Item 1.01. Entry into
a Material Definitive Agreement.
On February 25, 2022, Universal Security Instruments,
Inc. (“USI”), a Maryland corporation, entered into an Agreement and Plan of Merger (the “Merger Agreement”)
by and among (i) USI; (ii) D-U Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of USI (“Merger Sub”);
and (iii) Infinite Reality, Inc. (“Infinite Reality”), a Delaware corporation. The Merger Agreement provides that,
upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Infinite Reality, with Infinite Reality
continuing as the surviving corporation and wholly owned subsidiary of USI (the “Merger”). The Merger Agreement and
the consummation of the transactions contemplated thereby, including the Merger, have been approved by the boards of directors of USI
and Infinite Reality. The description of the Merger Agreement set forth in this Item 1.01 is qualified in its entirety by reference to
the content of the Merger Agreement.
The closing of the Merger will take place on the
third business day following the satisfaction or waiver by the party for whose benefit such condition exists, of all of the closing conditions
or at such other mutually agreeable time (the “Closing Date”). On the Closing Date, a certificate of merger will be
filed with the Delaware Secretary of State. The Merger will become effective at the time when the certificate of merger has been duly
filed or such later date specified in the filed certificate (the “Effective Time”). At the Effective Time and resulting
from the Merger, all the assets, liabilities, rights, powers and privileges of Infinite Reality and Merger Sub will vest in Infinite Reality,
surviving the Merger as a wholly owned subsidiary of USI. The directors and officers of Infinite Reality prior to the Effective Time,
will remain the directors and officers after the Effective Time, until their resignation or removal. At the Effective Time, USI will take
the actions required to replace the officers and directors of USI with designees by Infinite Reality. At the Effective Time, the parties
intend for USI to convert from a Maryland corporation to a Delaware corporation.
Pursuant to the Merger Agreement, Infinite Reality
shareholders acquire the right to convert their Infinite Reality common stock held immediately prior to the Merger into USI common stock.
Each share of Infinite Reality common stock will convert into the right to receive 0.437608078 shares of USI common stock at the Effective
Time, subject to certain adjustments, floors, and ceilings, as specified in the Merger Agreement, based on an enterprise valuation of
the combined entity of $500 million. Holders of any fractional interests will receive cash in lieu of fractional shares of USI common
stock. Holders of USI common stock prior to the Effective Time (“Legacy Shareholders”) may also receive a dividend
of USI common stock if the market capitalization of USI is less than $500 million 180 days after the Effective Time.
Under the terms of the Merger Agreement, the USI
current operating business will continue, and USI has agreed to use its best efforts to sell or spin off its business operations prior
to the Effective Time. In the event USI’s current business operations are not sold or otherwise divested by the Effective Time,
a Contingent Value Rights Agreement will issue to each Legacy Shareholder.
The Merger Agreement contains customary representations
and warranties from both USI and Infinite Reality, and each has agreed to customary covenants, including, among others, operating businesses
in the ordinary course until the earlier of the Effective Time or termination of the Merger Agreement, with the exception of USI committing
to the sale or other divesting of its business operations.
Infinite Reality is obligated to inform USI if
it receives a superior acquisition proposal prior to the Effective Date. Similarly, USI is obligated to inform Infinite Reality if it
receives an acquisition proposal prior to the Effective Date.
The Merger Agreement includes customary rights
of each party to terminate the Merger Agreement, including: in the event shareholder approval is not obtained; if the USI’s shares
are not approved for continued listing by the NYSE MKT LLC following the Effective Time; and if a party receives a superior offer and
complies with the terms of the Merger Agreement regarding accepting such offer. If USI or Infinite Reality accepts a superior offer and
terminates the Merger Agreement, the terminating party will pay a breakup fee to the non-terminating party covering its out-of-pocket
expenses, subject to a cap of $100,000, plus 4% of the market capitalization of USI as of the Effective Date.
USI and Infinite Reality have agreed to file with
the SEC a proxy statement and Form S-4 registration statement in connection with the merger, as soon as practicable following the Effective
Date. Dissenting Infinite Reality common stock stockholders may exercise appraisal rights in lieu of the merger consideration if they
perfect such rights in accordance with the requirements of Delaware General Corporate Law §262, which requirements will be explained
in the upcoming proxy statement.
The Merger Agreement is subject to a binding arbitration
provision and allows for remedies that include specific performance. The Merger Agreement is governed by Delaware law.