exhibit103.htm


    
      

    

     

     

    Exhibit
10.3


    ENVIRONMENTAL
INDEMNITY AGREEMENT

    


    


    This
Environmental Indemnity Agreement ("Environmental Indemnity" or
"Agreement") is given in
connection with the extension of a term loan (the "Loan") by WACHOVIA BANK, a national association
having an office at 5 Research Drive, Shelton, Connecticut 06484 (the "Bank"), to SONOMAWEST HOLDINGS INC., a
Delaware  corporation, having an address at 2064 Highway 116 North,
Sebastopol, California  95472 (the "Borrower" or “Indemnitor”),
which Loan is made pursuant to the terms and conditions of, and is evidenced by,
a certain Promissory Note in the original principal amount of Two Million Five
Hundred Thousand and 00/100 Dollars ($2,500,000.00) payable by the Borrower to
the order of the Bank dated of even date herewith (the "Note").

    


    A.           The
term "Bank" shall mean
Wachovia Bank and its successors and assigns.

     

    B.           The
term "Collateral" shall
mean any and all real, personal, tangible and intangible property, now existing
or hereafter acquired or arising, that secures the Obligations of the
Indemnitors under the Note and the other Loan Documents.

    


    C.           The
term "Environmental Enforcement
Action" shall mean all actions, orders, requirements or liens instituted,
threatened, required, completed, imposed or placed by any governmental authority
and all claims made or threatened by any other person against or with respect to
the Property or the Surrounding Property, or any present or past owner or
occupant thereof, arising out of or in connection with any of the Environmental
Legal Requirements, any environmental condition, or the assessment, monitoring,
clean-up, containment, remediation or removal of, or damages caused or alleged
to be caused by, any Hazardous Materials (i) located on or under the Property or
the Surrounding Property, (ii) emanating from the Property or the Surrounding
Property, or (iii) generated, stored, transported, utilized, disposed, managed,
or released by any Indemnitor (whether or not on, under or from the Property or
the Surrounding Property).

    


    D.           The
term "Environmental Legal
Requirements" shall mean all past (which have current effect), present or
future federal, state, county and local laws, by-laws, rules, regulations, codes
and ordinances, or any judicial or administrative interpretations thereof, and
the requirements of any governmental agency or authority having or claiming
jurisdiction with respect thereto, applicable to the regulation or protection of
the environment, the health and safety of persons and property and all other
environmental and ecological matters and shall include, but not be limited to,
all orders, decrees, judgments and rulings imposed through any public
enforcement proceedings, relating to Hazardous Materials or the existence, use,
discharge, release, containment, transportation, generation, storage, management
or disposal thereof, or otherwise regulating or providing for the protection of
the environment applicable to the Property and relating to Hazardous Materials,
or to the existence, use, discharge, release or disposal
thereof.  Environmental Legal Requirements presently include, but are
not limited to, the following laws:  Comprehensive Environmental
Response Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. § 1801 et seq.), the Public
Health Service Act (42 U.S.C. § 300(f) et seq.), the Pollution
Prevention Act (42 U.S.C. § 13101 et seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Federal
Clean Water Act (33 U.S.C. § 1251 et seq.), the Federal
Clean Air Act (42 U.S.C. § 7401 et seq.) and the
applicable laws of the State of California.

    

      
        
           


        

        
          1

          
            

          

        

        
           


        

      



    E.           The
term "Environmental
Reports" shall mean the reports, if any, most recently delivered to the
Bank.

    


    F.           The
term "Hazardous
Materials" shall mean and include asbestos in any form, flammable
materials, explosives, radioactive or nuclear substances, polychlorinated
biphenyls, other known or suspected carcinogens, oil and other petroleum
products, radon gas, urea formaldehyde, chemicals, gases, solvents, pollutants,
pesticides or contaminants in quantities that could be a detriment or pose a
present or potential danger to the environment or to the health or safety of any
person, and any other hazardous or toxic materials, hazardous or solid wastes or
substances which are defined, determined or identified as such in any
Environmental Legal Requirements.

    


    G.           The
term "Indemnified Party"
shall mean:  (i) the Bank; (ii) all those claiming by, through or
under the Bank, including any subsequent holder of the Loan and any present or
future owner of a participation interest therein; (iii) any subsequent owner or
tenant of all or any portion of the Property following the exercise by the Bank
of its rights under the Mortgage, the Note or any other Loan Document including,
but not limited to, a foreclosure sale or deed in lieu thereof; and (iv) as to
each of the foregoing, their respective affiliate, parent and subsidiary
corporations, and, as applicable, the respective officers, directors,
stockholders, agents, employees, accountants and attorneys of any one or more of
them, and any person, firm or entity which controls, is controlled by,
controlling, or under common control with, any one or more of them.

    


    H.           The
term "Loan Documents"
shall mean this Agreement, the Note, the Mortgage and all other instruments,
documents and agreements evidencing, securing or related to or executed in
connection with the Loan.

    


    I.           The
term "Mortgage" shall
mean that certain Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated of even date herewith granted by the Borrower to the Bank
to secure the Obligations of the Borrower under the Loan, as the same may be
amended and supplemented from time to time, relating to the
Property.

    


    J.           The
term “Obligations" shall
mean all obligations and liabilities of every kind and nature of the Indemnitors
under the Note, the Mortgage and all other Loan Documents whether now existing
or hereafter arising.

    


    K.           The
term "Property" shall
mean the property owned by the Borrower located at 2064 Highway 116 North,
Sebastopol, California, as more particularly set forth in the Mortgage and any
other real property in which the Bank now or hereafter receives a mortgage in
connection with the Loan or any of the other Obligations.

    

      
        
           


        

        
          2

          
            

          

        

        
           


        

      



    O.           The
term "Surrounding
Property" shall mean any property contiguous to the perimeter of the
Property.

    


    P.           The
terms "generated," "stored," "transported," "utilized," "disposed," "managed,"
“released,” and "threat of release," and all conjugates thereof, shall have the
meanings and definitions set forth in the Environmental Legal
Requirements.

    


    FOR VALUE RECEIVED, and to
induce the Bank to make the Loan and otherwise extend credit to the Borrower as
provided for in the Loan Documents, the Indemnitors hereby jointly and severally
and unconditionally agree as follows:

    


    1.           Compliance with
Environmental Legal Requirements.

    


    
      	
               
      

            	
              1.1

            	
              Compliance.  Until such
      time as the Obligations have been paid in full, each Indemnitor guaranties
      and agrees that it shall comply in all material respects with all
      Environmental Legal Requirements, including, but not limited to,
      Environmental Legal Requirements applicable to the Property, and that it
      shall take all remedial action necessary to avoid any liability of the
      Indemnitors, the Bank, or any subsequent owner of the Property, and to
      avoid the imposition of, or to discharge, any liens on the Property, as a
      result of any failure to comply with Environmental Legal Requirements
      applicable to the Property.

            


    

    


    
      	
               
      

            	
              1.2

            	
              Prohibitions.  Without
      limiting the generality of the foregoing, each Indemnitor agrees that it
      shall not:

            


    

    


    
      	
               
      

            	
              (a)

            	
              except
      in material compliance with all Environmental Legal Requirements, release
      or permit any release or threat of release of any Hazardous Materials on
      the Property;

            


    

    


    
      	
               
      

            	
              (b)

            	
              other
      than in the ordinary course of its business and in material compliance
      with all Environmental Legal Requirements, generate or permit any
      Hazardous Materials to be generated on the
  Property;

            


    

    


    
      	
               
      

            	
              (c)

            	
              except
      in material compliance with all Environmental Legal Requirements, store or
      utilize, or permit any Hazardous Materials to be stored or utilized on the
      Property;

            


    

    


    
      	
               
      

            	
              (d)

            	
              other
      than in the ordinary course of business and in material compliance with
      all Environmental Legal Requirements, dispose of or permit any Hazardous
      Materials to be disposed of on the
Property;

            


    

    


    
      	
               
      

            	
              (e)

            	
              fail
      to operate, maintain, repair and use the Property in all material respects
      in accordance with the Environmental Legal Requirements;
  or

            


    

    


    
      	
               
      

            	
              (f)

            	
              allow,
      permit or suffer any other person or entity to operate, maintain, repair
      and use the Property except in accordance in all material respects with
      the Environmental Legal
Requirements.

            


    

    

      
        
           


        

        
          3

          
            

          

        

        
           


        

      



    1.3         Notice of
Conditions.  Each Indemnitor
shall provide the Bank with prompt written notice, but in no event later than
ten (10) business days after obtaining any knowledge or notice thereof, of any
of the following conditions:  (i) the presence (other than in the
ordinary course of its business), or any release or threat of release, of any
Hazardous Materials on, under or from the Property, or any Surrounding Property,
whether or not caused by any Indemnitor; (ii) any Environmental Enforcement
Action instituted or threatened; or (iii) any condition or occurrence on the
Property, or any Surrounding Property, that would reasonably be expected to or
does constitute a violation of any of the Environmental Legal Requirements with
respect to the Property.

    


    2.           The Indemnitors' Agreement
to take Remedial Actions.

    


    
      	
               
      

            	
              2.1

            	
              Remedial
      Actions.  Upon any
      Indemnitor becoming aware of the violation of any Environmental Legal
      Requirement related to the Property, or the presence, or any release or
      any threat of release, of any Hazardous Materials on, under, or from the
      Property or any Surrounding Property, whether or not caused by such
      Indemnitor, such Indemnitor shall, subject to the rights to contest set
      forth in Section
      5,
      immediately take all actions:  (A) to cure or eliminate any such
      violation of any such Environmental Legal Requirement related to the
      Property and, where applicable, to arrange for the assessment, monitoring,
      clean-up, containment, removal, remediation, or restoration of the
      Property and, (B) to the extent that the presence of any Hazardous
      Materials on the Surrounding Property originated on, under, or from the
      Property, or constitutes a danger to the Surrounding Property, as are
      required pursuant to any Environmental Legal Requirements or by any
      governmental authority.

            


    

    


    
      	
               
      

            	
              2.2

            	
              Environmental
      Assessments.  The Bank
      shall have the right to require the Indemnitors, at their own cost and
      expense, to obtain a professional environmental assessment of the Property
      in accordance with the Bank's then standard environmental assessment
      requirements and sufficient in scope to comply with the requirements of
      Section 3.1, upon the occurrence
      of any one or more of the following events:  (i) an Event of
      Default; or (ii) upon receipt of any notice of any of the conditions
      specified in Section 1.3 of this
      Agreement.

            


    

    

      
        
           


        

        
          4

          
            

          

        

        
           


        

      




    3.           The Bank's Rights to Inspect
the Property and Take Remedial Actions.

    


    
      	
               
      

            	
              3.1

            	
              The
      Bank's Rights.  The Bank
      may exercise its rights and remedies under this Section 3 upon and following the
      existence of one or more of the following events or conditions: (i)
      failure to pay the Loan when due and payable in full either at its stated
      maturity or upon acceleration based upon an Event of Default; (ii) an
      Indemnified Party, or an affiliate thereof, has taken possession of all or
      some portion of the Property based upon an Event of Default; (iii) an
      Indemnified Party has acquired title to all or some portion of the
      Property by virtue of foreclosure or deed in lieu of foreclosure; or (iv)
      a claim has been asserted against an Indemnified Party for which
      indemnification is provided in this Agreement, but the Indemnitors have
      not undertaken to pursue and are not pursuing reasonable efforts to
      remediate, defend and otherwise indemnify any such Indemnified Party and
      to provide such Indemnified Party with reasonable assurances of the
      Indemnitors' ability, financially and otherwise, to satisfy the
      Indemnitors' obligations.  In any of such events, the Bank shall
      have the right, but not the obligation, through such representatives or
      independent contractors as it may designate, to enter upon the Property
      and to expend funds to:

            


    

    


    
      	
               
      

            	
              3.1.1

            	
              Assessments.  Cause one
      or more environmental assessments of the Property to be undertaken, if the
      Bank in its reasonable discretion determines that such assessment is
      appropriate.  Such environmental assessments may include,
      without limitation, (i) detailed visual inspections of the Property,
      including without limitation all storage areas, storage tanks, drains,
      drywells and leaching areas; (ii) the taking of soils an surface and
      sub-surface water samples; (iii) the performance of soil and groundwater
      analysis; and (iv) the performance of such other investigations or
      analysis as are necessary or appropriate and consistent with sound
      professional environmental engineering practice in order for the Bank to
      obtain a complete assessment of the compliance of the Property and the use
      thereof with all Environmental Legal Requirements and to make a
      determination as to whether or not there is any risk of contamination (a)
      to the Property resulting from Hazardous Materials originating on or
      under, or emanating from, any Surrounding Property or (b) to any
      Surrounding Property resulting from Hazardous Materials originating on,
      under, or from the Property;

            


    

    


    
      	
               
      

            	
              3.1.2

            	
              Cure.  Cure any
      breach of the representations, warranties, covenants and conditions made
      by or imposed upon any Indemnitor under this Agreement, including, without
      limitation, any violation by any Indemnitor, or by the Property, or by any
      other occupant, prior occupant or prior owner thereof, of any of the
      Environmental Legal Requirements applicable to the
    Property;

            


    

    

      
        
           


        

        
          5

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              3.1.3

            	
              Prevention
      and Precaution.  Take all
      actions as are required pursuant to Environmental Legal Requirements (i)
      prevent the migration of Hazardous Materials on, under, or from the
      Property to any other property; (ii) clean-up, contain, remediate or
      remove any Hazardous Materials on, under, or from any other property,
      which Hazardous Materials originated on, under, or from the Property; or
      (iii) prevent the migration of any Hazardous Materials on, under, or from
      any other property to the Property;

            


    

    


    
      	
               
      

            	
              3.1.4

            	
              Environmental
      Enforcement Actions.  Comply
      with, settle, or otherwise satisfy any Environmental Enforcement Action
      relating to the Property and, if the environmental condition thereon is
      caused by any Indemnitor, any Surrounding Property, including, but not
      limited to, the payment of any funds or penalties imposed by any
      governmental authority and the payment of all amounts required to remove
      any lien or threat of lien on or affecting the Property;
    and

            


    

    


    
      	
               
      

            	
              3.1.5

            	
              General.  Comply
      with, settle, or otherwise satisfy any Environmental Legal Requirement and
      correct or abate any environmental condition on, or which threatens, the
      Property and which could reasonably be expected to or does cause damage or
      injury to the Property or to any
person.

            


    

    


    
      	
               
      

            	
              3.2

            	
              Recovery
      of Costs.  Any amounts
      paid or advanced by the Bank and all costs and expenditures incurred in
      connection with any action taken pursuant to the terms of this Agreement,
      including, but not limited to, environmental consultants' and experts'
      fees and expenses, attorneys' fees and expenses, court costs and all costs
      of assessments, monitoring, clean-up, containment, remediation, removal
      and restoration, with interest thereon at the highest default rate set
      forth in the Mortgage and the Note, shall be a demand obligation of the
      Indemnitors to the Bank and, to the extent not prohibited by law (and so
      long as the Mortgage remains undischarged of record), shall be added to
      the obligations secured by the Mortgage when paid by the Bank and shall be
      secured by the lien of such Mortgage and all other documents now or
      hereafter securing any of the Obligations as fully and as effectively and
      with the same priority as every other obligation secured
      thereby.

            


    

    


    
      	
               
      

            	
              3.3

            	
              The
      Bank Not Responsible.  The
      exercise by the Bank of any one or more of the rights and remedies set
      forth in this Section 3 shall not operate
      or be deemed (a) to place upon the Bank any responsibility for the
      operation, control, care, service, management, maintenance or repair of
      the Property or (b) make the Bank the "owner" or "operator" of the
      Property or otherwise a “responsible party” within the meaning of any of
      the Environmental Legal
Requirements.

            


    

    

      
        
           


        

        
          6

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              3.4

            	
              The
      Bank's Subrogation.  Furthermore,
      the Bank, by making any such payment or incurring any such costs, shall be
      subrogated to all rights of the Indemnitors or any other occupant of the
      Property to seek reimbursement from any other person, including, without
      limitation, any predecessor owner or occupant of the Property who may be a
      “responsible party” under any of the Environmental Legal Requirements, in
      connection with the presence of Hazardous Materials on or under, or which
      emanated from, the Property.

            


    

    


    
      	
               
      

            	
              3.5

            	
              The
      Bank May Stop.  Without
      limiting the generality of the other provisions of this Agreement, any
      partial exercise by the Bank of any one or more of the rights and remedies
      set forth in this Section 3, including, without
      limitation, any partial undertaking on the part of the Bank to cure any
      failure by any Indemnitor, or of the Property, or any other occupant,
      prior occupant or prior owner thereof, to comply with any of the
      Environmental Legal Requirements, shall not obligate the Bank to complete
      such actions taken or require the Bank to expend further sums to cure such
      non-compliance.

            


    

    


    4.           Indemnification.  At all times
before and after the indefeasible repayment of the Loan, each Indemnitor hereby
agrees that it shall, at its sole cost and expense, indemnify, defend,
exonerate, protect and save harmless each Indemnified Party against and from any
and all damages, losses, liabilities, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind or nature whatsoever, including, without
limitation, attorneys' and experts' fees and disbursements, which may at any
time be imposed upon, incurred by or asserted or awarded against any Indemnified
Party and arising from or out of:

    


    
      	
               
      

            	
              4.1

            	
              Environmental
      Liability.

            	
              Any
      liability arising under Environmental Legal Requirements, whenever
      discovered, that relates to the
Property;

            


    

    


    
      	
               
      

            	
              4.2

            	
              Hazardous
      Materials.  Any
      Hazardous Materials on, in, under or affecting, all or any portion of the
      Property or, if any such Hazardous Materials emanated from the Property,
      any other property, on or before the date hereof, or which may hereafter
      affect all or any portion of the Property or, if any such Hazardous
      Materials emanated from the Property, any other property, whenever
      discovered in violation of any Environmental Legal
      Requirements;

            


    

    

      
        
           


        

        
          7

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              4.3

            	
              Environmental
      Legal Requirements.  The
      violation of any Environmental Legal Requirement by any Indemnitor or by
      any employee, contractor, agent or representative of any Indemnitor, or
      with respect to the Property or any Surrounding Property, existing on or
      before the date hereof or which may so exist in the future, whenever
      discovered; provided, however, that, with respect to any Surrounding
      Property, only to the extent that the environmental condition is caused by
      such Indemnitor or by such Indemnitor's employee, contractor, agent or
      representative.

            


    

    


    
      	
               
      

            	
              4.4

            	
              Breach
      of Warranty, Representation or Covenant.  Any breach
      of warranty or representation or covenant made by any Indemnitor under or
      pursuant to this Agreement; and

            


    

    


    
      	
               
      

            	
              4.5

            	
              General.  The
      enforcement of this Agreement or the assertion by any Indemnitor of any
      defense to the obligations of any Indemnitor hereunder, whether any of
      such matters arise before or after foreclosure of the Mortgage or other
      taking of title to or possession of all or any portion of the Property by
      the Bank or any other Indemnified Party, and specifically including
      therein, without limitation, the following:  (i) reasonable
      costs incurred for any of the matters set forth in Section 3 of this Agreement; and
      (ii) reasonable costs and expenses incurred in ascertaining the existence
      or extent of any asserted violation of any Environmental Legal
      Requirements relating to the Property and any remedial action taken on
      account thereof, including, without limitation, the costs, fees and
      expenses of engineers, geologists, chemists, other scientists, attorneys,
      surveyors, and other professionals, or testing and analyses performed in
      connection therewith.

            


    

    


    5.           Right to
Contest.  Any Indemnitor
may contest in good faith any claim, demand, levy or assessment under any
Environmental Legal Requirements, including, but not limited to, any claim with
respect to Hazardous Materials, by any person or entity if:

    


    
      	
               
      

            	
              5.1

            	
              Material
      Question In Good Faith.  The contest
      is based upon a material question of law or fact raised by such Indemnitor
      in good faith;

            


    

    


    
      	
               
      

            	
              5.2

            	
              Diligent
      Pursuit.  Such
      Indemnitor properly commences and thereafter diligently pursues the
      contest;

            


    

    


    
      	
               
      

            	
              5.3

            	
              No
      Impairment.  The contest
      will not materially impair the taking of any required remedial action with
      respect to such claim, demand, levy or
  assessment;

            


    

    


    
      	
               
      

            	
              5.4

            	
              Adequate
      Resources.  Such
      Indemnitor demonstrates to the Bank's reasonable satisfaction that such
      Indemnitor has the financial capability to undertake and pay for such
      contest and any remedial action then or thereafter
    necessary;

            


    


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    


    
      	
               
      

            	
              5.5

            	
              Resolve
      By Maturity.  There is no
      reason to believe that the contest will not be resolved prior to the
      maturity of the Loan; and

            


    

    


    
      	
               
      

            	
              5.6

            	
              No
      Event Of Default.  No Event of
      Default exists under the Loan
Documents.

            


    

    


    6.           Waivers.  Each Indemnitor
hereby waives and relinquishes to the fullest extent now or hereafter not
prohibited by applicable law:

    


    
      	
               
      

            	
              6.1

            	
              Suretyship
      Defenses.  All
      suretyship defenses, defenses based on impairment of collateral and
      defenses in the nature thereof;

            


    

    


    
      	
               
      

            	
              6.2

            	
              Marshalling.  Any right
      or claim of right to cause a marshalling of any Indemnitor's assets or of
      any Collateral or to cause the Bank to proceed against any of the
      Collateral for the Loan before proceeding under this Agreement against any
      Indemnitor;

            


    

    


    
      	
               
      

            	
              6.3

            	
              Notice.  Notice of
      the acceptance hereof, presentment, demand for payment, protest, notice of
      protest, or any and all notice of nonpayment, nonperformance,
      nonobservance or default or other proof or notice of demand whereby to
      charge any Indemnitor therefor;

            


    

    


    
      	
               
      

            	
              6.4

            	
              Jury
      Trial.    THE PARTIES ACKNOWLEDGE THAT BY
      AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT
      THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE AS TO WHICH BINDING
      ARBITRATION HAS BEEN
DEMANDED.

            


    

    


    EXCEPT AS PROHIBITED BY LAW, EACH
INDEMNITOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH INDEMNITOR CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF BANK HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER. EACH INDEMNITOR ACKNOWLEDGES AND STIPULATES THAT THE WAIVERS
GRANTED ABOVE ARE MADE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AND AFTER FULL
CONSULTATION WITH COUNSEL AND CONSTITUTE A MATERIAL INDUCEMENT FOR BANK TO
ACCEPT THE NOTE AND MAKE THE LOAN.

    

      
        
           


        

        
          9

          
            

          

        

        
           


        

      




    7.           Cumulative
Rights.  The Bank's rights
under this Agreement shall be in addition to and not in limitation of all of the
rights and remedies of the Bank under the other Loan Documents.  All
rights and remedies of the Bank shall be cumulative and may be exercised in such
manner and combination as the Bank may determine.

    


    8.           No
Impairment.  The liability of
each Indemnitor hereunder shall in no way be limited or impaired by, and each
Indemnitor hereby assents to and agrees to be bound by, any amendment or
modification of the provisions of the Loan Documents to or with the Bank by the
Borrower or any person who succeeds the Borrower as owner of the
Property.  In addition, the liability of each Indemnitor under this
Agreement shall in no way be limited or impaired by:

    


    
      	
               
      

            	
              8.1

            	
              Extensions.  Any
      extensions of time for performance required by any of the Loan
      Documents;

            


    

    


    
      	
               
      

            	
              8.2

            	
              Amendments.  Any
      amendment to or modification of any of the Loan
  Documents;

            


    

    


    
      	
               
      

            	
              8.3

            	
              Transfer.  Any sale or
      assignment of the Loan, or any sale, assignment or foreclosure of the Note
      or the Mortgage, or any sale or transfer of all or part of the
      Property;

            


    

    


    
      	
               
      

            	
              8.4

            	
              Exculpatory
      Language.  Any
      exculpatory, or nonrecourse, or limited recourse, provision in any of the
      Loan Documents limiting the Bank's recourse to the Property encumbered by
      the Mortgage or to any other property or limiting the Bank's rights to a
      deficiency judgment against the Indemnitors or any other
      party;

            


    

    


    
      	
               
      

            	
              8.5

            	
              Inaccuracies.  The
      accuracy or inaccuracy of any of the representations or warranties made by
      or on behalf of any Indemnitor under the Loan Documents or
      otherwise;

            


    

    


    
      	
               
      

            	
              8.6

            	
              Release.  The release
      of any Indemnitor, or of any other person or entity, from performance or
      observance of any of the agreements, covenants, terms or conditions
      contained in any of the Loan Documents by operation of law, the Bank's
      voluntary act, or otherwise;

            


    

    


    
      	
               
      

            	
              8.7

            	
              Bankruptcy
      or Reorganization.  The filing of any bankruptcy or
      reorganization proceeding by or against any Indemnitor, any general
      partner of any Indemnitor or any subsequent owner of the
      Property;

            


    

    


    
      	
               
      

            	
              8.8

            	
              Substitution.  The
      release or substitution in whole or in part of any collateral or security
      for the Loan;

            


    

    

      
        
           


        

        
          10

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              8.9

            	
              Failure
      to Perfect.  The Bank's failure to record the Mortgage or
      file any UCC financing statements (or the Bank's improper recording or
      filing of any thereof) or to otherwise perfect, protect, secure, or insure
      any security interest or lien given as security for the
    Loan;

            


    

    


    
      	
               
      

            	
              8.10

            	
              Release
      of Parties.  The release of any Indemnitor by anyone
      other than the Bank or by operation of law, or the release of any other
      party now or hereafter liable upon or in respect of this Agreement or the
      Loan; or

            


    

    


    
      	
               
      

            	
              8.11

            	
              Invalidity.  The
      invalidity or unenforceability of all or any portions of any of the Loan
      Documents as to any Indemnitor or to any other person or
      entity.

            


    

    


    Any of
the foregoing may be accomplished with or without notice to any Indemnitor or
with or without consideration.

    


    9.           Delay Not
Waiver.  No delay on the Bank's part in exercising any right,
power or privilege hereunder or under any of the Loan Documents shall operate as
a waiver of any such privilege, power or right.  No waiver by the Bank
in any instance shall constitute a waiver in any other instance.

    


    10.           Warranties
and Representations.  Each Indemnitor represents and warrants
to the Bank, the same to be true as of the date hereof and throughout the period
that any of the Loan Documents shall remain in force and effect, that except as
otherwise disclosed in the Environmental Reports to the Bank:

    


    
      	
               
      

            	
              10.1

            	
              Compliance
      with Environmental Requirements.  To
      the best of Indemnitor’s actual knowledge, the Indemnitors have been and
      are in compliance with and have no liability or obligation (other than
      continued compliance) arising under Environmental Legal
      Requirements;

            


    

    


    
      	
               
      

            	
              10.2

            	
              No
      Hazardous Materials at Property.  To the best of each
      Indemnitor's actual knowledge, other than in the ordinary course of its
      business and the business of its tenants and in material compliance with
      all Environmental Legal Requirements, no Hazardous Materials have been or
      are currently generated, stored, transported, utilized, disposed of,
      managed, released or located on, under or from the Property, whether or
      not in reportable quantities, or in any manner introduced onto the
      Property, including, without limitation, any septic, sewage or other waste
      disposal systems servicing the
Property;

            


    

    

      
        
           


        

        
          11

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              10.3

            	
              No
      Violations Claimed Re: Property or the Indemnitors.
      Except as set forth on Schedule 1, no Indemnitor has received any notice,
      request for information, demand letter, administrative inquiry, or
      complaint from the California Environmental Protection Agency, the United
      States Environmental Protection Agency or any other governmental authority
      claiming that (i) the Property or any use thereof violates any of the
      Environmental Legal Requirements or (ii) any Indemnitor or any of his, her
      or its respective employees, affiliates, or agents have violated any of
      the Environmental Legal Requirements with respect to the Property or any
      Surrounding Property;

            


    

    


    
      	
               
      

            	
              10.4

            	
              No
      Liability to Governmental Authorities.  To the best of
      each Indemnitor's knowledge, no Indemnitor has incurred any liability to
      the State of California, the government of any town in which the Property
      is located, the United States of America or any other governmental
      authority under any of the Environmental Legal Requirements, and no
      Indemnitor has entered into or been subject to any environmental consent
      decree, notice of violation, compliance order, or administrative order
      with respect to the Property;

            


    

    


    
      	
               
      

            	
              10.5

            	
              No
      Release of Hazardous Materials.  To the best
      of Indemnitor’s actual knowledge, there has been no release or threat
      of release of Hazardous Materials at the Property, except in compliance
      with all Environmental Legal
Requirements;

            


    

    


    
      	
               
      

            	
              10.6

            	
              No
      Lien on Property.  To the best of each Indemnitor's
      knowledge, no lien against the Property has arisen under or related to any
      of the Environmental Legal
Requirements;

            


    

    


    
      	
               
      

            	
              10.7

            	
              No
      Enforcement Actions.  To the best of each Indemnitor's
      knowledge, there are no Environmental Enforcement Actions pending, or to
      the best of each Indemnitor's information, knowledge and belief,
      threatened;

            


    

    


    
      	
               
      

            	
              10.8

            	
              No
      Knowledge of Hazardous Materials at Surrounding
      Property.  No Indemnitor has actual knowledge or belief
      that any Hazardous Materials have been or are currently generated, stored,
      transported, utilized, disposed of, managed, released or located on, under
      or from any Surrounding Property in violation of or allegedly in violation
      of any of the Environmental Legal
Requirements;

            


    

    


    
      	
               
      

            	
              10.9

            	
              No
      Knowledge of Violations Re Surrounding Property.  No
      Indemnitor has actual knowledge or belief of any action or order
      instituted or threatened by any person or governmental authority arising
      out of or in connection with the Environmental Legal Requirements
      involving the assessment, monitoring, cleanup, containment, remediation or
      removal of or damages caused or alleged to be caused by any Hazardous
      Materials generated, stored, transported, utilized, disposed of, managed,
      released or located on, under or from any Surrounding
      Property;

            


    

    

      
        
           


        

        
          12

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              10.10

            	
              No
      Underground Storage Tanks.  To the best of Indemnitor’s
      actual knowledge, there are no underground storage tanks on or under any
      Property, except any which have been disclosed in writing to the Bank
      before the date hereof;

            


    

    


    
      	
               
      

            	
              10.11

            	
              No
      Dangerous Conditions.  To the best of Indemnitor’s actual
      knowledge, no environmental condition exists on the Property which could
      cause any damage or injury to the Property, any Surrounding Property or to
      any person;

            


    

    


    
      	
               
      

            	
              10.12

            	
              Valid
      and Binding.  This Agreement constitutes the legal, valid
      and binding obligation of each Indemnitor in accordance with the
      respective terms hereof;

            


    

    


    
      	
               
      

            	
              10.13

            	
              No
      Violations.  The performance of the obligations evidenced
      hereby will not constitute a violation of any law, order, regulation,
      contract, organizational document or agreement to which any Indemnitor is
      a party or by which it or its property is or may be
  bound;

            


    

    


    
      	
               
      

            	
              10.14

            	
              No
      Litigation.  To the best of Indemnitor’s actual
      knowledge, there is no litigation or administrative proceeding now pending
      or threatened against any Indemnitor which if adversely decided could
      materially impair the ability of any Indemnitor to pay or perform his, her
      or its obligations hereunder;

            


    

    


    11.           Notices.  All
notices, demands, requests, and other communications given under this Agreement
shall be in writing and given as provided in the Mortgage, and addressed as
specified therein.

    


    12.           No Oral
Change.  No provision of this Agreement may be changed, waived,
discharged, or terminated orally by telephone or by any other means except by an
instrument in writing signed by the party against whom enforcement of the
change, waiver or discharge or termination is sought.

    


    13.           Parties
Bound; Benefit.  This Agreement shall be binding upon each
Indemnitor and its successors and assigns, and shall be for the benefit of the
Bank, and of any subsequent holder of the Loan and of any owner of a
participation interest therein. In the event the Loan is sold or transferred,
then the liability of the Indemnitors to the Bank shall then be in favor of both
the Bank originally named herein and each subsequent holder of the Loan and of
any interest therein.

    


    14.           Partial
Invalidity.  Each of the provisions hereof shall be enforceable
against each Indemnitor to the fullest extent now or hereafter permitted by
law.  If the Indemnitor consists of one or more parties, all of the
obligations, covenants and warranties of the Indemnitor contained in this
Agreement shall be the joint and several obligations of the parties constituting
the "Indemnitor".  The invalidity or unenforceability of any provision
hereof shall not limit the validity or enforceability of each other provision
hereof.

    

      
        
           


        

        
          13

          
            

          

        

        
           


        

      




    15.           Governing
Law and Consent to Jurisdiction.  This Agreement and the rights
and obligations of the parties hereunder shall in all respects be governed by
and construed and enforced in accordance with the laws of the State of
California without giving effect to California principles of conflicts of
law.  The parties further agree that the Bank may enforce its rights
under this Agreement and the other Loan Documents, including, but not limited
to, the rights to sue any or all Indemnitors, in accordance with applicable
law.  Each Indemnitor hereby irrevocably submits to the nonexclusive
jurisdiction of any California state or any federal Court sitting in California
over any suit, action or proceeding arising out of or relating to this Agreement
and each Indemnitor hereby agrees and consents that in addition to any methods
of service of process provided for under applicable law, all service of process
in any such suit, action or proceeding in any California state or federal court
sitting in California may be made by certified or registered mail, return
receipt requested, directed to such Indemnitor at the address referred to in
Section 11 above
and service so made shall be completed five (5) days after the same shall have
been so mailed.

    


    16.           Survival.  The
provisions of this Agreement shall continue in effect and shall survive (among
other events) any payment and satisfaction of the Loan and the Obligations, any
termination or discharge of the Mortgage, foreclosure, a deed-in-lieu
transaction, or release of any Collateral.

    


    17.           Right of
the Indemnitor to Terminate this Agreement.  The liability of
each Indemnitor shall automatically terminate hereunder upon fulfillment of each
of the following conditions to the reasonable satisfaction of the
Bank:

    


    
      	
               
      

            	
              (i)

            	
              The
      Bank shall have received Non-Contestable Payment in full of all
      Obligations, including but not limited to repayment in full of the Loan.
      The term "Non-Contestable" shall
      mean the receipt of payment of the Loan or other satisfaction of
      Obligations and the expiration of all periods of time within which a claim
      for the recovery of a preferential payment, or fraudulent conveyance, or
      fraudulent transfer, in respect of payments received by the Bank as to the
      Obligations could be filed or asserted with (A) no such claim having been
      filed or asserted, or (B) if so filed or asserted, the final,
      non-appealable decision of court of competent jurisdiction denying the
      claim or assertion.

            


    

    


    
      	
               
      

            	
              (ii)

            	
              No
      Environmental Enforcement Action shall be pending or threatened in writing
      with respect to the Property.

            


    

    


    
      	
               
      

            	
              (iii)

            	
              The
      Loan has been repaid without the Bank or any affiliate thereof ever having
      taken actual or constructive possession of the Property through
      either:  (A) the appointment of a receiver, or (B) any other
      exercise of the Bank's rights and remedies following an Event of Default
      under any of the Loan Documents.

            


    

    

      
        
           


        

        
          14

          
            

          

        

        
           


        

      




    
      	
               
      

            	
              (iv)

            	
              At
      least thirteen (13) months have passed since the date the principal,
      interest and fees due the Bank in respect of the Loans was paid (without
      regard to the passage of time required to establish Non-Contestable
      Payment) and no claim has been asserted for which any indemnification is
      provided for in this Agreement.

            


    

     

    18.           Counterparts.  This
Agreement may be executed and delivered in any number of counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute
but one and the same agreement.  Delivery of an executed signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually signed counterpart of this Agreement.

     

    19.           Arbitration. Upon
demand of any party hereto, whether made before or after institution of any
judicial proceeding, any claim or controversy arising out of or relating to the
Loan Documents between parties hereto (a “Dispute”) shall be resolved by binding
arbitration conducted under and governed by the Commercial Financial Disputes
Arbitration Rules (the “Arbitration Rules”) of the American Arbitration
Association (the “AAA”) and the Federal Arbitration Act.  Disputes may
include, without limitation, tort claims, counterclaims, a dispute as to whether
a matter is subject to arbitration, or claims arising from documents executed in
the future, but shall specifically exclude claims brought as or converted to
class actions.  A judgment upon the award may be entered in any court
having jurisdiction.  All arbitration hearings shall be conducted in
the city named in the address of Bank first stated above.  A hearing
shall begin within 90 days of demand for arbitration and all hearings shall
conclude within 120 days of demand for arbitration.  These time
limitations may not be extended unless a party shows cause for extension and
then for no more than a total of 60 days.  The expedited procedures
set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than
$1,000,000.00.  Arbitrators shall be licensed attorneys selected from
the Commercial Financial Dispute Arbitration Panel of the AAA.  The
parties do not waive applicable Federal or state substantive law except as
provided herein.  Notwithstanding the preceding binding arbitration
provisions, the parties agree to preserve, without diminution, certain remedies
that any party may exercise before or after an arbitration proceeding is
brought.  The parties shall have the right to proceed in any court of
proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment.  Any claim or controversy with
regard to any party’s entitlement to such remedies is a Dispute.

    



    
      
         


      

      
        15

        
          

        

      

      
         


      

    


    


    Witness
the execution and delivery hereof as of the 21st day of
May, 2008.

    


    WITNESSES:                                         INDEMNITOR

                                 


                                           SONOMAWEST HOLDINGS,
INC.,

                                                a Delaware
corporation

                   


                                                By  /s/ Walker R.
Stapleton    

                                                      Walker
R. Stapleton

                                                  Its: Chief Executive
Officer

    



    
      
         


      

      
        16

        
          

        

      

      
         


      

    

    SCHEDULE
1

     

    


     

    Phase I
Environmental Site Assessment Update dated August 22, 2005, by Western GeoLogic,
LLC