UNIVERSAL SECURITY INSTRUMENTS, INC.
10324 South Dolfield Road
Owings Mills, Maryland 21117
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 27, 1998
To the Shareholders of Universal Security Instruments, Inc.:
A Special Meeting of Shareholders of UNIVERSAL SECURITY INSTRUMENTS,
INC. (the "Company") will be held at the Company's offices, 10324 South Dolfield
Road, Owings Mills, Maryland 21117, on Friday, February 27, 1998, at 10:30 a.m.
for the following purposes:
1. To consider and act upon a proposal to effect a one-for-four reverse
stock split of the Company's presently issued and outstanding shares of
common stock.
2. To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 26,
1998 will be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
HARVEY B. GROSSBLATT
Secretary
DATED: January 26, 1998
IMPORTANT - YOUR PROXY IS ENCLOSED. Shareholders who do not plan to attend the
meeting are requested to complete, date, sign and return promptly the enclosed
proxy in the enclosed envelope. No postage is required for mailing in the United
States.
<PAGE>
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Universal
Security Instruments, Inc. (the "Company") in connection with the Special
Meeting of the Shareholders of the Company to be held on February 27, 1998 or
any adjournments thereof. The proxy is revocable at any time before exercise by
written notice to the Chief Financial Officer of the Company, 10324 South
Dolfield Road, Owings Mills, Maryland 21117.
Only shareholders of record at the close of business on January 26,
1998 (the "Record Date") will be entitled to notice of and to vote at the
meeting. The number of shares of Common Stock, $.01 par value, of the Company
(the "Common Stock") outstanding on the Record Date and entitled to vote at the
meeting is 3,245,587 shares, each entitled to one vote. There is no cumulative
voting.
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
Common Stock outstanding as of the Record Date:
<TABLE>
<CAPTION>
Number of
Shares beneficially shares owned
Name and address owned before reverse after reverse Percent
of beneficial owner stock split stock split of class
<S> <C> <C> <C>
Michael Kovens 877,0761 219,269 24.9%
10324 South Dolfield Road
Owings Mills, Maryland 21117
Stephen C. Knepper 403,4931 100,874 11.5%
10324 South Dolfield Road
Owings Mills, Maryland 21117
Bruce Paul 184,000 46,000 5.7%
One Hampton Road
Purchase, New York
- --------
<FN>
1 For information regarding the nature of beneficial ownership of stock owned by Messrs.
Kovens and Knepper, please see footnotes 2 and 3, respectively, under "Information
Regarding Stock Ownership of Management."
</FN>
</TABLE>
- 2 -
<PAGE>
INFORMATION REGARDING STOCK OWNERSHIP OF MANAGEMENT
As of the Record Date, the shares of the Company's Common Stock owned
beneficially by each director, by each executive officer and by all directors
and officers as a group were as follows:
<TABLE>
<CAPTION>
Number of
Amount and shares
nature of owned
beneficial after Percent of
ownership reverse class1 after
before reverse stock reverse
Name of beneficial owner stock split split stock split
<S> <C> <C> <C> <C> <C> <C>
Michael Kovens................................................ 877,0762 219,269 24.9%
Steven C. Knepper............................................. 403,4933 100,874 11.5%
Harvey Grossblatt............................................. 125,0904 46,000 3.7%
All directors and officers as a group (5 persons included).... 1,425,659 356,415 36.6%
- -------------------
<FN>
1 For the purpose of determining the percentages of stock beneficially
owned, shares of stock subject to options or rights exercisable within
60 days are deemed to be outstanding.
2 Includes 20,178 shares held by Mr. Kovens' adult children and 275,000 shares which Mr. Kovens presently
has the right to acquire.
3 Includes 275,000 shares which Mr. Knepper presently has the right to acquire.
4 Includes 96,000 shares which Mr. Grossblatt presently has the right to acquire.
</FN>
</TABLE>
PROPOSAL FOR REVERSE STOCK SPLIT
The Company is proposing to effect a one-for-four reverse stock split
of the Company's presently issued and outstanding common stock (the "Reverse
Stock Split") to be effective on February 27, 1998 (the "Effective Date").
The Reverse Stock Split would not affect the 20,000,000 shares of the
Company's Common Stock authorized under the Company's Articles of Incorporation,
but would reduce proportionately the number of shares of the Company's Common
Stock issued and outstanding without affecting any of the rights of or ownership
percentage of shareholders.
The Reverse Stock Split will result in an adjustment to the Company's
capital accounts. The stated capital account of the Company is equal to the
number of shares of Common Stock outstanding, multiplied by the par value of
$.01 per share of Common Stock. All consideration
- 3 -
<PAGE>
received by the Company for the issuance of Common Stock in excess of the par
value is recorded in the additional paid-in capital account. As of September 30,
1997, the stated capital of the Company was $32,456, and the additional paid-in
capital account of the Company was $10,429,588. As a result of the Reverse Stock
Split, the stated capital account of the Company, as reflected on the Company's
balance sheet, would be decreased to $8,114 and the $24,342 balance will be
transferred to the additional paid-in capital account.
As of the Record Date, the Company had outstanding 3,245,587 shares of
its Common Stock. As a result of this proposal, the number of shares outstanding
will be reduced to approximately 811,397 shares. Fractional shares resulting
from the Reverse Stock Split will be rounded upward to the nearest whole share
so that no shareholder will be deprived of any shares. The Company believes that
the Reverse Stock Split will not result in any significant reduction in the
number of shareholders. The Reverse Stock Split will not result in any other
changes to the outstanding shares or to the rights of the shareholders, and all
shares of Common Stock outstanding after the Reverse Stock Split will continue
to be fully paid and non-assessable under the Maryland General Corporation Law.
Dissenters' rights of appraisal are not available.
Purposes of the Reverse Stock Split
The primary objectives of the Reverse Stock Split are to increase the
market price per share of the Company's Common Stock.
The Company's Common Stock is currently listed on the NASDAQ SmallCap
Stock Market under the symbol "USI." NASDAQ has recently approved revised
qualitative and quantitative requirements for listing, including a minimum bid
price of $1.00 per share. The new listing criteria will become applicable to the
Company on February 23, 1998. During the 30 days prior to the Record Date, the
market price for the Common Stock has fluctuated between approximately $.75 and
$.50 per share. As a result, the Company would be out of compliance with $1.00
per share minimum bid requirement under the revised criteria, and would be
unable to maintain its listing under the revised listing standards. The Company
anticipates that the Reverse Stock Split, if approved by the shareholders, will
have the effect of increasing the minimum bid price of its Common Stock
sufficient to permit it to satisfy the applicable minimum bid price criteria.
However, there can be no assurance that the Company will be successful in
retaining its NASDAQ listing.
The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding as a consequence of the proposed Reverse
Stock Split, and the resulting anticipated increased price level, will stimulate
additional interest in the Company's Common Stock and possibly promote greater
liquidity for the Company's shareholders. There can be no assurance, however,
that there will be any greater liquidity, and it is possible that the liquidity
could even be adversely affected by the reduced number of shares of Common Stock
which will be outstanding after the proposed Reverse Stock Split is effected.
- 4 -
<PAGE>
The Reverse Stock Split may result in some shareholders owning "odd
lots" of less than 100 shares; the costs, including brokerage commissions, of
transactions in odd lots may be higher than the costs in transactions in "round
lots" of even multiples of 100. However, the Company believes that the potential
advantages of continued listing will outweigh this disadvantage
If the Reverse Stock Split becomes effective, management expects the
quoted market price of the Company's Common Stock should increase as a result of
decreasing the number of shares outstanding without altering the aggregate
economic interest in the Company represented by such shares. The Board believes
that the increased price would be a more appropriate trading price for a company
that is traded on THE NASDAQ SmallCap Market and is concerned with long-term
development of its business opportunities. There can be no assurance, however,
that the Reverse Stock Split will achieve these desired results, that any such
increase would be in proportion to the one-for-four Reverse Stock Split ratio,
or that the per share price level of the Common Stock immediately after the
proposed Reverse Stock Split can be maintained for any period of time.
Certain Income Tax Consequences
A summary of the federal income tax consequences of the Reverse Stock
Split as contemplated in the Proposal is set forth below. The discussion is
based on the present federal income tax law. The discussion is not intended to
be, nor should it be relied on as, a comprehensive analysis of the tax issues
arising from or relating to the proposed Reverse Stock Split. Income tax
consequences to shareholders may vary from the federal tax consequences
described generally below. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS
TO THE EFFECT OF THE CONTEMPLATED REVERSE STOCK SPLIT UNDER APPLICABLE FEDERAL,
STATE AND LOCAL INCOME TAX LAWS.
The proposed Reverse Stock Split constitutes a "recapitalization" to
the Company and its shareholders to the extent that issued shares of Common
Stock are exchanged for a reduced number of shares of Common Stock. Therefore,
neither the Company nor its shareholders will recognize any gain or loss for
federal income tax purposes as a result thereof.
The shares of Common Stock to be issued to each shareholder will have
an aggregate basis, for computing gain or loss, equal to the aggregate basis of
the shares of such stock held by such Shareholder immediately prior to the
Effective Date. A shareholder's holding period for the shares of Common Stock to
be issued will include the holding period for the shares of Common Stock held
thereby immediately prior to the Effective Date provided that such shares of
stock were held by the Shareholder as capital assets on the Effective Date.
Voting Requirements
The affirmative vote of holders of two-thirds of the outstanding shares
of Common Stock of the Company entitled to vote at the Special Meeting is
required for approval of the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL
- 5 -
<PAGE>
OTHER MATTERS
The solicitation of proxies will be made by mail, at the expense of the
Company, including the charges and expenses of brokerage firms and others for
forwarding solicitation material to beneficial owners of stock. Subsequent
solicitations may be made by mail, telegraph, telephone or any other appropriate
means.
The Board of Directors of the Company is not aware of any other matter
which may be presented for action at the Special Meeting, but should any such
matter requiring a vote of the shareholders arise, 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, and discretionary authority to do
so is provided for in the proxy. If management believes that it is desirable or
necessary to adjourn the Special Meeting in order to obtain a quorum or to
gather the votes necessary for passage of the proposal, the proxies will be
voted in favor thereof.
Shareholders who do not plan to attend the Special 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,
HARVEY B. GROSSBLATT
Secretary
Dated: January 26, 1998
C72150.626 R:3
- 6 -
<PAGE>
- ----------------------------------------------
PROXY Universal
Security
Instruments, Inc.
10324 South Dolfield Road, Owings Mills, Maryland 21117
- ----------------------------------------------
This Proxy is solicited on behalf of the Board of Directors. The undersigned
hereby appoints Stephen C. Knepper, Michael Kovens and Harvey B. Grossblatt, and
each of them, as proxies, with power of substitution, and hereby authorizes them
to represent and to vote, as designated below, all the shares of common stock of
Universal Security Instruments, Inc. held of record by the undersigned on
January 26, 1998 at the special meeting of shareholders to be held on February
27, 1998, or any adjournment thereof.
- ---------------------------------------------------------------
1. APPROVAL OF PROPOSAL to effect the one-for-four reverse stock split.
FOR |_| AGAINST |_| ABSTAIN |_|
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
[REVERSE SIDE OF CARD]
This proxy, when properly executed, will be voted in the manner directed hereby
by the undersigned shareholder. If no direction is made, this proxy will be
voted in favor of all nominees listed in the Proxy Statement.
Please sign exactly as your name appears below. 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.
Signature____________________________
DATED: January 26, 1998 Signature____________________________
C55713A.626 R:2
<PAGE>
