HPSC INC, DEF 14A, 1998-03-20

HPSC INC
DEF 14A, 1998-03-20
FINANCE LESSORS

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12

HPSC, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

HPSC, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

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

2) Aggregate number of securities to which transaction applies:

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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:

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4) Proposed maximum aggregate value of transaction:
Set forth the amount on which the filing fee is calculated and state how
it was determined.

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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

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2) Form, Schedule or Registration Statement No.:

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3) Filing Party:

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4) Date Filed:

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<PAGE> 2

HPSC, INC.
60 STATE STREET
BOSTON, MA 02109-1803

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1998

The Annual Meeting of Stockholders of HPSC, Inc., a Delaware corporation
(the "Company" or "HPSC"), will be held on April 23, 1998, at four o'clock in
the afternoon, Eastern Daylight Time, in the America Room, 2nd Floor at
BankBoston, 100 Federal Street, Boston, Massachusetts, for the following
purposes:

1. To elect three directors for a three-year term to expire at the
2001 Annual Meeting of Stockholders;

2. To approve the Company's 1998 Stock Incentive Plan;

3. To ratify the appointment of Deloitte & Touche LLP as the
independent accountants for the Company for the year ending December 31,
1998; and

4. To consider and act upon such other business and matters or
proposals as may properly come before the meeting or any adjournment
thereof.

The Board of Directors has fixed the close of business on March 12, 1998 as
the record date for determining the stockholders having the right to receive
notice of and to vote at this meeting or any adjournments thereof.

By Order of the Board of Directors

DENNIS W. TOWNLEY
Secretary

Boston, Massachusetts
March 20, 1998

IF YOU DO NOT EXPECT TO BE PRESENT AT THIS MEETING AND YOU WISH YOUR SHARES OF
COMMON STOCK TO BE VOTED, YOU ARE REQUESTED TO SIGN AND MAIL PROMPTLY THE
ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. A
RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES IS
ENCLOSED FOR THAT PURPOSE.
<PAGE> 3

HPSC, INC.
60 STATE STREET
BOSTON, MA 02109-1803

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1998

This proxy statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of HPSC, Inc., a Delaware corporation
(the "Company" or "HPSC"), of proxies for use at the Annual Meeting of
Stockholders of the Company to be held, pursuant to the accompanying notice, on
Thursday, April 23, 1998 at four o'clock in the afternoon, Eastern Daylight
Time, in the America Room, 2nd Floor at BankBoston, 100 Federal Street, Boston,
Massachusetts and at any adjournment thereof (the "Annual Meeting").

It is expected that copies of the notice of meeting, this proxy statement
and related form of proxy will be mailed on or about March 20, 1998 to the
holders of record of shares of Common Stock of the Company at the close of
business on March 12, 1998. The Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1997 accompanies this proxy statement.

PROPOSAL ONE -- ELECTION OF DIRECTORS

The Restated Certificate of Incorporation of the Company provides that the
Board of Directors shall consist of not less than three (3) nor more than twelve
(12) members, as determined by a vote of a majority of the entire Board of
Directors, and that the Board shall be divided into three (3) classes (Class I,
Class II and Class III). Directors of one class are elected each year to a term
of three (3) years. As of the date of this proxy statement, the Board of
Directors consists of eight (8) members, three (3) of whom have terms which
expire at this year's Annual Meeting (Class III), two (2) of whom have terms
which expire at the 1999 Annual Meeting (Class I) and three (3) of whom have
terms which expire at the 2000 Annual Meeting (Class II).

Messrs. Birchfield and Everets and Ms. Cole are the three nominees for
Class III director to be voted on at this Annual Meeting. If elected as Class
III directors, Messrs. Birchfield and Everets and Ms. Cole will have a
three-year term expiring at the 2001 Annual Meeting of Stockholders. Mr. Weicker
and Dr. McDougal will continue to serve as Class I directors. Their term will
expire at the 1999 Annual Meeting of Stockholders. Messrs. Biernat, Cooley and
Doherty will continue to serve as Class II directors. Their term will expire at
the 2000 Annual Meeting of Stockholders. In each case a director shall serve
until his or her successor is duly elected and qualified or until his or her
death, resignation or removal.

All nominees for Class III directors to be voted on at this Annual Meeting
have advised the Company that they will serve if elected. If any of the nominees
for Class III director becomes unavailable (which is not now anticipated by the
Company), the persons named as proxies have discretionary authority either to
vote for a substitute or to fix the number of directors at less than eight. The
Board of Directors has no reason to believe that any of such persons will be
unwilling or unable to serve if elected. Unless authority to vote for any
director is withheld in the proxy, votes will be cast in favor of election of
the nominees listed herein.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED BELOW AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
<PAGE> 4

NOMINEES FOR CLASS III DIRECTORS

John W. Everets, age 51, 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 North
Corp., Inc., and Eastern Co.

Dollie A. Cole, age 67, 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, 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 58, became a director of HPSC in December 1993.
He currently serves as Chairman of Displaytech, Inc., a privately-held
manufacturer of miniature high-resolution ferrite liquid crystal display screens
and 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. 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. He is also a director of
Intermountain Industries Inc. and its wholly-owned public utility subsidiary,
Intermountain Gas Company, Mass. Financial Compass Group of Mutual Funds and
Dairy Mart Convenience Stores, Inc.

MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE

Class I Directors (Term expires at 1999 Annual Meeting)

Lowell P. Weicker, Jr., age 66, 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 the Town of Greenwich, serving
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 and was subsequently elected to the United States Senate in
1970, 1976 and 1982, serving until January 1989. In January 1991, Mr. Weicker
was elected Governor of Connecticut, a position which he held until January
1995. He is presently a visiting professor at the University of Virginia. Mr.
Weicker is also a director of UST Corp., Phoenix Home Life Mutual Funds and
Compuware Corp.

Thomas M. McDougal, D.D.S., age 58, 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

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and is past Chairman of its Continuing Education Committee and its Banking,
Nominating and Patient Relations Committee.

Class II Directors (Term expires at the 2000 Annual Meeting)

Joseph A. Biernat, age 70, 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 Mutual
Funds and previously has been a director of several financial and civic
organizations.

Raymond R. Doherty, age 52, 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 66, became a director of HPSC in December 1993. From
1955 until his retirement in 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 serves as a director or trustee of numerous
nonprofit organizations in Connecticut.

OTHER EXECUTIVE OFFICERS

Rene Lefebvre, age 51, 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.

COMMITTEES OF THE BOARD

The Board of Directors has an Executive Committee, an Audit Committee and a
Compensation Committee. It does not have a Nominating Committee or a committee
performing similar functions.

The current members of the Executive Committee are J. Kermit Birchfield,
Samuel P. Cooley, Raymond R. Doherty, and John W. Everets. The Executive
Committee exercises all the powers of the Board of Directors in accordance with
the by-laws of the Company, to the extent permitted by Delaware law, during
intervals between meetings of the Board of Directors. During fiscal year 1997,
the Executive Committee held one meeting and acted by unanimous consent on one
occasion.

The current members of the Audit Committee are Dollie A. Cole, Samuel P.
Cooley, Thomas M. McDougal, Joseph A. Biernat, and Lowell P. Weicker, Jr. The
functions of the Audit Committee are to review the Company's external and
internal auditing procedures, to review with the Company's management

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the plan, scope and results of the Company's operations, and to study and make
recommendations periodically to the Board of Directors on these and related
matters. During fiscal year 1997, the Audit Committee held one meeting.

The current members of the Compensation Committee are Dollie A. Cole, J.
Kermit Birchfield, and Samuel P. Cooley. The functions of the Compensation
Committee are to be available for consultation with the Chairman of the Board,
to review the salaries and other forms of compensation of officers and to make
recommendations to the Board of Directors with respect to the granting of stock
options and restricted stock to officers, key employees and consultants and
regarding stock option and restricted stock matters generally. During fiscal
year 1997, the Compensation Committee held three meetings and acted by unanimous
consent on two occasions.

During fiscal year 1997, the Board of Directors held four meetings and
acted by unanimous consent on one occasion. Each member of the Board (including
each nominee for reelection as director) attended at least 75% of the meetings
of the Board of Directors held during the time he or she was a director and at
least 75% of the meetings of all committees of the Board on which he or she
served.

VOTING SECURITIES

Holders of shares of common stock, $0.01 par value, of the Company (the
"Common Stock") at the close of business on March 12, 1998 (the "Record Date")
are entitled to notice of the Annual Meeting and to vote shares held on that
date at the Annual Meeting. On the Record Date, there were outstanding 4,638,130
shares of Common Stock, excluding 274,400 shares of Common Stock held in the
Company's treasury. Each share of Common Stock is entitled to one vote on each
of the matters listed in the Notice of Annual Meeting.

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of the Record Date
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person or entity known by the Company to own beneficially more than five
percent (5%) of the Company's outstanding shares of Common Stock as of the
Record Date; (ii) each of the Company's directors; (iii) its Named Executive
Officers; and (iv) all directors and executive officers of the Company as a
group. The information in the table and in the related notes has been furnished
by or on behalf of the indicated owners. Unless otherwise noted, HPSC believes
the persons referred to in this table have sole voting and investment power with
respect to the shares listed in this table. The percentage owned is calculated
with respect to each person by treating shares issuable to such person within 60
days of the record date as outstanding, in accordance with rules of the
Securities and Exchange Commission ("SEC").

<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP OF HPSC % OF
NAME (AND ADDRESS OF OWNER OF MORE THAN 5%) COMMON STOCK(1)(2) CLASS
- ------------------------------------------- ------------------ -----
<S> <C> <C>
John W. Everets............................................. 512,724(3)(4)(5)(6) 10.65%
60 State Street, 35th Floor
Boston, MA 02109-1803
Harder Management Company, Inc. ............................ 364,390(7) 7.86%
Somerset Court
281 Winter Street, Suite 340
Waltham, MA 02154
</TABLE>

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John W. Everets and Raymond R. Doherty...................... 350,000(9) 7.55%
as Trustees of the HPSC, Inc.
Supplemental Employee Stock
Ownership Plan and Trust
60 State Street, 35th Floor
Boston, MA 02109-1803

Dimensional Fund Advisors, Inc. ............................ 342,900(10) 7.39%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401

Tweedy, Browne Company LLC.................................. 336,520(11) 7.26%
52 Vanderbilt Avenue
New York, NY 10017

Fidelity Management and Research Corporation................ 315,000(12) 6.79%
82 Devonshire Street
Boston, MA 02109-3605

John W. Everets and Raymond R. Doherty...................... 300,000(13) 6.47%
as Trustees of the HPSC, Inc.
Employee Stock Ownership Plan
60 State Street, 35th Floor
Boston, MA 02109-1803

Raymond R. Doherty.......................................... 284,821(3)(4)(6) 5.95%

Rene Lefebvre............................................... 79,757(4)(6) 1.71%

Joseph A. Biernat........................................... 13,000 *

J. Kermit Birchfield........................................ 43,667(14) *

Dollie A. Cole.............................................. 43,500 *

Samuel P. Cooley............................................ 14,000 *

Thomas M. McDougal.......................................... 30,000 *

Lowell P. Weicker, Jr. ..................................... 6,900(15) *

All Directors and Executive Officers as a group (9
persons).................................................. 1,028,369(3)(6) 20.19%
</TABLE>

- ---------------
* Percent of class less than 1%.

(1) Includes shares of the Company's Common Stock which the named security
holder has the right to acquire within 60 days of the Record Date through
the exercise of options granted by the Company to the named individuals or
group as follows: Messrs. Biernat, Birchfield and Cooley, 13,000 shares
each; Ms. Cole and Dr. McDougal, 28,000 shares each; Mr. Weicker, 6,000
shares; Mr. Everets, 175,000 shares; Mr. Doherty, 150,000 shares; Mr.
Lefebvre, 30,000 shares; and such group, 456,000 shares.

(2) Includes allocated shares under the HPSC, Inc. Employee Stock Ownership
Plan (the "ESOP") of 7,024 for Mr. Everets, 9,021 for Mr. Doherty, 3,757
for Mr. Lefebvre and 19,802 for all executive officers and directors as a
group.

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(3) 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 HPSC, Inc. Supplemental Employee Stock
Ownership Plan and Trust (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. If the 1998 Stock Incentive Plan (the "1998 Stock
Plan") is approved by the stockholders at the Annual Meeting, the SESOP
will be terminated and the 350,000 shares held in the SESOP trust will be
reacquired by the Company.

(4) 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.

(5) Includes 100 shares held by Mr. Everets' son, A. Hale W. Everets. Mr.
Everets disclaims beneficial ownership of such shares.

(6) Includes 235,000, 110,000 and 31,000 restricted shares granted to Messrs.
Everets, Doherty and Lefebvre, respectively, as described under the Summary
Compensation Table.

(7) Based solely on information reported on Schedule 13G as filed with the SEC.
Harder Management Company, Inc. ("Harder") filed a Schedule 13G on November
15, 1996 reporting that it is a registered investment adviser and that the
364,390 shares of the Company's Common Stock held by Harder is held on
behalf of its clients in accounts over which Harder has complete investment
discretion. Harder disclaims beneficial ownership of the 364,390 shares
except in its capacity as an investment adviser.

(8) Based on information provided to the Company by Hollybank Investments, LP
("Hollybank") on March 6, 1998. Does not include 30,580 shares of Common
Stock held by Dorsey R. Gardner, Hollybank's general partner, with respect
to which Mr. Gardner has sole voting power. Mr. Gardner disclaims
beneficial ownership, except to the extent of his partnership interest, in
the 353,000 shares of Common Stock held by Hollybank.

(9) None of the 350,000 shares have been allocated to the accounts of
participants in the SESOP and, accordingly, all shares are voted by Messrs.
Everets and Doherty as trustees. Messrs. Doherty and Everets disclaim
beneficial ownership of all such shares.

(10) Based solely on information reported on Schedule 13G as filed with the SEC.
Dimensional Fund Advisors, Inc. ("Dimensional") filed an Amendment No. 6 to
its Schedule 13G with the SEC on February 12, 1997 reporting that it is a
registered investment adviser and is deemed to have beneficial ownership of
342,900 shares of Common Stock of the Company held by it, all of which
shares are owned by advisory clients of Dimensional. Officers of
Dimensional also serve as officers of DFA Investment Dimensions Group Inc.
(the "Fund") and DFA Investment Trust Company (the "Trust"), each an
open-end management investment company registered under the Investment
Company Act of 1940. In their capacities as officers of the Fund and the
Trust, these officers vote 74,800 shares which are owned by the Fund and
43,800 shares which are owned by the Trust, all of which shares are
included in the 342,900 shares over which Dimensional is deemed to have
sole dispositive power.

(11) Based solely on information reported on Schedule 13D as filed with the SEC.
Tweedy, Browne Company LLC ("TBC"), TBK Partners, L.P. ("TBK") and
Vanderbilt Partners, L.P. ("Vanderbilt") filed an Amendment No. 6 to its
Schedule 13D on November 5, 1997. TBC is the beneficial owner of 311,520
shares of the Company's Common Stock. TBK and Vanderbilt own directly
15,000 and 10,000 shares of the Company's Common Stock, respectively. The
aggregate number of shares of the

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Company's Common Stock of which TBC, TBK and Vanderbilt could be deemed to
be beneficial owners is 336,520. TBC has investment discretion with respect
to 311,520 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
311,520 shares. TBK has the sole power to vote or direct the voting of and
to dispose or direct the disposition of the 15,000 shares it holds.
Vanderbilt has the sole power to vote or direct the voting of and dispose
or direct the disposition of the 10,000 shares it holds. The members of TBC
and the general partners of 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
members 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 311,520 shares
and shared power to vote or to direct the vote of 283,355 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.

(12) Based solely on information reported on Schedule 13G as filed with the SEC.
Fidelity Management and Research Corporation ("FMR") filed an Amendment No.
2 to its Form 13G with the SEC on February 14, 1998 for the year ended
December 31, 1997 reporting that it is a registered investment adviser and
as such, has sole power to dispose or to direct the disposition of 315,000
shares of Common Stock of the Company. FMR reports that it has no voting
authority with respect to such shares.

(13) 119,654 of these shares have been allocated to the accounts of ESOP
participants and are voted by such participants. 180,346 of these shares
are unallocated and are voted by Messrs. Doherty and Everets as trustees.
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.

(14) Includes 3,000 shares held by Mr. Birchfield's spouse. Mr. Birchfield
disclaims beneficial ownership of such shares.

(15) Includes 200 shares held by Mr. Weicker's spouse. Mr. Weicker disclaims
beneficial ownership of such shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities ("Reporting Persons") to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market, Inc.
("Nasdaq"). These Reporting Persons are required by SEC regulation to furnish
the Company with copies of all Forms 3, 4 and 5 they file with the SEC and
Nasdaq.

Based on the Company's review of the copies of the Forms it has received
and written representations from certain Reporting Persons, the Company believes
that a Form 4 reflecting Dr. McDougal's purchase on April 17, 1997 of 2,000
shares of Common Stock of the Company inadvertently was not filed on a timely
basis. An amended Form 5 has been filed to correct the disclosure. The Company
believes that all other Reporting Persons have complied with all filing
requirements applicable to them with respect to transactions during fiscal year
1997.

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<PAGE> 10

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table shows all compensation paid to the Chief
Executive Officer and the other current executive officers (the "Named Executive
Officers") for services rendered in all capacities during the past three years.
HPSC has three current executive officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------- -------------------------
RESTRICTED SECURITIES
STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1)(2) OPTIONS COMPENSATION(3)
- --------------------------- ---- ------ ----- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John W. Everets(4).................. 1997 $281,106 $250,000 $300,000 $-0- $12,705
Chief Executive Officer and 1996 239,200 50,000 -0- -0- 15,904
Chairman of the Board 1995 210,000 -0- 809,375 -0- 18,959
Raymond R. Doherty(5)............... 1997 217,558 110,000 120,000 -0- 11,612
President, Chief Operating 1996 197,300 33,000 -0- -0- 14,954
Officer and Director 1995 190,000 -0- 393,750 -0- 18,606
Rene Lefebvre(6).................... 1997 146,073 70,000 36,000 -0- 9,624
Vice President of Finance, 1996 132,300 13,000 -0- -0- 10,404
Treasurer and Chief 1995 125,000 -0- 109,375 30,000 10,905
Financial Officer
</TABLE>

- ---------------
(1) The Company's 1995 Stock Plan, as amended (the "1995 Stock Plan"), provides
that shares of restricted stock granted under the 1995 Stock Plan shall vest
for participants when (i) certain performance conditions are met (50% vest
if and when during the five-year period from the date of grant (the
"Performance Period") the closing price of a share of the Company's Common
Stock, as reported on the Nasdaq National Market System for a consecutive
ten-day period, equals or exceeds 134.175% of the closing price on the grant
date (the "Partial Performance Condition"), and the remaining 50% vest if
and when during the Performance Period the closing price of a share of the
Company's Common Stock, as reported on the Nasdaq National Market System for
a consecutive ten-day period, equals or exceeds 168.35% of the closing price
on the grant date (the "Full Performance Condition")) and (ii) the holder of
the restricted stock has completed five (5) years of continued service from
the grant date or has been earlier terminated without cause or by reason of
death or disability in specified circumstances (the "Service Requirement").

The Partial Performance Condition for the shares of restricted stock granted
to Messrs. Everets, Doherty and Lefebvre in 1995 is $5.90 per share and the
Full Performance Condition for such shares is $7.37 per share. The Partial
Performance Condition for the shares of restricted stock granted to Messrs.
Everets, Doherty and Lefebvre in 1997 is $8.05 per share and the Full
Performance Condition for such shares is $10.10 per share. Upon a "change in
control" of the Company (as defined in the 1995 Stock Plan), all awards
granted prior to such date become fully vested. Upon the termination of a
participant's employment by the Company without "cause" (as defined in the
1995 Stock Plan) or by reason of death or disability during the Performance
Period, any awards for which the Partial Performance Condition or the Full
Performance Condition shall have been satisfied no later than four months
after the date of such termination of employment shall become fully vested
and the participant shall be deemed to have satisfied the Service
Requirement. The Partial Performance Condition for the restricted stock
granted in 1995 to Messrs. Everets, Doherty, and Lefebvre was met in 1996,
but the shares of restricted stock held by these individuals remain subject
to the Service Requirement.

8
<PAGE> 11

(2) The amounts reported in this column represent the market price as reported
on the Nasdaq National Market of the stock awarded under the 1995 Stock Plan
on the grant dates without diminution in value attributable to the
restrictions on such stock. The aggregate non-vested restricted stock
holdings at the end of fiscal 1997 were as follows: for Mr.
Everets -- 235,000 shares (the value of these shares at the end of fiscal
1997 equaled $1,233,750); for Mr. Doherty -- 110,000 shares (the value of
these shares at the end of fiscal 1997 equaled $577,500); and for Mr.
Lefebvre -- 31,000 shares (the value of these shares at the end of fiscal
1997 equaled $162,750). Dividends on stock awards will be paid at the same
rate as dividends, if any, are paid to all holders of Common Stock.

(3) Includes term life insurance premiums paid by the Company and Company
contributions to the Named Executive Officer's 401(k) retirement plan
account, respectively, in the following amounts for fiscal 1997: Mr.
Everets, $3,240 and $4,262; Mr. Doherty, $3,240 and $3,169; and Mr.
Lefebvre, $1,952 and $2,469. Also includes the value of shares of Common
Stock in the Company's Employee Stock Ownership Plan ("ESOP") allocated to
Named Executive Officers in fiscal 1997 (for services rendered during fiscal
1996) in the following amounts: Mr. Everets, $5,203; Mr. Doherty, $5,203;
and Mr. Lefebvre, $5,203. The value of the allocated ESOP shares was
calculated by using the December 31, 1997 closing price for the Company's
Common Stock of $5.25 per share as reported on the Nasdaq National Market.
The Company has not allocated shares of Common Stock to participants in its
ESOP for services rendered during fiscal 1997 as of the date of this Proxy
Statement.

(4) Mr. Everets' compensation is governed by an employment agreement with the
Company dated as of July 19, 1996, as amended. See "EXECUTIVE
COMPENSATION -- Employment Agreements".

(5) Mr. Doherty's compensation is governed by an employment agreement with the
Company dated August 2, 1996. See "EXECUTIVE COMPENSATION -- Employment
Agreements".

(6) Mr. Lefebvre's compensation is governed by an employment agreement with the
Company dated April 6, 1994. See "EXECUTIVE COMPENSATION -- Employment
Agreements".

STOCK LOAN PROGRAM

On July 28, 1997 the Compensation Committee approved an amended Stock Loan
Program whereby eligible executive officers and other senior personnel of the
Company may borrow from the Company amounts not exceeding $200,000 in any fiscal
quarter of the Company or $500,000 in the aggregate at any time during the term
of the loan program for all employees, solely for the purpose of acquiring stock
of the Company. 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, with periodic principal prepayments
equal to between 20 and 30% of the participant's after-tax bonus. 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,
$55,954, secured by 26,133 shares; Mr. Doherty, $19,950, secured by 10,000
shares; and Mr. Lefebvre, $26,936, secured by 10,000 shares. As of the date of
this Proxy Statement, the Named Executive Officers have repaid the following
principal amounts on such loans: Mr. Everets, $42,136; Mr. Doherty, $17,550; and
Mr. Lefebvre, $10,564. Each of the Named Executive Officers has made all monthly
interest payments due on such loans. The largest aggregate amount of outstanding
indebtedness under the Stock Loan Program since its inception has been $218,000.

9
<PAGE> 12

SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN

The table below sets forth a range of annual retirement benefits available
to certain executive employees under the HPSC Supplemental Executive Retirement
Plan (the "SERP") effective as of January 1, 1997. Benefits under the SERP are
intended to supplement the retirement benefits received by executive employees
through other Company programs, such as the ESOP and SESOP and 401(k) Plan (as
such terms are defined herein), as well as Social Security benefits attributable
to Company-paid FICA taxes. Benefits under the SERP, payable upon normal
retirement at age 65 (or upon early retirement at age 62) as an actuarial
equivalent of a life annuity, are based upon age, length of service (up to a
maximum of 15 credited years of service) and an average of the participant's
three highest calendar years of compensation (total remuneration for services
rendered in a specified year excluding employer contributions under the
Company's benefit plans) out of the five calendar years immediately preceding
the normal or early retirement date or other date of termination of employment
("Average Final Compensation"). The SERP provides for making payments to the
executive with an actuarial equivalent value equal to 65% of the employee's
Average Final Compensation, offset by amounts deemed available under the
Company's 401(k) Plan and Social Security benefits, to the extent attributable
to the Company's contribution and to Company-paid FICA taxes, respectively, as
well as the deemed value of shares allocated to the employee under the Company's
ESOP and SESOP. The SERP also contains a tax gross-up provision equal to any
excise tax payments made by the participant pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended, relating to certain payments in
excess of specified amounts made upon a change in control or otherwise.

Accrual and vesting of benefits are contingent on the executive's continued
service as an employee of the Company, with accrual in equal amounts over the
first 15 years of service and vesting over a period of 10 years, starting in the
sixth year of service, provided that an executive's benefits will also fully
accrue and vest upon a "change in control" of the Company (as defined in the
SERP) unless such change in control is approved by at least a two-thirds vote of
the incumbent Board of Directors. An executive's benefits will also fully vest
if the executive's employment with the Company terminates involuntarily without
"good cause" (as defined in the SERP) or on account of death or "disability" (as
defined in the SERP). However, none of these termination events results in
acceleration of the executive's benefit accrual under the SERP. Limited service
credit (up to a maximum of three years) is given for service before 1993 and
full credit is given for service between January 1, 1993 and the effective date
of the SERP. For all periods prior to the effective date, service as either an
employee of the Company or a member of its Board of Directors is credited. On
and after the effective date, only service as an employee is credited.

While not obligated to do so under the SERP, the Company has elected at
this time to cover its future obligations under the SERP by purchasing and
holding life insurance policies on the SERP participants. The Company is the
owner and beneficiary of the policies, which are designed to have sufficient
cash value to pay the respective SERP benefits at each participant's normal
retirement date under the SERP. The policies are an asset of the Company.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN BENEFIT TABLE(1)

<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE FINAL COMPENSATION 5 10 15+
-------------------------- ------- -------- --------
<S> <C> <C> <C>
$100,000............................................ $16,250 $ 48,750 $ 65,000
150,000............................................ 24,375 73,125 97,500
200,000............................................ 32,500 97,500 130,000
250,000............................................ 40,625 121,875 162,500
300,000............................................ 48,750 146,250 195,000
400,000............................................ 65,000 195,000 260,000
500,000............................................ 81,250 243,750 325,000
</TABLE>

10
<PAGE> 13

- ---------------
(1) Amounts shown do not reflect offsets for benefits received and attributable
to the Company under the Company's 401(k) plan, employee stock ownership
plans, and FICA contributions.

For the Named Executive Officers, the years of credited service and 1997
compensation as of December 31, 1997, were: Mr. Everets -- 8.0 years, $531,106;
Mr. Doherty -- 8.0 years, $327,558; and Mr. Lefebvre -- 4.0 years, $216,073.

OPTION GRANTS IN LAST FISCAL YEAR

The Company made no option or SAR grants to its Named 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 Named Executive Officers during fiscal 1997 and the value of
unexercised "in-the-money" options at fiscal 1997 year-end. The columns showing
the number of options exercised during fiscal 1997 and the value realized
thereby have been omitted because none of the Named Executive Officers exercised
any options during fiscal 1997.

AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 1997 IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT 1997 FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------------- ----------------------------
<S> <C> <C>
John W. Everets.......................... 175,000/0 $443,750/$0
Raymond R. Doherty....................... 150,000/0 $356,250/$0
Rene Lefebvre............................ 24,000/6,000 $ 40,500/$10,125
</TABLE>

- ---------------
(1) An "in-the-money" option is an option for which the option price of the
underlying stock is less than the December 31, 1997 market price as reported
on the Nasdaq National Market ($5.25 per share); the value shown reflects
stock price appreciation since the date of grant of the option.

EMPLOYMENT AGREEMENTS

John W. Everets and Raymond R. Doherty

As of July 19, 1996 and August 2, 1996, the Company entered into employment
agreements with each of John W. Everets and Raymond R. Doherty, respectively.
The Company agreed to pay a base annual salary of at least $250,000 to Mr.
Everets and $200,000 to Mr. Doherty, as determined annually by the Compensation
Committee, 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.

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 his or its 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 a decision not to renew
by either party or a termination by the Company which is not "for cause" (as
defined in each agreement) with respect to either Mr. Everets or Mr. Doherty
(and, 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
has

11
<PAGE> 14

agreed 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. In the event of the employee's termination due to
death or disability, the Company will pay the employee or his estate the
employee's base monthly salary for six months from the date of death or
disability. The employee and his family will also be entitled to receive the
employee's benefits during this six-month period.

If, within three years after a "change in 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 up to 2.99 times the employee's average annual compensation for the
preceding five calendar years before the date of the change in control; 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 in 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.

Rene Lefebvre

On April 6, 1994, the Company entered into an employment agreement with
Rene Lefebvre for employment commencing in May 1994. The Company agreed to pay
Mr. Lefebvre an initial base annual salary of $125,000 (which has since been
increased to $146,073) 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 of Directors. The Company also granted to
Mr. Lefebvre options to purchase 30,000 shares of Common Stock, which vest over
a five-year period in equal annual installments, 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 had a three-year term ending on May 8, 1997. On
that date the agreement automatically renewed for a one-year period, and it will
renew from year to year thereafter until either party to such agreement gives
notice of his or its 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 other than "for cause" (as defined in his agreement). 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 in 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 the 1995 Stock Plan. If the 1998
Stock Plan is approved, in the future each non-employee director will be granted
such options under the 1998 Stock Plan and not under the 1995 Stock Plan.

12
<PAGE> 15

REPORT OF THE COMPENSATION COMMITTEE

The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee") currently
consisting of Dollie A. Cole (Chair), J. Kermit Birchfield and Samuel P. Cooley,
all of whom are independent, non-employee directors.

The Committee has primary responsibility for analyzing the compensation of
executive officers of the Company, establishing performance goals for executive
officers, reporting to the full Board with respect to such compensation, and
administering the Company's stock plans.

SALARIES FOR 1997

The Chairman of the Board and Chief Executive Officer (the "Chairman") and
each of the other two executive officers have an employment agreement which
provides for base cash compensation determined annually by the Compensation
Committee but subject to minimum levels specified in the agreement. See
"Employment Agreements" above.

The base cash compensation levels for the Chairman and other executive
officers were established in their original employment agreements by the
Committee based upon a number of factors including the prior experience of the
executive officer, company size and the obstacles to attracting experienced
managers to HPSC because of the Company's weakened financial status at the time
each employment agreement was executed. In setting the compensation for the
Chairman and Mr. Doherty for 1997, the Committee considered the experience and
prior performance of each officer, other employment opportunities available to
such officer and the difficulty in replacing him, the improved financial
condition of the Company and the latest available industry compensation
information contained in the Equipment Leasing Association of America 1996
Leasing Industry Wage & Compensation Survey (the "Compensation Survey") relating
to independent finance companies with portfolios of comparable size to that of
the Company.

CASH BONUSES FOR 1997

In recommending bonuses for the Chairman and other executive officers for
the fiscal year ended December 31, 1997, the Committee reviewed the incentive
plan goals that it had established, including financial and overall performance
criteria. Instead of using specific target levels with respect to individual and
Company performance to calculate bonuses, the Committee considered a number of
factors, including the following: (i) the overall financial performance of the
Company, particularly in terms of its achieving the revenue goals that were
established in the Business Plan of the Company; (ii) the growth in the
Company's financing contract portfolio; (iii) the Company's success in obtaining
bank and asset securitization financing on favorable terms; (iv) the value of
the Company's stock; (v) the Company's success in hiring and retaining sales
personnel; (vi) the information contained in the Compensation Survey; (vii) the
fact that all or a significant portion of the bonuses which otherwise would have
been paid to the Company's Chairman and other executive officers for the fiscal
years ended December 31, 1995 and 1996 were omitted as the Company rebuilt from
its weakened financial position as a result of the bankruptcy in June 1993 of
the Company's then largest stockholder and sole source of business, Healthco
International, Inc.; and (viii) other positive developments in the Company's
business. The Committee also considered the contribution of each executive
officer to the performance of the Company, the responsibilities of each
executive officer in connection with this performance, the importance of the
individual to the future growth and profitability of the Company, cash
compensation levels of competitors in the industry (many of these competitors
are included in the Compensation Survey) and the success of the management team
in achieving the Company's short-term and long-term goals. Although the
Committee considered all of these factors in exercising its judgment as to

13
<PAGE> 16

compensation levels for the Chairman and other executive officers, the Committee
did not use a precise formula to weigh the relative importance of such factors.

RESTRICTED STOCK AWARDS

The purpose of the 1995 Stock Plan is to retain and motivate the Company's
key employees and outside directors and to increase their incentive to work
toward the attainment of the Company's long-term growth and profit objectives.
In fiscal year 1997, the Committee awarded restricted stock to John W. Everets
in the amount of 50,000 shares, Raymond P. Doherty in the amount of 20,000
shares and Rene Lefebvre in the amount of 6,000 shares. These grants were made
to provide an incentive to these key executive officers to remain with the
Company and to encourage and facilitate stock ownership in the Company by the
Company's executive officers. This component of an executive officer's
compensation directly links the officer's interests with those of the Company's
other stockholders. The restricted shares were awarded by the Committee and the
Board of Directors for services rendered and to be rendered. The shares of
restricted stock are subject to the vesting and performance requirements of the
1995 Stock Plan described under footnote 1 of the "Summary Compensation Table"
above.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), limits the amount of individual compensation for
certain executives that may be deducted by the employer for federal income tax
purposes in any one fiscal year to $1 million except to the extent that such
compensation is "performance-based". The determination of whether compensation
is performance-based depends upon a number of factors, including shareholder
approval of the plan under which the compensation is paid, the exercise price at
which options or similar awards are granted, the disclosure to and approval by
the shareholders of applicable performance standards, the composition of the
Committee, and certification by the Committee that the performance standards
were satisfied. None of the compensation paid to any executive officer in fiscal
year 1997 would exceed the deduction limit of Section 162(m) of the Internal
Revenue Code, and the Committee does not anticipate that in the near future the
compensation paid to executive officers in the form of base salaries and
incentive compensation will be non-deductible under Section 162(m) of the
Internal Revenue Code. The 1995 Stock Plan and the proposed 1998 Stock Plan
comply with the requirements of Section 162(m) of the Internal Revenue Code.

Compensation Committee

Dollie A. Cole, Chair
J. Kermit Birchfield
Samuel P. Cooley

14
<PAGE> 17

PERFORMANCE GRAPH

SEC rules require that the Company present a line graph comparing
cumulative total shareholder return for HPSC over a period of five years,
assuming reinvestment of dividends, with a broad equity market index and either
a published industry index or an index made up of peer companies selected by the
Company. The broad equity market index selected by the Company for inclusion in
the graph is the Russell 2000 Index, an index of 2,000 public companies with
relatively small market capitalization, as compared with the companies included
in other available broad equity market indices. For its second comparative
index, the Company prepared its own index (the "Custom Index") of four
publicly-owned state commercial banks that are of similar market capitalization
to the Company, ranging in size from approximately $20 million to approximately
$45 million market capitalization, and two companies in the equipment leasing
field.

Set forth below is a graph comparing, over a five-year period beginning
December 31, 1992, the cumulative total return for the Company, the Russell 2000
Index and the Custom Index.

[Performance Graph Omitted]

<TABLE>
<CAPTION>
DEC-92 DEC-93 DEC-94 DEC-95 DEC-96 DEC-97
<S> <C> <C> <C> <C> <C> <C>
HPSC, Inc. $100 $93 $103 $124 $166 $152
Russell 2000 $100 $119 $117 $150 $175 $214
Custom Composite Index
(6 Stocks) $100 $95 $81 $145 $209 $340
</TABLE>

The Custom Index includes: AT&T Capital Corp. (added fourth quarter 1993,
began trading 7/28/93 and included through third quarter 1996, as Company was
acquired in October 1996), First City Bancorp (included through fourth quarter
1995, as Company was acquired in March 1996), Professional Bancorp, Redwood
Empire Bancorp (added fourth quarter 1991, began trading 9/26/91), San Francisco
Company -- Class A (included through 1994 only, as company was delisted in March
1995) and TLII Liquidating Corp. (formerly Trans Leasing International, Inc.).

15
<PAGE> 18

PROPOSAL TWO -- APPROVAL OF THE 1998 STOCK INCENTIVE PLAN

The Board of Directors adopted the 1998 Stock Incentive Plan (the "1998
Stock Plan") on February 23, 1998, subject to stockholder approval, to provide
for grants of stock options and other stock-based awards. The 1998 Stock Plan is
intended to provide an opportunity for certain key employees as well as
non-employee directors of and consultants to the Company and its subsidiaries to
acquire an ownership interest in the Company, thereby aligning their interests
with those of the Company's stockholders. Adoption of the 1998 Stock Plan will
also enhance and maintain the Company's ability to attract, retain and motivate
key employees, including salespersons, whose efforts will be important to the
Company's future success and prosperity.

The Company presently has only 15,000 shares available for option or
restricted stock grants under the 1995 Stock Plan, which number may be decreased
by stock awards and option grants made between the date of this proxy statement
and the Annual Meeting. The Board believes that additional shares should be made
available to give the Company maximum flexibility in providing appropriate
incentives to key personnel. Upon stockholder approval of the 1998 Stock Plan,
the 1995 Stock Plan will be terminated, and none of the shares reserved and then
currently available under the 1995 Stock Plan will be available for option or
restricted stock grants thereunder, although shares subject to options or stock
awards under the 1995 Stock Plan that expire or are terminated unexercised and
any shares withheld or reacquired by the Company pursuant to withholding,
payment, forfeiture or repurchase rights under the 1995 Stock Plan will be
available for issuance pursuant to restricted stock awards or non-qualified
stock options under the 1998 Stock Plan (the "1995 Stock Plan Repurchased
Shares") and previous option grants and stock purchases under the 1995 Stock
Plan will be unaffected.

Additionally, upon stockholder approval of the 1998 Stock Plan, the HPSC
Supplemental Employee Stock Ownership Plan (the "SESOP") will be terminated and
the 350,000 shares of Common Stock held in the SESOP Trust, none of which have
been allocated to participants in the SESOP, will be reacquired by the Company.

GENERAL

The 1998 Stock Plan permits the Company to grant (1) stock options (both
non-qualified stock options ("NSOs") and incentive stock options ("ISOs") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")) and (2) performance-based restricted stock.

The 1998 Stock Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"), whose members are "outside directors"
under regulations promulgated under Section 162(m) of the Code and are
"disinterested persons" under Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The Committee determines which key employees of
the Company and its subsidiaries are eligible to participate in the 1998 Stock
Plan and the amounts, times, forms, terms and conditions of grants under the
1998 Stock Plan within the limitations established by the 1998 Stock Plan and
specifically approves any grant of stock options or restricted stock to
executive officers, employees or consultants under the 1998 Stock Plan.

ELIGIBLE PARTICIPANTS

Under the 1998 Stock Plan, all executive officers (currently 3), all
non-employee directors (currently 6), other key employees (currently
approximately 30) and consultants or other service providers would be eligible
to participate and to receive stock options and restricted stock awards, based
on their performance and that of the Company.

16
<PAGE> 19

NUMBER OF SHARES

Subject to adjustment in the event of any change in the capital structure
of the Company, the maximum aggregate number of shares that may be issued under
the 1998 Stock Plan is 550,000 shares plus (with respect to restricted stock
awards and non-qualified stock options) the 1995 Stock Plan Repurchased Shares.
No more than 200,000 options to purchase Common Stock or shares of restricted
Common Stock may be awarded to an individual participant in any one year. For
any participant, the aggregate fair market value of stock subject to ISOs that
are first exercisable in any calendar year may not exceed the limits established
therefor from time to time under Section 422 of the Code.

Any shares subject to an option or restricted stock award that for any
reason expires or is terminated unexercised as to such shares and any shares
withheld or reacquired by the Company pursuant to withholding, payment,
forfeiture or repurchase rights will be available again for distribution under
the 1998 Stock Plan.

The closing price of the Company's Common Stock as reported by the Nasdaq
National Market System on March 4, 1998 was $5.00.

STOCK OPTIONS

Award Agreement. The Committee will determine the terms of the stock
awards under the 1998 Stock Plan. Options granted under the 1998 Stock Plan may
be ISOs, NSOs, or any combination thereof. Only participants who are employees
of the Company may receive ISOs. Each award will be evidenced by a written
agreement between the Company and the person receiving the stock option. The
agreement will specify the option price, the expiration date of the option, the
number of shares for which the option is exercisable, any conditions to the
exercise of the option, such as continued employment, and such other terms and
conditions as the Committee in its sole discretion shall determine.

Option Price. The option exercise price may not be less than, in the case
of ISOs, the market price of the Common Stock on the date of the option grant,
which equals the average of the closing prices of the Common Stock on each of
the days on which such stock was traded during the thirty-calendar day period
ending on the day before the date of the option grant, as such closing prices
are reported in the Wall Street Journal, (the "Market Price") or, in the case of
NSOs, 85% of the Market Price of the Common Stock on the date of grant; provided
that if the closing price of the Common Stock is no longer reported in the Wall
Street Journal or if no trading occurs during the relevant thirty-day period,
the Market Price on any date shall be as determined by the Board of Directors.
The participant is not required to pay any consideration for the grant of a
stock option under the 1998 Stock Plan.

Option Exercise. Options may be exercised at such times and subject to
such restrictions and conditions, including, without limitation, restrictions
based on continued employment with or service to the Company or the achievement
of performance goals, as are determined by the Committee. All stock options
shall become fully exercisable upon a change in control of the Company, as
described below. Options granted under the 1998 Stock Plan generally will expire
at the earliest of (1) ten years after the date of grant, (2) six months after
termination of employment or other service relationship with the Company due to
death or disability, (3) three months after termination of employment or other
service relationship with the Company for any other reason except termination
for cause, and (4) immediately upon termination of employment or other service
relationship with the Company for cause. An option may be exercised under the
1998 Stock Plan by providing written notice to the Company specifying the number
of shares of Common Stock to be purchased and providing payment to the Company.
Generally, the option price shall be paid in full in cash or by cashless
exercise through an approved broker, or in the discretion of the Committee, by
delivery or deemed delivery of shares of Common Stock of the Company which (a)
have a fair market value equal to the exercise price of the option shares to be
purchased and (b) except to the extent otherwise permitted by the Committee
17
<PAGE> 20

in any instance, have been owned by the participant (or other person(s)
exercising the participant's rights under the Plan) for at least six months
prior to the date of delivery or deemed delivery. Certificates for the shares
purchased on the exercise of an option will be issued only upon payment in full
of the option price. The Committee will withhold or require the participant to
surrender sufficient shares acquired pursuant to the option to pay any
applicable withholding taxes that the Company is required by law to withhold,
and such withheld and surrendered shares shall become available again for
distribution under the 1998 Stock Plan. To the extent that satisfaction of
required withholding taxes by the foregoing methods is not possible, and to the
extent that the participant elects additional tax withholding, such withholding
may be satisfied by any of the methods permitted for payment of the option
price, subject to the discretion of the Committee to require payment in cash if
it determines that payment by other methods is not in the best interests of the
Company. For options with a before-tax net value of at least $10,000, the
participant shall be deemed to have exercised such option in full, to the extent
not previously exercised, on the last day of the option term.

Automatic Stock Option Grants to Non-Employee Directors. Members of the
Company's Board of Directors who are not employees of the Company or its
subsidiaries will receive an annual grant under the 1998 Stock Plan of NSOs to
purchase 1,000 shares of Common Stock, subject to adjustment in the event of a
change in the capital structure of the Company ("Automatic Options"). These
grants will be made at the conclusion of each regular annual meeting of the
Company's stockholders to non-employee directors who will continue to serve on
the Board thereafter and to newly elected non-employee directors immediately
upon their election to the Board of Directors. The exercise price will be equal
to the Market Price of the Common Stock on the date of grant. The NSOs will be
exercisable immediately upon the date of grant. The NSOs will expire at the
earliest of (1) ten years after the date of grant, (2) six months after the
termination of the director's service due to death or disability, (3) three
months after the termination of the director's service for any other reason
except termination for cause, and (4) immediately upon the termination of the
director's service for cause.

Deferral Elections. The 1998 Stock Plan authorizes the Committee to permit
the deferral of the delivery of shares received upon exercise of a NSO, which is
exercised by cash or check (provided that delivery of all shares received upon
such option exercise is deferred) or by delivery or deemed delivery of shares of
previously owned Common Stock which meet the conditions described above for such
a cashless exercise of an option without a deferral election. The deferral
opportunity will be limited to (i) non-employee directors, (ii) other
non-employee service providers and (iii) employees who are members (as
determined in the discretion of the Committee) of a select group of management
or highly compensated employees of the Company or any of its subsidiaries. To
elect deferral with respect to an option exercise, the participant must make an
irrevocable election at least (i) six months before expiration of the option and
(ii) two months before exercise of the option to defer receipt of the shares
otherwise to be received upon exercise until a specified date at least one year
after such election and no later than the participant's termination of
employment. Phantom shares of Common Stock equal in number to the shares of
Common Stock deferred shall be credited to an account in the name of the
participant. Dividends paid on Common Stock during such deferral period will, in
the discretion of the Company, either be paid in cash to the participant or will
be credited to the deferred amounts as additional phantom shares. The deferred
account balance will be payable in shares of Common Stock, at the election of
the optionee, either in a lump sum payment as of the date specified in the
election or in annual installments over a period of up to 10 years after such
date. Such deferred amounts may be disbursed earlier in certain events such as
disability, death, an "unforeseeable emergency" or otherwise in the discretion
of the Committee.

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<PAGE> 21

RESTRICTED STOCK

Within the limitations described below, the Committee will determine when
restricted stock will be granted under the 1998 Stock Plan and all of the other
terms and conditions of a grant. The Committee may determine whether, and to
what extent, any consideration other than the services of the participant must
be paid for the restricted stock. Shares of restricted stock will be held in
escrow by the Company in certificate or book-entry form. The participant will
receive all of the benefits of ownership with respect to such shares including
the rights to vote the shares and to receive dividends; provided, however, that
so long as the restrictions are in effect, (1) the shares may not be sold,
hypothecated or otherwise disposed of, (2) if the participant's employment is
terminated without cause by the Company or by reason of death or disability (any
such event, "Termination without Cause"), and if the Partial Performance
Condition described below is not met within four months after the termination
date, the participant shall forfeit to the Company all such shares (or, if the
Partial Performance Condition is met, but the Full Performance Condition is not
met by the end of such four-month period, the participant shall forfeit to the
Company 50% of such shares) for no consideration other than the price, if any,
paid for such stock by the participant and (3) if the participant voluntarily
terminates his employment or is terminated by the Company with cause, the
participant shall forfeit to the Company all such shares as of the termination
date for no consideration other than the price, if any, paid for such stock by
the participant.

All restricted stock granted under the 1998 Stock Plan will remain subject
to the restrictions on transfer and right of the Company to repurchase described
in the previous paragraph unless, within the five-year period after such grant
(the "Five-Year Period"), the Common Stock achieves specified multiples of its
value on the date of grant and the participant meets the Service Requirement
described below. If the closing price of the Common Stock as reported on the
Nasdaq National Market System for a consecutive 10-day period equals or exceeds
137.10% of the Market Price on the date of grant of the restricted stock award
(the "Partial Performance Condition"), the restrictions described above will
lapse as to one-half of the restricted shares awarded at such time as the
participant meets the Service Requirement. If the closing price as reported on
the Nasdaq National Market System for a consecutive 10-day period equals or
exceeds 174.20% of the Market Price on the date of grant of the restricted stock
award (the "Full Performance Condition") the restrictions described above will
lapse as to the second half of the restricted shares at such time as the
participant meets the Service Requirement. A participant meets the Service
Requirement if he or she provides continuous service to the Company during the
Five-Year Period, except that (i) in the event of the Participant's Termination
without Cause during the Five-Year Period but after one or both of the
Performance Conditions are met, the participant shall be deemed to have met the
Service Requirement as of such date of termination with respect to the
Performance Condition(s) which have been met (or deemed to have been met, as set
forth in (ii) below) as of such termination date and (ii) in the event of a
participant's Termination without Cause before one or both Performance
Conditions are met, the participant is deemed to have met the Service
Requirement through the end of the fourth month after the termination of
employment. All restrictions will lapse upon a change in control of the Company,
as described below. If the Partial Performance Condition and the Service
Requirement with respect to a grant of restricted stock are not achieved within
the Five-Year Period, the participant shall forfeit to the Company all such
stock for no consideration other than the price, if any, paid for such stock by
the participant. If the Partial Performance Condition and the Service
Requirement have been achieved but the Full Performance Condition has not been
achieved within the Five-Year Period, the participant shall forfeit to the
Company one-half of such stock for no consideration other than price, if any,
paid for such stock by the participant. The Full Performance Condition
represents the annual compound return (including dividends) of the Standard and
Poor's 500 stock index for the period January 1, 1967 through December 31, 1997,
compounded over the Five-Year Period; the Partial Performance Requirement
represents one-half of such increase.

19
<PAGE> 22

Each award will be evidenced by a written agreement between the Company and
the person to whom the award is made, setting forth the performance goals
described above and the period within which such goals must be met. No
restriction will be released until the Committee certifies that the applicable
performance levels have been satisfied. Distribution of earned restricted stock
will be made as soon as practicable after the expiration of the applicable
performance period. The Committee will require participants to surrender
sufficient restricted shares to pay applicable withholding taxes, and such
surrendered shares shall become available again for distribution under the 1998
Stock Plan.

Nontransferability

Options and restricted stock granted pursuant to the 1998 Stock Plan are
nontransferable by the participant, other than by will or by the laws of descent
and distribution, and options may be exercised, during the lifetime of the
participant, only by the participant. However, the Committee or the Board, as
the case may be, may, in its discretion, allow transfers of NSOs and restricted
stock awards to or in trust for the participant's spouse, children,
grandchildren, siblings and spouses of any of the foregoing or entities for the
benefit of any such persons.

Forfeiture

In the discretion of the Committee, options (other than Automatic Options
described above), shares of Common Stock acquired upon the exercise of an option
or issued pursuant to a restricted stock award and any gain realized upon the
exercise of any options or upon the sale of shares of formerly restricted stock
may be subject to forfeiture to the Company under the circumstances set forth in
the applicable restricted stock award agreement or option grant agreement, which
circumstances may include the participant's competing with the Company during a
specified period after termination of employment with the Company.

Change in Control

The 1998 Stock Plan provides that in the event of a change in control of
the Company, all stock options granted thereunder shall become fully exercisable
and vested and the restrictions applicable to any outstanding grants of
restricted stock shall lapse and such shares shall become fully vested.

For purposes of the 1998 Stock Plan, the term "change in control" is
defined as (1) the acquisition, directly or indirectly, of at least 20 percent
of the outstanding securities of the Company by a person other than the Company
or an employee benefit plan of the Company, (2) a greater than one-third change
in the composition of the Board over a period of 24 months (if such change was
not approved by a majority of the existing directors), (3) certain mergers and
consolidations involving the Company, (4) a liquidation of the Company or (5) a
sale of all of the substantially all of the Company's assets. The term "change
in control" does not include a reincorporation of the Company in a different
state and certain other transactions.

Amendment or Termination

The 1998 Stock Plan will automatically terminate on February 24, 2008. The
board of directors may terminate the 1998 Stock Plan at any time before that
date and may make such changes in the 1998 Stock Plan as it deems advisable
except that stockholder approval shall be required for changes that would (i)
increase the maximum number of shares subject to the 1998 Stock Plan, (ii)
materially modify the requirements as to eligibility for participation in the
1998 Stock Plan or (iii) require stockholder approval under Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, or Sections
162(m) or 422 of the Code.

20
<PAGE> 23

Federal Tax Consequences

Stock Options. The grant of a stock option creates no income tax
consequences to the participant or the Company. Upon the exercise of a NSO, the
participant generally will recognize ordinary taxable income equal to the excess
of the fair market value of the shares purchased (as of the exercise date) over
the option price. The Company will be entitled to a deduction in the same amount
and at the same time. Any gain or loss upon subsequent sale of the shares will
be a capital gain or loss. If the participant elects to defer receipt of the
proceeds upon exercise of a NSO, the participant will have no taxable income at
the time of exercise of the NSO but will defer his recognition of taxable income
until the date on which his deferred compensation account terminates and he
receives actual shares of Common Stock. At that time, if the purchase price of
the NSO was paid in cash, the participant will recognize ordinary taxable income
equal to the excess of the fair market value of the shares acquired (as of the
date of their receipt) over the option price and the Company will be entitled to
a deduction in the same amount. If the purchase price of the NSO was paid by
delivery of already-owned shares of Common Stock, the participant will recognize
ordinary taxable income equal to the fair market value of the shares acquired
(as of the date of their receipt) and the Company will be entitled to a
deduction in the same amount.

Upon exercising an ISO, a participant has no taxable income (except that
the alternative minimum tax may apply), and the Company receives no deduction,
provided that the employment requirements specified in Section 422 of the Code
are satisfied. If the participant holds the stock acquired upon exercise for the
statutory holding period, then any gain or loss upon subsequent sale of the
Common Stock will be a long-term capital gain or loss equal to the difference
between the option exercise price and any amount realized on the disposition.
The Company is allowed no deduction. The statutory holding period is the later
of two years from the grant date or one year from the date the Common Stock is
transferred to the participant pursuant to the exercise of the option. If a
participant disposes of shares acquired by the exercise of an ISO before
expiration of the holding period (a "disqualifying disposition"), then the
amount of ordinary income taxable to the participant is the lesser of (1) the
fair market value of the Common Stock on the exercise date less the option
exercise price, and (2) the amount realized on disposition less the option
exercise price. The Company will be entitled to a deduction in the same amount
and at the same time.

Restricted Stock. A recipient of restricted stock will have ordinary
taxable income equal to the excess of the fair market value of the shares at the
time if and when the share restrictions lapse over the amount (if any) paid by
the recipient for such restricted stock. Under current federal tax law, however,
the employee may elect to include as ordinary income for the year of the award
the fair market value of the shares on the grant date over the amount (if any)
paid by the recipient for such restricted stock. The restrictions on the shares
will not affect fair market value for purposes of such an election. If the
election is made, the recipient will not incur additional tax liability until
the sale or disposition of the shares, when any gain or loss will be a capital
gain or loss. If the shares are forfeited following such an election, the
recipient obtains no tax benefit with respect to the forfeiture or any prior tax
payment, but will be able to claim a capital loss deduction equal to the
difference (if any) between the sum of the amount (if any) paid for the shares
plus the taxable income recognized at the time of the election minus the amount
(if any) received upon the forfeiture. The Company is entitled to a federal tax
deduction in the same amount and at the same time as the employee realizes
ordinary income.

Other Limitations on Income Tax Deduction

Under Section 162(m) of the Code, the Company may be limited as to federal
income tax deductions to the extent that total individual compensation paid to
the Chief Executive Officer and the other two most highly compensated executive
officers of the Company exceeds $1,000,000 in any one year. The Company can
preserve the deductibility of certain compensation without regard to the
$1,000,000 limit, however, provided that it complies with conditions imposed by
Section 162(m) of the Code, including the payment of

21
<PAGE> 24

performance-based compensation pursuant to a plan approved by stockholders. The
1998 Stock Plan is designed to provide the Company flexibility and the
opportunity to qualify certain aspects of compensation as performance-based
compensation under Section 162(m) of the Code, should the Company at some time
in the future pay consideration that may exceed the limit under Section 162(m).

The foregoing summary of the effects of federal income taxation upon the
participant and the Company with respect to awards under the 1998 Stock Plan
does not purport to be complete, and reference should be made to the applicable
provisions of the Code and the regulations thereunder. In addition, this summary
does not discuss the provisions of the income tax laws of any municipality,
state or foreign country in which the participant may reside or the Company may
be subject to taxation.

Benefits under the 1998 Stock Plan

As a result of the discretionary nature of the 1998 Stock Plan, it is not
possible to determine who the participants in such Plan will be, or the number
of options or other awards to be received by any person or group under such Plan
other than with respect to Automatic Options that will be granted to each of the
Company's non-employee directors (Messrs. Biernat, Birchfield, Cooley, McDougal
and Weicker and Ms. Cole) immediately following the Annual Meeting. The
Committee may, in its discretion, grant stock options or make restricted stock
awards to eligible participants under the 1998 Stock Plan before the Annual
Meeting, subject to approval of the 1998 Stock Plan by the stockholders at the
Annual Meeting. No such grants or awards have been made to date.

Vote Required for Approval

The affirmative vote of the holders of a majority of all outstanding shares
present or represented at the Annual Meeting and entitled to vote thereon is
required to approve the adoption of the 1998 Stock Plan, provided that the
number of votes cast for and against the 1998 Stock Plan must exceed 50% of the
number of shares entitled to vote thereon. See "Quorum and Voting Procedures"
below. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 1998 STOCK PLAN AND YOUR
PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.

PROPOSAL THREE -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P. resigned as independent accountants for the
Company on June 12, 1996. None of the reports of Coopers & Lybrand on the
financial statements of the Company for either of the two most recent fiscal
years preceding the resignation of Coopers & Lybrand contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles. During the Company's two most
recent fiscal years and the subsequent interim period preceding the resignation
of Coopers & Lybrand, there were no disagreements with Coopers & Lybrand on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Coopers & Lybrand, would have caused it to make reference to the
subject matter of the disagreement in connection with its report. None of the
reportable events listed in Item 304(a)(1)(v) of Regulation S-K occurred with
respect to the Company during the Company's two most recent fiscal years and
subsequent interim period preceding the resignation of Coopers & Lybrand.

Deloitte & Touche LLP have acted as the Company's independent accountants
since June 19, 1996 and have been selected to act as the Company's independent
public accountants for the current year, subject to ratification by vote of the
holders of a majority of the shares of Common Stock voting thereon at the Annual
Meeting. Representatives of that firm are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.

22
<PAGE> 25

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP.

PROPOSALS OF SECURITY HOLDERS

Any proposal of a stockholder intended to be presented at the 1999 Annual
Meeting of Stockholders must be received at the corporate headquarters of the
Company not later than Thursday, November 20, 1998 in order to be included in
the Company's proxy statement and form of proxy relating to that meeting.

QUORUM AND VOTING PROCEDURES

The By-Laws of the Company provide that a majority of the shares of Common
Stock issued and outstanding and entitled to vote, present in person or by
proxy, shall constitute a quorum at a meeting of stockholders of the Company.
Shares of Common Stock represented by a properly signed and returned proxy are
considered as present at the Annual Meeting for purposes of determining a
quorum. Abstentions and broker "non-votes" are counted as present for purposes
of determining the existence of a quorum. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because, under the rules of the National Association of Securities
Dealers (NASD) that govern brokers using the NASD's automated quotation system
(Nasdaq), the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.

Under Section 160(c) of the Delaware General Corporation Law, the 1,125,182
shares of Common Stock retired by the Company and the 274,400 shares of common
stock held by the Company in its treasury are not entitled to vote on any
matters coming before the Annual Meeting or to be counted for quorum purposes.

The vote required for election of directors is the affirmative vote of a
plurality of the shares present or represented at the Annual Meeting and
entitled to vote thereon (i.e., the nominees receiving the greatest number of
votes will be elected). Votes may be cast in favor of or withheld from each
nominee; votes that are withheld and broker non-votes will be excluded entirely
from the vote and will have no effect.

The vote required for approval of the 1998 Stock Plan is the affirmative
vote of a majority of the shares of Common Stock present or represented at the
Annual Meeting and entitled to vote thereon, provided that the number of votes
cast for and against the 1998 Stock Plan must exceed 50% of the number of shares
entitled to vote thereon. Abstentions will count as votes against this proposal.
Broker non-votes will not count as votes cast "for" or "against" this proposal
and, accordingly, will not be included in calculating the number of votes
necessary for approval of this proposal. Brokers do not have discretionary
authority to vote on this proposal.

If a stockholder of record specifies in the proxy how it is to be voted, it
will be voted in accordance with such specification. If a properly signed proxy
is returned to the Company by a stockholder of record and is not marked, it will
be voted in accordance with the Board's recommendations on all proposals. Any
stockholder giving a proxy in the accompanying form retains the power to revoke
it at any time before the exercise of the powers conferred thereby, by notice in
writing to the Secretary of the Company. Any stockholder who attends the Annual
Meeting in person will not be deemed thereby to revoke the proxy unless such
stockholder affirmatively indicates at the Annual Meeting his intention to vote
the shares covered thereby in person.

OTHER MATTERS

The Board of Directors and Company's management know of no business which
will be presented for consideration at the Annual Meeting other than that shown
above. However, if any other proper business should come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the proxies in respect to any such business in accordance with their
best judgment. Matters with

23
<PAGE> 26

respect to which the enclosed form of proxy confers such discretionary authority
are as follows: (i) matters which the Board of Directors does not know are to be
presented at the Annual Meeting as of a reasonable time before the mailing of
this Proxy Statement; (ii) approval of the minutes of the prior meeting of
stockholders, such approval not constituting ratification of the action taken at
such meeting; (iii) election of any person as a director if any of the nominees
named herein is unable to serve or for good cause will not serve; and (iv)
matters incident to the conduct of the Annual Meeting.

The cost of preparing, assembling and mailing this proxy material will be
borne by the Company. The Company may solicit proxies other than by the use of
the mail, in that certain officers and regular employees of the Company, without
additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. The Company has also retained Corporate Investor
Communications, Inc., 111 Commerce Road, Carlstadt, NJ 07072 to assist the
Company in the distribution of the proxy materials and the solicitation of
proxies for an estimated fee of $5,000 plus reimbursement of reasonable
out-of-pocket expenses. The Company requests individuals, firms and corporations
holding shares in their names, or in the names of their nominees, which shares
are beneficially owned by others, to send this proxy material to and obtain
proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses in doing so.

By Order of the Board of Directors

DENNIS W. TOWNLEY
Secretary

24
<PAGE> 27

0616-PS-98
<PAGE> 28
Appendix A

HPSC, INC.

1998 STOCK INCENTIVE PLAN

AS ADOPTED FEBRUARY 23, 1998

<PAGE> 29

TABLE OF CONTENTS

1. PURPOSE; RESTRICTIONS.......................................................1
2. EFFECTIVE DATE..............................................................1
3. STOCK COVERED BY THE PLAN...................................................1
4. ADMINISTRATION..............................................................2
5. ELIGIBLE RECIPIENTS; AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.............2
(a) KEY EMPLOYEES, CONSULTANTS AND OTHER INDIVIDUAL CONTRIBUTORS...........2
(b) NON-EMPLOYEE DIRECTORS.................................................3
(i) Price..............................................................3
(ii) Exercise..........................................................3
(iii) Expiration.......................................................3
(iv) Other Terms.......................................................3
6. DURATION OF THE PLAN........................................................3
7. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED STOCK AWARDS.................3
(a) PRICE..................................................................4
(b) NUMBER OF SHARES.......................................................4
(c) VESTING AND OTHER TERMS OF RESTRICTED STOCK AWARDS.....................4
(i) Vesting............................................................4
(ii) Forfeiture of Unvested Shares.....................................5
(iii) Escrow of Unvested Shares........................................5
(iv) Stockholder Rights................................................6
(v) Other Terms........................................................6
(d) EXERCISE OF OPTIONS....................................................6
(e) PAYMENT................................................................6
(f) WITHHOLDING TAXES; DELIVERY OF SHARES..................................7
(g) NON-TRANSFERABILITY....................................................7
(h) TERMINATION OF RESTRICTED STOCK AWARDS AND OPTIONS.....................8
(i) RIGHTS AS STOCKHOLDER..................................................8
(j) FORFEITURE.............................................................8

<PAGE> 30

(k) 10% STOCKHOLDER........................................................9
(l) CONFIDENTIALITY AGREEMENTS.............................................9
(m) AGGREGATE LIMITATION...................................................9
(n) RIGHT TO TERMINATE.....................................................9
(o) DEFERRAL...............................................................9
8. RESTRICTIONS ON INCENTIVE OPTIONS..........................................11
9. SUSPENSION OF RIGHTS PRIOR TO A DISSOLUTION, REORGANIZATION, ETC...........11
10. ADJUSTMENT IN SHARES......................................................11
11. INVESTMENT REPRESENTATIONS; TRANSFER RESTRICTIONS.........................12
12. DEFINITIONS...............................................................12
(a) "BOARD"...............................................................12
(b) "CHANGE IN CONTROL"...................................................12
(c) "CODE"................................................................12
(d) "COMMITTEE"...........................................................12
(e) "COMMON STOCK"........................................................12
(f) "COMPANY" AND "COMPANY GROUP".........................................12
(g) "DEFERRED COMPENSATION ACCOUNT".......................................12
(h) "DIRECTOR OPTION".....................................................12
(i) "DISABILITY"..........................................................12
(j) "EFFECTIVE DATE"......................................................12
(k) "EMPLOYEE"............................................................12
(l) "EVENT"...............................................................13
(m) "EXCHANGE ACT"........................................................13
(n) "INCENTIVE OPTION"....................................................13
(o) "MARKET PRICE"........................................................13
(p) "1995 PLAN"...........................................................13
(q) "NON-EMPLOYEE DIRECTOR"...............................................13
(r) "NONQUALIFIED OPTION".................................................13
(s) "OPTION"..............................................................13
(t) "PARTICIPANT".........................................................13

-ii-
<PAGE> 31

(u) "PERFORMANCE CONDITIONS"..............................................13
(v) "PERFORMANCE PERIOD"..................................................13
(w) "PHANTOM STOCK".......................................................13
(x) "PLAN"................................................................13
(y) "PURCHASE AUTHORIZATION"..............................................13
(z) "SERVICE".............................................................13
(aa) "SERVICE REQUIREMENT"................................................13
(bb) "SHARES".............................................................14
(cc) "SUBSIDIARY".........................................................14
(bb) "SUBSIDIARY".........................................................14
13. TERMINATION OR AMENDMENT OF PLAN..........................................14
14. CHANGE IN CONTROL.........................................................14

-iii-
<PAGE> 32

As adopted 2/23/98

HPSC, INC.

1998 STOCK INCENTIVE PLAN

1. PURPOSE; RESTRICTIONS. The purpose of this HPSC, Inc. 1998 Stock
Incentive Plan (the "Plan") is to advance the interests of HPSC, Inc., a
Delaware corporation (the "Company"), and of its shareholders by strengthening
the ability of the Company to attract, retain and motivate key employees,
directors, consultants and other individual contributors of or to the Company or
any present or future Subsidiary(1) of the Company (the Company and all such
Subsidiaries shall be collectively referred to as the "Company Group") by
providing such employees, directors, consultants and other individual
contributors with an opportunity to purchase or receive as bonuses stock of the
Company, thereby permitting such persons to share in the Company's success while
aligning their interests with those of the Company's shareholders. It is
intended that this purpose will be effected by granting (i) incentive stock
options ("Incentive Options"), which are intended to qualify under the
provisions of Section 422 of the Code, and non-statutory stock options
("Nonqualified Options"), which are not intended to meet the requirements of
Section 422 of the Code and which are intended to be taxed upon exercise under
Section 83 of the Code (both Incentive Options and Nonqualified Options shall be
collectively referred to as "Options") and (ii) restricted stock awards that are
subject to performance-vesting requirements ("Restricted Stock Awards").

Notwithstanding the foregoing, no Incentive Options shall be granted
under this Plan unless this Plan shall have been approved by the stockholders of
the Company within twelve (12) months after the Effective Date.

2. EFFECTIVE DATE. This Plan was adopted on February 23, 1998, which
is also the Effective Date of the Plan.

3. STOCK COVERED BY THE PLAN. Subject to adjustment as provided in
Sections 9 and 10 below, the shares that may be made subject to Options or
Restricted Stock Awards under this Plan ("Shares") shall not exceed in the
aggregate 550,000 shares of the common stock, $.01 par value, of the Company
("Common Stock"). Notwithstanding the foregoing, additional shares of Common
Stock may be issued and sold pursuant to Restricted Stock Awards and
Nonqualified Options in amounts up to the number of shares of Common Stock (i)
underlying any restricted stock award or option granted under the 1995 Plan
which shall terminate or expire without being fully exercised, but only to the
extent such shares remained available for purchase or award at the time of such
termination or expiration, or (ii) withheld or reacquired by the Company
pursuant to withholding, payment, forfeiture or repurchase rights under the 1995
Plan. Any Shares subject to

- -------------------
(1) Capitalized terms not otherwise defined herein are defined in Section 12
below.
<PAGE> 33

an Option or Restricted Stock Award which for any reason expires or is
terminated unexercised as to such Shares and any Shares withheld or reacquired
by the Company pursuant to withholding, payment, forfeiture or a repurchase
right hereunder may again be the subject of an Option or Restricted Stock Award
under the Plan. The Shares purchased or issued under the Plan may, in whole or
in part, be either authorized but unissued Shares or issued Shares reacquired by
the Company.

4. ADMINISTRATION. This Plan shall be administered by the
Compensation Committee of the Board (the "Committee"); provided that each of the
members of the Committee shall be a person who in the opinion of counsel to the
Company is (i) a "disinterested person" as such term is used in Rule 16b-3
promulgated under the Exchange Act and (ii) an "outside director" as such term
is used in proposed regulation Section 1.162.27(e)(3) under Section 162(m) of
the Code. The Committee shall have authority, subject to the express provisions
of the Plan, to construe the Plan and the respective Options, Restricted Stock
Awards, and related agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine, within the limits of the Plan,
the amounts, times, forms, terms, conditions and status (as Incentive or
Nonqualified Options) of the respective Options, Restricted Stock Awards, and
related agreements, and to make all other determinations in the judgment of the
Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option, Restricted Stock Award, or related
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect, and it shall be the sole and final judge of such expediency.

The Committee shall have authority to establish guidelines for the
grant of Options and Restricted Stock Awards to key employees of the Company
Group who are not executive officers of the Company and to authorize the
Company's chief executive officer to recommend the award of Options and
Restricted Stock Awards, within such guidelines, to such eligible non-executive
key employees; PROVIDED, HOWEVER, that such recommendation must be submitted to
the Committee for final approval.

No member of the Committee and no delegate of the Committee shall be
liable for any action or determination under the Plan taken or made in good
faith.

5. ELIGIBLE RECIPIENTS; AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.

(a) KEY EMPLOYEES, CONSULTANTS AND OTHER INDIVIDUAL CONTRIBUTORS.
Subject to the restrictions of this Plan, Options and Restricted Stock Awards
may be granted to such key employees, consultants or other individual
contributors of or to the Company Group, including, without limitation,
directors of the Company (whether or not any such director is also an Employee),
as are selected by the Committee or (except as to employees who are Company
executive officers) by the Company's Chief Executive Officer pursuant to Section
4 above (a "Participant"); provided, however, that only Employees shall be
eligible for grant of an Incentive Option.

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<PAGE> 34

(b) NON-EMPLOYEE DIRECTORS. Subject to the restrictions of this
Plan, Nonqualified Options will be granted annually pursuant to this Section
5(b) to each director of the Company who is a director on the date of grant and
who is not an Employee ("Non-Employee Directors"). Each Non-Employee Director
who is such at the conclusion of any regular annual meeting of the Company's
stockholders while this Plan is in effect and who will continue to serve on the
Board thereafter (a "Director Participant" or, unless the context otherwise
requires, a "Participant") shall receive on such date a Nonqualified Option to
purchase 1,000 Shares (a "Director Option"). Further, each Non-Employee Director
who was not such at the conclusion of the last regular annual meeting of the
Company's stockholders will, on the date that such Non-Employee Director is
elected a director of the Company, automatically be granted a Director Option to
purchase the same number of Shares covered by the last Director Option granted
by the Board. All Director Options granted pursuant to this Section are subject
to adjustment as provided in Section 10 below. Each Director Option shall be
subject to the following terms and conditions:

(i) PRICE. The purchase price per Share payable upon the
exercise of a Director Option shall be one hundred percent (100%) of the Market
Price per Share on the date of grant of the Director Option.

(ii) EXERCISE. Each Director Option shall be exercisable for
the full amount or for any part thereof immediately on the date of grant. Any
unexercised portion of a Director Option may be subsequently exercised for the
full amount or for any part thereof at any time and from time to time (until
exhausted) prior to the expiration or other termination of the Option.

(iii) EXPIRATION. Each Director Option shall terminate and may
no longer be exercised upon the earliest of (1) ten years after the date of
grant, (2) six months after termination of the Participant's Service due to
death or Disability, (3) three months after termination of the Participant's
Service for any other reason except termination for cause, and (4) immediately
upon termination of the Participant's Service for cause. The Board's good faith
determination of whether the termination of a Director Participant's Service was
for cause shall be binding for purposes of the Plan.

(iv) OTHER TERMS. Each Director Option shall be subject to all
other terms of the Plan (including without limitation the terms of Sections 7,
9, 10 and 11) except to the extent that such terms are inconsistent with the
express provisions of this Section 5(b).

6. DURATION OF THE PLAN. This Plan shall terminate ten years from
the Effective Date hereof, unless terminated earlier pursuant to Section 13
below, and no Options or Restricted Stock Awards may be granted or made
thereafter.

7. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED STOCK AWARDS.
Options and Restricted Stock Awards granted or made under this Plan shall be
evidenced by grant forms or agreements in such form and containing such terms
and conditions as the Committee or (except as to grants and awards to employees
who are Company executive officers) the Committee's

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<PAGE> 35

delegate shall determine; provided, however, that such grant forms and
agreements shall evidence among their terms and conditions the following:

(a) PRICE. The purchase price per Share payable upon the exercise of
each Option (other than a Director Option) or the consideration (if any) in
addition to services of the Participant required pursuant to each Restricted
Stock Award granted or made hereunder shall be determined by the Committee at
the time the Option or Restricted Stock Award is granted or made subject to the
following restrictions. Subject to Section 7(k)(i), if applicable, the purchase
price per Share payable upon the exercise of each Incentive Option granted
hereunder shall not be less than one hundred percent (100%) of the Market Price
per Share on the day the Incentive Option is granted. The purchase price per
Share payable upon the exercise of each Nonqualified Option granted hereunder
shall be not less than eighty-five percent (85%) of the Market Price per Share
on the date of the grant. Restricted Stock Awards may be issued in consideration
of services to be rendered, which shall be valued for such purposes by the
Committee. No Share shall be issued for less than its par value, if any, paid in
cash, property or services.

(b) NUMBER OF SHARES. Each grant or award form or agreement shall
specify the number of Shares to which it pertains.

(c) VESTING AND OTHER TERMS OF RESTRICTED STOCK AWARDS. All Shares
covered by a Restricted Stock Award will be issued promptly after the date of
grant of the award, subject to the following terms and conditions:

(i) VESTING. Such Shares shall remain unvested and subject to
the restrictions of this Section 7(c) until such time (if at all) as (I) one or
both of the following performance conditions (the "Performance Conditions") are
met within the period of five years beginning on the date of grant of the
Restricted Stock Award (the "Performance Period") and (II) the Service
Requirement (as defined below) (the "Service Requirement") is also met with
respect to a Participant.

The Partial Performance Condition is met when the closing price
of a share of the Common Stock as reported on the NASDAQ National Market System
for a consecutive ten-day period equals or exceeds 137.10% of the Market Price
of a share on the first day of the Performance Period. If the Partial
Performance Condition is met for a Restricted Stock Award, then fifty percent
(50%) of the Shares covered by the award shall vest in the Participant who holds
the award, and the restrictions of this Section 7(c) shall terminate with
respect to such vested Shares (but not with respect to the remaining unvested
Shares), at such time as the Participant meets the Service Requirement, subject
to payment by the Participant of any additional consideration required under the
Restricted Stock Award.

The Service Requirement is met if the Participant has provided
continuous Service from the date of grant of a Restricted Stock Award through
the end of the Performance Period; provided that (i) if a Participant's Service
is terminated by the Company without cause or by reason of death or Disability
during the Performance Period but after one or both of the Performance
Conditions are met, the Participant shall be deemed to have met the Service

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<PAGE> 36

Requirement as of such date of termination with respect to the Performance
Condition(s) which have been met (or deemed to have been met, as set forth in
(ii) below) as of such termination date and (ii) if a Participant's Service is
terminated by the Company without cause or by reason of death or Disability
prior to the date that both Performance Conditions are met, the Participant
shall be deemed to meet the Service Requirement until the first day of the fifth
month following such termination. The Committee's good faith determination of
whether the termination of a Participant's Service (other than a Director
Participant's Service) was without cause or for cause shall be binding for
purposes of the Plan.

The Full Performance Condition is met when the closing price of
a share of the Common Stock as reported on the NASDAQ National Market System for
a consecutive ten-day period equals or exceeds 174.20% of the Market Price of a
share on the first day of the Performance Period. If the Full Performance
Condition is met for a Restricted Stock Award, then the remaining fifty percent
(50%) or, if the Partial Performance Condition was not previously met, one
hundred percent (100%) of the Shares covered by the award shall vest in the
Participant who holds the award, and the restrictions of this Section 7(c) shall
terminate with respect to such vested Shares, at such time as the Participant
meets the Service Requirement, subject to payment by the Participant of any
additional consideration required under the Restricted Stock Award.

Notwithstanding any of the foregoing, if a Change in Control of
the Company occurs while any Shares covered by a Restricted Stock Award remain
unvested pursuant to the foregoing provisions of this Section 7(c), but before
the date of forfeiture pursuant to this Section 7(c) of such Shares, all such
unvested but unforfeited Shares covered by the award shall thereupon vest in the
Participant and the restrictions of this Section 7(c) shall terminate, subject
to payment by the Participant of any additional consideration required (without
regard to the occurrence of a Change in Control) in the Restricted Stock Award.

(ii) FORFEITURE OF UNVESTED SHARES. If the Performance
Condition applicable to Shares covered by a Restricted Stock Award to a
Participant has not been met by the end of the Performance Period or if any such
Shares remain unvested at a time when the Participant fails to meet the Service
Requirement, the Shares as to which the Performance Condition has not been met
or the Shares which remain unvested when the Participant fails to meet the
Service Requirement (as the case may be) shall thereupon be forfeited to the
Company without any further action by the Company or the Participant and for no
consideration other than the amount (if any) of cash or other property paid by
the Participant for such Shares. A Participant shall be deemed to fail to meet
the Service Requirement on the first day of the fifth month following
termination of his or her Service without cause or by reason of death or
Disability and on the date of termination of his or her Service for any other
reason (including without limitation, termination for cause and any voluntary
termination by the Participant).

(iii) ESCROW OF UNVESTED SHARES. While Shares covered by a
Restricted Stock Award remain unvested, they shall be held in escrow by the
Company in certificate or book-entry form and they may not be sold,
hypothecated, or otherwise disposed of by the Participant or anyone claiming
through him or her.

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<PAGE> 37

(iv) STOCKHOLDER RIGHTS. Subject to the restrictions of this
Section 7(c), each Participant shall enjoy all the benefits of ownership with
respect to all Shares covered by a Restricted Stock Award (including the rights
to vote such Shares and to receive dividends thereon), regardless of whether
such Shares are vested or unvested; provided that all such rights shall
immediately cease with respect to any unvested Shares upon the forfeiture of
such Shares.

(v) OTHER TERMS. Each Restricted Stock Award shall be subject
to all other terms of the Plan (including without limitation the other terms of
this Section 7 and of Sections 9, 10 and 11) and of any form or agreement
embodying the award, except to the extent that such terms are inconsistent with
the express provisions of this Section 7(c).

(d) EXERCISE OF OPTIONS. Each Option (other than a Director Option)
shall be exercisable for the full amount or for any part thereof at such time or
at such intervals and in such installments as the Committee (or its delegate, if
applicable) may determine at the time it grants such Option; provided, however,
that no Option shall be exercisable with respect to any Shares later than ten
years after the date of the grant of such Option (or five years in the case of
Incentive Options to which Section 7(k)(ii) applies) and provided, further, that
each outstanding Option shall become immediately exercisable for the full amount
or any part thereof upon the occurrence of a Change in Control of the Company.
An Option shall be exercisable only by delivery of a written notice to the
Company's Treasurer, or any other officer of the Company designated by the
Committee to accept such notices on its behalf, specifying the number of Shares
for which the Option is exercised and accompanied by either (i) payment or (ii)
if permitted by the Committee, irrevocable instructions to a broker to promptly
deliver to the Company full payment in accordance with Section 7(e)(ii) below of
the amount necessary to pay the aggregate exercise price. With respect to an
Incentive Option, the permission of the Committee referred to in clause (ii) of
the preceding sentence must be granted at the time the Incentive Option is
granted.

(e) PAYMENT. Payment shall be made in full (i) at the time the
Option is exercised, (ii) promptly after the Participant forwards the
irrevocable instructions referred to in Section 7(d)(ii) above to the
appropriate broker, if exercise of an Option is made pursuant to Section
7(d)(ii) above, or (iii) at the time specified in the Restricted Stock Award if
any payment is required pursuant to the Award. Payment shall be made either (I)
in cash, (II) by check, (III) if permitted by the Committee (with respect to an
Incentive Option, such permission to have been granted at the time of the
Incentive Option grant), by delivery or deemed delivery and assignment to the
Company of shares of Company stock which (1) have a fair market value (as
determined by the Committee) equal to the exercise or purchase price and (2)
except to the extent otherwise permitted by the Committee in any instance, have
been owned by the Participant (or other person(s) exercising the Participant's
rights under this Plan) for at least six months prior to the date of delivery or
deemed delivery of such shares, (IV) by a combination of one or more of the
foregoing methods. For purposes of this Section, a deemed delivery of shares
shall mean the offset by the Company of a number of shares subject to the Option
or Restricted Stock Award against an equal number of shares of the Company's
stock owned by the Participant. If shares of

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<PAGE> 38

Company stock are to be used to pay the exercise price of an Incentive Option,
the Company prior to such payment must be furnished with evidence satisfactory
to it that the acquisition of such shares and their transfer in payment of the
exercise price satisfy the requirements of Section 422 of the Code and other
applicable laws.

Notwithstanding any other provision of this Plan, if an Option
would have a before-tax net value of at least $10,000 to the holder upon
exercise, then the holder of the Option shall be deemed to have exercised the
Option in full (to the extent not previously exercised) on the last day that
such Option is exercisable. Such deemed exercise shall be subject to payment in
full of the exercise price (and all applicable withholding taxes) by any of the
methods permitted pursuant to this Section 7(e) and Section 7(f), but subject to
the discretion of the Committee to require payment in cash if it determines that
payment by other methods is not in the best interests of the Company.

(f) WITHHOLDING TAXES; DELIVERY OF SHARES. The Company's
obligation to deliver Shares upon exercise of an Option or pursuant to a
Restricted Stock Award shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and employment tax withholding
obligations. Without limiting the generality of the foregoing, the Company shall
have the right to deduct from payments of any kind otherwise due to the
Participant any federal, state or local taxes of any kind required by law to be
withheld with respect to any Shares issued upon exercise of Options or pursuant
to Restricted Stock Awards. Furthermore, to the extent possible, all federal,
state and local tax withholding required by law shall be satisfied by
withholding of vested and unrestricted Shares or by delivery to the Company of
already owned unrestricted Shares, having a value equal to the amount required
to be withheld, as determined by the Committee. To the extent satisfaction of
all required tax withholding is not possible in the manner specified in the
preceding sentence and to the extent that additional tax withholding is elected
by the Participant, payment of withholding taxes may be made by any of the
methods permitted in Section 7(e) for payment of the exercise or purchase price
of an Option or Restricted Stock Award, subject to the discretion of the
Committee to require payment in cash if it determines that payment by other
methods is not in the best interests of the Company.

(g) TRANSFERABILITY. No Option or Restricted Stock Award shall
be transferable by the Participant otherwise than by will or the laws of descent
or distribution, and each Option shall be exercisable during the Participant's
lifetime only by the Participant. Notwithstanding the foregoing, the Board or
the Committee, as the case may be, may grant Nonqualified Options and
Restricted Stock Awards under this Plan that are transferable (subject to any
terms and conditions imposed by the Committee) by the Participant, either
directly or in trust, to one or more members of the Participant's family or to a
trust, a family partnership or other entity for the exclusive benefit of one or
more members of the Participant's family. Following any transfer permitted
pursuant to this paragraph, of which the Participant has notified the Committee
in writing, such Option or Restricted Stock Award may be exercised or shall
be held by the transferee(s), subject to all terms and conditions of the Option
or the Restricted Stock Award, as the case may be. For these purposes, the
members of the Participant's family are only the Participant's: (i) spouse and
the lineal descendants of such

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<PAGE> 39

spouse; (ii) lineal descendants and the spouses of such lineal descendants;
(iii) lineal ancestors and the spouses of such lineal ancestors; and (iv)
siblings and spouses and the children of such siblings.

(h) TERMINATION OF RESTRICTED STOCK AWARDS AND OPTIONS. Each
Restricted Stock Award shall be subject to the termination and forfeiture
provisions of Section 7(c) above. Except to the extent the Committee provides
specifically in a grant form or Option agreement for a lesser period (or a
greater period, in the case of Nonqualified Options only), each Option (other
than a Director Option) shall terminate and may no longer be exercised if the
Participant ceases for any reason to render continuous Service, in accordance
with the following provisions:

(i) if the Participant ceases to render Service for any
reason other than death, Disability or termination for cause,
the Participant may, at any time within a period of three
months after the date of such cessation of Service, exercise
the Option to the extent that the Option was exercisable on the
date of such cessation;

(ii) if the Participant ceases to render Service because of
termination for cause, the Option shall terminate immediately
and may no longer be exercised on and after the date of such
termination for cause;

(iii) if the Participant ceases to render Service because
of Disability, the Participant may, at any time within a period
of six months after the date of such cessation of Service,
exercise the Option to the extent that the Option was
exercisable on the date of such cessation; and

(iv) if the Participant ceases to render Service because of
death, the Option, to the extent that the Participant was
entitled to exercise it on the date of death, may be exercised
within a period of six months after the Participant's death by
the person or persons to whom the Participant's rights under
the Option pass by will or by the laws of descent or
distribution;

provided, however, that no Option may be exercised to any extent by anyone after
the date of its expiration; and provided, further, that Options may be exercised
at any time only as to Shares which at such time are available for acquisition
pursuant to the terms of the applicable grant form or agreement.

(i) RIGHTS AS STOCKHOLDER. A Participant shall have no rights
as a stockholder with respect to any Shares covered by an Option until the date
of issuance of a stock certificate in the Participant's name for such Shares. A
Participant shall have such rights as a stockholder with respect to any Shares
covered by a Restricted Stock Award as are provided in Section 7(c) above.

(j) FORFEITURE. Any Options, any Shares acquired upon exercise
of an Option and any gain realized upon exercise of any Options (other than, in
each case, a Director Option) may in the discretion of the Committee be subject
to forfeiture to the Company if and to the

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<PAGE> 40

extent and at the repurchase price, if any, specifically set forth in the
applicable Option grant form or agreement. Certificates representing Shares
subject to such repurchase or forfeiture may be subject to such escrow and stock
legending provisions as may be set forth in the Option grant form or agreement
pursuant to which the Shares were acquired. Any Shares issued pursuant to a
Restricted Stock Award shall be subject to such forfeiture to the Company and to
such escrow provisions as are specified in Section 7(c) above and may be subject
to such additional repurchase and forfeiture rights and escrow and stock
legending provisions as the Committee (in its discretion) may set forth in any
form or agreement embodying the award.

(k) 10% STOCKHOLDER. If any Participant to whom an Incentive
Option is granted pursuant to the provisions of the Plan is on the date of grant
the owner of stock (as determined under Section 424(d) of the Code) possessing
more than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Company, its parent, if any, or Subsidiaries, then the
following special provisions shall be applicable:

(i) The exercise price per Share subject to such Option
shall not be less than one hundred and ten percent (110%) of
the Market Price of each Share on the date of grant; and

(ii) The Option shall not have a term in excess of five
years from the date of grant.

(l) CONFIDENTIALITY AGREEMENTS. Each Participant shall execute,
prior to or contemporaneously with the grant of any Option or Restricted Stock
Award hereunder, the Company's then standard form of agreement, if any, relating
to nondisclosure of confidential information, assignment of inventions and
related matters.

(m) AGGREGATE LIMITATION. The maximum number of Shares with
respect to which any Options and Restricted Stock Awards may be granted under
the Plan to any individual during each successive twelve-month period commencing
on the Effective Date of the Plan shall not exceed [200,000] shares.

(n) RIGHT TO TERMINATE. Nothing contained in the Plan or in any
Option or Restricted Stock Award granted hereunder shall restrict the right of
any member of the Company Group to terminate the employment of any Participant
or other Service by the Participant at any time and for any reason, with or
without notice. Nothing contained in the Plan or in any Option granted hereunder
shall give any Non-Employee Director the right to continue in Service as a
director.

(o) DEFERRAL.

(i) Notwithstanding anything herein to the contrary, a
Participant, may elect, at the discretion of, and in accordance with rules
(consistent with the terms of this Plan) which may be established by, the
Committee, to defer delivery of the Shares otherwise receivable upon exercise of
a Nonqualified Option using any of the payment methods permitted by Section

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<PAGE> 41

7(e) (I) or (II) of this Plan (provided that any such election must apply to all
Shares otherwise receivable upon such exercise of the Option) or Section
7(e)(III) of this Plan, provided such election is irrevocable and is made at
least (i) six months prior to the date that such Option otherwise would expire
and (ii) [two] months prior to the exercise of such Option. Phantom shares of
Common Stock (the "Phantom Shares") equal in number to the Shares so deferred
shall be credited to an account in the name of the Participant on the books and
records of the Company (a "Deferred Compensation Account") at the date of
exercise. A separate Deferred Compensation Account shall be maintained with
respect to each Option subject to an effective deferral election.

(ii) The Phantom Shares shall be entitled to dividends
when, as and if paid generally with respect to shares of Common Stock. At its
election, the Company may (i) pay such dividends to the Participant in cash when
such dividends are paid to the holders of Common Stock or (ii) credit the
Deferred Compensation Account with additional Phantom Shares equal to the
aggregate pre-tax amount of the dividends otherwise payable upon the number of
Phantom Shares then held in the Deferred Compensation Account, based on the
Market Value of the Common Stock on the date of payment of such dividends with
any resulting fractional Phantom Shares rounded up to the next whole Phantom
Share.

(iii) The value of a Participant's Deferred Compensation
Account shall be payable in shares of Common Stock in one single payment or in
annual installments over a period not to exceed 10 years or as otherwise
determined by the Committee. At the time Participant makes such deferral
election, the Participant shall elect the form of payment and date for lump sum
payment or commencement of annual payments of the Deferred Compensation Account,
with such date at least one year subsequent to the date of exercise of the
Option, but not later than the date of the Participant's termination of Service.
Notwithstanding any election by an optionee, in the event of Disability or death
of the optionee, the Participant's Deferred Compensation Account shall be paid
within 90 days in the form of shares of Common Stock in a single lump sum.

(iv) Notwithstanding the deferred payment date elected by
the Participant, the Committee may, in its discretion, allow for early payment
of a Participant's Deferred Compensation Account in the event of an
"unforeseeable emergency." For this purpose, an unforeseeable emergency shall be
defined as an unanticipated emergency that is caused by an event beyond the
control of the Participant and that would result in severe financial hardship to
the Participant if early withdrawal were not permitted. Any withdrawal on
account of an unforeseeable emergency must be limited to the amount necessary to
meet the emergency. The above provisions regarding a withdrawal upon an
unforeseeable emergency shall be interpreted in accordance with published
revenue procedures, regulations, releases or interpretations. In addition,
solely for the convenience or other benefit of the Company, Deferred
Compensation Accounts may be distributed on an accelerated basis in the
discretion of the Committee.

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<PAGE> 42

(v) Participants have the status of general unsecured
creditors of the Company with respect to their Deferred Compensation Accounts,
and such accounts constitute a mere promise by the Company to make payments with
respect thereto.

(vi) A Participant's right to benefit payments under this
Plan with respect to the Deferred Compensation Accounts may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered by the Participant
on the Participant's beneficiary, or attached or garnished by creditors of the
Participant or the Participant's beneficiary and any attempt to do so shall be
void.

8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options granted
under this Plan shall be specifically designated as such and shall be subject to
the additional restriction that the aggregate Market Price, determined as of the
date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this Section 8 is granted, the portion of such Option
which is exercisable for Shares in excess of the $100,000 limitation shall be
treated as a Nonqualified Option pursuant to Section 422(d) of the Code. In the
event that such Participant is eligible to participate in any other stock
incentive plans of the Company, its parent, if any, or a Subsidiary which are
also intended to comply with the provisions of Section 422 of the Code, such
annual limitation shall apply to the aggregate number of shares for which
options may be granted under all such plans.

9. SUSPENSION OF RIGHTS PRIOR TO A DISSOLUTION, REORGANIZATION, ETC.
Prior to any dissolution, liquidation, merger, consolidation or reorganization
of the Company as to which the Company will not be the surviving corporation, or
the sale or exchange of substantially all of the Common Stock or the sale of
substantially all of the assets of the Company (the "Event"), unless such Event
would constitute a Change in Control of the Company, the Board or the Committee
may decide to terminate each outstanding Option and Restricted Stock Award. If
the Board or the Committee so decides, each Option (including Director Options)
and Restricted Stock Award shall terminate as of the effective date of the
Event, but the Board or the Committee shall suspend the exercise of all
outstanding Options a reasonable time prior to the Event, giving each person
affected thereby not less than fourteen days written notice of the date of
suspension, prior to which date such person may purchase in whole or in part the
Shares otherwise available to him or her as of the date of purchase. If the
Event is not consummated, the suspension shall be removed and all Options and
Restricted Stock Awards shall continue in full force and effect, subject to
their terms.

10. ADJUSTMENT IN SHARES. Appropriate adjustment shall be made by
the Committee in the maximum number of Shares subject to the Plan and in the
number, kind, and exercise or purchase price of Shares covered by outstanding
Options and Restricted Stock Awards granted hereunder and in the number and kind
of Shares in each Director Option subsequently granted pursuant to Section 5(b)
to give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Effective Date of the Plan. In the event of a change of the
Common Stock resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, the

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<PAGE> 43

number and kind of Shares which thereafter may be purchased pursuant to an
Option or issued pursuant to a Restricted Stock Award under the Plan and the
number and kind of Shares then subject to Options or Restricted Stock Awards
granted hereunder and the price per Share thereof shall be appropriately
adjusted in such manner as the Committee may deem equitable to prevent dilution
or enlargement of the rights available or granted hereunder.

11. INVESTMENT REPRESENTATIONS; TRANSFER RESTRICTIONS. The Company
may require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option or of receiving Shares pursuant to a Restricted Stock
Award, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Shares for the
Participant's own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate (including without limitation
confirmation that the Participant is aware of any applicable restrictions on
transfer of the Shares, as specified in the by-laws of the Company or otherwise)
in order to comply with federal and applicable state securities laws.

12. DEFINITIONS.

(a) "BOARD" means the Board of Directors of the Company.

(b) "CHANGE IN CONTROL" has the meaning defined in Section 14
below.

(c) "CODE" means the Internal Revenue Code of 1986, as
heretofore and hereafter amended, and the regulations promulgated thereunder.

(d) "COMMITTEE" has the meaning defined in Section 4 above.

(e) "COMMON STOCK" has the meaning defined in Section 3 above.

(f) "COMPANY" AND "COMPANY GROUP" have the meanings defined in
Section 1 above.

(g) "DEFERRED COMPENSATION ACCOUNT" has the meaning defined in
Section 7(o) above.

(h) "DIRECTOR OPTION" has the meaning defined in Section 5(b)
above.

(i) "DISABILITY" has the meaning defined in Section 22(e)(3) of
the Code.

(j) "EFFECTIVE DATE" has the meaning defined in Section 2 above.

(k) "EMPLOYEE" means any individual (including an officer of the
Company) who is a common law employee of any member of the Company Group. Any
individual who was an Employee at the start of a leave of absence shall continue
to be an Employee for purposes of this Plan to the extent provided in
regulations under applicable provisions of the Code or to

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<PAGE> 44

the extent required by the Uniformed Services Employment and Reemployment Rights
Act or other applicable law.

(l) "EVENT" has the meaning defined in Section 9 above.

(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
heretofore and hereafter amended.

(n) "INCENTIVE OPTION" has the meaning defined in Section 1
above.

(o) "MARKET PRICE" means the average of the closing prices of
the Common Stock as published in the Wall Street Journal for all days on which
trades of the Common Stock occurred within the thirty calendar-day period ending
on the day before the relevant date, provided that if the closing price of the
Common Stock is no longer reported in the Wall Street Journal or if no trading
occurs during such thirty-day period, then the Market Price as of the relevant
date shall be as determined by the Board.

(p) "1995 PLAN" means the HPSC, Inc. 1995 Stock Incentive Plan,
as adopted March 8, 1995, and amended and restated March 14, 1996.

(q) "NON-EMPLOYEE DIRECTOR" has the meaning defined in Section
5(b) above.

(r) "NONQUALIFIED OPTION" has the meaning defined in Section 1
above.

(s) "OPTION" has the meaning defined in Section 1 above.

(t) "PARTICIPANT" has the meaning defined in Section 5 above.

(u) "PERFORMANCE CONDITIONS", "PARTIAL PERFORMANCE CONDITION"
and "FULL PERFORMANCE CONDITION" have the meanings defined in Section 7(c)
above.

(v) "PERFORMANCE PERIOD" has the meaning defined in Section 7(c)
above.

(w) "PHANTOM STOCK" has the meaning defined in section 7(o)
above.

(x) "PLAN" has the meaning defined in Section 1 above.

(y) "RESTRICTED STOCK AWARD" has the meaning defined in
Section 1 above.

(z) "SERVICE" means the performance of work for one or more
members of the Company Group as an Employee, consultant or other individual
contributor, or service as a Non-Employee Director of the Company.

(aa) "SERVICE REQUIREMENT" has the meaning defined in Section
7(c) above.

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<PAGE> 45

(bb) "SHARES" has the meaning defined in Section 3 above.

(cc) "SUBSIDIARY" has the meaning defined in Section 424(f) of
the Code.

13. TERMINATION OR AMENDMENT OF PLAN. The Board may by written
action at any time terminate the Plan or make such changes in or additions or
deletions to the Plan as it deems advisable without further action on the part
of the stockholders of the Company, provided:

(a) that no such termination or amendment shall adversely affect
or impair any then outstanding Option or Restricted Stock Award or related
agreement without the consent of the Participant holding such Option or
Restricted Stock Award or related agreement; and

(b) that no such amendment which (i) increases the maximum
number of Shares subject to this Plan (except to the extent provided in Sections
9 and 10), (ii) materially modifies the requirements as to eligibility for
participation in the Plan, or (iii) makes any other change which, pursuant to
the Code or regulations thereunder or Section 16(b) of the Exchange Act and the
rules and regulations thereunder, requires action by the stockholders may be
made without obtaining, or being conditioned upon, stockholder approval.

With the consent of the Participant affected, the Committee may
amend outstanding Options or Restricted Stock Awards or related agreements in a
manner not inconsistent with the Plan. The Committee shall have the right to
amend or modify the terms and provisions of the Plan and of any outstanding
Incentive Options granted under the Plan to the extent necessary to qualify any
or all such Options for such favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code.

14. CHANGE IN CONTROL. A change in control of the Company (a "Change
in Control") will occur upon:

(a) The acquisition by any individual, entity or group (within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either (i) the then outstanding shares of
the Common Stock or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
the directors (the "Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (A)
any acquisition directly from the Company (excluding an acquisition by virtue of
the exercise of a conversion privilege); (B) any acquisition by the Company or
by any corporation controlled by the Company; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company; or (D) any acquisition by any
corporation pursuant to a consolidation or merger, if, following such
consolidation or merger, the conditions described in clauses (i), (ii), and
(iii) of paragraph (c) of this Section 14 are satisfied;

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<PAGE> 46

(b) Individuals who, as of the date of this Agreement, constitute
the Board (the "Incumbent Board") ceasing for any reason to constitute at least
two-thirds of the Board over any period of 24 consecutive months or less;
provided, however, that any individual becoming a director subsequent to the
date of this Agreement whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote or resolution of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board;

(c) Adoption by the Board of a resolution approving an agreement of
consolidation of the Company with or merger of the Company into another
corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 60 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such corporation or
other business entity resulting from such consolidation or merger and any Person
beneficially owning, immediately prior to such consolidation or merger, directly
or indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such consolidation or merger or
the combined voting power of the then outstanding voting securities of such
corporation or business entity entitled to vote generally in the election of its
directors (or other persons having the general power to direct the affairs of
such entity) and (iii) at least two-thirds of the members of the board of
directors (or other group of persons having the general power to direct the
affairs of the corporation or other business entity) resulting from such
consolidation or merger were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such consolidation or merger;
provided that any right which shall vest by reason of the action of the Board
pursuant to this paragraph (c) shall be divested, with respect to any such right
not already exercised, upon (A) the rejection of such agreement of consolidation
or merger by the stockholders of the Company or (B) its abandonment by either
party thereto in accordance with its terms; or

(d) Adoption by the requisite majority of the whole Board, or by the
holders of such majority of stock of the Company as is required by law or by the
Certificate of Incorporation or By-Laws of the Company as then in effect, of a
resolution or consent authorizing (i) the

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<PAGE> 47

dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation or
other business entity with respect to which, following such sale or other
disposition, (A) more than 60 percent of, respectively, the then outstanding
shares of common stock of such corporation and/or the combined voting power of
the outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common Stock
and Outstanding Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Common Stock and/or
Outstanding Company Voting securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation or other business entity and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of such corporation and/or the combined voting power of the then
outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) and (C) at least
two-thirds of the members of the board of directors (or other group of persons
having the general power to direct the affairs of such corporation or other
entity) were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Company; provided that any right which shall vest
by reason of the action of the Board or the stockholders pursuant to this
paragraph (d) shall be divested, with respect to any such right not already
exercised, upon the abandonment by the Company of such dissolution, or such sale
or other disposition of assets, as the case may be.

A Change in Control shall not occur upon the mere reincorporation of
the Company in another state.

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<PAGE> 48

HPS50 3 DETACH HERE

PROXY

HPSC, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS

The undersigned hereby appoints John W. Everets and Raymond R. Doherty
or either of them, with full power of substitution, as proxy to represent and to
vote as designated on the reverse side all the shares of Common Stock of HPSC,
Inc. (the "Company"), which the undersigned would be entitled to vote at the
Annual Meeting of Stockholders to be held at 100 Federal Street, Boston,
Massachusetts on Thursday, April 23, 1998, 4:00 P.M. Eastern Daylight Time, or
at any adjournment thereof, in respect to all matters which may properly come
before the meeting in accordance with and as more fully described in the Notice
of Meeting and Proxy Statement, receipt of which is acknowledged.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1, 2 AND 3.

If the undersigned hold(s) any shares in a fiduciary, custodial or
joint capacity or capacities this proxy is signed by the undersigned in every
such capacity as well as individually.

- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE (CONTINUED AND TO BE SIGNED ON REVERSE SIDE) SIDE
- ----------- -----------

<PAGE> 49

HPS50 2 DETACH HERE

<TABLE>
<S> <C>
[X] Please mark
votes as in
this example.
(continued from other side)

1. To fix the number of directors at eight and to elect
the following nominees to serve for a three-year
term to expire at the 2001 Annual Meeting of FOR AGAINST ABSTAIN
Stockholders: John W. Everets, Dollie A. Cole and 2. To approve the 1998 Stock [ ] [ ] [ ]
J. Kermit Birchfield. Incentive Plan.

FOR WITHHELD 3. To ratify the selection of Deloitte [ ] [ ] [ ]
[ ] [ ] & Touche LLP as the Company's
independent public accountants for
the current fiscal year.

[ ]_________________________________________ In their discretion, the proxies are authorized to vote upon
For all nominees except as noted above such other business as may properly come before the meeting
or any adjournments thereof.

MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]

Please sign exactly as your name appears hereon. If acting as
attorney, executor, trustee or in other representative capacity,
sign name and title.

Signature:________________________________ Date:______________ Signature:________________________________ Date:______________
</TABLE>