SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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UNIVERSAL SECURITY INSTRUMENTS, INC.
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UNIVERSAL SECURITY INSTRUMENTS, INC.
7-A GWYNNS MILL COURT
OWINGS MILLS, MARYLAND 21117
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
OCTOBER 9, 2006
To the Shareholders of Universal Security Instruments, Inc.:
The Annual Meeting of Shareholders of Universal Security Instruments,
Inc., a Maryland corporation (the "Company") will be held at the Pikesville
Hilton, 1726 Reisterstown Road, Baltimore, Maryland, on October 9, 2006 at 8:30
a.m., local time, for the following purposes:
1. To elect one director to serve until the Annual Meeting of
Shareholders to be held in 2009 and until their successors are duly
elected and qualify;
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed August 14, 2006 as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
meeting.
By Order of the Board of Directors
James B. Huff
Secretary
Owings Mills, Maryland
August 28, 2006
IMPORTANT - YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN, AND MAIL THE ACCOMPANYING FORM OF PROXY TO THE COMPANY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
UNIVERSAL SECURITY INSTRUMENTS, INC.
7-A GWYNNS MILL COURT
OWINGS MILLS, MARYLAND 21117
(410) 363-3000
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Universal
Security Instruments, Inc., a Maryland corporation (the "Company"), in
connection with the Annual Meeting of Shareholders to be held on Monday October
9, 2006, or at any adjournments or postponements thereof, for the purposes set
forth in the accompanying notice of the meeting. The Board of Directors has
fixed the close of business on August 14, 2006 as the record date (the "Record
Date") for the determination of shareholders entitled to notice of, and to vote
at, the meeting. On that date, there were outstanding 1,809,301 shares of the
Company's Common Stock par value $.01 per share (the "Shares").
Each record holder of Shares on the Record Date is entitled to one vote
for each Share held on all matters to come before the meeting, including the
election of directors. Shares may be voted in person or by proxy. The
accompanying proxy may be revoked by the person giving it at any time prior to
its being voted by filing a written notice of such revocation with the Secretary
of the Company, by executing a proxy bearing a later date or by attending the
meeting and voting in person.
BENEFICIAL OWNERSHIP
The following table reflects the names and addresses of the only persons
known to the Company to be the beneficial owners of 5% or more of the Shares
outstanding as of the Record Date. For purposes of calculating beneficial
ownership, Rule 13d-3 of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires inclusion of Shares that may be acquired within sixty
days of the Record Date. Unless otherwise indicated in the footnotes to this
table, beneficial ownership of shares represents sole voting and investment
power with respect to those Shares.
NAME AND ADDRESS SHARES BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
------------------- ------------------- ---------
Harvey B. Grossblatt 114,727(1) 6.18%
7-A Gwynns Mill Court
Owings Mills, MD 21117
Michael Kovens 138,642 7.66%
6 Regency Court
Baltimore, MD 21208
----------------------------
(1) Includes 47,666 shares which Mr. Grossblatt presently has the right to
acquire through the exercise of stock options.
2
ELECTION OF DIRECTORS
The Board of Directors currently consists of four directors. The Company's
directors are divided into three classes and are elected for terms of three
years each and until their successors are elected and qualify. The Board has
nominated Ronald A. Seff, M.D. for election as director at the 2006 Annual
Meeting to serve for a term of three years and until his successor is elected
and qualifies. A quorum for the Annual Meeting consists of a majority of the
issued and outstanding Shares present in person or by proxy and entitled to
vote. Under Maryland law, unless a corporation's charter or bylaws provide
otherwise, directors are elected by a plurality of all votes cast at a meeting
at which a quorum is present. The Company's Bylaws provide that the affirmative
vote of a majority of the Shares issued and outstanding and entitled to vote is
necessary for the election of directors. If no nominee receives the requisite
vote, Dr. Seff will continue to serve as director until his successor is duly
elected and qualifies. Consequently, withholding of votes, abstentions and
broker non-votes with respect to Shares otherwise present at the Annual Meeting
in person or by proxy will have the effect of a vote withheld.
Unless contrary instruction is given, the persons named in the proxies
solicited by the Board of Directors will vote each such proxy for the election
of the named nominee. If the nominee is unable to serve, the shares represented
by all properly executed proxies which have not been revoked will be voted for
the election of such substitute as the Board of Directors may recommend or the
Board of Directors may reduce the size of the Board to eliminate the vacancy. At
this time, the Board does not anticipate that the nominee will be unavailable to
serve.
The following table sets forth, for the nominees and each continuing
director, his name, age as of the Record Date, the year he first became a
director of the Company, the expiration of his current term, and whether such
individual has been determined by the Board to be "independent" as defined in
Section 121A of the American Stock Exchange (Amex) Company Guide. There are no
known arrangements or understandings between any director or nominee for
director of the Company and any other person pursuant to which such director or
nominee has been selected as a director or nominee.
CURRENT TERM
DIRECTOR TO EXPIRE
NAME AGE SINCE --------- INDEPENDENT
---- --- ----- -----------
Board Nominees for Term to Expire in 2009
Ronald A. Seff, M.D. 58 2002 2006 Yes
Directors Continuing in Office
Cary Luskin 49 2002 2007 Yes
Howard Silverman, Ph.D. 64 2002 2007 Yes
Harvey B. Grossblatt 60 1996 2008 No
Presented below is certain information concerning the nominees and directors
continuing in office. Unless otherwise stated, all directors and nominees have
held the positions indicated for at least the past five years.
HARVEY B. GROSSBLATT was Chief Financial Officer of the Company from 1983
until August 2004, Secretary and Treasurer of the Company from 1988 until August
2004, Chief Operating Officer of the Company from April 2003 through August
2004, and Chief Executive Officer since August 2004.
RONALD A. SEFF, M.D. has been in the private practice of ophthalmology
since 1977. From 1977 until 1998, Dr. Seff practiced with, and was a senior
executive of, a large medical practice with four offices in Maryland.
CARY LUSKIN has been in the retail electronic business since 1978. Since
1998, Mr. Luskin has been President of The Big Screen Store, Inc., a chain of
large-screen television retail stores.
HOWARD SILVERMAN, PH.D. has been in the mental health field for over 30
years. From 1990 to 2001, Dr. Silverman was Vice President of Magellan Health
Service, and since 2001 he has served as a consultant in the field.
3
CORPORATE GOVERNANCE
The Board of Directors periodically reviews its corporate governance
policies and procedures to ensure that the Company meets the highest standards
of ethical conduct, reports results with accuracy and transparency, and
maintains full compliance with the laws, rules and regulations which govern the
Company's operations.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Board of Directors. During the fiscal year ended March 31, 2006, the Board
met four times. No incumbent director attended fewer than 75% of the total
number of meetings of the Board of Directors of the Company held during the year
and the total number of meetings held by all committees on which the director
served during such year. Board members are expected to attend the Annual Meeting
of Shareholders, and all incumbent directors attended the 2005 Annual Meeting of
Shareholders.
Audit Committee. The Audit Committee is appointed by the Board to assist
the Board in its duty to oversee the Company's accounting, financial reporting
and internal control functions and the audit of the Company's financial
statements. The Committee's responsibilities include, among others, direct
responsibility for hiring, firing, overseeing the work of and determining the
compensation for the Company's independent auditors, who report directly to the
Audit Committee. The members of the Audit Committee are Mr. Luskin (Chairman),
Dr. Seff and Dr. Silverman, none of whom is an employee of the Company and each
of whom is independent under existing Amex and Securities and Exchange
Commission (SEC) requirements. The Board has examined the SEC's definition of
"audit committee financial expert" and determined that Mr. Luskin satisfies this
definition. Accordingly, Mr. Luskin has been designated by the Board as the
Company's audit committee financial expert. During the fiscal year ended March
31, 2006, the Audit Committee met four times. The Board has adopted a written
charter for the Audit Committee, which is attached to this Proxy Statement as
Appendix A.
Nominations. The independent members of the Company's Board of Directors
acts as a nominating committee for the annual selection of its nominees for
election as directors, and the Board held one meeting during the 2006 fiscal
year in order to make nominations for directors. The Board of Directors believes
that the interests of the Company's shareholders are served by relegating the
nominations process to the full Board, the majority of which are independent
from management. While the Board will consider nominees recommended by
shareholders, it has not actively solicited recommendations from the Company's
shareholders for nominees, nor established any procedures for this purpose. In
considering prospective nominees, the Board will consider the prospect's
relevant financial and business experience, the integrity and dedication of the
prospect, his independence and other factors the Board deems relevant. The Board
of Directors will apply the same criteria to nominees recommended by
shareholders as those recommended by the full Board. Nominations for director
may be made by shareholders, provided such nominations comply with certain
timing and informational requirements set forth in the Company's Bylaws. See
"Other Matters" elsewhere in this Proxy Statement.
Compensation Committee. The Board's Compensation Committee consists of Mr.
Luskin (Chairman), Dr. Seff and Dr. Silverman, none of whom is an employee of
the Company and each of whom is independent under existing Amex and SEC
requirements. The Compensation Committee is charged with reviewing and
determining the compensation of the Chief Executive Officer and the other
executive officers of the Company. The Compensation Committee met one time
during the fiscal year ended March 31, 2006.
DIRECTOR COMPENSATION
During the Company's fiscal year ended March 31, 2006, Mr. Grossblatt, the
Company's president and chief executive officer, received no additional
compensation for serving as a director. Directors are eligible to participate in
the Company's Non-Qualified Stock Option Plan. During the Company's fiscal year
ended March 31, 2006, the Company paid to each of Mr. Luskin, Dr. Silverman, and
Dr. Seff a $10,000 fee for annual service as a director, payable in cash or
Shares (computed at the closing price as reported by the Amex on the date of the
payment). On March 23, 2006, each outside Director received an option to
purchase 3,000 Shares at an exercise price of $21.45 per share, issued in
accordance with the Company's Non-Qualified Stock Option Plan.
4
CODE OF ETHICS
The Company has adopted a Code of Business Conduct and Ethics that is
designed to promote the highest standards of ethical conduct by the Company's
directors, executive officers and employees.
COMMUNICATIONS WITH THE BOARD
Any shareholder desiring to contact the Board, or any specific director(s), may
send written communications to: Board of Directors (Attention: (Name(s) of
director(s), as applicable)), c/o the Company's Secretary, 7-A Gwynns Mill
Court, Owings Mills, Maryland 21117. Any proper communication so received will
be processed by the Secretary. If it is unclear from the communication received
whether it was intended or appropriate for the Board, the Secretary will
(subject to any applicable regulatory requirements) use his judgment to
determine whether such communication should be conveyed to the Board or, as
appropriate, to the member(s) of the Board named in the communication.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board's Compensation Committee consists of Mr. Luskin, Dr. Seff and
Dr. Silverman, none of whom is an officer or employee of the Company or an
officer or employee of any company for which any officer of the Company serves
as a member of the compensation committee or board member.
INFORMATION REGARDING SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Shares as of the Record Date by (i) each executive officer of
the Company named in the Summary Compensation Table included elsewhere in this
Proxy Statement, (ii) each current director and each nominee for election as a
director and (iii) all directors and executive officers of the Company as a
group. For purposes of calculating beneficial ownership, Rule 13d-3 of the
Exchange Act requires inclusion of Shares that may be acquired within sixty days
of the Record Date. Unless otherwise indicated in the footnotes to this table,
beneficial ownership of shares represents sole voting and investment power with
respect to those Shares.
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------ ------------------------- -----------------
Harvey B. Grossblatt (1) 114,727 6.18%
Cary Luskin (2) 55,717 3.06%
Ronald A. Seff, M.D. (3) 59,352 3.27%
Howard Silverman, Ph.D. (4) 18,055 0.99%
James B. Huff (5) 7,250 0.40%
All directors and executive officers
as a group (5 persons) (6) 255,101 13.45%
--------------------
(1) Includes 47,666 shares Mr. Grossblatt has the right to acquire through the
exercise of stock options.
(2) Includes 13,333 shares Mr. Luskin has the right to acquire through the
exercise of stock options.
(3) Includes 3,000 shares Dr. Seff has the right to acquire through the
exercise of stock options.
(4) Includes 16,666 shares Dr. Silverman has the right to acquire through the
exercise of stock options.
(5) Includes 7,250 shares Mr. Huff has the right to acquire through the
exercise of stock options.
(6) See footnote 1-5 above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires that the Company's directors
and executive officers and each person who owns more than 10% of the Company's
Shares, file with the SEC an initial report of beneficial ownership and
subsequent reports of changes in beneficial ownership of the Shares. To the
Company's knowledge, based solely upon the review of the copies of such reports
furnished to us, all of these reporting persons complied with the Section 16(a)
filing requirements applicable to them with respect to transactions during the
fiscal year ended March 31, 2006.
5
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table reflects, with respect to the Chief Executive Officer
and each executive officer of the Company whose annual compensation exceeded
$100,000 in the fiscal year ended March 31, 2006, the aggregate amounts paid to
or accrued for such officers as compensation for their services in all
capacities during the fiscal years ended March 31, 2006, 2005 and 2004:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
------------------ ---- ------ ----- ------------ ------- ------------
2006 $ 266,430 $ 163,530 -0- 5,000 $ 25,990(1)
Harvey B. Grossblatt 2005 $ 186,886 $ 98,196 -0- 10,000 $ 18,109(1)
President and Chief 2004 $ 180,752 $ 84,000 -0- -0- $ 17,592(1)
Executive Officer
James B. Huff 2006 $ 125,000 $ 4,000 -0- 3,000 $ 1,239(2)
Chief Financial Officer, 2005 $ 69,168 -0- -0- 8,000 $ 518(2)
Secretary, Treasurer
----------------------------------
(1) Represents payment of term life insurance premiums in the amount of
$7,490, $1,404 and $1,153 for the fiscal years ended March 31, 2006, 2005
and 2004, respectively; and Company contributions on behalf of the named
officer to the Company's 401(k) Plan in the amount of $18,500 and $16,705
for the fiscal years ended March 31, 2006 and 2005, respectively.
(2) Represents payment of term life insurance premiums in the amount of $1,239
and $518 for the fiscal years ended March 31 2006 and 2005, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM (1)
----------------- -------------------------------------
% OF TOTAL EXERCISE
NO. OF OPTIONS GRANTED OR BASE
OPTIONS TO EMPLOYEES PRICE EPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ------- ---- --------- ---- -- ---
Harvey B. Grossblatt 5,000 27.03% $ 21.45 03/23/11 $ 31,850 $ 68,300
James B. Huff 3,000 16.22% $ 21.45 03/23/11 $ 19,110 $ 40,980
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth, for each of the executive officers named
in the Summary Compensation Table, information with respect to the exercise of
stock options during the Company's fiscal year ended March 31, 2006 and holdings
of unexercised options at the end of the fiscal year:
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
NAME EXERCISE REALIZED AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
---- -------- -------- --------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Harvey B. Grossblatt 17,666 259,690 87,666 -0- $ 1,507,778 -0-
James B. Huff -0- -0- 7,250 3,750 $ 78,740 $ 43,350
----------------------------------
(1) Based on the excess of (i) the aggregate market value (closing price on
the American Stock Exchange) of the underlying shares on March 31, 2006
over (ii) the aggregate exercise price of the options.
6
EXECUTIVE EMPLOYMENT AGREEMENTS
Harvey Grossblatt entered into an employment agreement with the Company
originally effective April 1, 2002. As amended, the employment agreement
currently provides that Mr. Grossblatt is employed for a term ending July 31,
2008 at an annual base salary of $180,000 subject to automatic annual cost of
living increases up to 4% and further subject to increases in the Board's
discretion. Additionally, Mr. Grossblatt is entitled to bonus compensation for
each fiscal year of the Company in which the Company earned pre-tax net income
in excess of an amount equal to 8% of shareholders' equity as of the start of
the fiscal year, as follows: 3% of all (after the 8% threshold) pre-tax net
income up to $1 million, 4% of pre-tax net income from $1-$2 million, 5% of
pre-tax net income from $2-$3 million, 6% of pre-tax net income from $3-$4
million, 7% of pre-tax net income over $4 million. Mr. Grossblatt is also
entitled to life, health and disability insurance benefits, medical
reimbursement, automobile allowance, and Company paid retirement plan
contributions.
Effective July 18, 2005, Mr. Grossblatt's Employment Agreement was amended
to reflect his new duties as Chief Executive Officer following Mr. Knepper's
passing on August 4, 2004. The amended agreement provides that Mr. Grossblatt's
base annual salary beginning July 18, 2005 is $300,000, increasing to $325,000
on August 1, 2006, and to $350,000 on August 1, 2007. The amended agreement did
not change the calculation of Mr. Grossblatt's bonus compensation or materially
change the terms of Mr. Grossblatt's benefits.
If the Employment Agreement is not renewed by the Company or is terminated
by Mr. Grossblatt for good reason, Mr. Grossblatt is entitled to receive his
compensation through any balance of the employment term plus a lump sum payment
equal to his last 12 months base salary and bonus, health benefits for three
years, and an additional lump sum payment payable on each of the first three
anniversaries of the termination equal to the 401(k) plan contribution the
Company would have made on behalf of the Company had he remained employed by the
Company.
If Mr. Grossblatt's employment is terminated following or in anticipation
of a "change of control" of the Company, Mr. Grossblatt will be entitled to
receive a lump sum payment equal to his base salary for the balance of the
Employment Agreement's term and the amount of Mr. Grossblatt's last bonus. In
addition, Mr. Grossblatt is entitled to receive health benefits for three years,
and an additional lump sum payment payable on the anniversary of the termination
equal to the 401(k) plan contribution the Company would have made on behalf of
the Company had he remained employed by the Company. Furthermore, Mr. Grossblatt
will receive an amount equal to three times his base salary for the last 12
months and the amount of his last bonus, limited to 2.99 times Mr. Grossblatt's
average annual taxable compensation from the Company which is included in his
gross income for the five taxable years of the Company ending before the date on
which the change of control occurs.
If the Employment Agreement is terminated by the Company due to Mr.
Grossblatt's death, Mr. Grossblatt's estate is entitled to receive a lump sum
payment equal to his base salary for the greater of the balance of the
Employment Agreement's term or one year, reduced by any individual life
insurance benefits the premiums for which are paid for by the Company, plus the
amount of his last bonus and the amount of the Company's last 401(k) plan
contribution made on behalf of Mr. Grossblatt. In addition, Mr. Grossblatt's
estate is entitled to the health insurance and medical reimbursement benefits
for the longer of the balance of the term or three years following the date of
death, or the cash equivalent thereof.
If the Employment Agreement is terminated by the Company due to Mr.
Grossblatt's disability, Mr. Grossblatt is entitled to the continuation of the
payment of his base salary for the balance of the term, reduced by any group or
individual disability income insurance benefits the premiums for which are paid
for by the Company and Social Security disability benefits paid to Mr.
Grossblatt. In addition, Mr. Grossblatt is entitled to the health insurance and
medical reimbursement benefits and a payment equal to the 401(k) plan
contribution the Company would have made on behalf of the Company had he
remained employed by the Company, for the longer of the balance of the term or
three years following the date of disability, or the cash equivalent thereof.
The Employment Agreement generally prohibits Mr. Grossblatt from competing
with the Company during the term and during any subsequent period during which
he receives compensation from the Company.
7
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information, as of March 31, 2006, with
respect to all compensation arrangements maintained by the Company under which
Shares may be issued:
----------------------------------- ------------------------- ---------------------- ----------------------------------------
Plan Category Number of securities to Weighted-average Number of securities remaining
be issued upon exercise exercise price of available for future issuance under
of outstanding options, outstanding options, equity compensation plans (excluding
warrants and rights warrants and rights securities reflected in column (a)
----------------------------------- ------------------------- ---------------------- ----------------------------------------
(a) (b) (c)
----------------------------------- ------------------------- ---------------------- ----------------------------------------
Equity compensation plans
approved by security holders 242,496 $ 7.31 1,175
----------------------------------- ------------------------- ---------------------- ----------------------------------------
Equity compensation plans not
approved by security holders -0- -0- -0-
----------------------------------- ------------------------- ---------------------- ----------------------------------------
Total 242,496 $ 7.31 1,175
----------------------------------- ------------------------- ---------------------- ----------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
For the fiscal year ended March 31, 2006, the compensation of the
Company's chief executive officer was determined by the Compensation Committee
and confirmed by the Board of Directors.
COMPENSATION PHILOSOPHY. The philosophy of the Committee and Board with
respect to executive compensation is to ensure that the interests of management
and employees are identical to the interests of the Company's owners - the
shareholders. To that end, the Committee has implemented and will continue to
implement a compensation strategy that includes base salary and cash bonus, as
well as stock options which will reward management for adding shareholder value.
Base salary has been established at levels which are necessary to attract and
retain a high caliber management, and cash bonuses are designed to provide
short-term rewards for current accomplishments. Stock options provide management
with a long-term investment in the Company, the value of which is dependent upon
their success in maximizing shareholder values.
This approach to employee remuneration carries through to salary and
incentive compensation for the Company's non-management personnel, as well. The
Company's Non-Qualified Stock Option Plan is designed to reward the Company's
valuable employees for their individual contributions to the profitability of
the Company and provide them with a long-term interest in the Company's success.
The total compensation for Mr. Grossblatt, as President and Chief
Executive Officer of the Company, during the fiscal year ended March 31, 2006,
was based on his employment agreement and the overall performance of the
Company. As chief executive officer of the Company, Mr. Grossblatt played a key
role in the Company's financial performance over the past five years and is
responsible for the overall condition of the Company.
It is the intention of the Committee and Board to review the Company's
executive compensation structure to insure that the Company has the continued
ability to attract and retain the high caliber executive talent. To that end,
the Committee and Board will take into account salaries of senior management of
companies of similar size within the security products industry.
BASE SALARY. Base salary for senior management for fiscal year 2006 was
based upon employment agreements or salaries paid to such personnel in the
preceding year.
SALARY INCREASES AND INCENTIVE BONUSES. Salary increases and incentive
bonuses for senior management were dependent on the Company's financial
performance.
8
STOCK OPTION PLAN. To promote the best long-term benefits to the Company
and its shareholders, the Company has a Non-Qualified Stock Option Plan ("Plan")
under which directors, officers and employees may be granted awards of stock
options. The purpose of the Plan is to provide equity-based incentive
compensation based on the long-term appreciation in value of the Company's
Shares and to promote the interests of the Company and its shareholders by
encouraging greater management ownership of the Company's Shares. Some options
granted or to be granted under the Plan vest over a period of several years,
thereby providing a long-term incentive and encouraging a long-term relationship
between the employee and the Company. Awards under the Plan have been and will
be made to employees who have demonstrated significant management potential or
who have the capacity for contributing in a substantial measure to the
successful performance of the Company. As of March 31, 2006, there remained a
maximum of 1,175 Shares available be issued under the Plan, and options to
purchase 242,496 Shares are outstanding.
COMPENSATION COMMITTEE
Cary Luskin
Howard Silverman, Ph.D.
Ronald A. Seff, M.D.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Shares for the period March 31, 2001 through March 31, 2006 with
the cumulative total return for the same period for the NASDAQ Stock Market
(U.S. & Foreign) Index and the Dow Jones Wilshire Smallcap Index. Dividend
reinvestment has been assumed.
[GRAPHIC OMITTED]
------------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
3/31/2001 3/31/2002 3/31/2003 3/31/2004 3/31/2005 3/31/2006
------------------------------------------------------------------------------------------------------------------
UNIVERSAL SECURITY
INSTRUMENTS, INC. $ 100.00 $ 296.00 $ 680.80 $ 1,368.00 $ 1,634.13 $ 2,325.33
------------------------------------------------------------------------------------------------------------------
NASDAQ (U.S. AND FOREIGN) $ 100.00 $ 94.60 $ 61.02 $ 86.14 $ 86.27 $ 111.94
------------------------------------------------------------------------------------------------------------------
DOW JONES WILSHIRE SMALLCAP $ 100.00 $ 117.11 $ 88.27 $ 146.04 $ 157.65 $ 198.51
------------------------------------------------------------------------------------------------------------------
Source: Research Data Group, Inc
9
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management the annual
audited financial statements of the Company and its subsidiaries.
The Audit Committee has discussed with Grant Thornton LLP, the independent
auditors for the Company for the fiscal year ended March 31, 2006, the matters
required to be discussed by Statement on Auditing Standards 61. The Board of
Directors has received the written disclosures and the letter from the
independent auditors required by Independent Standards Board Standard No. 1 and
has discussed with the independent auditors the independent auditors'
independence.
Based on the foregoing review and discussions, the Board of Directors
approved the inclusion of the audited financial statements in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 2006 for filing
with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
Cary Luskin
Howard Silverman, Ph.D.
Ronald A. Seff, M.D.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected the firm of Grant Thornton LLP as the
Company's independent public accountants for the current fiscal year. Grant
Thornton LLP has served as the Company's independent public accountants since
1999. Representatives of Grant Thornton LLP are expected to be present at the
meeting, and will have the opportunity to make a statement if they desire to do
so and to respond to appropriate questions.
The following is a description of the fees billed to the Company by Grant
Thornton LLP (the "Auditor") during the fiscal years ended March 31, 2006 and
2005:
AUDIT FEES
Audit fees include fees paid by the Company to the Auditor in connection
with the annual audit of the Company's consolidated financial statements, and
review of the Company's interim financial statements. Audit fees also include
fees for services performed by the Auditor that are closely related to the audit
and in many cases could only be provided by the Auditor. Such services include
consents related to Securities and Exchange Commission and other regulatory
filings. The aggregate fees for audit services rendered to the Company for the
years ended March 31, 2006 and 2005 totaled $125,000 and $114,000, respectively.
AUDIT RELATED FEES
Audit related services include due diligence services related to
accounting consultations, internal control reviews and employee benefit plan
audits. There were no audit related services provided in either year.
TAX FEES
Tax fees include corporate tax compliance, counsel and advisory services.
The aggregate fees billed to the Company by the Auditor for the tax related
services rendered to the Company for the years ended March 31, 2006 and 2005
totaled $0 and $6,000, respectively.
APPROVAL OF INDEPENDENT AUDITOR SERVICES AND FEES
The Company's Audit Committee reviews all fees charged by the Company's
independent auditors, and actively monitors the relationship between audit and
non-audit services provided. The Audit Committee must pre-approve all audit and
non-audit services provided by the Company's independent auditors and fees
charged.
10
OTHER MATTERS
The Board of Directors is not aware of any other matter which may be
presented for action at the 2006 Annual Meeting of Shareholders, but should any
other matter requiring a vote of the shareholders arise at the 2006 Annual
Meeting, it is intended that the proxies will be voted with respect thereto in
accordance with the best judgment of the person or persons voting the proxies,
discretionary authority to do so being included in the proxy.
The cost of soliciting proxies will be borne by the Company. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
to forward solicitation materials to the beneficial owners of the Shares held of
record by such persons, and the Company will reimburse them for their reasonable
out-of-pocket expenses. Officers and directors may also solicit proxies.
The nominee for director who receives a majority of the votes entitled to
be cast for the election of directors at the Annual Meeting will be elected. In
respect of any other matter, the affirmative vote of the holders of a majority
of the Shares entitled to vote on the issue, in person or by proxy, is necessary
to approve the matter.
As a matter of policy, the Company will accord confidentiality to the
votes of individual shareholders, whether submitted by proxy or ballot, except
in limited circumstances, including any contested election, or as may be
necessary to meet legal requirements. Votes cast by proxy or in person at the
Annual Meeting will be tabulated by the Company and will determine whether or
not a quorum is present. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the presence of a quorum but as
unvoted for purposes of determining the approval of any matter submitted to the
shareholders for a vote. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with
respect to that matter.
Any shareholder desiring to present a proposal at the 2007 Annual Meeting
of Shareholders and wishing to have that proposal included in the proxy
statement for that meeting must submit the same in writing to the Secretary of
the Company at 7-A Gwynns Mill Court, Owings Mills, Maryland 21117, in time to
be received by May 1, 2007. In addition, if a shareholder desires to bring
business (including director nominations) before the 2007 Annual Meeting of
Shareholders that is not the subject of a proposal timely submitted for
inclusion in the Company's Proxy Statement, written notice of such business, as
currently prescribed in the Company's Bylaws, must be received by the Company's
Secretary between April 1, 2007 and May 1, 2007. For additional requirements, a
shareholder should refer to Article I, Section 8 of the Company's Bylaws,
"Advance Notice of Stockholder Nominees for Director and Other Stockholder
Proposals," a copy of which may be obtained from the Company's Secretary or from
the Company's SEC filings. If the Company does not receive timely notice
pursuant to the Bylaws, the nomination or proposal will be excluded from
consideration at the meeting.
The persons designated by the Company to vote proxies given by
shareholders in connection with the Company's 2007 Annual Meeting of
Shareholders will not exercise any discretionary voting authority granted in
such proxies on any matter not disclosed in the Company's 2007 proxy statement
with respect to which the Company has received written notice no later than July
20, 2007 that a shareholder (i) intends to present such matter at the 2007
Annual Meeting, and (ii) intends to and does distribute a proxy statement and
proxy card to holders of such percentage of the Shares required to approve the
matter. If a shareholder fails to provide evidence that the necessary steps have
been taken to complete a proxy solicitation on such matter, the Company may
exercise its discretionary voting authority if it discloses in its 2007 proxy
statement the nature of the proposal and how it intends to exercise its
discretionary voting authority.
Shareholders who do not plan to attend the Annual Meeting are urged to
complete, date, sign and return the enclosed proxy in the enclosed envelope, to
which no postage need be affixed if mailed in the United States. Prompt response
is helpful and your cooperation will be appreciated.
By Order of the Board of Directors,
JAMES B. HUFF
Secretary
Owings Mills, Maryland
August 28, 2006
11
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED MARCH 31, 2006, TO EACH SHAREHOLDER WHO FORWARDS A
WRITTEN REQUEST TO THE SECRETARY, UNIVERSAL SECURITY INSTRUMENTS, INC., 7-A
GWYNNS MILL COURT, OWINGS MILLS, MARYLAND 21117.
TO THE EXTENT THE RULES AND REGULATIONS ADOPTED BY THE SEC STATE THAT
CERTAIN INFORMATION INCLUDED IN THIS PROXY STATEMENT IS NOT DEEMED "SOLICITING
MATERIAL" OR "FILED" WITH THE SEC OR SUBJECT TO REGULATION 14A PROMULGATED BY
THE SEC OR TO THE LIABILITIES OF SECTION 18 OF THE EXCHANGE ACT, SUCH
INFORMATION SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE ACT.
12
APPENDIX A
UNIVERSAL SECURITY INSTRUMENTS, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The role of the Audit Committee (the "COMMITTEE") is to oversee:
o Management in the performance of its responsibility for the
integrity of the Company's accounting and financial reporting, and
its systems of internal controls;
o The performance and qualifications of the independent auditor
(including the independent auditor's independence);
o The performance of the Company's internal audit function; and
o The Company's compliance with legal and regulatory requirements.
Consistent with this oversight function, the Committee shall authorize
investigations into any matters within the Committee's responsibilities and, in
doing so, the Committee shall have full access to the Company's records,
employees, and independent auditor (with or without the presence of management).
The Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain legal, accounting or other advisors for advice and
assistance. The Company shall pay the costs of retaining any advisors selected
by the Committee.
The Committee shall meet at least four times each year or more frequently
as circumstances dictate. The Committee shall meet with the Company's
independent auditor at least quarterly, and shall meet with the Company's Chief
Financial Officer ("CFO") at least annually or more frequently as circumstances
dictate.
The Committee shall review and reassess the adequacy of this Charter at
least annually. Any proposed changes shall be submitted to the Company's Board
of Directors (the "BOARD") for its approval. The Committee shall annually
evaluate the processes, activities and effectiveness of the Committee, including
the composition, expertise, and availability of the Committee members.
STRUCTURE AND MEMBER QUALIFICATIONS
The members of the Committee shall be annually appointed by the Board, and
may be replaced by the Board according to the Company's Bylaws.
The Committee shall have at least three members and shall consist solely
of "independent" Directors, consistent with the listing standards of the
American Stock Exchange and applicable legal requirements.
The membership of the Committee shall have the following qualifications:
o Each member of the Committee shall be able to read and understand
fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement or will become able
to do so within a reasonable period of time after his or her
appointment to the Committee.
o At least one member of the Committee must have past employment
experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or
background which results in the individual's financial
sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with
financial oversight responsibilities.
o If the Board determines, at least one member shall qualify as an
"audit committee financial expert" as defined by the Securities and
Exchange Commission ("SEC").
A-1
The Board will assess and determine the qualifications of the Committee
members set forth in this Charter.
The Board shall select the Audit Committee Chair. If a Chair is not
designated or present, a Chair may be designated by a majority vote of the
Committee members present.
RESPONSIBILITIES AND DUTIES
The Committee recognizes that the Company's management is responsible for
the completeness and accuracy of the Company's financial statements and
disclosures and for maintaining effective internal controls. The Committee also
recognizes that the independent auditor is responsible for auditing the
Company's financial statements. Accordingly, management and the independent
auditor have more knowledge and more detailed information about the Company than
do Committee members and the Committee's primary responsibility is oversight. In
carrying out its oversight responsibilities, the Committee will be relying, in
part, on the expertise of management and the independent auditor.
The Committee shall be responsible for the appointment, compensation,
removal, and oversight of the work of the independent auditor. The independent
auditors shall report directly to the Committee and the Committee shall oversee
the resolution of disagreements between management and the independent auditors
in the event that they arise.
To fulfill this oversight responsibility, the Committee should receive
reports from management and the independent auditor, as appropriate, to fulfill
the following duties and responsibilities (which, to the extent permitted by
applicable regulation, may be delegated to one or more members of the
Committee):
Risk Assessment
o Assess the Company's risk management process and the adequacy of the
overall control environment, including controls in selected areas
representing financial reporting, disclosure and compliance.
o Assess any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
internal controls.
o Assess the annual scope and plans of the independent auditors.
Financial Reporting and Disclosure
o Review and discuss with management and the independent auditor the
annual audited and quarterly financial statements, related
footnotes, disclosures made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations section of
the Company's quarterly and annual SEC filings, the opinion of the
independent auditor with respect to the audited financial
statements, and the results of the independent auditor's quarterly
review of the financial statements.
o Review and discuss with management and the independent auditor any
significant events, transactions, changes in accounting estimates,
changes in important accounting principles and their application,
and any major issues as to the adequacy of internal controls
affecting the quality of the Company's financial reporting.
o Review, in conjunction with its review of the quarterly and annual
reports, the process for the Chief Executive Officer ("CEO") and CFO
certifications with respect to the financial statements and the
Company's disclosure and internal controls.
o Evaluate all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability
to record, process, summarize, and report financial data.
o Review and discuss with management any proposed public release of
earnings information, as well as financial information provided to
analysts and rating agencies.
A-2
Independent Auditor Oversight Responsibilities
o Based upon a report from the independent auditor at least annually,
review (a) the auditor's internal quality-control procedures, (b)
any material issues raised by the most recent quality-control
review, or peer review, of the firm, or by any recent inquiry or
investigation by governmental or professional authorities respecting
one or more independent audits carried out by the firm and (c) any
steps taken to address any such issues.
o Ensure that the independent auditor submits, on a periodic basis, a
formal written statement delineating all relationships between the
independent auditor and the Company, as required by the Independence
Standards Board, Standard No. 1; discuss the statement with the
independent auditor and evaluate the relationships and services that
may affect the auditor's objectivity and independence; take
appropriate action to satisfy itself of the auditor's independence.
o Review matters related to the conduct of the annual audit, which are
required to be communicated by AICPA Statement of Auditing Standards
61 and other generally accepted auditing standards.
o Conduct the annual discussion with the independent auditor on the
quality and acceptability of the Company's accounting principles and
all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, the potential impact of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditor.
o Review the independent auditor's management letter.
o Review with the independent auditor any audit problems or
difficulties and management's response.
o Approve in advance all audit and non-audit services to be provided
by, and all fees to be paid to, the independent auditor or devise
policies delegating pre-approval authority to one or more members of
the Committee.
Ethical, Legal and Regulatory Compliance Matters
o Assess the Company's processes regarding compliance with applicable
laws, regulations and any code of business ethics adopted by the
Board, including those matters that could have a significant impact
on the financial statements, compliance with policies, reports from
regulators and the provisions of any such code of business ethics
applicable to the CEO and the Company's senior financial officers as
defined by the SEC rules.
o Assess the Committee's procedures for (a) the receipt, retention,
and treatment of complaints received by the Company regarding
accounting, internal accounting controls or auditing matters, and
(b) the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
o Review reports and disclosures of significant conflicts of interest
and related-party transactions.
REPORTS
The Committee shall report to the Board with respect to its activities as
promptly as practicable following each meeting of the Committee. The Committee
shall report to shareholders in the Company's proxy statement for its annual
meeting, whether the Committee has satisfied its responsibilities under this
Charter.
A-3
PROXY
UNIVERSAL SECURITY INSTRUMENTS, INC.
7-A Gwynns Mill Court
Owings Mills, Maryland 21117
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF UNIVERSAL
SECURITY INSTRUMENTS, INC. The undersigned hereby appoints Harvey B. Grossblatt
and Ronald A. Seff M.D., and each of them, as proxies, each with the power of
substitution, to vote as designated below all of the shares the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at the
Pikesville Hilton, 1726 Reisterstown Road, Baltimore, Maryland, on October 9,
2006 at 8:30 a.m., prevailing local time, and any adjournments or postponements
thereof, and otherwise to represent the undersigned at the meeting, with all
powers possessed by the undersigned if personally present at the meeting.
1. ELECTION OF DIRECTORS: FOR all nominees listed below |_|
(except as set forth to the contrary below)
WITHHOLD AUTHORITY to vote for all nominees listed below |_|
Ronald A. Seff, M.D.
The terms of the elected Directors expire at the 2009 annual meeting and when
their successors are elected and qualify.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
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2. In their discretion, the proxies are authorized to vote upon any other
business which properly comes before the meeting and any adjournments or
postponements thereof.
[REVERSE SIDE OF PROXY CARD]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREBY
BY THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF ALL NOMINEES AND IN THE DISCRETION OF THE PROXIES UPON ANY
OTHER BUSINESS WHICH PROPERLY COMES BEFORE THE MEETING.
Please sign exactly as your name appears on your proxy card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
PLEASE MARK, SIGN, DATE AND MAIL
THE CARD IN THE ENCLOSED ENVELOPE.
DATED: __________________________, 2006
Signature______________________________
DATED: __________________________, 2006
Signature______________________________