<PAGE>



                                  EXHIBIT 10.4

                                   SONOMAWEST
                                  HOLDINGS INC

                         NOTICE OF GRANT OF STOCK OPTION

         Notice  is  hereby  given of the  following  stock  option  grant  (the
"Option") to purchase shares (the "Option Shares") of Common Stock of SonomaWest
Holdings, Inc., a California corporation (the "Corporation"):

<TABLE>
<CAPTION>
<S>                                         <C>                                   <C>
         Option Number:                     2002-1

         Optionee:                          Roger S. Mertz

         Grant Date:                        07/31/02

         Number of Option Shares:           7,500

         Date Exercisable:                  Immediately Exercisable

         Expiration Date:                   07/30/12

         Exercise Price:                    $7.20 per share

         Type of Option:                    [  ] Incentive Stock Option         [ x ] Non-Statutory Stock Option

         Vesting Schedule: This option may be  exercised  in whole or in part,  in  accordance  with the  following
         vesting schedule:

                  DATE OF VESTING                      NUMBER OF SHARES                      TOTAL VESTED
                  ---------------                      ----------------                      ------------
                      07/31/02                              7,500                               7,500

</TABLE>
         In no event  shall the Option  become  exercisable  for any  additional
Option Shares after Optionee's cessation of Service.

         The Optionee  understands and agrees that the Option is granted subject
to and in accordance with the terms of the SonomaWest Holdings,  Inc. 2002 Stock
Incentive  Plan (the  "Plan").  The Optionee  further  agrees to be bound by the
terms of the Plan and the terms of the  Option as set forth in the Stock  Option
Agreement attached hereto as Exhibit A (the "Stock Option Agreement").  Optionee
hereby acknowledges receipt of a copy of the official prospectus for the Plan in
the form  attached  hereto as  Exhibit B. A copy of the Plan is  available  upon
request made to the Corporate Secretary at the Corporation's principal offices.

         NO  EMPLOYMENT  OR SERVICE  CONTRACT.  Nothing in this Notice or in the
attached  Stock  Option  Agreement or in the Plan shall confer upon the Optionee
any right to  continue  in  Service  for any  period  of  specific  duration  or
interfere  with or otherwise  restrict in any way the rights of the  Corporation
(or any Parent or  Subsidiary  employing  or retaining  the  Optionee) or of the
Optionee,  which  rights are hereby  expressly  reserved by each,  to  terminate
Optionee's Service at any time for any reason whatsoever, with or without cause.


<PAGE>

         DEFINITIONS.  All  capitalized  terms  in this  Notice  shall  have the
meanings  assigned  to them in  this  Notice  or in the  attached  Stock  Option
Agreement.


     Dated:  July 31, 2002

SONOMAWEST HOLDINGS, INC.,
a California corporation

By:
   --------------------------------
      Roger S. Mertz
      Chairman of the Board
                                    Name:    Roger S. Mertz
                                    Address: 333 Bush Street, Suite 1700, San
                                             Francisco, CA 95472-2662

ATTACHMENTS

EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS

                                       2
<PAGE>