<PAGE>
RELIABILITY INCORPORATED
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 240.14a-11(c) or 240.14a-12
- ---
Reliability Incorporated
(Name of Registrant as Specified in Its Charter)
Reliability Incorporated
(Name of Person(s) Filing Proxy Statement)
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 Rul 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: -0-
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed: March 16, 1994
1
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RELIABILITY INCORPORATED
16400 Park Row
Houston, Texas 77084
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 1994
To the Shareholders of
Reliability Incorporated:
Notice is hereby given that the 1994 annual meeting of shareholders of
Reliability Incorporated (the "Company") will be held in the offices of the
Company at 16400 Park Row, Houston, Texas 77084 on April 27, 1994, at 10:00
a.m. Houston time, for the following purposes:
1. To elect a Board of Directors to serve until the next annual meeting
of shareholders and until their respective successors are elected.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 11, 1994,
as the record date for determination of shareholders entitled to notice of,
and to vote at, such meeting.
Regardless of whether you expect to attend the meeting in person, you
are requested to fill in, date and sign the enclosed proxy and return it in
the enclosed envelope at your earliest convenience. No postage need be
affixed if such envelope is mailed in the United States.
By order of the Board of Directors
Max T. Langley
Secretary
Date: March 24, 1994
2
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RELIABILITY INCORPORATED
16400 Park Row
Houston, Texas 77084
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
Solicitation and revocation of proxies
The accompanying proxy is solicited by Reliability Incorporated a Texas
corporation (the "Company"), for use in connection with the 1994 annual
meeting of shareholders of the Company. Although proxies will be solicited
primarily by mail, employees of the Company may personally aid in such
solicitation. The Company will make arrangements with brokerage houses and
banks for forwarding proxy materials to the beneficial owners of shares
registered in brokers' and banks' names. All solicitation costs will be
borne by the Company. All properly signed proxies will be voted, and, where
a choice has been specified by the shareholder as provided on the proxy, it
will be voted in accordance with the specification so made. Any shareholder
giving a proxy may revoke it at any time before it is used at the meeting by
giving written notice of revocation to the secretary of the Company or by
signing and delivering to the secretary of the Company a proxy bearing a
later date.
Proxy materials are expected to be mailed or delivered to shareholders
on or about March 24, 1994.
Voting at the meeting
Only holders of record of the Company's Common Stock (the "Common Stock")
at the close of business on March 11, 1994, will be entitled to vote at the
meeting. Each share of Common Stock is entitled to one vote; shareholders
do not have the right to cumulate their votes with respect to the election
of directors. Directors are elected by a majority vote of those shares
present at the meeting; abstentions are treated as a non-vote.
3
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RELIABILITY INCORPORATED
PROXY STATEMENT
Security ownership of certain stockholders and management
As of February 18, 1994, each of the following persons beneficially owned
5% or more of the 4,242,848 shares of Common Stock then outstanding:
Voting shares Dispositive shares
and percent of total and percent of total
Name and address outstanding (1) outstanding (2)
- ---------------- -------------------- --------------------
S. I. P., Inc. 1,508,196 (35.55%) 1,508,196 (35.55%)
P. O. Box 34311
Houston, Texas
Dimensional Fund 213,300 (5.03%)(3) 213,300 (5.03%)(3)
Advisors Inc.
1299 Ocean Avenue,
11th Floor
Santa Monica, California
- --------------------
(1) Shares as to which the shareholder has voting power.
(2) Shares as to which the shareholder has power to dispose.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), in a Schedule 13G,
reported sole power to vote 105,900 shares and that certain persons in
their capacity as officers of Dimensional vote an additional 107,400
shares, in addition to voting the 105,900 shares.
- --------------------
S.I.P., Inc. ("SIP"), a Houston-based construction company, is a
wholly-owned second tier subsidiary of The Parsons Corporation, which may be
deemed to own beneficially the shares of Common Stock owned by SIP. The
Company has been advised that SIP consults with Parsons S.I.P. Inc., its sole
stockholder, and with The Parsons Corporation, the sole stockholder of
Parsons S.I.P. Inc., with respect to the voting and disposition of its
shares. Accordingly, SIP may be deemed to have shared power to vote and
dispose of the shares owned by it.
Dimensional has advised the Company that it is a registered investment
advisor and is deemed to have beneficial ownership of 213,300 shares of
Common Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, the DFA
Investment Trust Company,a registered open-end investment company, or the DFA
Group Trust and the DFA Participating Group Trust, investment vehicles for
qualified employee benefit plans, as to all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
4
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RELIABILITY INCORPORATED
PROXY STATEMENT
The following table sets forth, as of February 18, 1994, the amount of
Common Stock owned by the directors of the Company, the nominees for
director, each executive officer named in the compensation table and all
directors and officers as a group.
Amount and Nature of
Beneficial Ownership
--------------------
Sole Voting
and Other
Name of Individual Investment Beneficial Percent
or Group Power (1) Ownership (2) of Class
------------------ ---------- ------------- -----------
W. L. Hampton -0- -0- -0-%
Everett Hanlon 149,949 -0- 3.53
John R. Howard 128 -0- -0-
A. C. Lederer, Jr. 10,000 -0- .24
Thomas L. Langford -0- -0- -0-
Larry Edwards 36,850 17,460 1.28
Max T. Langley 10,100 10,344 .48
J.E. (Jim) Johnson 100 8,073 .19
All executive officers
and directors as a
group (eleven
persons) 207,127 53,247 6.14
- --------------------
(1) Each person has the sole power to vote and dispose of the shares shown
except that Mr. Edwards has shared power with his spouse to vote and
dispose of the 36,850 shares reported above.
(2) Represents shares allocated to the executive officer through his
participation in the Company's Employee Stock Savings Plan (the "Plan"),
according to the latest statement for said Plan which is as of December
31, 1993. Employees have the power to vote all shares held in the Plan,
but have the power to direct the sale of only a limited number of the
shares, if any.
- --------------------
The Company is not aware of any contractual arrangement the operation of
which may at any subsequent date result in a change in control of the
Company.
5
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RELIABILITY INCORPORATED
PROXY STATEMENT
ELECTION OF DIRECTORS
At the meeting, five directors are to be elected. Each director will
hold office until the next annual meeting of shareholders and until his
successor is elected and qualifies. The persons named as proxy voters in the
accompanying form of proxy intend to vote each properly signed and submitted
proxy for the election as a director of each of the persons named in the
following table unless authority to vote for all or any of such nominees is
withheld on such proxy.
Number and percent Other positions and
of shares of offices presently
Common Stock of held with the Company
the Company benefi- (and other present
Director cially owned as of principal occupation
Name since Age February 18, 1994(1) if different)
---- -------- --- -------------------- ------------------
W. L. Hampton 1984 65 -0- -0-% (retired)
Everett Hanlon 1974 63 149,949 3.53 (retired)
John R. Howard* 1971 60 128 -0- (attorney-at-law)
Thomas L. Langford 1980 52 -0- -0- (president and
director of The
Parsons Corporation)
A. C. Lederer, Jr.* 1972 80 10,000 .24 (investor)
- ---------------------------
(1) Each director has the sole power to vote and to dispose of the shares
shown in this table as being beneficially owned by him.
* The wife of A. C. Lederer, Jr. is a sister of John R. Howard. There is
no other family relationship among the persons named in this table.
- ---------------------------
Mr. Hampton was president and a director of Parsons S.I.P. Inc. for more
than five years until his retirement in June 1993.
Everett Hanlon was chairman of the Board of Directors of the Company from
April 1989 to April 1990 and from April 1990 to March 1993 he was chairman
of the Board of Directors and chief executive officer of the Company. Prior
to April 1989, Mr. Hanlon was president and chief executive officer of the
Company for more than five years. In March 1993, Mr. Hanlon resigned as
chairman of the board and chief executive officer, but remained a director
of the Company.
Mr. Howard has held the position set out opposite his name for more than
five years.
Mr. Langford has been president of The Parsons Corporation since
September 1991. From May 1989 to September 1991, Mr. Langford was executive
vice president and chief financial officer of The Parsons Corporation. Prior
to May 1989, Mr. Langford was senior vice president and chief financial
officer of The Parsons Corporation, a position he held for 11 years.
6
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RELIABILITY INCORPORATED
PROXY STATEMENT
Mr. Lederer has been the chairman of the board of the Company since March
1993. Mr. Lederer's principal occupation has been that of an investor for
more than five years and he was chairman of the board of the Company from
1977 until April 1989.
Management has no reason to believe that any person proposed to be
elected a director will be unwilling or unable to serve if elected. If such
a situation arises, proxies will be voted for a nominee selected by the Board
of Directors of the Company.
The Company's Board of Directors held five meetings during 1993. All
incumbent directors attended 75% or more of the meetings of the Board of
Directors.
The Company's audit committee, composed of Messrs. Howard and Langford,
met two times during 1993. Mr. Howard attended both meetings and Mr.
Langford attended one meeting. The audit committee reviews and approves all
services to be performed by independent accountants and the fees therefor,
consults with independent accountants and management with respect to internal
controls an other financial matters and reviews the results of the year-end
audit and other reports of independent accountants. The compensation
committee, composed of Messrs. Lederer and Hampton, met two times during 1993
and both members attended both meetings. The functions of the compensation
committee are to review executive compensation and benefit plans and
recommend changes therein and to make recommendations to the Board of
Directors concerning approval of executive salaries and incentive plans for
the Company.
Based on inquiries and a review of the Forms 3, 4, and 5 received by the
Company during 1993, it was determined that Mr. J.E. (Jim) Johnson failed to
file one Form 4 on a timely basis. Mr. Johnson filed a Form 4 in January
1994 to report the transaction. Mr. Robert W. Hildenbrand failed to file two
Form 4s on a timely basis. Mr. Hildenbrand filed Form 4s in January 1994 to
report the transactions.
7
<PAGE>
RELIABILITY INCORPORATED
PROXY STATEMENT
Compensation Committee Report
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
of Reliability Incorporated submits this report on executive compensation to
the Board of Directors and the Company's shareholders. This report covers
components of executive compensation and the bases for compensation
decisions. The basic philosophy of compensation for executive officers is
to ensure that each officer receives a fair and competitive salary and
incentive compensation which is directly related to the financial performance
of the Company and the performance of the individual officer.
Salary
Salaries for the chief executive officer ("CEO") and each other executive
officer are set annually. Historically, salaries have been based on
competitive salaries paid by companies of similar size and complexity, the
performance of the officer, and the financial results of the Company and its
divisions and subsidiaries. The Company reported a small profit in 1989 and
significant losses in 1990, 1991 and 1992. Based on the poor financial
performance of the Company over the four year period ending in 1992,
executive officers' salaries, including that of the CEO and the previous CEO,
were not adjusted to be competitive with similar companies, and were
decreased from time to time during periods when the Company reported losses.
Salaries were decreased 5% in 1989 and raised to levels above the 1989 level
in the second quarter of 1992 when the Company returned to profitability.
Salaries were again reduced by 5% in December 1992, when the Committee
determined that there would be a loss for 1992. For 1993, the Committee
recommended, and the Board of Directors approved, salaries for the CEO and
the other executive officers that were approximately 97% of 1989 salaries.
The Company returned to profitability in the second quarter of 1993. Based
on the improvement in the Company's financial performance, all employees of
the U.S. Company, including the executive officers, received pay increases
of 2%, effective August 1, 1993. The 2% increase resulted in salaries being
approximately equal to the level of salaries that were paid in 1989. Mr.
Edwards, president of the Company, was appointed to the additional position
of CEO in March 1993. In recognition of the additional responsibilities
which he assumed and the improvement in financial performance of the Company,
his base annual salary was increased to $120,000 effective August 1, 1993.
Incentive Compensation
In addition to a base salary, the Company has an incentive bonus plan
which applies to the CEO, all other executive officers and all salaried
employees of the U.S. Company. This bonus plan has three components: (1)
a quantitative measure based on the net income before income tax of the
Company (a) as a whole in the case of the CEO and certain other executive
officers, and/or (b) the subsidiary, industry segment or division of the
Company for which the executive is responsible; (2) a qualitative measure
which is an evaluation of each individual's performance during the year, made
8
<PAGE>
by the Committee for the CEO and by the CEO for all other executives; and
(3) a target bonus. Each year the Committee establishes the target bonus for
the CEO and each executive officer and approves the payment of bonuses based
on achieving predetermined goals. The amount of this target bonus, for 1993,
ranged from 20% of salary for the CEO to 15% for executive officers, and the
actual bonus paid increased or decreased depending on actual profits and
individual performance. A bonus will not be paid if the Company or the
unit(s) for which the individual executive is responsible is not profitable,
irrespective of the executive's personal performance. In 1993, the Company
and various operating divisions were profitable and the Company's financial
condition improved significantly; therefore the Committee recommended that
bonuses calculated under the plan be paid to the CEO and other executive
officers. The bonus earned by the CEO in 1993 was 31% of his base salary and
the average bonus earned by five other executive officers was 18%. The
previous CEO did not receive an incentive payment for 1993 because he
resigned in March 1993. In 1991 and 1992, although the Committee and the CEO
judged the Company's executive officers eligible for bonuses based on
personal performances, the Company as a whole was not profitable, thus the
CEO and most of the other executives were not entitled to a bonus. However,
one executive officer was responsible for an operating division of the
Company which achieved profit in 1991 and 1992, and the Committee approved
the bonuses calculated under the plan.
Previous CEO's Compensation
In March 1993, Mr. Everett Hanlon resigned as chairman of the board and
CEO of the Company. The Committee recommended and the Board of Directors
approved payments to Mr. Hanlon equal to one week's pay for each year of
service, plus continuation of medical insurance benefits until he reaches age
65.
Benefits
The chief executive officer and the other executives officers are not
entitled to any additional benefits which are not also provided to all full-
time employees.
Respectfully submitted,
W. L. Hampton
A. C. Lederer, Jr.
9
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RELIABILITY INCORPORATED
PROXY STATEMENT
Remuneration of directors and executive officers
The following table provides information as to the compensation paid by
the Company and its subsidiaries, during fiscal year 1993, to the chief
executive officer, the previous chief executive officer and the four other
highest paid executive officers and directors whose remuneration exceeded
$100,000.
Annual Compensation
----------------------------------
(a) (b) (c) (d) (e) (i)
Name Other
and Annual All Other
Principal Salary Bonus Compensation Compensation
Position Year ($) ($) ($) ($) (2)
---------- ---- ------ ----- ------------ ------------
Larry Edwards, president 1993 109,850 34,449 -0- 3,296
and chief executive 1992 107,775 -0- -0- 2,738
officer 1991 103,950 -0- -0- 2,394
Everett Hanlon, chairman 1993 41,398 -0- -0- 57,088 (3)
of the board and chief 1992 131,725 -0- -0- 3,347
executive officer (1) 1991 127,050 -0- -0- 2,926
Max T. Langley, senior 1993 85,196 17,533 -0- 2,556
vice president, chief 1992 86,819 -0- -0- 2,206
financial officer, 1991 83,736 -0- -0- 1,929
secretary and treasurer
J.E. (Jim) Johnson, 1993 84,220 17,332 -0- 2,527
vice president 1992 85,837 37,073 -0- 2,181
1991 82,774 16,589 -0- 1,907
- --------------------
The Company does not provide any long-term compensation plans for executive
officers, thus columns (f), (g) and (h) are omitted from the above table.
(1) Mr. Hanlon resigned as chairman of the board and chief executive officer
in March 1993.
(2) Amounts shown in this column represent the Company's matching and annual
contributions to the Employee Stock Savings Plan.
(3) The amount in this column also includes amounts paid in 1993 and to be
paid in 1994 related to Mr. Hanlon's resignation as chairman of the board
and chief executive officer.
- --------------------
The Company sponsors an Employee Stock Savings Plan. All U.S. employees
of the Company who have completed one year of service are covered by the
Plan. The Plan allows an employee to contribute up to 15% of defined
compensation to the Plan. Contributions to the Plan by executive officers
10
<PAGE>
RELIABILITY INCORPORATED
PROXY STATEMENT
have been limited (4% in 1993 and 3% in 1992) by provisions of the Internal
Revenue Code. The Company contributes a matching amount to the Plan equal
to 50% of the employee's contribution, to a maximum of 2%, for employees who
contribute 2% or more. The Company also contributes, as a voluntary
contribution, an amount equal to 1% of the defined compensation of all
participants.
The Company has no long term compensation plans, awards or arrangements.
The Company has no stock appreciation rights or option plans and grants no
options or stock rights. The Company has no long-term incentive plan,
defined benefit or actuarial plan, employment contracts or termination of
employment or change in control agreements with any executive officer.
Compensation to Directors
Directors who do not receive salary or other compensation or who are not
employees are paid $500 per month, except that Mr. Langford has waived such
fees. A director who does not reside in Houston, Texas, is reimbursed for
expenses in attending meetings.
Performance Graph
The following performance graph compares the performance of the Company's
Common Stock to the Nasdaq Non-Financial Stocks Index (which includes the
Company) and to the Nasdaq Stock Market (US) CRSP Total Return Index. The
graph assumes that the value of the investment in the Company's Common Stock
and each index was $100 at December 31, 1988, and that all dividends (the
Company did not pay any dividends) were reinvested.
Comparison of Five-Year Cumulative Total Return
Among Reliability Incorporated, Nasdaq Non-Financial Stocks
Index and Nasdaq Stock Market Total (U.S. Companies) Return Index
For Years Ended December 31,
---------------------------
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
Reliability Common Stock $100 $ 58 $ 15 $ 20 $ 28 $ 68
Nasdaq Non-Financial Stocks 100 125 110 177 194 222
Nasdaq Stock Market Total Return 100 121 103 165 192 219
Compensation Committee Interlocks and Insider Participation
The compensation committee is composed of Messrs. Lederer and Hampton.
Neither person is an officer or employee of the Company or any of its
subsidiaries. No executive officer of the Company served on the board of
directors or compensation committee of any other company.
11
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RELIABILITY INCORPORATED
PROXY STATEMENT
Transactions with Management
In March 1993, two officers of the Company retired. The Board of
Directors authorized payments to such officers equal to two weeks pay for
each year of service with the Company. In addition, three officers of the
Company resigned in March 1993. The Board of Directors authorized payment
to such officers equal to one week's pay for each year of service to the
Company, plus continuation of medical insurance benefits for two of the
officers until they reach age 65 or become eligible for health insurance
under another insurance plan. The individuals will pay approximately 60% of
the cost of the medical insurance. Amounts due to the above officers are
paid in installments.
Independent Accountants
The Board of Directors has appointed Ernst & Young as independent
auditors of the Company for 1994. Ernst & Young has served as the Company's
independent auditors since 1974. A representative of such firm is expected
to be present at the meeting, will be given the opportunity to make a
statement if he desires to do so and will respond to appropriate questions.
THE TRANSACTION OF OTHER BUSINESS
As of the date of this proxy statement, the Board of Directors has no
knowledge of business other than that described above which will be presented
for consideration at this meeting. With respect to any other business which
may properly come before the meeting or any adjournment, it is intended that
proxies will be voted in accordance with the judgement of the person or
persons voting them.
Proposals by Shareholders for 1995 Annual Meeting of Shareholders
Shareholders desiring to present proposals to the shareholders of the
Company at the 1995 annual meeting of shareholders, and to have such
proposals included in the Company's proxy statement and proxy, must submit
their proposals to the Company so as to be received no later than January 3,
1995.
By order of the Board of Directors,
A.C. Lederer, Jr.
Chairman
Date: March 24, 1994
THE COMPANY WILL FURNISH WITHOUT CHARGE TO ANY PERSON WHOSE PROXY IS
SOLICITED, ON WRITTEN REQUEST FROM SUCH PERSON DELIVERED TO INVESTOR
RELATIONS MANAGER, P.O. BOX 218370, HOUSTON, TEXAS 77218, A COPY OF THE
COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM
10-K FOR 1993.
12
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RELIABILITY INCORPORATED
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 27, 1994.
The undersigned hereby appoints Larry Edwards, John R. Howard and
Max T. Langley, or any one or more of them, with full power of
substitution, attorneys and proxies of the undersigned to vote all
P shares of Common Stock of Reliability Incorporated (the "Company")
which the undersigned is entitled to vote at the annual meeting of
shareholders of the Company to be held on April 27, 1994, at the
offices of the Company, at 10:00 a.m., Houston time, and any
adjournment thereof:
R
1. Election of Directors, Nominees:
W. L. Hampton, Everett Hanlon,
O John R. Howard, Thomas L. Langford,
A.C. Lederer, Jr.
2. In their discretion, upon such other
X matters as may come before the meet-
ing or any adjournment thereof.
All as described in the Notice of
Annual Meeting of Shareholders and
Y Proxy Statement, receipt of which
is hereby acknowledged.
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE FOR THE
BOARD OF DIRECTORS' NOMINEES. The Proxies cannot vote your shares unless you
sign and return this Card.
-------------
/ SEE REVERSE /
/ SIDE /
-------------
13
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---- SHARES IN YOUR NAME
/ X /
- -----
FOR WITHHELD
ALL FROM
NOMINEES ALL
NOMINEES
1. Election of ---- ----
Directors / / / /
(see reverse) ----- -----
For, except vote withheld from the following nominee(s):
-------------------------------------------------------
SIGNATURE(S) DATE
----------------------------------------- --------------
SIGNATURE(S) DATE
----------------------------------------- --------------
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
14
