EXHIBIT 10.14
SONOMAWEST HOLDINGS, INC.
1448 Industrial Avenue
Sebastopol, California 95472-4848
July 17, 2001
Mr. Gary L. Hess
President
SonomaWest Holdings, Inc.
1448 Industrial Avenue
Sebastopol, CA 95472-4848
Re: Separation Arrangement
Dear Gary:
This confirms our agreement regarding the terms of your separation from
active employment with SonomaWest Holdings, Inc. ("Company"). This supercedes
any and all prior agreements between you and the Company regarding your
employment and separation therefrom.
1. EMPLOYMENT. You will remain actively employed in your current
capacity, on a full-time basis, and at your current base salary through August
31, 2001. Effective September 1, 2001 through October 31, 2001 ("Termination
Date"), you will continue to be employed on a part-time (20%) basis as the
Company's President and Chief Financial Officer at compensation calculated at
the equivalent of $3053.33 per month (which includes car allowance) and you will
accrue paid vacation time during that period at the equivalent of $2,933.33 base
salary per month(1) You are not eligible for bonus consideration during either
of these periods. All accrued salary and unpaid vacation time will be paid to
you on the Termination Date. You will remain eligible to participate in the
Company's group health plan and other Company employee benefit plans pursuant to
their terms through the Termination Date. Thereafter, eligibility for all plans
will cease, except that you will be eligible to continue participation in the
health plan at your option and expense pursuant to the provisions of COBRA.
2. SEPARATION PAYMENTS. Effective September 1, 2001 and for each month
thereafter through and including January 2004 (consisting of twenty-nine (29)
months and constituting the "Severance Period"), the Company will pay you
$12,500 per month, less required withholdings and authorized deductions. Such
payments will be made by mailing a Company check to you at your home address as
currently reflected in the Company's records, or such other address as you
request, within the first seven (7) calendar days of each calendar month during
the Severance
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(1) Please appreciate that during any continued employment or other service to
the Company, you remain subject to general principles of law and to the
Company's personnel and financial policies for executives, directors and/or
other service providers as applicable and as then in effect. Continued
compliance with these principles and policies is a condition of this Agreement.
Period. The foregoing notwithstanding, in the event that, at any time during the
Severance Period, the Company is no longer covered by or otherwise elects not to
operate pursuant to the registration and filing requirements of either Section
12(b) or 12(g) of the Securities Exchange Act of 1934 and the applicable rules
and regulations, then the Company will notify you within thirty (30) calendar
days of such date ("Section 12 Date" and "Notification Date" respectively) and,
within fifteen (15) business days following the Notification Date, pay to you in
one lump sum the remainder of the monthly payments that otherwise would have
been paid during the Severance Period.
3. PERMA-PAK BUSINESS. The Company hereby grants you the following
options ("Option A" and "Option B" respectively) regarding the business property
and operations of Perma-Pak: (A) From now through December 31, 2002, the Company
will designate you as its exclusive representative to sell any and all remaining
Perma-Pak finished goods inventory, production equipment and intellectual
property ("Perma-Pak Property"); or (B) between now and December 31, 2002 you
may purchase from the Company the Perma-Pak business, including all then
existing Perma-Pak Property, for a purchase price of $250,000. Sales commissions
earnable under Option A equal 7% of the net price the Company actually receives
on the first $250,000 of Property sold, and 50% of the net price the Company
actually receives on all Property sold above $250,000 in the aggregate. Under
Option A, all sales proceeds are payable to the Company and you agree to
maintain and provide to the Company appropriate and accurate business records of
all sales or other transactions regarding Perma-Pak Property so that the Company
is in a position to accurately account for all revenue and all commissions
payable to you as well as all sold and unsold Perma-Pak Property. Under Option
B, the Option is exercisable at any time between now and December 31, 2002, and
the purchase price remains at $250,000 ("Purchase Price") whenever it is
exercised. In the event you purchase the Perma-Pak property no commission will
be due. For mutual convenience, you will be deemed to have selected Option A
until such time as you notify the Company in writing that you elect Option B,
which Option will become effective within fifteen (15) business days thereafter,
at which time the Purchase Price is due in full.
4. EXTENSION OF STOCK OPTIONS. Our records indicate that the Company
previously has granted you options to purchase 89,474 shares of its common stock
at an exercise price of $5.00 per share, all of which options have vested. These
options were intended to be incentive stock options, to the extent permissible
under law.(2) Each of these options will terminate by their current terms within
three months of termination of your full-time employment if not exercised. The
foregoing notwithstanding, the Board has extended the termination date of these
options to January 29, 2002. To the extent that you elect to exercise some or
all of those options on or before January 29, 2002, the Company will loan you up
to $447,370 pursuant to an appropriate Note and Security Agreement. Forms of a
Note and of a Security Agreement are attached hereto as Exhibits A and B
respectively. The note is specifically and solely for the purpose of enabling
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(2) As you may know, under the Internal Revenue Code, the value of shares as to
which all incentive stock options held by an optionee may first become
exercisable (i.e. become vested) in any calendar year may not exceed $100,000,
based on the fair market value of such stock on the date such incentive stock
options were granted. IRCss. 422(d). To determine if any grant meets the test,
you multiply the number of shares that become exercisable in any calendar year
times the fair market value on the grant date.
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you to exercise the options on or before January 29, 2002, in order to retain
their classification as incentive stock options, to the extent permissible. The
Note will be fully recourse to you, and will be secured by the stock purchased
on exercise of the options. The Note is payable on the earlier of August 1, 2004
or within fifteen (15) business days of the Notification Date, and will accrue
interest at the Applicable Federal Rate for loans of three years or less on the
date of the note, which interest is payable quarterly. You agree that you are
solely responsible for any taxes which may be due upon exercise of any of these
options and/or upon any sale of the underlying stock.
Alternatively, and at your option, the Board will further extend the
termination date of some or all of your options as you so indicate through the
last day of the Severance Period, provided only that you so notify the Board in
writing on or before January 29, 2002. You recognize and acknowledge that if you
elect this option and exercise some or all of the options at any time after
three months following termination of your employment, the Company will not loan
you the money to exercise that portion of the options and those options will
automatically convert to non-statutory options pursuant to the Internal Revenue
Code.
5. BOARD MEMBERSHIP. The Company will use its best efforts to assure that
you are included as a nominee for election to its Board of Directors through the
Annual Meeting held in 2003 for service until the Annual Meeting held in 2004.
For any and all periods of service as a director following termination of your
employment, you will be entitled to receive whatever fees are payable to other
non-employee directors.
Gary, I am pleased that the Company is able to look forward to your
continued participation under these terms. Please sign and date this letter in
the space indicated below and return the fully executed letter. A duplicate
executed copy is enclosed for your records.
Very truly yours,
SonomaWest Holdings, Inc.
By: /s/ Roger S. Mertz
Its: Secretary
Agreed to:
/s/ Gary L. Hess
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Gary L. Hess
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EXHIBIT A
PROMISSORY NOTE
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$447,370.00
_______________, 200__
Sebastopol, California
FOR VALUE RECEIVED, the undersigned, GARY L. HESS, hereby promises to pay
to the order of SONOMAWEST HOLDINGS, INC. at such place as the holder of this
note (the "Note") may direct in writing, the principal sum of Four Hundred and
Forty-Seven Thousand and Three Hundred and Seventy Dollars ($447,370). This Note
shall bear interest, payable on the first day of each calendar quarter, at a
rate of interest equal to [the Applicable Federal Rate for loans of three years
or less] per annum. The principal shall be due and payable on the earlier of
August 1, 2004 or within fifteen (15) business days of the Notification Date as
defined in that certain Separation Agreement by and between Borrower and
SonomaWest Holdings, Inc. dated July 17, 2001.
This Note may be prepaid at any time without premium or penalty. This Note
shall be deemed to be a contract entered into and made pursuant to the laws of
the State of California and shall in all respects be governed, construed, and
enforced in accordance with the laws of said State.
The undersigned agrees, if this Note is placed in the hands of an attorney
for collection, to pay reasonable legal costs as permitted by law.
The undersigned waives demand, presentment for payment, notice of
non-payment or dishonor, notice of protest, and protest of this Note. No delay
on the part of the holder in exercising any right, power or privilege pursuant
to this Note shall operate as a waiver of the same, and no single or partial
exercise of any right, power or privilege shall constitute an exhaustion or
waiver of any of them, all of which shall continue for the benefit of holder.
Dated: _____________, 200__
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Gary L. Hess
EXHIBIT B
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), entered into as
of _________, 200__ by and between SONOMAWEST HOLDINGS, INC. a California
corporation ("Lender"), and GARY L. HESS ("Borrower").
RECITALS:
WHEREAS, Lender desires to lend to Borrower and Borrower desires to
borrow from Lender the sum of Four Hundred and Forty-Seven Thousand and Three
Hundred and Seventy Dollars ($ 447,370.00) (the "Loan") on the terms and
conditions provided for herein; and
WHEREAS, Borrower intends hereby to pledge 89,474 shares of Lender's
common stock (the "Common Stock") and other proceeds and interests as defined
herein, as secured collateral for payment of the Loan and performance of all of
Borrower's obligations under this Agreement.
NOW, THEREFORE, in consideration of the mutual promises made herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound, agree
as follows:
SECTION 1. LOAN. Lender agrees to lend to Borrower the sum of $ 447,430 to
be evidenced by an interest-bearing Promissory Note of even date herewith in the
form of Exhibit A to that certain Separation Agreement by and between Borrower
and SonomaWest Holdings, Inc. dated July 17, 2001. (the "Note"). As provided in
the Note, the Note may be repaid at any time without premium or penalty.
SECTION 2. PLEDGE OF SECURITY INTEREST; COLLATERAL Borrower hereby pledges
and grants to the Lender a first priority lien on and security interest in the
Collateral, as hereinafter defined. The term Collateral means, collectively: (i)
the Common Stock; and (ii) all products, proceeds and revenues of and from the
Common Stock, together with all substitutions therefor and additions thereto
including without limitation stock rights, rights to subscribe, liquidating
dividends, stock dividends, cash dividends, interest, new securities and other
property to which Borrower is or may hereafter become entitled to receive on
account of such Common Stock.
SECTION 3. SECURITY FOR OBLIGATIONS. This Agreement secures the payment
and/or performance of all obligations of Borrower to the Lender, now or
hereafter existing under the Note, whether for principal, interest, fees,
expenses or otherwise, and all obligations of Borrower now or hereafter existing
under this Agreement (all such obligations of Borrower to the Lender hereinafter
referred to as the "Obligations").
SECTION 4. DELIVERY OF COLLATERAL. All certificates or instruments
representing the Collateral shall be delivered to and held by Lender and shall
be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Lender. The
Lender shall have the right, in the event of a default under the Note or this
Agreement, in its sole discretion and without notice to Borrower, to transfer to
or to register in the name of the Lender or any of its nominees any or all of
the Collateral. In addition, the Lender shall have the right at any time to
exchange certificates or instruments representing or evidencing the Collateral
for certificates or instruments of smaller or larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
as follows:
(a) Borrower is the legal and beneficial owner of the Collateral free and
clear of any lien, security interest, option or other charges or encumbrance
except for the security interest created by this Agreement between Borrower and
Lender of even date herewith; and
(b) The pledge of the Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the Collateral, securing
the payment and/or performance of the Obligations.
SECTION 6. FURTHER ASSURANCES. Borrower agrees that at any time, and from
time to time, Borrower will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that the Lender may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable the
Lender to exercise and enforce its rights and remedies hereunder with respect to
any Collateral.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default (as hereinafter defined) or event
which, with the giving of notice or the lapse of time, or both, would become an
Event of Default, shall have occurred and be continuing:
(i) Borrower shall have the right to exercise all voting and
other corporate rights with respect to the Collateral; and
(ii) Borrower shall be entitled to receive and retain any and all
dividends paid in respect of the Collateral; provided, however, that any
and all
(A) dividends paid or payable other than in cash in respect
of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any
Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Collateral in connection with a partial or
total liquidation or dissolution of Lender or in connection with a
reduction of capital, capital surplus or paid-in-surplus of Lender,
and
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(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Collateral,
shall forthwith be delivered to the Lender to hold as Collateral, or as may
otherwise be agreed between Borrower and the Lender, and shall, if received by
Borrower, be received in trust for the benefit of the Lender, be segregated from
the other property or funds of Borrower, and be forthwith delivered to the
Lender as Collateral in the same form as so received (with any necessary
endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default
under the Note or hereunder:
(i) All rights of Borrower to exercise the voting and other
consensual rights which the Borrower would otherwise be entitled to
exercise pursuant to Section 7(a)(i) of this Agreement and to receive the
dividend payments which the Borrower would otherwise be authorized to
receive and retain pursuant to Section 7(a)(ii) of this Agreement shall
cease, and Lender shall thereupon have the sole right to exercise such
voting and other consensual rights and to receive and hold as Collateral
such dividend payments.
(ii) All dividend payments which are received by Borrower
contrary to the provisions of Section 7(b)(i) shall be received in trust
for the benefit of the Lender, shall be segregated from other funds of
Borrower and shall be forthwith paid over to the Lender as Collateral in
the same form as so received (with any necessary endorsement).
(c) The term "Event of Default" shall mean (1) failure of Borrower to pay
the unpaid principal due under the Note within fifteen (15) days after the date
when due; or (2) the insolvency, bankruptcy (which is not stayed within 60 days
after its commencement), or dissolution of Borrower, or (3) any material default
by Borrower in the performance of any covenant or agreement pursuant to this
Agreement which default is not cured within ten (10) days following written
notice by Lender.
SECTION 8. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES. Borrower agrees
that it will not (i) sell or otherwise dispose of, or grant any option with
respect to, any of the Collateral, or (ii) create or permit to exist any lien,
security interest, or other charge or encumbrance upon or with respect to any of
the Collateral, except for the security interest under this Agreement.
SECTION 9. LENDER MAY PERFORM. If Borrower fails to perform any agreement
contained herein, the Lender may itself perform, or cause the performance of,
such agreement, and the expenses the Lender incurs in connection therewith shall
be payable by Borrower under Section 12.
SECTION 10. REASONABLE CARE. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which the Lender accords its own property, it being understood that the Lender
shall not have responsibility for (a) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Collateral, whether or not the Lender has or is deemed to have knowledge
of such matters,
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or (b) taking any necessary steps to preserve rights against any parties with
respect to any Collateral.
SECTION 11. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and continues uncured for five (5) consecutive days, upon written
notice to Borrower, the Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to them, all the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "Code") in effect in the State of California at
that time.
SECTION 12. EXPENSES. Borrower will, upon demand, pay, to the Lender, the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of Lender's counsel and of any experts and agents, which the Lender may
reasonably incur in connection with the exercise of enforcement of any of the
rights of the Lender hereunder, or the failure by Borrower to perform or observe
any of the provisions hereof.
SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Lender and
security interests hereunder, and all obligations of Borrower hereunder, shall
be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Note or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Note;
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Borrower in respect of the Obligations or
Borrower in respect of this Agreement, other than the payment in full of the
Obligations.
SECTION 14. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by Borrower herefrom shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
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SECTION 15. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO BORROWER:
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Gary L. Hess
34 La Cresta Drive
Petaluma, California 94952
IF TO LENDER:
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SonomaWest Holdings, Inc.
1448 Industrial Avenue
Sebastopol, California 95472
Attention: Chief Financial Officer
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are sent.
SECTION 16. CONTINUING SECURITY INTEREST; TRANSFER OF NOTE. This Agreement
shall create a continuing security interest in the Collateral and shall (a)
remain in full force and effect until payment in full of the Obligations, (b) be
binding upon Borrower, and its successors, and (c) inure , together with the
rights and remedies of the Lender hereunder, to the benefit of the Lender, its
legal representatives, successors and assigns. Without limiting the generality
of the foregoing clause (c), Lender may assign or otherwise transfer the Note
held by it to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to the
Lender herein or otherwise. Upon the payment in full of the Obligations,
Borrower shall be entitled to the return, upon his request and at his expense,
of such of the Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof.
SECTION 17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, excluding
conflict of laws provisions. Unless otherwise defined herein or in the Note,
terms defined in Article 9 of the Code in the State of California are used
herein as therein defined.
SECTION 18. COUNTERPARTS. This Agreement may be executed in counterparts.
SECTION 19. Definitions. Any defined term not defined herein shall have the
meaning ascribed to such term in the Note.
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IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed
and delivered as of date first above written.
SonomaWest Holdings, Inc..
By_____________________________
Its: __________________________
Borrower:
_______________________________
Gary L. Hess
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