Environmental Indemnity Agreement

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. a7 9601 et seq .), the Hazardous Materials Transportation Act (49 U.S.C. a7 1801 et seq .), the Public Health Service Act (42 U.S.C. a7 300(f) et seq .), the Pollution Prevention Act (42 U.S.C. a7 13101 et seq .), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. a7 136 et seq .), the Resource Conservation and Recovery Act (42 U.S.C. a7 6901 et seq. ), the Federal Clean Water Act (33 U.S.C. a7 1251 et seq .), the Federal Clean Air Act (42 U.S.C. a7 7401 et seq .) and the applicable laws of the State of California.






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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.






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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.





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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.





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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 res ...