<PAGE>
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
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 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 Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $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:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
*Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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:___________________________________________________________
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
2643 HUNTINGDON PIKE
HUNTINGDON VALLEY, PENNSYLVANIA 19006
------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 4, 1996
------
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 June 4, 1996, at 10:00 A.M., for the following purposes:
1. To elect eight directors;
2. To approve certain amendments to the Company's 1995 Incentive and
Non-Qualified Stock Option Plan for key employees (the "1995
Employee Plan");
3. To approve and adopt the Company's 1996 Non-Employee Directors'
Stock Option Plan;
4. 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, 1996; and
5. 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 22, 1996
will be entitled 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 and
Chief Executive Officer
Dated: Huntingdon Valley, Pennsylvania
April 26, 1996
<PAGE>
HEALTHCARE SERVICES GROUP, INC.
2643 Huntingdon Pike
Huntingdon Valley, Pennsylvania 19006
------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
June 4, 1996
------
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 June 4, 1996 at 10:00
A.M. At the Annual Meeting the shareholders will consider the following
proposals: (1) to elect eight directors; (2) to approve certain amendments to
the Company's 1995 Incentive and Non-Qualified Stock Option Plan for key
employees (the "1995 Employee Plan"); (3) to approve and adopt the Company's
1996 Non-Employee Directors' Stock Option Plan (the "1996 Directors' Plan");
(4) 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, 1996; and (5) 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 26,
1996.
PROXIES; VOTING SECURITIES
Only holders of Common Stock of the Company (the "Common Stock") of record
at the close of business on April 22, 1996 (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 8,113,563 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) 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.
<PAGE>
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. Abstentions from voting and broker nonvotes on the
election of directors will have no effect since they will not represent votes
cast at the Annual Meeting for the purpose of electing directors.
The nominees are as follows:
<TABLE>
<CAPTION>
Name, Age, Principal Occupations
for the past five years and Current Director
Public Directorships or Trusteeships Since
------------------------------------- ---------
<S> <C>
Daniel P. McCartney, 44, Chief Executive Officer and Chairman of the Board since 1977 ............. 1977
W. Thacher Longstreth, 75, elected to the Philadelphia City Council in 1983; Vice Chairman of
Packard Press, a printing firm since July 1988; Director of Tasty Baking Company, Delaware
Management Company, Keystone Insurance Company and Micro League Multimedia, Inc. ................. 1983(1)
Barton D. Weisman, 68, President and Chief Operating 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, 41, Regional Vice President of the Company for more than five years; brother
of Daniel P. McCartney ........................................................................... 1983
Robert L. Frome, Esq., 58, Member of the law firm of Olshan Grundman Frome & Rosenzweig LLP for
more than five years; Director of NuCo2 .......................................................... 1983
Thomas A. Cook, 50, President and Chief Operating Officer of the Company since July 1993; Executive
Vice President and Chief Financial Officer of the Company for more than five years ............... 1987
Robert J. Moss, Esq., 59, John Hancock Mutual Life Insurance Company since July 1992; Member of
Karr-Barth Associates, Inc., a financial services firm from November 1990 to June 1992; Vice
President of Mindy Goldberg Associates, a consulting firm from January 1988 to November 1990;
Member of the law firm of Dilworth, Paxson, Kalish & Kaufman from February 1985 to December 1987 . 1992(2)
John M. Briggs, CPA, 45, Partner of the certified public accounting firm of Tait, Weller & Baker
for more than five years ......................................................................... 1993(1)(2)
</TABLE>
- ------
(1) Member of Stock Option Committee.
(2) Member of Audit Committee.
The Directors recommend a vote FOR the nominees.
2
<PAGE>
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 1995 fiscal year. During 1995, 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 1995 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 two times during 1995.
STOCK OPTION COMMITTEE. The Stock Option Committee administers the
Company's 1995 Employee Plan and will also administer the 1996 Directors'
Plan if approved by the shareholders pursuant to this proxy statement. The
Stock Option Committee had administered the 1995 Directors' Stock Option
Plan (the "1995 Directors' Plan"); however, the 1995 Directors' Plan will
be terminated if the shareholders approve the 1996 Directors' Plan (see
Proposal No. 3). Except with respect to the 1996 Directors' Plan, 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. During 1995, Mr. Daniel P. McCartney was the sole member of the
Stock Option Committee. Currently, Mr. John M. Briggs and Mr. W. Thacher
Longstreth comprise the Stock Option Committee which governs the existing
1995 Employee Plan. The Stock Option Committee met one time during 1995.
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
<PAGE>
PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information as of April 22, 1996, 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, 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.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name and Beneficial Owner or Group (1) Ownership Class
- -------------------------------------- ---------- -------
<S> <C> <C>
Daniel P. McCartney .................................... 973,106(2) 11.8%
The Putnam Investments, Inc ............................ 821,647(3) 10.1%
State of Wisconsin Investment Board .................... 750,000(4) 9.2%
Rockefeller & Co., Inc. ................................ 647,812(5) 8.0%
Dimensional Fund Advisors Inc. ......................... 428,772(6) 5.3%
Thomas A. Cook ......................................... 142,000(7) 1.7%
Robert J. Moss ......................................... 37,000(8) (16)
Robert L. Frome ........................................ 56,037(9) (16)
Joseph F. McCartney .................................... 49,000(10) (16)
W. Thacher Longstreth .................................. 42,000(11) (16)
Barton D. Weisman ...................................... 69,500(12) (16)
John M. Briggs ......................................... 21,000(13) (16)
Brian M. Waters ........................................ 26,000(14) (16)
James L. DiStefano ..................................... 4,500(15) (16)
Directors and Executive Officers as a group (10 persons) 1,420,143(17) 17.4%
</TABLE>
- ------
(1) The address of Daniel P. McCartney is 2643 Huntingdon Pike, Huntingdon
Valley, PA 19006. The address of The Putnam Investments, Inc. is One
Post Office Square, Boston, MA 02109. The address of State of Wisconsin
Investment Board is P.O. Box 7842, Madison, WI 53707. The address of
Rockefeller & Co., Inc. is 30 Rockefeller Plaza, New York, NY 10112. The
address of Dimensional Fund Advisors Inc. ("Dimensional") is 1299 Ocean
Avenue, Santa Monica, CA 90401.
(2) Includes incentive stock options to purchase 47,337 shares and
nonqualified options to purchase 57,663 shares, all exercisable within
sixty days of April 22, 1996. 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.
(3) According to a Schedule 13G filed by The Putnam Investments, Inc. dated
March 11, 1996, it has shared voting power with respect to 525,397
shares and shared dispositive power with respect to the 821,647 shares,
shared in each case with certain of its affiliates.
(4) According to a Schedule 13G filed by State of Wisconsin Investment
Board, dated February 19, 1996, it has sole voting power and dispositive
power with respect to the 750,000 shares.
(5) According to a Schedule 13G filed by Rockefeller & Co., Inc., dated
February 9, 1996, it has sole voting and dispositive power with respect
to the 647,812 shares.
(6) According to a Schedule 13G filed by Dimensional, dated February 9,
1996, Dimensional, a registered investment advisor, is deemed to have
beneficial ownership of 428,772 shares as of December 31, 1995, all of
which shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, for all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all
such shares.
(7) Represents incentive stock options to purchase 92,324 shares and
nonqualified options to purchase 49,676 shares, all exercisable within
sixty days of April 22, 1996.
(8) Represents nonqualified options to purchase 37,000 shares, all
exercisable within sixty days of April 22, 1996.
4
<PAGE>
(9) Includes nonqualified options to purchase 42,000 shares, all exercisable
within sixty days of April 22, 1996.
(10) Includes incentive stock options to purchase 12,000 shares and
nonqualified options to purchase 37,000 shares, all exercisable within
sixty days of April 22, 1996.
(11) Represents nonqualified options to purchase 42,000 shares, all
exercisable within sixty days of April 22, 1996.
(12) Includes nonqualified options to purchase 54,000 shares, all exercisable
within sixty days of April 22, 1996. Excludes 7,250 shares held by Mr.
Weisman's wife, as to which shares he disclaims beneficial ownership.
(13) Includes nonqualified options to purchase 17,000 shares, exercisable
within sixty days of April 22, 1996.
(14) Represents incentive stock options to purchase 26,000 shares, all
exercisable within sixty days of April 22, 1996.
(15) Represents incentive stock options to purchase 4,500 shares, all
exercisable within sixty days of April 22, 1996.
(16) Less than 1% of the outstanding shares.
(17) Includes 518,000 shares underlying options granted to said group of
persons. All options are exercisable within sixty days of April 22, 1996.
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 certain non- employee directors
to purchase an aggregate of 25,000 Shares of Common Stock during the year
ended December 31, 1995 pursuant to the 1995 Directors' Plan.
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 highest paid executive officers whose
total salary and bonus exceeded $100,000 in 1995 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
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) Payouts Compensation
-------------------- ------- ---------- ------- -------------- ----------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel P. McCartney, 1995 $426,083 0 $13,956 0 40,000 0 0
Chairman of the 1994 408,190 0 1,668 0 15,000 0 0
Board and Chief 1993 347,070 0 1,668 0 15,000 0 0
Executive Officer
Thomas A. Cook, 1995 $426,083 0 $27,258 0 0 0 0
President, Chief 1994 374,500 0 1,320 0 20,000 0 0
Operating Officer 1993 268,303 0 1,320 0 15,000 0 0
and Director
Brian M. Waters 1995 $130,391 0 $ 8,700 0 0 0 0
Vice President -- 1994 120,997 0 8,700 0 10,000 0 0
Operations 1993 106,923 0 1,110 0 7,000 0 0
Joseph F. McCartney 1995 $106,879 0 $14,913 0 0 0 0
Regional Vice 1994 92,622 0 11,100 0 8,000 0 0
President and 1993 81,256 0 1,399 0 10,000 0 0
Director
</TABLE>
- ------
(1) Options to acquire shares of Common Stock. The Company has not awarded
any SAR's (Stock Appreciation Rights) as it is not currently authorized
to do so under the 1995 Employee Plan.
5
<PAGE>
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table provides information related to options to purchase
Common Stock granted to the Named Executive Officers during fiscal 1995.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (1)
- ---------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price
Name (#) (2) Fiscal Year ($/Sh) (2) Expiration Date 5% 10%
- ---------------------- ------------ -------------- ---------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. McCartney .. 40,000 27.8 $9.35(3) Dec. 1, 2000 $93,936 $207,573
</TABLE>
- ------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming the specified compounded
rates of appreciation on the Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall
condition of the stock market and the Company's results of operations and
financial condition. There can be no assurance that the values reflected
in this table will be achieved.
(2) The option exercise price may be paid in shares of Common Stock owned by
the executive, in cash, or a combination of any of the foregoing, as
determined by the Stock Option Committee.
(3) The exercise price was 110% of the fair market value of the Common Stock
on the date of grant.
AGGREGATED OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table provides information related to aggregated options
exercised by the Named Executive Officers during the 1995 fiscal year and the
number and value of options held at fiscal year end. (The Company does not
have any outstanding stock appreciation rights.)
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Securities Underlying In-the-Money Options
Acquired Value Unexercised Options at FY-End (#) at FY-End ($) (4)
on Exer- Realized --------------------------------- --------------------------------
Name cise (#) ($) (3) Exercisable Unexercisable Exercisable Unexercisable
-------------------------- ---------- ---------- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. McCartney ...... -- -- 65,000 40,000 $ 4,500 $1,000
Thomas A. Cook (1) ....... 15,000 $25,937 142,000 0 18,751 0
Brian M. Waters .......... -- -- 26,000 0 8,500 0
Joseph F. McCartney (2) .. 1,500 3,813 49,000 0 18,500 0
</TABLE>
- ------
(1) The options exercised by Mr. Cook during fiscal year 1995 were held by
him for five years.
(2) The options exercised by Mr. Joseph McCartney during fiscal year 1995
were held by him for five years.
(3) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise multiplied by the number of shares to which the exercise
relates.
(4) The closing price for the Common Stock as reported by the Nasdaq National
Market System on December 31, 1995 was $9.375. Value is calculated on the
basis of the difference between the option exercise price and $9.375
multiplied by the number of shares of Common Stock underlying the option.
6
<PAGE>
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, 1995 with the cumulative total return on the S&P 500 Index
and the S&P Healthcare Industry -- Miscellaneous Services Group Index.
TOTAL SHAREHOLDER RETURNS
$250 |------------------------------------------------------------------|
| |
| |
| |
| & |
$200 |------------------------------------------------------------------|
| |
| # # # |
| |
D | & & |
O $150 |------------------------------------------------------------------|
L | & |
L | & |
A | |
R | # |
S $100 |--*&#--------------------------------------------#----------------|
| * * |
| * |
| * |
| * |
$50 |------------------------------------------------------------------|
| |
| |
| |
| |
$0|----|----------|---------|-----------|-----------|-----------|----|
DEC/90 DEC/91 DEC/92 DEC/93 DEC/94 DEC/95
*= HEALTHCARE SERVICES GROUP &=S&P 500 INDEX #=HEALTH CARE (MISCELLANEOUS)
INDEXED RETURNS
<TABLE>
<CAPTION>
Years Ending
-----------------------------------------------------------
DEC90 DEC91 DEC92 DEC93 DEC94 DEC95
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
HEALTHCARE SERVICES GROUP 100 94.67 67.62 79.45 91.29 63.39
S&P 500 INDEX 100 130.47 140.41 154.56 156.60 215.45
HEALTH CARE (MISCELLANEOUS) 100 165.94 164.17 120.00 103.33 163.42
</TABLE>
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
7
<PAGE>
compensation in excess of $1 million per annum to any employee. The Company is
seeking to amend the 1995 Employee Plan to provide that no recipient of options
under the 1995 Employee Plan may be granted options to purchase more than
125,000 shares of Common Stock. Such amendment, if approved, will enable
compensation received as a result of options granted under the 1995 Employee
Plan to qualify as "performance-based" for purposes of Section 162(m) of the
Internal Revenue Code. (See Proposal No. 2).
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 computed.
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
Mr. Daniel P. McCartney and Mr. Cook did not serve as directors, executive
officers or members of the Compensation Committee of any other entity during
the fiscal year ended December 31, 1995 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 nine nursing homes that have entered into service agreements with
the Company. During the year ended December 31, 1995, these agreements
resulted in gross revenues of approximately $2,857,000 to the Company.
Mr. Daniel P. McCartney, director and Chief Executive Officer of the
Company, has a minority ownership interest in a nursing home that has entered
into a service agreement with the Company. During the year ended December 31,
1995, this agreement resulted in gross revenues of approximately $152,900 to
the Company.
Mr. Robert L. Frome, a director of the Company, is a member of the law
firm of Olshan Grundman Frome & Rosenzweig 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.
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 transactions were deemed fair and
reasonable and approved as being in the best interests of the Company, by the
disinterested directors.
The Securities and Exchange Commission (the "SEC") has been conducting a
non-public investigation since 1990 with respect to certain matters,
including the Company's financial statements, financial condition and results
of operations. The Company has cooperated fully with such inquiry on a
voluntary basis. On March 21, 1996, the Staff of the SEC informed the Company
that the SEC had accepted a settlement which had been offered by the Company
and recommended by the Staff, pertaining to certain allegations of violations
of the Federal securities laws by the Company and certain of its officers
with respect to periods ended on or before March 31, 1992. The settlement is
subject to mutual agreement on the final form of the complaint and consent
8
<PAGE>
to be filed in the United States District Court. Under the settlement, upon
the filing of the complaint and entry of a final judgment upon consent, and
without admitting or denying any of the allegations of the complaint, the
Company, Daniel P. McCartney and Thomas A. Cook and a former officer of the
Company, will be permanently enjoined from violating certain provisions of
the Federal securities laws, and the Company and these individuals will be
required to pay civil penalties aggregating approximately $825,000. Mr.
McCartney and Mr. Cook will be required to pay penalties of $100,000 and
$50,000, respectively. The Company will indemnify Messrs. McCartney and Cook
for these payments. Upon entry of a final judgment, the Company will file a
report with the SEC containing the final judgment, the consent and the SEC
complaint.
9
<PAGE>
PROPOSAL 2--AMENDMENTS TO THE 1995 EMPLOYEE PLAN
PROPOSED AMENDMENTS
On March 5, 1996, the Board of Directors adopted, and proposed that the
shareholders approve, amendments to the 1995 Employee Plan which, in
substance, provide, among other things, that (i) the 1995 Employee Plan be
administered by a committee of "disinterested persons" within the meaning of
Rule 16b-3 ("Rule 16b- 3") of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and is otherwise intended to comply with such Rule, (ii)
that options granted under the Plan are only transferable by (a) will, (b)
the laws of descent and distribution, (c) pursuant to a qualified domestic
relations order or (d) to the extent otherwise permitted by Rule 16b-3 and
(iii) compensation realized upon the exercise of options granted under the
1995 Employee Plan be regarded as "performance-based" under Section 162(m) of
the Internal Revenue Code and that such compensation may be deductible
without regard to the limits of Section 162(m) of the Internal Revenue Code
(i.e., maximum deductible compensation is now $1 million). Such amendments
are collectively referred to herein as the "Amendments." The full text of the
provisions of the 1995 Employee Plan which are being amended are described
below.
The proposed amendments do not change the number of shares reserved for
issuance under the 1995 Employee Plan (i.e., 500,000 shares maximum).
Pursuant to the 1995 Employee Plan, both incentive and non- qualified options
may be granted to key employees of the Company or any subsidiary in which the
Company owns more than 50% of the total combined voting power of all classes
of stock. As of the Record Date, options to purchase 118,275 shares of Common
Stock were outstanding under the 1995 Employee Plan, none of the options
granted had been exercised and 381,725 shares of Common Stock remained
available for the grant of options under the 1995 Employee Plan. The Stock
Option Committee will designate which employees will be granted options under
the 1995 Employee Plan.
The Board of Directors believes it is in the Company's and its
shareholders' best interests to approve the Amendments because they will (i)
enable compensation attributable to stock options received under the 1995
Employee Plan to qualify as "performance-based" for the purposes of Section
162(m) of the Internal Revenue Code, (ii) enable the 1995 Employee Plan to
comply with Rule 16b-3 and (iii) permit transferability of options to the
extent permitted by such Rule. At the present time, in light of current
compensation levels of the Company's executive officers, it is not expected
that the $1 million threshold of Section 162(m) of the Internal Revenue Code
will be reached with respect to any individuals in 1996. As of the Record
Date, the closing sales price of the Common Stock on the Nasdaq National
Market System was $9.25.
The following changes would be made in the 1995 Employee Plan.
A. The first paragraph of Section 2, relating to "Administration of the
Plan," shall read as follows:
The Board of Directors of the Company (the "Board")
shall appoint and maintain as administrator of the Plan
a Committee (the "Committee") consisting of at least two
"disinterested persons" within the meaning of Rule 16b-3
of the Securities and Exchange Commission ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), as from time to time in effect
and shall qualify as "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code.
The members of the Committee shall serve at the pleasure
of the Board.
B. The following sentence shall be added to the end of Section 3,
"Designation of Optionees."
Notwithstanding the preceding sentence or anything
contained in the Plan to the contrary, no recipient of
options may be granted options to purchase in excess of
125,000 shares of common stock authorized to be issued
under the Plan.
C. The following subparagraph 5(e) shall replace the existing
subparagraph under Section 5(e), "Terms and Conditions of Options."
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<PAGE>
(e) Transferability. No Option granted hereunder shall
be transferable otherwise than by (i) will, (ii) the
laws of descent and distribution, (iii) pursuant to
a qualified domestic relations order as defined by
the Internal Revenue Code or Title I of the Employee
Retirement Income Security Act of 1986, as amended,
or the rules and regulations promulgated thereunder;
provided however, that an option may be transferable
to the extent set forth in the option agreement (A)
if the option agreement provisions do not disqualify
such option for exemption under Rule 16b-3
promulgated under the Act or (B) if such option is
not intended to qualify for exemption under such
Rule. Any Option granted hereunder shall be
exercisable, during the lifetime of the holder, only
by such holder or by such holder's guardian or legal
representative.
D. A new Section 15 would be added, as follows
15. Withholding
To enable optionees to satisfy tax withholding
obligations relating to non- qualified stock options,
in lieu of cash payment the Committee may provide
that optionees may elect to have the Company withhold
from an option exercise, or separately surrender,
shares of Common Stock.
E. A new Section 16 would be added, as follows
16. Rule 16b-3 Compliance
The Company intends that the Plan meet the
requirements of Rule 16b-3 and that transactions of
the type specified in subparagraphs (c) and (f) of
Rule 16b-3 by officers of the Company (whether or not
they are directors) pursuant to the Plan will be
exempt from the operation of Section 16(b) of the
Act. In all cases, the terms, provisions, conditions
and limitations of the Plan shall be construed and
interpreted consistent with the Company's intent as
stated in this Section 15.
Since the adoption of the 1995 Employee Plan by the Board of Directors,
options to purchase shares of Common Stock have been granted thereunder to
(i) the Named Executive Officers, (ii) all current executive officers as a
group and (iii) all employees, including all current officers who are not
executive officers, as a group, as follows:
<TABLE>
<CAPTION>
Number of
Options (1)
-----------
<S> <C>
Daniel P. McCartney ..................... 40,000(2)
Thomas A. Cook .......................... 0
Brian M. Waters ......................... 0
Joseph F. McCartney ..................... 0
Executive Officers as a Group ........... 42,000(3)
Non-Executive Officers Employee Group ... 76,275(4)
</TABLE>
- ------
(1) Information contained in this table is duplicative of information
contained in "Executive Compensation" and does not signify additional
grants of options to purchase Common Stock.
(2) Represents options granted on December 1, 1995 at a price of $9.35 per
common share, which is 110% of the fair market value of the Common Stock
on the date of grant. The options expire on December 1, 2000 and are
first exercisable on June 1, 1996.
(3) Represents options granted on December 1, 1995 at prices ranging from
$8.50 to $9.35 per Common Share. The options expire on December 1, 2000
and are first exercisable on June 1, 1996.
(4) Represents options granted on December 1, 1995 at a price of $8.50 per
Common Share, the fair market value on the date of grant. The options
expire on December 1, 2000 and are first exercisable on June 1, 1996.
11
<PAGE>
ADMINISTRATION
The 1995 Employee Plan, as amended, will be administered by a Stock Option
Committee, consisting of not less than two members of the Board of Directors
of the Company who are "disinterested persons" within the meaning of Rule
16b-3 and "outside directors" within the meaning of Section 162(C) of the
Internal Revenue Code. The members of the Stock Option Committee are
appointed by the Board of Directors and serve at the pleasure of the Board of
Directors. Currently, the members of the Stock Option Committee are John M.
Briggs and W. Thacher Longstreth. The Stock Option Committee selects the key
employees who will be granted options under the 1995 Employee Plan and,
subject to the provisions of the 1995 Employee Plan, determines the terms and
conditions and number of shares subject to each option. The Stock Option
Committee also makes any other determination necessary or advisable for the
administration of the 1995 Employee Plan. Determinations by the Stock Option
Committee are final and conclusive. Grants of options and other decisions of
the Stock Option Committee are not required to be made on a uniform basis.
The 1995 Employee Plan will terminate on March 5, 2005, but may be terminated
by the Board of Directors at any time before that date.
DESCRIPTION OF OPTIONS
Upon the grant of an option to a key employee, the Stock Option Committee
will fix the number of shares of Common Stock that the optionee may purchase
upon exercise of the option and the price at which the shares of Common Stock
may be purchased. The option price for stock options shall not be less than
100% of the "fair market value" of the shares of Common Stock at the time the
option is granted; provided, however, that with respect to an incentive stock
option in the case of an optionee, who, at the time such option is granted,
owns more than 10% of the voting stock of the Company or its subsidiaries,
the purchase price per shall be at least 110% of the fair market value. "Fair
market value" is deemed to be the closing sales price of Common Stock on such
date on the Nasdaq National Market System or, if the Common Stock is not
listed on the Nasdaq National Market System, on the principal market in which
the Common Stock is traded.
REGISTRATION OF SHARES
The Company has filed a registration statement under the Securities Act
with respect to the shares of Common Stock underlying options granted
pursuant to the 1995 Plan.
VOTE REQUIRED
The approval of the Amendments to the 1995 Employee Plan requires the
affirmative vote of a majority of the votes cast by all shareholders
represented and entitled to vote thereon. An abstention or withholding of
authority to vote or broker non-vote 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.
The Board of Directors unanimously recommends that you vote "FOR" approval
of the Amendments to the 1995 Employee Plan.
PROPOSAL NO. 3
RATIFICATION AND APPROVAL OF 1996
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
On March 5, 1996, the Board of Directors of the Company unanimously
approved the 1996 Directors' Plan for submission to shareholders as set forth
in Appendix A to this proxy statement. This discussion is qualified in its
entirety by reference to Appendix A. The 1996 Directors' Plan is intended to
assist the Company in securing and retaining non-employee directors by
allowing them to participate in the ownership and growth of the Company
through the grant of stock options under a non-discretionary, formula plan as
contemplated by Rule 16b-3 ("Directors' Options"). The 1996 Directors' Plan
provides a means whereby such directors may purchase Common Stock pursuant to
Directors' Options granted in accordance with such plan. The 1996 Directors'
Plan is intended to replace the 1995 Directors' Plan which does not conform
to the requirements of Rule 16b-3. At the 1995 Annual Meeting of
Shareholders, the shareholders approved the 1995 Directors' Plan. If the
shareholders approve the 1996 Directors' Plan, the 1995 Directors' Plan will
12
<PAGE>
terminate, although options to purchase 25,000 shares granted to directors on
December 1, 1996 under such plan will remain outstanding. The principal
difference between the 1996 Directors' Plan and the 1995 Directors' Plan is that
the 1996 Directors' Plan is a "formula" plan in that each director of the
Company will receive options to purchase 5,000 shares of Common Stock on each
December 5 until December 5, 2000 and newly appointed non-employee directors
will receive a similar 5,000 share option on the date of his or her election to
the Board. In addition, the number of shares available for issuance under the
1996 Directors' Plan is 200,000 compared to 150,000 under the 1995 Directors'
Plan.
ADMINISTRATION AND GRANTS
All grants of options to non-employee directors shall be automatic and
non-discretionary and shall be made in strict accordance with the following
provisions. Commencing on December 5, 1996, and on each December 5 through
and including December 5, 2000, each member of the Board of Directors will
receive options to purchase 5,000 shares of Common Stock pursuant to the 1996
Directors' Plan. Such grants are subject to shareholder approval of the 1996
Directors' Plan. If a person is first elected to the Board of Directors after
June 4, 1996 but before December 5, 2000, such person will also receive
options to purchase 5,000 shares of Common Stock as of the date he or she is
first elected to the Board of Directors by the shareholders or by the Board
of Directors ("an Initial Grant"). The terms for the grant of Directors
Options to an eligible Director may only be changed if permitted under Rule
16b-3 of the Exchange Act and accordingly the formula for the grant of
Directors' Options may not be changed or otherwise modified more than once in
any six month period.
SHARES SUBJECT TO THE 1996 DIRECTORS' PLAN
The Company is authorized under the 1996 Directors' Plan to issue shares
of Common Stock pursuant to the exercise of Directors' Options with respect
to a maximum of 200,000 shares of Common Stock. The shares of Common Stock
issued or to be issued under the 1996 Directors' Plan are currently
authorized but unissued shares of Common Stock. The number of shares of
Common Stock available under the 1996 Directors' Plan will be subject to
adjustment to prevent dilution in the event of a stock split, combination of
shares, stock dividend or certain other events. Shares subject to unexercised
Directors' Options that expire or are terminated prior to the end of the
period during which Directors' Options may be granted will be restored to the
number of shares of Common Stock available for issuance under the 1996
Directors' Plan.
ELIGIBILITY; TERM
All non-employee directors are eligible to receive Directors' Options. The
term of a Directors' Option is five (5) years from the grant date of each
Directors' Option, subject to earlier termination in accordance with the 1996
Directors' Plan.
EXERCISE PRICE AND PAYMENT
The exercise price for each share subject to a Directors' Option is the
fair market value thereof. The fair market value shall be determined by
taking the average of the closing sale prices of the Common Stock on the 10
business days up to and including the grant date, as reported by the Nasdaq
National Market System.
Directors' Options may be exercised in whole or in part at any time during
the option period, by written notice of exercise and payment of the full
purchase price as follows: in cash or by check, bank draft or money order
payable to the Company; or by delivery of Common Stock already owned by an
eligible director for at least six months (based on the fair market value of
the Common Stock on the date of exercise).
TRANSFERABILITY; TERMINATION OF DIRECTORSHIP
All Directors' Options granted under the 1996 Directors' Plan are
generally non-transferable and non- assignable except by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations
order, or as may be permitted under Rule 16b-3 and may be exercised during
the lifetime of the optionee only by the optionee, his guardian or legal
representative. If a director no longer serves on the Board of Directors, his
or her Directors' Options may be exercised up to one year after the date of
such termination.
13
<PAGE>
TERMINATION AND AMENDMENT
The 1996 Directors' Plan will terminate on December 31, 2000, but may be
terminated by the Board of Directors at any time before such date. The 1996
Directors' Plan may be amended at any time by the Board of Directors, except
that the formula for the grant of Directors' Options may not be changed or
otherwise modified more than once in any six month period other than to
comply with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Any
termination or amendment of the 1996 Directors' Plan will not impair the
rights of optionees under outstanding Directors' Options without the consent
of the affected optionees.
FEDERAL INCOME TAX CONSEQUENCES
Upon exercise of a Directors' Option granted under the 1996 Directors'
Plan, the grantee will recognize ordinary income in an amount equal to the
excess of the fair market value of the Common Stock received over the
exercise price of such Common Stock. That amount increases the grantee's
basis in the Common Stock acquired pursuant to the exercise of the option.
Upon a subsequent sale of the Common Stock, the grantee will incur short term
or long term gain or loss depending upon his holding period for the Common
Stock and upon the subsequent appreciation or depreciation in the market
value of the Common Stock.
The Company will be allowed a federal income tax deduction for the amount
recognized as ordinary income by the grantee upon the grantee's exercise of
the option.
The foregoing outline is no more than a summary of the federal income tax
provisions relating to the grant and exercise of options under the 1996
Directors' Plan and the sale of Common Stock acquired under the 1996
Directors' Plan. Individual circumstances may vary these results. The federal
income tax laws and regulations are constantly being amended, and each
participant should rely upon his own tax counsel for advice concerning the
federal income tax provisions applicable to the 1996 Directors' Plan.
REGISTRATION OF SHARES
The Company will file a registration statement under the Securities Act
with respect to the shares of Common Stock underlying Directors' Options
granted pursuant to the 1996 Directors' Plan.
VOTE REQUIRED
The approval of 1996 Directors' Plan 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, 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.
The Board of Directors unanimously recommends that you vote "FOR" approval
of the 1996 Directors' Plan.
14
<PAGE>
PROPOSAL NO. 4
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, 1995. 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 to serve as the
independent public accountants of the Company for the current year ending
December 31, 1996. 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.
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,
1996.
ANNUAL REPORT
The 1995 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 22, 1996
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, 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.
15
<PAGE>
APPENDIX A
HEALTHCARE SERVICES GROUP, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the Healthcare Services Group, Inc. 1996 Non-Employee
Directors' Stock Option Plan (the "Plan") is to secure for Healthcare
Services Group, Inc. (the "Company") and its shareholders the benefits
arising from stock ownership by its non-employee Directors. The Plan will
provide a means whereby such Directors may purchase shares of the common
stock, $.01 par value, of Healthcare Services Group, Inc. pursuant to options
granted in accordance with the Plan.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1 "Annual Grant Date" shall mean, with respect to Eligible Directors who
serve on the Board of Directors December 5, 1996 and December 5 of each
calendar year after 1996 during the term of the Plan or the nearest preceding
business day if December 5 falls on a weekend or holiday.
2.2 "Committee" shall mean the Stock Option Committee of the Board of
Directors of the Company, which shall consist of at least two Eligible
Directors (as defined below) of the Board of Directors of the Company.
2.3 "Chairman" shall mean the duly appointed Chairman of any standing
Committee of the Board.
2.4 "Company" shall mean Healthcare Services Group, Inc. and any of its
subsidiaries.
2.5 "Director" shall mean any person who is a member of the Board of
Directors of the Company.
2.6 "Eligible Director" shall mean any director that is not an employee of
the Company.
2.7 "Exercise Price" shall mean the price per Share at which an Option may
be exercised.
2.8 "Fair Market Value" shall be determined by taking the average of the
closing sale prices of the Company's publicly traded Shares on the 10
business days up to and including the Grant Date on the national securities
exchange on which the Shares are listed (if the Shares are so listed) or on
the Nasdaq Stock Market System (if the Shares are regularly quoted on the
Nasdaq Stock Market System), or, if not so listed or regularly quoted, the
mean between the closing bid and asked prices of publicly traded Shares in
the OTC Bulletin Board, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service
selected by the Company.
2.9 "Grant Date" shall mean the Initial Grant Date or the Annual Grant
Date.
2.10 "Initial Grant Date" shall mean with respect to each Eligible
Director who is first elected as a member of the Board after June 4, 1996,
the date of his or her appointment by the Board of Directors to fill a
vacancy or the date of election by the shareholders.
2.11 "Option" shall mean an Option to purchase Shares granted pursuant to
the Plan.
2.12 "Option Agreement" shall mean the written agreement described in
Article VI herein.
2.13 "Permanent Disability" shall mean the condition of an Eligible
Director who is unable to participate as a member of the Board by reason of
any medically determined physical or mental impairment which can be expected
to result in death or which can be expected to last for a continuous period
of not less than twelve (12) months.
A-1
<PAGE>
2.14 "Purchase Price" shall be the Exercise Price multiplied by the number
of whole Shares with respect to which an Option may be exercised.
2.15 "Shares" shall mean shares of common stock, $.01 par value, of the
Company.
ARTICLE III
ADMINISTRATION
3.1 General. All grants of options hereunder shall be automatic and
non-discretionary and shall be made in strict accordance with the provisions
hereof.
3.2 Limited Powers of the Committee. The Committee shall have authority to
adopt only such rules and regulations and to make all such other
determinations not inconsistent with the Plan, and particularly the
requirements of Rule 16b-3(c)(2) of the Securities and Exchange Act of 1934,
as amended (the "Exchange Act") as may be necessary for the administration of
the Plan.
ARTICLE IV
SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Article IX, an aggregate of
200,000 Shares are reserved for issuance under this Plan. Shares sold under
this Plan may be either authorized, but unissued Shares or reacquired Shares.
If an Option, or any portion thereof, shall expire or terminate for any
reason without having been exercised in full, the unpurchased Shares covered
by such Option shall be available for future grants of Options.
ARTICLE V
GRANTS
5.1 Initial Grant. On the Initial Grant Date, each Eligible Director shall
receive the grant of an option to purchase 5,000 Shares.
5.2 Annual Grants. On each Annual Grant Date, each Eligible Director shall
receive the grant of an option to purchase 5,000 Shares.
5.3 Compliance With Rule 16b-3. The terms for the grant of Options to an
Eligible Director may only be changed if permitted under Rule 16b-3 of the
Exchange Act, and accordingly the formula for the grant of Options may not be
changed or otherwise modified more than once in any six month period, other
than to comport with changes in the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), the Employee Retirement Income Security Act of
1974, as amended (the "Employee Retirement Income Security Act"), or the
rules thereunder.
ARTICLE VI
TERMS OF OPTION
Each Option shall be evidenced by a written Option Agreement executed by
the Company and the Eligible Director which shall specify the Grant Date, the
number of Shares subject to the Option, the Exercise Price and shall also
include or incorporate by reference the substance of all of the following
provisions and such other provisions consistent with this Plan as the Board
may determine.
6.1 Term. The term of the Option shall be five (5) years from the Grant
Date of each Option, subject to earlier termination in accordance with
Articles VI and X.
6.2 Restriction on Exercise. Options shall be exercisable as follows: all
Shares purchasable under an Option shall be exercisable commencing six months
and one day after the Grant Date. No Option shall be exercisable until more
than six months have elapsed from the Grant Date. In the case the Eligible
Director's status as Director terminates as a result of the Eligible
Director's death or Permanent Disability, the Eligible Director or his or her
estate or a person who acquired the right to exercise the Option by bequest
or inheritance may exercise the Option, but only within twelve months
following the date of death or termination due to Permanent Disability, and
only to the extent that the Eligible Director was entitled to exercise the
Option on the date of death or termination due to Permanent Disability (but
in no event later than the expiration of its five year term).
A-2
<PAGE>
6.3 Exercise Price. The Exercise Price for each Share subject to an Option
shall be the Fair Market Value of the Share as determined in Section 2.8
herein.
6.4 Manner of Exercise. An Option shall be exercised in accordance with
its terms, by delivery of a written notice of exercise to the Company and
payment of the full purchase price of the Shares being purchased. An Eligible
Director may exercise an Option with respect to all or less than all of the
Shares for which the Option may then be exercised, but an Eligible Director
must exercise the Option in full Shares.
6.5 Payment. The Purchase Price of Shares purchased pursuant to an Option
or portion thereof, may be paid:
(a) in United States dollars, in cash or by check, bank draft or money
order payable to the Company,
(b) by delivery of Shares already owned by an Eligible Director with an
aggregate Fair Market Value on the date of exercise equal to the Purchase
Price, subject to the provisions of Section 16(b) of the Exchange Act.
6.6 Transferability. No Option granted hereunder shall be transferable
otherwise than by (i) will, (ii) the laws of descent and distribution, (iii)
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code, or Title I of the Employee Retirement Income Security Act, or
the rules and regulations promulgated thereunder; provided however, that an
Option may be transferable to the extent set forth in the Option Agreement
(A) if the Option Agreement provisions do not disqualify such Option for
exemption under Rule 16b-3 promulgated under the Exchange Act or (B) if such
Option is not intended to qualify for exemption under such Rule. Any Option
granted hereunder shall be exercisable, during the lifetime of the holder,
only by such holder or by such holder's guardian or legal representative.
6.7 Termination of Membership on the Board. If an Eligible Director's
membership on the Board terminates for any reason, an Option vested on the
date of termination may be exercised in whole or in part at any time within
one (1) year after the date of such termination (but in no event after the
term of the Option expires) and shall thereafter terminate.
ARTICLE VII
GOVERNMENT AND OTHER REGULATIONS
7.1 Delivery of Shares. The obligation of the Company to issue or transfer
and deliver Shares for exercised Options under the Plan shall be subject to
all applicable laws, regulations, rules, orders and approvals which shall
then be in effect.
7.2 Holding of Stock After Exercise of Option. The Option Agreement shall
provide that the Eligible Director, by accepting such Option, represents and
agrees, for the Eligible Director and his permitted transferees hereunder
that none of the Shares purchased upon exercise of the Option shall be
acquired with a view to any sale, transfer or distribution of the Shares in
violation of the Securities Act of 1933, as amended (the "Act"), and the
person exercising an Option shall furnish evidence satisfactory to that
Company to that effect, including an indemnification of the Company in the
event of any violation of the Act by such person. Notwithstanding the
foregoing, the Company in its sole discretion may register under the Act the
Shares issuable upon exercise of the Options under the Plan.
ARTICLE VIII
CONDITIONS UPON ISSUANCE
Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Act, as amended, the
rules and regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
A-3
<PAGE>
ARTICLE IX
ADJUSTMENTS
9.1 Proportionate Adjustments. If the outstanding Shares are increased,
decreased, changed into or exchanged into a different number or kind of
Shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be
made by the Committee or the Board of Directors to the maximum number and
kind of Shares as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of Shares allocated to
unexercised Options or portions thereof, which shall have been granted prior
to any such change, shall likewise be made. Any such adjustment in the
outstanding Options shall be made without change in the Purchase Price
applicable to the unexercised portion of the Option with a corresponding
adjustment in the Exercise Price of the Shares covered by the Option.
Notwithstanding the foregoing, there shall be no adjustment for the issuance
of Shares on conversion of notes, preferred stock or exercise of warrants or
Shares issued by the Board of Directors for such consideration as the Board
of Directors deems appropriate.
9.2 Reorganization, etc. Notwithstanding any other provision in Article VI
hereof, upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or more than
80% of the then outstanding Shares of the Company to another corporation, the
Company shall give to each Eligible Director at the time of adoption of the
plan for liquidation, dissolution, merger or sale either (1) a reasonable
time thereafter within which to exercise the Option in its entirety prior to
the effective date of such liquidation or dissolution, merger or sale, or (2)
the right to exercise the Option as to an equivalent number of Shares of
stock of the corporation succeeding the Company or acquiring its business by
reason of such liquidation, dissolution, merger, consolidation or
reorganization.
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
10.1 Amendments. Subject to Section 5.3 hereof, the Board of Directors may
at any time amend or revise the terms of the Plan, provided also no such
amendment or revision shall, unless appropriate shareholder approval of such
amendment or revision is obtained:
(a) increase the maximum number of Shares which may be sold pursuant to
Options granted under the Plan, except as permitted under the provisions
of Article IX;
(b) change the minimum Exercise Price set forth in Article VI;
(c) increase the maximum term of Options provided for in Article VI; or
(d) permit the granting of Options to any one other than as provided in
Article V.
10.2 Termination. The Board of Directors at any time may suspend or
terminate this Plan. This Plan, unless sooner terminated, shall terminate on
December 31, 2000. No Option may be granted under this Plan while this Plan
is suspended or after it is terminated.
10.3 Consent of Holder. No amendment, suspension or termination of the
Plan shall, without the consent of the holder of Options, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
A-4
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Privilege of Stock Ownership. No Eligible Director entitled to
exercise any Option granted under the Plan shall have any of the rights or
privileges of a shareholder of the Company with respect to any Shares
issuable upon exercise of an Option until certificates representing the
Shares shall have been issued and delivered.
11.2 Plan Expenses. Any expenses incurred in the administration of the
Plan shall be borne by the Company.
11.3 Use of Proceeds. Payments received from an Eligible Director upon the
exercise of Options shall be used for general corporate purposes of the
Company.
11.4 Governing Law. The Plan has been adopted under the laws of the
Commonwealth of Pennsylvania. The Plan and all Options which may be granted
hereunder and all matters related thereto, shall be governed by and construed
and enforceable in accordance with the laws of the Commonwealth of
Pennsylvania as it then exists.
ARTICLE XII
SHAREHOLDER APPROVAL
This Plan is subject to approval, at a duly held shareholders' meeting
within twelve (12) months after the date the Board approves this Plan, by the
affirmative vote of holders of a majority of the voting Shares of the Company
represented in person or by proxy and entitled to vote at the meeting.
Options may be granted, but not exercised, before such shareholder approval
is obtained, and no Options granted hereunder shall be effective unless and
until the shareholders of the Company approve the Plan. If the shareholders
fail to approve the Plan within the required time period, any Options granted
under this Plan shall be void, and no additional Options may thereafter be
granted.
A-5
<PAGE>
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 June 4, 1996 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, THE APPROVAL OF AMENDMENTS TO THE 1995 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN FOR KEY EMPLOYEES, THE ADOPTION OF THE 1996 NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN 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)
<PAGE>
/X/ Please mark your
votes as in this
example.
FOR WITHHELD Nominees: Daniel P. McCartney; W.
1. Election of / / / / Thacher Longstreth; Barton
Directors D. Weisman; Joseph F.
McCartney; Robert L. Frome
FOR all nominees listed on the Thomas A. Cook; Robert J. Moss;
right (except as marked to the and John M. Briggs; and in
contrary below) 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 AGAINST ABSTAIN
2. To approve amendments to the / / / / / /
Company's 1995 Incentive and non-
qualified Stock Option Plan for key
employees.
3. To approve and adopt the Company's / / / / / /
1996 Non-Employee Directors'
------------
Stock Option Plan.
4. 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.
