DPW Ault Global Holdings Inc

Settlement of Derivative Litigation

On February 24, 2020, DPW Holdings, Inc., a Delaware corporation (the “Company”), entered into a definitive settlement agreement (the “Settlement Agreement”) that is intended to settle the previously disclosed derivative litigation captioned Ethan Young and Greg Young, Derivatively on Behalf of Nominal Defendant, DPW Holdings, Inc. v. Milton C. Ault, III, Amos Kohn, William B. Horne, Jeff Bentz, Mordechai Rosenberg, Robert O. Smith, and Kristine Ault and DPW Holdings, Inc., as the nominal defendant (Case No. 18-cv-6587) (as amended on March 11, 2019, the “Amended Complaint”) against the Company and certain of its officers and directors pending in the United States District Court for the Central District of California (the “Court”). As previously disclosed, the Amended Complaint alleges violations including breaches of fiduciary duties and unjust enrichment claims based on the previously pled transactions. The derivative litigation is more fully described in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019.

Under the terms of the settlement agreement, the Company’s Board of Directors (the “Board”) shall adopt and/or maintain resolutions and amendments to committee charters and/or the Company’s bylaws within thirty (30) days of issuance of an Order and Final Judgment entered by the Court approving the settlement (the “Order”) to ensure adherence to certain corporate governance policies (collectively, the “Reform(s)”), which shall remain in effect for no less than five (5) years, subject to any of the following: (a) a determination by a majority of the independent directors that the Reform is no longer in the best interest of the Company, including, but not limited to, due to circumstances making the Reform no longer applicable, feasible, or available on commercially reasonable terms, or (b) modifications which the Company reasonably believes are required by applicable law or regulation.

In connection with the settlement agreement, the parties have agreed upon a payment of attorneys’ fees in the amount of $600,000.00 payable by the Company’s Director & Officer liability insurance.

The settlement agreement contains no admission of wrongdoing. The Company has always maintained and continues to believe that it did not engage in any wrongdoing or otherwise commit any violation of federal or state securities laws or other laws.

Pursuant to the settlement agreement, the Company and certain of its officers and directors will be released from the claims that were asserted or could have been asserted in the Amended Complaint by the plaintiffs therein. The settlement is subject to the implementation of certain Reforms, including, among others, (i) the resignation of a current director and the appointment of two (2) new independent directors to the Board and the Company’s three-member Nomination and Governance Committee (the “Governance Committee”), one of whom shall also be appointed to the Company’s three-member Audit Committee as an audit committee financial expert (the “Expert”) as such term is defined by the Securities and Exchange Commission (the “Commission”), (ii) certain amendments to the Company’s bylaws setting forth the composition of its directors and requirements of an independent director, (iii) the creation of a policy for related party transactions to be administered by the Company’s Governance Committee, (iv) certain amendments to the Audit Committee Charter, (v) the adoption of a written policy protecting whistleblowers, and (vi) within six (6) months of the Order, a resolution by the Board adopting a clawback policy for accounting restatements to financial statements included in a quarterly or annual report filed with the Commission. In addition, the settlement is subject to the preliminary and final Court approval, funding of the $600,000 in cash by the Company’s insurance carrier, and other customary closing conditions. There can be no assurance that the settlement will be finalized and approved by the Court and, even if approved, whether the conditions to closing will be satisfied, and the actual outcome of this matter may differ materially from the terms of the settlement described herein.

All other litigation described in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019, remains pending and the Company continues to vigorously defend against the allegations in those actions, but there can be no assurance that the defenses will be successful.