SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SONOMAWEST HOLDINGS, INC.
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(Name of Registrant as Specified in Its Charter)
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SONOMAWEST
HOLDINGS INC
2064 HIGHWAY 116 NORTH o SEBASTOPOL, CA 95472
PH: (707) 824-2001 o FAX: (707) 829-4630
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NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
October 27, 2004
---------------------------
To the Shareholders of SonomaWest Holdings, Inc.:
Notice is hereby given that the Annual Meeting of the Shareholders of
SonomaWest Holdings, Inc. (the "Company") will be held on Wednesday, October 27,
2004 at 11:00 a.m., local time, at Three Embarcadero Center, 12th Floor, San
Francisco, California 94111 for the following purposes:
1. To elect four directors to serve until the 2005 Annual Meeting of
Shareholders or until their respective successors are elected and
qualified.
2. To consider and vote upon a proposal to amend the Company's 2002
Stock Incentive Plan to (i) increase the number of shares
available for issuance under the 2002 Plan; (ii) to provide for
the cashless exercise of stock options granted under the 2002
Plan; and (iii) to change the calculation of fair market value
under the 2002 Plan.
3. To approve the reincorporation of the Company from California to
Delaware by means of a merger with and into a wholly-owned
Delaware subsidiary.
4. To approve the appointment of Grant Thornton LLP as independent
auditors for the fiscal year ending June 30, 2005.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on September 10,
2004 are entitled to notice of and to vote at the meeting and at any
continuation or adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, we urge you to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder has returned a proxy.
By Order of the Board of Directors,
Matthew J. Ertman
SECRETARY
Sebastopol, California
September 10, 2004
SONOMAWEST
HOLDINGS INC
2064 HIGHWAY 116 NORTH o SEBASTOPOL, CA 95472
PH: (707) 824-2001 o FAX: (707) 829-4630
--------------------------
PROXY STATEMENT
For Annual Meeting of Shareholders
October 27, 2004, at 11:00 a.m.
INFORMATION CONCERNING VOTING AND SOLICITATION
GENERAL
This Proxy Statement is furnished by the Board of Directors of
SonomaWest Holdings, Inc. (the "Company") to solicit shareholder proxies to be
voted at the Annual Meeting of Shareholders to be held on Wednesday, October 27,
2004, at 11:00 a.m., local time, or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting of Shareholders. The Annual Meeting will be held at Three Embarcadero
Center, 12th Floor, San Francisco, California 94111.
The mailing of these proxy solicitation materials and the Company's
Annual Report to Shareholders for the year ended June 30, 2004 commenced on or
about September [ ? ], 2004.
VOTING
The Board of Directors has fixed the close of business on September 10,
2004 as the Record Date for the determination of shareholders entitled to
receive notice of, and to vote at, the Annual Meeting or any adjournment
thereof. At the Record Date 1,114,257 shares of the Company's common stock were
issued and outstanding, and no shares of any other class of stock were
outstanding.
Each shareholder on the Record Date will be entitled to one vote for
each share held on all matters to be voted upon at the Annual Meeting, except
for the election of Directors. In the election of Directors, shareholders have
cumulative voting rights, which means that each shareholder is entitled to a
number of votes equal to the number of his or her shares multiplied by the
number of Directors to be elected (four). A shareholder may cast all of his or
her votes for a single candidate, or may distribute votes among as many
candidates as he or she may see fit. No shareholder may cumulate votes for a
candidate, however, unless the name(s) of the candidate(s) have been placed in
nomination prior to the voting and the shareholder has given notice at the
Annual Meeting, before the voting has begun, of his or her intention to cumulate
votes. If one shareholder has already given such a notice, all shareholders may
cumulate their votes for candidates in nomination without further notice.
The inspector of election appointed for the meeting will tabulate all
votes and will separately tabulate affirmative and negative votes, abstentions
and broker non-votes. Each proxy received without specific directions indicated
thereon will be voted FOR the election of the nominees named in this proxy
statement, FOR the amendments to the Company's 2002 Stock Incentive Plan, as
described more fully under the section entitled "Proposal 2", FOR the approval
of the reincorporation of the Company from California to Delaware by means of a
merger with and into a wholly-owned Delaware subsidiary, as described more fully
under the section entitled "Proposal 3" and FOR the approval of the appointment
of Grant Thornton LLP as the Company's independent auditors for the fiscal year
ending June 30, 2005. Broker non-votes are only voted on a shareholder's behalf
in
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favor of "routine" proposals. Therefore, broker non-votes will only be voted for
Proposal 1 and Proposal 4. "Broker non-votes" are shares held by brokers or
nominees which are present in person or represented by proxy, but which are not
voted on a particular matter because instructions have not been received from
the beneficial owner. All properly executed proxies that are not revoked will be
voted at the meeting in accordance with the instructions contained therein.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this statement has
the power to revoke such proxy at any time before it is voted. The proxy may be
revoked by filing with the Secretary of the Company at the Company's principal
executive office a written notice of revocation or a duly executed proxy bearing
a later date, or by filing written notice of revocation with the secretary of
the meeting prior to the voting of the proxy, or by attending the meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including
preparation, assembly, printing, and mailing of this Proxy Statement, the Proxy
card, and any additional material furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names which are beneficially owned by others
to forward to such beneficial owners. In addition, the Company may reimburse
such persons for their costs of forwarding the solicitation material to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram, or personal solicitation by directors, officers, or
employees of the Company. No additional compensation will be paid for any such
services. Except as described above, the Company does not intend to solicit
proxies other than by mail.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any of our eligible shareholders who wish to submit a proposal for
action at our next annual meeting of shareholders and desires that such proposal
be considered for inclusion in our proxy statement and form of proxy relating to
such meeting must provide a written copy of the proposal to us at our principal
executive offices not later than June 6, 2005, and must otherwise comply with
the rules of the Securities and Exchange Commission relating to shareholder
proposals.
The proxy or proxies designated by us will have discretionary authority
to vote on any matter properly presented by an eligible shareholder for action
at our next annual meeting of shareholders, but not submitted for inclusion in
the proxy materials for such meeting unless notice of the matter is received by
us at our principal executive office not later than August 22, 2005, and certain
other conditions of the applicable rules of the Securities and Exchange
Commission are satisfied. Shareholder proposals should be addressed to our
Secretary at 2064 Highway 116 North, Sebastopol, California 95472.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, four Directors are to be elected by the
shareholders to serve until the next Annual Meeting or until the election and
qualification of their successors. The Board's proxy holders (named on the
enclosed Proxy card) intend to vote all shares for which proxies are granted to
elect the four nominees selected by the Company's Board of Directors and intend
to vote such shares cumulatively if necessary to elect some or all of such
nominees.
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If any of the Board's nominees refuses or is unable to serve as a
Director (which is not now anticipated), the Board's proxy holders intend to
nominate and vote for such other person(s) as they believe will best serve the
interests of the Company. Any shareholder may nominate a candidate for Director
from the floor at the Meeting. Such nominee must consent to serve, if elected,
prior to voting on his or her name. The Board of Directors has no reason to
believe that any substitute nominee or nominees will be required.
The four nominees for Director who receive the most affirmative votes
will be elected Directors. Votes withheld shall have no effect on the election
result.
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES
FOR DIRECTOR NAMED BELOW
NOMINEES
The table below indicates the respective nominee's position with the
Company, age, and year in which he first became a Director.
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- ---- --- ------------------------- --------------
David J. Bugatto 40 Director 2001
Gary L. Hess 52 Director 1996
Roger S. Mertz 60 Chairman of the Board 1993
Fredric Selinger 65 Director 1999
Each of the nominees, directors and named current executive officers of
the Company has been engaged in the principal occupations set forth below during
the past five (5) years.
DAVID J. BUGATTO, Director. Mr. Bugatto is President and Chief
Executive Officer of Alleghany Properties, Inc. ("API") and Sacramento
Properties Holdings Inc. ("SPHI") (real estate investments) which are
subsidiaries of Alleghany Corporation, a publicly traded corporation on the
NYSE. Mr. Bugatto is also a Director of both API and SPHI.
GARY L. HESS, Director. Mr. Hess served as President and Chief
Executive Officer of the Company from May 1, 1996 until October 31, 2001, and
Chief Financial Officer from June 14, 1999 until October 31, 2001. Prior thereto
he was a Senior Vice President of Dole Food Company, Inc. (fresh and processed
fruit) (1993-1996); President of Cadace Enterprises, Inc. (water conservation
products) and The Marketing Partnership (1992-1993); and Director of Marketing,
E. & J. Gallo Winery (wine and distilled spirits) (1987-1992).
ROGER S. MERTZ, Chairman of the Board. Mr. Mertz was appointed Chairman
of the Board on October 31, 2001. In accordance with Section 312 of the
California General Corporation Law, since the Company has no individual serving
as President, Mr. Mertz is deemed the Company's Chief Executive Officer and
serves in that capacity. Mr. Mertz is an attorney-at-law. He is a partner of the
California law firm of Allen Matkins Leck Gamble & Mallory LLP. Prior to October
1999, Mr. Mertz was a partner of the San Francisco, California law firm of
Severson & Werson.
FREDRIC SELINGER, Director. Mr. Selinger is Senior Managing Director of
Corporate Finance of Sutter Securities, Incorporated (investment banking and
consulting). Prior to March 1995, Mr. Selinger was Managing Director of Jackson
Square Capital Corp. (private investment banking and consulting).
THOMAS R. EAKIN, Chief Financial Officer. Mr. Eakin, age 50, has served
as the Company's Chief Financial Officer since October 31, 2001 and also served
in such capacity from March 1987 to April 1999.
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Mr. Eakin served as the Company's Controller from December 1983 to February
1987. Since July 2000, Mr. Eakin has also owned, managed and served as a
consultant for Eakin Consulting. From April 1999 to June 2000, Mr. Eakin served
as Chief Financial Officer for Associated Vintage Group, a custom wine producer
in Graton, California.
CORPORATE GOVERNANCE
The Company operates within a comprehensive plan of corporate
governance for the purpose of defining responsibilities, setting high standards
of professional and personal conduct and assuring compliance with such
responsibilities and standards. In July 2002, Congress passed the Sarbanes-Oxley
Act of 2002, which, among other things, establishes, or provides the basis for,
a number of new corporate governance standards and disclosure requirements. In
addition, the National Association of Securities Dealers (NASD), the governing
body of the NASDAQ, has recently adopted changes to the NASDAQ's corporate
governance and listing requirements. The Company regularly monitors developments
in the area of corporate governance.
BOARD OF DIRECTORS
The Board of Directors consists of directors who are elected by the
Company's shareholders, and is the ultimate decision-making body of the Company
except with respect to those matters reserved to the shareholders. The Board of
Directors acts as an advisor and counselor to senior management and ultimately
monitors its performance. These functions of the Board of Directors are
fulfilled by the presence of directors who have a substantive knowledge of the
Company's business.
MEETING ATTENDANCE
The Board of Directors met eight times during the fiscal year ended
June 30, 2004. Each director attended all of the meetings of the Board or its
committees upon which he served that were held during the last fiscal year.
While the Company encourages all members of the Board to attend the annual
meeting, there is no formal policy as to their attendance at each of the annual
meetings of shareholders. All of the directors attended the 2003 Annual Meeting
of Shareholders.
INDEPENDENCE
Each year, the Board reviews the relationships that each director has
with the Company and with other parties. Only those directors who do not have
any of the categorical relationships that preclude them from being independent
within the meaning of applicable NASD Marketplace Rules and who the Board
affirmatively determines have no relationships that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director, are considered to be independent directors. In conducting its review,
the Board considered transactions and relationships between each director or any
member of his immediate family and the Company and its subordinates and
affiliates, including those reported under "Certain Relationships and Related
Transactions" below. After evaluating these factors, the Board has determined
that Fredric Selinger and David J. Bugatto are independent within the meaning of
applicable NASD Marketplace Rules for the purpose of serving on the Board. The
Company is searching for additional independent directors to appoint to the
Board and Committees of the Board to satisfy NASDAQ listing requirements.
EXECUTIVE SESSIONS
Independent members of the Board meet regularly in executive session
without management present.
SHAREHOLDER COMMUNICATIONS
Shareholders may communicate in writing with the Chairman of the Board
or the non-management
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members of the Board as a group by mail addressed to the Secretary of the
Company at the following address: 2064 Highway 116 North, Sebastapol, California
95472. The Secretary will review all correspondence sent to the attention of the
non-management directors and regularly forward to the Board a summary of such
correspondence. Copies of all correspondence that, in the opinion of the
Secretary, deals with the functions of the Board or committees thereof or that
he otherwise determines requires their attention will also be forwarded to the
Board. Concerns relating to the accounting, internal controls or auditing
matters will be handled in accordance with the Company's COMPLAINT PROCEDURE AND
NONRETALIATION POLICY FOR ACCOUNTING, SECURITIES AND SHAREHOLDER MATTERS which
was adopted by the Audit Committee, a copy of which is attached to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2004.
CODES OF ETHICS
The Board of Directors has adopted a CODE OF BUSINESS CONDUCT AND
ETHICS that applies to all of our employees, officers and directors, and a Code
of Ethics for our Chief Executive Officer and senior financial officers. Copies
of these codes of ethics are attached to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2004.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has standing Audit and Compensation Committees. The Board has
adopted charters for the Audit and Compensation Committees. Copies of the Audit
Committee and Compensation Committee charters are attached to this Proxy
Statement as Appendices A and B.
AUDIT COMMITTEE
The members of the Audit Committee are Messrs. Selinger (Chairman),
Bugatto and Hess. The Board has determined that Mr. Selinger is independent
within the meaning established by applicable NASD Marketplace Rules and Rule
10A-3 of the Securities Exchange Act of 1934. The Board has also determined that
Mr. Selinger is an "audit committee financial expert" as defined in Item 401(h)
of Regulation S-K. Messrs. Bugatto and Hess are not independent by virtue of the
consulting fees and commissions each received in fiscal year 2004, respectively.
However, the two directors were appointed to the Committee based on their
in-depth knowledge of the Company's operations and controls.
The Audit Committee's function is to provide assistance to the
Company's Board in its oversight of: the integrity of the Company's financial
statements; compliance with legal and regulatory requirements; reviewing and
maintaining the independent auditors' qualifications and independence; and the
performance of the Company's internal audit function and independent auditors.
The Audit Committee is solely responsible for the appointment, compensation and
oversight of the independent auditors, and, if deemed necessary, the termination
of the independent auditors. The Audit Committee met one time during fiscal year
2004. The Audit Committee's authority and duties and obligations are more
particularly described in the Audit Committee's charter.
In 2003, the Audit Committee adopted a policy concerning approval of
audit and non-audit services to be provided to the Company by its independent
auditor, Grant Thornton LLP. The policy requires that all services to be
provided by Grant Thornton LLP, including audit services and permitted
audit-related and non-audit services, must be pre-approved by the Audit
Committee. The Audit Committee pre-approved all audit and non-audit services
provided by Grant Thornton LLP during fiscal year 2004.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Messrs. Hess (Chairman),
Bugatto and Selinger. The Board has determined that Messrs. Bugatto and Selinger
are independent within the meaning of applicable
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NASD Marketplace Rules. Mr. Hess is not independent by virtue of the
compensation he received in fiscal 2004. The Compensation Committee met one time
during fiscal year 2004. The functions of the Compensation Committee of the
Board of Directors are to: develop and recommend to the full Board compensation
arrangements, including bonuses and stock options for directors, executive
officers and other key employees, and fee arrangements for outsourced
management; advise the Board on policy matters concerning officer compensation,
and administration of the Company's stock option plans; administer the Company's
stock option plans; establish and review general policies relating to the
compensation and benefits of the Company's employees; and perform such other
functions regarding compensation as the Board may delegate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company is not aware of any interlocks or insider participation
required to be disclosed under applicable rules of the Securities and Exchange
Commission. No members of the Compensation Committee were employees of the
Company during the fiscal year ended June 30, 2004. As described in the Section
below entitled "Certain Relationships and Related Transactions," Gary Hess
during fiscal year 2004 received separation payments from the Company pursuant
to a separation agreement and had an existing loan from the Company in
connection with the exercise of stock options.
NOMINATING COMMITTEE
The Company does not have a standing nominating committee. Due to the
small size of its Board, the Company does not foresee the need to establish a
separate nominating committee. The independent directors of the Board are
responsible for evaluating and recommending individuals for election or
reelection to the Board, including those recommendations submitted by
shareholders. Currently, the independent directors of the Board (within the
meaning of NASD Marketplace Rules) are Fredric Selinger and David Bugatto.
It is the Company's policy that candidates for director possess the
highest personal and professional integrity, have demonstrated exceptional
ability and judgment, and have skills and expertise appropriate for the Company
and serving the long-term interest of the Company's shareholders. The Company's
process for identifying and evaluating nominees is as follows: (1) in the case
of incumbent directors whose terms of office are set to expire, the independent
directors review such directors' overall service to the Company during their
term, including the number of meetings attended, level of participation, quality
of performance, and any related party transactions with the Company during the
applicable time period; and (2) in the case of new director candidates, the
committee first conducts any appropriate and necessary inquiries into the
backgrounds and qualifications of possible candidates after considering the
function and needs of the Board. The independent directors meet to discuss and
consider such candidates' qualifications, including relevant career experience,
relevant technical skills, industry knowledge and experience, financial
expertise (including expertise that could qualify a director as a "financial
expert") and whether the nominee is independent for purposes of the NASD
Marketplace Rules. The independent directors then select a candidate for
recommendation to the Board by majority vote. In seeking potential nominees, the
independent directors use a network of contacts to compile a list of potential
candidates, but may also engage, if deemed appropriate, a professional search
firm. To date, the Company has not paid a fee to any third party to assist in
the process of identifying or evaluating director candidates, nor has the Board
rejected a timely director nominee from a shareholder holding more than 5% of
the Company's voting stock.
The independent directors will consider director candidates recommended
by shareholders provided the shareholders follow the procedures set forth below
and in the Company's bylaws. The independent directors do not intend to alter
the manner in which they evaluate candidates, including the criteria set forth
above, based on whether the candidate was recommended by a shareholder or
otherwise.
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Shareholders who wish to recommend individuals for election to the
Board may do so by submitting a written recommendation to the independent
directors in accordance with the procedures set forth above in this proxy
statement under the heading "Shareholder Proposals for the Next Annual Meeting."
For nominees for election to the Board proposed by shareholders to be
considered, the following information concerning each nominee must be timely
submitted in accordance with the required procedures: (1) the nominee's name,
age, business address, residence address, principal occupation or employment,
the class and number of shares of the Company's capital stock the nominee
beneficially owns and any other information relating to the nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder; and (2) as to the shareholder proposing such nominee,
that shareholder's name and address, the class and number of shares of the
Company's capital stock the shareholder beneficially owns, a description of all
arrangements and understandings between the shareholder and the nominee or any
other person (including their names) pursuant to which the nomination is made, a
representation that the shareholder is a holder of record of the Company's stock
entitled to vote at the meeting and that the shareholder intends to appear in
person or by proxy at the Annual Meeting to nominate the person named in its
notice, and any other information relating to the shareholder that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Section 14 of the Securities Exchange Act and the rules and regulations
thereunder. The notice must also be accompanied by a written consent of the
proposed nominee to being named as a nominee and to serve as a director if
elected.
COMPENSATION OF DIRECTORS
DIRECTOR COMPENSATION. During fiscal year 2005, the Directors, not
including the Chairman of the Board, receive $1,000 per quarter for serving as a
director, $250 per quarter for serving on one or more committees of the Board,
and $1,000 for each Board meeting attended. The Chairman of the Board receives
$1,000 per quarter for serving as a director, $500 per quarter for serving as
the Chairman of the Board, and $1,000 for each Board meeting attended. During
fiscal year 2004, the Directors received $900 per quarter for serving as
Directors, $600 for each Board or committee meeting attended, and $400 for each
telephonic Board meeting. Directors' fees paid by the Company during fiscal year
2004 totaled $33,800. In connection with their services to the Company, on July
30, 2003, Messrs. Bugatto, Hess and Selinger received a fully vested,
non-qualified stock option grant to purchase 5,000 shares of the Company's
common stock at $5.05 per share and Mr. Mertz received a fully vested,
non-qualified stock option grant to purchase 7,500 shares of the Company's
common stock at $5.05 per share. No stock options have been granted to any of
the directors since July 30, 2003.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables, based in part upon information supplied by
officers, directors and principal shareholders, set forth certain information
known to the Company with respect to beneficial ownership of the Company's
common stock as of September 10, 2004, by (i) each beneficial owner of more than
5% of the Company's common stock, (ii) the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers whose
aggregate compensation exceeded $100,000 for the fiscal year ended June 30, 2004
(collectively, the "Named Executive Officers"), (iii) each Director of the
Company, and (iv) all Directors and executive officers of the Company as a
group. Except as otherwise indicated, each person has sole voting and investment
power with respect to all shares shown as beneficially owned, subject to
community property laws where applicable. Voting power is the power to vote or
direct the voting of securities, and investment power is the power to dispose of
or direct the disposition of securities.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
SHARES OF COMMON STOCK BENEFICIALLY OWNED (a)
-----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
Craig R. Stapleton 368,830(b) 32.8%
135 E. Putnam Avenue
Greenwich, CT 06830
Gary L. Hess 73,617(c) 6.5%
2064 Highway 116, North
Sebastopol, CA 95472
Wendy W. Stapleton 71,165(d) 6.4%
135 E. Putnam Avenue
Greenwich, CT 06830
Roger S. Mertz 57,110(e) 5.0%
Three Embarcadero Center, 12th Floor
San Francisco, CA 94111
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant
to Sections 13(d), 13(g) and 16(a) and information made known to the
Company. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options that are currently exercisable or exercisable
within 60 days of September 10, 2004 are deemed to be outstanding for
the purpose of computing the percentage ownership of the person holding
those options, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. The percentage
of beneficial ownership is based on 1,114,257 shares of common stock
outstanding as of September 10, 2004.
(b) Includes 332,137 shares owned directly by Mr. Stapleton or trusts for
the benefit of Mr. Stapleton, 10,000 shares issuable upon the exercise
of stock options and 26,693 shares owned by Mr. Stapleton's wife to
which Mr. Stapleton disclaims any beneficial interest.
(c) Includes 63,617 shares owned directly and 10,000 shares issuable upon
the exercise of stock options.
(d) Wendy W. Stapleton is the daughter of Craig R. Stapleton.
(e) Includes 29,955 shares owned directly, 25,000 shares issuable upon the
exercise of stock options, and 2,155 shares held by Mr. Mertz as
trustee and to which Mr. Mertz disclaims any beneficial interest.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The table below presents the security ownership of the Company's
Directors, Named Executive Officers, and all Directors and executive officers as
a group as of September 10, 2004.
SHARES BENEFICIALLY OWNED (a)
-----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ------ -------
Gary L. Hess 73,617(b) 6.5%
Roger S. Mertz 57,110(c) 5.0%
Fredric Selinger 22,000(d) 1.9%
David J. Bugatto 20,000(e) 1.7%
- ------------------------------------
All directors and executive officers
as a group 174,227 14.6%
- ------------------------------------
(a) Shares listed in this column include all shares held by the named
individuals and all directors and executive officers as a group in
their own names and in street name. Security ownership information for
beneficial owners is taken from statements filed with the Securities
and Exchange Commission pursuant to Sections 13(d), 13(g) and 16(a) and
information made known to the Company. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options that
are currently exercisable or exercisable within 60 days of September
10, 2004 are deemed to be outstanding for the purpose of computing the
percentage ownership of the person holding those options, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person. The percentage of beneficial ownership
is based on 1,114,257 shares of common stock outstanding as of
September 10, 2004.
(b) Includes 63,617 shares owned directly and 10,000 shares issuable upon
the exercise of stock options.
(c) Includes 29,955 shares owned directly, 25,000 shares issuable upon the
exercise of stock options, and 2,155 shares held by Mr. Mertz as
trustee and to which Mr. Mertz disclaims any beneficial interest.
(d) Includes 2,000 shares owned directly and 20,000 shares issuable upon
the exercise of stock options.
(e) Includes 20,000 shares issuable upon the exercise of stock options.
-9-
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information
for the Chief Executive Officer and each of the four other most highly
compensated executive officers whose aggregate compensation exceeded $100,000
for the fiscal year ended June 30, 2004 (collectively, the "Named Executive
Officers"). Compensation data is shown for the fiscal years ended June 30, 2004,
2003, and 2002. This information includes the dollar value of base salaries,
bonus awards, the number of Options/SARs granted, and certain other
compensation, if any, whether paid or deferred.
Annual Compensation(a) Long Term
---------------------- Compensation
Awards
------
Name Year Salary($) Bonus($) Options/SARS(#) All Other
- ---- ---- --------- -------- --------------- Compensation($)
---------------
Roger S. Mertz(b) 2004 -- -- 7,500 --
Chief Executive Officer 2003 -- -- 7,500 --
2002 -- -- 5,000 --
(a) Amounts shown include cash and non-cash compensation earned with
respect to the year shown above.
(b) In accordance with Section 312 of the California General Corporation
Law, since the Company has no individual serving as President, Mr.
Mertz is deemed the Company's Chief Executive Officer and serves in
that capacity. Mr. Mertz is not compensated for services as an officer.
Mr. Mertz receives only the quarterly and per meeting director fees and
option grants that are granted to Mr. Mertz in connection with his
services as Chairman of the Board. During fiscal year 2004, Mr. Mertz
received a total of $8,000 in director fees and a fully-vested
non-qualified stock option grant to purchase 7,500 shares of the
Company's common stock at $5.05 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock
options granted from July 1, 2003 to June 30, 2004 to the Named Executive
Officers under the 2002 Stock Incentive Plan.
Name Number of Percent of
- ---- Securities Total Options
Underlying Granted to Grant Date
Options Employees in Per Share Present Dollar
Granted Fiscal Year Exercise Price Expiration Date Value (a)
------- ----------- -------------- --------------- ---------
Roger S. Mertz 7,500 91%(c) $5.05 07/29/13 $37,875
Chief Executive
Officer(b)
-------------------------------------
(a) Dollar value does not represent potential realizable value to the
optionee, but was computed by multiplying the number of shares by the
price of the last reported sale of the Company's common stock on the
Nasdaq SmallCap Market on the date grants were approved by the Board of
Directors.
(b) On July 30, 2003, Mr. Mertz received a fully vested, non-qualified
stock option grant to purchase 7,500 shares of the Company's common
stock at an exercise price of $5.05 per share, for services rendered as
a director of the Company.
(c) Represents approximately 31% of all options granted by the Company
during the fiscal year ended June 30, 2004.
-10-
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to option
exercises from July 1, 2003 to June 30, 2004, by the Named Executive Officers
and the value of such officers' unexercised options at June 30, 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year-End (#) FIscal Year-End ($) (a)
------------------- -----------------------
Shares Acquired Value
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
Roger S. Mertz -- -- 25,000 -- 93,225 --
Chief Executive
Officer
-------------------------------------
(a) Value of unexercised options was determined by multiplying the number
of unexercised options by the difference between the price of the last
reported sale of the Company's common stock on the NASDAQ SmallCap
Market of $9.90 per share on June 30, 2004 (the last trading day for
fiscal 2004), and the exercise price of such unexercised options.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share and exercise information about our
equity compensation plans as of September 10, 2004.
Plan Category Number of Securities
- ------------- Number of Securities Remaining Available for
to be Issued Upon Weighted-Average Future Issuance Under
Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (excluding securities
Warrants and rights warrants and rights included in 1st column)
------------------- ------------------- -----------------------
Equity Compensation Plans Approved by 92,900 $6.57 166,926(2)
Security Holders (1)
Equity Compensation Plans Not Approved by -- -- --
Security Holders ------------ ------------ ------------
Total 92,900 $6.57 166,926
-------------------------------------
(1) Consists of the Company's 2002 Stock Incentive Plan and 1996 Stock
Option Plan, as amended to date.
(2) Includes 24,900 shares available for issuance under the 2002 Stock
Incentive Plan and 142,026 shares available for issuance under the 1996
Stock Option Plan. However, in connection with the adoption of the 2002
Stock Incentive Plan in 2002, no further option grants will be made
under the 1996 Stock Option Plan.
-11-
SUMMARY OF EQUITY COMPENSATION PLANS
2002 STOCK INCENTIVE PLAN
The Company's 2002 Stock Incentive Plan ("2002 Plan") provides for the
granting to officers, employees, Directors and consultants of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, nonstatutory stock options and stock appreciation rights. The
Company may also issue stock directly to participants under the 2002 Plan. The
2002 Plan was approved by the Board of Directors in July 2002 and by the
shareholders in October 2002. The 2002 Plan serves as the successor program to
the Company's 1996 Stock Option Plan and was adopted with the intention of
reducing the number of shares reserved for stock option grants to a number which
better matches the current capitalization of the Company. A total of 75,000
shares of common stock have been reserved for grant pursuant to the 2002 Plan.
As of September 10, 2004, 24,900 shares of common stock were available for
issuance under the 2002 Plan and options to purchase 50,100 shares were
outstanding.
The Company periodically grants to its officers, employees, Board
members and consultants stock options under the 2002 Plan in order to provide
additional incentive for such persons. The Board believes that such incentives
benefit the Company and its shareholders by providing incentive-based
compensation that will encourage officers, directors, consultants and other key
employees to attain high performance and encourage stock ownership in the
Company. No participant in the 2002 Plan may be granted stock options, direct
stock issuances and share right awards for more than 15,000 shares of common
stock in total in any calendar year. The exercise price of all incentive stock
options granted under the 2002 Plan must be at least equal to the fair market
value of the common stock on the date of grant. The exercise price of
nonstatutory stock options must at least be equal to 85% of the fair market
value of the common stock on the date of grant.
Please see a more complete description of the 2002 Plan under Proposal
2 below.
1996 STOCK OPTION PLAN, AS AMENDED
The Company's 1996 Stock Option Plan, (the "1996 Plan") was approved by
the shareholders at the 1996 Annual Meeting. An amendment to the 1996 Plan
increasing the number of shares available for issuance under the 1996 Plan to
275,000 was approved by the shareholders at the 1999 Annual Meeting. As of
September 10, 2004, options to purchase 268,574 shares had been issued under the
1996 Plan, while options to purchase a total of 42,800 shares remain
outstanding. No further options have been or will be granted under the 1996 Plan
since the adoption of the 2002 Plan in 2002. All new option grants are being
made under the 2002 Plan.
-12-
COMPENSATION COMMITTEE REPORT OF THE BOARD OF DIRECTORS
THE FOLLOWING COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH INCLUDED
ELSEWHERE IN THIS PROXY STATEMENT DO NOT CONSTITUTE SOLICITING MATERIAL AND
SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE INTO ANY OTHER COMPANY
FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934,
EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS REPORT OR THE
PERFORMANCE GRAPH BY REFERENCE THEREIN.
This report is provided by the Compensation Committee of the Board of
Directors (the "Committee") to assist shareholders in understanding the
Committee's objectives and procedures in establishing the compensation of the
Company's Chief Executive Officer and other executive officers. The Committee,
made up of non-employee Directors, is responsible for establishing and
administering the Company's executive compensation program.
In accordance with the Company's strategy of reducing operating
expenses, particularly expenses related to being a public reporting company, the
Company has outsourced virtually all of its management functions. As a result,
the Company's current compensation strategy is to make sure that the fees it
pays for outsourced services are fair and reasonable.
CURRENT KEY ELEMENTS OF EXECUTIVE COMPENSATION
Currently, the outsourced management of the Company is compensated
through consulting fees and long term incentives. In addition, the Company pays
legal fees to the Company's outside legal counsel, Allen Matkins Leck Gamble &
Mallory LLP, of which Mr. Mertz is a partner.
CONSULTING FEES
Consulting fees paid to outsourced management are reviewed annually by
the Compensation Committee to determine whether they are fair and reasonable on
the basis of the services provided.
LEGAL FEES
Legal fees paid to Allen Matkins Leck Gamble & Mallory LLP are reviewed
and approved by the Compensation Committee to determine whether they are fair
and reasonable on the basis of the services provided.
LONG-TERM INCENTIVES
Long-term incentive awards provided by shareholder approved
compensation programs are designed to develop and maintain strong management
through share appreciation awards and to tie compensation to the success of the
Company as reflected in its stock price. The 2002 Stock Incentive Plan provides
for the granting to officers, employees, Directors and consultants of incentive
stock options, which promotes the long-term interests of the Company's
shareholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In accordance with Section 312 of the California General Corporation
Law, since the Company has no individual serving as President, Mr. Mertz is
deemed the Company's Chief Executive Officer and serves in that capacity. Mr.
Mertz is not compensated for services as Chief Executive Officer. Mr. Mertz
receives only the quarterly and per meeting director fees and option grants that
are granted to Mr. Mertz in connection with his services as Chairman of the
Board.
THE COMPENSATION COMMITTEE
David J. Bugatto
Gary L. Hess
Fredric Selinger
-13-
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal year ended
June 30, 2004 all filing requirements applicable to its executive officers,
directors, and greater than ten-percent beneficial owners were complied with
except that Mr. Hess filed late one Form 4 reporting one transaction.
-14-
AUDIT COMMITTEE REPORT TO SHAREHOLDERS
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUTE
SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE
INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS REPORT BY REFERENCE THEREIN.
To the Board of Directors
of SonomaWest Holdings, Inc.: September __, 2004
The Audit Committee currently consists of Fredric Selinger (Chairman),
David J. Bugatto and Gary L. Hess ("Committee"). The Company's securities are
quoted on the NASDAQ SmallCap Market and are governed by its listing standards.
Fredric Selinger meets the independence requirements and all of the members meet
the financial literacy requirements of the NASDAQ SmallCap Market. The Board has
determined Fredric Selinger to be an audit committee financial expert within the
meaning of that term as defined by the SEC pursuant to Section 407 of the
Sarbanes-Oxley Act of 2002.
The Board has adopted a written charter for the Committee which is
attached as Appendix A to this proxy statement. This charter was amended and
restated in September 2004 in response to new regulatory requirements, including
the Sarbanes-Oxley Act of 2002 and related rules and regulations proposed or
issued by the SEC and the NASDAQ SmallCap Market.
In accordance with its charter, the Committee assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of the Company. The
Committee is responsible for overseeing the Company's accounting and financial
reporting processes and audits of the Company's financial statements. The
Committee acts only in an oversight capacity and relies on the work and
assurances of both management, which has primary responsibilities for the
Company's financial statements and reports, as well as the independent auditors
who are responsible for expressing an opinion on the conformity of the Company's
audited financial statements to generally accepted accounting principles.
In discharging its duties, the Committee reviewed and discussed with
management of the Company and Grant Thornton LLP, the independent auditing firm
of the Company, the audited financial statements of the Company for the fiscal
year ended June 30, 2004 ("Audited Financial Statements").
The Committee discussed with Grant Thornton LLP the matters required by
Codification of Statements on Auditing Standards No. 61, COMMUNICATION WITH
AUDIT COMMITTEES, as amended.
The Committee received and reviewed the written disclosures and the
letter from Grant Thornton LLP required by Independence Standards Board Standard
No. 1, INDEPENDENCE WITH AUDIT COMMITTEES, and discussed with that firm its
independence from the Company.
The Committee considered the compatibility of non-audit services with
the auditors' independence and have discussed with the independent auditors
their independence.
Based on the foregoing review and discussions and a review of the
report of Grant Thornton LLP with respect to the audited financial statements,
and relying thereon, the Committee recommended to the Company's Board of
Directors (and the Board approved) the inclusion of the Audited Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2004, for filing with the SEC.
THE AUDIT COMMITTEE
David J. Bugatto
Gary L. Hess
Fredric Selinger
-15-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING AGREEMENT WITH BUGATTO INVESTMENT COMPANY
On July 1, 2004, the Company entered into a Consulting Agreement with
Bugatto Investment Company (of which David Bugatto, Director of the Company, is
President). Pursuant to the agreement Mr. Bugatto provides consulting services
to the Company in connection with its real estate business for which Bugatto
Investment Company is compensated at an hourly rate of $225 per hour. In
addition, in the event that either of the Company's Sonoma County properties are
sold during the term of the agreement, Bugatto Investment Company will be paid a
fee of 2% of the gross sales price regardless of whether a broker is involved in
the sale. The agreement is effective until the earlier of its termination by
either party or June 30, 2005. During fiscal year 2004, the Company paid Mr.
Bugatto, under its prior agreement with Mr. Bugatto, $26,000 for real estate
consulting services.
CONSULTING AGREEMENT WITH THOMAS R. EAKIN
On August 1, 2004, the Company entered into a Consulting Agreement with
Thomas R. Eakin, Chief Financial Officer. The agreement replaced the former
consulting agreement between Mr. Eakin and the Company which terminated by its
terms on July 31, 2004. Under the new agreement, Mr. Eakin provides financial
management and accounting services to the Company for which he is compensated at
an hourly billing rate of $115 per hour, plus expenses. During fiscal 2004, the
Company incurred $51,000 for financial management and accounting consulting
services provided by Mr. Eakin.
SEPARATION AGREEMENT WITH GARY L. HESS
On July 17, 2001 the Company entered into a separation agreement in
principle, which was thereafter executed, with Gary Hess, replacing his existing
employment agreement. Pursuant to the separation agreement, Gary 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 Gary Hess in the amount of $12,500
monthly for 29 months, replacing all payment obligations under his prior
employment agreement. As of June 30, 2004, the Company had paid all its
obligations under this agreement.
Pursuant to this separation agreement, the Company also designated Gary
Hess for the period beginning July 17, 2001 and ending December 31, 2002, as the
Company's exclusive sales representative to sell any and all remaining Perma-Pak
finished goods inventory and other Perma-Pak property (inventory and property
related to discontinued operations). Under the agreement, Gary Hess was entitled
to a commission of 7% on the net purchase price received by the Company from
sales above the initial $250,000. On 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 June 30, 2004 the Company had received $228,000
of the $240,000 total purchase price. The Company has paid commissions to Gary
Hess of $60,829 pursuant to this sale and $69,673 in total pursuant to this
agreement. Upon receipt of the balance of the total purchase price of $12,000,
the Company will owe a commission to Gary Hess of $6,000.
As part of the separation agreement, Gary 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, Gary
Hess elected to exercise his option to purchase 80,000 shares of his total
outstanding options of 89,474 shares and 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). The Company agreed to loan Gary Hess up to
$447,370 to allow Gary Hess to exercise the aforementioned options. Gary 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, bore interest at the
Applicable Federal Rate (AFR) for loans of three years or less on the date of
the note (the
-16-
AFR at January 28, 2002 was 2.73%), and was payable quarterly. On January 23,
2004, Gary Hess exercised the remaining 9,474 options. Additionally, as of
August 3, 2004, the Company had received payment in full for the note, including
accrued interest.
RELATIONSHIP WITH ROGER S. MERTZ AND ALLEN MATKINS
During fiscal year 2004 the Company engaged Allen Matkins Leck Gamble &
Mallory LLP ("Allen Matkins") as its legal counsel. Roger S. Mertz, Chairman of
the Board, is a partner at Allen Matkins. During 2004, 2003, and 2002, the
Company incurred $323,000, $204,000 and $186,000 respectively, for legal
services from Allen Matkins.
-17-
PERFORMANCE GRAPH
The following graph compares the total return performance of the
Company for the periods indicated with the performance of the Russell 2000 Index
and the performance of a Peer Index comprised of the publicly traded stocks of
Headliners Entertainment Group, Inc., Princeton American Corporation, Excel
Enterprises, Inc., Indigenous Global Development Corp., Monmouth Capital Corp.,
National Properties Corp., and SonomaWest Holdings, Inc. The Company's shares
are traded over-the-counter on the NASDAQ SmallCap Market under the symbol
"SWHI". Three of the companies in the Peer Group have market capitalizations
greater than the Company and three have market capitalizations less than the
Company. The Russell 2000 Index is comprised of the publicly traded stocks of
the 2,000 smallest companies included in the Russell 3,000 Index, which includes
the publicly traded stocks of the 3,000 largest companies. The total return
indices reflect reinvested dividends and are weighted on a market capitalization
basis at the time of each reported data point.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SONOMAWEST HOLDINGS, INC., THE RUSSELL 2000 INDEX
AND A PEER GROUP
* $100 invested on 6/30/99 in stock or index-including reinvestment of
dividends. Fiscal year ending June 30.
(THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE)
YEAR (JUNE 30) 1999 2000 2001 2002 2003 2004
- -------------- ---- ---- ---- ---- ---- ----
SonomaWest Holdings, Inc. 100 62.82 72.00 76.67 53.85 100.87
Russell 2000 100 114.32 115.07 105.09 103.37 137.86
Peer Group 100 82.13 95.93 56.92 108.61 273.93
-18-
AUDITOR INDEPENDENCE
FEES TO INDEPENDENT AUDITORS FOR FISCAL 2004 AND 2003
The following table shows the fees billed to the Company for the audit
and other services provided by Grant Thornton LLP for fiscal 2004 and 2003.
FISCAL 2004 FISCAL 2003
----------- -----------
Audit fees (1) $ 66,466 $ 57,623
Audit-related fees (2) $ -- $ --
Tax fees (3) $ 23,289 $ 35,012
All other fees (4) $ 5,470 $ 3,900
(1) Audit fees represent fees for professional services provided in
connection with the audit of our financial statements and review of our
quarterly financial statements.
(2) Audit-related fees consisted primarily of accounting consultations and
out of pocket expenses. (3) For fiscal 2004 and 2003, respectively, tax
fees principally included tax compliance fees of $19,071 and
$24,554, and tax advice and tax planning fees of $4,218 and $10,458.
(4) All other fees principally include audit services provided in
connection with other statutory or regulatory filings.
All audit related services, tax services and other services were
pre-approved by the Audit Committee, which concluded that the provision of such
services by Grant Thornton LLP was compatible with the maintenance of that
firm's independence in the conduct of its auditing functions. The policy adopted
by the Audit Committee's requires pre-approval of audit, audit-related,
non-audit and tax services.
PROPOSAL 2
ADOPTION OF AMENDMENTS TO THE 2002 STOCK INCENTIVE PLAN
INTRODUCTION
The Board has considered several amendments to the Company's 2002 Stock
Incentive Plan (the "2002 Plan"). While the Company continues to evaluate
alternatives for increasing shareholder value, the Board believes it is
appropriate to continue to adopt such plans and benefits as necessary for a
continuing company. While no decision has been made regarding the Company's
intention to keep its NASDAQ SmallCap Market listing, the new NASDAQ listing
requirements require the recruitment of two additional independent
directors for the Company. The recruitment of any additional directors, whether
as a response to the new NASDAQ listing requirements or because it is otherwise
in the best interests of the Company, may require the issuance of additional
stock options. For these reasons and in order to continue to attract and retain
key employees and non-employee consultants, the Board believes that the
following amendments to the 2002 Plan are in the best interests of the Company.
Following a discussion regarding the merits of the following proposed
amendments, the Board, at its July 28, 2004 meeting, approved a resolution
proposing to amend the 2002 Plan conditioned upon shareholder approval.
-19-
The shareholders are being requested to consider and act upon a
proposal to amend the 2002 Plan as follows:
o to amend Section 5 of the 2002 Plan to increase the aggregate
number of shares of common stock available for issuance
pursuant to the 2002 Plan from 75,000 to 150,000 shares;
o to change the determination of the fair market value under the
2002 Plan; and
o to add a new provision providing for the cashless exercise of
options granted under the 2002 Plan.
IN ORDER FOR THE PROPOSED AMENDMENTS TO THE 2002 PLAN TO BE EFFECTED,
A MAJORITY OF THE SHARES OF COMMON STOCK VOTING IN PERSON OR BY PROXY ON
THIS PROPOSAL MUST APPROVE PROPOSAL TWO.
YOU ARE URGED TO READ CAREFULLY THIS SECTION OF THE PROXY STATEMENT,
BEFORE VOTING ON THE PROPOSED AMENDMENTS TO THE 2002 PLAN.
DESCRIPTION OF THE 2002 PLAN
The following is a description of the material features of the 2002
Plan, without giving effect to the proposed amendments, which are described
later in the section. The 2002 Plan was adopted by the Board of Directors on
July 31, 2002 and was approved by the shareholders.
SHARE RESERVE
The Board currently has authorized up to 75,000 shares of the common
stock for issuance under the 2002 Plan. No participant in the 2002 Plan may be
granted stock options, direct stock issuances and share right awards for more
than 15,000 shares of common stock in total in any calendar year.
PROGRAMS
The 2002 Plan has two separate programs:
o the discretionary option grant program, under which the plan
administrator (currently the Board of Directors) may grant (i)
non-statutory options to purchase shares of common stock to
eligible individuals in the employ or service of the Company
(including employees, officers, Board members and consultants)
at an exercise price not less than 85% of the fair market
value of those shares on the grant date and (ii) incentive
stock options to purchase shares of common stock to eligible
employees at an exercise price not less than 100% of the fair
market value of those shares on the grant date; and
o the stock issuance program, under which eligible individuals
may be issued shares of common stock directly, upon the
attainment of performance milestones or the completion of a
specified period of service or as a bonus for past services.
ELIGIBILITY
The individuals eligible to participate in the 2002 Plan include
employees, officers, directors and consultants of the Company. The Company
currently employs five employees and there are four directors and two officers
that would be eligible to participate in the 2002 Plan.
-20-
ADMINISTRATION
The Board of Directors administers the discretionary option grant and
stock issuance programs. The Board of Directors determines which eligible
individuals are to receive option grants, stock issuances or share right awards
under those programs, the time or times when the grants or issuances are to be
made, the number of shares subject to each grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant, stock issuance or share right awards and the maximum term for
which any granted option is to remain outstanding.
PLAN FEATURES
The 2002 Plan includes the following features:
o The exercise price for any options granted under the 2002 Plan
may be paid in cash or in shares of the Company's common stock
valued at fair market value on the exercise date. Options may
also be exercised through a same-day sale program without any
cash outlay by the optionee.
o The Board has the authority to cancel outstanding options
under the discretionary option grant program in return for the
grant of new options for the same or different number of
option shares with an exercise price per share based upon the
fair market value of the common stock on the new grant date.
o Stock appreciation rights may be issued under the
discretionary option grant program. These rights will provide
the holders with the election to surrender their outstanding
options for a payment equal to the fair market value of the
shares subject to the surrendered options less the exercise
price payable for those shares. Payment may be made in cash or
in shares of common stock.
CHANGE IN CONTROL
The 2002 Plan includes the following change in control provisions that
result in the accelerated vesting of outstanding option grants and stock
issuances:
o In the event that we are acquired by merger or asset sale or a
successful tender offer for more than fifty percent of our
outstanding voting stock which the Board of Directors
recommends that the shareholders accept, each outstanding
option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise
continued in full force and effect will immediately become
exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent
our repurchase rights with respect to those shares are to be
assigned to the successor corporation.
o The Board of Directors will have complete discretion to grant
one or more options which will become exercisable for all the
option shares in the event those options are assumed in the
acquisition but the optionee's service with us or the
acquiring entity is subsequently terminated. The vesting of
any outstanding shares under the stock issuance program may be
accelerated upon similar terms and conditions.
o The Board of Directors may grant options and structure
repurchase rights so that the shares subject to those options
or repurchase rights will immediately vest in connection with
a
-21-
successful tender offer for more than twenty-five percent of
our outstanding voting stock which the Board of Directors does
not recommend that the Shareholders accept or a change in the
majority of the Board through one or more contested elections.
This accelerated vesting may occur either at the time of the
transaction or upon the subsequent termination of the
individual's service.
o The Board of Directors will have complete discretion to
determine that any one or more transactions do not constitute
a change in control requiring accelerated vesting or other
similar treatment of options or capital stock.
ADDITIONAL PROGRAM FEATURES
The 2002 Plan will also have the following features:
o Limited stock appreciation rights may be granted to one or
more officers or directors as part of their option grants
under the discretionary option grant program. Options with
this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 25% of our
outstanding voting stock or a change in the majority of the
Board through one or more contested elections. In return for
the surrendered option, the optionee will be entitled to a
cash payment from us in an amount per surrendered option share
based upon the highest price per share of our common stock
paid in the tender offer, or the fair market value per share
of our common stock on the effective date of a change in the
majority of the Board.
o The Board may amend or modify the 2002 Plan at any time,
subject to any required Shareholder approval. The 2002 Plan
will terminate no later than July 31, 2012.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to be only a general description
of the tax consequences of the 2002 Plan under the provisions of U.S. federal
income tax law currently in effect and does not address any estate, gift, state,
local or non-U.S. tax laws. U.S. federal income tax law is subject to change at
any time, possibly with retroactive effect. Accordingly, each grantee should
consult a tax advisor regarding his or her specific tax situation.
INCENTIVE STOCK OPTIONS
The grant of an incentive stock option does not give rise to federal
income tax to the grantee. Similarly, the exercise of an incentive stock option
generally does not give rise to federal income tax to the grantee, as long as
the grantee is continuously employed by the Company from the date the option is
granted until the date the option is exercised. This employment requirement is
subject to certain exceptions. However, the exercise of an incentive stock
option may increase the grantee's alternative minimum tax liability, if any.
If the grantee holds the option shares for more than two years from the
date the option is granted and more than one year from the date of exercise, any
gain or loss recognized on the sale or other disposition of the option shares
will be capital gain or loss, measured by the difference between the sales price
and the amount paid for the shares by the grantee. The capital gain or loss will
be long-term or short-term, depending on the grantee's holding period for the
shares. If the grantee disposes of the option shares before the end of the
required holding period, the grantee will recognize ordinary income at the time
of the disposition equal to the excess, if any, of (i) the fair market value of
the option shares at the time of exercise (or, under certain circumstances, the
selling price, if lower) over (ii) the option exercise price paid by the
grantee. Any additional amount received by the grantee would be treated as
capital gain. Under current law, there is a maximum tax rate of 15% for
long-term capital gains. The deductibility of capital losses is subject to
certain limitations.
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The Company generally is not entitled to a tax deduction at any time
with respect to an incentive stock option. If, however, the grantee does not
satisfy the employment or holding period requirements described above, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the grantee, subject to certain limitations and W-2 reporting
requirements. The Internal Revenue Service ("IRS") has indicated that it may
require income and employment tax withholding with respect to such ordinary
income and employment tax withholding with respect to the exercise of incentive
stock options. The IRS intends to issue administrative guidance to clarify this
issue. If withholding is required, the obligation will be satisfied by
withholding from the grantee's wages or through payment by the grantee to the
Company.
NON-STATUTORY STOCK OPTIONS
The grant of a non-statutory stock option generally does not result in
federal income tax to the grantee. However, the grantee will recognize taxable
ordinary income upon the exercise of a non-statutory option equal to the excess
of the fair market value of the option shares on the exercise date over the
option exercise price paid. Slightly different rules may apply to grantees who
acquire stock under options subject to certain vesting requirements or who are
subject to Section 16(b) of the Securities Exchange Act of 1934. With respect to
employees, the Company is required to withhold income and employment taxes based
on the amount of ordinary income recognized by the grantee.
On the sale of the option shares, the grantee will recognize capital
gain or loss in an amount equal to the difference between the sales price and
the sum of the exercise price paid by the grantee for the shares plus any amount
recognized as ordinary income upon the exercise of the option. The capital gain
or loss will be long-term or short-term depending on the grantee's holding
period for the shares.
The Company will be allowed a tax deduction on the exercise of the
option by the grantee, equal to the amount of ordinary income recognized by the
grantee, subject to certain limitations and W-2 or 1099 reporting requirements.
STOCK GRANTS
The grantee will generally recognize taxable ordinary income on the
receipt of a direct grant of stock from the Company. Slightly different rules
may apply to grantees who are granted stock or share right awards which are
subject to certain vesting requirements or who are subject to Section 16(b) of
the Securities Exchange Act of 1934. The rules regarding the Company's
entitlement to a tax deduction for the income recognized by the grantee and the
Company's tax withholding obligations are similar to those discussed above for
non-statutory stock options.
CHANGE IN CONTROL
In general, if the total payments to an individual that are contingent
upon a "change in control" of the Company (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")), including payments
under the 2002 Plan that vest upon a "change in control," equal or exceed three
times the individual's "base amount" (generally, such individual's average
annual compensation for the five calendar years preceding the change in
control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Code, in which case a portion or all of such
payments would be non-deductible to the Company and the individual would be
subject to a 20% excise tax on such portion of the payments.
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code generally denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year
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(including any deduction attributable to stock options or stock grants). Certain
kinds of compensation, including qualified "performance-based compensation," are
disregarded for purposes of the deduction limitation. Compensation attributable
to stock options will qualify as performance-based compensation if the exercise
price of the options is no less than the fair market value of stock on the date
of grant, the options are granted by a compensation committee comprised solely
of "outside directors" (as defined in the Treasury Regulations issued under
Section 162(m)) and certain other requirements are met. Compensation
attributable to stock grants or share right awards may also qualify as
performance-based compensation if the stock's grant or vesting is based on the
attainment of a performance goal and otherwise satisfies the standards for
performance-based compensation.
The 2002 Plan is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA") and is not qualified under
Section 401(a) of the Code.
DESCRIPTION OF PROPOSED AMENDMENTS TO THE 2002 PLAN
INCREASING THE NUMBER OF SHARES OF COMMON STOCK FOR ISSUANCE UNDER THE PLAN
As described above, the Board of Directors approved the 2002 Plan
authorizing the issuance of 75,000 shares of the Company's common stock to aid
the Company in attracting and retaining key employees and non-employee
consultants by providing them a proprietary interest in the success of the
Company. The amount of shares reserved for issuance under the 2002 Plan is
subject to an adjustment in the case of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or similar event. If
the proposed amendment is approved by the shareholders, 75,000 additional shares
of common stock may be issued, subject to an adjustment for certain changes in
capitalization. As of the date hereof, options to purchase 50,100 shares had
been issued under the 2002 Plan. The number of units and dollar value of future
grants under the 2002 Plan are not determinable.
CHANGING THE DETERMINATION OF FAIR MARKET VALUE
As described above, currently under the 2002 Plan the exercise price
per share of an option grant is fixed by the plan administrator, but in no case
may it be less than 85% or 100% of the fair market value per share of common
stock on the option grant date depending on whether such option is a
non-statutory option or an incentive stock option. The fair market value is also
used to determine the value of stock appreciation rights and the minimum
purchase price of stock issued pursuant to the 2002 Plan. The fair market value,
in turn, is determined in accordance with the following provisions:
o if the common stock is at the time traded on the Nasdaq
SmallCap Market, then the fair market value is equal to the
closing selling price per share of common stock on the date in
question, or if there is no closing selling price on the last
preceding date for which such quotation exists.
o if the common stock is at the time listed on any other Stock
Exchange, then the fair market value is equal to the closing
selling price per share of common stock on the date in
question on the Stock Exchange determined by the plan
administrator to be the primary market for the common stock,
as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the common stock on the date in question, then the
fair market value shall be the closing selling price on the
last preceding date for which such quotation exists.
The Directors believe that due to the low volume of trades in the
common stock of the Company and the frequent large spread between the "bid" and
the "ask" prices, the fair market value, as determined under the 2002 Plan, is
not always accurate. The proposed amendment to the 2002 Plan would allow the
plan
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administrator to determine the fair market value in its sole, reasonable
discretion. In determining the fair market value, the plan administrator would
consider:
o the closing selling price per share of common stock on the
date of grant, determined in the same manner as described
above;
o the average trading volume of the common stock and the trading
volume on the date of the grant;
o the closing selling price per share of common stock on recent
dates;
o the spread between the "bid" and "ask" prices on the date of
grant and on recent dates;
o the closing selling price per share of common stock on the
date of grant, determined in the same manner as described
above;
o the financial statements of the Company; and
o any other information the plan administrator determines is
applicable in determining the fair market value.
The number of units and dollar value of future grants under the 2002
Plan, as amended, are not determinable.
CASHLESS EXERCISE PROVISION
As described above, currently under the 2002 Plan option holders may
only make a "cashless exercise" through a broker-assisted transaction where the
exercise price of the option is remitted to the Company after the sale of the
underlying shares. The Board of Directors believes that it is in the best
interests of the Company to amend the 2002 Plan to allow option holders the
opportunity to have a cashless exercise provision which does not require a sale
of the underlying securities.
If the 2002 Plan Amendment Proposal is approved the 2002 Plan would
permit the option holder to elect, subject to such terms and conditions as the
plan administrator shall determine, to have the number of shares deliverable to
the option holder as a result of the exercise reduced by a number of shares
sufficient to pay the amount the Company determines to be necessary to withhold
for federal, state, local and other taxes as a result of the exercise of the
option and, as long as no additional accounting expenses would result to the
Company, to pay the exercise price of the option.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2
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PROPOSAL 3
APPROVAL OF REINCORPORATION OF THE COMPANY FROM CALIFORNIA TO
DELAWARE
INTRODUCTION
For the reasons set forth in "Principal Reasons for the Proposed
Reincorporation" on pages 29 and 30 of this proxy statement, our Board of
Directors believes that it is advisable and in the best interests of the Company
and our shareholders to change the state of incorporation of the Company from
California to Delaware. This proxy statement refers to SonomaWest Holdings,
Inc., the California corporation, as "SonomaWest Holdings California" or the
"Company" and to SonomaWest Holdings, Inc., the Delaware corporation, as
"SonomaWest Holdings Delaware" or the "surviving corporation." We propose to
accomplish the reincorporation in Delaware by merging SonomaWest Holdings
California into SonomaWest Holdings Delaware, which is a wholly-owned subsidiary
of the Company (the "reincorporation merger"). The name of the Delaware
corporation, which will be the successor to SonomaWest Holdings California in
the reincorporation merger, is SonomaWest Holdings, Inc.
SonomaWest Holdings Delaware was incorporated under Delaware law on
September 10, 2004 under the name "SonomaWest Holdings, Inc." The address and
phone number of SonomaWest Holdings Delaware are the same as the address and
phone number of SonomaWest Holdings California. As of the date and time
immediately prior to the effective date of the reincorporation merger, if the
reincorporation merger is effected, SonomaWest Holdings Delaware will not have
any material assets or liabilities and will not have carried on any business.
We considered reincorporating to Delaware and undertook a review of the
advantages and disadvantages of changing our state of incorporation from
California to Delaware. As discussed in "Principal Reasons for the Proposed
Reincorporation," management believes that reincorporation in Delaware would be
beneficial to the Company because Delaware corporate law is more comprehensive,
widely used and extensively interpreted than other state corporate laws,
including California corporate law. It provides more predictability with respect
to the issue of liability of director's and officers, which management believes
would make it easier to retain and hire directors and officers.
Management also believes that Delaware law is better suited than
California law to protect shareholders' interests in the event of an unsolicited
takeover attempt. We are not, however, aware that any person is currently
attempting to acquire control of the Company, to obtain representation on our
Board of Directors or take any action that would materially affect the
governance of the Company. In addition, we are not proposing any changes to our
organizational documents to adopt any anti-takeover strategies in connection
with the reincorporation.
In addition, management believes that the Delaware law is more
favorable in allowing the corporation to make distributions to shareholders,
repurchase shares, or to effect a reverse stock split.
On April 28, July 28 and September 1, 2004, our Board met to discuss
the results of the review by management and its advisors. During these meetings
our Board discussed the advantages and disadvantages of reincorporating to
Delaware, the mechanics of reincorporating and possible changes to our
organizational documents associated with a reincorporation. On September 21,
2004, our Board again met and unanimously determined that the reincorporation
merger was in the best interest of the Company and our shareholders and approved
the Agreement and Plan of Merger (the "Merger Agreement"), the Certificate of
Incorporation of SonomaWest Holdings Delaware (the "Delaware Certificate") and
the Bylaws of SonomaWest Holdings
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Delaware (the "Delaware Bylaws"), copies of which are attached to this proxy
statement as Appendices C, D and E, respectively.
Because SonomaWest Holdings Delaware will be governed by the Delaware
General Corporation Law (the "DGCL") and the Company will have new
organizational documents if the reincorporation proposal is approved, the
proposed reincorporation will result in certain changes in your rights as a
shareholder. These differences are summarized under the sections entitled
"Comparison of the Charters and Bylaws of SonomaWest Holdings California and
SonomaWest Holdings Delaware" and "Significant Differences Between the
Corporation Laws of California and Delaware."
Our Board has unanimously approved and, for the reasons described
above, recommends that you approve the proposal to reincorporate the Company's
state of incorporation from California to Delaware. If approved by shareholders,
we expect that the reincorporation merger will become effective as soon as
practicable (the "Effective Date") following our Annual Meeting of Shareholders.
However, the proposed reincorporation may be abandoned, either before or after
shareholder approval, if circumstances arise which, in the opinion of the Board,
make it inadvisable to proceed. If shareholders do not approve the
reincorporation merger, we would not consummate the reincorporation merger and
we would continue to operate as a California corporation.
IN ORDER FOR THE PROPOSED REINCORPORATION TO BE EFFECTED, A MAJORITY OF THE
OUTSTANDING SHARES OF COMMON STOCK MUST APPROVE PROPOSAL THREE. SEE "VOTE
REQUIRED FOR THE REINCORPORATION PROPOSAL AND BOARD OF DIRECTORS'
RECOMMENDATION" BELOW.
YOU ARE URGED TO READ CAREFULLY THIS SECTION
OF THE PROXY STATEMENT, INCLUDING THE RELATED
APPENDICES, BEFORE VOTING ON THE REINCORPORATION MERGER.
MECHANICS
The proposed reincorporation would be effected pursuant to the merger
agreement in substantially the form attached as Appendix C. The discussion of
the reincorporation merger and the merger agreement set forth below is qualified
in its entirety by reference to the merger agreement. Upon completion of the
reincorporation merger, SonomaWest Holdings California will cease to exist and
SonomaWest Holdings Delaware, which would be the surviving corporation in the
reincorporation merger, would continue to operate our business under the name
SonomaWest Holdings, Inc.
Upon the Effective Date, each outstanding share of common stock, no par
value of SonomaWest Holdings California will be automatically converted into one
share of common stock, $.0001 par value, of SonomaWest Holdings Delaware. Each
stock certificate representing issued and outstanding shares of common stock, no
par value, of SonomaWest Holdings California will continue to represent the same
number of shares of common stock, $.0001 par value, of SonomaWest Holdings
Delaware. IF SONOMAWEST HOLDINGS CALIFORNIA AND SONOMAWEST HOLDINGS DELAWARE
EFFECT THE REINCORPORATION MERGER, YOU WOULD NOT NEED TO EXCHANGE YOUR EXISTING
STOCK CERTIFICATES OF SONOMAWEST HOLDINGS CALIFORNIA FOR STOCK CERTIFICATES OF
SONOMAWEST HOLDINGS DELAWARE. YOU MAY, HOWEVER, EXCHANGE YOUR CERTIFICATES IF
YOU SO CHOOSE.
The common stock of SonomaWest Holdings California is listed for
trading on the Nasdaq SmallCap Market and the reincorporation merger would not
effect the eligibility of SonomaWest Holdings Delaware's common stock for
listing on the Nasdaq SmallCap Market.
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Due to the costs associated with the Company's listing on the NASDAQ
SmallCap Market, including the costs associated with the recruiting of
additional directors and the listing fees imposed by NASDAQ, the Board of
Directors is considering the delisting of the Company from the NASDAQ SmallCap
Market. If the Board decides to delist the common stock of the Company from the
NASDAQ SmallCap Market, the Board believes that the common stock of SonomaWest
California, or if the reincorporation proposal is approved, the common stock of
SonomaWest Delaware would be eligible for quotation on the OTC Bulletin Board.
However, as only market makers can apply to quote securities on the OTC Bulletin
Board, the Board can not guarantee that the common stock of SonomaWest
California, or if the reincorporation proposal is approved, the common stock of
SonomaWest Delaware would actually be listed on the OTC Bulletin Board.
Pursuant to the merger agreement, SonomaWest Holdings California and
SonomaWest Holdings Delaware promise to take all actions that Delaware law and
California law require for SonomaWest Holdings California and SonomaWest
Holdings Delaware to effect the reincorporation merger. SonomaWest Holdings
Delaware also promises to qualify to do business as a foreign corporation in the
State of California before SonomaWest Holdings California and SonomaWest
Holdings Delaware effect the reincorporation merger. The merger agreement
provides that the respective obligations of SonomaWest Holdings California and
SonomaWest Holdings Delaware under the merger agreement are subject to the
approval of the shareholders of SonomaWest Holdings California and the sole
stockholder of SonomaWest Holdings Delaware.
The reincorporation merger would only make a change in the legal
domicile of the Company and certain other changes of a legal nature which are
described in this proxy statement. The reincorporation merger would not result
in any change in the name, business, management, fiscal year, assets or
liabilities or location of the principal offices of the Company. We believe that
the proposed reincorporation will not affect any of our material contracts with
any third parties and that our rights and obligations under such material
contractual arrangements will continue and be assumed by the surviving
corporation.
If the reincorporation merger is effected, all employee benefit plans
of SonomaWest Holdings California (including all stock options and other equity
based plans) will be assumed and continued by the surviving corporation.
Approval of the reincorporation merger will also constitute approval of the
assumption of these plans by SonomaWest Holdings Delaware. In the event our
shareholders approve the reincorporation, and upon shareholder approval of the
amendments to the SonomaWest Holdings, Inc. 2002 Stock Incentive Plan as
described more fully in "Proposal 2", such plan, as amended, will be assumed and
continued by the surviving corporation. Each stock option and other equity-based
award issued and outstanding pursuant to the employee benefit plans would be
converted automatically into a stock option or other equity-based award with
respect to the same number of shares of common stock of the surviving
corporation, upon the same terms and subject to the same conditions as set forth
in the applicable plan under which the award was granted and in the agreement
reflecting the award. In the event our shareholders do not approve the
reincorporation, the amendments to the SonomaWest Holdings, Inc. 2002 Stock
Incentive Plan will become effective upon shareholder approval. In addition, the
directors who will be elected at the annual meeting of shareholders of
SonomaWest Holdings California will become the directors of SonomaWest Holdings
Delaware.
VOTE REQUIRED FOR THE REINCORPORATION PROPOSAL AND BOARD OF DIRECTORS'
RECOMMENDATION
California law requires the affirmative vote of the holders of a
majority of the outstanding shares of common stock of SonomaWest Holdings
California to approve the merger agreement pursuant to which SonomaWest Holdings
California and SonomaWest Holdings Delaware would effect the reincorporation
merger. Approval of the reincorporation merger proposal would also constitute an
approval of the merger agreement and therefore the reincorporation merger. A
vote in favor of the reincorporation proposal is also effectively a vote in
favor of the Delaware Certificate and the Delaware Bylaws. If the shareholders
approve the merger agreement and the reincorporation merger becomes effective,
the Delaware Certificate and the Delaware Bylaws in effect immediately prior to
the Effective Date would respectively become the certificate of incorporation
and bylaws of the surviving corporation.
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THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE "FOR"
THE PROPOSED REINCORPORATION. THE EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE
IS THE SAME AS THAT OF A VOTE AGAINST THE REINCORPORATION PROPOSAL.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
For many years, Delaware has followed a policy of encouraging
corporations to incorporate in that state. In furtherance of Delaware's policy
to encourage corporations to incorporate in that state, Delaware has been the
leader in adopting, construing and implementing comprehensive and flexible
corporate laws that have been responsive to the evolving legal and business
needs of corporations organized under Delaware law.
Delaware's corporate law has also developed progressive principles of
corporate governance that the Company could draw upon when making business and
legal decisions. Our Board believes that it is essential to be able to draw upon
well-established principles of corporate governance in making business and legal
decisions.
The Board also believes that Delaware law is better suited than
California law to protect shareholders' interests in the event of an unsolicited
takeover attempt. We are not aware that any person is currently attempting to
acquire control of the Company, to obtain representation on our Board of
Directors or take any action that would materially affect the governance of the
Company.
Additionally, our Board believes that Delaware law provides more
predictability with respect to the issue of liability of directors and officers
than California law does. The increasing frequency of claims against directors
and officers that are litigated has greatly expanded the risks to directors and
officers of exercising their respective duties. The amount of time and money
required to respond to and litigate such claims can be substantial. Although
California law and Delaware law both permit a corporation to include a provision
in the corporation's articles or certificate, as the case may be, of
incorporation that in certain circumstances reduces or limits the monetary
liability of directors for breaches of their fiduciary duty of care, Delaware
law, as stated above, provides to directors and officers more predictability
than California does and, therefore, provides directors and officers of a
Delaware corporation a greater comfort as to their risk of liability than the
comfort afforded under California law. Our Board, therefore, believes that the
proposed reincorporation may be a significant factor in continuing to attract
and retain qualified directors and officers , and in freeing them to make
corporate decisions on their own merits and for the benefit of shareholders
rather than out of a desire to avoid personal liability. For additional
discussion of this matter, see "Significant Differences Between the Corporation
Laws of California and Delaware -- Limitation of Liability and Indemnification,"
below.
Due to a variety of factors, including the rising costs of being a
public company, and the Company's limited assets, the Board has considered and
continues to consider the possibility of several strategic alternatives to
increase shareholder value. Some of the potential transactions considered
include: the sale of some or all of the Company's assets; the liquidation of the
Company; the sale of the Company; and a statutory merger of the Company into
another company.
The Board has not made a decision whether to pursue any of these
alternatives. However, the Board believes that in the event it does decide to
pursue one or more of the strategic alternatives Delaware law may afford more
flexibility to the Company and, as discussed earlier in this section, provide
more assurance as to the duties and liabilities of the Board members in
connection with the execution of such alternatives. At the same time, the
reincorporation of the Company into Delaware would have an effect on the ability
and/or the manner of accomplishing some of the various alternatives and it would
alter some of the shareholder's rights in
-29-
connection with several of the alternatives, including changing the percentage
of shares which must approve some of the transactions. If the Board determines
to complete one or more of these transactions, your rights may change as a
result of the reincorporation of the Company into Delaware.
Our Board of Directors has considered the following benefits of
Delaware's corporate legal framework in deciding to propose reincorporating in
Delaware:
o the DGCL, which is generally acknowledged to be the most
advanced and flexible corporate statute in the country;
o the Delaware General Assembly, which each year considers and
adopts statutory amendments that the Corporation Law Section
of the Delaware State Bar Association proposes in an effort to
ensure that the corporate statute continues to be responsive
to the changing needs of businesses;
o the Delaware Court of Chancery, which handles complex
corporate issues with a level of experience and a degree of
sophistication and understanding unmatched by any other court
in the country, and the Delaware Supreme Court, which is
highly regarded;
o the well-established body of case law construing Delaware law,
which has developed over the last century and which provides
businesses with a greater predictability than most, if not
all, other jurisdictions provide; and
o the responsiveness and efficiency of the Division of
Corporations of the Secretary of State of Delaware, which uses
computer technology that is on the cutting edge.
Any direct benefit that Delaware law provides to corporations
indirectly benefits the shareholders, who are the owners of the corporations.
For the reasons discussed in this proxy statement, we believe that the Company
and our shareholders will benefit in the near and longer term from
reincorporating in Delaware.
NO CHANGE IN THE BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT PLANS OR
LOCATION OF PRINCIPAL OFFICES
The reincorporation proposal would effect only a change in our legal
domicile and certain other changes of a legal nature, the most significant of
which are described in this proxy statement. The reincorporation merger would
NOT result in any change in our business, management, fiscal year, assets or
liabilities or location of our principal facilities. Assuming that all nominees
are elected as directors and SonomaWest Holdings California and SonomaWest
Holdings Delaware effect the reincorporation merger, the directors and officers
of SonomaWest Holdings California would become the directors and officers of the
surviving corporation. All employee benefit plans including, upon shareholder
approval of the amendments described under "Proposal 2", the 2002 Stock
Incentive Plan, as amended, of SonomaWest Holdings California would be continued
by the surviving corporation, and each stock option and other equity-based award
issued and outstanding pursuant to such plans would automatically be converted
into a stock option or other equity-based award with respect to the same number
of shares of the surviving corporation, upon the same terms and subject to the
same conditions as set forth in the applicable plan under which the award was
granted and in the agreement reflecting the award. Approval of the
reincorporation proposal would constitute approval of the assumption of these
plans by the surviving corporation. Assuming SonomaWest Holdings California and
SonomaWest Holdings Delaware effect the reincorporation merger, the surviving
corporation would continue other employee benefit arrangements of SonomaWest
Holdings California upon the terms and subject to the conditions currently in
effect.
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DISSENTER'S RIGHTS NOT AVAILABLE
Although in some circumstances California law provides shareholders
with the right to dissent from certain corporate reorganizations and receive
cash for their shares, California law does not permit dissenter's rights in
connection with the proposed reincorporation.
ANTI-TAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a
number of measures through amendment of the corporate charter or bylaws or
otherwise, which are designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. It should be noted, however, that the
reincorporation merger is not being proposed in order to prevent any present
attempt known to our Board to acquire control of the Company or to obtain
representation on our Board. In addition, our Board of Directors has no current
plans to implement any defensive strategies designed to enhance the ability of
the Board to negotiate with an unsolicited offer. However, our Board may
consider in the future certain defensive strategies allowed under Delaware law
which are designed to enhance the Board's ability to negotiate with an
unsolicited bidder. Such strategies include, but are not limited to, the
adoption of a shareholder rights plan and severance agreements for our
management and key employees which would become effective upon the occurrence of
a change in control of the surviving corporation. With respect to implementing
defensive strategies, Delaware law is preferable to California law because of
the substantial judicial precedent on the legal principles applicable to
defensive strategies. As a California corporation or a Delaware corporation, we
could implement some of the same defensive measures. As a Delaware corporation,
however, we would benefit from the predictability of Delaware law on such
matters.
Section 203 of the Delaware General Corporate Law, which SonomaWest
Holdings Delaware intends to opt out of, restricts certain "business
combinations" with "interested shareholders" for three years following the date
that a person becomes an interested shareholder, unless the Board approves the
business combination. For a discussion of differences between the laws of
California and Delaware that may affect the shareholders, see "Significant
Differences Between the Corporation Laws of California and Delaware," below.
COMPARISON OF THE CHARTERS AND BYLAWS OF SONOMAWEST HOLDINGS CALIFORNIA AND
SONOMAWEST HOLDINGS DELAWARE
There are significant similarities between the Delaware Certificate and
the Amended and Restated Articles of Incorporation (the "California Articles").
For example, both the Delaware Certificate and the California Articles provide
for the authorization of 5 million shares of common stock and 2.5 million shares
of preferred stock. The Delaware Certificate and the California Articles each
provide that the Board is entitled to determine the rights, preferences,
privileges and restrictions of the authorized and unissued preferred stock at
the time of issuance which would provide the Company the ability, among other
things, to adopt a shareholder rights plan as an anti-takeover strategy. In
addition, neither the Delaware Certificate nor the California Articles provide
for a classified Board of Directors.
The Delaware Certificate and Delaware Bylaws contain certain provisions
that will enable shareholders of SonomaWest Holdings Delaware to have rights
similar to those that are automatically applicable to SonomaWest Holdings
California but that are not required by Delaware law. Specifically, under
California law, holders of 10% of a company's shares have the right to call
special meetings of shareholders; the Delaware Bylaws would provide shareholders
of SonomaWest Holdings Delaware this same right. The Delaware Certificate and
the Delaware Bylaws will also specifically provide for cumulative voting, a
right which the shareholders of SonomaWest California currently enjoy and the
Delaware Certificate will provide that this provision may not be changed without
shareholder approval. In addition, under California law, shareholders have the
right to take action in lieu of a meeting by unanimous written consent;
shareholders of
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SonomaWest Holdings Delaware will have this same right because the Delaware
Certificate does not preclude shareholders from acting by written consent.
The following discussion is a summary of the material differences
between the California Articles and the Restated Bylaws of SonomaWest Holdings
California (the "California Bylaws") and the Delaware Certificate and Delaware
Bylaws. All statements herein are qualified in their entirety by reference to
the respective corporation laws of California and Delaware and the full text of
the California Articles and California Bylaws and the Delaware Certificate and
Delaware Bylaws. Approval by our shareholders of the reincorporation merger will
automatically result in the adoption of all the provisions set forth in the
Delaware Certificate and Delaware Bylaws. A copy of the Delaware Certificate is
attached hereto as Appendix D and a copy of the Delaware Bylaws is attached
hereto as Appendix E. The California Articles and California Bylaws are on file
with the SEC and are available from the Company upon request.
CUMULATIVE VOTING
Cumulative voting entitles a shareholder to cast as many votes as there
are directors to be elected multiplied by the number of shares registered in
such shareholder's name. The shareholder may cast all of such votes for a single
nominee or may distribute them among any two or more nominees. Under California
law, shareholders of a corporation have the right to cumulative voting unless a
corporation has outstanding shares listed on the New York Stock Exchange or the
American Stock Exchange, or has outstanding securities qualified for trading on
the Nasdaq National Market and opts out of cumulative voting. The Company's
shareholders have not previously chosen to eliminate the right to cumulative
voting.
Under Delaware law, cumulative voting in the election of directors is
not permitted unless specifically provided for in a company's charter or bylaws.
The Delaware Bylaws will provide for cumulative voting. Therefore, shareholders
currently have the right to cumulative voting and would continue to have the
right to cumulative voting if the Reincorporation Proposal is approved.
SIZE OF THE BOARD OF DIRECTORS
California law provides that the number of directors of a corporation
may be fixed in the articles of incorporation or bylaws of a corporation, or a
range may be established for the number of directors, with the Board of
Directors given authority to fix the exact number of directors within such
range. The California Bylaws a range of four to seven for the number of
directors and authorize the Board to fix the exact number of directors within
the range by resolution or unanimous written consent. The number of directors is
currently set at four. Changes in the size of the Board of Directors outside
such set limits can only be adopted with the approval of holders of a majority
of the outstanding voting stock of the Company. Under California law, no
subsequent amendment seeking to reduce the authorized number of directors below
five can be implemented if a number of shares equal to or greater than sixteen
and two-thirds percent (16 2/3%) of the total outstanding shares are voted in
opposition to the amendment.
Delaware law provides that the number of directors of a corporation, or
the range of authorized directors, may be fixed or changed by the Board of
Directors acting alone by amendment to the corporation's bylaws, unless the
directors are not authorized to amend the bylaws or the number of directors is
fixed in the certificate of incorporation, in which case shareholder approval is
required. The Delaware Bylaws establish a range of four to seven for the number
of directors and provides that the number of directors shall be fixed within
these limits from time to time by resolution of a majority of the directors. The
shareholders will not have the right to fix the number of directors within these
limits. Unlike under the California Bylaws, changes in the size of the Board
outside of these limits can be adopted only by amending the Delaware Bylaws
which can be amended either by the holders of a majority of the outstanding
capital stock entitled to vote thereon or by a majority of the entire Board of
Directors then in office.
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FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law, any vacancy on the Board other than one created
by removal of a director may be filled by the Board. If the number of directors
is less than a quorum, a vacancy may be filled by the unanimous written consent
of the directors then in office, by the affirmative vote of a majority of the
directors at a meeting held pursuant to notice or waivers of notice or by a sole
remaining director. A vacancy created by removal of a director may be filled by
the Board only if so authorized by a corporation's articles of incorporation or
by a bylaw provision approved by the corporation's shareholders. Neither the
California Articles nor the California Bylaws permit directors to fill vacancies
created by the removal of a director.
Under Delaware law, vacancies and newly created directorships may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director, unless otherwise provided in a
corporation's certificate of incorporation or bylaws (or unless the certificate
of incorporation directs that a particular class of stock is to elect such
director(s), in which case a majority of the directors elected by such class, or
a sole remaining director so elected, shall fill such vacancy or newly created
directorship). The Delaware Bylaws provide that any vacancy, including any
vacancy created by the removal of a director by the shareholders of SonomaWest
Holdings Delaware, may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director.
MONETARY LIABILITY OF DIRECTORS
The California Articles and the Delaware Certificate both provide for
the elimination of personal monetary liability of directors to the fullest
extent permissible under the law of the respective states. The provision
eliminating monetary liability of directors set forth in the Delaware
Certificate is potentially more expansive than the corresponding provision in
the California Articles due to differences between California and Delaware law.
For a more detailed explanation of the foregoing, see "Significant Differences
Between the Corporation Laws of California and Delaware -- Limitation of
Liability and Indemnification," below.
BYLAW AMENDMENTS
The California Bylaws provide that the California Bylaws may be amended
either by the holders of a majority of the outstanding capital stock entitled to
vote or by the affirmative vote of the Board, except that the Board of Directors
cannot amend the provision of the California Bylaws that governs the number of
directors. Furthermore, the California Bylaws provide that a bylaw adopted by
the shareholders may restrict or eliminate the Board's power to adopt, amend or
repeal any or all Bylaws.
Unlike the California Bylaws, the Delaware Certificate and Delaware
Bylaws provide that the Delaware Bylaws can be amended in all respects by either
the holders of a majority of the outstanding capital stock entitled to vote or
by a majority of the entire Board of Directors then in office, except that the
provisions of the Delaware Bylaws authorizing cumulative voting and establishing
the number of directors cannot be amended solely the Board of Directors.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The following provides a summary of the major substantive differences
between the corporation laws of California and Delaware. It is not an exhaustive
description of all differences between the laws of the two states. Accordingly,
all statements herein are qualified in their entirety by reference to the
respective corporation laws of California and Delaware.
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DIVIDENDS, REPURCHASES OF SHARES AND REVERSE STOCK SPLITS
Delaware law is more flexible than California law with respect to
implementing share repurchase programs. Delaware law permits a corporation to
declare and pay dividends out of surplus or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared and/or for the
preceding fiscal year as long as the amount of capital of the corporation
following the declaration and payment of the dividend is not less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets. In addition,
Delaware law generally provides that a corporation may redeem or repurchase its
shares if the capital of the corporation would not be impaired and the
redemption or repurchase would not cause an impairment following such redemption
or repurchase.
Under California law, a corporation may not make any distribution to
its shareholders unless either:
o the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the
proposed distribution; or
o immediately after giving effect to the distribution, the
corporation's assets (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would
be at least equal to one and one fourth (1 1/4) times its
liabilities (not including deferred taxes, deferred income and
other deferred credits), and the corporation's current assets
would be at least equal to its current liabilities (or one and
one fourth (1 1/4) times its current liabilities if the
average pre-tax and pre- interest expense earnings for the
preceding two fiscal years were less than the average interest
expense for such years).
Delaware law would also afford us with more flexibility in declaring
dividends. We currently retain all future earnings for the operation and
expansion of our business and we have not paid any cash dividends since the
fiscal year ended June 30, 1995. Any payment of cash dividends in the future
will be at the discretion of our Board of Directors and will depend upon our
results of operations, earnings, capital requirements, contractual restrictions
and other factors deemed relevant by our Board. We currently have no intention
to pay any dividends to shareholders.
In addition, Delaware law would afford us more flexibility in declaring
a reverse stock split. Upon the occurrence of a reverse stock split, it is
likely that the Company would purchase the remaining fractional shares for cash.
California law prohibits such a payment of cash for fractional shares in any
case where such action would result in the cancellation of more than 10% of the
outstanding shares of any class. Delaware law has no corresponding limitations,
however Delaware law requires that the Company pay a "fair price" for the
fractional shares.
SHAREHOLDER VOTING FOR PROPOSED TRANSACTIONS
In the context of a proposed acquisition, both California and Delaware
law generally require that a majority of the shareholders of both acquiring and
target corporations approve a statutory merger. In addition, both California and
Delaware law require that a sale of all or substantially all of the assets of a
corporation be approved by a majority of the outstanding voting shares of the
corporation transferring such assets.
Delaware law does not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if:
o the merger agreement does not amend the existing certificate
of incorporation;
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o each share of stock of the surviving corporation outstanding
immediately before the Effective Date is an identical
outstanding share after the merger; and
o either no shares of common stock of the surviving corporation
and no shares, securities or obligations convertible into such
stock are to be issued or delivered under the merger
agreement, or the authorized unissued shares or treasury
shares of common stock of the surviving corporation to be
issued or delivered under the merger agreement plus those
initially issuable upon conversion of any other shares,
securities or obligations to be issued or delivered under such
agreement do not exceed twenty percent (20%) of the shares of
common stock of such constituent corporation outstanding
immediately prior to the Effective Date.
California law contains a similar exception to its voting requirements
for reorganizations in the case of any corporation if that corporation, or its
shareholders, immediately before the reorganization, or both, will own
immediately after the reorganization, equity securities constituting more than
five-sixths (5/6) of the voting power of the surviving or acquiring corporation
or its parent entity.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Delaware, like a number of states, has adopted special laws designed to
make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant shareholders, more
difficult.
Under Section 203 of the DGCL, a Delaware corporation is prohibited
from engaging in a "business combination" with an "interested shareholder" for
three years following the date that such person or entity becomes an interested
shareholder. With certain exceptions, an interested shareholder is a person or
entity who or which owns, individually or with or through certain other persons
or entities, fifteen percent (15%) or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only). The three-year moratorium imposed by Section 203 on
business combinations does not apply if:
o prior to the date on which such shareholder becomes an
interested shareholder the Board of Directors of the subject
corporation approves either the business combination or the
transaction that resulted in the person or entity becoming an
interested shareholder;
o upon consummation of the transaction that made him or her an
interested shareholder, determining the interested shareholder
owns at least eighty-five percent (85%) of the corporation's
voting stock outstanding at the time the transaction commenced
(excluding, for purposes of determining the voting stock
outstanding, shares owned by directors who are also officers
and shares held by employee stock plans that do not give
employee participants the right to decide confidentially
whether to accept a tender or exchange offer); or
o on or after the date such person or entity becomes an
interested shareholder, the Board of Directors approves the
business combination and it is also approved at a shareholder
meeting by sixty-six and two-thirds percent (66 2/3%) of the
outstanding voting stock not owned by the interested
shareholder.
A Delaware corporation may elect in its certificate of incorporation
not to be governed by Section 203, and the Delaware Certificate contains such an
"opt out" election. As a result, the Board intends that the Company will not be
governed by Section 203 if the reincorporation merger is approved.
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California law requires that holders of common stock receive common
stock in a merger of the corporation with the holder of more than fifty percent
(50%) but less than ninety percent (90%) of the target's common stock or its
affiliate unless all of the target company's shareholders consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Delaware law does not parallel California law in this respect. California law
also provides that, except in certain circumstances, when a tender offer or a
proposal for reorganization or for a sale of assets is made by an interested
party (generally a controlling or managing party of the target corporation), an
affirmative opinion in writing as to the fairness of the consideration to be
paid to the shareholders must be delivered to shareholders. This fairness
opinion requirement does not apply to a corporation that does not have shares
held of record by at least 100 persons, or to a transaction that has been
qualified under California state securities laws. Furthermore, if a tender of
shares or vote is sought pursuant to an interested party's proposal and a later
proposal is made by another party at least 10 days prior to the date of
acceptance of the interested party's proposal, the shareholders must be informed
of the later offer and be afforded a reasonable opportunity to withdraw any
vote, consent or proxy, or to withdraw any tendered shares. Delaware law has no
comparable provision.
SHAREHOLDER APPROVAL OF ASSET SALES
Both California and Delaware law require that a majority of the
corporation's shareholders approve the sale of all or substantially all of the
corporation's assets.
California law also requires that in connection with a sale, or other
disposition of all or substantially all the assets of a corporation to a party
that is in control of or under common control with the corporation, the
principal terms of the sale must be approved by at least 90% of the voting power
of the disposing corporation unless the consideration for the transaction is for
non-redeemable equity securities or common stock.
Delaware does not have a similar provision and if the reincorporation
merger is approved 90% of the shareholders would not be required to approve the
principal terms of a sale of substantially all the assets of the corporation to
a party that is in control of or under common control with the corporation. In
particular, the approval of the reincorporation merger will make it easier for
the Company to sell assets to Craig Stapleton, a shareholder of the Company. The
Company has had informal discussions on several occasions with Mr. Stapleton
regarding the possible sale of certain properties of the Company, although no
agreement has been reached.
REMOVAL OF DIRECTORS
Under California law, any director or the entire Board of Directors may
be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote. However, in the case of a corporation with
cumulative voting or whose Board is classified, no individual director may be
removed (unless the entire Board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting
rules. The California Articles and California Bylaws do not provide for a
classified Board of Directors, but do provide for cumulative voting. In
addition, shareholders holding at least ten percent (10%) of the number of
outstanding shares of any class may bring suit to remove any director in case of
fraudulent or dishonest acts or gross abuse of authority or discretion.
Under Delaware law, any director or the entire Board of Directors of a
corporation that does not have a classified Board of Directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. Unless the
certificate of incorporation otherwise provides, in the case of a Delaware
corporation whose Board is classified, however, shareholders may effect such
removal only for cause. In addition, as in California, if a Delaware corporation
has cumulative voting, as will the surviving corporation, and if less than the
entire Board is to be removed, a director may not be removed without cause by a
majority of the outstanding shares if the votes cast against
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such removal would be sufficient to elect the director under cumulative voting
rules. Delaware law also permits a Delaware corporation to include in its
certificate of incorporation a supermajority (greater than a simple majority)
voting requirement in connection with the removal of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
California and Delaware have similar laws respecting indemnification by
a corporation of its officers, directors, employees and other agents. The laws
of both states also permit corporations to adopt a provision in their charters
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty of care.
Nonetheless, there are certain differences between the laws of the two states
respecting indemnification and limitation of liability. In general, Delaware law
is somewhat broader in allowing corporations to indemnify and limit the
liability of corporate agents, which, among other things, support Delaware
corporations in attracting and retaining outside directors. The Delaware
Certificate eliminates the liability of directors to the corporation for
monetary damages to the fullest extent permissible under Delaware law. Under
Delaware law, such provision may not eliminate or limit director monetary
liability for:
o breaches of the director's duty of loyalty to the corporation
or its stockholders;
o acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law;
o the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or
o transactions in which the director received an improper
personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the Company or directors from
the necessity of complying with federal or state securities laws, or affect the
availability of non-monetary remedies such as injunctive relief or rescission.
In effect, under the Delaware law provision, a SonomaWest Holdings
Delaware director could not be held liable for monetary damages for gross
negligence or lack of due care in carrying out his or her fiduciary duties as a
director so long as such gross negligence or lack of due care does not involve
bad faith intentional misconduct or a breach of his or her duty of loyalty to
SonomaWest Holdings Delaware.
The Delaware Certificate provides for indemnification to the maximum
extent permissible under Delaware law. Delaware law requires indemnification
when there has been a successful defense on the merits or otherwise by a present
or former director or officer of the corporation. Delaware law generally permits
indemnification of expenses, including attorneys' fees, actually and reasonably
incurred in the defense or settlement of a derivative or third-party action,
provided there is a determination by (a) a majority vote of disinterested
directors (even though less than a quorum), (b) a committee comprised of and
established by such disinterested directors, (c) independent legal counsel in a
written opinion if there are no such directors or such directors so direct, or
(d) the shareholders that the person seeking indemnification has satisfied the
applicable standard of conduct described above. Without requisite court
approval, however, no indemnification may be made in the defense of any
derivative action in which the person is found to be liable in the performance
of his or her duty to the corporation.
Expenses incurred by an officer or director in defending an action may
be paid in advance, under Delaware law, if such director or officer undertakes
to repay such amounts if it is ultimately determined that he or she is not
entitled to indemnification. In addition, Delaware law authorizes a corporation
to purchase
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indemnity insurance for the benefit of its officers, directors, employees and
agents whether or not the corporation would have the power to indemnify against
the liability covered by the policy.
Delaware law permits a Delaware corporation to provide indemnification
in excess of that provided by statute by means of any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. Delaware law does not
require authorizing provisions in the certificate of incorporation and does not
contain express prohibitions on indemnification in certain circumstances.
Limitations on indemnification may be imposed by a court, however, based on
principles of public policy.
The California Articles eliminate the liability of directors to the
corporation for monetary damages to the fullest extent permissible under
California law.
California law does not permit the elimination of monetary liability
where such liability is based on:
o intentional misconduct or knowing and culpable violation of
law;
o acts or omissions that a director believes to be contrary to
the best interests of the corporation or its shareholders or
that involve the absence of good faith on the part of the
director;
o receipt of an improper personal benefit;
o acts or omissions that show reckless disregard for the
director's duty to the corporation or its shareholders, where
the director in the ordinary course of performing a director's
duties should be aware of a risk of serious injury to the
corporation or its shareholders;
o acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders;
o transactions between the corporation and a director who has a
material financial interest in such transaction; and
o liability for improper distributions, loans or guarantees.
The California Articles and California Bylaws authorize the Company to
indemnify directors and officers to the fullest extent permitted by California
law. California law requires indemnification when the individual seeking
indemnification has defended successfully on the merits any action, claim, issue
or matter. California law generally permits indemnification of expenses,
actually and reasonably incurred in the defense or settlement of a derivative or
third-party action, provided there is a determination by (a) majority vote of a
quorum of disinterested directors, (b) independent legal counsel in a written
opinion if such a quorum of directors is not obtainable (c) shareholders, with
the shares owned by the person to be indemnified not being entitled to vote
thereon, if any, or (d) the court in which the proceeding is or was pending upon
application made by the corporation, agent or other person rendering services in
connection with the defense, whether or not the application by such person is
opposed by the corporation, that the person seeking indemnification has
satisfied the applicable standard of conduct as described above. With respect to
derivative actions, however, no indemnification may be provided under California
law for amounts paid in settling or otherwise disposing of a pending action or
expenses incurred in defending a pending action that is settled or otherwise
disposed of, or with respect to the defense of any person adjudged to be liable
to the corporation in the performance of his or her duty to the corporation and
its shareholders without court approval. In addition, by contrast to Delaware
law, California law requires indemnification only when the individual being
indemnified was successful on the merits in defending any action, claim, issue
or matter.
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Like Delaware, under California law expenses incurred by an officer or
director in defending an action may be paid in advance if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of California
also authorize a corporation's purchase of indemnity insurance for the benefit
of its officers, directors, employees and agents whether or not the corporation
would have the power to indemnify against the liability covered by the policy.
Consistent with Delaware law, California law permits a California
corporation to provide rights to indemnification beyond those provided therein
except that such additional indemnification must be authorized in the
corporation's articles of incorporation. Thus, if so authorized, rights to
indemnification may be provided pursuant to agreements or bylaw provisions which
make mandatory the permissive indemnification provided by California law. The
California Articles provide that the Company is authorized to provide
indemnification beyond that expressly mandated by California law.
INSPECTION OF SHAREHOLDER LISTS AND BOOKS AND RECORDS
Both California and Delaware law allow any shareholder to inspect a
corporation's shareholder list for a purpose reasonably related to the person's
interest as a shareholder. California law provides, in addition, for an absolute
right to inspect and copy the corporation's shareholder list by persons holding
an aggregate of five percent (5%) or more of the corporation's voting shares, or
shareholders holding an aggregate of one percent (1%) or more of such shares who
are contesting the election of directors. Delaware law also allows the
shareholders to inspect the list of shareholders entitled to vote at a meeting
within a ten-day period preceding a shareholders' meeting for any purpose
germane to the meeting. Delaware law, however, contains no provisions comparable
to the absolute right of inspection provided by California law to certain
shareholders.
Under California law any shareholder may examine the accounting books
and records and the minutes of the shareholders and the Board and its
committees, provided such inspection is for a purpose reasonably related to such
shareholder's interests as a shareholder. Delaware law may be slightly broader
because a stockholder with a proper purpose is not limited to inspecting
accounting books and records and minutes, and may examine other records as well.
In addition, California law limits the right of inspection of shareholder lists
to record shareholders whereas Delaware has extended that right to beneficial
owners of shares.
APPRAISAL RIGHTS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights under which the shareholder may
receive cash in the amount of the fair market value of his or her shares in
place of the consideration he or she would otherwise receive in the transaction.
Under Delaware law, such fair market value is determined exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, and appraisal rights are generally not available:
o with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation;
o with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if
such shareholders receive only shares of the surviving
corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by
more than 2,000 holders, plus cash in lieu of fractional
shares of such corporations or any combination thereof; or
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o to shareholders of a corporation surviving a merger if no vote
of the shareholders of the surviving corporation is required
to approve the merger under Delaware law.
The limitations on the availability of appraisal rights under
California law are different from those under Delaware law. Shareholders of a
California corporation whose shares are listed on a national securities exchange
generally do not have such appraisal rights unless the holders of at least five
percent (5%) of the class of outstanding shares claim the right or the
corporation or any law restricts the transfer of such shares. Appraisal rights
are also unavailable if the shareholders of a corporation or the corporation
itself, or both, immediately prior to the reorganization will own immediately
after the reorganization equity securities representing more than five-sixths
(5/6) of the voting power of the surviving or acquiring corporation or its
parent entity. California law generally affords appraisal rights in sale of
asset reorganizations.
DISSOLUTION
Under California law, the holders of fifty percent (50%) or more of the
total voting power may authorize a corporation's dissolution, with or without
the approval of the corporation's Board of Directors, and this right may not be
modified by the articles of incorporation.
Under Delaware law, unless the Board of Directors approves the proposal
to dissolve, the dissolution must be unanimously approved by all the
shareholders entitled to vote on the matter. Only if the dissolution is
initially approved by the Board of Directors may the dissolution be approved by
a simple majority of the outstanding shares of the Delaware corporation's stock
entitled to vote. In the event of such a Board initiated dissolution, Delaware
law allows a Delaware corporation to include in its certificate of incorporation
a supermajority voting requirement in connection with dissolutions. The Delaware
Certificate contains no such supermajority voting requirement.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, certain contracts or
transactions in which one or more of a corporation's directors has an interest
are not void or voidable because of such interest, if certain conditions, such
as obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain minor exceptions, the conditions are
similar under California and Delaware law.
SHAREHOLDER DERIVATIVE SUITS
California law provides that a shareholder bringing a derivative action
on behalf of a corporation need not have been a shareholder at the time of the
transaction in question, if certain tests are met. Under Delaware law, a
shareholder may bring a derivative action on behalf of the corporation only if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or if his or her stock thereafter came to be owned by
him or her by operation of law.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
APPLICATION OF THE CALIFORNIA GENERAL CORPORATION LAW TO DELAWARE CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
corporations not organized under California law which have significant contacts
with California are subject to a number of provisions of the California General
Corporation Law. However, Section 2115 does not apply to corporations that have
less than 50% of its voting stock held by persons having addresses outside the
State of California. Following the proposed reincorporation, we expect that over
50% of the holders of the common stock of SonomaWest
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Holdings Delaware will have addresses outside of the State of California, and
accordingly, it is expected that Section 2115 will not apply to SonomaWest
Holdings Delaware.
In September 2002, California adopted the California Corporate
Disclosure Act (the "Act"). The Act went into effect on January 1, 2003, and
applies to publicly traded corporations incorporated in California or qualified
to do business in California. Thus, the Company will be subject to the Act
regardless of whether or not this proposal is passed. The Act greatly increases
the annual disclosure that the Company must make to the California Secretary of
State. Substantial portions of the Act, however, cover the same general
categories of information that we include in our SEC filings.
FEDERAL TAX CONSEQUENCES
The following is a discussion of certain United States federal income
tax considerations that may be relevant to holders of our common stock who
receive common stock of SonomaWest Holdings Delaware as a result of the
reincorporation merger. The discussion does not address all of the tax
consequences of the proposed reincorporation that may be relevant to you, such
as consequences to non-United States persons or dealers in securities.
Furthermore, no foreign, state, or local tax considerations are addressed
herein. THE U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO THE PROPOSED
REINCORPORATION ARE COMPLEX AND ARE SUBJECT TO CHANGE (EITHER ON A PROSPECTIVE
OR RETROACTIVE BASIS), AND THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE
DISCUSSION OF ALL THE POSSIBLE TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION.
IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES, YOU ARE URGED TO CONSULT
YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED
REINCORPORATION, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN
TAX LAWS.
We believe that the reincorporation will be a tax-free reorganization
under Code Section 368(a). Accordingly, for federal income tax purposes, the
holders of common stock of SonomaWest Holdings California should not recognize
any gain or loss upon receipt of common stock of SonomaWest Holdings Delaware by
reason of the reincorporation. Each share of SonomaWest Holdings Delaware common
stock that you acquire by reason of the reincorporation should have the same tax
basis and the same holding period as the equivalent SonomaWest Holdings
California common stock from which such shares of SonomaWest Holdings California
common stock were converted, provided that you hold such shares of SonomaWest
Holdings California common stock as a capital asset on the date the
reincorporation is effected.
We have not requested a ruling from the Internal Revenue Service (the
"IRS") with respect to whether the proposed reincorporation qualifies as a
reorganization within the meaning of Code Section 368(a) or the federal income
tax consequences of the proposed reincorporation under the Code. A successful
IRS challenge to the federal tax treatment of the proposed reincorporation as a
Code Section 368(a) reorganization could result in a shareholder recognizing
gain or loss with respect to each share of common stock of SonomaWest Holdings
California exchanged in the proposed reincorporation equal to the difference
between the shareholder's basis in such share and the fair market value, as of
the time of the proposed reincorporation, of the common stock of SonomaWest
Holdings Delaware received in exchange therefore. In such event, your aggregate
basis in the shares of common stock of SonomaWest Holdings Delaware you receive
in the exchange would equal their fair market value on such date, and your
holding period for such shares would not include the period during which you
held common stock of SonomaWest Holdings California.
State, local or foreign income tax consequences to shareholders may
vary from the federal tax consequences described above.
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The Company should not recognize gain or loss for federal income tax
purposes as a result of the proposed reincorporation, and SonomaWest Holdings
Delaware should succeed, without adjustment, to the federal income tax
attributes of SonomaWest Holdings California.
ACCOUNTING CONSEQUENCES
We believe that there will be no material accounting consequences for
us resulting from the reincorporation merger.
REGULATORY APPROVAL
To our knowledge, the only required regulatory or governmental approval
or filings necessary in connection with the consummation of the reincorporation
merger would be the filings with the Secretary of State of California and the
Secretary of State of Delaware.
Our Board of Directors believes that approval of the reincorporation of
the Company from California to Delaware is in the best interests of the Company
and its shareholders.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE REINCORPORATION
OF THE COMPANY FROM CALIFORNIA TO DELAWARE.
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has selected Grant Thornton LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending June 30, 2005. Representatives of Grant Thornton LLP are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they so desire. The representatives also are expected to be available to
respond to appropriate questions from shareholders.
The affirmative vote of the holders of a majority of the shares of
common stock voting in person or by proxy on this proposal is required to ratify
the appointment of the independent auditors.
In the event the shareholders fail to ratify the appointment, it will
be considered as a direction to the Audit Committee to select another
independent accounting firm. It is understood that even if the selection is
ratified, the Audit Committee at its discretion, may direct the appointment of a
new independent accounting firm at any time during the year if the Audit
Committee feels that such a change would be in the best interests of the Company
and its shareholders.
THE AUDIT COMMITTEE UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THIS PROPOSAL
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AVAILABILITY OF 10-K REPORT
THE COMPANY FILED ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30,
2004 WITH THE SECURITIES EXCHANGE COMMISSION ON SEPTEMBER ___, 2004. A COPY OF
THE REPORT, INCLUDING ANY FINANCIAL STATEMENTS AND SCHEDULES, AND A LIST
DESCRIBING ANY EXHIBITS NOT CONTAINED THEREIN, MAY BE OBTAINED WITHOUT CHARGE BY
ANY SHAREHOLDER. THE EXHIBITS ARE AVAILABLE UPON PAYMENT OF CHARGES WHICH
APPROXIMATE THE COMPANY'S COST OF REPRODUCTION OF THE EXHIBITS. REQUESTS FOR
COPIES OF THE REPORT SHOULD BE SENT TO THE OFFICE OF THE CORPORATE SECRETARY AT
THE MAILING ADDRESS OF THE COMPANY LISTED ON PAGE ONE OF THIS PROXY STATEMENT.
OTHER MATTERS
The Board of Directors presently knows of no other matter that may come
before the Annual Meeting. If any other matters should properly come before the
Meeting, however, the Board's proxy holders intend to vote on such matters in
accordance with their best judgment.
By Order of the Board of Directors
Matthew J. Ertman
SECRETARY
Dated: September ____, 2004
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SONOMAWEST HOLDINGS, INC.
2064 Highway 116 North
Sebastopol, California 95472
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Roger S. Mertz and David J. Bugatto, or either of
them, with full power of substitution, as Proxies of the undersigned to attend
the Annual Meeting of Shareholders of SonomaWest Holdings, Inc. to be held on
Wednesday, October 27, 2004 at 11:00 a.m., local time, at Three Embarcadero
Center, 12th Floor, San Francisco, California 94111, and any adjournment
thereof, and to vote the number of shares the undersigned would be entitled to
vote if personally present as indicated below.
1. Election of four directors to serve until the 2005 Annual Meeting of
Shareholders or until their respective successors are elected and
qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
(Instructions: To withhold authority to vote for any individual nominee strike a line through the
nominee's name in the list below.)
Roger S. Mertz; Gary L. Hess; Fredric Selinger; David J. Bugatto
2. Approval of the amendments to the Company's 2002 Stock Incentive Plan.
[ ] FOR the amendments [ ] AGAINST the amendments
3. Approval of the reincorporation of the Company from California to
Delaware by means of a merger with and into a wholly owned Delaware
subsidiary.
[ ] FOR the reincorporation merger [ ] AGAINST the reincorporation merger
4. Approval of appointment of Grant Thornton LLP as independent auditors
for the fiscal year ending June 30, 2005.
[ ] FOR the appointment [ ] AGAINST the appointment
The undersigned hereby acknowledge receipt of (a) the Notice of Annual
Meeting of Shareholders to be held October 27, 2004, (b) the accompanying Proxy
Statement, and (c) the Annual Report of the Company for the fiscal year ended
June 30, 2004.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, the
Proxy will be voted FOR proposals one, two, three and four.
Please sign exactly as signature appears on this proxy card. Executors,
administrators, traders, guardians, attorneys-in-fact, etc. should give their
full titles. If signer is a corporation, please give full corporate name and
have a duly authorized officer sign, stating title. If a partnership, please
sign in partnership name by authorized person. If stock is registered in two
names, both should sign.
Dated: _______________, 2004 ---------------------------------------
Signature
---------------------------------------
Signature
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APPENDIX A
AUDIT COMMITTEE CHARTER
SONOMAWEST HOLDINGS, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist
the Board in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting
process and systems of internal controls regarding finance,
accounting, and legal compliance.
o Monitor the independence and performance of the Company's
independent auditors and internal auditing department.
o Provide an avenue of communication among the independent
auditors, management, the internal auditing department, and
the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct
access to the independent auditors as well as anyone in the
organization. The Audit Committee has the ability to retain, at the
Company's expense, special legal, accounting, or other consultants or
experts it deems necessary in the performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Audit Committee is a committee of the Board of Directors. The Audit
Committee shall be composed of Directors who are independent of the
management of the Company and are free of any relationship that, in the
opinion of the Board of Directors, would interfere with their exercise
of independent judgment as a committee member. The membership of the
Audit Committee shall consist of at least three independent (subject to
exceptions provided in the NASD Marketplace Rules), financially
literate, members of the Board of Directors who shall serve at the
pleasure of the Board of Directors. In addition, at least one of the
Committee members must have employment experience in finance or
accounting, professional certification in accounting, or other
comparable experience or background resulting in the individual's
financial sophistication, including being or having been a chief
executive, chief financial or other senior officer with oversight
responsibilities. Committee members and the Committee chairman shall be
designated by the full Board of Directors. If an audit committee Chair
is not designated or present, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
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The Committee shall meet at least two times annually, or more
frequently as circumstances dictate. The Committee should meet
privately in executive session at least annually with management, the
director of the internal auditing department, the independent auditors,
and as a committee to discuss any matters that the Committee or each of
these groups believe should be discussed. In addition, the Committee,
or at least its Chair, should communicate with management and the
independent auditors quarterly to review the Company's financial
statements and significant findings based upon the auditors limited
review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter at least
annually. Submit the charter to the Board of Directors for
approval and have the document published at least every three
years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements,
including the disclosure in Management's Discussion and Analysis
of Financial Condition and Results of Operations, prior to filing
or distribution. Review should include discussion with management
and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
3. In consultation with the management, the independent auditors, and
the internal auditors, consider the integrity of the Company's
financial reporting processes and controls. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors and the internal
auditing department together with management's responses.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings and/or the Company's quarterly financial statements prior
to filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 61
(see item 10). The Chair of the Committee may represent the entire
Audit Committee for purposes of this review.
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INDEPENDENT AUDITORS
5. The Audit Committee is responsible for the appointment,
compensation, and oversight of the independent auditors, and if
deemed necessary, the termination of the independent auditors. The
Audit Committee shall review the independence and performance of
the auditors and annually recommend to the Board of Directors the
appointment of the independent auditors or approve any discharge
of auditors when circumstances warrant.
6. Approve the engagement of the independent auditors, including the
fees and other significant compensation to be paid to the
independent auditors.
7. On a quarterly basis, the Committee should review the independence
of the independent auditors. The Committee should receive a
statement from the independent auditors acknowledging their
independence on a quarterly basis.
8. Review the independent auditors audit plan - discuss scope,
staffing, locations, reliance upon management, and internal audit
and general audit approach.
9. Approve, in advance, the provision of all permissible non-audit
services, as set forth in Section 202 of the Sarbanes-Oxley Act of
2002, as well as all related-party transactions.
10. Prior to releasing the year-end earnings, discuss the results of
the audit with the independent auditors. Discuss certain matters
required to be communicated to audit committees in accordance with
AICPA SAS 61.
11. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied
in its financial reporting.
INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
12. Review the budget, plan, changes in plan, activities,
organizational structure, and qualifications of the internal audit
department, as needed.
13. Review the appointment, performance, and replacement of the senior
internal audit executive.
14. Review significant reports prepared by the internal audit
department together with management's response and follow-up to
these reports.
15. On at least an annual basis, review with the Company's counsel,
any legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
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OTHER AUDIT COMMITTEE RESPONSIBILITIES
16. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included
in the Company's annual proxy statement.
17. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the
Board deems necessary or appropriate.
18. Maintain minutes of meetings and regularly report to the Board of
Directors on significant results of the foregoing activities.
19. Establish procedures for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters.
20. Conduct an annual performance review of the Committee.
21. Review financial and accounting personnel succession planning
within the Company.
22. Annually review policies and procedures as well as audit results
associated with directors' and officers expense accounts and
perquisites.
September 21, 2004
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APPENDIX B
COMPENSATION COMMITTEE CHARTER
SONOMAWEST
HOLDINGS INC
COMPENSATION COMMITTEE CHARTER
I. PURPOSE
The function of the Compensation Committee of the Board of Directors of
SonomaWest Holdings, Inc. ("SWHI") is to assist the Board of Directors
in fulfilling its oversight responsibilities relating to executive
compensation.
II. MEMBERSHIP AND ORGANIZATION
o The Committee shall be composed of such number of directors as
may be appointed by the Board, but in no event less than two
members. Subject to exceptions set forth in the Marketplace
Rules, all Committee members shall be "independent" as such
term is defined under Rule 4200(a)(15) of the Marketplace
Rules contained in the National Association of Securities
Dealers Manual. Unless a Chair is elected by the Board of
Directors, the members of the Committee will designate a Chair
by majority vote of the full Committee membership.
o The Board shall appoint the members of the Committee to serve
until their successors have been duly designated. Members of
the Committee may be removed by the Board of Directors for any
reason and at any time.
o Vacancies on the Committee shall be filled by vote of the
Board of Directors.
III. RESPONSIBILITIES
In furtherance of its purpose, the Compensation Committee shall have
the following authority and responsibilities:
o Supervise the administration of SWHI's stock option plans and
provide disinterested administration of any employee benefit
plans in which Section 16 Insiders are eligible to
participate.
o Prepare the report of the Committee required by the rules of
the Securities Exchange Commission to be included in SWHI's
annual proxy statement.
o Review and approve on an annual basis the corporate goals and
objectives with respect to compensation for the chief
executive officer. The Committee shall evaluate at least once
a year the chief executive officer's performance in light of
these established goals and objectives and based upon these
evaluations shall set the chief executive officer's annual
compensation, including salary, bonus, incentive and equity
compensation.
o Consider SWHI's performance and relative shareholder return,
the value of similar incentive awards to chief executive
officers at comparable companies, and the awards given to
SWHI's chief executive officer in past years in setting long
term incentive compensation for SWHI's chief executive
officer.
o Review and approve on an annual basis the evaluation process
and compensation structure for SWHI's Section 16 Insiders. The
Committee shall evaluate the performance
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of SWHI's Section 16 Insiders and shall approve the annual
compensation, including salary, bonus, incentive and equity
compensation, for such Section 16 Insiders. The Committee
shall also provide oversight of management's decisions
concerning the performance and compensation of other SWHI
officers.
o Review and approve the proposed compensation and terms of
employment of persons proposed to be hired as executive
officers.
o Review and approve fees and budgets for outsourced management.
o Engage in annual self-assessment with the goal of
continuing improvement.
o Review and assess the adequacy of the Committee's charter at
least annually and recommend any proposed changes to the Board
of Directors for approval.
For purposes of this Charter, the term "Section 16 Insiders" shall mean
a SWHI officer or director subject to the short-swing profit
liabilities of Section 16 of the Securities Exchange Act of 1934, as
amended.
IV. MEETINGS
o The Committee shall hold regular meetings on such days as it
shall determine. Other meetings of the Committee will be held
at the request of the Chair of the Committee or any two other
Committee members. The Committee shall meet in executive
session periodically. Minutes shall be regularly kept of
Committee proceedings, by a person appointed by the Committee
to do so.
o Prior to each regularly scheduled meeting, the Committee will
receive a prepared agenda for the meeting. Other topics for
discussion may be introduced at the meeting at the request of
any Committee member.
o Such corporate officers and other employees of SWHI, as the
Committee may regularly from time-to-time designate, shall
attend the meetings. However, the chief executive officer may
not be present during the voting for approval of proposed
compensation arrangements for the chief executive officer.
o The Committee shall have the authority to delegate any of its
responsibilities to subcommittees as the Committee may deem
appropriate in its sole discretion.
o The Chair of the Committee shall report on Compensation
Committee activities to the Board after each Committee
meeting.
V. ADVISORS
o The Committee shall have authority to engage such compensation
consultants, outside counsel and other advisors, as it
determines necessary to carry out its duties. The Committee
shall have sole authority to approve related fees and
retention terms for its advisors, and funding for payment of
such fees and reimbursement of ordinary administrations
expenses that are necessary or appropriate in carrying out its
duties.
September 21, 2004
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APPENDIX C
MERGER AGREEMENT
PROPOSED FORM OF
AGREEMENT AND PLAN OF MERGER
OF
SONOMAWEST HOLDINGS, INC.
(A Delaware Corporation)
AND
SONOMAWEST HOLDINGS, INC.
(A California Corporation)
THIS AGREEMENT AND PLAN OF MERGER, dated as of [o], [o] 2004 (the
"AGREEMENT" ), is made by and between SonomaWest Holdings, Inc., a Delaware
corporation ("SONOMAWEST DELAWARE" ), and SonomaWest Holdings, Inc., a
California corporation ("SONOMAWEST CALIFORNIA" ). SonomaWest Delaware and
SonomaWest California are sometimes referred to herein as the "CONSTITUENT
CORPORATIONS."
R E C I T A L S :
- - - - - - - -
WHEREAS, SonomaWest California is a corporation duly organized and
existing under the laws of the State of California. On the date hereof, the
total number of shares of Common Stock, no par value, of SonomaWest California
(the "SONOMAWEST CALIFORNIA COMMON STOCK"), authorized to be issued is
5,000,000, and the total number of shares of Preferred Stock of SonomaWest
California (the "SONOMAWEST CALIFORNIA PREFERRED STOCK" ) authorized to be
issued is 2,500,000. As of September 10, 2004, there were 1,114,257 shares of
SonomaWest California Common Stock issued and outstanding, and no shares of
SonomaWest California Preferred Stock were issued and outstanding.
WHEREAS, SonomaWest Delaware is a corporation duly organized and
existing under the laws of the State of Delaware. On the date hereof, the total
number of shares of Common Stock, $.0001 par value per share (the "SONOMAWEST
DELAWARE COMMON STOCK" ) authorized to be issued is 5,000,000, and the total
number of shares of Preferred Stock, $.0001 par value per share (the "SONOMAWEST
DELAWARE PREFERRED STOCK" ) authorized to be issued is 2,500,000. The SonomaWest
Delaware Preferred Stock is undesignated as to series, rights, preferences,
privileges, or restrictions. As of the date hereof, 100 shares of SonomaWest
Delaware Common Stock were issued and outstanding, all of which were held by
SonomaWest California, and no shares of SonomaWest Delaware Preferred Stock were
issued and outstanding.
WHEREAS, SonomaWest Delaware is a wholly owned subsidiary of SonomaWest
California.
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WHEREAS, the Board of Directors of SonomaWest California has determined
that, for the purpose of effecting the reincorporation of SonomaWest California
in the State of Delaware, it is advisable and in the best interests of
SonomaWest California and its shareholders that SonomaWest California merge with
and into SonomaWest Delaware upon the terms and conditions provided herein.
WHEREAS, the respective Boards of Directors of SonomaWest Delaware and
SonomaWest California have approved and adopted this Agreement and have directed
that this Agreement be submitted to a vote of their sole stockholder and
shareholders, respectively, and executed by the undersigned officers.
WHEREAS, the Merger (as hereinafter defined) is intended to qualify as
a reorganization described in Section 368(a) of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, SonomaWest Delaware and SonomaWest California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
ARTICLE I
MERGER
Section 1.1 MERGER. In accordance with the provisions of this
Agreement, the Delaware General Corporation Law (the "DGCL" ) and the California
General Corporation Law (the "CGCL" ), SonomaWest California shall be merged
with and into SonomaWest Delaware (the "MERGER" ), the separate existence of
SonomaWest California shall cease, and SonomaWest Delaware shall survive the
Merger and shall continue to be governed by the laws of the State of Delaware.
SonomaWest Delaware shall be, and is sometimes referred to herein as, the
"SURVIVING CORPORATION." The name of the Surviving Corporation shall be
SonomaWest Holdings, Inc.
Section 1.2 FILING AND EFFECTIVENESS. The Merger shall become effective
when the following actions shall have been completed:
(a) this Agreement and the Merger shall have been adopted and
approved by each Constituent Corporation in accordance with the requirements of
the DGCL and the CGCL;
(b) all of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly waived by
the party entitled to satisfaction thereof;
(c) an executed Certificate of Ownership and Merger meeting the
requirements of the DGCL shall have been filed with the Secretary of State of
the State of Delaware (the "DELAWARE CERTIFICATE" ); and
(d) a certified copy of the Delaware Certificate, as provided
in Section 1108 of the CGCL, shall have been filed with the Secretary of State
of the State of California.
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The date and time when the Merger shall become effective, as aforesaid,
is herein called the "EFFECTIVE DATE OF THE MERGER."
Section 1.3 EFFECT OF THE MERGER. Upon the Effective Date of the
Merger, the separate existence of SonomaWest California shall cease and
SonomaWest Delaware, as the Surviving Corporation shall:
(i) continue to possess all of its assets, rights, powers and
property as constituted immediately prior to the Effective Date of the
Merger;
(ii) be subject to all actions previously taken by its and
SonomaWest California's Boards of Directors;
(iii) succeed, without other transfer, to all of the assets,
rights, powers and property of SonomaWest California in the manner more
fully set forth in Section 259 of the DGCL;
(iv) continue to be subject to all of the debts, liabilities and
obligations of SonomaWest Delaware as constituted immediately prior to
the Effective Date of the Merger; and
(v) succeed, without other transfer, to all of the debts,
liabilities and obligations of SonomaWest California in the same manner
as if SonomaWest Delaware had itself incurred them, all as more fully
provided under the applicable provisions of the DGCL and the CGCL.
ARTICLE II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
Section 2.1 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of SonomaWest Delaware as in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Certificate of Incorporation of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
Section 2.2 BY-LAWS. The By-Laws of SonomaWest Delaware as in effect
immediately prior to the Effective Date of the Merger shall continue in full
force and effect as the By-Laws of the Surviving Corporation until duly amended
in accordance with the provisions thereof and applicable law.
Section 2.3 DIRECTORS AND OFFICERS. The directors and officers of
SonomaWest California immediately prior to the Effective Date of the Merger
shall be the directors and officers of the Surviving Corporation until their
successors shall have been duly elected and qualified or until as otherwise
provided by law, the Certificate of Incorporation of the Surviving Corporation
or the By-Laws of the Surviving Corporation.
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ARTICLE III
MANNER OF CONVERSION OF STOCK
Section 3.1 SONOMAWEST CALIFORNIA COMMON STOCK. Upon the Effective Date
of the Merger, each share of SonomaWest California Common Stock, issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by either of the Constituent Corporations, the holder of such shares
or any other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
Section 3.2 SONOMAWEST CALIFORNIA EMPLOYEE BENEFIT PLANS. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
continue any and all stock option, stock incentive and other equity-based award
plans heretofore adopted by SonomaWest California (individually, an "EQUITY
PLAN" and, collectively, the "EQUITY PLANS" ), and shall reserve for issuance
under each Equity Plan a number of shares of SonomaWest Delaware Common Stock
equal to the number of shares of SonomaWest California Common Stock so reserved
immediately prior to the Effective Date of the Merger. Each unexercised option
or other right to purchase SonomaWest California Common Stock granted under and
by virtue of any such Equity Plan which is outstanding immediately prior to the
Effective Date of the Merger shall, upon the Effective Date of the Merger,
become an option or right to purchase SonomaWest Delaware Common Stock on the
basis of one share of SonomaWest Delaware Common Stock for each share of
SonomaWest California Common Stock issuable pursuant to any such option or stock
purchase right, and otherwise on the same terms and conditions and at an
exercise or conversion price per share equal to the exercise or conversion price
per share applicable to any such SonomaWest California option or stock purchase
right. Each other equity-based award relating to SonomaWest California Common
Stock granted or awarded under any of the Equity Plans which is outstanding
immediately prior to the Effective Date of the Merger shall, upon the Effective
Date of the Merger, become an award relating to SonomaWest Delaware Common Stock
on the basis of one share of SonomaWest Delaware Common Stock for each share of
SonomaWest California Common Stock to which such award relates and otherwise on
the same terms and conditions applicable to such award immediately prior to the
Effective Date of the Merger.
Section 3.3 SONOMAWEST DELAWARE COMMON STOCK. Upon the Effective Date
of the Merger, each share of SonomaWest Delaware Common Stock issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by SonomaWest Delaware, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.
Section 3.4 EXCHANGE OF CERTIFICATES.
(a) After the Effective Date of the Merger, each holder of an
outstanding certificate representing SonomaWest California Common Stock may, at
such holder's option, surrender the same for cancellation to Continental Stock
Transfer & Trust Company, as exchange agent (the "EXCHANGE AGENT"), and each
such holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving Corporation's
Common Stock into which the surrendered shares were converted as provided
herein. Unless and until so surrendered, each outstanding certificate
theretofore representing shares of SonomaWest California Common Stock shall be
deemed for all purposes to represent
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the number of shares of the Surviving Corporation's Common Stock into which such
shares of SonomaWest California Common Stock were converted in the Merger.
(b) The registered owner on the books and records of the
Surviving Corporation or the Exchange Agent of any shares of stock represented
by such outstanding certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or the Exchange Agent, have and be entitled to exercise
any voting and other rights with respect to, and to receive dividends and other
distributions upon the shares of Common Stock of the Surviving Corporation
represented by, such outstanding certificate as provided above.
(c) Each certificate representing Common Stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability as the certificates of SonomaWest
California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
(d) If any certificate for shares of the Surviving Corporation
stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof: (i) that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer; (ii) that such transfer
otherwise be proper and comply with applicable securities laws; and (iii) that
the person requesting such transfer pay to the Surviving Corporation or the
Exchange Agent any transfer or other taxes payable by reason of issuance of such
new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not payable.
ARTICLE IV
GENERAL
Section 4.1 COVENANTS OF SONOMAWEST DELAWARE. SonomaWest Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) qualify to do business as a foreign corporation in the
State of California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the CGCL;
(b) file any and all documents with the California Franchise
Tax Board necessary for the assumption by SonomaWest Delaware of all of the
franchise tax liabilities of SonomaWest California;
(c) file the Delaware Certificate with the Secretary of State
of the State of Delaware;
(d) file a certified copy of the Delaware Certificate with the
Secretary of State of the State of California; and
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(e) take all such other actions as may be required by the DGCL
and the CGCL to effect the Merger.
Section 4.2 COVENANTS OF SONOMAWEST CALIFORNIA. SonomaWest California
covenants and agrees that it will, on or before the Effective Date of the
Merger, take all such other actions as may be required by the DGCL and the CGCL
to effect the Merger.
Section 4.3 FURTHER ASSURANCES. From time to time, as and when required
by the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of SonomaWest California such deeds and other
instruments, and there shall be taken or caused to be taken by the Surviving
Corporation and SonomaWest California such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by the Surviving Corporation, the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of SonomaWest California and otherwise to carry out the purposes
of this Agreement, and the officers and directors of the Surviving Corporation
are fully authorized in the name and on behalf of SonomaWest California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
Section 4.4 ABANDONMENT. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either SonomaWest California or
SonomaWest Delaware, or both, notwithstanding the approval of this Agreement by
the shareholders of SonomaWest California or the sole stockholder of SonomaWest
Delaware or both.
Section 4.5 AMENDMENT. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretaries of State of the
States of Delaware and California, provided that an amendment made subsequent to
the adoption of this Agreement by the stockholders of either Constituent
Corporation shall not, unless approved by the stockholders as required by law:
(i) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation; (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger; or (iii) alter or change any of the
terms and conditions of this Agreement, if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
Section 4.6 AGREEMENT. Executed copies of this Agreement will be on
file at the principal place of business of the Surviving Corporation at 2064
Highway 116 North, Sebastopol, California 95472.
Section 4.7 GOVERNING LAW. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
CGCL.
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Section 4.8 COUNTERPARTS. This Agreement may be executed in
counterparts (including by facsimile), each of which shall be deemed to be an
original and all of which, together, shall constitute the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SONOMAWEST HOLDINGS, INC.
a California corporation
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SONOMAWEST HOLDINGS, INC.
a Delaware corporation
By:
-------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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APPENDIX D
DELAWARE CERTIFICATE
CERTIFICATE OF INCORPORATION
OF
SONOMAWEST HOLDINGS, INC.
A DELAWARE CORPORATION
The undersigned, for the purpose of incorporating a corporation under
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
ARTICLE I
The name of this corporation is SonomaWest Holdings, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 9 E. Loockerman Street, Suite 1B, Dover, Delaware 19901. The name of
its registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock," and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Seven Million Five Hundred Thousand (7,500,000) shares, of which Five Million
(5,000,000) shares shall be Common Stock, par value $0.0001 per share, and Two
Million Five Hundred Thousand (2,500,000) shares shall be Preferred Stock, par
value $0.0001 per share.
B. PREFERRED STOCK. Subject to the provisions of this Certificate
of Incorporation, the Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
1. NUMBER OF SHARES IN SERIES. The number of shares
constituting that series and the distinctive designation of that series;
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2. DIVIDEND RIGHTS. The dividend rate on the shares of
that series, whether dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of payment of dividends
on shares of that series;
3. LIQUIDATION RIGHTS. The rights of the shares of that
series in the event of voluntary or involuntary liquidation, dissolution or
winding up of the corporation, and the relative rights of priority, if any, of
payment of shares of that series;
4. VOTING RIGHTS. Whether that series shall have voting
rights, in addition to the voting rights provided by law, and if so, the terms
of such voting rights;
5. CONVERSION RIGHTS. Whether that series shall have
conversion privileges, and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
6. REDEMPTION RIGHTS. Whether or not the shares of that
series shall be redeemable, and, if so, the terms and conditions of such
redemption, including the date or date upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;
7. SINKING FUND. Whether that series shall have a
sinking fund for the redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund;
8. OTHER. Any other relative rights, preferences and
limitations of that series.
ARTICLE V
The business and affairs of the corporation shall be managed by and
under the direction of the Board of Directors.
ARTICLE VI
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The liability of a
director of the corporation to the corporation or its stockholders for monetary
damages shall be eliminated to the fullest extent permissible under applicable
law in the event it is determined that Delaware law does not apply. The
corporation is authorized to provide by bylaw, agreement or otherwise for
indemnification of directors, officers, employees and agents for breach of duty
to the corporation and its stockholders in excess of the indemnification
otherwise permitted by applicable law. Any repeal or modification of this
Article shall not result in any liability for a director with respect to any
action or omission occurring prior to such repeal or modification.
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ARTICLE VII
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and by this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE VIII
In addition to the other powers expressly granted by statute, the Board
of Directors of the corporation shall have the power to repeal, alter or amend
the bylaws of the corporation, provided however, that a majority of the
stockholders entitled to vote must approve the amendment or repeal of the last
paragraph of Section 2.10 of the bylaws (cumulative voting) and Section 3.2 of
the bylaws (number of directors).
Elections of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the corporation.
ARTICLE X
The corporation shall not be governed by the business combination
statute set forth in Section 203 of the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended.
ARTICLE XI
The name and mailing address of the incorporator is Matthew J. Ertman,
515 S. Figueroa Street, 7th Floor, Los Angeles, CA 90071.
ARTICLE XII
The corporation shall have perpetual existence.
* * *
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I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a corporation in pursuance of the General Corporation Law of
the State of Delaware and the act amendatory thereof and supplemental thereto,
make and file this Certificate of Incorporation hereby declaring and certifying
that the facts herein stated are true as of September 10, 2004.
-----------------------------------------------
Matthew J. Ertman, Incorporator
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BYLAWS
OF
SONOMAWEST HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
----
ARTICLE I CORPORATE OFFICES....................................................................1
1.1 REGISTERED OFFICE.............................................................................1
1.2 OTHER OFFICES.................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS.............................................................1
2.1 PLACE OF MEETINGS.............................................................................1
2.2 ANNUAL MEETING................................................................................1
2.3 SPECIAL MEETING...............................................................................1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS..............................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...............................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................................3
2.7 QUORUM........................................................................................3
2.8 ADJOURNED MEETING, NOTICE.....................................................................3
2.9 CONDUCT OF BUSINESS...........................................................................4
2.10 VOTING........................................................................................4
2.11 WAIVER OF NOTICE..............................................................................4
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................................5
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS...................................5
2.14 PROXIES.......................................................................................6
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.........................................................6
ARTICLE III DIRECTORS............................................................................6
3.1 POWERS........................................................................................6
3.2 NUMBER OF DIRECTORS...........................................................................6
(i)
PAGE
----
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.......................................7
3.4 RESIGNATION AND VACANCIES.....................................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................................8
3.6 REGULAR MEETINGS..............................................................................8
3.7 SPECIAL MEETINGS. NOTICE......................................................................8
3.8 QUORUM........................................................................................8
3.9 WAIVER OF NOTICE..............................................................................9
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............................................9
3.11 FEES AND COMPENSATION OF DIRECTORS............................................................9
3.12 APPROVAL OF LOANS TO OFFICERS.................................................................9
3.13 REMOVAL OF DIRECTORS.........................................................................10
ARTICLE IV COMMITTEES..........................................................................10
4.1 COMMITTEES OF DIRECTORS......................................................................10
4.2 COMMITTEE MINUTES............................................................................10
4.3 MEETINGS AND ACTION OF COMMITTEES............................................................10
ARTICLE V OFFICERS............................................................................11
5.1 OFFICERS.....................................................................................11
5.2 APPOINTMENT OF OFFICERS......................................................................11
5.3 SUBORDINATE OFFICERS.........................................................................11
5.4 REMOVAL AND RESIGNATION OF OFFICERS, FILLING VACANCIES.......................................11
5.5 CHAIRMAN OF THE BOARD........................................................................12
5.6 CHIEF EXECUTIVE OFFICER......................................................................12
5.7 PRESIDENT....................................................................................12
(ii)
PAGE
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5.8 VICE PRESIDENTS..............................................................................12
5.9 SECRETARY....................................................................................12
5.10 CHIEF FINANCIAL OFFICER......................................................................13
5.11 ASSISTANT SECRETARY..........................................................................13
5.12 ASSISTANT TREASURER..........................................................................14
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...............................................14
5.14 AUTHORITY AND DUTIES OF OFFICERS.............................................................14
ARTICLE VI INDEMNITY...........................................................................14
6.1 THIRD PARTY ACTIONS..........................................................................14
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION................................................15
6.3 SUCCESSFUL DEFENSE...........................................................................15
6.4 DETERMINATION OF CONDUCT.....................................................................15
6.5 PAYMENT OF EXPENSES IN ADVANCE...............................................................16
6.6 INDEMNITY NOT EXCLUSIVE......................................................................16
6.7 INSURANCE INDEMNIFICATION....................................................................16
6.8 INCORPORATION................................................................................16
6.9 EMPLOYEE BENEFIT PLANS.......................................................................16
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES..................................17
ARTICLE VII RECORDS AND REPORTS.................................................................17
7.1 MAINTENANCE AND INSPECTION OF RECORDS........................................................17
7.2 INSPECTION BY DIRECTORS......................................................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.............................................................18
ARTICLE VIII GENERAL MATTERS.....................................................................18
8.1 CHECKS.......................................................................................18
(iii)
PAGE
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.............................................18
8.3 STOCK CERTIFICATES, PARTLY PAID SHARES.......................................................18
8.4 SPECIAL DESIGNATION ON CERTIFICATES..........................................................19
8.5 LOST CERTIFICATES............................................................................19
8.6 CONSTRUCTION; DEFINITIONS....................................................................19
8.7 DIVIDENDS....................................................................................20
8.8 FISCAL YEAR..................................................................................20
8.9 SEAL.........................................................................................20
8.10 TRANSFER OF STOCK............................................................................20
8.11 STOCK TRANSFER AGREEMENTS....................................................................20
8.12 REGISTERED STOCKHOLDERS......................................................................20
ARTICLE IX AMENDMENTS..........................................................................21
(iv)
APPENDIX E
DELAWARE BYLAWS
BYLAWS
OF
SONOMAWEST HOLDINGS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, either within or
without the State of Delaware, as may be designated by the board of directors or
in the manner provided in these bylaws. In the absence of any such designation,
stockholders' meetings shall be held at the registered office of the corporation
in the State of Delaware.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the aggregate entitled to cast not
less than ten percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president or the
secretary of the corporation. No business may be transacted at such special
meeting otherwise
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than specified in such notice. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting
will be held at the time requested by the person or persons calling the meeting,
not less than ten (10) nor more than sixty (60) days after the receipt of the
request. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
(i) nomination for the election of directors, and
(ii) business proposed to be brought before any
stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than one hundred twenty (120) calendar days in advance of the first
anniversary date of mailing of the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. To be in proper
form, a stockholder's notice to the secretary shall set forth:
(a) the name and address of the stockholder who
intends to make the nominations or propose the business and, as the case may be,
of the person or persons to be nominated or of the business to be proposed;
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(b) a representation that the stockholder is a holder
of record of stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice;
(c) if applicable, a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(d) such other information regarding each nominee or
each matter of business to be proposed by such stockholder as would be required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, or the matter been proposed, or intended to be proposed by the
board of directors; and
(e) if applicable, the consent of each nominee to
serve as director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING, NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
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fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.10 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the Delaware General
Corporation Law (relating to voting rights of fiduciaries, pledgors and joint
owners of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.10, or as
may be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the voting
and the stockholder requesting cumulative voting or any other stockholder voting
at the meeting in person or by proxy has given notice prior to commencement of
the voting of the stockholder's intention to cumulate votes. If cumulative
voting is properly requested, each holder of stock, or of any class or classes
or of a series or series thereof, who elects to cumulate votes shall be entitled
to as many votes as equals the number of votes which (absent this provision as
to cumulative voting) such person would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by the number of
directors to be elected by such person, and that such person may cast all of
such votes for a single director or may distribute them among the number to be
voted for, or for any two or more of them, as such person may see fit.
2.11 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law or of the certificate of incorporation or these
bylaws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
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2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
a corporation, or any action that may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the Delaware General Corporation Law.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the board of directors is necessary, shall be the first date on
which a signed written consent is delivered to the corporation.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.14 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by such stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if such stockholders name is placed on the proxy by any
reasonable means including, but not limited to, by facsimile signature, manual
signature, writing, telegraphic transmission or otherwise, by such stockholder
or such stockholder's attorney-in-fact. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the Delaware General Corporation Law.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Delaware General Corporation Law and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of Directors of the corporation shall be not less
than four (4) nor more than seven (7) until changed by an amendment of this
section duly adopted by the stockholders of the corporation. The exact number of
Directors shall be fixed , within the limits
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specified by the Board of Directors in the same manner provided for in these
bylaws. The exact number of Directors shall be fixed at four (4) until changed
by the Board of Director as provided for in these bylaws. No reduction of the
authorized number of Directors shall have the effect of removing any Director
before that Director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors shall
resign from the board of directors, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies including any vacancy created by the
removal of a director by the stockholders of the corporation and newly created
directorships resulting from any increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the certificate
of incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the Delaware General Corporation Law.
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If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the
Delaware General Corporation Law as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of such board of directors,
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting pursuant to this section shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS. NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors
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present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute, the
certificate of incorporation, or these bylaws. If a quorum is not present at any
meeting of the board of directors, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
Delaware General Corporation Law, the certificate of incorporation, or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when such person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
Unless otherwise restructed by the certificate of incorporation, these
bylaws or applicable law, the corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as stockholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect such director if then cumulatively voted at an election of the entire
board of directors or, if there be classes of directors, at an election of the
class of directors of which such director is a part.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority (i) approving or adopting or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval or
(ii) adopting, amending, or repealing any bylaws of the corporation; and, unless
the board resolution establishing the committee, the bylaws or the certificate
of incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and
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meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a chief financial officer and
a secretary. The corporation may also have, at the discretion of the board of
directors, a chairman of the board, a chief executive officer, a president, one
or more vice presidents, one or more assistant vice presidents, one or more
assistant secretaries, one or more assistant treasurers, and any such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be appointed by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower, such other officers and
agents as the business of the corporation may require, each of whom shall hold
office for such period, have such authority, and perform such duties as are
provided in these bylaws or as the board of directors may from time to time
determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS, FILLING VACANCIES
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation
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shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to which
the officer is a party.
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.5 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board by the board of directors or as may be prescribed by these
bylaws. If there is no president and no one has been appointed chief executive
officer, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.6 of these bylaws.
5.6 CHIEF EXECUTIVE OFFICER
The board of directors shall have the power to select a chief executive
officer of the corporation who shall be subject to the control of the board of
directors and have general supervision, direction and control of the business
and the officers of the corporation. The chief executive officer shall preside
at all meetings of the stockholders and, in the absence or nonexistence of a
chairman of the board, at all meetings of the board of directors.
5.7 PRESIDENT
The president shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws. In addition and subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if no one has been
appointed chief executive officer, the president shall be the chief executive
officer of the corporation and shall, subject to the control of the board of
directors, have the powers and duties described in Section 5.6.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall
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show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. The chief financial
officer shall disburse the funds of the corporation as may be ordered by the
board of directors, shall render to the president and directors, whenever they
request it, an account of all his transactions as chief financial officer and of
the financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
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5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit 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 the person did not act in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interest of the corporation, and,
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with respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, tug or other enterprise against expenses (including attorneys'
fees) and amounts paid in settlement (if such settlement is approved in advance
by the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer, employee
or agent is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (1) by the Board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the Corporation shall be entitled to contest any determination that the
director, officer, employee or agent has not met the applicable standard of
conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent
jurisdiction.
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6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, bust or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 INCORPORATION
For purposes of this Article VI, references to "the corporation" 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, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect
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to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a
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director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sip or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES, PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation
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with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations, or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
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8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in (i) the Delaware General Corporation Law or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt amend or repeal
bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
SONOMAWEST HOLDINGS, INC.
CERTIFICATE BY SECRETARY
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of SonomaWest Holdings, Inc. and that the
foregoing Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws
of the corporation on September __, 2004 by the board of directors of the
corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this September __, 2004.
--------------------------------
Matthew J. Ertman, Secretary
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