-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBloLfNzqIFJQBdS3AAN1dLG6OX68z4Zpktl1jFLhtvv7LZCMKbQVLjETVg5EK94 4v23ejOU6/jklXfkaKsAig== 0000950116-99-000702.txt : 19990409 0000950116-99-000702.hdr.sgml : 19990409 ACCESSION NUMBER: 0000950116-99-000702 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990518 FILED AS OF DATE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHCARE SERVICES GROUP INC CENTRAL INDEX KEY: 0000731012 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340] IRS NUMBER: 232018365 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-12015 FILM NUMBER: 99589684 BUSINESS ADDRESS: STREET 1: 2643 HUNTINGDON PIKE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 BUSINESS PHONE: 2159381661 MAIL ADDRESS: STREET 1: 2643 HUNTINGDON PIKEE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 DEF 14A 1 DEFINITIVE PROXY STATEMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 HEALTHCARE SERVICES GROUP, INC. - ----------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) ----------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- 5) Total fee paid: ---------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / 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: ___________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ___________________________________________________________________________ 3) Filing Party: ___________________________________________________________________________ 4) Date Filed: ___________________________________________________________________________ HEALTHCARE SERVICES GROUP, INC. 2643 Huntingdon Pike Huntingdon Valley, Pennsylvania 19006 --------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 18, 1999 --------------------- To the Shareholders of HEALTHCARE SERVICES GROUP, INC. NOTICE IS HEREBY GIVEN that an Annual Meeting of shareholders of Healthcare Services Group, Inc. (the "Company") will be held at the Radisson Hotel of Bucks County, 2400 Old Lincoln Highway, Trevose, Pennsylvania 19047, on May 18, 1999, at 10:00 A.M., for the following purposes: 1. To elect eight directors; 2. To approve and ratify the selection of Grant Thornton LLP as the independent public accountants of the Company for its current fiscal year ending December 31, 1999; and 3. To consider and act upon such other business as may properly come before the meeting. Only shareholders of record at the close of business on April 5, 1999 will be entitled to notice of and to vote at the Annual Meeting. Please sign and promptly mail the enclosed proxy, whether or not you expect to attend the Meeting, in order that your shares may be voted for you. A return envelope is provided for your convenience. By Order of the Board of Directors DANIEL P. MCCARTNEY Chairman of the Board and Chief Executive Officer Dated: Huntingdon Valley, Pennsylvania April 5, 1999 HEALTHCARE SERVICES GROUP, INC. 2643 Huntingdon Pike Huntingdon Valley, Pennsylvania 19006 --------------------- PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS May 18, 1999 --------------------- This Proxy Statement is furnished to the Shareholders of Healthcare Services Group, Inc. (the "Company") in connection with the solicitation by the Board of Directors of the Company of proxies for the Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Radisson Hotel of Bucks County, 2400 Old Lincoln Highway, Trevose, Pennsylvania 19047, on May 18, 1999 at 10:00 A.M. At the Annual Meetings the shareholders will consider the following proposals: (1) to elect eight directors; (2) to approve and ratify the selection of Grant Thornton LLP as the independent public accountants of the Company for its current fiscal year ending December 31, 1999; and (3) to consider and act upon such other business as may properly come before the Annual Meeting. This Proxy Statement is being mailed to shareholders on or about April 5, 1999. PROXIES; VOTING SECURITIES Only holders of Common Stock, $.01 par value of the Company (the "Common Stock") of record at the close of business on record of April 5, 1999 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. On the Record Date, there were issued and outstanding approximately 11,057,957 shares of Common Stock. Each share of Common Stock entitles the holder thereof to one vote. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is required to constitute a quorum at the meeting. Holders of Common Stock are not entitled to cumulative voting rights. All shares that are represented by properly executed proxies received prior to or at the meeting, and not revoked, will be voted in accordance with the instructions indicated in such proxies. If no instructions are indicated with respect to any shares for which properly executed proxies are received, such proxies will be voted FOR each of the proposals. For purposes of determining the presence of a quorum for transacting business at the Annual Meeting, abstentions and broker "non-votes" (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons entitled to vote shares on a particular matter with respect to which the brokers or nominees do not have discretionary power), if applicable, will be treated as shares that are present but which have not been voted. A proxy may be revoked by delivery of a written statement to the Secretary of the Company stating that the proxy is revoked, by a subsequent proxy executed by the person executing the prior proxy and presented to the Annual Meeting, or by voting in person at the Annual Meeting. All expenses in connection with this solicitation will be borne by the Company. It is expected that solicitation will be made primarily by mail, but regular employees or representatives of the Company may also solicit proxies by telephone, telegraph or in person, without additional compensation, except for reimbursement of out-of-pocket expenses. PROPOSAL NO. 1 ELECTION OF DIRECTORS At the Annual Meeting, eight directors of the Company are to be elected, each to hold office for a term of one year. Unless authority is specifically withheld, management proxies will be voted FOR the election of the nominees named below to serve as directors until the next annual meeting of shareholders and until their successors have been chosen and qualify. Should any nominee not be a candidate at the time of the Annual Meeting (a situation which is not now anticipated), proxies will be voted in favor of the remaining nominees and may also be voted for substitute nominees. If a quorum is present, the candidate or candidates receiving the highest number of votes will be elected directors. Brokers that do not receive instructions are entitled to vote for the election of directors. The nominees are as follows:
Name, Age, Principal Occupations for the past five years and Current Director Public Directorships or Trusteeships Since - ------------------------------------------------------------------------------------------ ------------------- Daniel P. McCartney, 47, Chief Executive Officer and Chairman of the Board since 1977 .... 1977 W. Thacher Longstreth, 78, elected to the Philadelphia City Council in 1983; Vice Chairman of Packard Press, a printing firm for more than 5 years; Director of Tasty Baking Company, Dela- ware Management Company, Keystone Insurance Company and Micro League Multimedia, Inc..... 1983(1) Barton D. Weisman, 71, President and Chief Executive Officer of H.B.A. Corporation and H.B.A. Management, Inc., Florida based companies which own and/or manage nursing homes, for more than five years ......................................................................... 1983(2) Joseph F. McCartney, 44, Regional Vice President of the Company for more than five years; brother of Daniel P. McCartney .................................................................. 1983 Robert L. Frome, Esq., 61, Member of the law firm of Olshan Grundman Frome Rosenzweig & Wolosky LLP for more than five years; Director of NuCo2, Inc. ........................... 1983 Thomas A. Cook, 53, President and Chief Operating Officer of the Company for more than 1987 five years Robert J. Moss, Esq., 61, Executive Director of Alzheimer's Association of South Central Pennsyl- vania since December 1998; American Express Company October 1997 to December 1998; Mem- ber of the law firm Moss Associates March 1996 to October 1997; John Hancock Mutual Life Insurance Company July 1992 to March 1996 ............................................... 1992(2) John M. Briggs, CPA, 48, Partner of the certified public accounting firm of Briggs, Bunting & Dougherty, LLP since May 1997; Partner of certified public accounting firm of Tait, Weller & Baker from January 1980 to May 1997 ..................................................... 1993(1)(2)
- ------------ (1) Member of Stock Option Committee. (2) Member of Audit Committee. The Directors recommend a vote FOR all nominees. 2 BOARD OF DIRECTORS AND COMMITTEES The business of the Company is managed under the direction of the Board of Directors. The Board meets on a regularly scheduled basis during its fiscal year to review significant developments affecting the Company and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. The Board of Directors met four times during the 1998 fiscal year. During 1998, each member of the Board participated in at least 75% of all Board and applicable committee meetings held during the period for which he was director. The Board of Directors has established audit and stock option committees to devote attention to specific subjects and to assist it in the discharge of its responsibilities. The functions of those committees, their current members and the number of meetings held during 1998 are described below: AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors the appointment of the firm selected to be independent public accountants for the Company and monitors the performance of such firm; reviews and approves the scope of the annual audit and quarterly reviews and evaluates problem areas having a potential financial impact on the Company which may be brought to its attention by management, the independent public accountants or the Board of Directors; and evaluates all public financial reporting documents of the Company. Messrs. Robert J. Moss, Barton D. Weisman and John M. Briggs currently are members of the Audit Committee. The Audit Committee met once during 1998. STOCK OPTION COMMITTEE. The Stock Option Committee (composed of non-employee directors) administers the Company's 1995 Employee Stock Option Plan the 1996 Non-Employee Directors' Plan, as amended and restated as of October 28, 1997, and a 1995 Directors' Plan which was terminated. With respect to the Employee Plans, the Stock Option Committee has the power to determine from time to time the individuals to whom options shall be granted, the number of shares to be covered by each option and the time or times at which options shall be granted. Mr. John M. Briggs and Mr. W. Thacher Longstreth comprise the Stock Option Committee. The Stock Option Committee met once during 1998. The Company does not have a nominating, executive or compensation committee. The functions customarily attributable to these committees are performed by the Board of Directors as a whole. 3 PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP The following table sets forth information as of April 5, 1999, regarding the beneficial ownership of Common Stock by each person known by the Company to own 5% or more of the outstanding shares of Common Stock, each director of the Company, the Company's executive officers as defined in Item 402(a)(3) of Regulation S-K and the directors and executive officers of the Company as a group. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them, unless otherwise noted.
Amount and Nature of Percent Beneficial of Name and Beneficial Owner or Group (1) Ownership Class - -------------------------------------------------------------------- -------------------- ---------- Daniel P. McCartney .............................................. 1,538,659(2) 13.7% Lord, Abbett & Co. ............................................... 1,297,411(3) 11.7% Dawson-Samberg Capital Management, Inc. .......................... 823,500(4) 7.5% Wellington Management Company, LLP ............................... 808,300(5) 7.3% State of Wisconsin Investment Board .............................. 772,500(6) 7.0% Dimensional Fund Advisors Inc. ................................... 749,108(7) 6.8% Franklin Resources, Inc. ......................................... 709,125(8) 6.4% Rockefeller & Co., Inc. .......................................... 625,890(9) 5.7% Thomas A. Cook ................................................... 290,500(10) 2.6% Barton D. Weisman ................................................ 136,000(11) 1.2% Joseph F. McCartney .............................................. 83,000(12) (20) W. Thacher Longstreth ............................................ 57,475(13) (20) Robert L. Frome .................................................. 35,025(14) (20) Robert J. Moss ................................................... 30,475(15) (20) John M. Briggs ................................................... 28,840(16) (20) Brian M. Waters .................................................. 76,000(17) (20) James L. DiStefano ............................................... 16,750(18) (20) Directors and Executive Officers as a group (10 persons) ......... 2,292,724(19) 19.3%
- ------------ (1) The address of Daniel P. McCartney is 2643 Huntingdon Pike, Huntingdon Valley, PA 19006. The address of Lord Abbett & Co. is 767 Fifth Avenue, New York, NY 10153. The address of Dawson-Samberg Capital Management, Inc. is 354 Pequot Avenue, Southport, CT 06490. The address of Wellington Management Company, LLP is 75 State Street, Boston, MA 02109. The address of State of Wisconsin Investment Board is P.O. Box 7842, Madison, WI 53707. The address of Dimensional Fund Advisors Inc. ("Dimensional") is 1299 Ocean Avenue, Santa Monica, CA 90401. The address of Franklin Resources, Inc. is 777 Mariners Island Blvd., San Mateo, CA 94403. The address of Rockefeller & Co., Inc. is 30 Rockefeller Plaza, New York, NY 10112. (2) Includes incentive stock options to purchase 89,200 shares and nonqualified stock options to purchase 123,300 shares, all exercisable within sixty days of April 5, 1999. Also includes an aggregate of 210,000 shares that Mr. McCartney holds as a co-trustee for the benefit of his children. Mr. McCartney disclaims beneficial ownership of these shares. Mr. McCartney may be deemed to be a "parent" of and deemed to control the Company, as such terms are defined for purposes of the Securities Act of 1933, as amended (the "Securities Act"), by virtue of his position as founder, director, Chief Executive Officer and principal shareholder of the Company. Daniel P. McCartney is the brother of Joseph F. McCartney and Bryan D. McCartney. (3) According to a Schedule 13G filed by Lord, Abbett & Co., dated February 12, 1999, it has sole voting power and dispositive power with respect to the 1,297,411 shares. (4) According to a Schedule 13G filed by Dawson-Samberg Capital Management, Inc., dated February 10, 1999, it has sole voting power and dispositive power with respect to the 823,500 shares. (5) According to a Schedule 13G filed by Wellington Management Company, LLP, dated December 31, 1998, it has shared dispositive power with respect to 808,300 shares (of which it has shared voting power with respect to 562,400 shares and does not have sole voting power with respect to any shares). (6) According to a Schedule 13G filed by State of Wisconsin Investment Board, dated January 16, 1999, it has sole voting power and dispositive power with respect to the 772,500 shares. 4 (7) According to a Schedule 13G filed by Dimensional, dated February 11, 1999, Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 749,108 shares of the Company's Common Stock as of December 31, 1998, all of which shares are held in portfolios of DFA Investment Dimensions Group Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (8) According to a Schedule 13G filed by Franklin Resources, Inc., dated January 27, 1999, it has sole voting power and dispositive power with respect to the 709,125 shares. (9) According to a Schedule 13G filed by Rockefeller & Co., Inc., dated February 12, 1999, it has sole voting and dispositive power with respect to the 625,890 shares. (10) Represents incentive stock options to purchase 105,215 shares and nonqualified stock options to purchase 185,285 shares, all exercisable within sixty days of April 5, 1999. (11) Includes nonqualified stock options to purchase 45,475 shares, all exercisable within sixty days of April 5, 1999. (12) Represents incentive stock options to purchase 38,000 shares and nonqualified stock options to purchase 45,000 shares, all exercisable within sixty days of April 5, 1999. (13) Represents nonqualified stock options to purchase 57,475 shares, all exercisable within sixty days of April 5, 1999. (14) Includes nonqualified stock options to purchase 34,975 shares, all exercisable within sixty days of April 5, 1999. (15) Represents nonqualified stock options to purchase 30,475 shares, all exercisable within sixty days of April 5, 1999. (16) Includes nonqualified options to purchase 4,990 shares, all exercisable within sixty days of April 5, 1999. (17) Represents incentive stock options to purchase 72,234 shares and nonqualified options to purchase 3,766 shares, all exercisable within sixty days of April 5, 1999. (18) Represents incentive stock options to purchase 16,750 shares, all exercisable within sixty days of April 5, 1999. (19) Includes 852,140 shares underlying options granted to said group of persons. All options are exercisable within sixty days of April 5, 1999. (20) Less than 1% of the outstanding shares. Directors' Fees The Company paid each director who is not an employee of the Company $500 for each regular meeting of the Board of Directors attended. Mr. Frome bills the Company at his customary rates for time spent on behalf of the Company (whether as a director or in the performance of legal services for the Company) and is reimbursed for expenses incurred in attending directors' meetings. The Company also granted options to non-employee directors to purchase an aggregate of 24,950 shares of Common Stock during the year ended December 31, 1998 pursuant to the 1996 Non-Employee Directors' Plan, amended and restated as of October 28, 1997. 5 MANAGEMENT COMPENSATION Summary Compensation Table The following table sets forth certain information regarding compensation paid or accrued during each of the Company's last three fiscal years to the Company's Chief Executive Officer and the four highest paid executive officers whose total salary and bonus exceeded $100,000 in 1998 (the "Named Executive Officers").
Long Term Compensation -------------------------------------- Awards Payouts --------------------------- --------- Annual Compensation Securities ------------------------------------ Restricted Underlying Name and Principal Fiscal Other Annual Stock Options/ LTIP All Other Position Year Salary Bonus Compensation Awards SARs (1)(2) Payouts Compensation - -------------------------- -------- ----------- ------- -------------- ------------ ------------- --------- ------------- Daniel P. McCartney, 1998 $474,830 0 $63,311 0 25,000 0 0 Chairman of the 1997 444,372 0 25,355 0 37,500 0 0 Board and Chief 1996 411,687 0 13,311 0 37,500 0 0 Executive Officer Thomas A. Cook, 1998 $474,830 0 $68,539 0 25,000 0 0 President, Chief 1997 444,372 0 83,289 0 37,500 0 0 Operating Officer 1996 411,687 0 1,500 0 75,000 0 0 and Director Brian M. Waters 1998 $172,431 0 $49,387 0 10,000 0 0 Vice President -- 1997 152,092 0 26,825 0 15,000 0 0 Operations 1996 139,186 0 8,700 0 30,000 0 0 Joseph F. McCartney 1998 $119,431 0 $96,185 0 8,000 0 0 Divisional Vice 1997 94,666 0 90,850 0 12,000 0 0 President and Director 1996 98,889 0 11,100 0 24,000 0 0 James L. DiStefano 1998 $118,747 0 $ 6,435 0 4,000 0 0 Chief Financial Officer 1997 106,995 0 0 0 4,500 0 0 and Treasurer 1996 103,393 0 0 0 3,000 0 0
- ------------ (1) Options to acquire shares of Common Stock. The Company has not awarded any SAR's (Stock Appreciation Rights) as it is not currently authorized to do so under the Employee Plans. (2) Stock option amounts are adjusted to reflect the 3-for-2 stock split paid in the form of a 50% stock dividend on August 27, 1998. 6 Option Grants During 1998 Fiscal Year The following table provides information related to options to purchase Common Stock granted to the Named Executive Officers during fiscal 1998.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term (1) -------------------------- ------------------------- % of Total Options Options Granted to Exercise Granted Employees in Price Name (#) (2) Fiscal Year ($/Sh) (2) Expiration Date 5% 10% - ----------------------------- --------- -------------- ---------------- ----------------- ----------- ----------- Daniel P. McCartney ......... 25,000 11.30% $ 9.2125(3) Dec. 04, 2008 $110,737 $312,752 Thomas A. Cook .............. 25,000 11.30% 8.3750 (4) Dec. 04, 2008 131,675 333,690 Brian M. Waters ............. 10,000 4.52% 8.3750 (4) Dec. 04, 2008 52,670 133,476 Joseph F. McCartney ......... 8,000 3.61% 8.3750 (4) Dec. 04, 2008 42,136 106,781 James L. DiStefano .......... 4,000 1.81% 8.3750 (4) Dec. 04, 2008 21,068 53,390
- ------------ (1) The potential realizable value portion of the foregoing table illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the Common Stock over the term of the options. These numbers do not take into account provisions of certain options providing for termination of the option following termination of employment, nontransferability or differences in vesting periods. Regardless of the theoretical value of an option, its ultimate value will depend on the market value of the Common Stock at a future date, and that value will depend on a variety of factors, including the overall condition of the stock market and the Company's results of operations and financial condition. There can be no assurance that the values reflected in this table will be achieved. (2) The option exercise price may be paid in shares of Common Stock owned by the executive, in cash, or a combination of any of the foregoing, as determined by the Stock Option Committee. (3) The exercise price was 110% of the fair market value of the Common Stock on the date of grant. (4) The exercise price was the market value (i.e., closing market price) of the Common Stock on the date of grant. Aggregated Option Exercises During 1998 Fiscal Year and Fiscal Year End Option Values The following table provides information related to aggregated stock options exercised by the Named Executive Officers during the 1998 fiscal year and the number and value of options held at fiscal year end. (The Company does not have any outstanding stock appreciation rights.)
Shares Number of Securities Value of Unexercised Acquired Value Underlying Unexercised In-the-Money Options Options at FY-End (#) at FY-End ($) (1) on Exer- Realized ------------------------------- ------------------------------ Name cise (#) ($) (3) - -------------------------------- ---------- ---------- Exercisable Unexercisable Exercisable Unexercisable Daniel P. McCartney(2) ......... 22,500 $75,000 187,500 25,000 $304,125 $ 0 Thomas A. Cook(3) .............. 22,500 66,500 265,500 25,000 468,773 18,750 Brian M. Waters(4) ............. 10,500 40,687 66,000 10,000 139,500 7,500 Joseph F. McCartney(5) ......... 15,000 87,485 75,000 8,000 181,875 6,000 James L. DiStefano(6) .......... 1,500 6,435 12,750 4,000 28,774 3,000
- ------------ (1) The closing price of the Common Stock as reported by the Nasdaq National Market System on December 31, 1998 was $9.125. Value is calculated on the basis of the difference between the option exercise price and $9.125 multiplied by the number of shares of Common Stock underlying the option. (2) The options exercised by Mr. Daniel McCartney were held by him for five years. (3) The options exercised by Mr. Cook were held by him for five years. (4) The options exercised by Mr. Waters were held by him for five years. (5) The options exercised by Mr. Joseph McCartney were held by him for five years. (6) The options exercised by Mr. James DiStefano were held by him for five years. 7 STOCK PERFORMANCE GRAPH The following graph compares the total cumulative return (assuming dividends are reinvested) on the Common Stock during the five fiscal years ended December 31, 1998 with the cumulative total return on the S&P 500 Index and the S&P Healthcare Industry -- Miscellaneous Services Group Index. [GRAPHIC OMITTED] Report of the Board of Directors on Executive Compensation The compensation of the Chief Executive Officer of the Company is determined by the Board of Directors. The Board's determinations regarding such compensation are based on a number of factors including, in order of importance: o Consideration of the operating and financial performance of the Company, primarily its income before income taxes during the preceding fiscal year, as compared with prior operating periods; o Attainment of a level of compensation designed to retain a superior executive in a highly competitive environment; and o Consideration of the individual's overall contribution to the Company. Compensation for Company executive officers (referred to in the summary compensation table) other than the Chief Executive Officer is determined based upon the recommendation of the Chief Executive Officer, taking into account the same factors considered by the Board in determining the Chief Executive Officer's compensation as described above. Except as set forth below, the Company has not established a policy with regard to Section 162(m) of the Internal Revenue Code of 1986, as amended ("the Internal Revenue Code"), since the Company has not and does not currently anticipate paying compensation in excess of $1 million per annum to any employee. Under the 1995 Employee Incentive and Non-Qualified Stock Option Plan, as amended, no recipient of options may be granted options to purchase more than 125,000 shares of Common Stock. Therefore, compensation received as a result of options granted under the 1995 Incentive and Non-Qualified Stock Option Plan qualify as "performance-based" for purposes of Section 162(m) of the Internal Revenue Code. 8 The Company applies a consistent approach to compensation for all employees, including senior management. This approach is based on the belief that the achievements of the Company result from the coordinated efforts of all employees working toward common objectives. Mr. Daniel P. McCartney and Mr. Cook each received annual base salaries of $100,000 and an additional 3% of the income from operations before income taxes of the Company attributable to the fiscal year immediately preceding the year for which his annual salary is calculated. Their compensation will be similarly determined with respect to the calendar year ending December 31, 1999. The Board of Directors Daniel P. McCartney (Chairman) W. Thacher Longstreth Barton D. Weisman Joseph F. McCartney Robert L. Frome Thomas A. Cook Robert J. Moss John M. Briggs Messrs. Daniel P. McCartney, Thomas A. Cook and Joseph F. McCartney did not serve as directors, executive officers or members of the Compensation Committee of any other entity during the fiscal year ended December 31, 1998 and currently do not serve in such capacities. Interlocks and Insider Participation and Other Matters Mr. Barton D. Weisman, a director of the Company, has an ownership interest in ten nursing homes that have entered into service agreements with the Company. During the year ended December 31, 1998, these agreements resulted in gross revenues of approximately $2,931,000 to the Company. The Company leases 6,600 square feet of its corporate offices at 2643 Huntingdon Pike, Huntingdon Valley, Pennsylvania from a general partnership in which Daniel P. McCartney is a general partner. The term of the lease commenced on April 1, 1987 and ends on March 31, 2001. Minimum annual rent is $88,620 payable monthly. Management believes that the terms of each of the transactions with the nursing homes described herein are comparable to those available to unaffiliated third parties. The remaining transaction was deemed fair and reasonable and approved as being in the best interests of the Company, by the disinterested directors. Mr. Robert L. Frome, a director of the Company, is a member of the law firm of Olshan Grundman Frome Rosenzweig & Wolosky LLP, which law firm has been retained by the Company during the last fiscal year. Fees received from the Company by such firm during the last fiscal year did not exceed 5% of such firm's or the Company's revenues. 9 PROPOSAL NO. 2 INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of Grant Thornton LLP was selected by the Audit Committee of the Board of Directors as the independent public accountants of the Company for the year ended December 31, 1999. Said firm has no other relationship to the Company. The Board of Directors recommends the ratification of the selection of the firm of Grant Thornton LLP to serve as the independent public accountants of the Company for the year ending December 31, 1999. A representative of Grant Thornton LLP, which has served as the Company's independent public accountants since December 1992, will be present at the forthcoming shareholders' meeting with the opportunity to make a statement if he so desires and such representative will be available to respond to appropriate questions. The approval of the proposal to ratify the appointment of Grant Thornton LLP requires the affirmative vote of a majority of the votes cast by all shareholders represented and entitled to vote thereon. An abstention, withholding of authority to vote or broker non-vote, therefore, will not have the same legal effect as an "against" vote and will not be counted in determining whether the proposal has received the required shareholder vote. However, brokers that do not receive instructions on this proposal are entitled to vote for the selection of the independent public accountants. OTHER MATTERS So far as is now known, there is no business other than that described above to be presented for action by the shareholders at the meeting, but it is intended that the proxies will be exercised upon any other matters and proposals that may legally come before the meeting, or any adjournment thereof, in accordance with the discretion of the persons named therein. DEADLINE FOR SHAREHOLDER PROPOSALS To the extent permitted by law, any shareholder proposal intended for presentation at next year's annual shareholders' meeting must be received in proper form at the Company's principal office no later than December 30, 1999. If the Company is not notified of a shareholder proposal by December 30, 1999, such proposal will not be included in the proxy statement for the next year's annual shareholders' meeting and the Company will be permitted to use its discretionary authority in respect thereof in accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, as amended. ANNUAL REPORT The 1998 Annual Report to Shareholders, including financial statements, is being mailed herewith. If you do not receive your copy please advise the Company and another will be sent to you. By Order of the Board of Directors, DANIEL P. MCCARTNEY Chairman and Chief Executive Officer Dated: Huntingdon Valley, Pennsylvania April 5, 1999 A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as filed with the Securities and Exchange Commission, may be obtained without charge by any shareholder of record on the record date upon written request addressed to: Secretary, Healthcare Services Group, Inc., 2643 Huntingdon Pike, Huntingdon Valley, Pennsylvania 19006. 10 HEALTHCARE SERVICES GROUP, INC. PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Annual Meeting of Shareholders to be held at The Radisson Hotel of Bucks County, 2400 Old Lincoln Highway, Trevose, PA, 19047 on May 18, 1999 at 10:00 A.M. The undersigned, revoking all previous proxies, hereby appoints Daniel P. McCartney and Thomas A. Cook, or either of them, attorneys and proxies with full power of substitution and with all the powers the undersigned would possess if personally present, to vote all shares of Common Stock of HEALTHCARE SERVICES GROUP, INC. owned by the undersigned at the Annual Meeting of Shareholders of said Corporation to be held at the time and place set forth above, and at any adjournment thereof, in the transaction of such business as may properly come before the meeting or any adjournment thereof, all as more fully described in the Proxy Statement, and particularly to vote as designated below. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF NO DIRECTION IS MADE THEY WILL BE VOTED FOR THE ELECTION OF THE NOMINATED DIRECTORS AND THE RATIFICATION OF THE INDEPENDENT PUBLIC ACCOUNTANTS, ALL AS RECOMMENDED IN THE PROXY STATEMENT, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES OR PROXY ON ANY OTHER BUSINESS TRANSACTED AT THE ANNUAL MEETING. (To be Signed on Reverse Side) - ----- Please mark your X votes as in this - ----- example. FOR WITHHELD Nominees: Daniel P. McCartney; W. ------ ------ Thacher Longstreth; Barton 1. Election of | | | | D. Weisman; Joseph F. Directors | | | | McCartney; Robert L. Frome ------ ------ Thomas A. Cook; Robert J. Moss; and John M. Briggs; and in accordance with proxy Statement (Instruction: To withhold authority to vote for any individual nominee, print that nominee's name on the space provided at left.) FOR all nominees listed on the right (except as marked to the contrary below) - ---------------------------------------- FOR AGAINST ABSTAIN 2. To approve and ratify the selection of ------ ------ ------ Grant Thornton LLP as independent | | | | | | accountants of the Company as | | | | | | described in Proxy Statement. ------ ------ ------ SIGNATURE(S) DATE ------------------------------------- ------------- NOTE: Please sign exactly as your name or names appear hereon. When signing as Executor, Administrator, Trustee, Corporate Officer Attorney, Agent or Guardian, etc; please add your full title to your signature. No postage is required if this proxy is returned in the enclosed envelope and mailed in the United States. Please date, sign and return this proxy in the enclosed envelope. -----END PRIVACY-ENHANCED MESSAGE-----