of Incorporation are amended
so as to alter the above-described provisions for electing directors of the
Company, the foregoing provisions of this Section 2.1 will cease to be of any
further force or effect.

            2.2   INITIAL BOARD MEMBERS.  The initial CEO shall be Michael
A. Thiemann; the initial HNC Designees shall be Robert L. North and Raymond
V. Thomas; and the initial HNC Director Designee shall be Charles H.
Gaylord, Jr.  The parties acknowledge that the initial Selected Director has
not yet been designated.

            2.3   CHANGES IN BOARD DESIGNEES.  From time to time during the
term of this Agreement, a Designator or Designators may, in their sole
discretion:

                  (a) elect to remove from the Board any incumbent Board
Designee who occupies a Board seat for which such Designator or Designators are
entitled to designate the Board Designee under Section 2.1; and/or

                  (b) designate a new Board Designee for election to a Board
seat for which such Designator or Designators are entitled to designate the
Board Designee under Section 2.1 (whether to replace a prior Board Designee or
to fill a vacancy in such Board seat);

provided that such removal and/or designation of a Board Designee is approved in
a writing signed by a majority of the Designators who are entitled to designate
such Board Designee under Section 2.1, and provided further, that such
designation is in accordance with Section 2.1, in 



                                      -6-
   7


which case such election to remove a Board Designee and/or elect a new Board
Designee will be binding on all such Designators. In the event of such a removal
and/or designation of a Board Designee under this Section 2.3, the Investors
shall vote their shares of the Company's capital stock as provided in Section
2.1 so as to cause: (a) the removal from the Board of the Board Designee or
Designees so designated for removal by the appropriate Designators or
Designators in accordance with the Company's Articles of Incorporation and
Bylaws; and (b) the election to the Board of any new Board Designee or Designees
so designated for election to the Board by the appropriate Designator or
Designators in accordance with the Company's Articles of Incorporation and
Bylaws.

            2.4 NOTICE: CUMULATIVE VOTING. The Company shall promptly give each
of the Investors written notice of any change in the composition of the
membership of the Board and of any proposal by a Designator or Designators to
remove or elect a new Board Designee as provided in Section 2.3. In any election
of any member of the Board pursuant to this Section 2, the Investors shall vote
their shares of the Company's capital stock in accordance with the Company's
Articles of Incorporation and Bylaws in a manner sufficient to elect to the
Board the individuals to be elected thereto as provided in this Section 2,
utilizing cumulative voting (if and to the extent that cumulative voting is
permitted by applicable law, the Company's Articles of Incorporation and
Bylaws), as may be necessary to do so.

            2.5 OTHER SECURITYHOLDERS. The Company shall use its best efforts to
cause each party who, after the Effective Date, acquires (i) any shares of
capital stock of the Company, (ii) any options, warrants or other rights to
acquire or purchase any shares of capital stock of the Company, (iii) any other
securities that are convertible, exchangeable or exercisable for shares of
capital stock of the Company or (iv) any securities that are convertible,
exchangeable or exercisable for shares of the capital stock of the Company, to
agree to vote any shares of the capital stock of the Company owned by such
person in accordance with the terms of this Section 2.

            2.6 LEGEND. So long as an Investor's obligations under Section 2 of
this Agreement remain in effect under the terms of this Agreement the legend set
forth below shall be imprinted by the Company on each of the stock certificates
representing shares of the capital stock of the Company owned by such Investor:

            THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS
            AND RESTRICTIONS WITH REGARD TO THE VOTING OF SUCH SHARES AS
            PROVIDED IN AN INVESTORS' RIGHTS AGREEMENT, A COPY OF WHICH IS ON
            FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION. SUCH
            AGREEMENTS AND RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE
            SHARES.

            2.7 TERMINATION. The provisions of this Section 2 shall
automatically terminate and cease to have effect upon the earlier to occur of
(i) the first date that the authorized number of directors of the Company's
Board of Directors is not five (5) directors; or (ii) the date 



                                      -7-
   8



on which the parties' rights and obligations under the provisions of this
Section 2 terminate in accordance with the provisions of Section 3 of this
Agreement.

      3.    TERM AND TERMINATION.

            3.1   AUTOMATIC TERMINATION.  This Agreement and the parties'
rights and obligations hereunder shall automatically terminate upon the
earlier to occur of:

                  (a) the date and time immediately prior to the closing of the
first firm commitment underwritten sale of Common Stock of the Company to the
public pursuant to a registration statement (other than a registration statement
relating solely to an employee benefit plan or a business combination or
reorganization) filed with, and declared effective by, the Securities and
Exchange Commission under the 1933 Act covering the offer and sale of the
Company's Common Stock to the public at an offering price of at least $1.50 per
share (such offering price being subject to proportional adjustment to reflect
subdivisions (stock splits), combinations (reverse stock splits), stock
dividends and similar transactions affecting the number of outstanding shares of
Common Stock) for aggregate gross proceeds to the Company (calculated before
deduction of underwriters' discounts and commissions) of at least $15,000,000;

                  (b) the closing of a Business Combination (as defined below).
As used herein, the term "BUSINESS COMBINATION" shall mean any of the following
transactions: (i) a consolidation or merger of the Company with or into any
other corporation or corporations that results in the holders of the Company's
outstanding capital stock immediately prior to such consolidation or merger
owning, immediately after such consolidation or merger, Stock (as defined below)
representing less than fifty percent (50%) of the voting power of all of the
then outstanding capital stock of the surviving corporation of such
consolidation or merger or of the parent (or ultimate parent) corporation of
such surviving corporation, (ii) a sale of all or substantially all the assets
of the Company; or (iii) any transaction or series of related transactions in
which shareholders of the Company sell or otherwise transfer to a single party
(or group of related parties) outstanding capital stock of the Company that
represents more than fifty percent (50%) of the voting power of all of the
Company's then outstanding stock. As used in this Section 3.1, the term "STOCK"
means either capital stock of the Company that was outstanding immediately prior
to a consolidation or merger referred to in clause (i) of the preceding
sentence, or that is issued to the shareholders of the Company in such
consolidation or merger in respect of their ownership of the capital stock of
the Company.

            3.2 TERMINATION OF HNC RIGHTS AND OBLIGATIONS. Subject to the
earlier termination of this Agreement and HNC's rights and obligations hereunder
in accordance with Section 3.1, HNC shall cease to have any rights or
obligations under this Agreement upon the first date that HNC ceases to own at
least 1,000,000 shares of the Series A Preferred Stock of the Company (as such
number may be adjusted pursuant to Section 5.9 of this Agreement), and/or the
equivalent number of shares of the Company's Common Stock into which such number
of shares of Series A Preferred Stock is then convertible.


                                      -8-
   9

            3.3 TERMINATION OF THIEMANN RIGHTS. Subject to the earlier
termination of this Agreement and Thiemann's rights and obligations hereunder in
accordance with Section 3.1, Thiemann shall cease to have any rights whatsoever
under this Agreement upon the earlier to occur of: (a) the termination of
Thiemann's employment with the Company for any reason; or (b) the first date on
which Thiemann ceases to own at least 500,000 shares of the Company's Common
Stock (as such may be adjusted pursuant to Section 5.9 of this Agreement)
purchased under the Thiemann Purchase Agreement. Upon such a termination of
Thiemann's rights, Thiemann shall immediately cease to have any rights
whatsoever under this Agreement, but Thiemann's obligations under this Agreement
shall nevertheless continue in full force and effect until this Agreement is
terminated pursuant to Section 3.1 or Section 3.5 or by the mutual written
agreement of HNC and Thiemann.

            3.4 SPECIAL TERMINATION OF SECTION 2 ONLY. Notwithstanding anything
herein to the contrary, if the Company's Articles of Incorporation (which
currently provide that: the Company shall have five (5) authorized directors;
that the holders of the Company's Series A Preferred Stock, voting together as a
separate class, are entitled to elect four (4) of such five directors; and that
the holders of the Company's Common Stock, voting together as a separate class,
are entitled to elect one (1) of such directors) are amended so as to (i) change
the authorized number of the Company's directors from five (5) directors; and/or
(ii) change the number of directors to be elected by the holders of the Series A
Preferred Stock, voting together as a separate class, or the number of directors
to be elected by the holders of the Common Stock, voting together as a separate
class, then the parties' rights and obligations under Section 2 of this
Agreement will be terminated effective upon the effectiveness of such amendment
of the Company's Articles of Incorporation.

            3.5 HNC OPTIONAL TERMINATION. Upon the termination of Thiemann's
rights under this Agreement in accordance with Section 3.3, HNC may (at its sole
option and discretion) terminate this Agreement immediately by giving written
notice of termination to the Company and Thiemann.

      4.    ASSIGNMENT AND AMENDMENT.

            4.1 ASSIGNMENT. Neither HNC nor Thiemann may assign or delegate any
of their rights or obligations under this Agreement without the written consent
of all parties hereto; provided, however, that HNC may assign and delegate all
its rights and obligations under this Agreement (whether by operation of law or
otherwise) to any corporation or other entity in connection with an HNC Business
Combination (as defined below). As used herein the term "HNC BUSINESS
COMBINATION" means (i) a consolidation or merger of HNC with or into any
corporation or corporations, (ii) a sale of all or substantially all the assets
of HNC; or (iii) any transaction or series of related transactions in which
shareholders of HNC sell or otherwise transfer to a single party or group of
related parties outstanding stock of HNC that represents more than fifty percent
(50%) of the voting power of all HNC's then outstanding stock.

            4.2 AMENDMENT. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either 



                                      -9-
   10


retroactively or prospectively), only with the written consent of the Company,
HNC and Thiemann (and/or any of their permitted successors or assigns);
provided, however, that at such time as a party ceases to have any rights under
this Agreement in accordance with Section 3 of this Agreement, then this
Agreement may be amended without the consent of such party so long as such
amendment does not adversely change or increase such party's remaining
obligations under this Agreement. Any amendment or waiver effected in accordance
with this Section 4.2 shall be binding upon the Company, each Investor, and each
permitted successor or assignee of such Investor.

      5.    GENERAL PROVISIONS.

            5.1 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:

                  (a)   if to an Investor, at such Investor's respective
address set forth beneath its signature hereto; and

                  (b) if to the Company, at 9605 Scranton Road, Suite 240, San
Diego, California 92121.

Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.

            5.2 ENTIRE AGREEMENT. This Agreement constitutes and contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties respecting
the subject matter hereof.

            5.3 GOVERNING LAW. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.

            5.4 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.

            5.5 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.


                                      -10-
   11

            5.6 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
2.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.

            5.7 CAPTIONS; COUNTERPARTS. The captions to sections of this
Agreement have been inserted for identification and reference purposes only and
shall not be used to construe or interpret this Agreement. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

            5.8 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.

            5.9 ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.

APTEX SOFTWARE INC.:                      INVESTORS:

                                          HNC SOFTWARE INC.


By:                                       By:
      ---------------------------              ------------------------------
Title:                                    Title:
      ---------------------------              ------------------------------

Address: 9605 Scranton Road, Suite 240    Address: 5930 Cornerstone Court West
         San Diego, California 92121               San Diego, California 92121

                                          THIEMANN

                                          --------------------------
                                          Michael A. Thiemann

                                          Address: 3516 Crown Point Drive
                                                   San Diego, California 92109



                                      -11-
   12









               [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]



                                      -12-

EX-10.15

   1
                                                                   EXHIBIT 10.15


                       RESTRICTED STOCK PURCHASE AGREEMENT


      This Restricted Stock Purchase Agreement (this "AGREEMENT") is made and
entered into as of September 10, 1996 (the "EFFECTIVE DATE") by and between
Aptex Software Inc., a California corporation (the "COMPANY"), and Michael A.
Thiemann ("PURCHASER").

                                 R E C I T A L S

      A. Purchaser is an employee of the Company and this Agreement is being
entered into pursuant to the Company's 1996 Equity Incentive Plan, as such may
hereafter be amended in accordance with its terms (the "PLAN"). The Plan is a
written compensatory benefit plan within the meaning of Rule 701 under the
Securities Act of 1933, as amended (the "1933 ACT").

      B. The Plan and the issuance of shares of the Company's Common Stock under
this Agreement are intended to qualify for the exemption afforded by Section
25102(o) of the California Corporate Securities Law of 1968, as amended.

      NOW THEREFORE, in consideration of the facts stated in the foregoing
recitals, the Company and Purchaser hereby agree as follows:

      1.    PURCHASE OF SHARES.

            (a) AGREEMENT; SHARES. On the Effective Date and subject to the
terms and conditions of this Agreement and the Plan, Purchaser hereby purchases
from the Company, and Company hereby sells to Purchaser, an aggregate of
1,000,000 Shares of the Company's Common Stock (the "SHARES") at an aggregate
purchase price of $30,000 (the "PURCHASE PRICE") or $0.03 per Share (the
"PURCHASE PRICE PER SHARE"), which the Company's Board of Directors has
determined to be the fair market value of the Shares. As used in this Agreement,
the term "SHARES" refers to the Shares purchased under this Agreement and
includes all securities received (a) in replacement of the Shares, (b) as a
result of stock dividends or stock splits in respect of the Shares, and (c) in
replacement of the Shares in a recapitalization, merger, reorganization or the
like.

            (b) PLAN TERMS INCORPORATED BY REFERENCE. A copy of the Plan is
attached hereto as Exhibit 1 and the terms and conditions of the Plan are hereby
incorporated into this Agreement by reference. Any capitalized terms not defined
in this Agreement shall have the meanings given to such terms in the Plan. This
Agreement is a Restricted Stock Award within the meaning of the Plan.

      2.    PAYMENT OF PURCHASE PRICE; CLOSING.

            (a) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
Company the full Purchase Price in cash in the amount of $30,000. Purchaser also
hereby delivers to the Company: (i) two (2) copies of a blank Stock Power and
Assignment Separate from Stock Certificate in the form of Exhibit 2 attached
hereto (the "STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse,
if any), and (ii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 3 attached hereto (the "SPOUSE CONSENT") duly executed by Purchaser's
spouse.




   2

            (b) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
Purchase Price from Purchaser and all the documents to be executed and delivered
by Purchaser to the Company under Section 2(a), the Company will issue a duly
executed stock certificate evidencing the Shares in the name of Purchaser
registered in Purchaser's name, with such certificate to be placed in escrow as
provided in Section 9 until expiration or termination of each of: (i) the
Company's Vesting Repurchase Option set forth in Section 5; (ii) the General
Repurchase Option granted to HNC Software Inc., a Delaware corporation ("HNC")
pursuant to the Plan and Section 6 of this Agreement; and (iii) the Company's
Right of First Refusal set forth in Section 7.

            (c) INVESTORS' RIGHTS AGREEMENT. Concurrently herewith, the Company,
Purchaser and HNC shall enter into, execute and deliver to each other an
Investors' Rights Agreement in substantially the form of Exhibit 4 hereto.

      3.    REPRESENTATIONS AND WARRANTIES OF PURCHASER.  Purchaser hereby
represents and warrants to the Company that:

            (a) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing
the Shares for Purchaser's own account for investment purposes only and not with
a view to, or for sale in connection with, a distribution of the Shares within
the meaning of the 1933 Act. Purchaser has no present intention of selling or
otherwise disposing of all or any portion of the Shares and no one other than
Purchaser has any beneficial ownership of any of the Shares.

            (b) ACCESS TO INFORMATION AND PLAN. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment. Purchaser acknowledges that Purchaser has
received and reviewed a copy of the Plan.

            (c) UNDERSTANDING OF RISKS. Purchaser is a founder of the Company
and is fully aware of: (i) the highly speculative nature of the investment in
the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of
the Shares and the restrictions on transferability of the Shares (e.g., that
Purchaser may not be able to sell or dispose of the Shares or use them as
collateral for loans); (iv) the qualifications and backgrounds of the management
of the Company; and (v) the tax consequences of Purchaser's investment in the
Shares.

            (d) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting personal
or business relationship with the Company and/or certain of its officers and
directors of a nature and duration sufficient to make Purchaser aware of the
character, business acumen and general business and financial circumstances of
the Company and/or such officers and directors. By reason of Purchaser's
business or financial experience, Purchaser is capable of evaluating the merits
and risks of this investment, has the ability to protect Purchaser's own
interests in this transaction and is financially capable of bearing a total loss
of this investment. Purchaser is an "accredited investor" within the meaning of
Regulation D promulgated under the 1933 Act.

            (e) NO GENERAL SOLICITATION. At no time was Purchaser presented with
or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.




                                      -2-
   3

            (f) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
acknowledges that, in reliance upon the representations and warranties made by
Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified under the
California Corporate Securities Law of 1968, as amended (the "LAW"), but instead
are being issued under exemptions from the registration and qualification
requirements of the 1933 Act and the Law which impose certain restrictions on
Purchaser's ability to transfer the Shares.

            (g) RESTRICTIONS ON TRANSFER; REPURCHASE RIGHTS. Purchaser
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the 1933 Act or qualified under the Law or unless, in the
opinion of counsel to the Company, exemptions from such registration and
qualification requirements are available. Purchaser understands that only the
Company may file a registration statement with the SEC or the California
Commissioner of Corporations and that the Company is under no obligation to do
so with respect to the Shares. Purchaser has also been advised that exemptions
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser. Purchaser also understands that, in addition to the above
securities law restrictions, this Agreement imposes: (i) contractual
restrictions on Purchaser's ability to transfer, pledge or encumber the Shares,
and (ii) contractual options that may require Purchaser to sell the Shares back
to the Company, HNC or others on the terms and conditions set forth in this
Agreement and in the Plan.

            (h) RULE 144. In addition, Purchaser has been advised that SEC Rule
144 promulgated under the 1933 Act, which permits certain limited sales of
unregistered securities, is not presently available with respect to the Shares
and, in any event, requires that the Shares be held for a minimum of two years,
and in certain cases three years, after they have been purchased and paid for
(within the meaning of Rule 144), before they may be resold under Rule 144.

            (i) RULE 701. Under the currently effective provisions of Rule 701
promulgated by the SEC under the 1933 Act, the Shares will become freely
tradeable by Purchaser (if Purchase not then an affiliate of the Company),
subject to limited conditions regarding the method of sale, ninety (90) days
after the first sale of Common Stock of the Company to the general public
pursuant to a registration statement filed with and declared effective by the
SEC, subject to the lengthier market standoff agreement contained in this
Agreement or in any other agreement entered into by Purchaser. Under such Rule
701, if Purchaser is an affiliate of the Company then Purchaser must comply with
the provisions (other than the holding period requirements) of Rule 144 in
reselling Shares.


                                      -3-
   4

      4. COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE SECURITIES
THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT
TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF
ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
BEING AVAILABLE.

      5. COMPANY'S VESTING REPURCHASE OPTION. Purchaser agrees that the Company
(and/or its assignee(s)) shall have the right, at its sole option, to repurchase
all or a portion of the Unvested Shares (as defined below) from Purchaser on the
terms set forth in this Section if Purchaser ceases to be employed by the
Company (as defined herein) for any reason, or no reason, including without
limitation Purchaser's death, disability, voluntary resignation or termination
by the Company with or without cause (the "VESTING REPURCHASE OPTION").

            (a) "EMPLOYED BY THE COMPANY" AND "TERMINATION DATE." For purposes
of this Agreement, Purchaser will be considered to be "EMPLOYED BY THE COMPANY"
if the Board of Directors of the Company determines that Purchaser is rendering
substantial services as an officer, employee, consultant or independent
contractor to the Company or to any subsidiary of the Company. In case of any
dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company or any subsidiary of the Company and the
effective date on which Purchaser's employment terminated (the "TERMINATION
DATE").

            (b) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares
(as defined in this Section) are "UNVESTED SHARES." On the Effective Date all of
the Shares will be Unvested Shares. If Purchaser has been continuously employed
by the Company at all times from the Effective Date until January 1, 1997 (the
"FIRST VESTING DATE"), then on the First Vesting Date twenty-five percent (25%)
of the Shares will become Vested Shares; and thereafter, for so long (and only
for so long) as Purchaser remains continuously employed by the Company: (i) on
February 1, 1997, and on the first day of each successive calendar month
thereafter, an additional one forty-eighth (1/48) of the Shares will become
Vested Shares; and (ii) on January 1, 2000 all of the Shares will be Vested
Shares. Subject to Sections 5(c) and (d) below, no Shares will become Vested
Shares after the Termination Date.

            (c) VESTING OF SHARES UPON TERMINATION "WITHOUT CAUSE."
Notwithstanding anything to the contrary herein, in the event that, on or before
January 1, 2000, Purchaser's employment with the Company is terminated by the
Company "without Cause" (as such term is defined in that certain Employment
Agreement dated of even date herewith by and between the Company and Purchaser
(the "EMPLOYMENT AGREEMENT")), then, effective upon such termination without
Cause, a number of Unvested Shares equal to the lesser of (i) twelve and
one-half percent (12.5%) of the Shares, or (ii) all then remaining Unvested
Shares, will become Vested Shares.

            (d) VESTING OF SHARES UPON CERTAIN BUSINESS COMBINATIONS. In the
event that (i) a Business Combination (as defined below) occurs on or before
January 1, 2000; and (ii) Purchaser's employment with the Company is terminated
"without Cause" (as such term is defined in the Employment Agreement) after the
consummation of such Business Combination and on or 




                                      -4-
   5

before January 1, 2000, then, effective upon such termination of Purchaser's
employment with the Company without Cause, all of the Shares that are then
Unvested Shares shall become Vested Shares. As used in this subsection 5(d) the
term "BUSINESS COMBINATION" shall mean: (i) a consolidation or merger of the
Company with or into any other corporation or corporations that results in the
holders of the Company's outstanding capital stock immediately prior to such
consolidation or merger owning, immediately after such consolidation or merger,
Stock (as defined below) representing less than fifty percent (50%) of the
voting power of all of the then outstanding capital stock of the surviving
corporation of such consolidation or merger or of the parent (or ultimate
parent) corporation of such surviving corporation; (ii) a sale of all or
substantially all the assets of the Company; or (iii) any transaction or series
of related transactions in which shareholders of the Company sell or otherwise
transfer to a single party (or group of related parties) (other than to HNC or
the Company) outstanding capital stock of the Company that represents more than
fifty percent (50%) of the voting power of all of the Company's then outstanding
capital stock. As used in this subsection 5(d), the term "STOCK" means either
capital stock of the Company that was outstanding immediately prior to a
consolidation or merger referred to in clause (i) of the preceding sentence, or
stock of another corporation that is issued to the shareholders of the Company
in such consolidation or merger in respect of their ownership of capital stock
of the Company.



                                      -5-
   6



            (e) ADJUSTMENTS. The number of Shares that are Vested Shares or
Unvested Shares, as determined by the provisions of this Agreement, will be
proportionally adjusted to reflect any stock dividend, stock split, reverse
stock split or similar recapitalization of the Common Stock of the Company
occurring after the Effective Date.

            (f) EXERCISE OF VESTING REPURCHASE OPTION. At any time within thirty
(30) days after the Termination Date, the Company may elect to repurchase any or
all of the Unvested Shares by giving Purchaser written notice of exercise of the
Vesting Repurchase Option. The Company will then have the option to repurchase
from Purchaser (or from Purchaser's personal representative, as the case may be)
any or all of the Unvested Shares at the Purchaser's original Purchase Price Per
Share (as adjusted to reflect any stock dividend, stock split, reverse stock
split or similar recapitalization of the Common Stock of the Company occurring
after the Effective Date). The parties acknowledge that the Company's Repurchase
Option may be assigned in whole or in part to HNC; provided, however, that if
the Company assigns the Repurchase Option, then the assignee of the Repurchase
Option must pay the Company upon assignment of the Repurchase Option cash in an
amount equal to (i) the fair market value of the Unvested Shares minus (ii) the
product obtained by multiplying the original Purchase Price Per Share (as
adjusted as provided above) by the number of shares that are Unvested Shares.

            (g) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
purchase Unvested Shares upon exercise of the Vesting Repurchase Option will be
payable, at the option of the Company or its assignee(s), by check. The
repurchase price will be paid without interest within sixty (60) days after the
Termination Date.

            (h) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement will
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company (or any parent, subsidiary or affiliate of the Company) to
terminate Purchaser's employment at any time for any reason or no reason, with
or without cause.

      6. GENERAL REPURCHASE OPTION. As a material inducement and consideration
to HNC to enter into that certain Series A Preferred Stock Purchase Agreement
dated of even date herewith (the "HNC PURCHASE AGREEMENT"), and as a material
inducement and consideration to the Company to sell the Shares to Purchaser
pursuant to this Agreement for the Purchase Price, Purchaser agrees with the
Company and with HNC that, as provided in the Plan and pursuant to the HNC
Purchase Agreement (and in addition to the Vesting Repurchase Option), at any
time during the Repurchase Period (as that term is defined in the Plan) HNC
shall have the right, at its sole option, to repurchase all (but not less than
all) of the Shares (whether they are Vested Shares or Unvested Shares) at the
Share Repurchase Price (as that term is defined in the Plan) in accordance with
the provisions of this Section 6 and the provisions of the Plan, specifically
including the provisions of Section 22 of the Plan entitled "General Repurchase
Option" (the "GENERAL REPURCHASE OPTION").

            (a)   ACKNOWLEDGEMENT AND AGREEMENT.  PURCHASER HEREBY FURTHER
ACKNOWLEDGES AND AGREES THAT:

                  (i) PURCHASER HAS READ AND UNDERSTANDS THE PLAN (INCLUDING
WITHOUT LIMITATION THE PROVISIONS OF SECTION 22 OF THE PLAN REGARDING THE
GENERAL REPURCHASE OPTION, THE DEFINITION OF THE "REPURCHASE PERIOD" AND THE
PROVISIONS OF THE PLAN REGARDING THE DETERMINATION OF THE "SHARE REPURCHASE
PRICE" AT WHICH THE SHARES MAY BE PURCHASED PURSUANT TO THE GENERAL REPURCHASE
OPTION);


                                      -6-
   7

                  (ii) A COPY OF THE PLAN IS ATTACHED AS EXHIBIT 1 TO THIS
AGREEMENT AND THE PROVISIONS OF THE PLAN (INCLUDING WITHOUT LIMITATION THE
PROVISIONS OF SECTION 22 OF THE PLAN REGARDING THE GENERAL REPURCHASE OPTION)
ARE INCORPORATED BY REFERENCE IN THIS AGREEMENT AND FORM PART OF THE PROVISIONS
OF THIS AGREEMENT; AND

                  (iii) PURCHASER AND THE SHARES ARE BOUND BY THE GENERAL
REPURCHASE OPTION AND THE PROVISIONS OF THE PLAN (INCLUDING WITHOUT LIMITATION
THE PROVISIONS OF SECTION 22 OF THE PLAN REGARDING THE GENERAL REPURCHASE
OPTION).

            (b) GENERAL REPURCHASE OPTION PREVAILS. In case of any inconsistency
or conflict between the Company's attempted exercise of the Vesting Repurchase
Option and/or the Right of First Refusal under Sections 5 and/or 7 hereof, and
HNC's attempted exercise of the General Repurchase Option granted under this
Section 6 and under Section 22 of the Plan, the General Repurchase Option shall
supersede, govern and prevail and the Vesting Repurchase Option and the Right of
First Refusal may not be exercised to the extent they are inconsistent or in
conflict with HNC's rights or ability to exercise the General Repurchase Option.
The exercise by the Company (but not its assignees) of a repurchase option or
right of first refusal that results in the Company's repurchase and
reacquisition of Shares at a time when the General Repurchase Option is not
being exercised will not be deemed inconsistent or in conflict with the General
Repurchase Option.

            (c) TERM. The termination of Purchaser's employment with the Company
for any reason shall not terminate the General Repurchase Option and shall have
no effect whatsoever on the General Repurchase Option, which shall remain in
full force and effect in accordance with its terms with respect to any of the
Shares.

            (d) CONSTRUCTION. The parties acknowledge and agree that the
provisions of this Section 6 have been included in this Agreement in order to
carry out the provisions of Section 22 of the Plan regarding HNC's General
Repurchase Option (the "PLAN REPURCHASE OPTION PROVISIONS"). Accordingly, in
case of any conflict or inconsistency between the provisions of this Section 6
and the Plan Repurchase Option Provisions, the provisions of this Section 6
shall be construed and interpreted in a manner consistent with the terms,
conditions, construction and interpretation of the Plan Repurchase Option
Provisions.

      7. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise
transferred by Purchaser without the Company's prior written consent. In
addition, Shares that are subject to the General Repurchase Option ("OPTION
SHARES") may not be transferred by Purchaser without HNC's prior written consent
unless the transferee who acquires such Option Shares first agrees, in a writing
that is reasonably satisfactory to HNC and that is signed by HNC and such
transferee, that the General Repurchase Option and the restrictions and
provisions of this sentence shall continue to apply to and bind all such Option
Shares in the hands of such transferee and its transferees, successors and
assigns. As used herein, the term "TRANSFERABLE SHARES" means Vested Shares that
either (i) are not Option Shares, or (ii) are Option Shares as to which HNC has
given Purchaser HNC's prior written consent to transfer in accordance with the
foregoing provisions of this Section. Subject to the foregoing provisions of
this Section and the terms and conditions of this Agreement and the Plan, before
any Transferable Shares held by Purchaser or any transferee of such Shares
(either being sometimes referred to herein as the "HOLDER") may be sold or
otherwise transferred (including without limitation a transfer by gift or
operation of law), the Company and/or its assignee(s) shall have a right of
first refusal to purchase the Transferable Shares to be sold or 




                                      -7-
   8

transferred (the "OFFERED SHARES") on the terms and conditions set forth in this
Section (the "RIGHT OF FIRST REFUSAL").

            (a) NOTICE OF PROPOSED TRANSFER. The Holder of the Offered Shares
will deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name of each proposed purchaser or other transferee of any Offered
Shares ("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be
transferred to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares (the
"OFFERED PRICE"); and (v) that the Holder will offer to sell the Offered Shares
to the Company and/or its assignee(s) at the Offered Price as provided in this
Section.

            (b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (but not less than
all) of the Offered Shares proposed to be transferred to any one or more of the
Proposed Transferees named in the Notice, at the purchase price determined in
accordance with subsection (c) below.

            (c) PURCHASE PRICE. The purchase price for the Offered Shares
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.

            (d) PAYMENT. Payment of the purchase price for Offered Shares will
be payable, at the option of the Company and/or its assignee(s) (as applicable),
by check or by cancellation of all or a portion of any outstanding indebtedness
of the Holder to the Company (or to such assignee, in the case of a purchase of
Offered Shares by such assignee) or by any combination thereof. The purchase
price will be paid without interest within sixty (60) days after the Company's
receipt of the Notice, or, at the option of the Company and/or its assignee(s),
in the manner and at the time(s) set forth in the Notice.

            (e) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further, that: (i) any such sale or other transfer is
effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Shares in the hands of such Proposed
Transferee. If the Offered Shares described in the Notice are not transferred to
the Proposed Transferee within such 120 day period, then a new Notice must be
given to the Company, and the Company will again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.

            (f) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"immediate family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's immediate family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company and HNC that the
General Repurchase Option set forth in 



                                      -8-
   9

Section 6 (if such General Repurchase Option has not expired by its terms) and
the provisions of this Section will continue to apply to the transferred Shares
in the hands of such transferee or other recipient; (ii) any transfer of Shares
made pursuant to a statutory merger or statutory consolidation of the Company
with or into another corporation or corporations (except that the Right of First
Refusal will continue to apply thereafter to such Shares, in which case the
surviving corporation of such merger or consolidation shall succeed to the
rights or the Company under this Section unless the agreement of merger or
consolidation expressly otherwise provides); or (iii) any transfer of Shares
pursuant to the winding up and dissolution of the Company. As used herein, the
term "IMMEDIATE FAMILY" will mean Purchaser's spouse, lineal descendant or
antecedent, father, mother, brother or sister, adopted child or grandchild, or
the spouse of any child, adopted child, grandchild or adopted grandchild of
Purchaser.

            (g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the 1933 Act (other
than a registration statement relating solely to the issuance of Common Stock
pursuant to a business combination or an employee incentive or benefit plan).

            (h) ENCUMBRANCES ON TRANSFERABLE SHARES. Purchaser may grant a lien
or security interest in, or pledge, hypothecate or encumber Transferable Shares
only with the prior written consent of the Company and (if the General
Repurchase Option has not terminated) HNC, and only if each party to whom such
lien or security interest is granted, or to whom such pledge, hypothecation or
other encumbrance is made, agrees in a writing satisfactory to the Company and
(so long as the General Repurchase Option has not terminated) HNC that (i) such
lien, security interest, pledge, hypothecation or encumbrance will not apply to
such Transferable Shares after they are acquired by the Company and/or its
assignees pursuant to the Right of First Refusal set forth in this Section or by
HNC pursuant to the General Repurchase Option set forth in Section 6; and (ii)
the provisions of this Section and Section 6 will continue to apply to such
Transferable Shares in the hands of such party and any transferee of such party.
Purchaser may not grant a lien or security interest in, or pledge, hypothecate
or encumber, any Unvested Shares or any other Shares that are not Transferable
Shares.

      8. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement and the Plan, Purchaser will have all of the rights of a shareholder
of the Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price to the Company until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) or HNC
exercise(s) the Vesting Repurchase Option, the General Repurchase Option or the
Right of First Refusal with respect to such Shares. Upon an exercise of the
Vesting Repurchase Option, the General Repurchase Option or the Right of First
Refusal, Purchaser will have no further rights as a holder of the Shares so
purchased upon such exercise, except the right to receive payment for the Shares
so purchased in accordance with the provisions of this Agreement and the Plan,
and Purchaser will promptly surrender the stock certificate(s) evidencing the
Shares so purchased to the Company or HNC, as applicable, for transfer or
cancellation.

      9. ESCROW. As security for Purchaser's faithful performance of this
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company ("ESCROW HOLDER"), who is hereby appointed to
hold such 



                                      -9-
   10


certificate(s) and Stock Powers in escrow and to take all such actions
and to effectuate all such transfers and/or releases of such Shares as are in
accordance with the terms of this Agreement and the Plan. Purchaser and the
Company agree that Escrow Holder will not be liable to any party to this
Agreement (or to any other party) for any actions or omissions unless Escrow
Holder is grossly negligent or intentionally fraudulent in carrying out the
duties of Escrow Holder under this Section. Escrow Holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may rely on the advice of counsel and obey any order of any court
with respect to the transactions contemplated by this Agreement. The Shares will
be released from escrow only upon the termination of each of the Vesting
Repurchase Option, the General Repurchase Option and the Right of First Refusal;
provided that the certificates representing the Shares shall be released from
escrow to HNC (or its successors or assigns) upon exercise of the General
Repurchase Option.

      10. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
been informed that, unless an election if filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if
applicable) to be taxed currently on any difference between the Purchase Price
of the Shares and their fair market value on the date of purchase, there will be
a recognition of the taxable income to the Purchaser, measured by the excess, if
any, of the fair market value of the Vested Shares, at the time they cease to be
Unvested Shares, over the purchase price for such Shares. Purchaser represents
that Purchaser has consulted any tax consultant(s) that Purchaser deems
advisable in connection with Purchaser's purchase of the Shares and the filing
of the election under Section 83(b) and similar tax provisions. A form for
Election under Section 83(b) is attached hereto as Exhibit 5 for reference.
PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING
ANY TAXES RESULTING FROM SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND
PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE
UNVESTED SHARES.

      11.   RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

            (A) LEGENDS. Purchaser understands and agrees that the Company will
place the legends set forth below or similar legends on any stock certificate(s)
evidencing the Shares, together with any other legends that may be required by
state or federal securities laws, the Company's Articles of Incorporation or
Bylaws, any other agreement between Purchaser and the Company or any agreement
between Purchaser and any third party (including without limitation HNC):

            THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
            SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
            SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
            RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
            TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
            APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
            EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
            REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
            INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
            REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE 



                                      -10-
   11

            SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
            OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
            SECURITIES LAWS.

            THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
            RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, A REPURCHASE OPTION HELD
            BY THE ISSUER OF THESE SHARES AND/OR ITS ASSIGNEE(S), A REPURCHASE
            OPTION HELD BY HNC SOFTWARE INC. ("HNC") AND A RIGHT OF FIRST
            REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET
            FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER
            AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
            OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND
            TRANSFER RESTRICTIONS, REPURCHASE OPTIONS AND RIGHT OF FIRST REFUSAL
            ARE BINDING ON ALL TRANSFEREES OF THESE SHARES.

            (b) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
ensure compliance with the restrictions imposed by this Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

            (c) REFUSAL TO TRANSFER. The Company will not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.

      12. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.

      13. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the
Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation system
on which the Company's Common Stock may be listed or quoted at the time of such
issuance or transfer.

      14. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement, including its rights to repurchase Shares under the Vesting
Repurchase Option, and the Right of First Refusal. Such rights may be assigned,
without limitation, to HNC. This Agreement will be binding upon and inure to the
benefit of the successors and assigns of the Company and (to the extent
applicable), HNC. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, 




                                      -11-
   12

successors and assigns. HNC's rights under the General Repurchase Option may be
assigned to any corporation with whom HNC is merged or consolidated with or into
in any consolidation, merger or similar business combination or to whom HNC
sells or transfers all or substantially all its assets.

      15. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by a court of law to be illegal or unenforceable,
then such provision will not be voided but rather will be enforced to the
maximum extent possible and the other provisions will remain fully effective and
enforceable.

      16. NOTICES. Any notice required or permitted hereunder will be given in
writing and will be deemed to have been effectively given (i) upon personal
delivery, (ii) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested), (iii) one (1) business
day after its deposit with any return receipt express courier (prepaid), or (iv)
one (1) business day after transmission by telecopier, addressed to the
receiving party at its address (or facsimile number, in the case of transmission
by telecopier) as shown below or to such other address as such party may
designate in writing from time to time to the other party in accordance with
this Section.

            If to the Company:
            ------------------

            Aptex Software Inc.
            9605 Scranton Road, Suite 240
            San Diego, California 92121
            Fax:  (619) 623-0558

            If to Purchaser:
            ----------------

            Michael A. Thiemann
            3516 Crown Point Drive
            San Diego, California 92109
            Fax:  (619) _________

            If to HNC:
            ----------

            HNC Software Inc.
            5930 Cornerstone Court West
            San Diego, California 92121
            Fax:  (619) 452-3220

      17.   FURTHER INSTRUMENTS.  The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

      18.   HEADINGS.  The captions and headings of this Agreement are
included for ease of reference only and will be disregarded in interpreting
or construing this Agreement.  All references herein to Sections refer to
Sections of this Agreement.



                                      -12-
   13

      19. AMENDMENT; WAIVER. This Agreement may be amended and modified only by
a writing executed by the Company and Purchaser; provided, however, that no
provision of this Agreement affecting (or potentially affecting) the General
Repurchase Option or any other rights (or potential rights) of HNC hereunder in
any manner may be amended or modified in any respect without the prior written
consent of HNC, which may be withheld in HNC's sole discretion. No rights of the
Company, Purchaser or HNC may be waived except by a writing executed by the
party against whom such waiver is asserted.

      20. HNC THIRD PARTY BENEFICIARY STATUS. The parties acknowledge and agree
that the provisions of this Agreement are being made for the benefit of HNC and
that HNC is an intended third party beneficiary of this Agreement, entitled to
enforce all the terms and conditions of this Agreement (including but not
limited to the provisions of Section 6, Section 7, Section 11, Section 19, this
Section 20 and any other provisions related thereto) against the Company and
Purchaser and their respective successors and assigns, to the same extent that
HNC could if HNC were a party and signatory to this Agreement.

      21. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits, and
the Plan, constitutes the entire agreement and understanding of the parties with
respect to the subject matter of this Agreement, and supersedes all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.

      IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Purchaser has executed
this Agreement in duplicate, as of the Effective Date.

APTEX SOFTWARE INC.                       PURCHASER

By:
    --------------------------            ------------------------- 
                                          Michael A. Thiemann
Name:
    --------------------------

Title:
    --------------------------



                                      -13-
   14

                                LIST OF EXHIBITS

Exhibit 1:  Aptex Software Inc. 1996 Equity Incentive Plan (including
            provisions thereof regarding the General Repurchase Option)

Exhibit 2:  Stock Power and Assignment Separate from Stock Certificate

Exhibit 3:  Spousal Consent

Exhibit 4:  Investors' Rights Agreement

Exhibit 5:  Form of Election Under Section 83(b) of the Internal Revenue Code




   15



                                                                       EXHIBIT 1



                APTEX SOFTWARE INC. 1996 EQUITY INCENTIVE PLAN






                                      -2-
   16




                                                                       EXHIBIT 2


                           STOCK POWER AND ASSIGNMENT

                            SEPARATE FROM CERTIFICATE



      FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase
Agreement between MICHAEL A. THIEMANN and APTEX SOFTWARE INC. dated as of
September __, 1996, (the "AGREEMENT"), the undersigned hereby sells, assigns and
transfers unto ______________, __________ shares of the Common Stock of APTEX
SOFTWARE INC., a California corporation (the "COMPANY"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
____ delivered herewith, and does hereby irrevocably constitute and appoint the
Secretary of the Company as the undersigned's attorney-in-fact, with full power
of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO AND THE COMPANY'S 1996 EQUITY INCENTIVE PLAN.

Dated:  ______________, 199__


                                      PURCHASER



                                      _____________________________
                                      Michael A. Thiemann


                                      _____________________________
                                      __________________ (Purchaser's Spouse)





INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this Stock Power and Assignment is to enable the Company and/or its
assignee(s) to acquire the Shares upon exercise of the "Vesting Repurchase
Option" and/or the "Right of First Refusal" set forth in the Agreement or to
enable HNC Software Inc. to acquire the Shares upon exercise of its "General
Repurchase Option" set forth in this Agreement, without requiring additional
signatures on the part of the Purchaser or Purchaser's Spouse.




                                       -3-
   17




                                                                       EXHIBIT 3


                                CONSENT OF SPOUSE



      I, the undersigned, Catherine Thiemann, am the spouse of MICHAEL A.
THIEMANN ("PURCHASER"). I have read and hereby consent to and approve all the
terms and conditions of: (1) the Restricted Stock Purchase Agreement (the
"AGREEMENT") dated September __, 1996 between Purchaser and Aptex Software Inc.,
a California corporation (the "COMPANY"), pursuant to which Purchaser has
purchased 1,000,000 Shares of the Company's Common Stock (the "SHARES") and (2)
an Investors' Rights Agreement dated as of September __, 1996 ("INVESTORS'
AGREEMENT") executed by Purchaser in connection with the Agreement.

      In consideration of the Company granting my spouse, the Purchaser, the
right to purchase the Shares under the Agreement, I hereby agree with the
Company and its successors and assigns, and with HNC Software Inc., and its
successors and assigns, to be irrevocably bound by all the terms and conditions
of the Agreement (including, but not limited to, the Vesting Repurchase Option,
the General Repurchase Option, the Right of First Refusal and the market
standoff agreements contained therein) and further agree that any community
property interest or other interest I may have in or to the Shares will be
irrevocably bound by the Agreement.

      I hereby appoint Purchaser as my attorney-in-fact, to act in my name,
place and stead with respect to any amendment of the Agreement or any actions in
connection therewith.


Dated as of September __, 1996



                                          ___________________________
                                          Catherine Thiemann





                                      -4-
   18





                                                                       EXHIBIT 4





                           INVESTORS' RIGHTS AGREEMENT




                                      -5-
   19



                                                                       EXHIBIT 5

                       ELECTION UNDER SECTION 83(B) OF THE
                              INTERNAL REVENUE CODE



The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income of the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such property,
as compensation for services.

1.    TAXPAYER'S NAME:              Michael A. Thiemann

      TAXPAYER'S ADDRESS:           3516 Crown Point Drive
                                    San Diego, California 92109

      SOCIAL SECURITY NUMBER:       ###-##-####

2.    The property with respect to which the election is made is described as
      follows: 1,000,000 shares of Common Stock of Aptex Software Inc., a
      California corporation (the "COMPANY"), which is Taxpayer's employer for
      the corporation for whom the Taxpayer performs services.

3.    The date on which the Shares were transferred was September __, 1996 and
      this election is made for calendar year 1996.

4.    The Shares are subject to the following restrictions: The Company may
      repurchase all or a portion of the Shares at the Taxpayer's original
      purchase price under certain conditions at the time of Taxpayer's
      termination of employment or services.

5.    The fair market value of the Shares (without regard to restrictions other
      than restrictions which by their terms will never lapse) was $0.03 per
      share at the time of transfer.

6.    The amount paid for such Shares was $ 0.03 per share.

7.    The Taxpayer has submitted a copy of this statement to the Company

      THE ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT
      THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30
      DAYS AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED
      WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION
      CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.



Dated: September __, 1996                 ___________________________
                                          Michael A. Thiemann




                                      -6-

EX-10.16

   1

                                                                   EXHIBIT 10.16


                               APTEX SOFTWARE INC.

                           1996 EQUITY INCENTIVE PLAN

                          As Adopted September 5, 1996


      1.    PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Restricted Stock. Capitalized
terms not defined in the text are defined in Section 23. This Plan is intended
to be a written compensatory benefit plan within the meaning of Rule 701
promulgated under the Securities Act.

      2.    SHARES SUBJECT TO THE PLAN.

            2.1 Number of Shares Available. Subject to Sections 2.2 and 17, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be Two Million (2,000,000) Shares. Subject to Sections 2.2 and
17, Shares that: (a) are subject to issuance upon exercise of an Option but
cease to be subject to such Option for any reason other than exercise of such
Option; (b) are subject to an Award granted hereunder but are forfeited or are
repurchased by the Company as set forth herein; or (c) are subject to an Award
that otherwise terminates without Shares being issued under such Award; will
again be available for grant and issuance in connection with future Awards under
this Plan. At all times the Company shall reserve and keep available a
sufficient number of Shares as shall be required to satisfy the requirements of
all outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.

            2.2 Adjustment of Shares. In the event that the number of the
Company's outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards, will be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share will not be issued but will either
be replaced by a cash payment equal to the Fair Market Value of such fraction of
a Share or will be rounded up to the nearest whole Share, as determined by the
Committee.

      3.    ELIGIBILITY. ISOs (as defined in Section 5) may be granted only to
employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors and consultants of the Company or any
Parent or Subsidiary of the Company; provided such consultants render bona fide
services other than in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
this Plan.

      4.    ADMINISTRATION.

            
   2
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan
                                                        

            4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:

                  (a)   construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant to this Plan;

                  (b)   prescribe, amend and rescind rules and regulations
relating to this Plan;

                  (c)   select persons to receive Awards;

                  (d)   determine the form and terms of Awards;

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

                  (f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or compensation plan of the
Company or any Parent or Subsidiary of the Company;

                  (g)   grant waivers of Plan or Award conditions;

                  (h)   determine the vesting, exercisability and payment of
Awards;

                  (i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any Exercise
Agreement or any Restricted Stock Purchase Agreement entered into pursuant to
this Plan;

                  (j)   determine whether an Award has been earned; and

                  (k)   make all other determinations necessary or advisable
for the administration of this Plan.

            4.2 Committee Discretion. Subject to the provisions of Section 22,
any determination made by the Committee with respect to any Award will be made
in its sole discretion at the time of grant of the Award or, unless in
contravention of any express term of this Plan or Award, at any later time, and
any such determination will be final and binding on the Company and on all
persons having an interest in any Award under this Plan.

      5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and, subject to the provisions of
Section 22, all other terms and conditions of the Option, subject to the
following:

            5.1 Form of Option Grant. Each Option granted under this Plan will
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.



                                      -2-
   3
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


            5.2 Date of Grant. The date of grant of an Option will be the date
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

            5.3 Exercise Period. Subject to the provisions of Section 22,
Options may be exercisable within the times or upon the events determined by the
Committee as set forth in the Stock Option Agreement governing such Option;
provided, however, that each Option granted under the Plan shall (subject to
earlier termination of the Option as provided in Section 22 or elsewhere herein)
become exercisable at the rate of at least 20% of the Shares covered by such
Option per year over the five (5) year period from the date the Option is
granted; provided, further, that no Option will be exercisable more than ten
(10) years from the date such Option is granted; and provided further that no
ISO granted to a person who directly or by attribution owns more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary of the Company ("TEN PERCENT
SHAREHOLDER") will be exercisable after the expiration of five (5) years from
the date the ISO is granted. The Committee also may provide for Options to
become exercisable at one time or from time to time, periodically or otherwise,
in such number of Shares or percentage of Shares as the Committee determines.

            5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any
Option granted to a Ten Percent Shareholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 7.

            5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares being purchased pursuant to the provisions of
Section 22 and the other restrictions, if any, imposed on the Shares purchased
under such Exercise Agreement, and such representations and agreements regarding
Participant's investment intent and access to information and other matters, if
any, as may be required or desirable by the Company to comply with applicable
securities laws, together with payment in full of the Exercise Price for the
number of Shares being purchased and any taxes payable by Participant in
connection with such purchase.

            5.6 Termination. Subject to earlier termination pursuant to
Subsection 17.1 and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:

                  (a) If Participant is Terminated for any reason other than
Participant's death, or Disability, then the Participant may exercise such
Participant's Options (but only to the extent that such Options would have been
exercisable upon the Termination Date) no later than three (3) months after the
Termination Date (or such shorter time period of not less than 30 days after the
Termination Date, or such longer time period not exceeding five (5) years after
the Termination Date, as may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date deemed to be an NQSO), but in
any event, no later than the expiration date of the Options.

                  (b) If Participant is Terminated because of Participant's
death or Disability (or if Participant dies within three (3) months after a
Termination other than because of Participant's 



                                      -3-
   4
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan



death or Disability), then Participant's Options may be exercised only to the
extent that such Options would have been exercisable by Participant on the
Termination Date, and must be exercised by Participant (or Participant's legal
representative or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter time period (but not less than 6 months
after the Termination Date) as may be specified in the Stock Option Agreement or
such longer time period not exceeding five (5) years after the Termination Date,
as may be determined by the Committee), with any such exercise beyond (a) three
(3) months after the Termination Date when the Termination is for any reason
other than the Participant's death or disability as defined in Section 22(e)(3)
of the Code, or (b) twelve (12) months after the Termination Date when the
Termination is for Participant's death or disability as defined in Section
22(e)(3) of the Code, deemed to be the exercise of an NQSO), but in any event no
later than the expiration date of the Options.

            5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

            5.8 Limitations on ISOs. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company or any Parent or
Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of
Shares on the date of grant with respect to which ISOs are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISOs and the Options for the amount in excess of $100,000
that first become exercisable in that calendar year will be NQSOs. In the event
that the Code or the regulations promulgated thereunder are amended after the
Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISOs, then such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.

            5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of affected Participants by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 for Options granted on
the date the action is taken to reduce the Exercise Price.

            5.10 No Disqualification. Notwithstanding any other provision in
this Plan, no term of this Plan relating to ISOs will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO of such
Participant under Section 422 of the Code.

      6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the Purchase Price, the restrictions to which the Shares
will be subject (which shall in all cases include the General Repurchase Option
set 



                                      -4-
   5
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


forth in Section 22), and all other terms and conditions of the Restricted
Stock Award, subject to the following:

            6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company (in the proper form of payment
approved by the Committee) within such thirty (30) day period, then the offer of
such Restricted Stock will terminate, unless otherwise determined by the
Committee.

            6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee and will be at least
85% of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated, except in the case
of a sale to a Ten Percent Shareholder, in which case the Purchase Price must be
100% of the Fair Market Value on the date the Restricted Stock Award is granted
or at the time the purchase is consummated. Payment of the Purchase Price may be
made in accordance with Section 7 of this Plan.

            6.3 Restrictions. Restricted Stock Awards may be subject to the
restrictions set forth in Section 11 of this Plan and shall be subject to the
General Repurchase Option provided for in Section 22.

      7.    PAYMENT FOR SHARE PURCHASES.

            7.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:

                  (a)   by cancellation of indebtedness of the Company to the
Participant;

                  (b) by surrender of shares of the Company that either: (1)
have been owned by Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares); or (2) were obtained by Participant in the public
market;

                  (c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not employees or directors of
the Company will not be entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral other than the Shares;

                  (d)   by waiver of compensation that the Company does not
dispute to be due or accrued to the Participant for services rendered to the
Company;

                  (e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock then exists:




                                      -5-
   6
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan

                        (1) through a "same day sale" commitment from the
                            Participant and a broker-dealer that is a member of
                            the National Association of Securities Dealers (an
                            "NASD DEALER") whereby the Participant irrevocably
                            elects to exercise the Option and to sell a portion
                            of the Shares so purchased to pay for the Exercise
                            Price, and whereby the NASD Dealer irrevocably
                            commits upon receipt of such Shares to forward the
                            Exercise Price directly to the Company; or

                        (2) through a "margin" commitment from the Participant
                            and a NASD Dealer whereby the Participant
                            irrevocably elects to exercise the Option and to
                            pledge the Shares so purchased to the NASD Dealer in
                            a margin account as security for a loan from the
                            NASD Dealer in the amount of the Exercise Price, and
                            whereby the NASD Dealer irrevocably commits upon
                            receipt of such Shares to forward the Exercise Price
                            directly to the Company; or

                  (f)   by any combination of the foregoing.

            7.2   Loan Guarantees.  The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.

      8.    WITHHOLDING TAXES.

            8.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

            8.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined (the "TAX DATE"). All elections by a Participant to
have Shares withheld for this purpose will be made in writing in a form
acceptable to the Committee in accordance with the requirements established by
the Committee for such elections.

      9.    PRIVILEGES OF STOCK OWNERSHIP.

            9.1 Voting and Dividends. No Participant will have any of the rights
of a shareholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a shareholder and have all the rights of a shareholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; and all new, additional
or different securities the Participant may become entitled to receive with
respect to such Shares by virtue of a stock dividend or distribution, stock
split or any other change in the corporate or capital structure of the Company
will be subject to the 


                                      -6-
   7
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan



same restrictions (including but not limited to the General Repurchase Option
provided for under Section 22) as the Shares with respect to which such
securities were issued; provided, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased at the Participant's original Purchase Price
pursuant to Section 11 or any Shares that are repurchased pursuant to the
General Repurchase Option pursuant to Section 22.

            9.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding, or as otherwise required or permitted under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company shall not be required to provide such
financial statements to Participants who are key employees whose duties in
connection with the Company assure them access to equivalent information.

      10. TRANSFERABILITY. Options granted to a Participant under this Plan and
a Participant's right to purchase Shares under a Restricted Stock Award, and any
interest therein, will not be transferable or assignable by a Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution. During the lifetime of
the Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.

      11. RESTRICTIONS ON SHARES. At the discretion of the Committee, in
addition to the General Repurchase Option provided for in Section 22, the
Company may also reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
and/or (b) a right to repurchase a portion of or all Shares held by a
Participant following such Participant's Termination at any time within ninety
(90) days after Participant's Termination Date, for cash and/or cancellation of
purchase money indebtedness for the Shares, at: (A) with respect to Vested
Shares, the higher of: (l) Participant's Purchase Price or Exercise Price, as
the case may be, or (2) the Fair Market Value of such Shares on Participant's
Termination Date; provided, that such right of repurchase (i) must be exercised
as to all such Vested Shares unless a Participant consents to the Company's
repurchase of only a portion of such Vested Shares and (ii) terminates when the
Company's securities become publicly traded; or (B) with respect to Unvested
Shares, at the Participant's Purchase Price or Exercise Price, as the case may
be, provided, that the right to repurchase Unvested Shares at the Purchase Price
or the Exercise Price, as the case may be, lapses (and Unvested Shares thus
become Vested Shares) at the rate of at least twenty percent (20%) per year over
five (5) years from the date the Shares were purchased (in the case of
Restricted Stock) or from the date of grant of the Option (in the case of Shares
obtained pursuant to exercise of an Option). If such right to repurchase
Unvested Shares is assigned, the assignee must (unless the assignee is a 100%
owned subsidiary of the Company or is the parent of the Company owning 100% of
the Company) pay the Company, upon assignment of the right to repurchase, cash
equal to the excess of the Fair Market Value of the Shares over the original
Purchase Price or Exercise Price, as the case may be.

      12. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.

      13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together 



                                      -7-
   8
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


with stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by the
Company to hold in escrow until such restrictions have lapsed or terminated, and
the Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. The Company and any agent designated to hold Shares,
stock powers or other instruments in escrow as provided above shall not be a
fiduciary and shall have no fiduciary duties to any Participant. Any Participant
who is permitted to execute a promissory note as partial or full consideration
for the purchase of Shares under this Plan will be required to pledge and
deposit with the Company all or part of the Shares so purchased as collateral to
secure the payment of Participant's obligation to the Company under the
promissory note; provided, however, that the Committee may require or accept
other or additional forms of collateral to secure the payment of such obligation
and, in any event, the Company will have full recourse against the Participant
under the promissory note notwithstanding any pledge of the Participant's Shares
or other collateral. In connection with any pledge of the Shares, Participant
will be required to execute and deliver a written pledge agreement in such form
as the Committee will from time to time approve. The Shares purchased with the
promissory note may be released from the pledge on a pro rata basis as the
promissory note is paid, if the Committee so permits.

      14. EXCHANGE AND BUYOUT OF AWARDS. The Committee in its sole discretion
may, at any time or from time to time, authorize the Company, with the consent
of the respective Participants, to issue new Awards in exchange for the
surrender and cancellation of any or all outstanding Awards. The Committee in
its sole discretion may at any time buy from a Participant an Award previously
granted with payment in cash, Shares (including Restricted Stock) or other
consideration, based on such terms and conditions as the Committee and the
Participant may agree on.

      15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended
to comply with Section 25102(o) of the California Corporations Code. An Award
will not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.

      16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.

      17.   CORPORATE TRANSACTIONS.

            17.1 Assumption or Replacement of Awards by Successor. In the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a 



                                      -8-
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                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


reincorporation of the Company in a different jurisdiction, or other transaction
in which there is no substantial change in the shareholders of the Company or
their relative stock holdings and the Awards granted under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all Participants), (c) a merger in which the Company is the
surviving corporation but after which the shareholders of the Company
immediately prior to such merger (other than any shareholder which merges with
the Company in such merger or which owns or controls another corporation that
merges with the Company in such merger) cease to own their shares or other
equity interests in the Company, or (d) the sale of substantially all of the
assets of the Company, any or all outstanding Awards may be assumed, converted
or replaced by the successor corporation (if any), which assumption, conversion
or replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to shareholders of the
Company (after taking into account the existing provisions of the Awards). The
successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 17.1. In the event such
successor corporation (if any) refuses to assume or substitute Options, as
provided above, pursuant to a transaction described in this Section 17.1, then
notwithstanding any other provision in this Plan to the contrary, such Options
will expire on such transaction at such time and on such conditions as the Board
will determine.

            17.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.

            17.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code and the provisions of Section 22 shall apply to such
assumed Award). In the event the Company elects to grant a new Option rather
than assuming an existing option, such new Option may be granted with a
similarly adjusted Exercise Price.

      18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to shareholder approval of this Plan; and (b) the issuance of any Shares
purchased pursuant to any Award prior to shareholder approval of this Plan must
be rescinded if shareholder approval of this Plan is not obtained within twelve
(12) months before or after the Effective Date.



                                      -9-
   10
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan
  

      19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
thereunder shall be governed by and construed in accordance with the internal
laws of the State of California.

      20. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
shareholders of the Company, amend this Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans; and provided further, that the
provisions of Section 22 of this Plan may not be amended, altered or repealed
without the prior written consent of HNC.

      21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.

      22. GENERAL REPURCHASE OPTION. In consideration of agreements made by the
Company with HNC, each Award granted under this Plan shall be granted pursuant
to an Award Agreement that shall provide that, at any time during the Repurchase
Period (as that term is defined below) HNC shall, subject to the terms and
conditions of this Section 22, have the sole and exclusive right (the "GENERAL
REPURCHASE OPTION"), at its sole option:

            (i) to repurchase all (but not less than all) of the outstanding
Shares issued under such Award or Award Agreement (whether or not such Shares
are subject to other repurchase rights or options, rights of first refusal or
other rights, restrictions or options in favor of the Company or others) at the
Share Repurchase Price (as that term is defined below) in accordance with the
terms and conditions of this Section; and

            (ii) to cause and compel each Participant who then holds an Option
granted under this Plan (but not less than all such Participants) to forever and
irrevocably entirely surrender and release such Option and all rights of such
Participant under such Option so that such Option and all rights of Participant
under such Option (including without limitation such Participant's right and
option to purchase Shares under such Option) shall be fully terminated and
cancelled in consideration of HNC's payment to such Participant of the Option
Repurchase Price (as that term is defined below).

            22.1  Certain Definitions.  As used herein:

                  (a) the term "REPURCHASE PERIOD" means that time period
beginning on July 1, 1998 and ending on the earlier to occur of: (i) ninety (90)
days before the consummation of a Business Combination (as defined below); or
(ii) ninety (90) days before the first sale of the Company's Common Stock to the
general public pursuant to a registration statement filed with and declared
effective by the SEC under the 1933 Act (other than a registration statement
solely covering an employee benefit plan or corporate business combination or
reorganization); or (iii) July 1, 2006.

                  (b) The term "BUSINESS COMBINATION" shall mean: (i) a
consolidation or merger of the Company with or into any other corporation or
corporations that results in the holders of 



                                      -10-
   11
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan



the Company's outstanding capital stock immediately prior to such consolidation
or merger owning, immediately after such consolidation or merger, Stock (as
defined below) representing less than fifty percent (50%) of the voting power of
all of the then outstanding capital stock of (A) the surviving corporation of
such consolidation or merger or (B) of the parent (or ultimate parent)
corporation of such surviving corporation, (ii) a sale of all or substantially
all the assets of the Company; or (iii) any transaction or series of related
transactions in which shareholders of the Company sell or otherwise transfer to
a single party (or group of related parties) (other than to HNC or the Company)
outstanding capital stock of the Company that represents more than fifty percent
(50%) of the voting power of all of the Company's then outstanding capital
stock. As used in this subsection 22.1(b), the term "STOCK" means either stock
of the Company that was outstanding immediately prior to a consolidation or
merger referred to in clause (i) of the preceding sentence, or stock of another
corporation that is issued to the shareholders of the Company in such
consolidation or merger in respect of their ownership of capital stock in the
Company.

                  (c) The term "REPRESENTATIVE" means the person who, on the
date the Exercise Notice (as defined below) is given, owns the highest number of
Award Shares then held by any other person; provided, however, that if such
person declines to act as the Representative, then the Representative shall be
the Chief Executive Officer of the Company. For purposes of this subsection
22.1(c): (i) "AWARD SHARES" means, at the time in question, all then outstanding
Shares issued under this Plan plus the number of Shares subject to then
outstanding Options granted under this Plan (including Shares as to which any
such Option may not then be immediately exercisable); and (ii) a person will be
deemed to own all then outstanding Shares issued under this Plan that are then
owned of record by such person plus all then outstanding Shares subject to then
outstanding Options granted under this Plan and owned by such person (including
Shares as to which any such Option may not then be immediately exercisable).

                  (d) The term "QUALIFIED APPRAISER" means an investment banking
firm of national or regional reputation (or a senior employee or partner of such
an investment banking firm) that is experienced in representing and valuing
software companies, or an expert in business valuations who has at least five
(5) years of reasonably substantial experience in valuing software companies,
either of which: (i) does not have a family relationship, or a then-currently
active significant business relationship with the party who selected such
Selected Appraiser (as defined in Section 22.5) or (in the case of the
Representative's Appraiser, as defined in Section 22.5) with any security holder
of the Company (other than HNC), or (in the case of the HNC Appraiser, as
defined in Section 22.5) with any Affiliate of HNC; or (ii) is not then, or does
not then represent or render significant services to, a competitor of HNC (in
the case of the Representative's Appraiser) or a direct competitor of the
Company (in the case of the HNC Appraiser).

                  (e) "GOOD CAUSE SHOWN" shall exist only if the Selected
Appraiser objected to is demonstrably not a Qualified Appraiser.

            22.2 EXERCISE OF GENERAL REPURCHASE OPTION. At any time during the
Repurchase Period, HNC may elect to (i) repurchase all (but not less than all)
of the Shares outstanding under the Plan (whether or not such Shares are subject
to repurchase rights or options, rights of first refusal or other rights,
restrictions or options in favor of the Company or others) and (ii) to cause and
compel each Participant who holds an Option to forever and irrevocably surrender
and release such Option and all such Participant's rights thereunder so that
such Option and all rights of such Participant under such Option (including
without limitation such Participant's right and option to purchase Shares under
such Option) shall be fully terminated and cancelled, by giving to the
Representative written notice of HNC's exercise of the General Repurchase Option
(the "EXERCISE NOTICE"). HNC will then have the right and




                                      -11-
   12
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


option (i) to repurchase from each holder of Shares issued under this Plan (or
such holder's personal representative, as the case may be) all (but not less
than all) of the Shares held by such holder (whether such Shares are issued at,
on or after the date of the Exercise Notice) at the Share Repurchase Price (as
defined below) applicable to such holder, and (ii) to cause and compel each
Participant who holds an Option to forever and irrevocably surrender and release
such Option and all such Participant's rights thereunder so that such Option and
all rights of such Participant under such Option (including without limitation
such Participant's right and option to purchase Shares under such Option) shall
be fully terminated and cancelled in consideration of the payment to such
Participant of the Option Repurchase Price (as defined below) applicable to such
Participant, on the terms and conditions set forth in this Section.

            22.3  Share Repurchase Price.  The "SHARE REPURCHASE PRICE" at
which the General Repurchase Option may be exercised with respect to
particular Shares shall be the higher of:

                  (a)   125% of the Appraised Fair Market Value (as defined
in Section 22.5 below) per share of the Shares; or

                  (b) 150% of the original purchase price per Share that was
originally paid to the Company for such Shares (as adjusted to reflect any stock
dividend, stock split, reverse stock split or similar recapitalization of the
Common Stock of the Company occurring after the issuance of such Share).

            22.4 Option Repurchase Price. The "OPTION REPURCHASE PRICE" at which
the General Repurchase Option may be exercised to cancel and cause the surrender
and release of an outstanding Option, shall be the difference between: (a) the
product of the Option Measure Price (as defined below) multiplied by the total
number of Shares then subject to such Option (including Shares as to which such
Option may not then be immediately exercisable), and (b) the product of the
then-effective Exercise Price per Share of such Option multiplied by the total
number of Shares then subject to such Option (including Shares as to which such
Option may not then be immediately exercisable). As used herein, the "OPTION
MEASURE PRICE" means the higher of: (i) 125% of the Appraised Fair Market Value
(as defined in Section 22.5 below) per share of the Shares; or (ii) 150% of the
then-effective Exercise Price per Share of such Option.

            22.5 Determination of Appraised Fair Market Value. In the event that
the General Repurchase Option is exercised, then the Appraised Fair Market Value
(as defined below) shall be determined as follows:

                  (a) Selection of Appraisers. Within twenty (20) days after the
Exercise Notice is given (A) HNC and the Representative shall each select one
Qualified Appraiser to determine the Appraised Fair Market Value per share of
the Shares as of the date of the Exercise Notice (the "SELECTED APPRAISER") and
(B) HNC and the Representative shall each give the other written notice
("APPRAISER NOTICE") of the identity of their respective Selected Appraiser.
HNC's Selected Appraiser is sometimes hereinafter called the "HNC APPRAISER" and
the Representative's Selected Appraiser is sometimes hereinafter called the
"REPRESENTATIVE'S APPRAISER". The party identified by HNC or the Representative,
respectively, as its Selected Appraiser in its Appraiser Notice shall be its
Selected Appraiser for purposes of determining the Appraised Fair Market Value
unless HNC or the Representative, as applicable, gives the other written notice
of its good faith objection to the other's Selected Appraiser (an "OBJECTION
NOTICE") for Good Cause Shown (as defined in Section 22.1) within seven (7) days
after the Appraiser Notice identifying such Selected Appraiser is given. An
Objection Notice must set forth in reasonable detail the asserted Good Cause
Shown for objection to a party's 



                                      -12-
   13
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


Selected Appraiser. The Representative may not object to HNC's Selected
Appraiser for the purposes of delaying exercise of the General Repurchase
Option. If a party's Selected Appraiser is timely objected to in good faith in
an Objection Notice for Good Cause Shown, then such party shall, within twenty
(20) days after receiving such Objection Notice, select a new Qualified
Appraiser as its Selected Appraiser and shall give the other party written
notice of the identity of such new Selected Appraiser. Such new Selected
Appraiser shall then be such party's Selected Appraiser and may not be objected
to by the other party.

                  (b) Appraisal Procedure. The Company shall provide the HNC
Appraiser and the Representative's Appraiser with full access during normal
business hours to the Company's facilities, products, personnel, books, records
and financial statements for purposes of assisting the Selected Appraisers in
determining the Appraised Fair Market Value per share of the Company's Common
Stock. The HNC Appraiser and the Representative's Appraiser shall each in good
faith attempt to appraise and determine the fair market value per share of the
Company's Common Stock as of the date of the Exercise Notice (expressed as a
precise dollar amount and not as a range of values), taking into account the
absence of a public trading market for such stock and assuming (even though such
is not in fact the case) that the licenses and rights granted to the Company by
HNC under that certain Technology License Agreement between HNC and the Company
dated as of September 5, 1996 (as such may be amended) are transferable by the
Company (the "APPRAISED VALUE PER SHARE"). Within thirty (30) days after both
the HNC Appraiser and the Representative's Appraiser have been determined, the
HNC Appraiser and the Representative's Appraiser shall each deliver to HNC and
the Representative a written report ("APPRAISAL REPORT") setting forth such
Selected Appraiser's appraisal and determination of the Appraised Value Per
Share. As used herein, the term "APPRAISED FAIR MARKET VALUE" means the average
of the HNC Appraiser's appraisal of the Appraised Value Per Share and the
Representative's Appraiser's appraisal of the Appraised Value Per Share as set
forth in their respective Appraisal Reports; provided, however, that
notwithstanding the foregoing, if there is only one Selected Appraiser because
HNC or the Representative fail to select their Selected Appraiser or to select a
new Selected Appraiser in response to an Objection Notice, then Appraised Fair
Market Value shall instead mean the appraisal of the Appraised Value Per Share
as set forth in the Appraisal Report of such sole Selected Appraiser. HNC shall
pay the fees and expenses charged by the HNC Appraiser and the Representative's
Appraiser; provided that the amount of such fees and expenses for the
Representative's Appraiser borne by HNC shall not exceed the sum of $250,000,
and any fees or expenses charged by Representative's Appraiser in excess of such
sum shall be borne by each holder of Shares or Options issued or granted under
the Plan that are being repurchased or released pursuant to HNC's exercise of
the General Repurchase Option, pro rata according to the amount of cash that
each such holder is entitled to receive from HNC by virtue of HNC's exercise of
the General Repurchase Option.

            22.6 Payment of General Repurchase Price. The Share Repurchase Price
to be paid to each holder of Shares upon the purchase of such Shares pursuant to
HNC's exercise of the General Repurchase Option, and the Option Repurchase Price
to be paid to each holder of an Option upon the cancellation and release of such
Option pursuant to HNC's exercise of the General Repurchase Option, will be paid
by HNC in cash, by check or wire transfer. The Share Repurchase Price and the
Option Repurchase Price will be paid by HNC without interest within twenty (20)
days after the final determination of the Appraised Fair Market Value in
accordance with subsection 22.5 above. Such payment may be delivered to the
Company's principal offices.

            22.7 General Repurchase Option Prevails. In case of any
inconsistency or conflict between the Company's attempted exercise of any
repurchase option, right of first refusal or other right and HNC's attempted
exercise of the General Repurchase Option granted under this Section, the
General Repurchase Option shall supersede, govern and prevail and the Company's
repurchase option, right of 




                                      -13-
   14
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


first refusal or other right may not be exercised to the extent they are
inconsistent or in conflict with HNC's rights or ability to exercise the General
Repurchase Option. The exercise by the Company (but not its assignees) of a
repurchase option or right of first refusal that results in the Company's
repurchase of Shares or the cancellation of an Option at a time when the General
Repurchase Option is not being exercised will not be deemed inconsistent or in
conflict with the General Repurchase Option.

            22.8 Term. The General Repurchase Option shall remain in full force
and effect until the expiration of the Repurchase Period. The termination of a
Participant's employment with the Company for any reason shall not terminate the
General Repurchase Option and shall have no effect whatsoever on the General
Repurchase Option, which shall remain in full force and effect in accordance
with its terms with respect to any of the Shares and Options held by such
Participant.

            22.9  Restrictions on Company Actions.  Until the General
Repurchase Option has terminated in accordance with its terms:

                  (a) The Company will cause each Award Agreement and each Award
granted under this Plan to contain provisions in form and substance reasonably
satisfactory to HNC that are binding on and acknowledged by the Participant
receiving such Award, to the effect that the General Repurchase Option shall be
applicable to the Shares and/or Options subject to such Award Agreement, on the
terms and conditions set forth herein and the Company will not amend, modify or
release any Participant from, any such provisions or from the General Repurchase
Option or any aspect thereof without HNC's prior written consent, which may be
withheld by HNC in its sole discretion;

                  (b) The Company will not grant to any third party any
securities, options or other rights that might conflict or be inconsistent with,
or in any way have priority over, the terms and conditions of this Section and
HNC's rights hereunder;

                  (c) The Company will not amend the provisions of this Section
or any other provisions of this Plan that would affect this Section without
HNC's prior written consent, which may be withheld by HNC in its sole
discretion; or

                  (d) Upon delivery of the Exercise Notice by HNC to exercise
the General Repurchase Option, the Company will cease to grant any further
Awards under this Plan.

            22.10 Assignment. HNC may assign its rights under this Section 22 to
the Company and HNC's rights under this Section 22 shall inure to the benefit of
HNC's successors, whether by merger, consolidation, operation of law or
otherwise. Any such assignment of or succession to HNC's rights under this
Section 22 shall be binding on all Participants.

      23.  CERTAIN DEFINITIONS.  As used in this Plan, the following terms
will have the following meanings:

           "AWARD" means any award under this Plan, including any Option or
Restricted Stock.

           "AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.

           "BOARD" means the Board of Directors of the Company.

           "CODE" means the Internal Revenue Code of 1986, as amended.




                                      -14-
   15
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


           "COMMITTEE" means the committee appointed by the Board to administer
this Plan, or if no such committee is appointed, the Board.

           "COMPANY" means Aptex Software Inc., a corporation organized under
the laws of the State of California, or any successor corporation.

           "DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee in good faith.

           "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

           "EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

           "FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:

            (a)   if such Common Stock is then quoted on the Nasdaq National
                  Market, its closing price on the Nasdaq National Market on the
                  last trading day prior to the date of determination as
                  reported in The Wall Street Journal;

            (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.

           "HNC" means HNC Software Inc., a Delaware corporation, and its
successors and assigns.

           "OPTION" means an award of an option to purchase Shares pursuant
to Section 5.

           "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if at the time of the
granting of an Award under this Plan, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

            "PARTICIPANT" means a person who receives an Award under this
Plan.

            "PLAN" means this Aptex Software Inc. 1996 Equity Incentive Plan,
as amended from time to time.

            "PURCHASE PRICE" means the price at which a Participant may
purchase Restricted Stock.

            "RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.




                                      -15-
   16
                                                      Aptex Software Inc.
                                                      1996 Equity Incentive Plan


            "SEC" means the Securities and Exchange Commission.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

            "SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.

            "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

           "TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, director or consultant to the Company or a
Parent or Subsidiary of the Company, except in the case of sick leave, military
leave, or any other leave of absence approved by the Committee, provided that
such leave is for a period of not more than ninety (90) days, or reinstatement
upon the expiration of such leave is guaranteed by contract or statute. The
Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").

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

           "VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.


                                      -16-

EX-11.01

   1
                                                                 EXHIBIT 11.01

                                HNC SOFTWARE INC.

                               STATEMENT REGARDING
                        COMPUTATION OF PER SHARE EARNINGS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)





                                                          YEAR ENDED DECEMBER 31,
                                                        1996       1995       1994     
                                                       -------    -------    -------
                                                                        
NET INCOME                                             $ 6,376    $ 2,123    $   548
                                                       =======    =======    =======

SHARES (1)
      Weighted average common shares outstanding        18,666     10,309      3,756


      Weighted average common stock options and
      warrants as determined by application of the
      treasury stock method (2)                          1,701      2,138      1,562


      Weighted average preferred shares outstanding
      assuming conversion to common stock (3)               --      4,454      8,552
                                                       -------    -------    -------


      Pro forma weighted average common and common
      equivalent shares outstanding                                16,901     13,870
                                                                  =======    =======


      Weighted average common and common
      equivalent shares outstanding                     20,367
                                                       =======


PRO FORMA NET INCOME PER SHARE OF COMMON STOCK                    $  0.13    $  0.04
                                                                  =======    =======

NET INCOME PER SHARE OF COMMON STOCK                   $  0.31
                                                       =======





- ----------

(1)   All share and per share amounts have been adjusted to give retroactive
      effect to the stock split, which occurred on April 3, 1996.

(2)   Includes an adjustment for options pursuant to SAB No. 83 using the
      treasury stock method at the initial public offering price of $7.00 per
      share for all periods presented prior to or including the Company's public
      offering date of June 26, 1995.

(3)   All outstanding shares of the Company's preferred stock automatically
      converted into shares of common stock upon the consummation of the
      Company's initial public offering on June 26, 1995.

EX-13

   1
                                                                      EXHIBIT 13


                                  ANNUAL REPORT
                                                         1996
                                   [HNC LOGO]
               [GRAPHIC BALD EAGLE, THE EARTH & A BANNER RIBBON]

                                HNC SOFTWARE INC.
   2
ABOUT HNC SOFTWARE INC.

[GRAPHIC OF FALCON IN FLIGHT]

Headquartered in San Diego, California, HNC Software Inc. (NASDAQ: HNCS) is a
leader in applying neural network technology in client/server environments to
provide intelligent decision-making tools for businesses in various industries.
HNC and its subsidiaries -- Retek Distribution Corporation, Risk Data
Corporation, and Aptex Software Inc. -- provide advanced decision software
solutions in the areas of electronic payments, financial services, retail,
insurance, direct marketing, and Internet applications.

   HNC products offer an automated, faster, and more flexible alternative to
traditional consumer customer management. Our goal is to maximize our clients'
profits with products that enable them to create and maintain high-value
customer relationships by decreasing expenses and credit and fraud losses,
increasing the profitability of existing customers, and generating new
customers.

   HNC sells its products internationally through a direct sales organization
with offices in San Diego, Irvine, Minneapolis, Atlanta, Philadelphia, London,
and Tokyo. Some products are also marketed through licensed distributors, such
as First Data Resources, Inc. and Electronic Data Systems.

                              FINANCIAL HIGHLIGHTS



                                                                         December 31,
                                                  ---------------------------------------------------------
IN THOUSANDS; EXCEPT PER SHARE DATA                   1996            1995            1994            1993
- -----------------------------------------------------------------------------------------------------------
                                                                                       
STATEMENT OF INCOME DATA

Revenues                                            $53,833         $30,672        $ 20,674         $12,829
Operating Income                                      4,118           1,142             249             411
Income before income tax (benefit) provision          5,768           1,548              93             276
Income tax (benefit) provision                         (608)           (575)           (455)             13
Net Income                                            6,376           2,123             548             263
- -----------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE
Pro forma net income per share                                      $  0.13        $   0.04
Shares used in computing pro forma
   net income per share                                              16,901          13,870

Net income per share                                $  0.31
Shares used in computing
   net income per share                              20,367
- -----------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA
Cash and investments                                $34,245         $43,509        $  6,714         $ 4,133
Total assets                                         94,219          58,947          17,139           9,741
Long-term obligations, less current portion             264           1,373             931             367
Stockholders' equity including mandatorily
   redeemable convertible preferred stock            82,413          47,913          11,171           5,664 
- -----------------------------------------------------------------------------------------------------------





IN MILLIONS; EXCEPT           
PER SHARE DATA          1993    1994    1995    1996  
                       ------  ------  ------  ------
                                      
REVENUES               $12.8   $20.6   $30.6   $53.8   

NET INCOME               .26     .54     2.12    6.3

NET INCOME PER SHARE             .04      .13     .31       

   3
TO OUR STOCKHOLDERS

1996 was a year of significant progress and growth for HNC Software, with
substantial investments in new product introductions, two acquisitions that
extended our presence in the marketplace, and strong financial results for the
year.

STRATEGIC ACQUISITIONS We significantly expanded our market access and product
offerings with the completion of two important strategic acquisitions: Risk Data
Corporation, completed on August 30,1996, and Retek Distribution Corporation,
completed on November 29, 1996. Risk Data is a client/server information system
solution provider to the insurance industry with particular emphasis on workers'
compensation insurance. Its offerings include claims risk management software
with predictive models based on the Risk Data historical claims data warehouse.
Retek provides merchandise management software products to the retail market,
partnering with Oracle and Andersen Consulting, which provide implementation and
customization services. Both Risk Data and Retek are working to incorporate
HNC's core technology, neural network predictive models, in their new products.
I am very pleased to have both organizations as part of the HNC family and
believe there is significant opportunity for growth resulting from these
acquisitions.

FINANCIAL PERFORMANCE Revenues for the twelve months of 1996 (after giving
retroactive effect to the Risk Data and Retek acquisitions) were $53.8 million,
an increase of 76% over the $30.7 million in 1995. Earnings per share for the
twelve months of 1996 were $0.31 (after $1.2 million of acquisition expenses and
including a $2.7 million 1996 tax benefit), or $0.21 per share (excluding
acquisition expenses and fully taxed at 38%), compared to 1995's $0.13 per share
(including the 1995 tax benefit), or $0.06 per share (excluding the 1995 tax
benefit and fully taxed at 38%). As of December 31, 1996, the company had $34.2
million in cash and investments.

INVESTMENTS IN NEW PRODUCTS We continue to execute our strategy of extending our
family of products in each of the markets we serve. In the financial market we
introduced four major new products: ProfitMax, a profitability management system
for the payment card industry; ProfitMax Bankruptcy, a bankruptcy prediction
system; Falcon Sentry, an application fraud detection system; and Capstone, an
application decision processing system. In the insurance market we introduced
two new products: CompCompare, a benchmarking product for comparative analysis
between our customers' claims and industry data; and ProviderCompare, which
profiles the performance of health care providers. In the retail market we
introduced two new products: Retek Data Warehouse and the Active Retail
Intelligence system, which allows detailed operational analysis for the
retailer. I believe we have entered 1997 with strong product offerings in all
three of our key target markets: financial payment systems, insurance, and
retail.

We look forward to a strong 1997 that continues our growth.

/s/ Robert L. North
- ---------------------------------------
Robert L. North
President and Chief Executive Officer

[GRAPHIC -- BUSINESSMAN]

                                                                               3
   4
[GRAPHIC -- FALCON IN FLIGHT]

PAYMENT SYSTEMS

Falcon, the flagship product of HNC's Payment Systems division, continued in
1996 as the market leader in payment card fraud detection. Now under contract to
monitor the transactions of more than 150 million cards, Falcon helped save its
users over $100 million dollars last year. New customers in 1996 include such
international giants as Sumitomo Credit, Banamex, and Credicard Brazil.

   The outstanding performance of Falcon demonstrates the power of real-time
transaction-based risk management. By applying its neural network and profiling
technology to transaction data in real time HNC has been able to provide
solutions to some of the most critical issues facing the payment card industry
today. For example, the division's newest product, ProfitMax Bankruptcy,
addresses the recent alarming increase in bankruptcy filings by providing a way
to predict potential bankrupts in a card portfolio before the cardholder has
become delinquent. ProfitMax Bankruptcy correctly predicts bankruptcy at nearly
double the success rate of the method usually employed by issuers. HNC's
bankruptcy solution seamlessly integrates with the ProfitMax cardholder
profitability prediction suite (which include credit risk, revenue potential,
and attrition risk models), another Payment Systems product that gets a
significant lift from transaction-based scoring.

   With solid, transaction-based management products in place, look for
application risk management and collection solutions in the near future, as HNC
expands its product family to address more of the major problems facing issuing
banks. HNC is committed to providing a comprehensive set of solutions for the
payment card industry.

- --------------------------------------------------------------------------------
[GRAPHIC]        Capstone

                 Falcon Sentry

                 Falcon

ABC Bank         Profit Max

                 ProfitMax Bankruptcy


                 Eagle


HNC's neural network and rules-based product suite -- including Capstone, Falcon
Sentry, Falcon, ProfitMax, ProfitMax Bankruptcy, and Eagle -- enables bankers to
access more information about their cardholders and to use the information more
effectively to build revenue and avoid loss.

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

4
   5
             [BACKGROUND -- VISA CARDS, A FALCON AND BANNER RIBBON]

                    TESTING THE LIMITS WITH TRANSACTION DATA

                             PROFITABILITY ANALYSIS

                                      FRAUD

                                     RETAIL

                              CARDHOLDER PROFILES

                                 MERCHANT RISK

                                       PB

                                      DEBIT

                                                                               5
   6
    [PICTURE BACKGROUNDS - TWO PEOPLE, STACKS OF MONEY, STEPS OF A BUILDING]

                           STREAMLINING DECISION FLOW

6
   7
FINANCIAL SYSTEMS

HNC Software both refined and grew its vision of the enterprise-wide lending
decision platform in 1996. The increasing use of data warehouses, as well as the
need to be able to deliver lending decisions anywhere, any time, gave impetus to
expanding HNC's Colleague product in a number of creative directions. First,
Colleague has been ported to a high-speed, UNIX(TM)-based platform in order to
reduce cycle time and enable enterprise-wide distributed processing. The result
of this project was the introduction of Capstone, a high-performance,
intelligent application processing system for credit cards.

   Capstone is capable of processing 10,000 applications per hour, with
real-time credit pulls and high-speed network access for analyst workstations.
In an advance beyond older-technology application processing systems, Capstone
lets issuers define their own rules and derived variables, enabling issuers to
customize the decisioning logic to meet their card portfolio goals. This
state-of-the-art system is targeted to a market in which major card issuers
often use 25-year-old technology to process applications.

    In addition, Colleague's functionality was expanded to serve both consumer
and mortgage lending decisions. The Halifax Building Society, the largest
residential mortgage lender in the United Kingdom, put Colleague to the supreme
test in a pilot program to demonstrate this new technology's ability to improve
service to The Halifax customers while reducing costs and risk in lending
operations. The strength of HNC Software's concept for lending decision
management system was corroborated when The Halifax made the decision to deploy
Colleague both in The Halifax mortgage processing centres and at the point of
sale.

                         [GRAPHIC OF A CAR AND A HOUSE]

                                                                               7
   8
RETAIL SYSTEMS

On November 29, 1996, HNC acquired Retek Distribution Corporation, a developer
of client/server merchandise management software for the retail industry
worldwide. A natural fit with HNC's plan to expand its presence in the retail
market, Retek had several common client projects with HNC to provide an
integrated set of retail solutions -- the Retek Merchandising System and HNC's
SkuPLAN inventory replenishment and forecasting system.

    Intended for the large retailer, the Retek product suite of integrated
retail management solutions ensures that information flows through the
organization in a continuous loop. The Retek Merchandising System generates
greater control of three key areas: Inventory, Merchandise Management, and
Finance. The Retek Data Warehouse, Retek's enterprise-wide retail data
storehouse, extends decision-making ability by allowing the extraction and
delivery of information from retail enterprise transaction systems to buyers,
merchandisers, and management. Active Retail Intelligence ("ARI"), closes the
information loop through identifying necessary actions and automatically feeding
them to the appropriate users.

                               [GRAPHICS - TWO RINGS]

   Retek has achieved a substantial global market share position in the last two
years, with 40% of its installed base of customers located outside North
America. Retek customers include Hallmark, Tandy, Zales, Cracker Barrel, The
Container Store, Sears UK, Littlewoods, and Tru-Worth.

   Bringing Retek under the HNC umbrella has already resulted in product
synergy. Retek is incorporating HNC's advanced, neural network technology into
ARI. HNC is also extending its financial risk management and marketing products
to the retail market, in an effort to provide customers with an enterprise-wide
retail solution.

                [GRAPHICS - SHIRTS HANGING ON A ROD FROM HANGERS]

8
   9
    [GRAPHICS OF A COMPUTER, DISK, LIP STICK, PEARLS, STEREO, POCKET WATCH]

                          MANAGING THE RETAIL WAREHOUSE

                               TODAY'S FORECAST:

                             MERCHANDISE MANAGEMENT

                                                                               9
   10
         [GRAPHICS OF TWO PEOPLE LOOKING AT XRAYS, CONSTRUCTION WORKER]

                          UNDERSTANDING INSURANCE RISK

10
   11
INSURANCE SYSTEMS

1996 also saw HNC's acquisition of Risk Data Corporation. Risk Data is a
California-based insurance information technology services firm that develops
analytical benchmarking and other risk management software products primarily
for insurance carriers, state funds, and third-party administrators. Its
customers include companies such as CNA, The Hartford, and Sedgwick Claims
Management Services, as well as 16 state funds.

   Risk Data has an extensive industry database of comprehensive workers'
compensation data collected from more than 35 insurance companies and
third-party administrators throughout the U.S. Risk Data products provide
important management data to its clients. For example, MIRA, Risk Data's initial
product, automatically calculates workers' compensation loss reserves for each
case, using statistical models based on historical claim information. The system
is a result of years of research, coupled with in-depth workers' compensation
industry knowledge and experience.

   Risk Data's expertise in the insurance market and HNC's proven success with
fraud detection technology provide a natural synergy that has already resulted
in a new product. Designed to compare workers' compensation insurance claims
against historical patterns of fraudulent claims, the Claimant Fraud Detection
System (CFDS) will red-flag claims with a high probability of fraud for special
investigation.

   According to a recent study by Conning and Company (Hartford, Connecticut),
most insurance fraud goes undetected and may have cost the industry $120 billion
in 1995, a 30 percent increase from the $90 billion in losses estimated in 1990.

   HNC and Risk Data have only begun to address this vast new opportunity within
the insurance market.

                            [GRAPHIC OF STETHOSCOPE]
                                                                              11
   12
EMERGING MARKETS

HNC established Aptex Software Inc. in 1996 to commercialize HNC's text analysis
technology (called Content Mining) for emerging markets. The rapidly growing
Internet market presented a unique opportunity, and Aptex developed a strategic
partnership with Infoseek Corporation, a leading Internet search and navigation
service. Two new Internet products, Convectis and SelectCast for Ad Servers,
were introduced. Convectis, winner of the UCSD Connect award for Most Innovative
Software Product of the Year, automatically categorizes and summarizes
high-volume document streams. In actual use, Convectis built Infoseek's Guide
into the Internet's largest directory, analyzing millions of Web pages and
categorizing only the best into more than 10,000 categories. SelectCast for Ad
Servers improves Internet advertising effectiveness by analyzing audiences and
user behavior, maximizing on-line ad click-through rates, and selectively
targeting on-line audiences. Select Cast for Ad Servers acts as an "intelligent
observer," mining the context and content of all user actions to understand
users' current interests. Additional new products, designed to enhance market
competitiveness, are under development and scheduled for introduction in 1997.

   The education market presents another opportunity for Aptex products. VITAL
Resource Miner, introduced in 1996, is the first electronic solution to
correlate textbook content to state and school district curriculum standards and
objectives. Aptex has entered into a partnership with Jostens Learning
Corporation to deliver VITAL Resource Miner and lesson plans in 1997 over the
Internet.

   The Content Mining technology used by Aptex was developed by HNC's Technology
Development group, which is still focused on evaluating and developing
technologies for emerging markets.

                         [PICTURE OF STUDENT STUDYING]

12
   13
[PICTURE]
NEW ACCOUNT ACQUISITION.
New HNC products provide sophisticated decision processing and risk management
solutions to help card issuers and lenders with application approval and credit
line decisions.

[PICTURE -- A COUPLE] 
MERCHANDISE CUSTOMER MANAGEMENT.
The Retek suite of integrated merchandise management software will incorporate
HNC's financial risk management and marketing products to create an
enterprise-wide retail solution.

[PICTURE]
ACTIVE ACCOUNT MANAGEMENT.
HNC's account management products implement flexible and effective management of
the decision processes that ultimately drive the profitability of card
portfolios.


                              [HNC GRAPHIC OF EARTH]

[PICTURE]
CLAIMS ANALYSIS.
Risk Data's products enable objective analyses of claims costs that are
essential to measuring the effectiveness of managed care programs and
controlling costs. Ever more effective cost control will be possible with HNC's
fraud detection technology.

[PICTURE -- STUDENTS]
EDUCATION.
Aptex applies Content Mining to innovative solutions for the education market's
need for curriculum and resource development.

[PICTURE -- PERSON AT COMPUTER]
INTERNET.
Two Internet products have already been launched by Aptex, and others are under
development. HNC's Financial Systems division is also exploring this hot market.

                                                                              13
   14
FINANCIAL INFORMATION


Selected Consolidated Financial Data                                          15

Selected Consolidated Quarterly Operating Results (Unaudited)                 16

Stock Market Data                                                             17

Management's Discussion and Analysis of Financial Condition
and Results of Operations                                                     18

Consolidated Balance Sheet                                                    24

Consolidated Statement of Income                                              25

Consolidated Statement of Cash Flows                                          26

Consolidated Statement of Changes in Stockholders' Equity (Deficit)           27

Notes to Consolidated Financial Statements                                    28

Report of Independent Accountants                                             37


                            [PICTURE OF BIRD FLYING]

14
   15
                      SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report.



                                                                                    YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS; EXCEPT PER SHARE DATA                               1996          1995          1994          1993         1992
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                         
STATEMENT OF INCOME DATA (1):
Revenues:
   Software license and installation                            $ 42,705      $ 21,526      $ 13,023      $  6,215      $ 2,731
   Contracts and other                                            11,128         9,146         7,651         6,614        6,716
                                                                --------      --------      --------      --------      -------
   Total revenues                                                 53,833        30,672        20,674        12,829        9,447
                                                                --------      --------      --------      --------      -------
Operating expenses:
   Software license and installation                              11,411         5,934         4,847         2,528          931
   Contracts and other                                             7,694         6,894         5,040         4,022        4,217
   Research and development                                       13,271         6,581         4,344         2,095        1,484
   Sales and marketing                                            10,705         6,422         3,603         2,096        1,227
   General and administrative                                      6,634         3,699         2,591         1,677        1,564
                                                                --------      --------      --------      --------      -------
   Total operating expenses                                       49,715        29,530        20,425        12,418        9,423
                                                                --------      --------      --------      --------      -------

Operating income                                                   4,118         1,142           249           411           24
Other income (expense), net                                        1,650           406          (156)         (135)         (16)
                                                                --------      --------      --------      --------      -------
   Income before income tax (benefit) provision                    5,768         1,548            93           276            8
Income tax (benefit) provision                                      (608)         (575)         (455)           13           18
                                                                --------      --------      --------      --------      -------
   Net income (loss)                                            $  6,376      $  2,123      $    548      $    263      $   (10)
                                                                --------      --------      --------      --------      -------
Pro forma net income per share (2)                                            $   0.13      $   0.04
                                                                --------      --------      --------      --------      -------
Shares used in computing pro forma net income per share (2)                     16,901        13,870
                                                                --------      --------      --------      --------      -------
Net income per share                                            $   0.31
                                                                --------      --------      --------      --------      -------
Shares used in computing net income per share                     20,367
                                                                --------      --------      --------      --------      -------




                               AS OF DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
                                                         1996        1995         1994          1993          1992
- -------------------------------------------------------------------------------------------------------------------
                                                                                            
BALANCE SHEET DATA(1):
Cash, cash equivalents, and investments                $34,245     $43,509     $  6,714      $  4,133      $  1,715
Working capital                                         31,484      36,057        8,582         5,008         3,245
Total assets                                            94,219      58,947       17,139         9,471         5,542
Long-term obligations, less current portion                264       1,373          931           367           957
Mandatorily redeemable convertible preferred stock          --          --       13,169        12,452        11,735
Total stockholders' equity (deficit)(3)                 82,413      47,913       (1,998)       (6,788)      (10,412)
                                                       =======     =======     ========      ========      ========


(1)THE CONSOLIDATED FINANCIAL DATA GIVES RETROACTIVE EFFECT TO THE MERGERS ON
AUGUST 30, 1996 WITH RISK DATA AND ON NOVEMBER 29, 1996 WITH RETEK, FOR ALL
PERIODS PRESENTED, ACCOUNTED FOR AS POOLINGS OF INTERESTS.

(2)FOR AN EXPLANATION OF THE DETERMINATION OF THE NUMBER OF SHARES USED IN
COMPUTING PRO FORMA NET INCOME PER SHARE, SEE NOTE 1 OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. THESE AMOUNTS GIVE EFFECT TO THE COMMON STOCK DIVIDEND
DECLARED ON MARCH 5, 1996 AND PAID ON APRIL 3, 1996. SEE NOTE 1 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.

(3)EXCLUDES MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AS OF DECEMBER
31, 1994, 1993, AND 1992.

DIVIDEND POLICY

The Company has never paid cash dividends and has no present plans to do so. The
Company currently anticipates that it will retain all future earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's bank credit agreement currently
prohibits the Company from paying or declaring any cash dividends without the
bank's consent.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              15
   16
                    SELECTED CONSOLIDATED QUARTERLY OPERATING
                               RESULTS (UNAUDITED)



                                                               YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------
                                             FIRST         SECOND           THIRD        FOURTH           TOTAL
IN THOUSANDS; EXCEPT PER SHARE DATA          QUARTER        QUARTER         QUARTER       QUARTER           YEAR
- ----------------------------------------------------------------------------------------------------------------
                                                                                          
REVENUES:
As restated for pooling transactions        $ 9,899         $12,556        $14,603        $16,775        $53,833
As previously reported                        7,768           8,710         12,345           --             --
OPERATING INCOME:
As restated for pooling transactions        $  (627)        $   609        $ 1,574        $ 2,562        $ 4,118
As previously reported                          788           1,050          1,524           --             --
NET INCOME:
As restated for pooling transactions        $  (727)        $   366        $ 1,429        $ 5,308        $ 6,376
As previously reported                          813             967          1,379           --             --
NET INCOME PER SHARE (1):
As restated for pooling transactions        $ (0.04)        $  0.02        $  0.07        $  0.26        $  0.31
As previously reported                         0.05            0.06           0.07           --             --
- ----------------------------------------------------------------------------------------------------------------




                                                             YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------------------------------------
                                             FIRST       SECOND         THIRD         FOURTH           TOTAL
IN THOUSANDS; EXCEPT PER SHARE DATA         QUARTER      QUARTER       QUARTER        QUARTER           YEAR
- --------------------------------------------------------------------------------------------------------------
                                                                                       
REVENUES:
As restated for pooling transactions        $6,414        $7,012        $8,738        $ 8,508         $30,672
As previously reported                       5,088         5,920         6,912          7,254          25,174
OPERATING INCOME:
As restated for pooling transactions        $  323        $  293        $  704        $  (178)        $ 1,142
As previously reported                         507           692           865          1,035           3,099
NET INCOME:
As restated for pooling transactions        $  119        $   31        $2,458        $  (485)        $ 2,123
As previously reported                         373           517         2,738            829           4,457
PRO FORMA NET INCOME PER SHARE (1):
As restated for pooling transactions        $ 0.01        $ 0.00          --             --           $  0.13
As previously reported                        0.06          0.08          --             --              0.62
NET INCOME PER SHARE (1):
As restated for pooling transactions          --            --          $ 0.13        $ (0.03)           --
As previously reported                        --            --            0.36           0.11            --
- --------------------------------------------------------------------------------------------------------------


(1)PRO FORMA NET INCOME PER SHARE AND NET INCOME PER SHARE COMPUTATIONS FOR EACH
QUARTER ARE INDEPENDENT AND MAY NOT ADD TO THE PRO FORMA NET INCOME PER SHARE
COMPUTATION FOR THE YEAR. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR PRO FORMA NET INCOME PER SHARE METHODOLOGY. THESE AMOUNTS GIVE
RETROACTIVE EFFECT TO THE COMMON STOCK DIVIDEND PAID ON APRIL 3, 1996 AND THE
MERGERS ON AUGUST 30, 1996 WITH RISK DATA AND ON NOVEMBER 29, 1996 WITH RETEK,
FOR ALL PERIODS PRESENTED. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS. NET INCOME PER SHARE FOR THE QUARTERS ENDED SEPTEMBER 30, 1995 AND
DECEMBER 31, 1995 WAS COMPUTED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES BOARD
OPINION NO. 15, AS ALL OUTSTANDING SHARES OF PREFERRED STOCK WERE CONVERTED INTO
SHARES OF COMMON STOCK PRIOR TO THE BEGINNING OF THOSE PERIODS.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.


16
   17
                                STOCK MARKET DATA

   Since the initial public offering of the Company's Common Stock at $7.00 per
share on June 20, 1995, the Common Stock has been traded on the Nasdaq National
Market under the symbol "HNCS." Prior to such date, there was no public market
for the Common Stock.

   The following table sets forth for the periods indicated the high and low
closing price per share of Common Stock on the Nasdaq National Market as
reported by Nasdaq.




                                                 YEAR ENDED DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------
                                            FIRST   SECOND     THIRD   FOURTH     TOTAL
IN THOUSANDS; EXCEPT PER SHARE DATA        QUARTER  QUARTER   QUARTER  QUARTER    YEAR
- ---------------------------------------------------------------------------------------
                                                                 
Common stock price range (1) (2):
   High                                     $38.38   $50.62   $45.75   $44.00   $50.62
   Low                                       18.88    26.25    22.06    26.75    18.88


(1)THE COMPANY'S COMMON STOCK IS TRADED IN THE OVER-THE-COUNTER MARKET ON THE
NASDAQ NATIONAL MARKET SYSTEM UNDER THE SYMBOL HNCS. AT DECEMBER 31, 1996 THERE
WERE APPROXIMATELY 212 SHAREHOLDERS OF RECORD BASED UPON INFORMATION RECEIVED
FROM THE COMPANY'S TRANSFER AGENT. COMMON STOCK PRICES ARE CLOSING PRICES AS
REPORTED ON THE NASDAQ NATIONAL MARKET SYSTEM. PRIOR TO JUNE 20, 1995, THERE WAS
NO ESTABLISHED PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK.

(2) ON MARCH 5, 1996, THE COMPANY ANNOUNCED THAT ITS BOARD OF DIRECTORS HAD
APPROVED A TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A COMMON STOCK
DIVIDEND. THIS STOCK DIVIDEND WAS PAID TO THE CORPORATION'S STOCKHOLDERS OF
RECORD AS OF THE CLOSE OF BUSINESS ON MARCH 18, 1996. THE CORPORATION'S
STOCKHOLDERS OF RECORD RECEIVED STOCK CERTIFICATES REPRESENTING ONE ADDITIONAL
SHARE OF HNC SOFTWARE INC. COMMON STOCK FOR EACH OUTSTANDING SHARE OF COMMON
STOCK THEN HELD WITH DISTRIBUTION OF SHARES ISSUED PURSUANT TO THE DIVIDEND
OCCURRING ON APRIL 3, 1996. ALL REFERENCES IN THE ACCOMPANYING FINANCIAL
INFORMATION TO SHARE AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE
RETROACTIVE EFFECT TO THE STOCK SPLIT.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              17
   18
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by, or described in, such
forward-looking statements. Factors that may affect such forward-looking
statements include, without limitation: the Company's ability to successfully
develop new products for its current markets and new markets; the Company's loss
of a large customer; the Company's inability to secure new government contracts
for technology development; the impact of competition on the Company's revenues,
market share or ability to maintain its premium usage-based pricing terms and to
generate recurring revenue; the availability to the Company, at reasonable cost,
of data required to operate or update its intelligent decision software
products; changes in law or regulatory requirements that adversely affect or
preclude customers from using the Company's products for certain applications;
delays in the Company's introduction of new products; and failure by the Company
to keep pace with emerging technologies.

   When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's reports on
Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and factors that may affect
the Company's business.

OVERVIEW

HNC Software Inc. develops, markets and supports intelligent client-server
software solutions for mission-critical decision applications in real-time
environments. HNC employs proprietary neural-network predictive models in many
of its products to convert existing data and business experiences into
meaningful recommendations and actions. HNC was founded in 1986 to provide
software tools and contracted technology services using neural-network
technology. The Company has leveraged its client-server software architecture
across a wide range of markets. Current HNC software products detect
credit/debit card fraud (Falcon), manage merchant risk (Eagle), manage credit
card profitability (ProfitMax), detect fraud in credit card applications (Falcon
Sentry), process credit card applications (Capstone), analyze multiple credit
card portfolios (Falcon Select), automate lending decisions (Colleague),
automate home valuation (AREAS), manage retail inventories (SkuPLAN), provide
management solutions to retailers (the Retek Merchandising System), extract
information from customers' databases (DataBase Mining Workstation) and estimate
loss reserves for workers' compensation insurance claims (MIRA).

   During fiscal 1996, the Company continued new product development with the
announcements of ProfitMax Bankruptcy, a neural network module to predict credit
card bankruptcy cases, Falcon Expert, an add-on module to Falcon that allows
Falcon users to customize their fraud management operations, ProviderCompare,
which enables insurers to compare the relative costs of health care providers
with respect to treating workers' compensation injuries, CompCompare, a product
that permits insurers to compare historical costs of workers' compensation
insurance claims, PMAdvisor, a software system to automate comparisons of
therapy treatments against clinical guidelines, Retek Data Warehouse, an
enterprise-wide data warehouse tuned and tailored for the retail industry, and
Active Retail Intelligence (ARI), a management decision system that can identify
performance exceptions and appropriate corrective actions. The Company also
performs contract research and development using neural networks and other
computational intelligence methods.

   During 1996, the Company established Aptex Software Inc. ("Aptex"), a
partially owned subsidiary, in order to exploit certain text analysis
technology that is being used to develop products for the Internet environment
and other markets, such as the education market. Aptex develops commercial
applications of the Company's Content Vector modeling techniques that were
originally developed by the Company under U.S. Government contracts. During
1996, Aptex introduced three new products; Convectis, an intelligent document
categorization and routing server; VITAL ResourceMiner, an interactive textbook
correlation system for publishers and school districts; and SelectCast, an
Internet advertising placement server.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

18
   19
   On August 30, 1996 the Company consummated its acquisition of Risk Data
Corporation ("RDC"), a company based in Irvine, California that is engaged in
the business of developing and marketing proprietary software decision products
for the workers' compensation insurance industry, including MIRA, a product for
predicting loss reserves for workers' compensation insurance claims. Under the
terms of the acquisition, which was accounted for as a pooling of interests, the
Company exchanged 1,891,456 common shares for all of the outstanding shares of
RDC and RDC became a wholly owned subsidiary of the Company. See Note 2 of Notes
to Consolidated Financial Statements. In addition, on November 29, 1996, the
Company consummated its acquisition of Retek Distribution Corporation ("Retek"),
a company that develops and markets merchandise management products for
retailers and their vendors. Under the terms of the Retek agreement, which was
accounted for as a pooling of interests, the Company exchanged 1,367,196 common
shares for all of Retek's outstanding shares and Retek became a wholly owned
subsidiary of the Company. See Note 2 of Notes to Consolidated Financial
Statements. The Company anticipates that in the future it will from time to time
continue to consider acquisitions of other businesses in order to expand the
markets served by the Company and to acquire complementary technologies,
products and personnel.

   During, 1996, the Company completed a distribution of common shares pursuant
to a two-for-one common stock split as approved by its Board of Directors. The
stock dividend was paid to the Company's stockholders of record as of the close
of business on March 18, 1996, who received stock certificates representing one
additional share of HNC common stock for each outstanding share then held. In
addition, at a Special Meeting of Stockholders held on December 6, 1996, the
number of shares of common stock reserved for issuance under the Company's 1995
Equity Incentive Plan was increased by 1,500,000 shares.

   After giving retroactive effect to the Company's acquisitions of RDC and
Retek, accounted for as poolings of interests, from fiscal 1992 through fiscal
1996, HNC experienced compound annual growth in total revenues of 55%. This
revenue growth resulted primarily from increased license fees for Falcon, Retek
Merchandising System, MIRA and, to a lesser extent, from increased license and
installation fees for Colleague, AREAS and SkuPLAN. Because of the sales,
development and customization cycle associated with the Company's products, the
Company has not received significant revenues to date from Falcon Select, Falcon
Expert, Capstone, Sentry, Convectis, VITAL ResourceMiner, SelectCast,
CompCompare or ProviderCompare.

   Since many of the Company's software solutions are enhanced by periodic
decision model updates, the Company's customers realize significant value from
the Company's ongoing services. In addition, the mission-critical nature of many
of HNC's software solutions creates customer demand for long-term support
commitments. The Company therefore markets most of its intelligent decision
software solutions as an ongoing service that includes software licenses,
decision model updates, application consulting and on-line or on-site support
and maintenance. The Company's pricing for Falcon, Falcon Debit, Eagle, Areas,
ProfitMax, MIRA, CompCompare and ProviderCompare typically includes an annual or
monthly usage fee and a three to seven year contract commitment. In 1996, 1995
and 1994, recurring revenues from these long-term contracts represented 41.8%,
44.8% and 37.3% of the Company's total revenues and 52.7%, 63.8% and 59.2% of
the Company's software license and installation revenues, respectively. As of
December 31, 1996, the average recurring revenue contract term was approximately
four and one-half years.

   The Company also derives a portion of its revenues from funded government and
other contract research into solutions using neural networks and other
computational intelligence methods. The Company currently performs contract
research for the United States Government in areas that support HNC's commercial
product development plans, such as mathematical modeling, automated text
analysis and image understanding. Because of the Company's shift in strategy
from being a software tools and contracted technology services company to a
complete software solutions company, sales under prime contracts and
subcontracts with the United States Government have declined to 3.0% of the
Company's total revenues in 1996 from 7.3% in 1995 and from 11.3% in 1994. Most
of these contracts, however, result in funding for basic research that may be
useful in development of commercial products that would otherwise have been
financed entirely by the Company.

   The Company's quarterly revenues and operating results have varied
significantly in the past and may do so in the future. Although to date a
significant portion of the Company's revenues has come from monthly usage fees
under long-term contracts, there can be no assurance that the Company will
continue to realize


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              19

   20
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                   CONTINUED

such recurring revenues or that customers under such contracts would not seek to
cancel such contracts if the Company's products were not competitive or did not
achieve effective results. A significant portion of the Company's business has
been derived from substantial orders placed by large organizations, and the
timing of such orders has caused material fluctuations in the Company's
operating results. In addition, because the Company's Retek subsidiary generally
provides its products to customers under perpeptual licenses, it tends to
recognize the majority of its revenue upon delivery and the customer's
acceptance of the software. Thus, revenues derived by Retek may be more likely
to be recognized in irregular patterns that can result in quarterly variations
in the Company's revenues. The Company's expense levels are based in part on its
expectations regarding future revenues and in the short term are fixed to a
large extent. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. As a result,
if anticipated revenues in any quarter do not occur or are delayed, the
Company's operating results for that quarter would be disproportionately
affected. The Company's operating results are also affected by seasonal trends.
Such trends may include higher revenues in the third quarter and lower revenues
in the fourth quarter as a result of fewer installations of the Falcon product
scheduled during the fourth quarter when credit card activity is at peak levels.
Operating results also may fluctuate due to factors such as the demand for the
Company's products, product life cycles, the introduction and acceptance of new
products and product enhancements by the Company or its competitors, changes in
the mix of distribution channels through which the Company's products are
offered, changes in the level of operating expenses, customer order deferrals in
anticipation of new products, competitive conditions in the industry and
economic conditions generally or in various industry segments.

   The Company expects quarterly fluctuations to continue for the foreseeable
future. Accordingly, the Company believes that period-to-period comparisons of
its financial results should not be relied upon as an indication of the
Company's future performance. No assurance can be given that the Company will be
able to achieve or maintain profitability on a quarterly or annual basis in the
future. Due to all of the foregoing factors, it is possible that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected.

RESULTS OF OPERATIONS

The consolidated financial data gives retroactive effect to the mergers on
August 30, 1996 with Risk Data and on November 29, 1996 with Retek, for all
periods presented, accounted for as poolings of interests.

TOTAL REVENUES. The Company's revenues are comprised of software license and
installation revenues and contracts and other revenues. Total revenues increased
by 75.5% to $53.8 million in 1996 and by 48.4% to $30.7 million in 1995.
International revenues represented 23.5% of total revenues in 1996, 17.9% in
1995, and 11.4% in 1994. Product licenses to First Data Resources, Inc., the
largest provider of credit card charge receipt processing services to banks,
accounted for 11.4%, 12.4% and 11.6% of the Company's total revenues during
1996, 1995 and 1994, respectively. Retek is currently more focused in
international markets than HNC historically. The Company believes that
international sales represent a significant opportunity for revenue growth and
expects international sales to increase as a percent of total revenue. The
Company intends to continue the expansion of its international sales efforts.

   Software License and Installation Revenues. The Company's software license
and installation revenues are derived from annual license fees, monthly license
fees, perpetual license fees, annual maintenance fees and installation fees. The
Company typically licenses many of its products for an annual or monthly usage
fee under long-term contracts that include software licenses, decision model
updates, application consulting, on-line or on-site support and maintenance.
Revenues from long-term software license agreements are recognized ratably over
the respective license periods. Revenue from licenses is recognized when there
is no significant continuing performance obligation under the agreement and
collection is probable. Revenues from perpeptual software licenses are generally
recognized upon delivery and acceptance by the customer. Revenues from software
installations generally are recognized as the services are performed using the
percentage of completion method based on costs incurred to date compared to
total estimated costs at completion. Amounts received in advance of performance
under the contracts are recorded as deferred revenue and are generally
recognized within one year from receipt. See Note 1 of Notes to Consolidated
Financial Statements.

   Software license and installation revenues increased by 98.4% to $42.7
million in 1996 and by 65.3% to $21.5 million in 1995. The increase from 1995 to


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

20
   21
1996 was due primarily to the growth in Falcon license fees and the growth of
license fees of new products, including Retek's Merchandise Management System,
MIRA, and SkuPLAN. Substantially all of the increase from 1994 to 1995 was
derived from new customer installations of Falcon, as Falcon continued to gain
market acceptance.

   Contracts and Other Revenues. Contracts and other revenues are derived
primarily from new product development contracts with commercial customers and
research contracts with the United States Government. The Company typically
contracts with one or two commercial partners for pilot development and
installation of its new products and with the United States Government for
additional research funds. Revenues from contract services are generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion. See Note 1 of Notes to Consolidated Financial Statements.

   Contracts and other revenues increased by 21.7% to $11.1 million in 1996 and
by 19.5% to $9.1 million in 1995. The increase in 1996 was primarily the result
of greater revenues from commercial new product pilot installation contracts
with customers in support of the Company's development of ProfitMax, a credit
card portfolio management system, Capstone, an application processing system,
and Sentry, an application fraud detection system. Increases in 1995 were
primarily the result of new product pilot contracts for Colleague, SkuPLAN and
Eagle. These products concluded their pilot phase during 1996. The increases in
1995 were partially offset by reduced revenues from Mitek Systems, Inc.
("Mitek"), pursuant to a license agreement and a computer board supply agreement
which expired during November 1995. Under this agreement, the Company received
an initial license and support fee, received additional fees based on a
percentage of Mitek's revenues and sold certain computer boards to Mitek. The
Company does not expect material revenues in the future under this agreement.
See Note 7 of Notes to Consolidated Financial Statements.

   During 1996 the Company had a significant number of new product development
projects and new product pilot installations in process for products which it
expects to begin shipping in production versions in 1997. There can be no
assurance that any of these product development projects or pilot installations
will be successful or be completed within anticipated time schedules or that the
customers who serve as pilot installation sites will be satisfied with these
products or agree to license them. If the Company's new product development
efforts are unsuccessful, are not completed on a timely basis, or are not well
received by pilot customers, the Company may be compelled to delay or entirely
discontinue the release of production versions of these products, which would
have a material adverse effect on the Company's results of operations.

   United States Government contracts accounted for 3.0%, 7.3% and 11.3% of the
Company's total revenues during 1996, 1995, and 1994, respectively. Revenues
from government contracts decreased to $1.6 million in 1996 from $2.3 million in
1995 and $2.3 million in 1994. This decrease was due primarily to a lengthening
of the award process and budgetary constraints within the federal government. In
each of 1996, 1995 and 1994, over 90% of the Company's total revenues from the
United States Government were derived from research projects performed for
various government defense agencies and companies under contract to such
agencies. Any change in the pattern of government spending, reduced demand from
the defense industry or the loss of any of the Company's major government
contracts could have an adverse effect on the Company's business, financial
condition and results of operations.

GROSS MARGIN. The following table sets forth the gross margin for each of the
Company's revenue categories for each of the comparison periods.



                                                YEAR ENDED DECEMBER 31,
                                              ----------------------------------
                                              1996        1995        1994
- --------------------------------------------------------------------------------
                                                             
Software license and installation             73.3%       72.4%       62.8%
Contracts and other                           30.9%       24.6%       34.1%
- --------------------------------------------------------------------------------


   Software License and Installation Gross Margin. Software license and
installation costs primarily represent the Company's expenses for personnel
engaged in installation and support, travel to customer sites and the costs of
documentation materials. The Company's gross margin on software licenses and
installation improved to 73.3% in 1996 from 72.4% in 1995 and 62.8% in 1994.
Gross margins improved primarily as a result of the Company's ability to move
from price discounts for early adopters of its products to full pricing for
products sold to subsequent customers. The Company anticipates that gross
margins on software licenses and installation will not change significantly,
with some variation depending upon early adopter pricing for new products as
they are introduced.

   Contracts and Other Gross Margin. Contracts and other costs consist primarily
of personnel-related costs.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              21

   22
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                   CONTINUED


The Company's gross margin on contracts and other revenues was 30.8% in 1996,
24.6% in 1995 and 34.1% in 1994. The improvement in gross margins during 1996 is
due primarily to the Company's increased ability to better price its new pilot
projects with its customer base. Decreases in gross margins during 1995 were due
primarily to the completion of the Mitek License Agreement and the corresponding
decrease in Mitek revenues. Since the majority of the revenues from Mitek had
relatively higher gross margins, contracts and other gross margins in 1994 were
positively affected by the Company's relationship with Mitek. With the Mitek
agreement substantially completed during 1995, the Company does not anticipate
that its gross margin on contracts and other revenue will change significantly
from the current level.

OPERATING EXPENSES. Research and Development Expenses. Research and development
expenses consist primarily of salaries and other personnel-related expenses,
subcontracted services, depreciation for development equipment and supplies.
Research and development expenses increased by 101.7% to $13.3 million in 1996
and by 51.5% to $6.6 million in 1995. Research and development expenses as a
percentage of total revenues were 24.7% in 1996, 21.5% in 1995 and 21.0% in
1994. The primary reason for the increases was greater staffing to support more
new product development programs, primarily for ProfitMax, Capstone,
CompCompare, ProviderCompare, and Retek Merchandising 6.0. These costs also
included the initial product development costs of the Company's Aptex business
unit, which has not had a significant impact on revenues. Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. Based on the Company's product development process, technological
feasibility is not established until completion of a working model. Costs
incurred by the Company between completion of the working model and the point at
which the product is ready for general release have been insignificant. As a
result, no significant software development costs were capitalized through
December 31, 1996. The Company anticipates that research and development
expenses will increase in dollar amount for the foreseeable future.

   The Company's success depends upon its ability
to successfully enter new markets by developing new products on a timely and
cost-effective basis. The Company's products often require customer data for
decision model development and system installation. As a result, completion of
new products may be delayed while the Company extracts sufficient amounts of
statistically relevant data and develops the models. During this development
process, the Company relies on its potential customers in the new market to
provide data and to help train Company personnel in the use and meaning of the
data in the specific industry. These relationships also assist the Company in
establishing presence and credibility in the new market. There can be no
assurance that these potential customers, most of which have significantly
greater financial and marketing resources than the Company, will not compete
with the Company in the future or will not otherwise discontinue their
relationships with or support of the Company, either during development of the
Company's products or thereafter.

   Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries, commissions, travel, entertainment and promotional expenses. Sales
and marketing expenses increased by 66.7% to $10.7 million in 1996 and by 78.2%
to $6.4 million in 1995. Sales and marketing expenses as a percentage of total
revenues were 19.9% in 1996, 20.9% in 1995 and 17.4% in 1994. The increases are
primarily a result of increased staffing as the Company builds its direct sales
and marketing staff, including opening sales offices in both Europe and Japan,
and increased expenses for trade shows, advertising and other marketing
programs. The Company expects sales and marketing expenses to continue to
increase for the foreseeable future. Such expenses could also increase as a
percentage of total revenues as the Company continues to develop a direct sales
force in Europe, Japan and other international markets, expand its domestic
sales and marketing organization and increase the breadth of its product line.

   General and Administrative Expenses. General and administrative expenses
consist primarily of personnel costs for finance, contract administration, human
resources and general management, as well as acquisition, insurance and
professional services expenses. General and administrative expenses, excluding
$1.2 million of acquisition expenses in 1996, were $5.5 million in 1996, a 47.5%
increase, and $3.7 million in 1995, a 42.8% increase. The primary reason for
these increases was increased staffing to support the Company's growth and
additional expenses associated with being a public company. General and
administrative expenses, excluding acquisition expenses, as a per-


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

22
   23
centage of total revenues were 10.1% in 1996, 12.1% in 1995, and 12.5% in 1994.

OTHER INCOME (EXPENSE), NET       Interest and other income in 1996 was $2.1
million compared to $834,000 in 1995. The increase was primarily due to
increased interest income in 1996 from higher cash and investment balances,
which consisted primarily of the proceeds from the Company's initial public
offering in June 1995 and secondary public offering in December 1995.

INCOME TAX (BENEFIT) PROVISION. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The income tax (benefit) provision takes into account the
effects of state income taxes, offset by utilization of net operating loss
carryforwards. The income tax benefit of $608,000 in 1996 was primarily
attributable to the recognition of a $2.7 million deferred tax asset based on
anticipated future utilization of all of the remaining net operating loss
carryforwards and research and development credit carryforwards relating to Risk
Data Corporation and Retek Distribution Corporation, two companies that HNC
acquired during fiscal 1996. That deferred tax asset had previously been offset
by a valuation allowance. The Company released the valuation allowance during
the fourth quarter of 1996, based upon management's assessment that it was more
likely than not that the Company would realize the asset in future periods.
Therefore, management does not anticipate recording significant income tax
benefits in the future. The income tax benefit of $575,000 in 1995 was primarily
attributable to the recognition of a $1.7 million deferred tax asset based on
anticipated future utilization of all of the remaining net operating loss
carryforwards and research and development credit carryforwards. The income tax
benefit of $455,000 in 1994 was primarily attributable to the utilization of net
operating loss carryforwards and the recognition of a $500,000 deferred tax
asset based primarily on anticipated future utilization of net operating loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES. Net cash provided by operating activities in
1996 of $641,000 represented net income before depreciation and amortization of
approximately $9.7 million, further increased by contract and license
prepayments of $1.5 million, and accounts payable of $1.8 million offset by
increases in accounts receivable of $10.1 million and deferred taxes of $1.3
million. Net cash provided by operating activities in 1995 of $3.9 million
represented net income before depreciation and amortization of approximately
$3.7 million, further increased by contract and license prepayments of $1.3
million and accrued liabilities of $1.8 million, largely offset by increases in
accounts and other receivables of $1.4 million and deferred income taxes of $1.5
million.

   Net cash used in investing activities was $8.1 million in 1996 primarily due
to net purchases of investments of $4.3 million. In addition, the Company
expended $3.9 million for property and equipment during 1996, including $3.2
million for computer equipment and $0.7 million for furniture, fixtures and
leasehold improvements. Net cash used in investing activities was $24.0 million
in 1995 primarily as a result of $22.0 million of net purchases of investments.
The Company also acquired approximately $1.9 million of property and equipment
in 1995, primarily for computer equipment.

   Net cash used in financing activities was $5.6 million in 1996 primarily due
to the Company's repayment of $8.2 million of loans and notes payable of Risk
Data Corporation and Retek Distribution Corporation, partially offset by
proceeds from the issuance of common stock of $1.9 million and the tax benefit
from stock options of $896,000. Net cash provided by financing activities was
$35.2 million in 1995, primarily as a result of the Company's initial public
offering in June 1995 and secondary public offering in December 1995. Net cash
provided from financing activities was $5.3 million in 1994, primarily from
preferred stock financing.

   As of December 31, 1996, the Company had $34.2 million in cash, cash
equivalents, and investments. In July 1996, the Company amended its loan
agreement with its bank. The amended loan agreement provides for a line of
credit of up to $5.0 million through July 10, 1997 bearing interest at the
bank's prime rate, which was 8.25% at December 31, 1996. The Company believes
that its current cash balances, its credit facility and net cash provided by
operating activities, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Management intends to
invest the Company's cash in excess of current operating requirements in
short-term, interest-bearing, investment grade securities. A portion of the
Company's cash could be used to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies or data. From
time to time, in the ordinary course of business, the Company evaluates
potential acquisitions of such businesses, products, technologies or data.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              23

   24
                           CONSOLIDATED BALANCE SHEET



                                                                                   DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
IN THOUSANDS; EXCEPT PER SHARE DATA                                            1996          1995
- ---------------------------------------------------------------------------------------------------
                                                                                     
ASSETS
Current assets:
   Cash and cash equivalents                                                 $  7,517      $ 20,583
   Investments available for sale                                               7,353        14,590
   Accounts receivable, net                                                    19,468         6,996
   Current portion of deferred income taxes                                     6,400         1,702
   Other current assets                                                         1,869         1,561
                                                                             --------      --------
     Total current assets                                                      42,607        45,432
Investments available for sale                                                 19,375         8,336
Deferred income taxes, less current portion                                    22,966           346
Property and equipment, net                                                     5,966         3,991
Other assets                                                                    3,305           842
                                                                             --------      --------
                                                                             $ 94,219      $ 58,947
                                                                             --------      --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                          $  3,270      $  1,434
   Accrued liabilities                                                          4,058         2,818
   Deferred revenue                                                             3,377         2,101
   Bank line of credit                                                           --           2,195
   Other current liabilities                                                      418           827
                                                                             --------      --------
     Total current liabilities                                                 11,123         9,375
                                                                             --------      --------
Notes payable to stockholders                                                    --           1,000
                                                                             --------      --------
Other non-current liabilities                                                     683           659
                                                                             --------      --------

Commitments and contingencies (Notes 6 and 11)

Stockholders' equity:
   Preferred stock, $0.001 par value - 4,000 shares authorized:
     no shares issued or outstanding                                             --            --
   Common stock, $0.001 par value - 50,000 and 40,000 shares authorized:
     19,126 and 17,892 shares issued and outstanding, respectively                 19            18
   Paid-in capital                                                             83,554        55,334
   Unrealized (loss) gain on investments available for sale                       (59)           92
   Foreign currency translation adjustment                                         54          --
   Accumulated deficit                                                         (1,155)       (7,531)
                                                                             --------      --------
     Total stockholders' equity                                                82,413        47,913
                                                                             --------      --------
                                                                             $ 94,219      $ 58,947
                                                                             --------      --------



                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                   [LOGO HNC]
                                HNC SOFTWARE INC.


24
   25
                        CONSOLIDATED STATEMENT OF INCOME



- -----------------------------------------------------------------------------------------------
                                                                     YEAR ENDED DECEMBER 31
IN THOUSANDS; EXCEPT PER SHARE DATA                              1996        1995       1994
- -----------------------------------------------------------------------------------------------
                                                                              
REVENUES:
   Software license and installation                           $ 42,705    $ 21,526    $ 13,023
   Contracts and other                                           11,128       9,146       7,651
                                                               --------    --------    --------
     Total revenues                                              53,833      30,672      20,674
                                                               --------    --------    --------

OPERATING EXPENSES:
   Software license and installation                             11,411       5,934       4,847
   Contracts and other                                            7,694       6,894       5,040
   Research and development                                      13,271       6,581       4,344
   Sales and marketing                                           10,705       6,422       3,603
   General and administrative                                     6,634       3,699       2,591
                                                               --------    --------    --------
     Total operating expenses                                    49,715      29,530      20,425
                                                               --------    --------    --------
Operating income                                                  4,118       1,142         249
Interest and other income                                         2,128         834         156
Interest expense                                                   (478)       (428)       (312)
                                                               --------    --------    --------
       Income before income tax benefit                           5,768       1,548          93
Income tax benefit                                                 (608)       (575)       (455)
                                                               --------    --------    --------
       Net income                                              $  6,376    $  2,123    $    548
                                                               --------    --------    --------

Pro forma net income per share                                             $    .13    $    .04
                                                               --------    --------    --------
Shares used in computing pro forma
   net income per share                                                      16,901      13,870
                                                               --------    --------    --------
Net income per share                                           $    .31
                                                               --------    --------    --------
Shares used in computing net income per share                    20,367
                                                               --------    --------    --------



                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.


                                                                              25
   26
                      CONSOLIDATED STATEMENT OF CASH FLOWS



                                                                           DECEMBER 31
IN THOUSANDS                                                          1996          1995         1994
- ------------------------------------------------------------------------------------------------------
                                                                                      
Cash flows from operating activities:
   Net income                                                      $  6,376      $  2,123      $   548
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                    3,344         1,589          629
     Changes in assets and liabilities:
       Accounts receivable, net                                     (10,100)       (1,393)      (1,754)
       Other assets                                                  (1,178)         (664)      (1,348)
       Deferred income taxes                                         (1,332)       (1,548)          --
       Accounts payable                                               1,836           658          139
       Accrued liabilities                                              625         1,756          390
       Deferred revenue                                               1,472         1,337          (92)
       Other liabilities                                               (402)           --          280
                                                                   --------      --------      -------
         Net cash provided by (used in) operating activities            641         3,858       (1,208)
                                                                   --------      --------      -------

Cash flows from investing activities:
   Purchases of investments                                         (26,113)      (28,666)      (7,134)
   Maturities of investments                                         18,125         4,182        6,000
   Proceeds from sale of investments                                  3,707         2,467           --
   Acquisitions of property and equipment                            (3,853)       (1,947)      (1,534)
                                                                   --------      --------      -------
         Net cash used in investing activities                       (8,134)      (23,964)      (2,668)
                                                                   --------      --------      -------
Cash flows from financing activities:
   Net proceeds from issuances of common stock                        1,935        33,726           10
   Net proceeds from issuance of preferred stock                         --            --        4,949
   Tax benefit from stock options                                       896           800           --
   Proceeds under bank line of credit                                   309         1,085        3,255
   Repayments under bank line of credit                              (2,504)         (265)      (2,890)
   Proceeds from issuances of notes payable to stockholders              --         1,000           --
   Repayment of notes payable to stockholders                        (1,000)           --           --
   Repayment of debt from asset purchases                            (4,710)           --           --
   Capital lease payments                                              (553)         (502)        (304)
   Proceeds from issuances of bank notes payable                      1,999            --          603
   Repayments of bank notes payable                                  (1,999)         (687)        (348)
                                                                   --------      --------      -------
         Net cash (used in) provided by financing activities         (5,627)       35,157        5,275
                                                                   --------      --------      -------

Effect of exchange rate changes on cash                                  54            --           --
                                                                   --------      --------      -------
Net (decrease) increase in cash and cash equivalents                (13,066)       15,051        1,399
Cash and cash equivalents at beginning of period                     20,583         5,532        4,133
                                                                   --------      --------      -------
Cash and cash equivalents at end of period                         $  7,517      $ 20,583      $ 5,532
                                                                   --------      --------      -------
SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
                                                                   --------      --------      -------
   Assets purchased through issuance of debt                       $  4,710      $     --      $    --
                                                                   --------      --------      -------
   Acquisitions of property and equipment under capital leases     $    344      $    411      $ 1,128
                                                                   --------      --------      -------
   Conversion of preferred stock                                   $     --      $ 13,518      $    --
                                                                   --------      --------      -------
   Accretion of dividends on mandatorily redeemable
     convertible preferred stock                                   $     --      $    348      $   717
                                                                   --------      --------      -------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
                                                                   --------      --------      -------
   Interest paid                                                   $    448      $    390      $   305
                                                                   --------      --------      -------
   Income taxes paid                                               $     50      $    144      $    30
                                                                   --------      --------      -------




                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.


26
   27
                      CONSOLIDATED STATEMENT OF CHANGES IN
                         STOCKHOLDERS' EQUITY (DEFICIT)





                                                PREFERRED STOCK
                                     -------------------------------------------
                                          SERIES A                SERIES E               COMMON STOCK
                                     --------------------------------------------------------------------       PAID-IN
IN THOUSANDS                        SHARES      AMOUNT     SHARES        AMOUNT       SHARES      AMOUNT       CAPITAL
- ------------------------------------------------------------------------------------------------------------------------
                                                                                         
BALANCE AT DECEMBER 31, 1993           380        $--            --        $--         3,730       $  4       $  6,302
Common stock options exercised                                                            40                        10
Issuance of Series E preferred
   stock, net of issuance costs                               1,282          1                                   4,948
Accretion of dividends                                                                                            (717)
Net income
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994           380         --         1,282          1         3,770          4         10,543
Common stock options exercised                                                           207                        85
Accretion of dividends                                                                                            (348)
Issuance of common stock in
   initial public offering,
   net of issuance costs                                                               2,376          2         14,329
Conversion of convertible
   preferred stock into
   common stock                       (380)                  (1,282)        (1)        8,956          9         10,618
Issuance of common stock in
   secondary public offering,
   net of issuance costs                                                               1,116          2         19,184
Issuance of common stock at
   inception of Retek (Note 2)                                                         1,367          1             (1)
Tax benefit from stock option
   transactions                                                                                                    800
Unrealized gain on investments
   available for sale
Stock warrant exercised                                                                  100                       124
Net income
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995            --         --            --         --        17,892         18         55,334
Common stock options exercised                                                         1,140          1          1,095
Common stock issued for
   Employee Stock Purchase Plan                                                           94                       839
Tax benefit from stock
   option transactions                                                                                           7,889
Tax benefit from Retek
   taxable pooling (Note 9)                                                                                     18,397
Unrealized loss on investments
   available for sale
Foreign currency translation
   adjustment
Net income
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996            --        $--            --        $--        19,126       $ 19       $ 83,554
========================================================================================================================





                                  UNREALIZED
                                 (LOSS) GAIN ON    FOREIGN                        TOTAL
                                   INVESTMENTS     CURRENCY                    STOCKHOLDERS'
                                    AVAILABLE     TRANSLATION   ACCUMULATED        EQUITY
                                    FOR SALE       ADJUSTMENT    (DEFICIT)        (DEFICIT)
- -------------------------------------------------------------------------------------------
                                                                   
BALANCE AT DECEMBER 31, 1993          $--              $--       $(13,094)       $ (6,788)
Common stock options exercised                                                         10
Issuance of Series E preferred
   stock, net of issuance costs                                                     4,949
Accretion of dividends                                                               (717)
Net income                                                            548             548
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994           --               --        (12,546)         (1,998)
Common stock options exercised                                                         85
Accretion of dividends                                                               (348)
Issuance of common stock in
   initial public offering,
   net of issuance costs                                                           14,331
Conversion of convertible
   preferred stock into
   common stock                                                     2,892          13,518
Issuance of common stock in
   secondary public offering,
   net of issuance costs                                                           19,186
Issuance of common stock at
   inception of Retek (Note 2)                                                       --
Tax benefit from stock option
   transactions                                                                       800
Unrealized gain on investments
   available for sale                    92                                            92
Stock warrant exercised                                                               124
Net income                                                          2,123           2,123
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995             92             --         (7,531)         47,913
Common stock options exercised                                                      1,096
Common stock issued for
   Employee Stock Purchase Plan                                                       839
Tax benefit from stock
   option transactions                                                              7,889
Tax benefit from Retek
   taxable pooling (Note 9)                                                        18,397
Unrealized loss on investments
   available for sale                  (151)                                         (151)
Foreign currency translation
   adjustment                                           54                             54
Net income                                                          6,376           6,376
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996          $ (59)           $54       $ (1,155)       $ 82,413
===========================================================================================




                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              27
   28
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IN THOUSANDS; EXCEPT PER SHARE DATA

NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY. HNC Software Inc. (the "Company") develops, markets and supports
intelligent client-server software solutions for mission-critical decision
applications in real-time environments. The Company also performs contract
research and development using neural networks and other computational
intelligence methods.

BASIS OF PRESENTATION. The consolidated financial statements and related notes
give retroactive effect to the mergers on August 30, 1996 with Risk Data
Corporation ("RDC") and on November 29, 1996 with Retek Distribution Corporation
("Retek"), for all periods presented, accounted for as poolings of interests.
RDC is an insurance information technology services firm engaged in the business
of developing and marketing analytical benchmarking and risk management software
products primarily for insurance carriers, state insurance funds and third party
administrators. Retek develops, markets and installs inventory management system
software primarily for customers in the retail industry.

   The consolidated balance sheet as of December 31, 1996 and 1995 includes the
accounts of RDC and Retek as of December 31, 1996 and 1995. The consolidated
statements of income, of cash flows and of changes in stockholders' equity
(deficit) for each of the three years in the period ended December 31, 1996
include the results of RDC and Retek for the years then ended. The term
"Company" as used in these consolidated financial statements refers to HNC
Software Inc. and its subsidiaries, including RDC and Retek.

   No adjustments to conform accounting methods were required. Certain amounts
have been reclassified with regard to presentation of the financial information
of the two companies. Revenues and net income (loss) for each of the previously
separate companies for the periods prior to their acquisitions are as follows:



                                                                       YEAR ENDED
                      NINE MONTHS ENDED   SIX MONTHS ENDED             DECEMBER 31,
                     SEPTEMBER 30, 1996    JUNE 30, 1996       -------------------------
                        (UNAUDITED)          (UNAUDITED)         1995             1994
- ----------------------------------------------------------------------------------------
                                                                   
Revenues:
   HNC                   $ 31,423              $ 16,478        $ 25,174        $ 16,473
   RDC                       --                   2,600           4,577           4,201
   Retek                    5,635                 3,377             921            --
- ----------------------------------------------------------------------------------------
                         $ 37,058              $ 22,455        $ 30,672        $ 20,674
- ----------------------------------------------------------------------------------------

Net income (loss):
   HNC                   $    975              $  1,780        $  4,457        $  1,923
   RDC                       --                  (2,184)         (1,952)         (1,375)
   Retek                       93                    43            (382)           --
- ----------------------------------------------------------------------------------------
                         $  1,068              $   (361)       $  2,123        $    548
- ----------------------------------------------------------------------------------------



PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.

FINANCIAL STATEMENT PREPARATION. The preparation of financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS. Cash equivalents are highly liquid investments and consist of
investments in money market accounts and commercial paper purchased with
maturities of three months or less.

INVESTMENTS. Management determines the appropriate classification of its
investments in marketable debt and equity securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. As of and for the
year ended December 31, 1994 based upon the Company's intent and ability, the
Company classified such securities in the held-to-maturity category and recorded
these securities at amortized cost, which approximated market value. As of
December 31, 1995, the Company reassessed its intent and ability with respect to
these securities. As a result of this reassessment, the Company reclassified all
securities as "available for sale" and accounts for them accordingly on a
prospective basis. Available for sale securities are carried at fair value with
unrealized gains or losses related to these securities included in stockholders'
equity in the Company's consolidated balance sheet.

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets of three to seven years. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the remaining terms of the related leases. Repair and maintenance costs are
charged to expense as incurred.

SOFTWARE COSTS. Software costs are recorded at cost and amortized over their
estimated useful lives of 36 to 42 months. Software costs are comprised of
purchased software and other rights which are recorded at the lower of cost or
net realizable value. At December 31, 1996 and 1995, software costs of $2,561
and $0,

                                   [HNC LOGO]
                                HNC SOFTWARE INC.


28
   29
respectively, are included in other assets in the consolidated balance
sheet net of accumulated amortization of $642 and $0, respectively.

   Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. Through December 31, 1996, no significant amounts were expended
subsequent to reaching technological feasibility.

LONG-LIVED ASSETS. The Company investigates potential impairments of long-lived
assets, certain identifiable intangibles and associated goodwill, on an
exception basis, when events or changes in circumstances have made recovery of
an asset's carrying value unlikely. An impairment loss is recognized when the
sum of the expected future net cash flows is less than the carrying amount of
the asset. No such impairments of long-lived assets existed through December 31,
1996.

STOCK-BASED COMPENSATION. The Company measures compensation expense for its
stock-based employee compensation plans using the intrinsic value method and
provides pro forma disclosures of net income and earnings per share as if the
fair value-based method had been applied in measuring compensation expense (Note
10).

REVENUE RECOGNITION. Revenue from long-term software license agreements is
generally recognized ratably over the respective license periods. Revenue from
licenses of the Company's software for which there are no significant continuing
obligations and collection of the related receivables is probable is recognized
on delivery of the software and acceptance by the customer.

   Revenue from software installation and contract services is generally
recognized as the services are performed using the percentage of completion
method based on costs incurred to date compared to total estimated costs at
completion. Amounts received in advance of performance under contracts are
recorded as deferred revenue and are generally recognized within one year from
receipt. Contract losses are recorded as a charge to income in the period such
losses are first identified. Unbilled receivables are stated at estimated
realizable value. Contract costs under government contracts, including indirect
costs, are subject to audit and adjustment by negotiations between the Company
and government representatives. Through 1990, indirect government contract costs
have been agreed upon with government representatives. Revenues from government
contracts have been recorded in amounts that are expected to be realized upon
final settlement.

   Revenue from product sales, which is included in contracts and other revenue,
is recognized upon shipment to the customer.

INCOME TAXES. Current income tax expense is the amount of income taxes expected
to be payable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities as well as the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount "more likely than not" to be realized in future tax returns. Tax rate
changes are reflected in income during the period such changes are enacted.

FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's
international operations are translated into U.S. dollars using period-end
exchange rates for assets and liabilities and average exchange rates during the
period for revenues and expenses. Cumulative translation gains and losses are
excluded from results of operations and accumulated as a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions (transactions denominated in a currency other than the entity's
local currency) are included in the consolidated statement of income and are not
material.

DIVERSIFICATION OF CREDIT RISK. The Company's financial instruments that are
subject to concentrations of credit risk consist primarily of cash equivalents,
investments and trade accounts receivable which are generally not
collateralized. The Company's policy is to place its cash, cash equivalents and
investments with high credit quality financial institutions and commercial
companies and government agencies in order to limit the amount of its credit
exposure. The Company's software license and installation agreements and
commercial development contracts are primarily with customers in the financial
services, insurance and retail industries. The Company maintains reserves for
potential credit losses.

   During 1996, 1995 and 1994, sales under prime and subcontracts with the
federal government represented 3.0%, 7.3%, and 11.3%, respectively, of the
Company's total revenues. One domestic customer accounted for 11.4%, 12.4% and
11.6% of total revenues in 1996, 1995 and 1994, respectively. Revenues from
interna-


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              29
   30
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   CONTINUED

tional customers, primarily in Western Europe and Canada, were approximately
23.5%, 17.9%, and 11.4% of total revenues in 1996, 1995 and 1994, respectively.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of
cash and cash equivalents, accrued liabilities, the bank line of credit and
notes payable to stockholders approximate fair value because of the short term
maturities of these financial instruments. The carrying amounts of capital lease
obligations approximate their fair values based on interest rates currently
available to the Company for borrowings with similar terms and maturities.

REINCORPORATION AND STOCK SPLIT. In May 1995, the stockholders approved an
Agreement and Plan of Merger whereby the Company merged with and into a newly
incorporated Delaware corporation ("HNC Delaware"), which is the surviving
corporation. In conjunction with the merger, each share of the Company's common
stock, preferred stock and options and warrants to purchase the Company's common
stock was exchanged for one-half share of HNC Delaware's common stock, preferred
stock and options and warrants to purchase HNC Delaware's common stock, at twice
the exercise price for options and warrants. All references to share and per
share amounts of common and preferred stock and other data in these financial
statements have been retroactively restated to reflect the reincorporation.

   In April 1996, the Company consummated a two-for-one stock split effected in
the form of a common stock dividend. All references in these consolidated
financial statements to share and per share amounts have been adjusted to give
retroactive effect to the stock split.

PRO FORMA NET INCOME PER SHARE. Pro forma net income per share is computed based
on the weighted average number of common shares and common stock equivalents,
using the treasury stock method, outstanding during the respective periods after
giving retroactive effect to the conversion, which occurred upon the closing of
the Company's initial public offering, of all outstanding shares of preferred
stock into 8,957 shares of common stock. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all stock options granted from May
5, 1994 through June 26, 1995 have been included as outstanding for all periods
prior to June 26, 1995 using the treasury stock method and the $7.00 initial
public offering price per share. For periods prior to 1996, historical earnings
per share are not presented because such amounts are not deemed meaningful due
to the significant change in the Company's capital structure that occurred in
connection with the initial public offering.

NET INCOME PER SHARE. Net income per share is computed based on the weighted
average number of common shares and common stock equivalents, using the treasury
stock method, outstanding during the period.

RECLASSIFICATIONS. Certain prior year balances have been reclassified to conform
to the current year presentation.

NOTE 2 -- ACQUISITIONS

On August 30, 1996, the Company completed an acquisition of Risk Data
Corporation ("RDC"). Under the terms of the acquisition, accounted for as a
pooling of interests, the Company exchanged 1,891 common shares for all of the
then outstanding shares of RDC preferred and common stock. All periods presented
have been retroactively restated (Note 1).

   On November 29, 1996, the Company completed an acquisition of all of the
outstanding shares of Retek Distribution Corporation. Under the terms of the
acquisition, accounted for as a pooling of interests, the Company exchanged
1,367 common shares for all of Retek's then outstanding shares. All periods
presented have been retroactively restated (Note 1).

   Transaction costs of $563 and $515 were incurred
to complete the mergers with RDC and Retek, respectively. Transaction costs were
charged to income as incurred and consisted primarily of investment banker,
legal and accounting fees, and printing, mailing and registration expenses.

NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS



                                                  December 31,
                                           ------------------------
                                               1996           1995
                                           ------------------------
                                                     
Accounts receivable, net:
   Billed                                  $ 10,156        $ 4,048
   Unbilled                                   9,299          2,955
   Other                                        636            496
                                           --------        -------
                                             20,091          7,499
Less allowance for doubtful accounts           (623)          (503)
- -------------------------------------------------------------------
                                           $ 19,468        $ 6,996
===================================================================


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

30
   31
   Unbilled amounts represent revenue recorded in excess of amounts billable
pursuant to contract provisions and generally become billable at contractually
specified dates or upon the attainment of milestones. Unbilled amounts are
expected to be realized within one year.



                                                            DECEMBER 31,
- --------------------------------------------------------------------------------
                                                      1996               1995
- --------------------------------------------------------------------------------
                                                                  
Property and equipment, net:
   Computer equipment                               $  8,409            $ 4,934
   Furniture and fixtures                              1,884              1,268
   Leasehold improvements                                273                167
- --------------------------------------------------------------------------------
                                                      10,566              6,369
Less accumulated depreciation
   and amortization                                   (4,600)            (2,378)
- --------------------------------------------------------------------------------
                                                    $  5,966            $ 3,991
================================================================================




                                                               DECEMBER 31,
- --------------------------------------------------------------------------------
                                                            1996          1995
- --------------------------------------------------------------------------------
                                                                    
Accrued liabilities:
   Payroll and related benefits                            $ 1,457       $ 1,126
   Vacation                                                    673           435
   Other                                                     1,928         1,257
- --------------------------------------------------------------------------------
                                                            $4,058        $2,818
================================================================================




NOTE 4 -- INVESTMENTS

At December 31, 1996 and 1995, the amortized cost and estimated fair value of
investments available-for-sale were as follows:




                                                   DECEMBER 31, 1996
                                  ---------------------------------------------------
                                  AMORTIZED    UNREALIZED    UNREALIZED        FAIR
                                     COST        GAINS         LOSSES          VALUE
- -------------------------------------------------------------------------------------
                                                                  
CURRENT:
U.S. government and
   federal agencies                 $ 1,999        $--        $     (2)       $ 1,997
U.S. corporate debt                   3,149         --              (6)         3,143
Foreign corporate debt                2,216         --              (3)         2,213
- -------------------------------------------------------------------------------------
                                      7,364         --             (11)         7,353
- -------------------------------------------------------------------------------------
NON-CURRENT:
U.S. government and
   federal agencies                 $16,213        $--        $    (36)       $16,177
Foreign government debt               1,006         --              (2)         1,004
U.S. corporate debt                   1,702         --              (8)         1,694
Foreign corporate debt                  502         --              (2)           500
- -------------------------------------------------------------------------------------
                                     19,423         --             (48)        19,375
- -------------------------------------------------------------------------------------
                                    $26,787        $--        $    (59)       $26,728
=====================================================================================




                                               DECEMBER 31, 1995
                               ----------------------------------------------------
                               AMORTIZED   UNREALIZED     UNREALIZED         FAIR
                                  COST        GAINS         LOSSES           VALUE
- -----------------------------------------------------------------------------------
                                                                
CURRENT:
U.S. government and
   federal agencies             $ 1,481         $ 9         $    --         $ 1,490
Foreign government debt           1,017           2              --           1,019
U.S. corporate debt               8,870          45              --           8,915
Foreign corporate debt            3,164           2              --           3,166
- -----------------------------------------------------------------------------------
                                 14,532          58              --          14,590
- -----------------------------------------------------------------------------------
NON-CURRENT:
Foreign government debt         $ 1,019           2              --           1,021
U.S. corporate debt               7,077          32              --           7,109
Foreign corporate debt              206          --              --             206
- -----------------------------------------------------------------------------------
                                  8,302          34              --           8,336
- -----------------------------------------------------------------------------------
                                $22,834         $92         $    --         $22,926
===================================================================================



   Maturities for non-current investments in securities range from one to two
years. Included in the Company's 1995 income statement is a realized gain in the
amount of $3 related to the sale of held-to-maturity securities with an
aggregate amortized cost in the amount of $2,464. No significant gains or losses
were recognized during the year ended December 31, 1996. The cost of securities
sold is determined by the specific identification method.

NOTE 5 -- NOTES PAYABLE

The Company has a Loan and Security Agreement with a bank which provides for a
$5,000 revolving line of credit through July 10, 1997. The agreement requires
that the Company maintain certain financial ratios and levels of tangible net
worth and also restricts the Company's ability to pay cash dividends and
repurchase stock without the bank's consent. At December 31, 1996 and 1995, the
Company had $0 outstanding under the revolving line of credit. Any borrowings
under the agreement will be collateralized by substantially all of the Company's
assets. Interest is payable monthly at the bank's prime rate, which was 8.25% at
December 31, 1996.

   The RDC credit facility was comprised of a revolving line of credit secured
by eligible accounts receivable as well as a bridge loan which was secured by
the guarantees of certain stockholders. The revolving line of credit matured on
January 5, 1997. The bridge loan matured on September 5, 1996. All outstanding
amounts were repaid during 1996 and neither credit facility was renewed.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.


                                                                            31
   32
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   CONTINUED


   During 1995, the preferred stockholders of RDC loaned the Company $1,000
under subordinated note agreements (secured by the assets of RDC but
subordinated to borrowings under the RDC line of credit) bearing interest at 9%.
All outstanding amounts were repaid during 1996.

NOTE 6 -- LEASES

At December 31, 1996, the Company is obligated under noncancelable operating
leases for its facilities and certain equipment through 2003 as follows:



                                                            NET FUTURE
                 FUTURE MINIMUM        LESS SUBLEASE       MINIMUM LEASE
                 LEASE PAYMENTS           INCOME             PAYMENTS
- -------------------------------------------------------------------------
                                                  
1997                $1,943                $212                $1,731
1998                 1,539                 192                 1,347
1999                 1,189                 149                 1,040
2000                 1,211                  --                 1,211
2001                 1,249                  --                 1,249
thereafter           1,787                  --                 1,787
- -------------------------------------------------------------------------


   The lease for the Company's corporate headquarters provides for scheduled
rent increases and an option to extend the lease for five years with certain
changes to the terms of the lease agreement and a refurbishment allowance. Rent
expense under operating leases for the years ended December 31, 1996, 1995, and
1994 was approximately $1,340, $1,192, and $898, respectively, net of sublease
income of $125, $83 and $40, respectively.

   RDC maintains a lease line of credit with a leasing company for the
acquisition of equipment under capital lease arrangements. Future minimum
payments are as follows:

                                                      
- ---------------------------------------------------------------
1997                                                     $ 475
1998                                                       232
1999                                                        66
- ---------------------------------------------------------------
                                                           773
Less amounts representing interest                        (110)
- ---------------------------------------------------------------
Capital lease obligations                                  663
Less current portion                                      (399)
- ---------------------------------------------------------------
                                                         $ 264
===============================================================




   The gross value of assets under capital leases at December 31, 1996 and 1995
was $1,481 and $2,186 and accumulated amortization was $599 and $572,
respectively. Amortization expense for assets acquired under capital leases is
included in depreciation expense.

NOTE 7 -- LICENSE OF CHARACTER RECOGNITION TECHNOLOGY

In November 1992, the Company entered into an agreement that granted Mitek a
license to use certain character recognition technology developed by the
Company. The agreement provided for the Company to receive an initial license
and support fee payment of $1,350 and an additional license and support fee
based on a percentage of Mitek's revenue from the sale of character recognition
products through November 1995. The agreement also required that the Company
sell certain proprietary computer boards to Mitek at a substantial discount from
normal sales prices, but in excess of cost, and provide ongoing engineering and
technical support over the agreement period, which ended during November 1995.
As the Company had a significant continuing obligation under this agreement, the
initial license and support fee received thereunder was deferred on receipt and
recognized as revenue over the performance period based on estimated sales of
proprietary computer boards. The additional license and support fees were
recognized as a percentage of actual Mitek revenues pursuant to the agreement.

   Revenue recognized pursuant to this agreement, which is included in
"contracts and other" in the consolidated statement of income, is summarized as
follows:



                                                    YEAR ENDED DECEMBER 31,
                                                 ---------------------------
                                                   1995                 1994
- ----------------------------------------------------------------------------
                                                                
Initial license fee                              $   47               $  295
Additional license and support fee                  314                  476
Computer board sales                                527                  657
- ----------------------------------------------------------------------------
                                                 $  888               $1,428
============================================================================


NOTE 8 -- CAPITAL STOCK

During June 1995, the Company completed its initial public offering for sale of
5,175 shares of common stock (of which 2,375 shares were sold by the Company and
2,800 shares were sold by certain selling stockholders) at a price to the public
of $7.00 per share, which resulted in net proceeds to the Company of $15,461
after the payment of underwriters' commissions but before the deduction of
offering expenses. Upon the closing of the Company's initial public offering,
all outstanding shares of Series A, B, C, D, and E convertible preferred stock
were automatically converted into shares of common stock at their then effective
conversion prices. Upon conversion, the preferred stockholders were no longer
entitled to any undeclared cumulative dividends and all class voting rights
terminated.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.


32
   33
   During December 1995, the Company completed a secondary public offering for
sale of 3,000 shares of common stock (of which 1,116 shares were sold by the
Company and 1,884 shares were sold by certain selling stockholders) at a price
to the public of $18.50 per share, which resulted in net proceeds to the Company
of $19,606 after the payment of underwriters' commissions but before the
deduction of offering expenses.

   The Board of Directors is authorized to issue up to 4,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to the rights of the holders of any Preferred Stock that may be issued
in the future.

NOTE 9 -- INCOME TAXES

Income (loss) before income tax benefit was taxed under the following
jurisdictions:



                                             Year Ended December 31,
- --------------------------------------------------------------------------------
                                 1996                   1995                1994
- --------------------------------------------------------------------------------
                                                                    
Domestic                       $3,008                $ 1,746                 $93
Foreign                         2,760                   (198)                 --
- --------------------------------------------------------------------------------
                               $5,768                $ 1,548                 $93
================================================================================



   The income tax provision (benefit) is summarized as follows:


                                           YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
                                 1996                 1995                 1994
- --------------------------------------------------------------------------------
                                                                 
Current:
   Federal                    $ 1,132                $  97                $  17
   State                          137                   76                   28
   Foreign                         51                   --                   --
Deferred:
   Federal                     (1,569)                (521)                (425)
   State                          (63)                (183)                 (75)
   Foreign                       (296)                 (44)                  --
- --------------------------------------------------------------------------------
                              $  (608)               $(575)               $(455)
================================================================================


   Deferred tax assets are summarized as follows:



                                                            DECEMBER 31,
- --------------------------------------------------------------------------------
                                                     1996                  1995
- --------------------------------------------------------------------------------
                                                                
Taxable pooling basis difference                 $ 18,397             $      --
Net operating loss carryforwards                    8,587                 2,902
Tax credit carryforwards                            1,878                 1,370
Other                                                 504                   493
Gross deferred tax assets                          29,366                 4,765
Deferred tax asset valuation allowance                 --                (2,717)
- --------------------------------------------------------------------------------
   Net deferred tax asset                         $29,366               $ 2,048
================================================================================


   At December 31, 1994, the Company provided a deferred tax asset valuation
allowance for deferred tax assets which management determined were "more likely
than not" unrealizable based on trends in operating results after eliminating
the effects of non-recurring revenue (Note 7). During 1995, the Company released
the valuation allowance related to HNC's deferred tax assets based on
management's assessment that it was more likely than not that the Company would
realize a portion of those assets in future periods due to improvements in HNC's
operating results. During 1996, the Company released the valuation allowances
related to RDC and Retek deferred tax assets based on management's assessment
that it was more likely than not that the Company would realize those assets in
future periods due to improvements in the operating results of those
subsidiaries.

   During 1996 and 1995, the Company realized certain tax benefits related to
stock option plans in the amount of $7,889 and $800, respectively. The benefit
from the stock option tax deduction is credited directly to paid-in capital.

   In connection with the acquisition of Retek, the Company made an Internal
Revenue Code Section 338 election for federal and state tax purposes, resulting
in the treatment of the acquisition as a taxable transaction, whereby the tax
bases of the acquired assets and liabilities were adjusted to their fair values
as of the date of the acquisition. As the purchase price exceeded the carrying
value of the net assets acquired by approximately $46,000, the Company recorded
a deferred tax asset in the amount of $18,397.

   A reconciliation of the income tax benefit to the amount computed by applying
the statutory federal income tax rate to income before income tax provision is
summarized as follows:



                                                  YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
                                            1996           1995           1994
- --------------------------------------------------------------------------------
                                                               
Amounts computed at
   statutory federal rate                 $ 1,961        $   526        $    32
Release of valuation allowance             (2,717)        (2,223)        (1,008)
Tax credit carryforwards
   generated                                 (334)           (68)           (51)
Losses without tax benefit                     --            794            468
Separate return impact of
   acquired businesses                       (154)            --             --
Acquisition expenses not
   tax deductible                             367             --             --
State income tax expense                      480            401             28
Foreign net operating loss
   carryforwards generated                   (296)           (44)            --
Other                                          85             39             76
- --------------------------------------------------------------------------------
Income tax benefit                        $  (608)       $  (575)       $  (455)
================================================================================



                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              33
   34
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   CONTINUED

   At December 31, 1996, the Company had federal, state and foreign net
operating loss carryforwards of approximately $22,300, $10,800 and $800,
respectively. The federal and state net operating loss carryforwards expire from
1997 to 2011. The foreign net operating loss carryforwards expire from 2002 to
2003. The Company also has approximately $1,400 of federal research and
development credit carryforwards, which expire from 2000 to 2011, $400 of state
research and development credit carryforwards, which have no expiration date,
and $100 of foreign tax credit carryforwards, which expire from 1999 to 2000.
Certain of these net operating loss and research and development credit
carryforwards generated by RDC and Retek prior to their acquisitions by HNC are
subject to annual limitations on their utilization and also are limited to
utilization solely by the Company which generated them. Should a substantial
change in HNC's ownership occur, as defined by the Tax Reform Act of 1986, there
will be an annual limitation on the utilization of net operating loss and
research and development credit carryforwards.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

During 1987, the Company adopted the 1987 Stock Option Plan whereby 2,500 shares
of the Company's common stock were reserved for issuance pursuant to
nonqualified and incentive stock options to its officers, directors, key
employees and consultants. The plan, as amended, is administered by the Board of
Directors or its designees and provides generally that, for incentive stock
options and nonqualified stock options, the exercise price must not be less than
the fair market value of the shares as determined by the Board of Directors at
the date of grant. The options expire no later than ten years from the date of
grant and may be exercised in installments based upon stipulated timetables (not
in excess of seven years). At December 31, 1996, options to purchase 545 shares
were exercisable.

   During 1995, the Company adopted the 1995 Directors Stock Option Plan (the
"Directors Plan"), the 1995 Equity Incentive Plan (the "Incentive Plan") and the
1995 Employee Stock Purchase Plan (the "Purchase Plan"). For purposes of the
discussion contained in the three paragraphs below, "fair market value" means
the closing price of the Company's Common Stock on the Nasdaq National Market on
the grant date.

   The Directors Plan provides for the issuance of up to 300 nonqualified stock
options to the Company's outside directors. Under the provisions of the
Directors Plan, options to purchase 25 shares of the Company's common stock are
granted to outside directors upon their respective dates of becoming members of
the Board of Directors and 10 additional options will be granted on each
anniversary of such dates. Options under the Directors Plan are granted at the
fair market value of the stock at the grant date and vest at specific times over
a four-year period. At December 31, 1996, options to purchase 40 shares were
exercisable.

   The Incentive Plan provides for the issuance of up to 2,800 shares of the
Company's common stock in the form of nonqualified or incentive stock options,
restricted stock or stock bonuses. In addition, any shares remaining unissued
under the 1987 Stock Option Plan on the effective date of the Incentive Plan,
and any shares issuable upon exercise of options granted pursuant to the 1987
Stock Option Plan that expire or become unexercisable for any reason without
having been exercised in full, will no longer be available for issuance under
the 1987 Stock Option Plan but will be available for issuance under the
Incentive Plan. Nonqualified stock options and restricted stock may be awarded
at a price not less than 85% of the fair market value of the stock at the date
of the award. Incentive stock options must be awarded at a price not less than
100% of the fair market value of the stock at the date of the award, or 110% of
fair market value for awards to more than 10% stockholders. Options granted
under the Incentive Plan may have a term of up to 10 years. The Company has the
discretion to provide for restrictions and the lapse thereof in respect of
restricted stock awards, and options typically vest at the rate of 25% of the
total grant per year over a four-year period. However, the Company may, at its
discretion, implement a different vesting schedule with respect to any new stock
option grant. At December 31, 1996, 58 shares were exercisable under the
Incentive Plan.

   The Purchase Plan provides for the issuance of a maximum of 400 shares of
common stock. Each purchase period, eligible employees may designate between 2%
and 10% of their cash compensation, subject to certain limitations, to be
deducted from their pay for the purchase of common stock under the Purchase
Plan. The purchase price of the shares under the Purchase Plan is equal to 85%
of the lesser of the fair market value per share, as defined by the Purchase
Plan, on the first day of the twelve-month offering period or the last day of
each six-month purchase period. Approximately 65% of eligible employees have
participated in the Plan in the last two years. Under the Purchase Plan, the
Company sold 94 shares to employees in 1996.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

34
   35
   RDC's stock option plan is administered by HNC's Board of Directors. All
outstanding RDC options were converted into options to purchase HNC common stock
and adjusted to give effect to the exchange ratio (Note 2). No changes were made
to the terms of the RDC options in connection with the exchange. Options granted
under the RDC stock option plan generally vest at the rate of 25% of the total
grant per year over a four-year period and expire 10 years after the date of
grant. At December 31, 1996, 63 shares were exercisable under the RDC plan.

   Retek's stock options are administered by HNC's Board of Directors. All
outstanding Retek options were converted into options to purchase the Company's
common stock and adjusted to give effect to the exchange ratio (Note 2). No
changes were made to the terms of the Retek options in connection with the
exchange. Options granted vest ratably over periods from one to four years and
have a term of up to 10 years. At December 31, 1996, options to purchase 28
shares were exercisable.

   Transactions under the Company's stock option and purchase plans during the
years ended December 31, 1996 and 1995, including options under the RDC stock
option plan and options under the Retek stock option plan but excluding options
to purchase stock of a subsidiary of the Company, Aptex Software Inc. ("Aptex"),
are summarized as follows:



                                               YEAR ENDED DECEMBER 31,
                                   ----------------------------------------------
                                         1996                       1995
                                   ----------------------   ---------------------
                                                WEIGHTED                  WEIGHTED
                                                AVERAGE                   AVERAGE
                                                EXERCISE                  EXERCISE
                                   SHARES        PRICE       SHARES         PRICE
- ---------------------------------------------------------------------------------
                                                              
Outstanding at
   beginning of year               2,722        $ 2.87        2,081        $ 0.49
   Options granted                 1,591         28.84        1,101          6.67
   Options exercised              (1,140)          .96         (207)         0.41
   Options canceled                 (150)        17.77         (253)         1.75
- ---------------------------------------------------------------------------------
Outstanding at
   end of year                     3,023        $16.53        2,722        $ 2.87
=================================================================================
Options exercisable
   at end of year                    734                      1,427            
Weighted average fair
   value of options granted
   during the year                              $16.94                     $ 4.64
=================================================================================


   The following table summarizes information about employee stock options
outstanding at December 31, 1996:



                                OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                    ------------------------------------------      ------------------------
                                      WEIGHTED
                        NUMBER        AVERAGE         WEIGHTED        WEIGHTED      WEIGHTED
                    OUTSTANDING AT   REMAINING         AVERAGE      OUTSTANDING AT   AVERAGE
    RANGE OF          DECEMBER 31,  CONTRACTUAL        EXERCISE       DECEMBER 31,   EXERCISE
 EXERCISE PRICES          1996     LIFE (IN YEARS)       PRICE           1996          PRICE
- ---------------------------------------------------------------------------------------------
                                                                        
$ 0.02 to $ 0.92          554             4.66          $ 0.35            475          $ 0.30
  1.00 to   3.00          607             8.10            2.67            157            2.67
  4.50 to  21.38          505             8.73           13.06             92           10.91
 21.50 to  30.25          510             9.38           26.64              1           22.55
 30.50 to  30.75          568             9.73           30.68              9           30.75
 30.81 to  49.50          279             9.47           37.81              -               -
- ---------------------------------------------------------------------------------------------
$ 0.02 to $49.50        3,023             8.23           16.53            734            2.55
=============================================================================================


   During 1996, Aptex adopted the 1996 Equity Incentive Plan (the "Aptex Plan")
whereby 2,000 shares of Aptex common stock were reserved for issuance pursuant
to nonqualified and incentive stock options and restricted stock awards. The
plan is administered by the Board of Directors of Aptex or its designees and
provides generally that nonqualified stock options and restricted stock may be
awarded at a price not less than 85% of the fair market value of the stock at
the date of the award. Incentive stock options must be awarded at a price not
less than 100% of the fair market value of the stock at the date of the award,
or 110% of fair market value for awards to more than 10% stockholders. Options
granted under the Incentive Plan may have a term of up to 10 years. The Company
has the discretion to provide for restrictions and the lapse thereof in respect
of restricted stock awards, and options typically vest at the rate of 25% of the
total grant per year over a four-year period. However, the Company may, at its
discretion, implement a different vesting schedule with respect to any new stock
option grant. During 1996, Aptex issued 1,000 shares of common stock under the
Aptex Plan at an issuance price of $0.03 per share. No options granted under the
Aptex Plan were exercisable at December 31, 1996.

   The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock-based compensation. No compensation
expense has been recognized for its employee stock option grants, which are
fixed in nature, as the options have been granted at fair market value. No
compensation expense has been recognized for the Purchase Plan. Had compensation
cost for the Company's stock-based compensation awards issued during 1996 and
1995 been determined based on the fair value at the grant

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                            35
   36
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   CONTINUED

dates of awards consistent with the method of Financial Accounting Standards
Board Statement No. 123, the Company's net income and pro forma net income per
share would have been reduced to the pro forma amounts indicated below:



                                                       YEAR ENDED DECEMBER 31,
                                                 -------------------------------
                                                      1996                  1995
- --------------------------------------------------------------------------------
                                                                 
Net income:
   As reported                                   $   6,376             $   2,123
   Pro forma                                         2,137                 1,549
Net income per share:
   As reported                                   $     .31             $     .13
   Pro forma                                           .11                   .09
- --------------------------------------------------------------------------------


   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the years ended December 31, 1996 and 1995,
respectively: dividend yield of 0.0% for both years, risk-free interest rates of
6.03% and 6.29%, expected volatility of 70% and 75%, and expected lives of 3.5
years for both years. The fair value of the employees' purchase rights pursuant
to the Purchase Plan is estimated using the Black-Scholes model with the
following assumptions: dividend yield of 0.0% for both years, risk-free interest
rates of 5.36% and 5.66%, expected volatility of 70% and 75%; and an expected
life of 6 months for both years. The weighted-average fair value of those
purchase rights granted in 1996 and 1995 was $9.61 and $2.75, respectively.

   The fair value of each option granted under the Aptex Plan is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants during the year ended
December 31, 1996: dividend yield of 0.0%, risk-free interest rate of 6.42%,
expected volatility of 90%, and an expected life of 9.25 years. Options to
purchase 704 shares were granted during 1996 at a weighted average exercise
price of $0.03 per share. The weighted average fair value of options granted
during the year was $0.03 per share. At December 31, 1996, there were 704
options outstanding under the Aptex Plan with a weighted average exercise price
of $0.03 per share and a weighted average remaining contractual life of 9.74
years.

NOTE 11 -- CONTINGENCIES

Various claims arising in the course of business, seeking monetary damages and
other relief, are pending. The amount of the liability, if any, from such
claims, cannot be determined with certainty; however, in the opinion of
management, the ultimate liability for such claims will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

36
   37
                        REPORT OF INDEPENDENT ACCOUNTANTS

[PRICE WATERHOUSE LLP LOGO]

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HNC SOFTWARE INC.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity (deficit) present fairly, in all material respects, the financial
position of HNC Software Inc. and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ Price Waterhouse LLP
- ----------------------------------
San Diego, California
January 21, 1997

                                   [HNC LOGO]
                                HNC SOFTWARE INC.

                                                                              37
   38
OFFICERS

Robert L. North
   President and Chief Executive Officer

Krishna Gopinathan
   Vice President, Payment Systems

Todd W. Gutschow
   Vice President, Technology Development

Allen P. Jost
   Vice President, Marketing

Lee E. Martin
   Vice President, North American Sales

Larry A. Spelhaug
   Vice President, Financial Systems

Michael A. Thiemann
   President, Aptex Software Inc.

Raymond V. Thomas
   Vice President, Finance and Administration
   and Chief Financial Officer


DIRECTORS

Edward K. Chandler
   Prairie-EKC, Inc.

Oliver D. Curme
   Battery Ventures, L.P.

Rogers L. Evans
   Greylock Management Corporation

Thomas F. Farb
   Interneuron Pharmaceuticals, Inc.

Charles H. Gaylord, Jr.
   Private Technology Investor

Robert L. North
   President and Chief Executive Officer
   HNC Software Inc.



CORPORATE INFORMATION

STOCK LISTING:  Common stock traded on Nasdaq
   Symbol:  HNCS

GENERAL COUNSEL
   Fenwick & West LLP
   Two Palo Alto Square
   Palo Alto, CA 94306

INDEPENDENT ACCOUNTANTS
   Price Waterhouse LLP
   750 B Street
   Suite 2400
   San Diego, CA 92101

TRANSFER AGENT AND REGISTRAR
   The First National Bank of Boston
   P.O. Box 1865
   Mail Stop: 45-02-62
   Boston, MA 02105-1865


FORM 10-K
The Company, upon written request, will provide without charge to each
stockholder a copy of its annual report on Securities and Exchange Commission
Form 10-K for the year ended December 31, 1996. Requests should be directed to:

   HNC Software Inc.
   Investor Relations
   5930 Cornerstone Court West
   San Diego, CA 92121-3728

The latest news and information about the Company can be found on the HNC
Software World Wide Web site: http://www.hncs.com and can also be accessed by
calling our Stockholder Information Line at 1-800-396-8052.


ANNUAL MEETING OF STOCKHOLDERS

The HNC Software Inc. annual meeting of stockholders will be on Thursday, May
22, 1997 at 9:30 a.m. at the Hyatt Regency La Jolla, 3777 La Jolla Village
Drive, San Diego, California.


(C) 1997 HNC Software Inc.


                                   [HNC LOGO]
                                HNC SOFTWARE INC.

38
   39
                      [GRAPHIC OF WORLD AND RIBBON BANNER]

                                 MANAGE CUSTOMER

                                  INTERACTIONS

                                   [HNC LOGO]

                                 TO MAXIMIZE OUR

                                CLIENTS' PROFITS

EX-21.01

   1
                                                                   EXHIBIT 21.01



                        LIST OF REGISTRANT'S SUBSIDIARIES



                                                                     PERCENTAGE OWNED
       NAME                         JURISDICTION OF ORGANIZATION       BY REGISTRANT
       ----                         ----------------------------       -------------
                                                                      
HNC Software Inc., U.K.                    United Kingdom                   100%
HNC Software Inc., Japan                   Japan                            100%
Neil Thall Associates, Inc. *              Georgia                          100%
Retek Information Systems, Inc. *          Nevada                           100%
Retek Distribution Corporation             Delaware                         100%
Retek Development, Inc. *                  Nevada                           100%
Retek Information Systems Inc.             Canada                           100%
Retek Information Systems Ltd.             United Kingdom                   100%
Retek Information Systems Pty. Ltd.        Australia                        100%
Risk Data Corporation                      California                       100%
Aptex Software Inc.                        California                      87.5%



* The Company plans to merge the operations of Neil Thall Associates, Inc.,
Retek Information Systems, Inc. (Nevada), and Retek Development, Inc. into Retek
Distribution Corporation in fiscal 1997.


                                       32

EX-23.01

   1
                                                                   EXHIBIT 23.01



                       CONSENT OF INDEPENDENT ACCOUNTANTS



We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-92902, No. 333-14323 and No. 333-18871) of HNC
Software Inc. of our report dated January 21, 1997 appearing on page 37 of the
Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-22735) of
HNC Software Inc. of our report dated January 21, 1997 appearing on page 37 of
the Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page 36 of this Form 10-K.





PRICE WATERHOUSE LLP

San Diego, California
March 27, 1997



                                       33

EX-27.01

 

<ARTICLE> 5
<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                           7,517
<SECURITIES>                                     7,353
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