Edgar Filing: HEALTHCARE SERVICES GROUP INC

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. )

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HEALTHCARE SERVICES GROUP, INC.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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HEALTHCARE SERVICES GROUP, INC.
3220 Tillman Drive
Suite 300
Bensalem, Pennsylvania 19020

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

May 25, 2004

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To the Shareholders of
HEALTHCARE SERVICES GROUP, INC.

NOTICE IS HEREBY GIVEN that the 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
25, 2004, at 10:00 A.M., for the following purposes:

1. To elect seven directors;

2. To approve and ratify the selection of Grant Thornton LLP as the
independent certified public accountants of the Company for its
current fiscal year ending December 31, 2004; 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 9, 2004 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: Bensalem, Pennsylvania
April 13, 2004

HEALTHCARE SERVICES GROUP, INC.
3220 Tillman Drive
Suite 300
Bensalem, Pennsylvania 19020

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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
May 25, 2004

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

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 25, 2004 at 10:00
A.M. At the Annual Meeting, the shareholders will consider the following
proposals: (1) to elect seven directors; (2) to approve and ratify the
selection of Grant Thornton LLP as the independent certified public
accountants of the Company for its current fiscal year ending December 31,
2004; 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 13,
2004.

PROXIES; VOTING SECURITIES

Only holders of Common Stock $.01 par value (the "Common Stock") of record
at the close of business on April 9, 2004 (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 16,958,000 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 Annual 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, seven 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. 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, 52, Chief Executive Officer and Chairman of the
Board for more than five years..................................... 1977
Barton D. Weisman, 76, Chairman of the Board of Millennium Health
Systems, LLC since 2002, successor company to H.B.A. Corporation
and H.B.A. Management, Inc.; President and Chief
Executive Officer of such Florida based companies, which own and/or
manage nursing homes, for more than five years..................... 1983(2)
Joseph F. McCartney, 49, Divisional Vice President of the Company
for more than five years; brother of Daniel P. McCartney........... 1983
Robert L. Frome, Esq., 66, Member of the law firm of Olshan Grundman
Frome Rosenzweig & Wolosky LLP for more than five years; Director
of NuCo2, Inc. and Paradigm Medical Industries, Inc................ 1983
Thomas A. Cook, 58, President and Chief Operating Officer of the
Company for more than five years................................... 1987
Robert J. Moss, Esq., 65, President, Moss Associates, a law firm,
for more than five years........................................... 1992(1)(2)
John M. Briggs, CPA, 53, Partner of the certified public accounting
firm of Briggs, Bunting & Dougherty, LLP for more than five years.. 1993(1)(2)

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(1) Member of Nominating, Compensation and Stock Option Committee.
(2) Member of Audit Committee.

The Directors recommend a vote FOR all nominees.

OTHER EXECUTIVE OFFICERS

Name, Age, Principal Occupations
for the past five years and Current
Public Directorships or Trusteeships
--------------------------------------------------------------------------------
Thomas B. Carpenter, 39, General Counsel since July, 2000. Appointed Assistant
Secretary October, 2002. Attorney at the law firm of Cozen and O'Connor, PC
from May, 1998 to July, 2000.
James L. DiStefano, 59, Chief Financial Officer and Treasurer for more than
five years.
Richard W. Hudson, 56, Vice President of Finance and Secretary for more than
five years.
Brian M. Waters, 51, Vice President of Operations for more than five years.

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 the Company's
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 six times during the 2003 fiscal year. During 2003,
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. Directors are expected to attend all Board meetings and meetings of
committees on which they serve, and each annual meeting of shareholders. In
2003, six of the directors attended the Company's annual meeting of
shareholders.

The Board of Directors has established an Audit Committee, and a Nominating,
Compensation and Stock Option Committee 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 2003 with respect to the Audit Committee, and Nominating,
Compensation and Stock Option Committee are described below:

AUDIT COMMITTEE. The Audit Committee's primary responsibilities include (a)
appointment, compensation and oversight of the Company's independent auditors,
who shall report directly to the Committee, including (i) prior review of the
independent auditor's plan for the annual audit, (ii) pre-approval of both
audit and non-audit services to be provided by the independent auditors and
(iii) annual assessment of the qualifications, performance and independence of
the independent auditors; (b) overseeing and monitoring the Company's
accounting and financial reporting processes and internal control system,
audits of the Company's financial statements and the quality and integrity of
the financial reports and other financial information issued by the Company;
(c) providing an open avenue of communication among the independent auditors
and financial and other senior management and the Board of Directors; (d)
reviewing with management and, where applicable, the independent auditors,
prior to release, required annual, quarterly and interim filings by the
Company with the Securities and Exchange Commission and the type and
presentation of information to be included in earnings press releases; (e)
reviewing material issues, and any analyses by management or the independent
auditors, concerning accounting principles, financial statement presentation,
the adequacy of the Company's internal controls and significant financial
reporting issues and judgments and the effect of regulatory and accounting
initiatives on the Company's financial statements; (f) reviewing with the
Company's legal counsel any legal matters that could have a significant effect
on the Company's financial statements, compliance with applicable laws and
regulations and inquiries from regulators or other governmental agencies; (g)
reviewing and approving all related party transactions between the Company and
any director, executive officer, other employee or family member; (h)
reviewing and overseeing compliance with the Company's Code of Ethics and
Business Conduct; (i) establishing procedures regarding the receipt, retention
and treatment of, and the anonymous submission by employees of the Company of,
complaints regarding the Company's accounting, internal controls or auditing
matters; and (j) reporting Audit Committee activities to the full Board of
Directors and issuing annual reports to be included in the Company's proxy
statement. Each of Messrs. Moss, Weisman and Briggs are independent Directors
as such term is defined by Rule 4200(a)(15) of the NASDAQ Stock Market listing
standards. Mr. Briggs has been designated the "audit committee financial
expert" and he satisfies the attributes required of "audit committee financial
experts" pursuant to Section 407 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-
Oxley"). The Audit Committee met six times during 2003. The report of Audit
Committee for the fiscal year ended December 31, 2003 is included herein under
"Audit Committee Report" below. The Amended and Restated Audit Committee
Charter is appended to this proxy statement as Annex A.

NOMINATING, COMPENSATON AND STOCK OPTION COMMITTEE. The Nominating,
Compensation and Stock Option Committee (composed of Messrs. Briggs & Moss)
are to assist the Board of Directors ("Board") by: (i) developing and
recommending to the Board a set of effective corporate governance policies and
procedures applicable to the Company; (ii) identifying, reviewing and
evaluating individuals qualified to become Board members and recommending that
the Board select director nominees for each annual meeting of the Company's
stockholders; (iii) discharging the Board's responsibilities relating to the
compensation of Company executives; and (iv) administering the Company's stock
option plans or other equity-based compensation plans. Each of Messrs. Briggs
and Moss are Independent Directors as such term is defined by Rule 4200(a)(15)
of the NASDAQ Stock Market listing standards. The Nominating, Compensation and
Stock Option Committee met once during 2003.

The Nominating, Compensation and Stock Option Committee has not adopted a
policy or process by which stockholders may make recommendations to this
Committee of candidates to be considered by the Committee for nomination for
election as Directors. This Committee has determined that it is not
appropriate to have such a policy because such recommendations may be
informally submitted to and considered by the Committee under its Charter.
(The Charter of the Nominating, Compensation and Stock Option Committee is
provided on the Company's Website: www.hcsgcorp.com). The Committee has not
established a formal process for identifying and evaluating nominees for
Director, although generally the Committee may use multiple sources for
identifying and evaluating nominees for Director, including referrals from
current Directors and stockholders. The Committee has identified certain
qualifications it believes an individual should possess before it recommends
such person as a nominee for election to the Board of Directors. The Committee
believes that nominees for Director should possess the highest personal and
professional ethics, integrity, values and judgment and be committed to
representing the long-term interests of the Company's stockholders. The
Committee seeks to ensure that the composition of the Board at all times
adheres to the independence requirements of the NASDAQ Stock Market, Inc. and
reflects a range of talents, skills, and expertise, particularly in the areas
of management, leadership, and experience in the Company's and related
industries, sufficient to provide sound and prudent guidance with respect to
the operations and interests of the Company. See below for the Report of the
Nominating, Compensation and Stock Option Committee regarding executive
compensation.

PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP

The following table sets forth information as of April 9, 2004, regarding
the beneficial ownership of Common Stock by each person known by the Company
to own : (i) 5% or more of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) the Named Executive Officers as defined in Item
402(a)(3) of Regulation S-K and other Executive Officers and (iv) all current
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.

All Common Stock reporting and information in this table has been adjusted
to reflect the 3-for-2 stock split paid in the form of a 50% stock dividend on
March 1, 2004.

Amount and
Nature of Percent
Beneficial of
Name and Beneficial Owner or Group (1) (2) Ownership Class (3)
------------------------------------------ ---------- ---------
Daniel P. McCartney ............................... 1,756,870(4) 10.2%
Pequot Capital Management, Inc. ................... 1,660,800(5) 9.8%
Strong Capital Management, Inc. ................... 1,005,713(6) 5.9%
Lord, Abbett & Co. ................................ 989,492(7) 5.8%
Thomas A. Cook .................................... 518,853(8) 3.0%
Barton D. Weisman ................................. 169,928(9) 1.0%
Joseph F. McCartney ............................... 71,916(10) (19)
James L. DiStefano ................................ 64,202(11) (19)
John M. Briggs .................................... 55,563(12) (19)
Robert L. Frome ................................... 53,153(13) (19)
Richard W. Hudson ................................. 47,915(14) (19)
Robert J. Moss .................................... 21,455(15) (19)
Brian M. Waters ................................... 17,232(16) (19)
Thomas B. Carpenter ............................... 8,943(17) (19)
Directors and Executive Officers as a group (11
persons) .......................................... 2,748,911(18) 15.2%

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(1) The address of all persons is c/o Healthcare Services Group, Inc., 3220
Tillman Drive, Suite 300, Bensalem, PA 19020.

(2) The address of Pequot Capital Management, Inc. is 500 Nyala Farm Road,
Westport, CT 06880. The address of Strong Capital Management, Inc. is
100 Heritage Reserve, Menomonee Falls, WI 53051 and the address of
Richard S. Strong is c/o Godfrey & Kahn S.C., 780 N. Water Street,
Milwaukee, WI 53202. The address of Lord, Abbett & Co. is 90 Hudson
Street, Jersey City, NJ 07302.

(3) Based on 16,958,000 shares of Common Stock outstanding at April 9, 2004.

(4) Includes incentive stock options to purchase 91,519 shares and
nonqualified stock options to purchase 218,454 shares all exercisable
within sixty days of April 9, 2004, and 11,522 shares credited to Mr.
McCartney's account (but unissued) in connection with the Company's
Deferred Compensation Plan; also includes an aggregate of 3,750 shares
that Mr. McCartney holds as a co-trustee for the benefit of his child.
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 a principal shareholder
of the Company.

(5) According to a Schedule 13G filed by Pequot Capital Management, Inc.
dated February 13, 2004, it has sole voting power and dispositive power
with respect to the 1,660,800 shares.

(6) According to a Schedule 13G filed jointly by Strong Capital Management,
Inc., and Richard S. Strong dated February 16, 2004, Strong Capital
Management, Inc. and Richard Strong have shared voting and dispositive
power with respect to 1,005,713 shares (of which it has shared voting
power with respect to 1,005,713 shares).

(7) According to a Schedule 13G filed by Lord, Abbett & Co., dated January
26, 2004, it has sole voting power and dispositive power with respect to
the 989,492 shares.

(8) Includes incentive stock options to purchase 123,569 shares and
nonqualified stock options to purchase 378,936 shares all exercisable
within sixty days of April 9, 2004, and 7,367 shares credited to Mr.
Cook's account (but unissued) in connection with the Company's Deferred
Compensation Plan.

(9) Includes nonqualified stock options to purchase 48,653 shares, all
exercisable within sixty days of April 9, 2004.

(10) Includes incentive stock options to purchase 53,871 shares and
nonqualified stock options to purchase 14,966 shares, all exercisable
within sixty days of April 9, 2004, and 2,396 shares credited to Mr.
McCartney's account (but unissued) in connection with the Company's
Deferred Compensation Plan.

(11) Includes incentive stock options to purchase 56,483 shares and
nonqualified stock options to purchase 3,143 shares, all exercisable
within sixty days of April 9, 2004, and 2,880 shares credited to Mr.
DiStefano's account (but unissued) in connection with the Company's
Deferred Compensation Plan.

(12) Includes nonqualified stock options to purchase 22,455 shares, all
exercisable within sixty days of April 9, 2004.

(13) Includes nonqualified stock options to purchase 48,653 shares, all
exercisable within sixty days of April 9, 2004.

(14) Includes incentive stock options to purchase 38,572 shares and
nonqualified stock options to purchase 8,678 shares, all exercisable
within sixty days of April 9, 2004.

(15) Represents nonqualified stock options to purchase 21,455 shares, all
exercisable within sixty days of April 9, 2004.

(16) Includes incentive stock options to purchase 11,857 shares and
nonqualified stock options to purchase 3,143 shares, all exercisable
within sixty days of April 9, 2004 and 2,232 shares credited to Mr.
Water's account (but unissued) in connection with the Company's Deferred
Compensation Plan.

(17) Includes incentive stock options to purchase 7,500 shares, all
exercisable within 60 days of April 9, 2004 and 572 shares credited to
Mr. Carpenter's account (but unissued) in connection with the Company's
Deferred Compensation Plan.

(18) Includes 1,151,907 shares underlying options granted to this group. All
options are exercisable within sixty days of April 9, 2004; also
includes 26,969 shares credited to the accounts of certain executive
officers (but unissued) in connection with the Company's Deferred
Compensation Plan.

(19) 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 or committee 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. Mr. Briggs will receive a quarterly retainer of $2,000 in respect to
his chairmanship of the Audit Committee and serving as the Audit Committee
Financial Expert. The Company also granted options to non-employee directors
to purchase an aggregate of 29,940 shares of Common Stock during the year
ended December 31, 2003 pursuant to the 1996 Non-Employee Directors' Plan, as
amended and restated as of October 28, 1997.

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 2003 (the "Named Executive
Officers").

All Common Stock reporting and information in this table has been adjusted
to reflect the 3-for-2 stock split paid in the form of a 50% stock dividend on
March 1, 2004.

Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
-------------------------------- ----------------------- -------
Securities
Restricted Underlying
Name and Principal Fiscal Other Annual Stock Options/ LTIP All Other
Positions Year Salary Bonus Compensation Awards SARs(1) Payouts Compensation
-------------------------------- ------ -------- ----- ------------ ---------- ---------- ------- ------------

Daniel P. McCartney 2003 $654,950 0 $38,529 0 37,500 0 0
Chairman of the 2002 573,050 0 35,443 0 37,500 0 0
Board and Chief 2001 501,163 0 32,743 0 75,000 0 0
Executive Officer
Thomas A. Cook, 2003 $654,950 0 $26,530 0 37,500 0 0
President, Chief 2002 573,050 0 21,490 0 37,500 0 0
Operating Officer 2001 501,163 0 14,314 0 206,250 0 0
and Director
Brian M. Waters 2003 $191,354 0 $15,065 0 15,000 0 0
Vice President -- 2002 185,645 0 15,663 0 15,000 0 0
Operations 2001 179,706 0 15,117 0 46,500 0 0
James L. DiStefano 2003 $172,950 0 $ 6,557 0 15,000 0 0
Chief Financial Officer 2002 158,173 0 5,933 0 15,000 0 0
and Treasurer 2001 146,539 0 5,500 0 15,000 0 0
Joseph F. McCartney 2003 $154,804 0 $14,469 0 15,000 0 0
Divisional Vice 2002 155,966 0 14,425 0 15,000 0 0
President and Director 2001 130,084 0 11,955 0 33,000 0 0

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(1) Options to acquire shares of Common Stock. The Company has not awarded
any SAR's (Stock Appreciation Rights).

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain information with respect to all of the
Company's equity compensation plans and grants made outside of any plans in
effect as of April 18, 2003:

All Common Stock reporting and information in this table has been adjusted
to reflect the 3-for-2 stock split paid in the form of a 50% stock dividend on
March 1, 2004.

Number of securities
Number of securities to be Weighted-average remaining available for
Issued upon exercise of exercise price of future issuance under equity
outstanding options, outstanding options, compensation plans (excluding
warrants and rights warrants and rights Securities reflected in column (a))
Plan Category (a) (b) (c)
--------------------------------------- -------------------------- -------------------- -----------------------------------

Equity compensation plans approved by
security holders....................... 2,429,883(1) $7.45 1,818,890(2)
Equity compensation plans not approved
by security holders.................... N/A N/A N/A
-------------------------- -------------------- -----------------------------------
2,429,883 $7.45 1,818,890

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(1) Represents shares of Common Stock issuable upon exercise of outstanding
options granted under the 2002 Stock Option Plan (the "2002 Plan"), 1996
Non-employee Director Stock Option Plan, as amended and restated as of
October 28, 1997 (the "1996 Plan") or 1995 Incentive and Non-qualified
Stock Option Plan (the "1995 Plan").

(2) Includes options to purchase 770,526 shares available for future grant
under the Company's 2002 Plan, 1996 Plan and 1995 Plans. Also includes
1,021,547 and 26,817 shares available for issuance under the Company's
1999 Employee Stock Purchase Plan and 1999 Deferred Compensation Plan ,
respectively (collectively, the "1999 Plans"). Treasury shares will be
issued under the 1999 Plans.

Option Grants During 2003 Fiscal Year

The following table provides information related to options to purchase
Common Stock granted to the Named Executive Officers during fiscal 2003.

All Common Stock reporting and information in this table has been adjusted
to reflect the 3-for-2 stock split paid in the form of a 50% stock dividend on
March 1, 2004.

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 ............................. 37,500 6.88% $12.4333(3) Dec. 13, 2013 $293,229 $743,100
Thomas A. Cook .................................. 37,500 6.88% 12.4333(3) Dec. 13, 2013 293,229 743,100
Brian M. Waters ................................. 15,000 2.75% 12.4333(3) Dec. 13, 2013 117,296 297,252
James L. DiStefano .............................. 15,000 2.75% 12.4333(3) Dec. 13, 2013 117,296 297,252
Joseph F. McCartney ............................. 15,000 2.75% 12.4333(3) Dec. 13, 2013 117,296 297,252

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(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 Named Executive Officer for more than six months (based on the Fair
Market Value of the Stock on the trading day before the Option is
exercised), in cash, or a combination of any of the foregoing, as
determined by the Stock Option and Compensation Committee.

(3) 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 2003 Fiscal Year and Fiscal Year End Option
Values

The following table provides information related to the exercise of options
and the number and value of options held at fiscal year end by each of the
Named Executive Officers. (The Company does not have any outstanding stock
appreciation rights.) All Common Stock reporting and information has been
adjusted to reflect the 3-for-2 stock split paid in the form of a 50% stock
dividend on March 1, 2004.

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at FY-End(#) at FY-End ($)(2)
Acquired on Realized --------------------------- ---------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------- ------------ -------- ----------- ------------- ----------- -------------

Daniel P. McCartney ..................... 16,281 111,660 309,973 37,500 $2,195,493 $14,502
Thomas A. Cook .......................... -- -- 502,505 37,500 3,752,261 14,502
Brian M. Waters ......................... 114,000 427,180 15,000 15,000 65,805 5,801
James L. DiStefano ...................... -- -- 59,626 15,000 409,880 5,801
Joseph F. McCartney ..................... 51,164 426,367 68,837 15,000 464,681 5,801

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(1) Value realized is calculated by multiplying the shares acquired upon
exercise by the difference between the option exercise price and the fair
market value of the common stock on the date of exercise.

(2) The closing price of the Common Stock as reported by the NASDAQ National
Market System on December 31, 2003 was $12.82. Value is calculated by
multiplying the number of shares underlying the option by the difference
between the option exercise price and $12.82.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors, executive officers and 10% stockholders to file with
the Securities Exchange Commission ("SEC") and the Nasdaq Stock Market initial
reports of ownership and reports of changes in ownership of the Company's
Common Stock. Directors and executive officers are required to furnish the
Company with copies of all Section 16(a) reports they file.

To the Company's knowledge, based solely on review of the copies of these
reports furnished to the Company and written representations that no other
reports were required, during 2003 all Section 16 (a) filing requirements
applicable to its Directors and executive officers were complied with.

Sarbanes-Oxley Act Compliance

Sarbanes-Oxley sets forth various new requirements for public companies and
directs the SEC to adopt additional rules and regulations.

Currently, the Company believes it is in compliance with all applicable
laws, rules and regulations arising from Sarbanes-Oxley. The Company intends
to comply with all rules and regulations adopted by the SEC pursuant to
Sarbanes-Oxley no later than the time they become applicable to the Company.

AUDIT COMMITTEE REPORT

The members of the Audit Committee from January 1, 2003 to December 31, 2003
were Messrs. John M. Briggs, Robert J. Moss and Barton D. Weisman. The Audit
Committee met six times during the fiscal year. The Audit Committee is
responsible for the appointment of independent certified public accountants
for each fiscal year, recommending the discharge of independent accountants to
the board of directors and confirming the independence of the accountants. It
is also responsible for: reviewing and approving the scope of the planned
audit, the results of the audit and the accountants' compensation for
performing such audit; reviewing the Company's audited financial statements;
and reviewing and approving the Company's internal accounting controls and
discussing such controls with the independent accountants.

The Audit Committee adopted an Amended and Restated Audit Committee Charter
on February 12, 2004, a copy of which is attached to this proxy statement as
Exhibit A.

The Company's independent auditors are responsible for auditing the
financial statements. The activities of the Committee are in no way designed
to supersede or alter those traditional responsibilities. The Committee's role
does not provide any special assurances with regard to the Company's financial
statements, nor does it involve a professional evaluation of the quality of
the audits performed by the independent auditors.

In connection with the audit of the Company's financial statements for the
year ended December 31, 2003, the Audit Committee met with representatives
from Grant Thornton LLP, the Company's independent auditors. The Audit
Committee reviewed and discussed with Grant Thornton LLP the Company's
financial management and financial structure, as well as the matters relating
to the audit required to be discussed by Statements on Auditing Standards 61
and 90.

The Audit Committee and Grant Thornton LLP also discussed Grant Thornton
LLP's independence. On January 13, 2004, the Audit Committee received from
Grant Thornton LLP the written disclosures and the letter regarding Grant
Thornton LLP's independence required by Independence Standards Board Standard
No. 1.

In addition, the Audit Committee reviewed and discussed with management the
Company's audited financial statements for the fiscal year ended December 31,
2003.

Based upon the review and discussions described above, the Audit Committee
recommended to the Board of Directors that the Company's financial statements
audited by Grant Thornton LLP be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2003.

February 12, 2004

John M. Briggs
Robert J. Moss
Barton D. Weisman

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, 2003 with the cumulative total return on the S&P 500 Index and
the S&P 500 Health Care Distributors.

[GRAPHIC OMITTED]

Base
Period Years Ending
------ ------------------------------------------------------
Company / Index Dec98 Dec99 Dec00 Dec01 Dec02 Dec03
--------------- ----- ----- ----- ----- ----- -----

HEALTHCARE SERVICES GROUP 100 76.71 69.86 112.88 142.90 212.41
S&P 500 INDEX 100 121.04 110.02 96.95 75.52 97.18
S&P 500 HEALTH CARE DISTRIBUTORS 100 41.33 76.53 76.10 65.28 70.62

Report of the Nominating, Compensation and Stock Option Committee on Executive
Compensation

The compensation of the Chief Executive Officer of the Company is determined
by the Nominating, Compensation and Stock Option Committee. Such Committee'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 by
the Nominating, Compensation and Stock Option Committee based upon
consultation with 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 "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 Plan 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
Employee Plan qualify as "performance-based" for purposes of Section 162(m) of
the Code.

In addition, under the 2002 Stock Option Plan, no recipient of options may
be granted options to purchase more than 50,000 shares of Common Stock in any
calendar year. Therefore, compensation received as a result of options granted
under the 2002 Stock Option Plan, qualify as "performance-based" for purposes
of Section 162(m) of the Code.

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. Thomas A. Cook each received annual base
salaries of $227,000 for the year ending December 31, 2003 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, 2004.

February 12, 2004
Nominating, Compensation and Stock Option Committee
John M. Briggs
Robert J. Moss

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, 2003, these agreements resulted in
gross revenues of approximately $3,683,000 to the Company (approximately 1% of
the Company's total revenues). 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.

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 paid by the Company
to such firm during the year ended December 31, 2003 were less than $75,000.

Both Mr. Frome and Mr. Weisman are independent directors as such term is
defined by Nasdaq Rule 4200(a)(15) of the NASDAQ Stock Market listing
standards.

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 fiscal year ending December 31, 2003. 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, 2004. 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 or withholding of authority to 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.

Fees billed to Company by Grant Thornton LLP during Fiscal 2003.

Audit Fees:

Audit fees billed to the Company by Grant Thornton LLP during the Company's
2003 fiscal year and 2002 fiscal year for audit of the Company's annual
financial statements and reviews of those financial statements included in the
Company's quarterly reports on Form 10-Q totaled approximately $405,000 and
$305,000 respectively.

Audit Related Fees: There were no Audit Related Fees billed to the Company
by Grant Thornton LLP during either the Company's 2003 or 2002 fiscal years.

Tax Fees: Fees billed by Grant Thornton LLP for tax compliance, tax advice
and tax planning totaled approximately $35,000 and $45,000 for the 2003 fiscal
year and 2002 fiscal year respectively.

All Other Fees: There were no All Other Fees billed to the Company by Grant
Thornton LLP during either the Company's 2003 or 2002 fiscal years.

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 14, 2004.

In accordance with and to the extent covered by Rule 14a-4(c)(1) of the
Securities Exchange Act of 1934, as amended, if the Company is not notified of
a shareholder proposal by March 8, 2005, 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.

ANNUAL REPORT

The 2003 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: Bensalem, Pennsylvania
April 13, 2004

A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, 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.,
3220 Tillman Drive, Suite 300, Bensalem, PA 19020 or by visiting the Company's
website at www.hcsgcorp.com.

ANNEX A

HEALTHCARE SERVICES GROUP, INC.

AMENDED AND RESTATED AUDIT COMMITTEE CHARTER

(As Adopted By The Board Of Directors On February 12, 2004)

Purpose of the Audit Committee

The Audit Committee (the "Committee") is a committee of the Board of
Directors (the "Board") of Healthcare Services Group, Inc. (the "Company")
established for the purpose of overseeing the accounting and financial
reporting processes of the Company and audits of its financial statements.

The purposes of the Committee shall be to assist the Board in overseeing:
(i) the integrity of the Company's financial statements, (ii) the Company's
compliance with legal and regulatory requirements, (iii) the independent
auditor's qualifications and independence, (iv) the performance of the
Company's independent auditor, and (iv) the Company's system of disclosure
controls and system of internal financial, accounting and legal compliance
controls. The Committee shall also provide an open avenue of communication
among the independent auditors, financial and other senior management and the
Board.

The Committee shall oversee the Company's accounting and financial reporting
processes and the quality and integrity of its financial reports and other
financial information provided by the Company to any non-tax governmental
body.

The Committee shall be solely responsible for the appointment, compensation
and oversight of the Company's independent auditors, and the independent
auditors shall report directly to the Committee.

The Committee shall serve as an independent and objective party to monitor
the Company's financial reporting process and internal control system. In
discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and to engage, determine funding for,
and obtain advice and assistance from independent counsel and other advisors
as the Committee deems necessary to carry out its duties. The Company shall
also provide funding for ordinary administrative expenses of the Committee
that the Committee deems necessary or appropriate in carrying out its duties.

Composition and Membership Requirements

The Board shall appoint the Committee and shall designate its Chairman. The
Committee shall consist of at least three independent directors, each of whom
shall satisfy the independence requirements of the Sarbanes-Oxley Act of 2002
and the regulations thereunder (the "Act"), the Securities and Exchange
Commission (the "SEC") and The Nasdaq Stock Market ("Nasdaq"). Without
limiting the foregoing, each appointed director shall be independent of the
management of the Company, both directly and indirectly, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee.

The Committee members shall have working familiarity with basic finance and
accounting practices and have the knowledge and experience required to fulfill
their responsibilities, as specified by Nasdaq requirements. At least one
member of the Committee shall have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background that results in that individual's
financial sophistication, including being or having been a chief executive
officer, a chief financial officer or other senior officer with financial
oversight responsibilities and, therefore, shall qualify as a "financial
expert," as contemplated by the Act and SEC and Nasdaq rules. The identity of
such member(s) shall be disclosed in periodic filings as required by the SEC.

Committee Meetings

1. Committee Meetings. The Committee shall meet as a committee at least
quarterly, or more frequently as circumstances require, either in person or by
telephone conference call. The Chairman shall prepare and/or

A-1

approve an agenda in advance of each meeting. The agenda should be developed
in consultation with management, other Committee members and independent
auditors, and shall be consistent with this Charter. The Committee shall
maintain minutes of meetings and report to the Board on significant results of
its activities. The Chairman shall also be responsible for leadership of the
Committee, including presiding over the meetings, making Committee assignments
and reporting to the Board. The Chairman shall also maintain regular liaison
with the Chief Executive Officer, Chief Financial Officer and the lead
independent audit partner. If the Chairman is not present at any meeting, the
members of the Committee may designate a Chairman by majority vote of the
Committee members. Meetings should be scheduled to permit appropriate prior
review and timely filing of the Company's interim and year-end financial
statements.

2. Meetings with Independent Auditors. The Committee shall meet with the
independent auditors prior to the commencement of the audit and to review the
annual financial statements prior to their release and at such other times
that the Chairman may deem necessary or appropriate for any reason, including
at the request of the independent auditors. At the discretion of the Chairman,
the principal accounting officers of the Company may be invited to attend the
meetings of the Committee held with the independent auditors.

3. Separate Meetings. Each regularly scheduled meeting may conclude with an
executive session of the Committee, absent members of management, and on such
terms and conditions as the Committee may elect. As part of its job to foster
open communication, the Committee may meet periodically with management and
the independent auditors in separate executive sessions to discuss any matters
that the Committee or either of these groups believe should be discussed
privately.

4. Availability. The Committee shall make itself available to meet with
management of the Company to discuss any matters that it or management deems
appropriate, and shall be available to the independent auditors during the
year for consultation purposes.

Committee Responsibilities and Duties

The Committee shall assist the Board in fulfilling the Board's oversight
responsibilities with respect to financial reporting to stockholders and the
SEC, the system of controls that management has established, and the external
audit process, and report the results of its activities to the Board.

The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate:

1. Review and Oversight Procedures.

a. Review of Charter. The Committee shall review and reassess the adequacy
of this Charter at least annually, propose changes to this Charter to the
Board for its approval as necessary, and cause this Charter to be published at
least triennially in accordance with SEC regulations.

b. Review of Filings, Financial Statements and other Disclosures.

i. The Committee shall review with management (including the principal
accounting officers of the Company) and the independent auditors, prior to
release, the filings required to be made by the Company with the SEC on an
annual and quarterly basis, as well as any other required interim reports,
filings or documents that contain financial information about the Company. The
Committee shall specifically review the results of the annual audit of the
Company's consolidated financial statements prior to the filing or
distribution thereof, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," any
appropriate matters regarding the clarity of the disclosures in such financial
statements, accounting principles, practices and any other matters required to
be communicated to the Committee by the independent auditors under Generally
Accepted Auditing Standards. The Committee shall cause the independent
auditors to conduct a SAS 100 Interim Financial Review prior to each filing of
the Company's Form 10-Q. The Committee shall recommend to the Board whether
the financial statements should be included in the periodic filings of the
Company.

ii. The Committee shall review: (a) material issues regarding accounting
principles and financial statement presentations, including any significant
changes in the Company's selection or application of

A-2

accounting principles, and material issues as to the adequacy of the Company's
internal controls and any special audit steps adopted in light of material
control deficiencies; (b) analyses prepared by management and/or the
independent auditor setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial statements,
including analyses of the effects on the financial statements of alternative
methods pursuant to Generally Accepted Accounting Principles ("GAAP"); (c) the
effect of regulatory and accounting initiatives, as well as off-balance sheet
structures, on the financial statements of the Company; and (d) the type and
presentation of information to be included in earnings press releases (paying
particular attention to any use of "pro forma," or "adjusted" non-GAAP,
information), as well as review of any financial information and earnings
guidance provided to analysts and rating agencies.

iii. The Committee shall review analyses and significant findings by the
independent auditors with respect to financial reporting issues and judgments
made in connection therewith, including (a) any material difficulties or
problems with any audit work, (b) any restrictions on the scope of the
independent auditors' activities or access to requested information, (c) any
significant disagreements with management and the independent auditors and any
accounting adjustments noted or proposed by the independent auditors, but not
accepted by management, (d) any communications between the independent
auditing team and the firm's national office respecting material auditing or
accounting issues presented by the engagement, (e) any management or internal
control letter issues raised, or proposed to be raised, by the independent
auditors to the Company, and (f) any major issue as to the adequacy of the
Company's internal controls and specific audit steps adopted in light of
material control deficiencies. After completion of such review, the Committee
shall make its recommendation to the Board.

c. Committee Oversight of Accounting Personnel. The Committee shall meet
from time to time with the principal accounting officers of the Company to
review accounting policies followed, changes therein, accounting controls, and
any issues that may be raised by the independent auditors. In conformity with
the Company's continuing policy, the accounting officers shall report to the
Board upon submission of the annual and quarterly financial statements of the
Company.

d. Annual Performance Evaluation. The Committee shall perform an annual
self-evaluation of its performance.

2. Independent Auditors.

a. Committee Oversight of Independent Auditors. The Committee shall have
the sole authority regarding, and shall be directly responsible for, the
appointment, compensation, oversight, termination and replacement of, as well
as funding for, the independent auditors for the purpose of preparing or
issuing an audit report or related work, or any non-audit work, subject, if
applicable, to stockholder ratification. The Committee shall have a clear
understanding with management and the independent auditors that the
independent auditors report directly to the Committee, as representatives of
the Company's stockholders.

b. Auditors' Independence. The Committee shall annually request from the
auditors, a formal written statement delineating all relationships between the
auditors and the Company consistent with Independence Standards Board Standard
1, including fees paid by the Company to the auditors, in accordance with the
Act's requirements; review with the auditors all relationships between the
auditors and management of the Company that may impact the objectivity and
independence of the auditor and take, or recommend that the full Board take,
appropriate action to oversee the independence of the outside auditor.

c. Audit Plan. Prior to the commencement of the annual audit, the scope of
the independent auditors' examination and the planning therefor shall be
presented to the Committee by the independent auditors. The Committee shall
review the independent auditors' plan and discuss scope, staffing, locations,
reliance upon management and general audit approach. The Committee should be
satisfied that the audit plan is sufficiently detailed and covers any
significant areas of concern that the Committee may have.

d. Pre-Approval of the Independent Auditors' Fees. The Committee shall
review and pre-approve both audit and non-audit services to be provided by the
independent auditor (other than with respect to the de minimis exceptions
permitted by the Act). This duty may be delegated to one or more designated
members of the Committee with any such pre-approval reported to the Committee
at its next regularly scheduled meeting.

A-3

Approval of non-audit services shall be disclosed to investors in periodic
reports required by Section 13(a) of the Securities Exchange Act of 1934.

e. Independent Auditors' Report on Practices. The independent auditors
shall report promptly to the Committee (a) all critical accounting policies
and practices to be used; (b) all alternative treatments of financial
information, ramifications of such treatment, and the treatment preferred by
the auditors; and (c) all material written communications between the
independent audit firm and Company management. The Committee shall also review
any problems with management and any other matters required to be communicated
to the Committee under Generally Accepted Auditing Standards or applicable
rules under or of the Act, the SEC, Nasdaq, or other regulatory authorities.
The independent auditors shall also report on recently issued and adopted
accounting standards, the Company's compliance therewith, and the effect of
unusual or extraordinary transactions. The independent auditors must discuss
their judgments about the quality and content of the Company's accounting
principles with the Committee.

f. Quality Control of the Independent Auditors. On an annual basis, the
Committee shall obtain a report from the independent auditors describing (i)
the independent auditors' internal quality-control procedures, and (ii) any
material issues raised by the most recent internal quality-control review, or
peer review, of the firm, or by any inquiry or investigation by governmental
or professional authorities, within the preceding five years, respecting one
or more independent audits carried out by such firm, and any steps taken to
deal with any such issues. The Committee shall then present its conclusions
with respect to the independent auditor to the full Board.

g. Rotation of the Independent Auditors. The Committee shall annually (i)
assess the qualifications, performance and independence of the auditors and
the lead (or coordinating) audit partner (or other audit partner having
primary responsibility for the audit); and ii) take any actions necessary to
ensure the rotation, not less than every five years, of the audit partner.

h. Hiring Policies. The Committee shall confirm that the Company complied
with the Act in the hiring of any employees or former employees of the
independent auditors, after consultation with management.

3. Legal Compliance.

a. Legal Compliance. The Committee shall review with the Company's counsel
any legal matters that could have a significant impact on the Company's
financial statements, compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies, including
corporate securities trading policies.

b. Review of Disclosures by Officers. The Committee shall review
disclosures made by the Company's principal executive officer and principal
financial officer regarding compliance with their certification obligations
under the Act, including the Company's disclosure controls and procedures and
internal controls for financial reporting.

c. Related Party Transactions. The Committee shall be responsible for
reviewing and approving all related party transactions involving the Company
and any director, executive officer, other employee, or family member thereof.

d. Committee Review of Corporate Policies. The Committee shall review the
Company's policy entitled Standards of Business Conduct, the Company's policy
regarding expense accounts and vehicles (such as cars and airplanes), the
general use of corporate assets and any other Company policies.

e. Compliance with Conflicts of Interests Policy. The Committee shall, on
behalf of the Board and stockholders of the Company, satisfy itself that the
Company's Standards of Business Conduct policy is strictly adhered to by its
officers, directors and employees.

4. Other Committee Activities.

a. Earnings Releases. The Committee shall discuss earnings releases, prior
to their release to the public, as well as financial information and earnings
guidance provided to analysts and rating agencies.

b. Complaint Procedures. The Committee shall establish procedures for the
receipt, retention and treatment of complaints received by the Company
regarding the Company's accounting, internal accounting

A-4

controls and auditing matters and for the confidential, anonymous submissions
by employees of the Company of concerns relating to questionable accounting or
auditing matters.

c. Committee Reports. The Committee shall prepare reports to stockholders
as required by the SEC `s proxy rules to be included in the Company's annual
proxy statement.

d. Other. The Committee shall have the power and authority to perform any
other activities consistent with this Charter, the Company's by-laws, and
governing law, as the Committee or the Board deems necessary or appropriate.

Limitation

Nothing in this Charter is intended to alter in any way the standard of
conduct that applies to any of the directors of the Company under the
Pennsylvania Business Corporation Law, as from time to time amended, and this
Charter does not impose, nor shall it be interpreted to impose, any duty on
any director greater than, or in addition to, the duties or standard
established by the Pennsylvania Business Corporation Law.

A-5

ANNUAL MEETING OF SHAREHOLDERS OF

HEALTHCARE SERVICES GROUP, INC.

May 25, 2004

Please date, sign and mail
your proxy card in the
envelope provided
as soon as possible.

| |
+ Please detach along perforated line and mail in the envelope provided. +

[ ]
____________________________________________________________________________________________________________________________________

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]

__________________________________________________________________________________________________________________________________
| FOR AGAINST ABSTAIN
1. TO ELECT SEVEN DIRECTORS; | 2. TO APPROVE AND RATIFY THE [ ] [ ] [ ]
| SELECTION OF GRANT THORNTON LLP AS
NOMINEES: | THE INDEPENDENT CERTIFIED PUBLIC
[ ] FOR ALL NOMINEES O Daniel P. McCartney | ACCOUNTANTS OF THE COMPANY FOR ITS
O Barton D. Weisman | CURRENT FISCAL YEAR ENDING
[ ] WITHHOLD AUTHORITY O Joseph F. McCartney | DECEMBER 31, 2004.
FOR ALL NOMINEES O Robert L. Frome |
O Thomas A. Cook | 3. In their discretion, upon such other matters as may properly
[ ] FOR ALL EXCEPT O Robert J. Moss | come before the Meeting.
(See instructions below) O John M. Briggs |
|
|
|
INSTRUCTION: To withhold authority to vote for any |
----------- individual nominee(s), mark "FOR ALL EXCEPT" and |
fill in the circle next to each nominee you |
wish to withhold, as shown here: O |
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To change the address on your account, please check |
the box at right and indicate your new address in |
the address space above. Please note that changes |
to the registered name(s) on the account may not be |
submitted via this method. [ ] |
----------------------------------------------------------------|
+----------------------+ +----------+ +----------------------+ +----------+
Signature of Shareholder| |Date:| |Signature of Shareholder| |Date:| |
+----------------------+ +----------+ +----------------------+ +----------+
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer
is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
[ ] [ ]

[] [ ]

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 25, 2004 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 HEALTHCARE SERVICES GROUP, INC. owned by the undersigned at the Annual Meeting of Shareholders of said
corporation to be held at the 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 on the reverse side.

THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, IF NO DIRECTION IS MADE THEY WILL BE VOTED FOR THE
ELECTION OF THE NOMINATED DIRECTORS, AND FOR 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.

(Continued and to be signed on the reverse side)

[ ] 14475 [ ]