Document:

Exhibit 10.2

 

SEVERANCE AGREEMENT AND GENERAL
RELEASE

 

THIS SEVERANCE AGREEMENT
AND GENERAL RELEASE (the “Agreement”) dated as of the 19th day of February, 2021, is made between COMSovereign
Holding Corp., a Nevada corporation, (the “Company”) and Brian T. Mihelich (the “Employee”).

 

WHEREAS, the
Employee is currently employed by the Company pursuant to that certain Employment Agreement between Employee and the Company dated
as of December 2, 2019, which has a current term that expires on December 31, 2021 (the “Employment Agreement”);

 

WHEREAS, Employee
and the Company have mutually agreed that Employee’s employment and all positions, titles and offices with the Company and,
if and as applicable, any and all of its subsidiaries, affiliates and related entities shall separate effective as of the close
of business on the Separation Date (as defined in Section 2 below);

 

WHEREAS, conditioned
upon the timely execution of this Agreement and the other conditions set forth herein, the Company has offered the Employee certain
bonus payments and other benefits subject to and conditioned on the Employee’s timely execution of, and compliance with,
this Agreement; and

 

WHEREAS, voluntarily
and of his own free will, the Employee desires to accept and receive such severance payments and other benefits on the terms and
conditions herein.

 

NOW, THEREFORE,
in consideration of the mutual promises and covenants contained herein, the Employee and the Company agree as follows:

 

1. Definitions.
Any capitalized terms used shall have the meaning as provided in this Agreement.

 

2. Separation
from Employment. The Employee agrees and confirms that his employment and all of his positions, titles and offices with
the Company (and, if and as applicable, any and all of its subsidiaries, affiliates and related entities) shall end effective at
the close of business on March 5, 2021 (the “Separation Date”). The Employee agrees that the termination of his
employment as contemplated under this Agreement shall be treated as a voluntary resignation without Good Reason for all purposes
including, without limitation, for purposes of all compensation and benefits due and owing under the Employment Agreement.

 

3.
Employee’s Position and Duties Through the Separation Date. Through the Separation Date, the Employee shall continue
to serve in his current capacity and in such other capacity or capacities as the Board shall reasonably delegate. Upon the commencement
of a new Chief Financial Officer (“CFO”), Employee shall relinquish the CFO title, and shall assist with the
smooth transition of the CFO duties to the CFO in an orderly manner. Employee’s duties shall include diligently performing
any responsibilities required by the Company, including but not limited to those relating to cooperation with any internal investigation.

 

4. Base Salary
and Company-Sponsored Group Medical Coverage. Through the Separation Date, the Employee shall be paid his base salary at
an annualized rate of $150,000 less required withholdings (the “Base Salary”) and continue to be entitled to
Company-sponsored group medical coverage on the same terms he currently enjoys. On or before the Separation Date, the Company shall
pay to Employee all accrued payroll owed to Employee. 

 

     

     

    

 

5. Employment
Agreement. The Employee and the Company agree that other than the obligations under Sections 8(n) (Non-Solicitation), 8(n)
(Covenant Not to Compete), and 8(p) (Non-Disclosure of Confidential Information) of the Employment Agreement, the Employment Agreement
is terminated, null and void, that this Agreement supersedes and replaces the Employment Agreement and that unless expressly set
forth herein, the Employee is not entitled to any payments or benefits of any kind from the Company. In addition, the Employee
acknowledges and agrees that his obligations under Sections 8(n), 8(m), and 8(p) of the Employment Agreement survive the termination
of the Employment Agreement. In addition, the Employee acknowledges and agrees that his obligations pursuant to the December 2,
2019 Non-Disclosure and Confidentiality Agreement, and the December 2, 2019
Invention Assignment & Secrecy Agreement remain in full force and effect.

 

6. Severance.

 

a. Severance
Payment. In consideration of the Employee’s promises, covenants and releases set forth in this Agreement, including
the releases given by the Employee to the Company and the other Company Releasees (as defined below) in Sections 9 and 10 of this
Agreement, and contingent upon (a) the Employee’s execution and delivery of this Agreement to the Company during the Review
Period (as defined below in Section 9), (b) this Agreement becoming effective and not revoked (as defined below in Section 9),
and (c) the Employee’s compliance with all the terms and conditions of this Agreement, the Company shall Pay the Employee
a severance payment of $50,000 (the “Severance Payment”). The Severance Payment of $50,000 will be paid, less
applicable withholdings and deductions, but grossed up for state and federal income tax. The Severance Payment shall be paid on
or before the Separation Date.

 

b. Stock
holdings. Also in consideration of the Employee’s promises, covenants and releases set forth in this Agreement, including
the releases given by the Employee to the Company and the other Company Releasees (as defined below) in Sections 9 and 10 of this
Agreement, and contingent upon: (a) the Employee’s execution and delivery of this Agreement to the Company during the Review
Period (as defined below in Section 10); (b) this Agreement becoming effective and not revoked (as defined below in Section 10);
and (c) the Employee’s compliance with all the terms and conditions of this Agreement, the Employee shall retain all 216,667
shares of Company stock in Employee's account, #99900786 at ClearTrust, inclusive of the 33,333 unvested shares restricted share
awards that do not vest until December 2, 2021. At the request of Employee, the Company will provide appropriate legal opinion
letters to ClearTrust regarding Employee's submission of a Rule 144 legend removal request.

 

c. Consulting
Period. Employee agrees to provide consulting services to the Company, including but not limited to the smooth transition
to a new CFO and the smooth transition of the CFO's responsibilities regarding the 2020 year-end audit, from the Separation Date
through March 19, 2021.

 

 7. Acknowledgements; Good Consideration.

 

a. Subject
to receipt of the payments referenced in Sections 4 and 6 of this Agreement, the Employee acknowledges and agrees that he has received
all compensation, salary, bonuses, paid time off, severance, equity awards, interests and incentives, and any other benefits owed
to him by the Company and/or any of its parents, subsidiaries, affiliates and related entities and further agrees that he has no
claims against the Company or any of the other Company Releasees for such compensation, salary, bonus, paid time off, severance,
award, interests, incentives or other benefits.

 

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b. The
Employee acknowledges and agrees that he would not otherwise be entitled to the Severance Bonus Payment provided in Section 6 above
without his timely agreement to, non-revocation of, and compliance with this Agreement. The Employee further acknowledges that
the Severance Bonus Payment pursuant to the terms and conditions of this Agreement (i) is in full and final discharge of any and
all liabilities and obligations of the Company and any and all of the other “Company Releasees” (as defined in Section
8 below) to the Employee monetarily or with respect to employee benefits or otherwise (including but not limited to with respect
to severance or separation pay, salary, bonuses, incentive compensation, and otherwise) and any and all obligations arising under
any actual or alleged written, oral or implied employment agreement (including, without limitation, the Employment Agreement),
promise, policy, plan, or procedure of the Company and/or any other Company Releasees and/or any alleged understanding or arrangement
between the Employee and the Company and/or any other Company Releasees; (ii) exceed any such payment, benefit, or other thing
of value to which the Employee might otherwise be entitled under any policy, procedure or plan of the Company and/or any of the
other Company Releasees and/or any other agreement or understanding between the Employee and the Company and/or any of the other
Company Releasees; and (iii) constitute good and valuable consideration for the Employee’s releases, covenants and obligations
under this Agreement.

 

c. The
Company acknowledges and agrees that the Employee owes no amounts to the Company under the terms of the Employment Agreement..

 

8. General
Release by the Employee. In consideration of the representations and covenants undertaken by the Company, including the
Severance Bonus Payment described in Section 6 of this Agreement, the Employee releases, discharges, and promises not to sue the
Company, or any of its past, present and future parents, subsidiaries, affiliates, and related entities, and any and all of its
and their past, present and future directors, officers, members, shareholders, owners, investors, founders, principals, executives,
employees, contractors, attorneys, representatives, insurers, and agents, and its and their respective predecessors, successors,
and assigns (individually and collectively, the “Company Releasees”), from and with respect to any and all claims,
actions, suits, liabilities, debts, controversies, contracts, agreements, obligations, damages, judgments, causes of action, and
contingencies whatsoever, including attorneys’ fees and costs, in law or in equity, known or unknown, suspected or unsuspected,
asserted or unasserted, which against any of the Company Releasees, the Employee and/or any or all of his executors, heirs, administrators,
representatives, insurers, agents, attorneys, successors and assigns ever had, now has or have, or hereafter can, shall, or may
have for, upon, or by reason of any matter, cause, act, occurrence, omission, decision, or thing whatsoever from the beginning
of the world through the date on which the Employee executes this Agreement (individually and collectively, “Claims”).
This includes, to the maximum extent permitted by law, (i) any Claims in connection with, relating to, or arising out of the Employee’s
employment with the Company or any of the other Company Releasees, the terms and conditions of such employment, and/or the termination,
resignation, separation or end of such employment; (ii) any Claims for compensation, salary, bonus, incentive compensation or similar
benefit, options, stock or equity awards or similar awards or equity-based compensation, severance pay, pension, vacation pay,
life insurance, disability benefits, health or medical insurance, or any other fringe benefit; (iii) any Claims under any federal,
state, or local law, regulation, or ordinance, including any Claims under Title VII of the Civil Rights Act of 1964, the Americans
with Disabilities Act, the Employee Retirement Income Security Act, the Fair Labor Standards Act, the Family Medical Leave Act,
the Texas Civil Rights laws, the Texas Minimum Wage Act, retaliation claims under Texas Workers’ Compensation law, or any
other federal, state or local law (statutory or decisional), regulation or ordinance prohibiting employment discrimination, harassment
or retaliation; (iv) any Claims in connection with, arising under or relating to the Employment Agreement; (v) any Claims under
common law including, without limitation, any Claims for tort, breach of contract (express or implied, written or oral), quasi
contract, detrimental reliance, any doctrine of good faith and fair dealing, violation of public policy, or wrongful or constructive
discharge or termination; and (vi) any Claims for compensatory damages, punitive damages, liquidated damages, emotional distress,
or attorneys’ fees, costs, disbursements and the like. The Employee intends this release to be a general release of any and
all Claims to the fullest extent permissible by law. Nothing herein releases any claims arising out of or relating to enforcing
the terms of this Agreement or any claims that, as a matter of law, cannot be released by private agreement.

 

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By signing this Agreement, Employee acknowledges
and agrees that he has been paid for all salary, wages, and compensation earned through his last day worked, and that he is not
entitled to receive, and shall not claim from the Company, any compensation, payments or benefits except for those payments and
benefits that are expressly set forth in this Agreement.

 

Employee understands that, by releasing
all of his legally waivable claims, known or unknown, against the Company Releasees, he is releasing all of his rights to bring
any claims against any of them based on any actions, decisions or events occurring through the date he signs this Agreement including
the terms and conditions of his employment and the termination of his employment. This release excludes claims which cannot be
waived by law, such as claims for unemployment benefit rights and workers' compensation benefits rights.

 

NOTHING IN THIS AGREEMENT SHALL BE
CONSTRUED TO PROHIBIT EMPLOYEE FROM CONTACTING, FILING A CHARGE OR PARTICIPATING IN ANY PROCEEDING OR INVESTIGATION BY THE U.S.
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (“EEOC”), DEPARTMENT OF LABOR (“DOL”), NATIONAL LABOR RELATIONS
BOARD (“NLRB”), OR COMPARABLE STATE OR LOCAL ENTITY. NOTWITHSTANDING THE FOREGOING, EMPLOYEE AGREES TO WAIVE ANY RIGHT
TO RECOVER MONETARY DAMAGES IN ANY CHARGE, COMPLAINT, OR LAWSUIT FILED BY HIM OR ON HIS BEHALF.

 

9. Older
Worker Benefit Protection Act Disclosure. The Employee recognizes that as part of this agreement to release any and all
claims against the Company and the other Company Releasees, he is releasing claims for age discrimination under the Age Discrimination
in Employment Act (regardless of whether he has ever asserted such claims). Accordingly, The Employee has a right to review and
reflect upon this Agreement for a period of up to twenty-one (21) days after the date he receives this Agreement (the “Review
Period”); and he has an additional period of seven (7) days after executing this Agreement to revoke it under the terms
of the Older Worker Benefit Protection Act (the “Revocation Period”). Unless properly revoked during the Revocation
Period, this Agreement, including the releases contained herein, shall become effective immediately upon the expiration of the
Revocation Period (the “Effective Date”). The Employee is hereby advised in writing to consult with an attorney
of his own choosing in connection with this Agreement. By his signature below, the Employee represents and warrants that he has
been advised to consult with an attorney of his own choosing, that he has been given a reasonable amount of time to consider this
Agreement, and that if he signs this Agreement prior to the expiration of the Review Period, he is voluntarily and knowingly waiving
the remainder of the Review Period.

 

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10. Return
of Company Property. Upon the earlier of (a) the Separation Date or (b) a written request by the Company, the Employee
shall promptly return to the Company (i) all Company property and equipment in his possession, custody or control, including, as
applicable, any Company-issued computer(s), keys, access cards, and mobile phone(s), devices, software, hardware, and equipment,
and shall provide any logins, passwords and access codes for accessing same; and (ii) any and all documents, data, records and
files (in all forms and formats, whether hard-copy or electronic, and all copies) that constitute or contain any Confidential Information
of, regarding or belonging to the Company. The Employee shall not retain in his possession, custody or control, or otherwise transmit
or transfer to any other computer, device, storage medium, person or entity, any Confidential Information. The Employee understands
and agrees that compliance with the requirements under this Section 10 is a condition of receiving the Severance Payment as contemplated
in Sections 4 and 6 of this Agreement.

 

11. Confidential
Nature of Agreement. The Employee agrees to keep this Agreement and the provisions of and consideration provided pursuant
to this Agreement fully confidential, except that that he may disclose them, if and as necessary, to his tax advisors and attorneys,
to his immediate family members, as required by law or legal process, or in connection with any legal proceeding arising under
this Agreement. The Company may disclose this Agreement in its full and complete discretion.

 

 12. Non-Disparagement.

 

a. The
Employee agrees that he will not make (or direct or encourage anyone else to make), any statements in any manner, form, forum or
media (including, without limitation, orally or in writing, in, to or via the press, any media, social media or forum, on-line,
e-mail, text message, blog, posting, or otherwise) to any person, entity or third party (including, without limitation, to any
current or former Company employees, to the general public, to customers of the Company, to persons or entities with which the
Company has or is seeking business relationships or on Glassdoor or similar websites) which statements in any way (i) disparage
or reflect negatively on the Company and/or any of the other Company Releasees and/or (ii) harm or would reasonably be expected
or likely to harm the Company’s and/or any of the other Company Releasees’ reputation, goodwill, business, actual or
potential business interests, relations, transactions, plans, or dealings.

 

b. The
Company agrees that its officers and directors will not make (or direct or encourage anyone else to make), any statements in any
manner, form, forum or media (including, without limitation, orally or in writing, in, to or via the press, any media, social media
or forum, on-line, e-mail, text message, blog, posting, or otherwise) to any person, entity or third party (including, without
limitation, to any current or former Company employees, to the general public, to customers of the Company, to persons or entities
with which Employee has or is seeking business relationships) which statements in any way (i) disparage or reflect negatively on
the Employee and/or (ii) harm or would reasonably be expected or likely to harm the Employee’s reputation.

 

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c. Nothing
in this Section 12, shall prohibit either party from making truthful statements to governmental agencies or authorities, or in
connection with any court proceedings, as may be required or permitted by law, or by the Company as necessary for legitimate business
purposes to third parties such as insurers, investors, accountants, attorneys or other professional representatives. However, these
non-disparagement obligations, do not limit any party’s ability to truthfully communicate with the EEOC, DOL, NLRB or Securities
and Exchange Commission (“SEC”) and comparable state or local agencies or departments whether such communication is
initiated by one of the parties or in response to the agency.

 

13. Defend
Trade Secrets Act Notice. For the avoidance of doubt, the Employee is hereby given notice and understands that pursuant
to the federal Defend Trade Secrets Act of 2016, the Employee shall not be held criminally or civilly liable under any federal
or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local
government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating
a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such
filing is made under seal.

 

14. Protected
Disclosures. Nothing contained in this Agreement limits the Employee’s ability to file a charge or complaint with
any governmental agency, regulatory entity or commission (a “Government Agency”), including the Equal Employment
Opportunity Commission (“EEOC”) or similar state of local agency, concerning any act or omission that the Employee
reasonably believes constitutes a possible violation of federal or state law or to make other disclosures that are protected under
the anti-retaliation or whistleblower provisions of applicable federal or state law or regulation. The Employee further understands
that this Agreement does not limit the Employee’s ability to communicate with or participate in any investigation or proceeding
that may be conducted by a Government Agency, including providing documents or other information, without notice to the Company.
Further, nothing in this Agreement prevents the Employee from disclosing information in response to compulsory legal process. If
the Employee files any charge or complaint with any Government Agency (including, without limitation, the EEOC or similar state
or local agency), the Employee waives any right to individualized or monetary relief should any Government Agency or other third
party pursue any claims on the Employee’s behalf (either individually, or as part of any collective or class action), provided
that nothing shall affect any right Employee could have (if any) to receive a whistleblower award or bounty (if applicable) for
information provided to the Securities and Exchange Commission.

 

15. Cooperation.
The Employee agrees to cooperate with the Company as may be requested by the Company or its attorneys: (a) in the defense or prosecution
of any claims or actions now in existence or which may be brought in the future against, by or on behalf of the Company or any
of its related entities, and (b) in connection with any investigation involving the Company or any of its related entities by a
governmental or regulatory authority or any internal investigation, provided that such claim, action or investigation relates to
events or occurrences that transpired while the Employee was employed by the Company or any of its related entities or about which
the Employee may otherwise have knowledge or information.

 

16. Execution
of Additional Documents. The Employee agrees upon the request of the Company, to execute all documents and take all actions
reasonably requested by the Company in order to effectuate the intent of this Agreement.

 

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17. No
Admission. This Agreement is not intended, and shall not be construed or admissible, as evidence or an admission that the
Company or any of the other Company Releasees has violated any federal, state or local law (statutory or decisional), ordinance
or regulation, breached any contract or committed any wrong whatsoever against the Employee.

 

18. Section
409A. This Agreement and the payments and benefits provided hereunder are intended to be exempt from the requirements of
Section 409A of the Code and the Treasury Regulations and other guidance promulgated thereunder ("Section 409A") to the
maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4),
the involuntary separation pay plan exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the
extent Section 409A is applicable to this Agreement or the payments or benefits provided hereunder, it is intended that this Agreement
and such payments and benefits comply with the deferral, payout and other limitations and restrictions imposed under Section 409A.
Notwithstanding anything in this Agreement to the contrary, this Agreement and the payments and benefits provided hereunder shall
be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing,
if and to the extent required to comply with Section 409A, (i) each payment made under this Agreement shall be treated as a separate
payment and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate
payments and (ii) no payment or benefit required to be paid under this Agreement on account of a termination of Employee's employment
shall be made unless and until Employee incurs a “separation from service” within the meaning of Section 409A. If Employee
is a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i), then to the extent necessary to avoid
subjecting Employee to the imposition of any additional tax under Section 409A, amounts that would otherwise be payable under this
Agreement during the six-month period immediately following Employee's “separation from service” within the meaning
of Code Section 409A(a)(2)(A)(i) shall not be paid to Employee during such period, but shall instead be accumulated and paid to
Employee (or, in the event of Employee’s death, Employee's estate) in a lump sum on the first business day following the
earlier of (a) the date that is six months after Employee’s separation from service or (b) Employee's death. Notwithstanding
anything in this Agreement to the contrary, the Company makes no representations or warranties with respect to any tax, economic
or legal consequences of this Agreement or any payments or benefits provided hereunder, and no provision of this Agreement shall
be interpreted or construed to transfer any liability for failure to comply with Section 409A from Employee or any other individual
to the Company or any of its subsidiaries or affiliates.

 

19. Severability.
If any provision or portion of (or incorporated by reference in) this Agreement is held illegal, unenforceable or invalid, such
illegality, unenforceability or invalidation shall not affect other provisions or applications of this Agreement which can be given
effect without the invalid provision or portion or application thereof, and to this end the provisions of this Agreement are declared
to be severable; and each provision and portion (including any provision or portion) held to be illegal, unenforceable or invalid
(in whole or in part) by a court of competent jurisdiction shall be interpreted and deemed modified by such court so as to be valid
and enforceable to the fullest extent permitted by law and so enforced.

 

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20. Successors
and Assigns; Third Party Beneficiaries. This Agreement inures to the benefit of the Company and its subsidiaries, affiliates,
and related entities, and its and their respective successors and assigns (the “Company Entities”). Each of
the Company Entities is an intended third-party beneficiary of this Agreement and of all of the Employee’s releases, covenants,
obligations and restrictions hereunder and each may enforce the terms hereof and thereof as if it were a party to this Agreement.

 

21. Modification.
This Agreement may be modified or amended only by a written instrument duly signed by each of the parties hereto or their respective
successors or assigns.

 

22. Controlling
Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Arizona, without regard
to principles of conflict of laws.

 

23. Acceptance
of Agreement; Right to Revoke; Effective Date. In order to accept this Agreement and be eligible to receive the Severance
Payment, the Employee (i) must sign, date and return this Agreement to the Company (Attention: Kevin Sherlock) on or before the
end of the Review Period; and (ii) must not revoke his acceptance.

 

24. Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be
an original, but all which taken together shall be considered one and the same document. This Agreement may be executed by scanned
..pdf copy transmitted by e-mail, and such .pdf copy of a signature shall be deemed an original. To execute and return a signed
..pdf copy, the Employee will transmit such copy via e- mail by on or before the end of the Review Period to the attention of: Kevin
Sherlock, General Counsel at ksherlock@comsovereign.com.

 

25. Termination
and Return of Payments. If the Employee breaches any of the Employee’s obligations under or incorporated by reference
in this Agreement, in addition to any other legal or equitable remedies the Company may have for such breach, the Company shall
have the right to terminate the Company’s payments to the Employee under this Agreement and require immediate repayment of
any amounts already paid and return of the restricted stock referenced in Section 6. The termination or return of such payments
in the event of the Employee’s breach will not affect the Employee’s release of claims under Sections 8 and 9 hereof.

 

26. Entire
Agreement. Except as otherwise expressly provided in this Agreement, this Agreement constitutes and contains the complete
understanding of the Employee and the Company with respect to the subject matter hereof and supersedes and replaces all prior negotiations
and all agreements, whether written or oral, concerning such subject matter. This is an integrated document.

 

27. Knowing
and Voluntary Waiver and Agreement. By his signature below, the Employee represents and warrants that (i) he has been given
twenty-one (21) days to review and consider this Agreement; (ii) he has been afforded a period of seven (7) days after signing
this Agreement to revoke his acceptance hereof; (iii) he has read and reviewed this Agreement thoroughly and fully understands
its terms and conditions and their significance and has discussed them with his independent legal counsel, or has had a reasonable
opportunity to have done so; and

(iv) he agrees to all the terms and conditions
of this Agreement and is signing this Agreement voluntarily and of his own free will, with the full understanding of its terms,
conditions and legal consequences, and with the intent to be bound hereby.

 

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IN WITNESS WHEREOF,
the parties to this Separation Agreement, intending to be legally bound, have executed this Separation Agreement on the date first
written above.

 

	COMSOVEREIGN HOLDING CORP.:	 	 
	 	 	 	 
	By:	/s/ Daniel L. Hodges	 	 
	Name:	Daniel L. Hodges	 	 
	Title:	Chief Executive Officer	 	 
	 	 	 	 
	 	 	 	EMPLOYEE:
	 	 	 	 
	 	 	 	/s/ Brian T. Mihelich
	 	 	 	Brian T. Mihelich

 

 

9Document

EXHIBIT 4.2

DESCRIPTION OF CAPITAL STOCK 
The following information summarizes certain features and rights of our capital stock. The summary does not purport to be exhaustive and is qualified in its entirety by reference to our articles of incorporation, bylaws, and to applicable Washington law. 
General 
Banner’s authorized capital stock consists of: 
 
												
		•		50,000,000 shares of common stock, $0.01 par value per share;

 
												
		•		5,000,000 shares of non-voting common stock, $0.01 par value per share; and

 
												
		•		500,000 shares of preferred stock, $0.01 par value per share.

As of January 31, 2020, there were 35,712,347 shares of Banner common stock and 39,192 shares of Banner non-voting common stock issued and outstanding. No shares of Banner preferred stock are currently outstanding. Banner’s common stock is traded on NASDAQ under the symbol “BANR.” 
Common Stock 
Each share of Banner common stock has the same relative rights and is identical in all respects with each other share of Banner common stock. Banner common stock represents non-withdrawable capital, is not of an insurable type and is not insured by the FDIC or any other government agency. 
Subject to any prior rights of the holders of any preferred or other stock of Banner then outstanding, holders of Banner common stock are entitled to receive such dividends as are declared by the board of directors of Banner out of funds legally available for dividends. 
Except with respect to greater than 10% stockholders, full voting rights are vested in the holders of Banner common stock and each share is entitled to one vote. See “—Anti-Takeover Effects—Restrictions on Voting Rights.” Subject to any prior rights of the holders of any Banner preferred stock then outstanding, in the event of a liquidation, dissolution or winding up of Banner, holders of shares of Banner common stock will be entitled to receive, pro rata, any assets distributable to stockholders in respect of shares held by them. Holders of shares of Banner common stock will not have any preemptive rights to subscribe for any additional securities which may be issued by Banner, nor do they have cumulative voting rights. 
Nonvoting Common Stock 
The holders of Banner nonvoting common stock have no voting rights except as required by the Washington Business Corporations Act, which we refer to as the “WBCA,” and as described in the next sentence. In addition to any other vote required by law, the affirmative vote of the holders of a majority of the outstanding shares of Banner nonvoting common stock, voting separately as a class, is required to amend Banner’s articles of incorporation to alter or change the designation, preferences, limitations or relative rights of all or part of the shares of Banner nonvoting common stock. 
Except with respect to voting, Banner nonvoting common stock and Banner common stock have the same rights, preferences and privileges, share ratably in all assets of the corporation upon its liquidation, dissolution or winding-up, are entitled to receive dividends (other than certain stock dividends described in the next sentence) in the same amount per share and at the same time, as and if declared by Banner’s board of directors, and are equal and identical in all other respects as to all other matters. In the event of any stock dividend having the effect of a stock split, stock combination or other reclassification of shares of either the Banner common stock or the Banner nonvoting common stock, the outstanding shares of the other class will be proportionately split, combined or reclassified in a similar manner, except that holders of Banner common stock will receive only shares of Banner common stock in respect of their shares of Banner common stock and holders of Banner nonvoting common stock will receive only shares of Banner nonvoting common stock in respect of their shares of Banner nonvoting common stock. 
No transfer of shares of Banner nonvoting common stock by the initial holders of those shares (or such holders’ affiliates) is permitted, except for specified permitted transfers or transfers to affiliates of the initial holders of the nonvoting common stock. Each share of nonvoting common stock will be converted automatically into one share of common stock upon a permitted transfer. 
163

In the event of any merger, consolidation, reclassification or other transaction in which the shares of Banner common stock are exchanged for or changed into other stock or securities, cash and/or any other property, each share of Banner nonvoting common stock will simultaneously be similarly exchanged or changed into an amount per whole share equal to the aggregate amount of stock, securities, cash and/or any other property that such Banner nonvoting common stock would be entitled to receive if it were converted into a share of Banner common stock immediately prior to such transaction. In case of any offer to repurchase shares, pro rata subscription offer, rights offer or similar offer to holders of Banner common stock, Banner is required to provide the holders of Banner nonvoting common stock the right to participate. 
Preferred Stock 
Our Articles of Incorporation permit our board of directors to authorize the issuance of up to 500,000 shares of preferred stock, par value $0.01, in one or more series, at such time or times and for such consideration as the board of directors of Banner may determine, without stockholder action. The board of directors of Banner is expressly authorized at any time, and from time to time, to issue Banner preferred stock, with such voting and other powers, liquidation preferences and participating, optional or other special rights, and qualifications, limitations or restrictions, as are stated and expressed in the board resolution providing for the issuance. The board of directors of Banner is authorized to designate the series and the number of shares comprising such series, the dividend rate on the shares of such series, the redemption rights, if any, any purchase, retirement or sinking fund provisions, any conversion rights and any voting rights. The ability of Banner’s board of directors to approve the issuance of preferred or other stock without stockholder approval could dilute the voting power or other rights or adversely affect the market value of our common stock and may make an acquisition by an unwanted suitor of a controlling interest in Banner more difficult, time-consuming or costly, or otherwise discourage an attempt to acquire control of Banner. 
Shares of preferred stock redeemed or acquired by Banner may return to the status of authorized but unissued shares, without designation as to series, and may be reissued by Banner upon approval of its board of directors. 
Anti-Takeover Effects 
The provisions of our Articles of Incorporation, our Bylaws, and Washington law summarized in the following paragraphs may have anti-takeover effects and could delay, defer, or prevent a tender offer or takeover attempt that a stockholder might consider to be in such stockholder’s best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders, and may make removal of the incumbent management and directors more difficult. 
Authorized Shares. Our Articles of Incorporation authorize the issuance of 50,000,000 shares of common stock, 5,000,000 shares of non-voting common stock and 500,000 shares of preferred stock. These shares of common stock and preferred stock provide our board of directors with as much flexibility as possible to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and the exercise of employee stock options. However, these additional authorized shares may also be used by the board of directors consistent with its fiduciary duty to deter future attempts to gain control of us. The board of directors also has sole authority to determine the terms of any one or more series of preferred stock, including voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, the board of directors has the power to the extent consistent with its fiduciary duty to issue a series of preferred stock to persons friendly to management in order to attempt to block a tender offer, merger or other transaction by which a third party seeks control of us, and thereby assist members of management to retain their positions. 
Restrictions on Voting Rights. Our Articles of Incorporation provide for restrictions on voting rights of shares owned in excess of 10% of any class of our equity securities. Specifically, our Articles of Incorporation provide that if any person or group acting in concert acquires the beneficial ownership of more than 10% of any class of our equity securities without the prior approval by a two-thirds vote of our “Continuing Directors,” (as defined therein) then, with respect to each vote in excess of 10% of the voting power of our outstanding shares of voting stock which such person would otherwise have been entitled to cast, such person is entitled to cast only one-hundredth of one vote per share. Exceptions from this limitation are provided for, among other things, any proxy granted to one or more of our “Continuing Directors” and for our employee benefit plans. Under our Articles of Incorporation, the restriction on voting shares beneficially owned in violation of the foregoing limitations is imposed automatically, and the Articles of Incorporation provide that a majority of our Continuing Directors have the power to construe the forgoing restrictions and to make all determinations necessary or desirable to implement these restrictions. These restrictions would, among other things, restrict voting power of a beneficial owner of more than 10% of our outstanding shares of common stock in a proxy contest or on other matters on which such person is entitled to vote. 
Board of Directors. Our board of directors is divided into three classes, each of which contains approximately one-third of the members of the board of directors. The members of each class are elected for a term of three years, with the terms of office of all members of one class expiring each year so that approximately one-third of the total number of directors is elected each year. The classification of directors, together with the provisions in our Articles of Incorporation described below that limit the ability of stockholders to remove directors and that permit only the remaining directors to fill any vacancies on the board of directors, have the effect of making it more difficult for stockholders to change the composition of the board of directors. As a result, at least two annual meetings of stockholders will be required for the stockholders to change a majority of the directors, whether or not a change in the board of directors would be beneficial and whether or not a majority of stockholders believe that such a change would be desirable. 
Our Articles of Incorporation provide that the size of the board of directors is not less than five or more than 25 as set in accordance with the Bylaws. In accordance with the Bylaws, the number of directors is currently set at 11. The Articles of Incorporation provide that any vacancy occurring in the board of directors, including a vacancy created by an increase in the number of directors, will be filled by a vote of two-thirds 
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of the directors then in office and any director so chosen will hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which the director has been chosen expires. The classified board of directors is intended to provide for continuity of the board of directors and to make it more difficult and time consuming for a stockholder group to fully use its voting power to gain control of the board of directors without the consent of incumbent members of the board of directors. The Articles of Incorporation further provide that a director may be removed from the board of directors prior to the expiration of his term only for cause and only upon the vote of the holders of 80% of the total votes eligible to be cast thereon. In the absence of this provision, the vote of the holders of a majority of the shares could remove the entire board of directors, but only with cause, and replace it with persons of such holders’ choice. 
Cumulative Voting, Special Meetings and Action by Written Consent. Our Articles of Incorporation do not provide for cumulative voting for any purpose. Moreover, the Articles of Incorporation provide that special meetings of stockholders may be called only by our board of directors or by a committee of the board of directors. In addition, our Bylaws require that any action taken by written consent must receive the consent of all of the outstanding voting stock entitled to vote on the action taken. 
Stockholder Vote Required to Approve Business Combinations with Principal Stockholders. The Articles of Incorporation require the approval of the holders of (i) at least 80% of the outstanding shares entitled to vote thereon (and, if any class or series of shares is entitled to vote thereon separately, the approval of the holders of at least 80% of the outstanding shares of each such class or series) and (ii) at least a majority of the outstanding shares entitled to vote thereon, not including shares deemed beneficially owned by a “Related Person,” for certain “Business Combinations” involving a Related Person, except in cases where the proposed transaction has been approved in advance by two-thirds of those members of Banner’s board of directors who are unaffiliated with the Related Person and were directors prior to the time when the Related Person became a Related Person. The term “Related Person” is defined to include any individual, corporation, partnership or other entity (other than tax-qualified benefit plans of Banner) which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of common stock of Banner or an affiliate of such person or entity. The term “Business Combination” is defined to include: (i) any merger or consolidation of Banner with or into any Related Person; (ii) any sale, lease, exchange, mortgage, transfer, or other disposition of 25% or more of the assets of Banner to a Related Person; (iii) any merger or consolidation of a Related Person with or into Banner or a subsidiary of Banner; (iv) any sale, lease, exchange, transfer or other disposition of certain assets of a Related Person to Banner or a subsidiary of Banner; (v) the issuance of any securities of Banner or a subsidiary of Banner to a Related Person; (vi) the acquisition by Banner or a subsidiary of Banner of any securities of a Related Person; (vii) any reclassification of common stock of Banner or any recapitalization involving the common stock of Banner; or (viii) any agreement or other arrangement providing for any of the foregoing. 
Washington law imposes restrictions on certain transactions between a corporation and certain significant stockholders. Chapter 23B.19 of the WCBA prohibits a “target corporation,” with certain exceptions, from engaging in certain “significant business transactions” with an “Acquiring Person” who acquires 10% or more of the voting securities of a target corporation for a period of five years after such acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation’s board of directors prior to the date of the acquisition or, at or subsequent to the date of the acquisition, the transaction is approved by a majority of the members of the target corporation’s board of directors and authorized at a stockholders’ meeting by the vote of at least two-thirds of the outstanding voting shares of the target corporation, excluding shares owned or controlled by the Acquiring Person. The prohibited transactions include, among others, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the Acquiring Person, termination of 5% or more of the employees of the target corporation as a result of the Acquiring Person’s acquisition of 10% or more of the shares, or allowing the Acquiring Person to receive any disproportionate benefit as a stockholder. After the five-year period during which significant business transactions are prohibited, certain significant business transactions may occur if certain “fair price” criteria or stockholder approval requirements are met. Target corporations include all publicly-traded corporations incorporated under Washington law, as well as publicly traded foreign corporations that meet certain requirements. 
Amendment of Articles of Incorporation and Bylaws. Amendments to our Articles of Incorporation must be approved by our board of directors by a majority vote of the board of directors and by our stockholders by a majority of the voting group comprising all the votes entitled to be cast on the proposed amendment, and a majority of each other voting group entitled to vote separately on the proposed amendment; provided, however, that the affirmative vote of the holders of at least 80% of votes entitled to be cast by each separate voting group entitled to vote thereon (after giving effect to the provision limiting voting rights, if applicable) is required to amend or repeal certain provisions of the Articles of Incorporation, including the provision limiting voting rights, the provisions relating to the removal of directors, stockholder nominations and proposals, the approval of certain business combinations, calling special meetings, director and officer indemnification by us and amendment of our Bylaws and Articles of Incorporation. Our Bylaws may be amended by a majority vote of our board of directors, or by a vote of 80% of the total votes entitled to vote generally in the election of directors at a duly constituted meeting of stockholders. 
Stockholder Nominations and Proposals. Our Articles of Incorporation generally require a stockholder who intends to nominate a candidate for election to the board of directors, or to raise new business at a stockholder meeting to give not less than 30 nor more than 60 days’ advance notice to the Secretary of Banner. The notice provision requires a stockholder who desires to raise new business to provide certain information to us concerning the nature of the new business, the stockholder and the stockholder’s interest in the business matter. Similarly, a stockholder wishing to nominate any person for election as a director must provide us with certain information concerning the nominee and the proposing stockholder. 
The cumulative effect of the restrictions on a potential acquisition of us that are contained in our Articles of Incorporation and Bylaws, and federal and Washington law, may be to discourage potential takeover attempts and perpetuate incumbent management, even though certain 
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stockholders may deem a potential acquisition to be in their best interests, or deem existing management not to be acting in their best interests. 
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