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ITEM 1.01
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ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
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On February 10, 2020, DPW Holdings, Inc.,
a Delaware corporation (the “Company”), entered into a Master Exchange Agreement (the “Exchange Agreement”)
with an entity (the “Creditor”) that acquired approximately $4.2 million dollars in principal amount, plus accrued
but unpaid interest, of certain promissory notes that had been previously issued by the Company to Dominion Capital, LLC, a Connecticut
limited liability company (the “Dominion Note”) and the Canadian Special Opportunity Fund, LP (the “CSOF
Note” and with the Dominion Note, the “Purchased Notes”) in separate transactions. The Creditor also
agreed to purchase additional notes up to an additional principal amount, plus accrued but unpaid interest, of $3.5 million (the
“Additional Notes” and collectively, with the Purchased Notes, the “Notes”), prior to the
second pricing period discussed below (the “Second Purchase”). Pursuant to the Exchange Agreement, the Creditor
has the unilateral right to acquire, among other things set forth therein, shares of the Company’s common stock (the “Exchange
Shares”) in exchange for the Notes, which Notes evidence an aggregate of up to approximately $7.7 million of indebtedness
of the Company.
The first exchange shall occur on the date
of the Exchange Agreement upon which the Creditor may exchange, in whole or in part, the Dominion Note for the Exchange Shares
(the “Initial Exchange”) and the second exchange (the “Second Exchange” and together with
the Initial Exchange, the “Exchange”) shall occur if, within sixty days after the Initial Exchange, the Company
receives stockholder approval at a special meeting thereof for the Exchange of the Additional Notes for the Company’s common
stock pursuant to the Exchange Agreement, as required by Rule 713(a)(ii) of the NYSE Company Guide, and subsequently, authorization
from the NYSE American (together, the “Required Approvals”).
The Exchange Agreement provides for two
pricing periods, the first of which shall commence after the date on which the Creditor receives the Exchange Shares pursuant to
the Initial Exchange and ending on the date that is 90 days after such receipt thereof, subject to extension as provided for in
the Exchange Agreement, and the second of which shall commence on the date on which the Creditor receives the Exchange Shares pursuant
to the Second Exchange and ending on the date that is 90 days after such receipt thereof, in either case, unless earlier terminated
by the Creditor by written notice.
During each pricing period, the Creditor
will have the unilateral right to exchange the Notes for shares of the Company’s common stock, or the Exchange Shares. The
number of shares to be issued upon each Exchange will be equal to (x) the principal and accrued but unpaid interest due on the
Notes being exchanged multiplied by 1.35, divided by (y) the closing bid price effective on each date of an exchange notice pursuant
to Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), provided, however, that
the Company shall theretofore have obtained the Required Approvals (the “Exchange Price”). The total number
of shares of the Company’s common stock to be issued to Creditor in connection with the applicable Exchange shall be adjusted
on the Business Day immediately following the Pricing Period based upon the volume weighted average price (“VWAP”)
of the Company’s common stock over the applicable Pricing Period (the “VWAP Shares”). VWAP Shares means
the number of shares determined by dividing (x) the Exchange Amount of the applicable Exchange, multiplied by 1.1, by (y) the greater
of (I) seventy-five percent (75.0%) of the VWAP of the Company’s common stock over the applicable Pricing Period, or (II)
$0.30 per share
The Creditor does not have the right to
exchange the Notes for shares of the Company’s common stock to the extent that, following such exchange, the Creditor would
beneficially own in excess of 9.9% of the Company’s common stock, as determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Maximum Percentage”). In addition, under no circumstances may the aggregate
number of shares of common stock issued to the Creditor in connection with the Exchange at any time exceed 19.9% of the total number
of shares of the Company’s common stock outstanding as of the date of the Exchange Agreement, unless the Company has obtained
the Required Approvals.
Pursuant to the Exchange Agreement, the
Company has agreed to issue to the Creditor warrants to purchase shares of the Company’s common stock equal to (i) the amount
of the Additional Notes, multiplied by 0.83, and divided by (ii) the Closing Bid Price of the Company’s common stock as of
the date immediately prior to the Initial Exchange (the “Purchase Warrant”), or $1.30. The Purchase Warrant
shall be exercisable, commencing on the date upon which the Company’s receives the Required Approvals thereof, for the exercise
price of one hundred ten percent (110%) of the Closing Bid Price of the Company’s common stock as of the date immediately
prior to the Initial Exchange, or $1.43. In connection therewith, the Company has agreed to file a registration statement to register
the sale of the shares of common stock underlying the exercise of the Purchase Warrant by the Creditor pursuant to the Exchange
Agreement. In the event that the Creditor does not purchase all of the Additional Notes, the Company shall have the option to acquire
a portion of the Purchase Warrants from the Creditor for an aggregate price of $1.00.
The Exchange Agreement contains customary
representations, warranties and covenants by the parties. Among other covenants, the Company nor any of its subsidiaries may, directly
or indirectly, issue any equity security or any equity-linked or related security until 30 days after the date of the Second Exchange.
In the event there is no Second Exchange, such restriction shall lapse 30 days after the end of the Pricing Period applicable to
the Initial Exchange. Moreover, during the period commencing on the date of the Exchange Agreement and ending on the later of (i)
10 calendar days after the end of the Pricing Period or (ii) such time as when all of the Notes have been exchanged or repaid,
the Company may not directly or indirectly issue equity or debt securities of the Company to a party in exchange for outstanding
equity or debt securities in one or more transactions carried out pursuant to Section 3(a)(9) or Section 3(a)(10) of the Securities
Act, unless the Company has received prior written consent from the Creditor. In addition, the Company has agreed to indemnify
the Creditor and its affiliates for material misstatements or breaches of its obligations under the Exchange Agreement.
The foregoing description of the terms
and conditions of the Exchange Agreement and the Purchase Warrant is not complete and is qualified in its entirety by the full
text of the Exchange Agreement and the Purchase Warrant, copies of which are filed herewith as Exhibit 10.1 and Exhibit
4.1, respectively, and incorporated into this Item 1.01 by reference.