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ITEM 1.01
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ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
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Share Exchange Agreement
On December 27, 2019, DPW Holdings, Inc.,
a Delaware corporation (the “Company”), entered into a Share Exchange Agreement (the “Agreement”)
with its wholly owned subsidiary DPW Financial Group, Inc., a Delaware corporation (“DPWF” and with the Company,
the “DPWF Parties”), RASK Global Holdings, Inc., a Delaware corporation (“RASK”), Glendale
Securities, Inc., a California corporation (“Glendale”), Glen Holdings Corp., a Delaware corporation (“GHC”
and with RASK, Glendale and WDCO, as such term is hereinafter defined, the “Acquirees”), the holders of securities
of RASK (the “RASK Holders”), the holders of securities of Glendale (the “Glendale Holders”)
and the holders of securities of GHC (“GHC Holders” and with the RASK Holders and the Glendale Holders, the
“Holders”). Upon the terms and subject to the conditions set forth in the Agreement, DPWF will acquire
all of the issued and outstanding shares of common stock of the Acquirees from the Holders (the “Subject Shares”)
in exchange for an aggregate of 1,510,000 shares of the Series A Convertible Preferred Stock of DPWF (the “Exchange Shares”).
In addition, upon the closing of the Agreement (the “Closing”), GHC, the record and beneficial owner of 410,000
shares of common stock of Wilson-Davis & Co, Inc., a Utah corporation (“WDCO”), which shares constitute
100% of the issued and outstanding shares of common stock of WDCO (the “WDCO Shares”), shall deliver the WDCO
Shares to DPWF, resulting in the Acquirees becoming indirect wholly owned subsidiaries of the Company. After the Closing, each
of RASK and GHC will dissolve its corporate structure and have no continuing business or operations and WDCO and Glendale will
become wholly owned subsidiaries of DPWF.
Prior to the execution of the Agreement,
DPWF issued 2,499,664 shares of its common stock (“DPWF Common Stock”) to the Company.
The Closing is subject to a number of closing
conditions, including, among other things, that: (i) GHC shall have caused WDCO to have obtained approval of its Continuing Membership
Application (“CMA”) from the Financial Industry Regulatory Authority, Inc. (“FINRA”); (ii)
GHC shall have wired to WDCO’s escrow account the dollar amount required for it to acquire 80% of the WDCO Shares pursuant
to a stock purchase and option agreement dated October 6, 2017; (iii) GHC shall have: (a) paid the principal and accrued interest
on a loan from RASK, (b) redeemed certain outstanding promissory notes, and (c) fully paid Glendale for its remaining shares of
common stock of GHC; (iv) RASK shall have fully repaid the debt instruments issued by it to Digital Power Lending, LLC (“DPL”)
and shall have no further obligation to DPL; (v) GHC shall have caused WDCO to appoint an individual acceptable to the DPWF Parties
as its chief executive officer; (vi) absence of litigation that seeks to prohibit the transactions set forth in the Agreement and
certain other matters; (vii) the accuracy of the representations and warranties, subject to customary materiality qualifiers; (viii)
the performance by the parties of certain covenants and agreements in all material respects; and (ix) the absence of a Material
Adverse Effect (as defined in the Agreement).
As stated above, the closing of the Agreement
is subject to customary conditions, including regulatory clearance, which consists principally of approval by FINRA. The transaction
is expected to close upon receipt of such clearance. However, the Company has reason to believe that FINRA may not approve the
acquisitions in the foreseeable future, if at all. The Company is aware that FINRA has indicated that it has reservations about
certain aspects of the proposed transaction. While the Company has been advised by Glendale that the two broker-dealers intend
to address any concerns FINRA may have to its satisfaction, there can be no assurance that the proposed acquisitions will ever
be approved by FINRA.
At the Closing, subject to the terms and
conditions of the Agreement, each Acquiree, including GHC on behalf of WDCO, shall deliver stock certificates representing all
of its respective Subject Shares, accompanied by duly executed stock transfer forms transferring such Subject Shares to DPWF and
otherwise in good form for transfer, and in exchange, DPWF shall deliver stock certificates evidencing all Exchange Shares duly
registered in the name of the Holders (the “Exchange”). In accordance with the terms set forth in the Agreement,
DPWF shall also deliver a 5% Promissory Note to the Company in the principal amount of $9,000,000 with interest at the rate of
five (5%) percent per annum, which principal and interest are due and payable to the Company on the maturity date, which shall
be two (2) years from the date of Closing (the “Promissory Note”).
Each of the DPWF Parties, Acquirees and
the Holders have made customary representations and warranties in the Agreement and have covenanted, among other things, that,
subject to certain customary exceptions: (i) each of the Acquirees agrees to conduct its business in accordance with its ordinary
and usual course of business, use its best efforts, subject to the foregoing, to preserve its business organization, keep available
to it the services of its officers and employees and maintain satisfactory relationships with customers, suppliers and others having
business relationships with it; (ii) each Acquiree shall provide DPWF and the Company with such audited annual and unaudited interim
financial information, pro forma financial information and all footnotes thereto and auditor’s letters relating to its business
as may be requested by the Company in order for the Company to comply with its reporting and disclosure obligations under the rules
and regulations of the Securities and Exchange Commission (the “Commission”); and (iii) after the Closing, Glendale
and GHC on behalf of WDCO will pay management fees to DPWF in accordance with the terms set forth in the Agreement.
The foregoing description of the Agreement
does not purport to be complete and is qualified in its entirety by reference to the Agreement, which is annexed hereto as Exhibit
2.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Agreement has been included
to provide investors and stockholders with information regarding its terms. It is not intended to provide any other
factual information about the DPWF Parties, the Acquirees or the Holders. The Agreement contains representations and
warranties that the parties to the Agreement made to and solely for the benefit of each other, and the assertions embodied in such
representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged
in connection with signing the Agreement. Accordingly, investors and stockholders should not rely on such representations
and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of
the Agreement (or such other date as specified therein) and are modified in important part by the underlying disclosure schedules.
5% Promissory Note
At the Closing, subject to the terms and
conditions of the Agreement, DPWF shall deliver the Promissory Note to the Company, which shall be in the principal face amount
of $9,000,000 and be due and payable two (2) years from the date of Closing. The Promissory Note shall bear interest at 5% per
annum with interest payable in full in lawful money of the United States of America by certified bank check or wire transfer upon
maturity. DPWF may prepay any portion of the principal amount of the Promissory Note, plus any accrued and unpaid interest. Pursuant
to the Promissory Note, upon the occurrence of an Event of Default (as defined therein), the outstanding principal amount, liquidated
damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Company’s election,
immediately due and payable in cash at the Mandatory Default Amount without any action on the part of the Company. After the occurrence
of any Event of Default that results in the eventual acceleration of the Promissory Note, the Promissory Note shall accrue interest
at an interest rate equal to the lesser of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law (the
“Default Rate”). “Mandatory Default Amount” means an amount equal to a premium of 30% of
all principal and interest (calculated at the Default Rate).
Certificate of Designation of Series A Convertible Preferred
Stock of DPWF
At the Closing, DPWF will issue and deliver
to the Holders an aggregate of 1,510,000 shares designated as Series A Convertible Preferred Stock (the “Series A Preferred
Stock”), $0.001 par value per share, none of which has been previously issued. In the event DPWF shall liquidate, dissolve
or wind up, the holders of Series A Preferred Stock shall be entitled to receive liquidating distributions in an amount equal to
the Stated Value for each share of Series A Preferred Stock held by such Holders; provided that such liquidating distribution shall
be made solely out of the securities acquired by DPWF pursuant to the Agreement. The holders of Series A Preferred Stock shall
be entitled to receive, on a quarterly basis with payments to occur no later than 90 days in arrears from each reporting period,
out of funds legally available therefor, dividends on each share of Series A Preferred Stock at the rate of 3% per annum based
on a 360 day calendar year. Each Holder shall be entitled to vote on an “as converted” basis with holders of outstanding
shares of DPWF Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders
of DPWF for their action or consideration.
Commencing on the date that shall be six
(6) months from the closing date of the above referenced Agreement and prior to the occurrence of any underwritten public offering
of shares of DPWF Common Stock, each share of Series A Preferred Stock shall be converted into 3.75 shares of Common Stock, for
an aggregate of 5,662,500 shares of DPWF Common Stock. The Series A Preferred Stock shall contain the respective rights, privileges
and designations as are set forth in the Form of Certificate of Designation for such Series A Preferred Stock.
The foregoing does not purport to be a
complete description of the Series A Preferred Stock, which is qualified in its entirety by reference to the full text of the Certificate
of Designations, Preferences, Rights and Limitations of Series A Convertible Preferred Stock, which the Company has filed as Exhibit
3.1 hereto.