SONOMAWEST HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of October 30, 2002
by and between SONOMAWEST HOLDINGS, INC., a California corporation (the
"Company"), and Gary L. Hess ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors of
the Company or its subsidiaries may not be willing to continue to serve as
directors without additional protection;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors of the Company
and its subsidiaries and to indemnify its directors so as to provide them with
the maximum protection permitted by law;
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify such persons so that they will serve
or continue to serve the Company free from undue concern that they will not be
adequately protected;
WHEREAS, Indemnitee is willing to serve, continue to serve and take on
additional service for or on behalf of the Company on condition that he be so
indemnified;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director of the
Company, or any subsidiary of the Company, by reason of any action or inaction
on the part of Indemnitee while a director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director of
another corporation or other enterprise, against expenses (including without
limitation attorneys' fees, disbursements and retainers, accounting and witness
fees, travel and disposition costs, expenses of investigations, judicial or
administrative proceedings or appeals), judgments, fines, penalties, excise
taxes under the Employment Retirement Income Security Act of 1974, as amended
("ERISA"), and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld)
actually and reasonably incurred by Indemnitee in connection with such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the Company, or,
with respect to any criminal action or proceeding, had no reasonable cause to
believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director of the
Company or any subsidiary of the Company, by reason of any action of the Company
or subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while a director or by reason of the fact that Indemnitee is or was
serving at the request of the Company as a director of another corporation or
other enterprise, against expenses (including attorneys' fees) and, to the
fullest extent permitted by law, amounts paid in settlement, in each case to the
extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or proceeding if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company and its shareholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company in the
performance of Indemnitee's duty to the Company and its shareholders unless and
only to the extent that the court in which such action or proceeding is or was
pending shall determine upon application that, in view of all the circumstances
of the case, Indemnitee is fairly and reasonably entitled to indemnity for
expenses and then only to the extent that the court shall determine.
2. Agreement to Serve. Indemnitee agrees to continue to serve as a director
of the Company and/or the Company's subsidiaries, as the case may be, so long as
he is duly appointed or elected and qualified in accordance with the applicable
provisions of the By-laws of the Company or any subsidiary of the Company or
until such time as he tenders his resignation in writing. Nothing contained in
this Agreement is intended to create in Indemnitee any right to continued
employment.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced herein (but
only amounts actually paid in settlement of any such action or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chairman of the Board
of the Company at the address shown on the signature page of this Agreement (or
such other address as the Company shall designate in writing to the Indemnitee).
Notice shall be deemed received three business days after the date postmarked if
sent by domestic certified or registered mail, properly addressed; otherwise
notice shall be deemed received when such notice shall actually be received by
the Company. The omission to so notify the Company will not relieve the Company
from any liability which it may have under this Agreement or otherwise. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification under this Agreement, other than
pursuant to Section 4, shall be made no later than 45 days after receipt by the
Company of the written request of Indemnitee, accompanied by substantiating
documentation, unless a determination is made within said 45-day period by (1)
the Board of Directors by a majority vote of a quorum consisting of directors
who are or were not parties to such Proceeding, or (2) independent legal counsel
in a written opinion (which counsel shall be appointed if such quorum is not
obtainable), that Indemnitee has not met the relevant standards for
indemnification set forth herein.
In the event the Company does not indemnify Indemnitee within such
45-day period, whether or not the Company (including its Board of Directors or
independent legal counsel) has made a determination that Indemnitee has not met
the applicable standard of conduct, Indemnitee may at anytime thereafter bring
suit against the Company to recover the unpaid amount in any court of competent
jurisdiction. The burden of proving by clear an convincing evidence that
indemnification is not appropriate shall be on the Company. Neither the failure
of the Company (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because Indemnitee has met the
applicable standard of conduct, nor an actual determination by the Company
(including its Board of Directors or independent legal counsel) that Indemnitee
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that Indemnitee has not met the applicable
standard of conduct. Indemnitee's expenses reasonably incurred in connection
with successfully establishing his right to indemnification hereunder, in whole
or part, shall also be indemnified by the Company.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
4. Additional Indemnification Rights; Nonexclusively.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's or any
subsidiary's Articles of Incorporation, the Company's or any subsidiary's
By-laws or by statute. In the event of any change, after the date of this
Agreement, in any applicable law, statute or rule which expands the right of a
California corporation to indemnify a member of its board of directors or an
officer, such changes shall be, ipso facto, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute or rule which narrows the right of a
California corporation to indemnify a member of its Board of Directors or an
officer, such changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement shall have no effect on this Agreement
or the parties' rights and obligations hereunder.
(b) Nonexclusively. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its By-laws, any agreement, any
vote of shareholders or disinterested directors, the General Corporation Law of
the State of California, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action or other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines, penalties or ERISA excise taxes actually or
reasonably incurred by him in the investigation, defense, appeal or settlement
of any civil or criminal action or proceeding, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such expenses, judgments, fines, penalties or ERISA excise taxes to
which Indemnitee is entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
7. Directors' and Officers' Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
directors' and officers' liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are disproportionate to the amount of coverage provided, if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
8. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(i) Excluded Acts. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of
liability under the California General Corporation Law;
(ii) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense,
except with respect to proceedings brought to establish or
enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 317
of the California Corporations Code, but such indemnification or
advancement of expenses may be provided by the Company in
specific cases if the Board of Directors has approved the
initiation or bringing of such suit;
(iii)Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement,
if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was
not made in good faith or was frivolous;
(iv) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to
judgments, fines, penalties or ERISA excise taxes, and amounts
paid in settlement) which have been paid directly to Indemnitee
by an insurance carrier under a policy of directors' and
officers' liability maintained by the Company;
(v) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any similar
provisions of any federal, state or local statutory law; or
(vi) Indemnified Claims. To indemnify the Indemnitee for any expenses
or liabilities of any type whatsoever (including but not limited
to judgments, fines, penalties or ERISA excise taxes and amounts
paid in settlement) for which the Indemnitee has been or is
indemnified by the Company otherwise than pursuant to this
Agreement.
10. Effectiveness of Agreement. To the extent that the indemnification
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the California General Corporation
Law, such provisions shall not be effective unless and until the Company's
Articles of Incorporation authorize such additional rights of indemnification.
In all other respects, the balance of this Agreement shall be effective as of
the date set forth on the first page of this Agreement and may apply to acts or
omissions of Indemnitee which occurred prior to such date if Indemnitee was a
director of another corporation or other enterprise, at the time such act or
omission occurred.
11. Construction of Certain Phrases. For purposes of this Agreement,
references to the "Company" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors so that if Indemnitee is or was a director of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director of another corporation or other enterprise, Indemnitee shall stand
in the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
13. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
14. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of the Indemnitee's material defenses to
such action were made in bad faith or were frivolous.
15. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of California as applied to
contracts between California residents entered into and to be performed entirely
within California.
18. Subrogation. In the event of any payment under this Agreement to or on
behalf of the Indemnitee, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee against any person,
firm, corporation or other entity (other than the Company) and the Indemnitee
shall execute all papers requested by the Company and shall do any and all
things that may be necessary or desirable to secure such rights for the Company,
including the execution of such documents necessary or desirable to enable the
Company to effectively bring suit to enforce such rights.
19. Subject Matter and Parties. The intended purpose of this Agreement is
to provide for indemnification and advancement of expenses, and this Agreement
is not intended to affect any other aspect of any relationship between the
Indemnitee and the Company and is not intended to and shall not create any
rights in any person as a third party beneficiary hereunder.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SONOMAWEST HOLDINGS, INC.
a California corporation
By: /s/ Roger S. Mertz
------------------------------------
Roger S. Mertz
Chairman of the Board
Address: 2064 Highway 116 North
Sebastopol, California 95472
AGREED TO AND ACCEPTED:
INDEMNITEE:
/s/ Gary L. Hess
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Gary L. Hess
Address: -------------------------------
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[Signature page to Indemnification Agreement]