Item 1. BUSINESS
GENERAL
HPSC, Inc. (the "Company" or "HPSC") is a financial services company dedicated to providing financing for healthcare professionals. HPSC formerly provided financing exclusively to the dental profession, but in mid-1993 it began to expand into other healthcare markets and through its wholly-owned subsidiary, American Commercial Finance Corporation ("AACFC"), into asset based lending which focuses primarily on accounts receivable and inventory financing.
The Company's new business volume in 1995 increased substantially compared to 1994 - $68,554,000 versus $32,609,000. In 1993, Healthco International, Inc. (Healthco), the dental equipment supplier which previously supplied the Company with substantially all of its business, filed for bankruptcy. The bankruptcy of Healthco initially posed several significant challenges to the Company. Management has worked to replace its lost business while at the same time pursuing its plan to diversify into other markets. Within the dental industry the Company continues its efforts to expand its business by capitalizing on its reputation for providing a high level of customer service and innovative and competitive financing programs. Today the Company provides financing for over 500 different dental distributors and healthcare providers. While certain of these vendors provide a substantial amount of business for the Company, the Company is no longer dependent on any single source for its business. The Company is now also providing financing to the ophthalmic, podiatry, veterinary and chiropractic professions.
The Company finances dental, medical and other healthcare equipment as well as leasehold improvements, office furniture, supplies and certain other costs involved in opening, maintaining or acquiring a healthcare facility or practice. The Company finances transactions only after a customer's credit has been approved and a financing agreement has been executed.
The Company does not maintain any inventory. Typically, the manufacturer or distributor delivers the equipment directly to the customer, and the Company purchases the equipment from the supplier, at its customary selling price to the customer, upon installation and customer acceptance.
Substantially all of the Company's agreements with its customers are non-cancelable and provide for a full payout at a fixed financing rate with a fixed payment schedule. The majority of the agreements have a term of between three and seven years. All leases are classified as direct financing leases.
The Company's principal sources of funding include fixed rate borrowings of varying maturities and a revolving line of credit at variable rates (see Note B of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition Liquidity and Capital Resources" in the 1995 Annual Report). The Company's income depends, to a significant extent, upon its ability to maintain a satisfactory spread between its cost of borrowings and the rates that it charges its customers. In a rising interest rate environment, the Company's use of variable rate financing could adversely affect its ability to maintain these margins. Competitive pressures and other market conditions could hinder the Company's ability to raise the rates charged to its customers as quickly as its variable rate financing costs rise.
In July 1995 the Company completed payment for 1,225,182 shares of its Common Stock that it repurchased from certain secured creditors of Healthco ("Secured Creditors") pursuant to a Purchase and Sale Agreement among the Company and the Secured Creditors dated as of November 1, 1994. Healthco had pledged the shares of the Company's Common Stock to secure its obligations to the Secured Creditors. Upon final payment by the Company, the shares were released from the pledge and the Secured Creditors also released the Company from any claims that may arise out of the bankruptcy of Healthco. The Company has retired 1,125,182 of these shares and holds 100,000 of these shares in its treasury.
Item 1. BUSINESS (continued)
SEGMENT
The Company is principally engaged in providing financing to healthcare professionals.
MARKETING AND SOURCES OF SUPPLY
The Company obtains its customers principally from equipment vendor referral programs and from advertising and direct mail brochures targeted to dentists and other professionals who use equipment in their practices. The vendor referral programs permit the Company to utilize vendors' sales personnel operating from retail distribution centers throughout the United States to generate business for the Company. The Company also sends representatives to major trade conventions.
The Company advertises its services through industry publications, its own marketing brochures which it distributes and also through direct mail advertising. Existing customers and referrals from existing customers of the Company are also important sources of business.
LEASES AND NOTES RECEIVABLE
At December 31, 1995 the Company's lease, note receivable and asset based lending portfolio of $140,652,000 consisted of approximately 8,300 accounts and 6,300 customers with a weighted average remaining term of approximately 36 months. Lease and note terms ranged from 12-72 months, with the majority having a 36- or 60-month term. No single customer accounted for more than 1.0% of the Company's total receivables at December 31, 1995.
FINANCING TERMS AND CONDITIONS
The Company generally finances equipment to customers through standard non-cancelable full payout leases or conditional sales agreements or notes. Following execution of an agreement, the equipment is delivered from either a distributor or a manufacturer directly to the customer. Following installation and customer acceptance of the equipment, the Company purchases the equipment from the supplier. The Company is the owner of the leased equipment and holds a security interest in equipment financed with conditional sales agreements or notes.
The Company makes no warranties to customers as to any matter, including the condition, performance or suitability of the equipment. In substantially all cases, customers are obligated to remit to the Company all amounts due regardless of the performance of the equipment, to maintain and service the equipment and to insure the equipment against casualty loss.
The Company establishes residual values when the equipment is purchased and leased. Substantially all the Company's direct financing leases include a lease purchase option. Historically, because substantially all lessees have exercised this option at the recorded value, the Company generally does not incur gains/losses from the sale or releasing of equipment.
Item 1. BUSINESS (continued)
CREDIT REVIEW AND LOSS EXPERIENCE
The Company conducts a credit review of each prospective customer, using both commercial credit bureaus and its own internal credit procedures. The Company's collection department is responsible for monitoring slow paying accounts and collection activities when the Company determines such action to be appropriate. Slow paying accounts are subject to service charges.
For discussion of the provision for losses and allowance for losses, see "Management's Discussion and Analysis of Financial Condition - Results of Operations, Fiscal 1995 Compared to 1994 and Fiscal 1994 Compared to 1993" in the 1995 Annual Report.
FUNDING
At December 31, 1995 the Company had financing from fixed rate securitizations, variable rate revolving lines of credit, and fixed rate bank loans and asset sales. See Note B of the "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition - Liquidity and Capital Resources" in the 1995 Annual Report.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
The Company does not have any material patents, trademarks, licenses, franchises or concessions.
SEASONALITY
The Company's business is not seasonal; however, healthcare professionals generally tend to purchase more equipment in the fourth quarter, which may result in a higher volume of equipment purchases to be financed by the Company in that quarter.
WORKING CAPITAL
The Company does not carry inventory or provide rights of return to its customers. Its working capital requirements relate directly to its volume of financing transactions (see "Business - Credit Review and Loss Expedrience" and "Management's Discussion and Analysis of Financial Condition - Liquidity and Capital Resources" in the 1995 Annual Report).
Item 1. BUSINESS (continued)
MATERIAL CUSTOMERS
No customer or group of related customers accounted for 1.0% or more of fiscal 1995 revenues. No individual supplier of leased equipment accounted for more than 8% of the current year's originations.
RAW MATERIALS
The Company's business does not depend on raw materials.
BACKLOG
At December 31, 1995, the Company had a backlog of approximately $35,000,000, consisting of customer applications which have been approved but have not yet resulted in a completed transaction, compared to $25,000,000 at the end of 1994. Not all approved applications will result in financing transactions for the Company.
GOVERNMENT CONTRACTS OR SUB-CONTRACTS
The Company does not have a material amount of government contracts or subcontracts.
COMPETITION
The equipment financing business is highly competitive. Participants in the industry compete through vendor/customer service, product innovation, and price. Pricing is affected by each participant's ability to control origination and funding costs, portfolio risk management and operating overhead costs. The Company's ability to compete effectively in this market depends upon: (i) its ability to procure financing on attractive terms; (ii) its knowledge of and experience in its markets; (iii) its flexibility and adaptability in dealing with the special needs of its clients; (iv) its relationships with equipment vendors; (v) its ability to continue to expand its business into areas other than the dental profession and (vi) its ability to manage its portfolio effectively.
The Company competes with finance divisions, affiliates and subsidiaries of equipment manufacturers, other leasing and finance companies, certain banks engaged in leasing and lease brokers. Many of these organizations are much larger than the Company, have greater financial or other resources than the Company and have access to funds at more favorable rates and terms than those available to the Company.
RESEARCH AND DEVELOPMENT
The Company does not have research and development activities.
ENVIRONMENTAL PROTECTION
The Company's compliance with laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, earnings or competitive position.
EMPLOYEES
At December 31, 1995, the Company and its subsidiaries had 44 full-time employees, including 23 in general and administration and 21 in sales and marketing.
Item 1. BUSINESS (continued)
FOREIGN OPERATIONS
The Company, through its Canadian subsidiary, Credident, Inc., engaged in the financing of dental equipment in Canada. In 1994 the Company sold substantially all of Credident's assets to Newcourt Credit Group, Inc. Credident, Inc. was in substantially the same business as the Company, (see Note A of Notes to Consolidated Financial Statements). The Company has ceased to underwrite any new business in Canada. See "Management's Discussion and Analysis of Financial Condition" in the 1995 Annual Report.
EXPORT SALES
The Company does not have any export sales.
Item 2.
Item 2. PROPERTIES
The Company leases approximately 8,320 square feet of office space at 60 State Street, Boston, Massachusetts from the Trustees of 60 State Street Trust. Approximately 2,431 square feet at 433 South Main Street, West Hartford, Connecticut are leased by its wholly-owned subsidiary, American Commercial Finance Corporation. The Company also rents space as required for its sales locations on a short-term basis. (See Note C of the "Notes to Consolidated Financial Statements" in the 1995 Annual Report.) In March 1996, the Company executed an agreement to lease an additional 3,000 square feet adjacent to the current space at 60 State Street.
Item 3.
Item 3. LEGAL PROCEEDINGS
The Company was not subject to any material legal proceedings at December 31, 1995.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1995.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of HPSC is traded on the NASDAQ National Market System. The high and low sales prices for the common stock as reported by NASDAQ for each quarter in the last two fiscal years, as well as the approximate number of record holders and information with respect to dividend restrictions, are incorporated by reference from page 17 of the 1995 Annual Report.
Item 6.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1995 is incorporated by reference from page 16 of the 1995 Annual Report.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition of the Company is incorporated by reference from pages 17 through 19 of the 1995 Annual Report.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item together with the Report of Independent Accountants is incorporated by reference from pages 4 through 14 and page 16 of the 1995 Annual Report. (See also the "Financial Statement Schedule" filed under Item 14 of this Form 10-K.)
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the directors, nominees for director and executive officers of the Company:
NOMINEES FOR CLASS I DIRECTOR
Lowell P. Weicker, Jr., age 64, was elected a director in December 1995. Mr. Weicker began his political career in 1962, when he was elected as a member of Connecticut's House of Representatives for Town of Greenwich. He served three terms. Mr. Weicker served concurrently as First Selectman of Greenwich from 1964 to 1968. He was elected to the U.S. Congress from Connecticut's 4th District in 1968. He was subsequently elected to the United States Senate in 1970, 1976 and 1982. Mr. Weicker served in the U. S. Senate until January 1989. In January 1991, Mr. Weicker was elected Governor of Connecticut, a position which he held until January 1995. Mr. Weicker has been associated with the firm of Dresing, Lierman, Weicker since 1995. Dresing, Lierman, Weicker provides a variety of health care related services.
Thomas M. McDougal, D.D.S., age 56, was elected a director of HPSC in 1991. He has been a practicing dentist for approximately 30 years. He is active in national, state and local dental organizations and has lectured extensively throughout the United States. He is a past President of the Dallas County Dental Society and is past Chairman of its Continuing Education Committee and its Banking, Nominating and Patient Relations Committee.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS (TERM EXPIRES AT THE 1997 ANNUAL MEETING)
Joseph A. Biernat, age 68, became a director of HPSC in December 1993. Since his retirement in 1987, Mr. Biernat has served as a consultant for several investment management firms. From 1965 until 1987, he was employed with United Technologies Corporation, most recently as Senior Vice President -- Treasurer, and prior thereto as President, Treasurer and Chief Financial Officer of Philco-Ford Finance Corporation. He is also a director of The Hartford Insurance Company Mutual Funds and previously has been a director of several financial and civic organizations.
Raymond R. Doherty, age 50, has been President of HPSC since December 1989 and Chief Operating Officer of HPSC since August 1993. He was Treasurer of HPSC from December 1988 until May 1994. He was elected a director of HPSC in June 1991. Mr. Doherty previously served as Chairman and Chief Executive Officer of HPSC from October 1992 until July 1993, Chief Operating Officer of HPSC from December 1989 to October 1992, and Chief Financial Officer of HPSC from December 1988 to October 1992. He was Assistant Treasurer of HPSC from June 1986 to December 1988. He was Vice President and Chief Operating Officer of Healthco International, Inc., a company engaged in sales of dental equipment and formerly affiliated with the Company, from October 1992 until August 1993. He was the Senior Vice President of Finance and Operational Controls of Healthco International, Inc. from January 1986 to October 1992.
Samuel P. Cooley, age 64, became a director of HPSC in December 1993. From 1955 until his retirement at the end of 1993, Mr. Cooley was employed with Shawmut Bank Connecticut, N.A., and its predecessors and affiliates, including Hartford National Bank and Connecticut National Bank. His most recent position was Executive Vice President and Senior Credit Approval Officer. Mr. Cooley is also a director of Lydall, Inc. and the Connecticut Health and Education Facilities Authority and serves as a director or trustee of numerous nonprofit organizations in Connecticut.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
CLASS III DIRECTORS (TERM EXPIRES AT THE 1998 ANNUAL MEETING)
John W. Everets, age 49, has been Chairman of the Board and Chief Executive Officer of HPSC since July 1993 and has been a director of HPSC since 1983. He was Chairman of the Board and Chief Executive Officer of T.O. Richardson Co., Inc., a financial services company, from January 1990 until July 1993. Previously he was Executive Vice President of Advest, Inc., an investment banking firm, from 1977 to January 1990. Mr. Everets also served as Chairman of the Board of Billings and Co., Inc., a real estate investment banking firm, and Chairman of Advest Credit Corp., both subsidiaries of Advest Group, Inc. Mr. Everets formerly was Vice Chairman of the Connecticut Development Authority and Chairman of the Loan Committee of the Connecticut Development Authority. Mr. Everets is also a director of Dairy Mart Convenience Stores, Inc., Crown/Northcorp, and the Eastern Company.
Dollie A. Cole, age 65, a director of HPSC since 1991, has been involved for many years in the leadership of several business, charitable and civic organizations. She serves as Chairman of the Dollie Cole Corporation, a venture capital and industrial consulting firm. For seven years Ms. Cole was an owner and board member of Checker Motors and Checker Taxi until selling her interest in 1988. Ms. Cole was also Senior Editor of Curtis Publishing until 1977, and was director of Public Relations for Magnetic Video and Twentieth Century Fox Video until 1985. She serves as a consultant to the Solar and Electric 500 Company based in Phoenix, Arizona, and to Separation Dynamics, an international company involved in the energy and manufacturing industries. In addition to these business activities, Ms. Cole serves on the boards of Project Hope -- the World Health Organization, the National Captioning Institute for the Hearing Impaired, the Smithsonian Institution and on the National Academy of Science -- President's Circle Board.
J. Kermit Birchfield, age 56, became a director of HPSC in December 1993. He currently serves as a consultant for various businesses. From 1990 until 1994, Mr. Birchfield served as Senior Vice President, Secretary, and General Counsel with M/A-COM, Inc., a publicly-held manufacturer of semiconductors and communications equipment based in Wakefield, Massachusetts. Before joining M/A-COM, he was Senior Vice President for Legal and Governmental Affairs and General Counsel for the Georgia Pacific Corporation. Mr. Birchfield is also a Managing Director of Century Partners, Incorporated, a privately-held investment and operating company, of Darien, Connecticut. He is also a director of Intermountain Industries Inc. and its wholly-owned subsidiary, Intermountain Gas Company, a public utility and Dairy Mart Convenience Stores, Inc.
OTHER EXECUTIVE OFFICERS
Rene Lefebvre, age 49, has been Chief Financial Officer, Vice President of Finance and Treasurer of HPSC since May 1994. From June 1993 until May 1994, he was Chief Financial Officer of NETTS, Inc., a vocational training institution. He was an independent financial services consultant from February 1992 through May 1993. He served as interim Chief Financial Officer of the Business Funding Group from June through November of 1991. From September 1982 until March 1991, Mr. Lefebvre was Chief Financial Officer of Eaton Financial Corporation, a subsidiary of AT&T Capital Corporation.
Item 11.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Item 11. EXECUTIVE COMPENSATION (cont'd)
(2) The amounts reported in this column represent the market price of the stock awarded under the Amended 1995 Stock Plan on the grant date without diminution in value attributable to the restrictions on such stock. The aggregate non-vested restricted stock holdings at the end of fiscal 1995 were as follows: for Mr. Everets - 185,000 shares (the value of these shares at fiscal year end equaled $878,750, which is 108.6% of the value at the grant date); for Mr. Doherty - 90,000 shares (the value at fiscal year end for these shares equaled $427,500, which is 108.6% of the value at the grant date); and for Mr. Lefebvre, 25,000 shares (the value at year end equaled $118,750, which is 108.6% of the value at the grant date). Dividends on stock awards will be paid at the same rate as dividends, if any, are paid to all shareholders.
(3) Includes term life insurance premiums paid by the Company and Company contributions to the individual's 401(k) retirement plan account, respectively, in the following amounts for the fiscal year ended December 31, 1995: Mr. Everets, $3,240 and $4,049; Mr. Doherty, $3,240 and $3,696; and Mr. Lefebvre, $810 and $2,500. Also includes the value of shares of Common Stock in the Company's ESOP allocated to participants in the fiscal year ended December 31, 1995 (for services rendered during the previous fiscal year) in the following amounts: Mr. Everets, $11,670; Mr. Doherty, $11,670; and Mr. Lefebvre, $7,595. The value of the allocated ESOP shares was calculated by using the year-end closing price of $4.75 per share for fiscal 1995. The Company has not allocated shares of Common Stock to participants in its ESOP for services rendered during the fiscal year ended December 31, 1995 as of the date of this Proxy Statement.
(4) Mr. Everets' employment with the Company commenced in July 1993. His compensation is governed by an employment agreement dated July 19, 1993. See "Employment Agreements" below.
(5) Includes relocation and temporary living expenses of $81,806 paid in fiscal 1994 in connection with Mr. Everets' relocation to the Boston area.
(6) Includes relocation and temporary living expenses of $9,794 paid in fiscal 1993 in connection with Mr. Everets' relocation to the Boston area.
(7) Mr. Doherty's compensation is governed by an employment agreement dated August 2, 1993. See "Employment Agreements" below.
(8) Includes $3,835 paid by the Company for an automobile for Mr. Doherty.
(9) Mr. Lefebvre's employment with the Company commenced in May 1994. His compensation is governed by an employment agreement dated April 6, 1994. See "Employment Agreements" below.
OPTION GRANTS IN LAST FISCAL YEAR
The Company made no option or SAR grants to its executive officers in its last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the exercise of stock options by the Company's executive officers during fiscal 1995 and the value of unexercised "in-the-money" options at year-end. The columns showing the number of options exercised during fiscal 1995 and the value realized thereby have been omitted because none of the executive officers exercised any options during fiscal 1995.
Item 11. EXECUTIVE COMPENSATION (cont'd)
EMPLOYMENT AGREEMENTS
John W. Everets and Raymond R. Doherty
On July 19, 1993, the Company entered into an employment agreement with each of John W. Everets and Raymond R. Doherty. The Company agreed to pay a base annual salary of $210,000 to Mr. Everets and $190,000 to Mr. Doherty as well as a bonus of up to 100% of base salary to each individual under an incentive plan developed by the Compensation Committee of the Board in consultation with management and approved by the full Board of Directors. The Company also granted options for 150,000 shares of Common Stock to Mr. Everets and 90,000 shares of Common Stock to Mr. Doherty, each at a price of $2.625 per share, which was the fair market value of a share of Common Stock on the date of grant. The Company also agreed to pay Mr. Everets' reasonable expenses incurred in his relocation to Boston, up to $50,000 on an after-tax basis.
Each employment agreement has a three-year term and thereafter will automatically renew from year to year unless either party to such agreement gives notice of intention to terminate the agreement six months in advance of any anniversary. Either party to each employment agreement may terminate it at any time for any reason. In the event of decision not to renew by either party or a termination by the Company which is not "for cause" with respect to either Mr. Everets or Mr. Doherty (or, in the case of Mr. Everets, in the event of termination by Mr. Everets), the Company will pay the employee his base monthly pay plus his maximum monthly bonus for the next 12 months. Upon a termination by the Company which is not "for cause," all of Mr. Everets' stock options will fully vest. Each employee agrees not to compete with the business of the Company while receiving termination payments and to maintain in confidence all of the Company's confidential information.
If, within three years after a "change of control" of the Company (as defined in each agreement), either the Company terminates Mr. Everets or Mr. Doherty other than "for cause" or the employee terminates his employment due to a "change in employment" (as defined in each agreement), the Company will pay the employee his base monthly pay plus the maximum monthly bonus for 24 months; the non-compete provisions will no longer apply; the employee's stock options will fully vest; and normal employee benefits will continue for 12 months. If, within three years after a "change of control", the employee terminates his employment for any reason other than a "change in employment," the Company will pay the employee his base monthly pay plus the maximum monthly bonus and normal employee benefits for 12 months.
Item 11. EXECUTIVE COMPENSATION (cont'd)
EMPLOYMENT AGREEMENTS (CONT'D)
Rene Lefebvre
During April 1994, the Company entered into an employment agreement with Rene Lefebvre for employment commencing in May 1994. The Company agreed to pay Mr. Lefebvre a base annual salary of $125,000 as well as a bonus of up to 50% of base salary at the discretion of the Chief Executive Officer and subject to approval of the Compensation Committee of the Board. The Company also granted to Mr. Lefebvre options for 30,000 shares of Common Stock at a price of $3.5625 per share, which was the fair market value of a share of Common Stock on the date of grant.
The employment agreement has a three-year term and thereafter will automatically renew from year to year unless either party to such agreement gives notice of intention to terminate the agreement 60 days in advance of any anniversary. Either party to Mr. Lefebvre's employment agreement may terminate it at any time for any reason. The Company is obligated to pay Mr. Lefebvre's salary for three months after termination, if it does not renew the agreement, and for six months after termination, if it otherwise terminates his employment without cause. Mr. Lefebvre has agreed not to compete with the business of the Company while receiving severance payments and to maintain in confidence all of the Company's confidential information.
In the event of a "change of control" of the Company (as defined in his agreement), Mr. Lefebvre's stock options will fully vest.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director a fee of $5,000 per annum plus $2,500 per annum for each committee of the Board on which he or she serves and $500 for each meeting attended. In addition, the Company reimburses directors for their travel expenses incurred in attending meetings of the Board or its committees. Pursuant to the 1995 Stock Plan, each non-employee continuing director is granted 1,000 non-qualified stock options on the day of each Annual Meeting of Stockholders during the term of such Plan.
Mr. Weicker received a non-qualified option grant exercisable for 4,000 shares of Common Stock at $4.75 per share, the fair market value of Common Stock on the date of grant, at the time that he joined the Board of Directors.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (cont'd)
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONT'D)
(2) Includes allocated shares under the HPSC, Inc. Employee Stock Ownership Plan (the "ESOP") of 4,714 for Mr. Everets, 6,711 for Mr. Doherty, 1,599 for Mr. Lefebvre and 13,024 for all executive officers and directors as a group.
(3) Dimensional Fund Advisors, Inc. ("Dimensional") has filed an Amendment No. 5 to Schedule 13G with the SEC reporting that it is a registered investment adviser and is deemed to have beneficial ownership of 354,400 shares of Common Stock of the Company as of December 31, 1995, all of which shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional serves as investment manager. Dimensional disclaims beneficial ownership of all such shares.
(4) Fidelity Management and Research Corporation ("FMRC") filed a Form 13G with the SEC for the year ended December 31, 1995 reporting that it has investment discretion with respect to 352,500 shares of Common Stock of the Company. FMRC reports that it has no voting authority with respect to such shares.
(5) Tweedy, Browne Company L.P. ("TBC"), TBK Partners, L.P. ("TBK") and Vanderbilt Partners, L.P. ("Vanderbilt") filed an Amendment No. 4 to their Form 13Ds on October 28, 1995 with the Securities and Exchange Commission. TBC is the beneficial owner of 408,285 shares of the Company's Common Stock. TBK owns directly 15,000 shares. Vanderbilt owns directly 10,000 shares. The aggregate number of shares of the Company's Common Stock of which TBC, TBK and Vanderbilt could be deemed to be beneficial owners is 433,285. TBC has investment discretion with respect to 408,285 shares and sole power to dispose or direct the disposition of all of such shares. TBC has shared power to vote or direct the vote of 350,285 shares. TBK has the sole power to vote or direct the voting of and to dispose or direct the disposition of the TBK shares. Vanderbilt has the sole power to vote or direct the voting of and dispose or direct the disposition of the Vanderbilt shares. The general partners of TBC and Vanderbilt are Christopher H. Browne, William H. Browne and John D. Spears. The general partners of TBK are Christopher H. Browne, William H. Browne, Thomas P. Knapp and John D. Spears. The general partners of TBC, by reason of their positions as such, may be deemed to have shared power to dispose of or to direct the disposition of 408,285 shares and shared power to vote or to direct the vote of 350,285 shares. Each of the general partners of TBK and Vanderbilt, by reason of his position as such, may be deemed to have shared power to vote or direct the vote of and to dispose or direct the disposition of the 15,000 shares held by TBK and the 10,000 shares held by Vanderbilt, respectively.
(6) 59,652 of these shares have been allocated to the accounts of ESOP participants and 240,348 shares are unallocated. Messrs. Doherty and Everets disclaim beneficial ownership of all such shares, other than the shares allocated to their respective ESOP accounts listed in Note (2) above.
(7) None of the 350,000 shares have been allocated to the accounts of participants in the HPSC, Inc. Supplemental Employee Stock Ownership Plan and Trust (the "SESOP"). Messrs. Doherty and Everets disclaim beneficial ownership of all such shares.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (cont'd)
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONT'D)
(8) Excludes the 300,000 shares held in the ESOP for the benefit of the employee participants (other than the shares allocated to the respective ESOP accounts of Messrs. Doherty and Everets listed in Note (2) above) and the 350,000 shares held in the SESOP for the benefit of the employee participants. Although Messrs. Doherty and Everets are the trustees of both the ESOP and SESOP and accordingly share voting power with respect to all unallocated shares and share dispositive power with respect to all shares in the ESOP and the SESOP, they disclaim beneficial ownership of all such shares, other than the shares allocated to their respective ESOP accounts listed in Note (2) above.
(9) Includes 26,133 shares, 10,000 shares and 10,000 shares, respectively, for Messrs. Everets, Doherty and Lefebvre, purchased under the Stock Loan Program described in "EXECUTIVE COMPENSATION -- Stock Loan Program." All such shares are pledged to the Company pursuant to such Program.
(10) Includes 100 shares held by Mr. Everets' son, A. Hale W. Everets. Mr. Everets disclaims beneficial ownership of such shares.
(11) Includes 185,000, 90,000 and 25,000 restricted shares granted to Messrs. Everets, Doherty and Lefebvre on May 12, 1995, as described under the Summary Compensation Table.
(12) Includes 3,000 shares held by Mr. Birchfield's spouse. Mr. Birchfield disclaims beneficial ownership of such shares.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK LOAN PROGRAM
On January 5, 1995 the Compensation Committee approved a Stock Loan Program whereby executive officers and other senior personnel of the Company earning more than $80,000 per year may borrow from the Company an amount equal to the cost of purchasing two shares of Common Stock, solely for the purpose of acquiring such stock, for each share of Common Stock purchased by the employee from sources other than Company funds. Such borrowings may not exceed $200,000 in any fiscal quarter of the Company, $200,000 per employee or $400,000 during the term of the loan program for all employees. All shares purchased with such loans are pledged to the Company as collateral for repayment of the loans. The loans are recourse, bear interest at a variable rate which is one-half of one percent above the Company's cost of funds, payable monthly in arrears, and are payable as to principal no later than five (5) years after the date of the loan. As of the date of this proxy statement, the Company has loans outstanding to executive officers in the following amounts secured by the number of shares listed: Mr. Everets, $98,000, secured by 26,133 shares; Mr. Doherty, $37,500, secured by 10,000 shares; and Mr. Lefebvre, $37,500, secured by 10,000 shares.
REPURCHASE OF SHARES FORMERLY HELD BY HEALTHCO INTERNATIONAL, INC.
In July 1995 the Company completed payment for 1,225,182 shares of the Company's Common Stock which it repurchased from certain secured creditors of Healthco International, Inc. ("Healthco"), which was formerly the largest shareholder of the Company and which declared bankruptcy in June 1993, pursuant to a Purchase and Sale Agreement between the Company and the Healthco secured creditors, dated as of November 1, 1994. Healthco had pledged the shares of the Company's Common Stock to secure its obligations to the secured creditors. The shares were released from the pledge agreement upon the Company's completion of the payment. The secured creditors also released the Company from any claims that may arise out of the bankruptcy of Healthco, effective upon payment by the Company for the shares. The Company has retired 1,125,182 of these shares and holds 100,000 of these shares in its treasury.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
Copies of Exhibits may be obtained for a nominal charge by writing to:
INVESTOR RELATIONS HPSC, INC. 60 STATE STREET BOSTON, MASSACHUSETTS 02019
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, HPSC, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HPSC, Inc.
By: /s/ John W. Everets ---------------------------- Dated: March 29, 1996 John W. Everets Chairman, Chief Executive Officer and Director
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HPSC, Inc.:
Our report on the consolidated financial statements of HPSC, Inc. has been incorporated by reference in this Form 10-K from the 1995 Annual Report to Stockholders of HPSC, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts March 25,1996 SCHEDULE VIII