-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Isy+nxJnV7DLTohTMwTyPL80WyrWWBiDpOrq5h0HExtP+gapeOpfUbSiwFc1NhGb K6Z6oBnDlKrA4MNIgtWhHw== 0001109355-03-000018.txt : 20030214 0001109355-03-000018.hdr.sgml : 20030214 20030214140621 ACCESSION NUMBER: 0001109355-03-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONOMAWEST HOLDINGS INC CENTRAL INDEX KEY: 0000102588 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 941069729 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01912 FILM NUMBER: 03566021 BUSINESS ADDRESS: STREET 1: 1448 INDUSTRIAL AVE CITY: SEBASTOPOL STATE: CA ZIP: 95472-4848 BUSINESS PHONE: 7078242548 MAIL ADDRESS: STREET 1: 1448 INDUSTRIAL AVE CITY: SEBASTOPOL STATE: CA ZIP: 95472 FORMER COMPANY: FORMER CONFORMED NAME: VACU DRY CO DATE OF NAME CHANGE: 19920703 10-Q 1 f10-q123102.txt QUARTERLY REPORT FOR 12/31/02 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X - ------- Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. For the quarterly period ended December 31, 2002 or - ------- Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _________ to _________. Commission File Number 01912 SONOMAWEST HOLDINGS, INC. (Exact name of registrant as specified in its charter) California 94-1069729 (State of incorporation) (IRS Employer Identification #) 2064 Highway 116 North, Sebastopol, CA 95472-2662 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 707-824-2001 -------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: ------- ---------- As of February 13, 2003, there were 1,104,783 shares of common stock, no par value, outstanding. 1 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at December 31, 2002 and June 30, 2002................................................3 Condensed Consolidated Statements of Earnings - Three and Six months ended December 31, 2002 and 2001......................4 Condensed Consolidated Statement of Changes in Shareholders' Equity - Six Months ended December 31, 2002......................5 Condensed Consolidated Statements of Cash Flows - Six Months ended December 31, 2002 and 2001.................................6 Notes to Condensed Consolidated Financial Statements.............7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................9 Item 4. Controls and Procedures.........................................13 PART II. OTHER INFORMATION Item 1. Legal Proceedings...............................................13 Item 2. Changes in Securities and Use of Proceeds......................13 Item 3. Defaults Upon Senior Securities ................................13 Item 4. Submission of Matters to a vote of Security Holders.............13 Item 5. Other Information...............................................14 Item 6. Exhibits and Reports on Form 8-K................................14 Signature.................................................................15 EXHIBIT INDEX.................................................................18 EXHIBITS......................................................................19 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS) ASSETS 12/31/02 6/30/02 ------------- ------------- (Unaudited) CURRENT ASSETS: Cash $ 1,762 $ 2,769 Restricted cash 600 600 Accounts receivable, less allowances for uncollectible accounts of $0 and $10 in fiscal 2003 and 2002, respectively 100 118 Other receivables 34 20 Prepaid income taxes - 75 Prepaid expenses and other assets 57 121 Current deferred income taxes, net 127 335 ------------- ------------- Total current assets 2,680 4,038 RENTAL PROPERTY, net 1,803 1,917 INVESTMENT, at cost 2,446 1,402 DEFERRED INCOME TAXES 253 31 PREPAID COMMISSIONS AND OTHER ASSETS 76 82 ------------- ------------- Total assets $ 7,258 $7,470 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,887 $ 61 Accounts payable 106 108 Unearned rents and deposits 274 282 Accrued payroll and related liabilities 160 253 Accrued expenses 437 290 Net liabilities of discontinued operations 90 219 ------------- ------------- Total current liabilities 2,954 1,213 LONG-TERM DEBT, net of current maturities - 1,856 ------------- ------------- Total liabilities 2,954 3,069 ------------- ------------- SHAREHOLDERS' EQUITY: Preferred stock: 2,500 shares authorized; no shares outstanding - - Common stock: 5,000 shares authorized, no par value; 1,105 shares outstanding in fiscal 2003 and 2002 2,675 2,633 Stock subscription receivable (400) (400) Retained earnings 2,029 2,168 ------------- ------------- Total shareholders' equity 4,304 4,401 ------------- ------------- Total liabilities and shareholders' equity $ 7,258 $ 7,470 ============= =============
The accompanying notes are an integral part of these consolidated statements. 3
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Six Months Three Months Ended December 31 Ended December 31 ----------------- ----------------- 2002 2001 2002 2001 ---- ---- ---- ---- RENTAL REVENUE $ 757 $ 733 $ 378 $ 382 OPERATING COSTS 1,061 1,245 600 434 ------------------------------------------------- OPERATING LOSS (304) (512) (222) (52) INTEREST AND OTHER INCOME (EXPENSE), NET (48) (67) (11) (6) ------------------------------------------------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (352) (579) (233) (58) BENEFIT FOR INCOME TAXES 93 162 70 24 -------------------------------------------------- NET LOSS FROM CONTINUING OPERATIONS (259) (417) (163) (34) GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income taxes 120 43 77 5 -------------------------------------------------- NET LOSS $ (139) $ (374) $ (86) $ (29) ================================================== WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS: Basic 1,105 1,024 1,105 1,024 Diluted 1,110 1,059 1,110 1,058 EARNINGS (LOSS) PER COMMON SHARE Continuing operations Basic $(0.23) $ (0.41) $ (0.15) $ (0.03) Diluted $(0.23) $ (0.41) $ (0.15) $ (0.03) Discontinued operations: Basic $ 0.11 $ 0.04 $ 0.07 $ 0.01 Diluted $ 0.11 $ 0.04 $ 0.07 $ 0.01 Net loss: Basic $ 0.13) $ (0.37) $ (0.08) $ (0.03) Diluted $(0.13) $ (0.37) $(0.08) $ (0.03)
The accompanying notes are an integral part of these consolidated statements. 4
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 (AMOUNTS IN THOUSANDS) Common Stock ---------------------------- Stock Total Number Subscriptions Retained Shareholders' of Shares Amount Receivable Earnings Equity ---------------------------------------------------------------------------- BALANCE, JUNE 30, 2002 1,105 $ 2,633 $ (400) $ 2,168 $ 4,401 Net loss - - - (139) (139) Non-cash stock compensation charge - 42 - - 42 ------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 2002 1,105 $ 2,675 $ (400) $ 2,029 $ 4,304 ============================================================================== The accompanying notes are an integral part of these consolidated statements.
5
SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 (AMOUNTS IN THOUSANDS) 2002 2001 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (139) $ (374) ----------------------------------- Adjustments to reconcile net loss to net cash provided by operating activities: Loss on sale of fixed assets 7 - Gain on sale of discontinued operations, net (120) (43) Non-cash stock compensation charge 42 18 Depreciation and amortization expense 156 194 Changes in assets and liabilities: Accounts receivable, net 18 (20) Other receivables (14) 87 Deferred income tax provision (benefit) (94) (161) Prepaid commissions and other assets 6 (69) Prepaid income taxes 75 37 Prepaid expenses and other assets 64 80 Accounts payable and accrued expenses 145 121 Accrued payroll and related liabilities (93) 271 Unearned rents and deposits (8) 40 ----------------------------------- 184 555 ----------------------------------- Net cash provided by continuing operations 45 181 Net cash provided by (used in) discontinued operations 71 (15) ----------------------------------- Net cash provided by operating activities 116 166 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (49) (94) Investment in MetroPCS (1,044) (446) ----------------------------------- Net cash used in investing activities (1,093) (540) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (30) (28) Issuance of common stock - 5 ----------------------------------- Net cash used for financing activities (30) (23) ----------------------------------- NET DECREASE IN CASH (1,007) (397) CASH AT BEGINNING OF YEAR (of which $600 is restricted) 3,369 3,936 ----------------------------------- CASH AT END OF YEAR (of which $600 is restricted) $ 2,362 $ 3,539 =================================== Supplemental Cash Flow Information ---------------------------------- 2002 2001 ----------------- ---------------- Interest paid $ 71 $ 74 Taxes paid $ 1 $ -
The accompanying notes are an integral part of these consolidated statements. 6 SONOMAWEST HOLDINGS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 2002 Note 1 - Basis of Presentation The accompanying fiscal year 2003 and 2002 unaudited interim statements have been prepared pursuant to the rules of the Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes these disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments necessary for a fair presentation for the periods presented have been reflected and are of a normal recurring nature. These interim financial statements should be read in conjunction with the financial statements and notes thereto for each of the three years in the period ended June 30, 2002. The results of operations for the six-month period ended December 31, 2002 are not necessarily indicative of the results that will be achieved for the entire year ending June 30, 2003. Note 2 - Investment The Company has made a financial commitment to make a $3 million minority investment in the Series D preferred stock of a privately held telecommunications company, MetroPCS, Inc., of which $2,446,000 was funded as of December 31, 2002. The Company accounts for the investment using the cost method. It is expected that the remaining $554,000 will be funded in several installments throughout the fiscal year ending June 30, 2003. Note 3 - Discontinued Operations The after tax gains of $120,000 and $43,000 on the sale of discontinued operations presented in the accompanying statements of earnings for the three and six months ended December 31, 2002 and 2001, respectively, represent the sales of remaining discontinued inventories and fixed assets net of related selling costs and income taxes. On October 3, 2002 the Company entered into a sale agreement with Commercial Sales and Leasing, Inc. for the remaining Perma-Pak finished goods and other Perma-Pak property for a total sale price of $240,000. The agreement calls for a down payment of $175,000 with the balance of $65,000 secured by a non-interest bearing promissory note. The promissory note calls for payments of $20,000 on October 25, 2002, $30,000 on April 4, 2003 and $15,000 on July 4, 2003. Revenue pursuant to this sale is recorded at the time payments are received. Pursuant to the severance agreement with the former Chief Executive Officer, Gary L. Hess (who is a current board member), the Company paid Mr. Hess a commission of $44,329, based upon the cash received from the sale of Perma-Pak assets to Commercial Sales and Leasing, Inc. Remaining liabilities of discontinued operations of $90,000 and $219,000, as of December 31, 2002 and June 30, 2002, respectively, relate to reserves for rental repairs necessary to ready one of the Company's properties previously used in the discontinued operations for future rentals. All remaining fixed assets of discontinued operations are fully reserved. 7 Note 4 - Change in Accounting Policy Effective July 1, 2002, the Company has elected to account for all prospective stock options in accordance with SFAS 123, "Accounting for Stock-Based Compensation". As a result, during the first quarter of fiscal 2003 the Company incurred a charge included in continuing operations of $42,000 related to the issuance of 24,200 fully vested stock options to the directors, officers and certain employees of the Company. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SonomaWest Holdings, Inc. (the "Company" or "Registrant") is including the following cautionary statement in this Quarterly Report to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company. The statements contained in this Report that are not historical facts are "forward-looking statements" (as such term is defined in Section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934), which can be identified by the use of forward-looking terminology such as "estimated," "projects," "anticipated," "expects," "intends," "believes," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, although actual results may differ materially from those described in any such forward-looking statements. All written and oral forward-looking statements made in connection with this Report which are attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the "Certain Factors" as set forth in our Annual Report for the fiscal year ended June 30, 2002 filed on September 20, 2002, and other cautionary statements set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations". There can be no assurance that management's expectations, beliefs or projections will be achieved or accomplished, and the Company expressly disclaims any obligation to update any forward-looking statements. The financial statements herein presented for the three and six months ending December 31, 2002 and 2001 reflect all the adjustments that in the opinion of management are necessary for the fair presentation of the financial position and results of operations for the periods then ended. All adjustments during the periods presented are of a normal recurring nature. OVERVIEW As of December 31, 2002, the Company's business consists of its real estate management and rental operations and its minority investment in the Series D preferred stock of a privately held telecommunications company, MetroPCS, Inc. Prior to the sale of its other business segments, SonomaWest operated in three business segments: industrial dried fruit ingredients, organic packaged goods and real estate. The Company commenced a strategic reorientation upon the announcement of the proposed sale of its apple-based industrial ingredients product line in June 1999. In August 1999 the decision was made to sell or discontinue all product lines in the Company's industrial dried fruit ingredients business. In January 2000, the Company decided to sell or discontinue its organic packaged goods business. As a result of these decisions, both of these business segments are considered discontinued operations and their operating results, results of cash flows and net assets are reflected outside of the Company's continuing operations. During fiscal 2001, the Company committed to a $3 million minority investment in a telecommunications company. As of December 31, 2002, the Company had invested $2,446,000 of its $3.0 million commitment. 9 DISCONTINUED OPERATIONS For the six months ended December 31, 2002, the Company recorded an after-tax gain from discontinued operations of $120,000. The after-tax gain for the six-months ended December 31, 2002 was primarily a result of the gain of $91,000 ($151,000 pretax) on the sale of the Perma-Pak inventory and equipment and the reversal of the reserve of $44,000 ($74,000 pretax) for the sublease of the Company's former corporate headquarters. The reversal of the reserve was a result of the acceptance of the option by the sublessee to extend the sublease through the original term of the Company's lease. This compares to an after-tax gain of $43,000 for the six months ended December 31, 2001. RESULTS OF CONTINUING OPERATIONS The Company's continuing line of business is its real estate management and rental operations and an investment in MetroPCS, Inc. Results of Operations - --------------------- The Company leases warehouse, production, and office space as well as outside storage space at both of its properties. The two properties are located on 82 acres of land and have a combined leaseable area under roof of 390,000 square feet. As of December 31, 2002 and 2001, the Company had a total of 28 tenants. The tenants have varying original lease terms ranging from month-to-month to seven years with options to extend the leases. As of December 31, 2002, the tenants occupied approximately 223,000 square feet under roof or 57% of the leasable area under roof. This compares to 218,000 square feet under roof or 56% as of December 31, 2001. In addition to the area under roof, the Company had 82,000 square feet of outside area under lease as of December 31, 2002 and 2001. Rental Revenue. For the six months ended December 31, 2002 rental revenue increased $24,000 or 3% as compared to the corresponding period in the prior year. Although the number of tenants as of December 31, 2002 and 2001 are the same, the increase in rental revenue is attributable to increased occupancy throughout the first six months of the 2003 fiscal year as compared to the first six months of the 2002 fiscal year. For the three months ended December 31, 2002 rental revenue decreased $4,000 or 1% from the three months ended December 31, 2001. This decrease was a result of the loss of a tenant that occupied the cold storage portion of the North Property at a substantially higher gross rate per square foot. This increased rate per square foot was due to the inclusion of utility costs as part of the rental rate. These utility costs are reflected in Operating Costs and are not netted against the related rental revenue. The rate decline was partially offset by the increased occupancy between the comparative periods. Operating Costs. Operating costs consist of direct costs related to continuing operations and all general corporate costs. Only direct selling, general and administrative costs related to the discontinued packaged goods businesses were charged to discontinued operations in the consolidated statements of operations. For the six months ended December 31, 2002 operating costs decreased $184,000 or 15% compared to the six months ended December 31, 2001. The decrease from fiscal 2001 was primarily due to separation costs of $362,500 related to the termination of the Company's Chief Executive Officer, which were expensed during the six months ended December 31, 2001, offset by the accrual of the non-reimbursable costs incurred as a result of storm damage incurred in December of 2002 of $173,000. The Company's total operating costs exceeded the tenant rental revenue for the six months ended December 31, 2002 and 2001. The Company continues to closely scrutinize all discretionary spending. In addition, the Company continues to actively search for additional tenant revenue to eliminate these negative operating results. While the Company and its retained broker are actively marketing the properties to prospective tenants, there can be no assurance that tenants will be found in the near term or at rates comparable with existing leases. As a result, the Company's operating results will be negatively impacted as long as the tenant rental revenue stream fails to cover existing operating costs. 10 During December 2002 the Company experienced two severe storms with high winds. The Company estimates that they will incur $173,000 of costs to repair the damages from the two storms that will not be covered by the Company's insurance as a result of the deductible of $100,000 per occurrence. For the three months ended December 31, 2002 operating costs increased $166,000 or 38%. This increase is a result of the storm damage accrual of $173,000. Without this accrual the expenses would have decreased $7,000 or 2%. Interest and Other Income (Expense), Net. Interest and other income (expense) consist primarily of interest income on the Company's cash balances, interest expense on mortgage debt and the change in the value of the Company's interest rate swap contract. For the six months ending December 31, 2002, the Company generated $29,000 of interest income, incurred $70,000 of interest expense (which includes a positive swap contract adjustment of $2,000) and incurred a loss on the abandonment of fixed assets of $7,000. This compares to $64,000 of interest income and $130,000 of interest expense (which includes a negative swap contract adjustment of $69,000) for the corresponding period in the prior year. The decrease in interest income is due to a reduced cash balance in fiscal 2003 and a decline in interest rates. The decrease in interest expense of $60,000 is a result of the large decrease in the swap contract valuation as of December 31, 2001. Income Taxes. The effective tax rate for the six months ended December 31, 2002 decreased to 9% from 27% as of December 31, 2001. As of June 30, 2002 the Company has carried back all of its federal losses to offset prior years taxable income. Any tax losses incurred subsequent to the June 30, 2002 will be carried forward to offset future taxable income. Due to the uncertainty of future realization, a valuation allowance is recorded against state net operating losses. The primary reason for the lower effective rate as of December 31, 2002, was the impact of permanent differences (primarily the $42,000 stock compensation charge) on a small amount of taxable loss and the valuation allowance recorded against state net operating losses. Liquidity and Capital Resources - ------------------------------- The Company had unrestricted cash of $1.8 million at December 31, 2002 and current maturities of long-term debt of $1.9 million. The Company's long-term debt is due and payable in December 2003, and as a result, the entire debt is recorded under current maturities of long-term debt. The Company anticipates refinancing this debt and has begun the process of discussing this refinancing with lenders. The Company's cash balance decreased $1,000,000 during the six months ended December 31, 2002, primarily as a result of the investment of $1,044,000 in MetroPCS, Inc. and capital expenditures of $49,000. During December 2000, the Company entered into an agreement with its sole lender to modify the terms of its lending agreement. As a result, the financial based debt covenant was amended. The new covenant required the Company, at the end of each fiscal year, to maintain a debt service coverage ratio at least 1.15 to 1. Until such time as this ratio reaches 1.25 to 1, the Company was required to maintain restricted, unencumbered cash or marketable securities of at least $600,000. Furthermore, the terms of the loan restrict the Company from incurring any additional indebtedness during the term of the loan. As of August 15, 2001, the Company and the bank agreed to a Restated and Amended Addendum ("Addendum") to this agreement. This Addendum amended and restated the provisions of the agreement stated above. The new Addendum requires that the Company, at the end of each fiscal year, maintain a debt service coverage ratio of at least 1.05 to 1. It still requires that until such time as this ratio reaches 1.25 to 1, the Company is required to maintain restricted, unencumbered cash or marketable securities of at least $600,000. In addition to the lien on the Company's South Sebastopol Property it grants the bank a lien on a money market account, in the amount of $90,000. Management believes that in the future it can remain in compliance with this new debt service coverage ratio. The $90,000 Money Market account balance is part of, not an addition to, the restricted unencumbered cash balance of $600,000. As of June 30, 2002, the Company's debt service ratio was 1.18 to 1. Consequently, $600,000 is classified as restricted cash on the accompanying balance sheet. As of December 31, 2002, the Company's debt service coverage ratio was 1.34 to 1. 11 The Company has committed itself to a $3 million minority investment in the Series D preferred stock of a privately held telecommunications company, MetroPCS, Inc. As of December 31, 2002, the Company had invested $2,446,000 of its $3 million commitment. The Company has accounted for the investment using the cost method. It is expected that the remaining $554,000 will be funded in several installments throughout the remainder of the 2003 fiscal year. On July 17, 2001 the Company entered into a separation agreement in principle, which was thereafter executed, with its President and Chief Executive Officer, Gary L. Hess ("Mr. Hess") replacing Mr. Hess' existing employment agreement. Pursuant to the separation agreement, Mr. Hess continued as President and Chief Executive Officer, first on a full-time basis and then on a part-time basis, through October 31, 2001. Effective September 2001, the Company began paying separation payments to Mr. Hess in the amount of $12,500 monthly for 29 months, replacing all payment obligations under his prior employment agreement. The Company's obligation under this agreement of $362,500 was recorded in operating expenses in the first quarter of fiscal 2002. As of December 31, 2002, the remaining obligation under this agreement is $150,000. Mr. Hess has been designated as the Company's exclusive sales representative in its efforts to sell any and all remaining Perma-Pak finished goods inventory and other Perma-Pak property (inventory and property related to discontinued operations) and will receive commissions as such sales occur. As of October 3, 2002, the Company entered into an agreement to sell all of the remaining Perma-Pak finished goods inventory and other Perma-Pak property. As of December 31, 2002 the Company received $195,000 of the $240,000 total purchase price. The Company has paid commissions to Mr. Hess of $ 44,329 pursuant to this sale and $ 53,173 in total pursuant to this agreement. As part of the separation agreement, Mr. Hess was given until January 29, 2002 to decide whether to extend the period in which he was eligible to exercise the stock options previously granted to him. On January 28, 2002, Mr. Hess elected to exercise his option to purchase 80,000 shares of his total outstanding options of 89,474 shares. Mr. Hess elected to extend the termination date on his option to purchase the remaining 9,474 shares, through the last date of the severance period (January 31, 2004). As part of the separation agreement the Company agreed to loan Mr. Hess up to $447,370 to allow Mr. Hess to exercise the aforementioned options. Mr. Hess elected to borrow $400,000 to exercise 80,000 stock options at $5 per share. The note dated January 28, 2002 in the amount of $400,000, bears interest at the Applicable Federal Rate (AFR) for loans of three years or less on the date of the note (the AFR at January 28, 2002 was 2.73%), payable quarterly. The Note is payable in full on August 1, 2004. The Note is full recourse and specifically secured by the stock certificates and evidenced in the form of a loan and security agreement. As a result of the extension of the option to purchase the remaining 9,474 shares, the Company incurred a non-cash stock compensation charge in the third quarter ended March 31, 2002 of $22,501. On September 4, 2001, the Company authorized the waiver of the provision of Craig R. Stapleton's (a shareholder and former director) stock options, providing for the termination of the options 90 days following termination of service to the Company. Consequently, the period in which Mr. Stapleton is entitled to exercise his option to purchase 10,000 shares was extended, and a one-time non-cash compensation charge of $18,000 was recorded in September 2001. Effective July 1, 2002, the Company has elected to account for all prospective stock options in accordance with SFAS 123, "Accounting for Stock-Based Compensation". As a result, during the first quarter of fiscal 2003 the Company incurred a charge against continuing operations of $42,000 related to the issuance of 24,200 fully vested stock options to the Directors, Officers and specific employees of the Company. 12 Item 4. Controls and Procedures Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chairman of the Board of Directors and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chairman of the Board of Directors and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company's periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies and material weaknesses. PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a vote of Security Holders. At the Registrant's Annual Meeting of Stockholders held on October 30, 2002 the following proposals were adopted by the margins indicated: Number of Shares ---------------- Voted For Withheld --------- -------- 1. To elect four Directors to hold office until the Annual Meeting of Stockholders to be held in 2003 or until their respective successors have been elected or appointed David J. Bugatto 1,026,768 7,955 Gary L. Hess 1,020,143 14,580 Roger S. Mertz 1,032,868 1,855 Fredric Selinger 1,032,868 1,855 13
Number of Shares ------------------------------------------------------------ Voted For Voted Against Withheld Not Voted --------- ------------- -------- --------- 2. To approve the SonomaWest Holdings, 726,110 73,402 19,676 215,535 Inc. 2002 Stock Incentive Plan Number of Shares ------------------------------------------------------------ Voted For Voted Against Withheld --------- ------------- -------- 3. To ratify the appointment of the accounting firm of Grant Thornton LLP as independent auditors for the fiscal year ending June 30, 2003 1,001,198 33,308 217
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits 3.1(1) Articles of Incorporation, as amended to date 3.2(2) Bylaws, as amended to date 10.1 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Roger S. Mertz 10.2 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and David J. Bugatto 10.3 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Gary L. Hess 10.4 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Frederic Selinger 10.5 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Matthew J. Ertman 10.6 Indemnification Agreement dated December 18, 2002 between SonomaWest Holdings, Inc. and Thomas R. Eakin 10.7 Agreement for the sale of the Perma-Pak Inventory and Equipment dated October 3, 2002 between SonomaWest Holdings, Inc. and Commercial Sales and Leasing, Inc. 14 99.1 Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 ------------------------- (1) Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2000. (2) Incorporated by reference to the registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992. b. Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 13, 2003 /s/ Thomas R. Eakin - ---------------------------------------- Thomas R. Eakin, Chief Financial Officer 15 CERTIFICATIONS - -------------- I, Roger S. Mertz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SonomaWest Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 13, 2003 /s/ Roger S. Mertz ----------------------------------------- Roger S. Mertz Chairman of the Board of Directors 16 CERTIFICATIONS - -------------- I, Thomas R. Eakin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SonomaWest Holdings, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 13, 2003 /s/ Thomas R. Eakin ----------------------------------------- Thomas R. Eakin Chief Financial Officer 17 EXHIBIT INDEX Exhibit No. Document Description ----------- ---------------------- 10.1 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Roger S. Mertz 10.2 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and David J. Bugatto 10.3 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Gary L. Hess 10.4 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Frederic Selinger 10.5 Indemnification Agreement dated October 30, 2002 between SonomaWest Holdings, Inc. and Matthew J. Ertman 10.6 Indemnification Agreement dated December 18, 2002 between SonomaWest Holdings, Inc. and Thomas R. Eakin 10.7 Agreement for the sale of the Perma-Pak Inventory and Equipment dated October 3, 2002 between SonomaWest Holdings, Inc. and Commercial Sales and Leasing, Inc. 99.1 Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 18 EX-99.1 3 cert99-1.txt CERTIFICIATION - R.S. MERTZ EXHIBIT 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), the undersigned officer of SonomaWest Holdings, Inc., a California corporation (the "Company"), does hereby certify that: The Quarterly Report on Form 10-Q for the quarter ended December 31, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 13, 2003 /s/ Roger S. Mertz ------------------------------------------ Roger S. Mertz Chairman of the Board EX-99.2 4 cert99-2.txt CERTIFICATION - T.R. EAKIN Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), the undersigned officer of SonomaWest Holdings, Inc., a California corporation (the "Company"), does hereby certify that: The Quarterly Report on Form 10-Q for the quarter ended December 31, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 13, 2003 /s/ Thomas R. Eakin ----------------------------------------- Thomas R. Eakin Chief Financial Officer EX-10.1 5 mertz-ia.txt INDEMNIFICATION AGMT - R.S. MERTZ SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of October 30, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and Roger S. Mertz ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors of the Company or its subsidiaries may not be willing to continue to serve as directors without additional protection; WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors of the Company and its subsidiaries and to indemnify its directors so as to provide them with the maximum protection permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including without limitation attorneys' fees, disbursements and retainers, accounting and witness fees, travel and disposition costs, expenses of investigations, judicial or administrative proceedings or appeals), judgments, fines, penalties, excise taxes under the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director of the Company or any subsidiary of the Company, by reason of any action of the Company or subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. Agreement to Serve. Indemnitee agrees to continue to serve as a director of the Company and/or the Company's subsidiaries, as the case may be, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced herein (but only amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or ERISA excise taxes actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines, penalties or ERISA excise taxes to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties or ERISA excise taxes, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provisions of any federal, state or local statutory law; or (vi) Indemnified Claims. To indemnify the Indemnitee for any expenses or liabilities of any type whatsoever (including but not limited to judgments, fines, penalties or ERISA excise taxes and amounts paid in settlement) for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a director of another corporation or other enterprise, at the time such act or omission occurred. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors so that if Indemnitee is or was a director of such constituent corporation, or is or was serving at the request of such constituent corporation as a director of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Merz ---------------------------------- Roger S. Mertz Chairman of the Board Address: --------------------------- --------------------------- AGREED TO AND ACCEPTED: INDEMNITEE: /s/ Roger S. Mertz ------------------------------------- Roger S. Mertz Address: ------------------------------ ------------------------------ [Signature page to Indemnification Agreement] EX-10.2 6 bugatto-ia.txt INDEMNIFICATION AGMT - D.J. BUGATTO SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of October 30, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and David J. Bugatto ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors of the Company or its subsidiaries may not be willing to continue to serve as directors without additional protection; WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors of the Company and its subsidiaries and to indemnify its directors so as to provide them with the maximum protection permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including without limitation attorneys' fees, disbursements and retainers, accounting and witness fees, travel and disposition costs, expenses of investigations, judicial or administrative proceedings or appeals), judgments, fines, penalties, excise taxes under the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director of the Company or any subsidiary of the Company, by reason of any action of the Company or subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. Agreement to Serve. Indemnitee agrees to continue to serve as a director of the Company and/or the Company's subsidiaries, as the case may be, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced herein (but only amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or ERISA excise taxes actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines, penalties or ERISA excise taxes to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties or ERISA excise taxes, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provisions of any federal, state or local statutory law; or (vi) Indemnified Claims. To indemnify the Indemnitee for any expenses or liabilities of any type whatsoever (including but not limited to judgments, fines, penalties or ERISA excise taxes and amounts paid in settlement) for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a director of another corporation or other enterprise, at the time such act or omission occurred. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors so that if Indemnitee is or was a director of such constituent corporation, or is or was serving at the request of such constituent corporation as a director of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Mertz -------------------------------------- Roger S. Mertz Chairman of the Board Address: 2064 Highway 116 North Sebastopol, California 95472 AGREED TO AND ACCEPTED: INDEMNITEE: /s/ David J. Bugatto - ----------------------------------------- David J. Bugatto Address: ---------------------------- ---------------------------- [Signature page to Indemnification Agreement] EX-10.3 7 hess-ia.txt INDEMNIFICATION AGMT - G.L. HESS SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of October 30, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and Gary L. Hess ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors of the Company or its subsidiaries may not be willing to continue to serve as directors without additional protection; WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors of the Company and its subsidiaries and to indemnify its directors so as to provide them with the maximum protection permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including without limitation attorneys' fees, disbursements and retainers, accounting and witness fees, travel and disposition costs, expenses of investigations, judicial or administrative proceedings or appeals), judgments, fines, penalties, excise taxes under the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director of the Company or any subsidiary of the Company, by reason of any action of the Company or subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. Agreement to Serve. Indemnitee agrees to continue to serve as a director of the Company and/or the Company's subsidiaries, as the case may be, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced herein (but only amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or ERISA excise taxes actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines, penalties or ERISA excise taxes to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties or ERISA excise taxes, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provisions of any federal, state or local statutory law; or (vi) Indemnified Claims. To indemnify the Indemnitee for any expenses or liabilities of any type whatsoever (including but not limited to judgments, fines, penalties or ERISA excise taxes and amounts paid in settlement) for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a director of another corporation or other enterprise, at the time such act or omission occurred. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors so that if Indemnitee is or was a director of such constituent corporation, or is or was serving at the request of such constituent corporation as a director of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Mertz ------------------------------------ Roger S. Mertz Chairman of the Board Address: 2064 Highway 116 North Sebastopol, California 95472 AGREED TO AND ACCEPTED: INDEMNITEE: /s/ Gary L. Hess - ------------------------------------ Gary L. Hess Address: ------------------------------- ------------------------------- [Signature page to Indemnification Agreement] EX-10.4 8 selinger-ia.txt INDEMNIFICATION AGMT - F. SELINGER SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of October 30, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and Fredric Selinger ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors of the Company or its subsidiaries may not be willing to continue to serve as directors without additional protection; WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors of the Company and its subsidiaries and to indemnify its directors so as to provide them with the maximum protection permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including without limitation attorneys' fees, disbursements and retainers, accounting and witness fees, travel and disposition costs, expenses of investigations, judicial or administrative proceedings or appeals), judgments, fines, penalties, excise taxes under the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director of the Company or any subsidiary of the Company, by reason of any action of the Company or subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director of another corporation or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. Agreement to Serve. Indemnitee agrees to continue to serve as a director of the Company and/or the Company's subsidiaries, as the case may be, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced herein (but only amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or ERISA excise taxes actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines, penalties or ERISA excise taxes to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties or ERISA excise taxes, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provisions of any federal, state or local statutory law; or (vi) Indemnified Claims. To indemnify the Indemnitee for any expenses or liabilities of any type whatsoever (including but not limited to judgments, fines, penalties or ERISA excise taxes and amounts paid in settlement) for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was a director of another corporation or other enterprise, at the time such act or omission occurred. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors so that if Indemnitee is or was a director of such constituent corporation, or is or was serving at the request of such constituent corporation as a director of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Mertz ------------------------------------ Roger S. Mertz Chairman of the Board Address: 2064 Highway 116 North Sebastopol, California 95472 AGREED TO AND ACCEPTED: INDEMNITEE: /s/ Fredric Selinger - --------------------------------------------- Fredric Selinger Address: ----------------------------- ----------------------------- [Signature page to Indemnification Agreement] EX-10.5 9 ertman-ia.txt INDEMNIFICATION AGMT - M.J. ERTMAN SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of October 30, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and Matthew J. Ertman ("Indemnitee"). WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, particularly services related to the reporting of transactions entered into by the Company's officers, directors and shareholders involving the Company's common stock under Sections 13 and 16 of the Securities Exchange Act of 1934, as amended, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Certain Definitions. (a) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (b) "Covered Event" shall mean any event or occurrence related to services provided by Indemnitee as an officer, agent or fiduciary of the Company, related to the preparation and filing of Schedules 13D and 13G, and Forms 3, 4 and 5 under Sections 13 and 16, respectively, of the Securities Exchange Act of 1934, on behalf of officers, directors and shareholders of the Company, including without limitation, the execution of such schedules and forms pursuant to a power of attorney. The Company acknowledges that such services are being performed for the benefit of the Company. (c) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. 2. Indemnification. (a) Indemnification of Expenses. the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim, including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Claim, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a Claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, applicable employment law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's officers. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which an officer may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance Expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for Expenses or liabilities of any type whatsoever which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Indemnified Claims. To indemnify the Indemnitee for any Expenses or liabilities of any type whatsoever for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its officers so that if Indemnitee is or was an officer of such constituent corporation, or is or was serving at the request of such constituent corporation as an officer of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of Expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Mertz ------------------------------------ Roger S. Mertz Chairman of the Board Address: 2064 Highway 116 North Sebastopol, California 95472 AGREED TO AND ACCEPTED: INDEMNITEE: /s/ Matthew J.Ertman - ----------------------------- Matthew J. Ertman Address - ----------------------------- - ----------------------------- - ----------------------------- [Signature page to Indemnification Agreement] EX-10.6 10 eakin-ia.txt INDEMNIFICATION AGMT - T.R. EAKIN SONOMAWEST HOLDINGS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of December 18, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation (the "Company"), and Thomas R. Eakin ("Indemnitee"). WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company or its subsidiaries may not be willing to continue to serve as officers and directors without additional protection; WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and its subsidiaries and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law; WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be adequately protected; WHEREAS, Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on condition that he be so indemnified; NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was an officer of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or by reason of the fact that Indemnitee is or was serving at the request of the Company as an officer of another corporation or other enterprise, against expenses (including without limitation attorneys' fees, disbursements and retainers, accounting and witness fees, travel and disposition costs, expenses of investigations, judicial or administrative proceedings or appeals), judgments, fines, penalties, excise taxes under the Employment Retirement Income Security Act of 1974, as amended ("ERISA"), and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to believe that Indemnitee's conduct was unlawful. (b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was an officer of the Company or any subsidiary of the Company, by reason of any action of the Company or subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or by reason of the fact that Indemnitee is or was serving at the request of the Company as an officer of another corporation or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its shareholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine. 2. Agreement to Serve. Indemnitee agrees to continue to serve as an officer of the Company and/or the Company's subsidiaries, as the case may be, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the By-laws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced herein (but only amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chairman of the Board of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to the Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. The omission to so notify the Company will not relieve the Company from any liability which it may have under this Agreement or otherwise. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification under this Agreement, other than pursuant to Section 4, shall be made no later than 45 days after receipt by the Company of the written request of Indemnitee, accompanied by substantiating documentation, unless a determination is made within said 45-day period by (1) the Board of Directors by a majority vote of a quorum consisting of directors who are or were not parties to such Proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth herein. In the event the Company does not indemnify Indemnitee within such 45-day period, whether or not the Company (including its Board of Directors or independent legal counsel) has made a determination that Indemnitee has not met the applicable standard of conduct, Indemnitee may at anytime thereafter bring suit against the Company to recover the unpaid amount in any court of competent jurisdiction. The burden of proving by clear an convincing evidence that indemnification is not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses reasonably incurred in connection with successfully establishing his right to indemnification hereunder, in whole or part, shall also be indemnified by the Company. (d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4. Additional Indemnification Rights; Nonexclusively. (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's or any subsidiary's Articles of Incorporation, the Company's or any subsidiary's By-laws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusively. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its By-laws, any agreement, any vote of shareholders or disinterested directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or ERISA excise taxes actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines, penalties or ERISA excise taxes to which Indemnitee is entitled. 6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's officers. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company. 8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: i) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which an officer may not be relieved of liability under the California General Corporation Law; (ii) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California Corporations Code, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; (iii)Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; (iv) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties or ERISA excise taxes, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability maintained by the Company; (v) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar provisions of any federal, state or local statutory law; or (vi) Indemnified Claims. To indemnify the Indemnitee for any expenses or liabilities of any type whatsoever (including but not limited to judgments, fines, penalties or ERISA excise taxes and amounts paid in settlement) for which the Indemnitee has been or is indemnified by the Company otherwise than pursuant to this Agreement. 10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the California General Corporation Law, such provisions shall not be effective unless and until the Company's Articles of Incorporation authorize such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page of this Agreement and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer of another corporation or other enterprise, at the time such act or omission occurred. 11. Construction of Certain Phrases. For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its officers so that if Indemnitee is or was an officer of such constituent corporation, or is or was serving at the request of such constituent corporation as an officer of another corporation or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 14. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of the Indemnitee's material defenses to such action were made in bad faith or were frivolous. 15. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California. 17. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely within California. 18. Subrogation. In the event of any payment under this Agreement to or on behalf of the Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against any person, firm, corporation or other entity (other than the Company) and the Indemnitee shall execute all papers requested by the Company and shall do any and all things that may be necessary or desirable to secure such rights for the Company, including the execution of such documents necessary or desirable to enable the Company to effectively bring suit to enforce such rights. 19. Subject Matter and Parties. The intended purpose of this Agreement is to provide for indemnification and advancement of expenses, and this Agreement is not intended to affect any other aspect of any relationship between the Indemnitee and the Company and is not intended to and shall not create any rights in any person as a third party beneficiary hereunder. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SONOMAWEST HOLDINGS, INC. a California corporation By: /s/ Roger S. Mertz --------------------------------------- Roger S. Mertz Chairman of the Board Address: 2064 Highway 116 North Sebastopol, California 95472 AGREED TO AND ACCEPTED: INDEMNITEE: /s/ Thomas R. Eakin - ---------------------------------------- Thomas R. Eakin Address: --------------------------- --------------------------- --------------------------- [Signature page to Indemnification Agreement] EX-10.7 11 asstpur.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT between SONOMAWEST HOLDINGS, INC. and Commercial Sales and Leasing, Inc. October 3, 2002 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of October 3, 2002 by and between SONOMAWEST HOLDINGS, INC., a California corporation ("Seller"), and Commercial Sales and Leasing, Inc., a Utah corporation ("Buyer"). R E C I T A L S: ---------------- WHEREAS, Seller owns certain assets related to its former business of producing, packing and distributing low-moisture food products (the "Business"); WHEREAS, Seller no longer is engaged in the Business and desires to sell, and Buyer desires to buy, on the terms and conditions set forth in this Agreement, certain of Seller's assets relating to the Business. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, the parties agree as follows: T E R M S : ----------- ARTICLE 1 PURCHASE AND SALE OF ASSETS 1.1 Transferred Assets. Subject to and upon the terms and conditions of this Agreement, Seller agrees to sell, assign, transfer, convey and deliver to Buyer, and Buyer agrees to purchase from Seller on the Closing Date (as defined in Section 11.1), all of those certain assets of Seller described below (all of which are sometimes collectively referred to as the "Transferred Assets"). (a) Certain equipment owned by Seller which is used in the operation of the Business, which is listed on Schedule 1.1(a) hereto (the "Equipment"). (b) Certain inventory owned by the Seller, which is listed on Schedule 1.1(b) hereto (the "Inventory"), provided, however, that there may be non-material variations in the exact amounts of the various Inventory items listed on Schedule 1.1(b) and such non-material variations shall not affect Buyer's obligation hereunder. (c) All of Seller's rights, title and interest in the trademarks "Perma-Pak", "Noah's Ark" and "Pantri Reserve" as currently owned by Seller and as evidenced by the following registrations with the United States Patent and Trademark Office (the "USPTO") and/or common law rights (all these marks are sometimes collectively referred to as the "Trademarks"): PERMA-PAK -- Federal Registration Number 1124329 and common law rights. NOAH'S ARK -- Federal Registration Numbers 1195824, 1208746 and 1318399 and common law rights. PANTRI RESERVE -- Common law rights. Seller makes no representations or warranties as to (i) any potential claims, actions or proceedings by any other person or entity arising out of or related to Seller's, Buyer's or any other party's use of (or right to use) any of the Trademarks, (ii) the right of any other person or entity to use any of the Trademarks or any similar mark or (iii) the status of the aforementioned trademark registrations with the USPTO. Seller has an abandoned application with the USPTO to register the mark "Perma Pak" evidenced by application Serial Number 76204492 (the "Application") for which Seller has filed a petition to revive the Application. (d) The supplier list attached hereto as Schedule 1.1(d) (the "Supplier List") which lists the suppliers for the Business as last used by Seller prior to when it ceased operating the Business. (e) All goodwill related to the Business to the extent it relates to the Trademarks (the "Goodwill"). 1.2 Transfer of Title and Buyer Taking Possession; Security Interest. --------------------------------------------------------------------- Title and risk of loss to all the Transferred Assets other than the Trademarks and Goodwill shall pass to Buyer at the Closing. By no later than November 30, 2002, Buyer shall, at its own expense, remove all of the Equipment and Inventory from Seller's premises. Buyer's obligation to remove the Equipment and Inventory includes, but is not limited to, disassembling the Equipment for removal. If all or any portion of the Equipment and/or Inventory remains at Seller's premises after November 30, 2002, Buyer shall pay Seller Five Hundred Dollars ($500.00) per day thereafter for the storage of the Equipment and/or Inventory, the same to be paid monthly in arrears. Buyer hereby grants Seller a security interest in the Transferred Assets and any and all accessions to, replacements of and proceeds from the Transferred Assets as security for the payment of any and all amounts due under the Promissory Note and for any and all amounts that may become due if Buyer does not remove all the Equipment and Inventory from Seller's premises by November 30, 2002. At the Closing (or at Seller's discretion after the Closing), Buyer shall execute a UCC-1 financing statement and any other documents Seller deems necessary or advisable to perfect and maintain its security interest in the Transferred Assets. Upon any default of the obligations secured by the above granted security interest, Seller shall have all the rights of a secured creditor under the California Commercial Code. 1.3 Cessation of Use of Trademarks. ------------------------------ As of the Closing Date, Seller shall not use the Trademarks in commerce. ARTICLE 2 PURCHASE PRICE 2.1 Purchase Price. -------------- The purchase price to be paid by Buyer to Seller for the Transferred Assets shall be Two Hundred and Forty Thousand Dollars ($240,000.00) (the "Purchase Price"). Of the Purchase Price: (i) One Hundred and Seventy-Five Thousand Dollars ($175,000.00) shall be paid at the Closing in the form of one or more cashier's checks of immediately available U.S. currency payable to Seller and; and (ii) Sixty-Five Thousand Dollars ($65,000.00) shall be paid at the Closing in the form of a promissory note made by Buyer in the form attached hereto as Exhibit A (the "Promissory Note"). 2.2 Liabilities Not Assumed. ----------------------- Except for the sales tax payments required in Section 2.3, Buyer does not assume any obligations, responsibilities, liabilities, or debts of Seller. 2.3 Sales Taxes. ----------- Buyer shall pay any and all sales taxes resulting from Buyer purchasing all or any portion of the Transferred Assets and shall reimburse Seller for any and all sales taxes properly paid by Seller in connection therewith. As soon as practicable after the Closing but before taking possession of the Inventory, Seller shall provide Buyer any resale use certificates, exempt use certificates or any other exemption certifications held by Buyer which are required to enable Buyer to benefit from any sales and use or other tax exemption. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Now, and at the time of Closing, Seller hereby represents and warrants to Buyer as follows: 3.1 Formation and Authority. ----------------------- Seller is a corporation duly formed, validly existing and in good standing under the laws of the State of California, and on the Closing Date shall have full corporate power and authority to consummate the transactions contemplated hereby. 3.2 Non-Contravention. ----------------- The execution, delivery and performance of this Agreement (and each of the Related Agreements defined in Section 3.5) by Seller and the consummation of the transactions contemplated hereby do not and will not, with or without the giving of notice or the lapse of time, or both, violate, conflict with, result in the breach of or accelerate the performance required by any of the terms, conditions or provisions of the charter documents or by-laws or other governing documents of Seller or any covenant, agreement or understanding to which Seller is a party or any order, ruling, decree, judgment, or arbitration award to which Seller is subject or constitute a default thereunder. 3.3 Title to Assets. --------------- Seller has good and marketable title to the Transferred Assets. On the Closing Date, the Transferred Assets shall be free and clear of restrictions on or conditions to transfer or assignment, and free and clear of mortgages, liens, security interests, tax liens, successor tax liability claims, pledges, charges, encumbrances, equities, claims, covenants, conditions, or restrictions. The Transferred Assets do not represent all or substantially all of the assets of the Seller. 3.4 Warranties. ---------- THE TRANSFERRED ASSETS ARE TO BE SOLD ON AN "AS IS/WHERE IS" BASIS. EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 3.3 AND 3.7, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRANSFERRED ASSETS, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 3.5 Authorization. ------------- The execution and delivery of this Agreement and the Bill of Sale (as defined in Section 6.4), and all other instruments and agreements delivered or to be delivered by Seller in connection herewith (collectively referred to as the "Related Agreements"), and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement and the Related Documents have been or shall be duly executed and delivered by Seller and shall constitute legal, valid and binding obligations of Seller, enforceable against it in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. Seller is neither currently engaged in nor contemplating any bankruptcy or insolvency proceeding. 3.6 Consents. -------- No consent, license, approval or authorization of, or registration or declaration with, any governmental authority, agency, bureau or commission, or any third party, is required to be obtained or made by Seller in connection with the execution, delivery, performance, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby. 3.7 Trademarks. ---------- Seller believes that it has rights to the Trademarks based on registrations with the USPTO and/or prior use of the Trademarks in commerce. 3.8 Brokers or Finders. ------------------ Except for a fee payable to Gary L. Hess by Seller, neither Seller nor any of its agents have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement or the transactions contemplated by this Agreement. 3.9 Litigation. ---------- To Seller's actual knowledge, there are no actions, suits, proceedings or investigations pending or threatened or in prospect before any court, agency or other tribunal, to which Seller is a party which may adversely affect the Transferred Assets; provided, however, that Seller makes no representations or warranties as to the status of any trademark registration or pending trademark application with the USPTO. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Now, and at the time of Closing, Buyer hereby represents and warrants to Seller as follows: 4.1 Formation and Authority. ----------------------- Buyer is a corporation duly formed, validly existing and in good standing under the laws of the State of Utah, and on the Closing Date shall have full corporate power and authority to consummate the transactions contemplated hereby. 4.2 Authorization. ------------- The execution and delivery of this Agreement and all other instruments and agreements delivered or to be delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary company action on the part of Buyer. This Agreement and any other instruments and agreements delivered to or to be delivered in connection herewith have been or shall be duly executed and delivered by Buyer and shall constitute legal, valid and binding obligations of Buyer enforceable against it in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles. Buyer is neither currently engaged in nor contemplating any bankruptcy or insolvency proceeding. 4.3 Non-Contravention. ----------------- The execution, delivery and performance of this Agreement and each of the Related Agreements by Buyer and the consummation of the transactions contemplated do not and will not, with or without the giving of notice or the lapse of time, or both, violate, conflict with, result in the breach of or accelerate the performance required by any of the terms, conditions or provisions of any covenant, agreement or understanding to which Buyer is a party or any order, ruling, decree, judgment, or arbitration award to which Buyer is subject or constitute a default thereunder. 4.4 Consents. -------- No consent, license, approval or authorization of, or registration or declaration with, any governmental authority, agency, bureau or commission, or any third party, is required to be obtained or made by Buyer in connection with the execution, delivery, performance, validity or enforceability of this Agreement or the consummation of the transactions contemplated hereby. 4.5 Resale Certificate. ------------------ Buyer will furnish any resale certificate or other document related to the purchase of Inventory reasonably requested by Seller to comply with the provisions of the sale and use tax laws of the State of California. ARTICLE 5 MUTUAL CONDITIONS PRECEDENT The respective obligations of each of the parties hereto at the Closing are subject to the fulfillment to their reasonable satisfaction of the following conditions precedent (or mutual written waiver thereof) on or before the Closing Date: (a) Consummation of the transactions contemplated hereby shall not have been prohibited by any order, decree or judgment of any United States court, governmental agency, or other regulatory agency or commission having competent jurisdiction; and (b) There shall not have been promulgated, entered, issued or determined to be applicable to this Agreement any law, regulation, order, judgment or decree making the sale or purchase of the Transferred Assets as contemplated hereby illegal. ARTICLE 6 CONDITIONS PRECEDENT TO CLOSING BY BUYER The obligation of Buyer to purchase the Transferred Assets and to consummate the transactions contemplated hereby is subject to the fulfillment and satisfaction by Seller or waiver in writing by Buyer prior to or at the Closing Date of each of the following conditions: 6.1 Accuracy of Representations and Warranties. ------------------------------------------ The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 6.2 Performance. ----------- - Each and all of the actions of Seller to be performed on or before the Closing Date pursuant to the terms hereof shall have been duly performed in all material respects. 6.3 Authorization. ------------- All corporate action necessary to authorize the execution, delivery and performance by Seller of this Agreement and the transactions to be performed on or before the Closing Date pursuant to the terms hereof shall have been duly and validly taken. 6.4 Bill of Sale. ------------- On the Closing Date, Seller shall have executed and delivered to Buyer a bill of sale conveying to Buyer all of the tangible and intangible personal assets to be acquired by Buyer, substantially in the form attached hereto as Exhibit B (the "Bill of Sale"). 6.5 Transfer of Trademarks; License to Use Trademarks. ------------------------------------------------- Within three (3) business days after the Promissory Note is paid in full, Seller shall execute and deliver to Buyer documents to assign, transfer and convey to Buyer, to the fullest extent permitted by the USPTO, ownership of all of Seller's right, title and interest in and to the four (4) trademark registrations and one trademark application listed in Section 1.1(c), along with all of Seller's common law rights and all the goodwill associated therewith. Within three (3) business days after the Promissory Note is paid in full, Seller shall also execute and deliver to Buyer a document to assign ownership of all Seller's common law rights to the trademark "Pantri Reserve" and all the goodwill associated therewith to Buyer. Seller hereby grants buyer an exclusive license to use the Trademarks from the Closing Date and until the date the Promissory Note is paid in full; provided, however, that Seller, at its discretion, may revoke such license for any material breach of this Agreement or the Promissory Note by Buyer. ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING BY SELLER The obligation of Seller to sell the Transferred Assets and to consummate the transactions contemplated hereby is subject to the fulfillment and satisfaction by Buyer or waiver in writing by Seller prior to or at the Closing Date of each of the following conditions: 7.1 Accuracy of Representations and Warranties. ------------------------------------------ The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 7.2 Performance. ------------ Each and all of the actions of Buyer to be performed on or before the Closing Date pursuant to the terms hereof shall have been duly performed in all material respects. ARTICLE 8 FURTHER ASSURANCES 8.1 Execution of Other Instruments. ------------------------------ From time to time after the Closing, at Buyer's request and without further consideration or additional cost to Seller, Seller shall execute and deliver such other and further instruments of conveyance, assignment, transfer and consent, and take such other action, as Buyer may reasonably request for the more effective conveyance and transfer of ownership of the Transferred Assets. ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 9.1 Survival of Representations, Warranties and Agreements. ------------------------------------------------------ All representations of Seller and Buyer in this Agreement shall survive the execution of this Agreement for three (3) months after the Closing Date. All statements contained in any schedule, exhibit or any document delivered at Closing shall be deemed representations within the meaning of this Section. 9.2 Indemnification by Seller. ------------------------- Seller agrees to defend with competent counsel, indemnify and hold Buyer and its agents, employees, officers, directors and stockholders (collectively referred to herein as "Buyer Indemnitees") harmless from any and all Indemnifiable Losses arising from or related to (i) the failure of any representation or warranty made by Seller hereunder to be true when made and as of the Closing or (ii) the nonfulfillment of any obligation of Seller under this Agreement. Provided, however, notwithstanding any other provision of this Agreement, in no event shall Seller's obligation to indemnify, defend and hold Buyer Indemnitees harmless from Indemnifiable Losses pursuant to the immediately preceding sentence exceed, in the aggregate, One Hundred Thousand Dollars ($100,000) in total costs and expenses to be borne by Seller. 9.3 Indemnification by Buyer. ------------------------ Buyer agrees to defend with competent counsel, indemnify and hold Seller and its agents, employees, officers, directors and stockholders (collectively referred to herein as the "Seller Indemnitees") harmless from any and all Indemnifiable Losses arising from or related to (i) the failure of any representation or warranty made by Buyer hereunder to be true when made and as of the Closing or (ii) any and all claims (other than claims arising out of a failure by Seller to perform its obligations under this Agreement) including but not limited to business torts, breach of contract claims, indemnity or guarantee claims, malicious or intentional misconduct, fraud, personal injury, property damage, employment related claims and workers compensation claims, arising from Buyer's use or sale of all or any portion of the Transferred Assets from and after the Closing. 9.4 Procedures. ---------- When a party seeking indemnification under Section 9.2 or 9.3 (the "Indemnified Party") receives notice of any action, suit, proceeding, claim, demand or assessment which is likely to give rise to a claim for indemnification hereunder, the Indemnified Party shall give prompt written notice thereof to the other party (the "Indemnifying Party") reasonably describing (to the extent known) the nature of such claim and the basis therefor. If the Indemnified Party fails to give such prompt written notice to the Indemnifying Party, the Indemnified Party shall not forfeit its indemnification claim, but such indemnification claim shall be reduced by the amount of any additional or increased liability, cost or expense (including applicable interest and penalties) caused by the delay in giving notice. If the Indemnified Party is entitled to indemnification hereunder, the Indemnifying Party shall, at its expense, assume the complete defense of the action, suit, proceeding, claim, demand or assessment giving rise thereto, with full authority to conduct such defense and to settle or otherwise dispose of the same, except as set forth below. The Indemnifying Party and the Indemnified Party will each fully cooperate with the other in the defense of any claim which is likely to give rise to a claim for indemnification hereunder or does present such a claim. The Indemnifying Party will not, except with the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), consent to the entry of any judgment or enter into any settlement in connection with such defense which does not include a release of the Indemnified Party from all liability in respect thereof or does include any undertaking or agreement which causes the Indemnified Party to perform any act or to refrain from performing any act. The Indemnifying Party will not, except with the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), consent to the entry of any judgment or enter into any settlement in connection with such defense. 9.5 Indemnifiable Losses. -------------------- In determining the amount of Indemnifiable Losses for which an Indemnified Party is liable hereunder, amounts paid or recovered from or reimbursed by third parties and/or under insurance policies, contractual or other rights of indemnification or contribution, and the like, which amounts are paid to the Indemnified Party on behalf of the Indemnifying Party, shall reduce the amount for which the Indemnifying Party shall otherwise be liable hereunder. If an Indemnified Party receives payment from the Indemnifying Party with respect to an indemnification claim made hereunder, and the amount for which the Indemnified Party was entitled to seek indemnity hereunder is subsequently reduced under the terms of this Section 9.5, the Indemnified Party shall promptly refund to the Indemnifying Party the amount of such reduction. As used herein, the term "Indemnifiable Losses" means all costs, expenses, losses, claims, obligations, liabilities, damages, deficiencies, actions and judgments, or diminution in value, whether or not involving a third-party claim together with all reasonable attorneys' fees and other costs and expenses of the defense thereof (including such fees, costs and expenses incurred pursuant to Section 9.4); provided, however, an Indemnified Party's internal expenses (salaries, general and administrative costs, allocated corporate overhead, etc.) incurred in processing, monitoring and assisting in the defense of an action, suit, proceeding, claim, demand or assessment subject to indemnity hereunder shall not be considered an "Indemnifiable Loss" and shall be borne by the Indemnified Party. ARTICLE 10 TERMINATION 10.1 Termination. ----------- This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date as follows: (a) by mutual written consent of Seller and Buyer; (b) by Buyer if any of the conditions set forth in Article 6 shall have become impossible of fulfillment and shall not have been waived by Buyer; (c) by Seller if any of the conditions set forth in Article 7 shall have become impossible of fulfillment and shall not have been waived by Seller; or (d) by either Buyer or Seller if the transactions contemplated hereby are not consummated on or before October 4, 2002 for any reason other than the failure of the party seeking termination to fulfill the conditions set forth in Article 6 if Seller, or Article 7 if Buyer. If this Agreement is terminated pursuant hereto, this Agreement shall become void and of no further force and effect except that such termination shall be without prejudice to the rights of any party because of the non-satisfaction of conditions set forth in Articles 6 and 7 hereof resulting from the intentional or willful breach or violation of the representations, warranties, covenants or agreements of another party under this Agreement. Sections 12.1, 13.1, 14.1, 14.2 and 15.1 through 15.9 shall survive termination of this Agreement. ARTICLE 11 CLOSING 11.1 Closing Date. ------------ The closing of the purchase and sale of the Transferred Assets hereunder shall be held at the offices of Seller at 2064 Highway 116, North Sebastopol, California 95472-2662 at 10:00 a.m., local time, on October 4, 2002, or at such other date, time and place as the parties may hereafter agree in writing. The time and place of closing is herein referred to as the "Closing" and the date of the Closing is referred to in this Agreement as the "Closing Date". ARTICLE 12 EXPENSES OF THE PARTIES 12.1 Expenses of the Parties. ----------------------- Each party shall pay its respective expenses incurred in connection with the negotiation, execution and performance of this Agreement. ARTICLE 13 NOTICES 13.1 Notices. ------- All notices hereunder must be in writing and shall be sufficiently given for all purposes hereunder if properly addressed and delivered personally by documented overnight delivery service, by certified or registered mail, return receipt requested, or by facsimile at the address or facsimile number, as the case may be, set forth below. Any notice given personally or by documented overnight delivery service is effective upon receipt. Any notice given by registered mail is effective upon receipt, to the extent such receipt is confirmed by return receipt. Any notice given by facsimile transmission is effective upon receipt, to the extent that receipt is confirmed, either verbally or in writing by the recipient. Any notice which is refused, unclaimed or undeliverable because of an act or omission of the party to be notified, if such notice was correctly addressed to the party to be notified, shall be deemed communicated as of the first date that said notice was refused, unclaimed or deemed undeliverable by the postal authorities, or overnight delivery service. Any "copy to" notice to be given as set forth below is a courtesy copy only; and a notice given to such person is not sufficient to effect giving a notice to the principal party, nor does a failure to give such a courtesy copy of a notice constitute a failure to give notice to the principal party. if to Buyer: Commercial Sales and Leasing, Inc. P.O. Box 171 Lehigh, Utah 84043 Attn: Russ C. Schneider Telephone: (801) 915-6181 Facsimile: (801) 756-0565 if to Seller: SonomaWest Holdings, Inc. 2064 Highway 116 North Sebastopol, California 95472-2662 Attn: President Telephone: (707) 824-2536 Facsimile: (707) 824-2545 with a copy to: Allen, Matkins, Leck, Gamble & Mallory LLP 333 Bush Street, Suite 1700 San Francisco, California 94104 Attn: Roger S. Mertz, Esq. Telephone: (415) 837-1515 Facsimile: (415) 837-1516 Any such address may be changed by any party by written notice to the other party. ARTICLE 14 DISPUTE RESOLUTION 14.1 Mandatory Arbitration. --------------------- Any controversy or claim between or among the parties, their agents, employees and affiliates, arising out of or relating to this Agreement or the Related Agreements, including without limitation any claim based on or arising from an alleged tort, shall, at the option of any party, be resolved through mandatory and binding arbitration in accordance with the rules then in effect of the American Arbitration Association ("AAA") for commercial arbitration, notwithstanding any other choice of law provision in the Agreement or the Related Agreements. All statutes of limitations or any waivers contained herein that would otherwise be applicable shall apply to any arbitration proceeding under this Section 14.1. The parties agree that related arbitration proceedings may be consolidated. The arbitrator shall prepare written reasons for the award. The location of the arbitration shall be in San Francisco, California. The arbitrator or arbitrators shall be generally skilled in the legal and business aspects of the subject matter at issue. If the parties so agree, a single arbitrator shall be selected jointly by Buyer and Seller to settle the dispute. If the parties cannot agree upon the selection of an arbitrator within fifteen (15) days after the receipt by one party from the other of a notice of arbitration, then each party shall within fifteen (15) days after the expiration of said fifteen (15) day period select one arbitrator. If either party fails to appoint an arbitrator within that fifteen (15) days period, the other party may designate an arbitrator for the party who failed to make such appointment. The two arbitrators shall select a third arbitrator within fifteen (15) days after their appointment; if the two arbitrators selected by the parties cannot agree upon a third arbitrator, the third arbitrator shall be appointed by the AAA. The arbitrators shall promptly determine whether and in what amount a payment should be made to the prevailing party and shall submit a written report of their decision to Buyer and Seller. The decision of the majority of the arbitrators shall be binding upon all parties. The arbitrators shall not be entitled to award punitive damages. Judgment upon the award rendered may be entered in any court having jurisdiction. 14.2 Provisional Remedies and Self Help. ---------------------------------- No provision of, or the exercise of any rights under, Section 14.1 shall limit the right of any party to exercise self help remedies such as set-off, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any arbitration. ARTICLE 15 MISCELLANEOUS 15.1 Disclosure. ---------- Neither party shall reveal to the general public the details of this Agreement or the transactions contemplated by this Agreement or make any public or private announcement concerning this Agreement or the transactions contemplated by this Agreement without first obtaining the written approval of the other party hereto. Nothing contained herein shall be deemed to prevent a party from making such disclosures as may be (a) required to be filed with or submitted to regulatory agencies or bodies, or (b) otherwise permitted by other provisions of this Agreement. 15.2 Entire Agreement; Waivers. ------------------------- This Agreement (including all attachments hereto) comprises the entire agreement between the parties hereto as to the subject matter hereof and supersedes all prior agreements and understandings between them relating thereto. Each party may extend the time for, or waive the performance of, any of the obligations of the other, waive any inaccuracies in the representations or warranties of the other, or waive compliance by the other with any of the covenants or conditions contained in this Agreement, but only by an instrument in writing signed by the party granting such extension or waiver. 15.3 Attorneys Fees. -------------- If any legal action, arbitration, mediation or other proceeding is brought for the enforcement of this Agreement or the Related Agreements, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement or the Related Agreements, the prevailing party (as "prevailing party" is defined in California Code of Civil Procedure Section 1032(a)(4), interpreted to apply to arbitration as well as judicial proceedings) or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 15.4 Governing Law. ------------- This Agreement and any and all matters related to or arising under this Agreement shall be construed in accordance with the internal laws of the State of California, regardless of any choice or conflicts of law provision of any jurisdiction. 15.5 Successors and Assigns. ---------------------- This Agreement shall inure to the benefit of, and be binding upon and enforceable against, the respective successors and assigns of the parties hereto but may not be assigned by any party without the prior written consent of the other parties. 15.6 Captions. -------- Captions are supplied herein for convenience only and shall not be deemed a part of this Agreement for any purpose. 15.7 Counterparts; Facsimile Signatures. ---------------------------------- This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes. This Agreement may be executed by a party's signature transmitted by facsimile ("fax"), and copies of this Agreement executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto may rely upon faxed signatures as if such signatures were originals. Any party executing and delivering this Agreement by fax shall promptly thereafter deliver a counterpart signature page of this Agreement containing said party's original signature. All parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Agreement as if it were an original signature page. 15.8 Severability. ------------ If any term or provision of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such terms or provisions to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 15.9 Time is of the Essence. ---------------------- Time is of the essence with respect to all obligations under this Agreement. [Signature page follows this page.] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Seller: SONOMAWEST HOLDINGS, INC., a California corporation By: /s/ Roger S. Mertz ---------------------------------------- Roger S. Mertz, Chairman of the Board Buyer: Commercial Sales and Leasing, Inc., a Utah corporation By: /s/ Russ Schneider ---------------------------------------- Print Name: Russ Schneider ------------------------------ Title: President ---------------------------------- LIST OF SCHEDULES AND EXHIBITS SCHEDULES Schedule 1.1(a)* Equipment Schedule 1.1(b)* Inventory Schedule 1.1(d)* Suppliers *Schedules omitted in accordance with Item 601(b)(2) of Regulation S-K. EXHIBITS Exhibit A Promissory Note Exhibit B Bill of Sale EXHIBIT A SECURED PROMISSORY NOTE ----------------------- $65,000.00 October 4, 2002 1. FOR VALUE RECEIVED, COMMERCIAL SALES AND LEASING, INC., a Utah corporation ("Maker") promises to pay to SONOMAWEST HOLDINGS, INC., a California corporation ("Payee"), or holder of this Note, the principal sum of Sixty-Five Thousand Dollars ($65,000.00) ("Principal"). 2. Maker shall pay Twenty Thousand Dollars ($20,000.00) of the Principal on or before October 25, 2002. Maker shall pay Thirty Thousand Dollars ($30,000.00) of the Principal on or before April 4, 2003. Maker shall pay the remaining Fifteen Thousand Dollars ($15,000.00) of the Principal on or before July 4, 2003. All payments shall be made by immediately available U.S. currency in the form of either a wire transfer or cashier's check. 3. Any amounts not paid when due shall thereafter bear interest at the rate of eighteen percent (18%) per annum or the highest rate permitted under applicable law, whichever is lower, and shall be compounded daily and computed on the basis of a 365 day year. 4. At its option, the holder of this Note may determine that Maker is in default and may, consequently, accelerate the unpaid balance, making the unpaid balance of the Note (the total of the unpaid balance and any applicable interest) due immediately without presentment for payment or any notice, if any of the following occur: (a) Maker fails to make payment when due. (b) Maker: (i) Fails, after demand by the holder of this Note, to furnish financial information or to permit inspection of any books or records; (ii) Suspends business; (iii) Becomes insolvent or offers settlement to any creditor; (iv) Files a petition in bankruptcy, either voluntary or involuntary; (v) Institutes any proceeding under any bankruptcy or insolvency laws relating to the relief of debtors; (vi) Gives notice of any intended bulk sale or completes any bulk sale; (vii) Makes an assignment for the benefit of creditors; (viii) Mortgages, pledges, assigns, or transfers any accounts receivable or other property, in trust or otherwise, without the written consent of the holder of this Note; (ix) Makes any false statement or representation orally or in writing to Payee or any subsequent holder of this Note; (x) Fails to pay any obligation when due; or (xi) Is dissolved or its capital becomes impaired. (c) Payee or any subsequent holder of this Note discovers that any misrepresentation was made to Payee or any such holder on behalf of Maker to obtain credit or an extension of credit. (d) Any legal action is commenced against Maker or any endorser, surety, or guarantor, including, but not limited to, the following: (i) Entry of judgment; or (ii) Issuance of a writ of attachment, order of garnishment, order or subpoena in supplementary proceedings, execution, or similar process. (e) A receiver is appointed for Maker or any endorser, surety or guarantor. (f) Maker defaults in any of the obligations due under Asset Purchase Agreement between Maker and Payee dated October 3, 2002 (the "Purchase Agreement") or otherwise breaches the Purchase Agreement. 5. All payments under this Note shall be made in the form of cashier's check or wire transfer to Payee or holder of this Note. 6. This Note may be prepaid in full or in part, at any time, without penalty. 7. Maker waives diligence, presentment, protest and notice of protest, dishonor and nonpayment of this Note, and expressly agrees that this Note, or any payment under it, may be extended and any security may be accepted, released or substituted by the holder of this Note from time to time without in any way affecting the liability of Maker. 8. As collateral security for the payment of this Note, Maker hereby grants the holder of this Note a security interest in and right of offset against the Transferred Assets and any and all accessions to, replacements of and proceeds from the Transferred Assets (as "Transferred Assets" is defined in the Purchase Agreement which is incorporated herein by this reference). Upon any default of the obligations secured by the above granted security interest or the obligations secured by the security interest granted to Payee in the Purchase Agreement, Seller shall have all the rights of a secured creditor under the California Commercial Code. 9. Maker agrees to reimburse the holder of this Note for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, actual legal fees), incurred by the holder of this Note. 10. Maker, Payee and any subsequent holder of this Note waive the right to trial by jury in any action arising under or related to this Note. Any dispute arising under or related to this Note shall be resolved pursuant to the arbitration terms set forth in Article 14 of the Purchase Agreement and incorporated herein by reference. Costs of any such dispute shall be recoverable as provided in Section 15.3 of the Purchase Agreement. 11. This Note shall be governed by and construed in accordance with the laws of the State of California, regardless of any laws on choice or conflicts of law of any jurisdiction. MAKER: COMMERCIAL SALES AND LEASING, INC., a Utah corporation By: /s/ Russ Schneider -------------------------------------- Name: Russ Schneider ------------------------------------- Title: President ------------------------------------ EXHIBIT B BILL OF SALE ------------ This Bill of Sale ("Bill of Sale") is made and entered into as of October 4, 2002, by and between SONOMAWEST HOLDINGS, INC., a California corporation ("Seller"), and Commercial Sales and Leasing, Inc., a Utah corporation ("Buyer"), with reference to the following facts. R E C I T A L S : - - - - - - - - A. Seller and Buyer are parties to that certain Asset Purchase Agreement, made and entered into as of October 3, 2002 (the "Purchase Agreement"), pursuant to which Seller, subject to certain terms and conditions, agreed to sell and convey to Buyer, and Buyer agreed to purchase from Seller, certain assets related to the business of producing, packing and distributing by-moisture food products. B. Seller now desires to assign and transfer to Buyer all of the assets listed on Schedule 1 attached to this Bill of Sale (the "Assets"). NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T : - - - - - - - - - 1. Defined Terms. All capitalized terms used and not otherwise defined in this Bill of Sale, but defined in the Purchase Agreement, shall have the meaning set forth in the Purchase Agreement. 2. Sale. Seller hereby grants, sells, conveys, transfers and delivers to Buyer any and all of Seller's rights, title and interests in and to the Assets set forth on Schedule 1 attached hereto; provided, however, that Seller retains a security interest in the Assets as provided in the Purchase Agreement. 3. Rights to Tangible Assets. From and after the date of this Bill of Sale, it is intended by the parties that Buyer and its successors and assigns shall have the right to use, have, hold and own the Assets forever. 4. As Is. Buyer hereby acknowledges, covenants, represents and warrants that the only representations or warranties made by Seller regarding the Assets are those expressly stated in the Purchase Agreement. This Bill of Sale shall not be construed as a representation or warranty by Seller as to the condition of the Assets. 5. Dispute Resolution. Any dispute between Seller and Buyer arising under or related to this Bill of Sale shall be resolved pursuant to the arbitration terms set forth in Article 14 of the Purchase Agreement which is incorporated herein by reference. Costs of any such dispute shall be recoverable as provided in Section 15.3 of the Purchase Agreement. 6. Counterparts; Facsimile Signatures. This Bill of Sale may be executed in multiple counterparts, each of which shall be deemed an original for all purposes. This Bill of Sale and any other document or instrument relating hereto may be executed by a party's signature transmitted by facsimile ("fax"), and copies of this Bill of Sale and any such document or instrument executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. All parties hereto may rely upon faxed signatures as if such signatures were originals. Any party executing and delivering this Bill of Sale and any such document or instrument by fax shall promptly thereafter deliver a counterpart signature page of this Bill of Sale and the fully executed original or counterpart original of any such document or instrument containing said party's original signature. All parties hereto agree that a faxed signature may be introduced into evidence in any proceeding arising out of or related to this Bill of Sale or any such document or instrument as if it were an original signature. 7. Limited Liability. Buyer on its own behalf and on behalf of its shareholders, directors, officers, employees, representatives, agents, successors and assigns hereby agrees that in no event or circumstance shall any of Seller's shareholders, directors, officers, employees, representatives, agents, successor, assigns, affiliated or related entities of Seller have any personal liability under this Bill of Sale, or to any of Buyer's creditors, or to any other party in connection with the Assets. Seller on its own behalf and on behalf of its shareholders, directors, officers, employees, representatives, agents, successors and assigns hereby agrees that in no event or circumstance shall any of Buyer's shareholders, directors, officers, employees, representatives, agents, successor, assigns, affiliated or related entities of Buyer have any personal liability under this Bill of Sale, or to any of Seller's creditors, or to any other party in connection with the Assets. 8. No Third Party Beneficiaries. The execution and delivery of this Bill of Sale shall not be deemed to confer any rights upon, nor obligate any of the parties hereto, to any person or entity other than the parties hereto. 9. Governing Law. This Bill of Sale and any and all matters arising under or related to this Bill of Sale shall be construed in accordance with the internal laws of the State of California, regardless of any choice or conflicts of law provision of any jurisdiction. 10. Captions. Captions are supplied herein for convenience only and shall not be deemed a part of this Agreement for any purpose. 11. Successor and Assigns. This Bill of Sale shall inure to the benefit of, and be binding upon and enforceable against, the respective successors and assigns of the parties hereto, but may not be assigned by any party without the prior written consent of the other party. 12. Notice. All notices or other communications required or permitted hereunder shall be transmitted by one or more of the means permitted in Section 13.1 of the Purchase Agreement and shall be deemed received according to the provisions of that Paragraph. 13. Severability. If any term or provision of this Bill of Sale or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Bill of Sale or the application of such terms or provisions to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each term and provision of this Bill of Sale shall be valid and enforced to the fullest extent permitted by law. IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale as of the date first written above. Seller: SONOMAWEST HOLDINGS, INC., a California corporation By: /s/ Roger S. Mertz --------------------------------------- Roger S. Mertz, Chairman of the Board Buyer: Commercial Sales and Leasing, Inc., a Utah corporation By: /s/ Russ Schneider -------------------------------------- Print Name: Russ Schneider ---------------------------- Title: President --------------------------------- SCHEDULE 1 The Equipment listed in Schedule 1.1(a) attached to the Purchase Agreement.* The Inventory listed in Schedule 1.1(b) attached to the Purchase Agreement.* The Trademarks listed in Section 1.1(c) of the Purchase Agreement.* The Supplier List attached as Schedule 1.1(d) to the Purchase Agreement.* All goodwill related to the Business to the extent it relates to the Trademarks. * Schedules omitted in accordance with Item 601(b)(2) of Regulation S-K. -----END PRIVACY-ENHANCED MESSAGE-----