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1 Lisa C. McCurdy (SBN 228755)
Joy Chen (SBN 316842)
2 GREENBERG TRAURIG, LLP
1840 Century Park East, Suite 1900
3 Los Angeles, California 90067-2121
Telephone: (310) 586-7700
4 Facsimile: (310) 586-7800
mccurdyl@gtlaw.com
5 chenjoy@gtlaw.com
6 Attorneys for Plaintiff SEAN DUGGAN,
individually and derivatively on behalf of
7 the Duggan Family Limited Partnership
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9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SONOMA
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SEAN DUGGAN, an individual, on his CASE NO. SCV-268905
12 own behalf and derivatively on behalf of
the Duggan Family Limited Partnership; Assigned for all purposes to Hon. Bradford
13 DeMeo, Dept. 17
Plaintiff,
14 DECLARATION OF SEAN DUGGAN IN
v. SUPPORT OF EX PARTE APPLICATION
15 FOR (I) APPOINTMENT OF RECEIVER;
LYNN DUGGAN, an individual; and DOES 1 (II) ORDER TO SHOW CAUSE RE
16 through 25, inclusive, PRELIMINARY INJUNCTION AND
CONFIRMATION OF RECEIVER; AND
17 Defendants, (III) TEMPORARY RESTRAINING ORDER
18 -and-
19 THE DUGGAN FAMILY LIMITED Date: June 21, 2022
PARTNERSHIP, a California Limited Time: 10:30 a.m. review
20 Partnership, KELLY MOFFAT, an individual, Dept: 17
21 Nominal Defendants. Action filed: July 27, 2021
Trial date: May 12, 2023
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
1 DECLARATION OF SEAN DUGGAN
2 I, Sean Duggan, declare as follows:
3 1. I am a Limited Partner in the Duggan Family Limited Partnership (the “Partnership”). I
4 have personal knowledge of the facts set forth herein, and could and would competently testify thereto if
5 called upon to do so.
6 2. I also am a General Partner in the Partnership by virtue of Lynn Duggan’s default.
7 3. I have spent my career working in accounting and international corporate tax in firms
8 such as Pricewaterhouse Coopers, KPMG, and Ernst & Young. Mostly recently, I was an international
9 tax partner at Squar Milner (now BakerTilly) in Newport Beach, California.
10 4. The Duggan Family Limited Partnership was formed in November 1997 via the
11 Agreement of Limited Partnership. A true and correct copy of the Agreement of Limited Partnership is
12 attached hereto as Exhibit A.
13 5. After the original co-General Partners passed away, my father, Lynn Duggan (“Lynn”)
14 became General Partner, and the Limited Partners then were equally Lynn, my sister Kelly Moffat, and
15 myself (the “Partners”).
16 6. In February 2014, the Partners entered into the First Amendment to the Agreement (the
17 “Amendment”). The purpose of the Amendment was to allow Lynn to secure a loan from the
18 Partnership. The Partners agreed, on specific terms, to approve the Partnership’s borrowing a $510,000
19 loan (the “Bank Loan”) from First Community Bank (now Poppy Bank), which was secured by the
20 Partnership Property, the Summerfield Shopping Center, located at 530, 535, 551, 554, 567, 569, 573,
21 and 585 Summerfield Road, Santa Rosa, California (the “Partnership Property”). The Partnership would
22 obtain the Bank Loan, and in turn, loan a principal amount of $510,000 to Lynn (the “G.P. Loan”), also
23 on specific terms. A true and correct copy of the Amendment is attached hereto as Exhibit B.
24 7. In March 2020, as a result of the COVID-19 pandemic, Lynn informed Kelly and me that
25 distributions to the Partners would (supposedly) be halted. On March 31, 2020, I asked Lynn whether
26 he was continuing to pay the G.P. Loan from his Limited Partner distributions, to which Lynn responded
27 that $2,000 of the amount owed was coming from his management fee, and the remaining $921.38 was
28 coming from his “own funds.” Upon further inquiry, Lynn explained that the loan payments, since
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
1 April 2014, have been coming from his “monthly management fee of $2,000 ([his] sole funds separate
2 from partnership distributions) and $921.38 from [his] monthly partner’s distribution.” A true and
3 correct copy of this email exchange is attached hereto as Exhibit C.
4 8. On January 8, 2021, I was notified that Lynn and Kelly entered into an agreement
5 wherein Lynn purported to sell 1% of his General Partner interest to Kelly, for $125,000 payable in cash
6 (the “January 2021 PSA”). On January 15, 2021, I objected by sending a written Notice of Default to
7 Lynn and Kelly on the grounds that the January 2021 PSA was not permitted by the Amendment. A true
8 and correct copy of this email exchange is attached hereto as Exhibit D.
9 9. In a January 21, 2021 response, Lynn’s counsel told me that no monetary default had
10 occurred, and I should not worry because (1) Lynn was making his monthly payments “by automatic
11 electronic transfer right of the top from gross receipts,” (2) “[m]onthly rentals, in even these worst of
12 times, have been in the $25,000 to $35,000 range and Lynn’s share of net rental income will always pay
13 the monthly payment on the GP Loan,” and (3) “Lynn possesses no ability (or inclination) to prevent
14 monthly payments from being made like clockwork.” A true and correct copy of this correspondence is
15 attached hereto Exhibit E.
16 10. I have received only three distributions from the Partnership, since December 2020 to
17 present.
18 11. Although counsel for Lynn Duggan informed me that the January 2021 PSA was
19 rescinded, I was later informed that Lynn and Kelly had done virtually the same deal by way of a May
20 2021 PSA. I again noticed a default, which never was cured. Further, Lynn and Moffat entered into the
21 PSA knowing that the GP points were collateral for the loan, as evidenced by the email chain
22 negotiating the implementation of the GP Loan on December 11, 2013 – December 12, 2013 between
23 Sean, Kelly, Lynn and James Frassetto (GP counsel), subject: “Partnership Issues – Atty fees,
24 collateral.” Therefore, they knew the GP was collateral for the loan and still pursued the PSA. In this
25 exchange, I insisted on the GP points as collateral, my sister argued for GP points as collateral and
26 James Frassetto discussed Lynn was open to GP points as collateral. A true and correct copy of this
27 correspondence is attached hereto as Exhibit F.
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
1 12. In April 2021, Lynn’s counsel took the position that the COVID-19 pandemic had
2 resulted in a “decrease (virtual elimination) of net income to distribute.” However, at this time, the
3 Partnership’s financial records reflected it did have net income.
4 13. On August 20, 2021, Lynn informed Kelly and me that that he was making a distribution
5 of $80,000, divided as follows: $27,466.66 to Lynn, $26,666.67 to Kelly, and $25,866.67 to me. A true
6 and correct copy of Lynn’s email is attached hereto as Exhibit G.
7 14. In March 2022, the same distribution methodology was used: $27,466.66 to Lynn,
8 $26,666.67 to Kelly, and $25,866.67 to me.
9 15. Even prior to the COVID-19 pandemic, Lynn made another improper distribution as
10 follows: $18,095 to Lynn, $16,599 to Kelly, and $16,599 to me, a total of $51,293.
11 16. Prior to the pandemic, there were monthly distributions and quarterly distributions for
12 estimated tax purposes. These have been terminated and distributions now appear to be made at
13 random.
14 17. I recently received the Partnership tax return and my own K-1 return for the Partnership.
15 In reviewing each, the numbers reflected cannot be reconciled without an accounting. From the limited
16 information provided to me, however, and based on what I know are amounts properly distributable to
17 the GP (both as Partnership distributions and management fees), amounts improperly distributed to the
18 GP based on an incorrect 3% allocation (thereby reducing payments owed to the limited partners) will
19 total well into the hundreds of thousands of dollars as it is now apparent this has occurred since Lynn
20 became the GP.
21 18. I have seen Partnership check numbers 1435 and 1477 from January and March of 2021
22 for $15,000 and $65,000 drawn to Miller Starr.
23 19. In addition, the Partnership Property has been placed on the market at various points in
24 the past unsuccessfully. In the last year, it was listed at $13 million. However, I recently discovered
25 through my own diligence that the listing price for the Property has been reduced to $10.5 million. I
26 have not been consulted regarding plans for the Property or even notified regarding subsequent listing
27 price reductions. Based on past history and the fact that I was forced to file this litigation to protect the
28 Partnership and its limited partners, I am exigently concerned that the GP will sell the Partnership assets
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
1 and Property at below market value based on his desire to obtain cash and in the hopes of ending and
2 obtaining an advantage in the litigation.
3 20. Attached hereto as Exhibit H is a true and correct copy of an email from Lynn Duggan to
4 me and others, which forwarded to me a February 18, 2010 correspondence from the then-tenant of the
5 theater space, Ky Boyd of Sonoma Motion Picture Company, to Lynn Duggan, in response to
6 correspondence from Mr. Wasem as President of Selway. In this correspondence, Mr. Boyd expresses
7 concern about Mr. Wasem’s conflict of interest in negotiating Boyd’s possible extension of the Sonoma
8 Motion Picture Company lease because of Mr. Wasem’s other business interests in the theater industry
9 (in direct competition with Mr. Boyd and his business. Mr. Boyd states that Mr. Wasem “has a vested
10 interest in the success of our primary competitor” at the Property. Mr. Boyd requests that his lease
11 negotiations take place directly with the Partnership, and that Selway “specifically not be involved.”
12 21. Attached hereto as Exhibit I is a true and correct copy of an email from Larry Wasem to
13 me and others, attaching the October 14, 2009 Lease, entered into between the Partnership as owner, and
14 inter alia, Larry Wasem, as tenant, which lease was set to commence by its terms on September 1, 2010,
15 following the expiration of Mr. Boyd’s lease (but negotiated the year prior). I also was active in
16 negotiating this lease with Mr. Wasem.
17 22. Attached hereto as Exhibit J is a true and correct copy of a news article from March
18 2010, which chronicles these issues, the conflict of interest, and Mr. Boyd’s loss of the lease.
19 23. Attached hereto as Exhibit K is a true and correct copy of a July 21, 2021 email from my
20 father, sharing that Summerfield Cinemas received shuttered venue federal assistance.
21 24. I believe that without a receiver who can oversee management of the Property and ensure
22 proper administration, accountings and distributions related to the Partnership, harm will continue to the
23 Partnership and its partners. The receiver will be beneficial as the automatic transfer of the GP points
24 upon default were contemplated in the First Amendment to avoid legal disputes and should result in
25 Kelly and myself being co-equal GP which should have occurred upon failure to cure numerous
26 defaults. If this property is sold prior to curing the GP point dispute, numerous sacrifices made by
27 generations of the Duggan family, going back to my great-grandparents, cannot be cured. The land will
28 simply be gone. There is quite literally no risk of harm to the Partnership in taking this action; to the
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
1 contrary, the Partnership can only benefit and, thus, there can be no legitimate opposition to the request
2 for installation of a professional receiver.
3 25. Attached hereto as Exhibit L is a true and correct copy of redacted relevant excerpts
4 from the 2011 K-1 tax return for the Partnership, demonstrating that the incorrect distribution
5 calculations have been going on since at least that time.
6 I declare under penalty of perjury that the foregoing is true and correct, and that this declaration
7 was executed on June 21, 2022, in Newport Beach, California.
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10 Sean Duggan
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DECLARATION OF SEAN DUGGAN
ACTIVE 65621463v1
EXHIBIT A
EXHIBIT B
FIRST AMENDMENT TO THE AGREEMENT OF
LIMITED PARTNERSHIP OF THE
DUGGAN FAMILY LIMITED PARTNERSHIP
This FIRST AMENDMENT TO THE AGREEMENT OF LIMITED
PARTNERSHIP OF THE DUGGAN FAMILY LIMITED PARTNERSHIP (the “Agreement”)
is made as of this _____ day of February 2014 (the “Effective Date”), by and among LYNN
DUGGAN (the “General Partner”) and SEAN P. DUGGAN and KELLY A. MOFFAT (together
the “Limited Partners”). The General Partner and the Limited Partners are referred to herein
collectively as the “Partners”.
RECITALS
This Amendment is made with reference to the following facts:
A. Joseph Duggan and Barbara Duggan , as co-trustees of the Duggan Family
Living Trust (the “Original Co-General Partners”), the General Partner and the Limited Partners
formed a limited partnership (“the Partnership”) pursuant to the terms of that certain Agreement
of Limited Partnership dated November 1997 (the “Agreement”) to own that certain real
property commonly known as the Summerfield Shopping Center located at 530, 535, 551, 554,
567, 569, 573, 575 and 585 Summerfield Road, Santa Rosa, California (the “Partnership
Property”).
B. The Original Co-General Partners have passed away and all the current
Partners and their respective ownership interests in the Partnership are as follows:
General Partner
Lynn Duggan 3.0%
Limited Partners
Lynn Duggan 32.333334%
Sean P. Duggan 32.333333%
Kelly A. Moffat 32.333333%
C. The Partners wish to amend the Agreement to provide, among other
things, for (i) the approval of a $510,000 mortgage (the “Bank Loan”) in favor of First
Community Bank (the “Bank”) to be secured by the Partnership Property, (ii) a loan by the
Partnership to the General Partner of the net proceeds of the loan (the “G.P. Loan”); and (iii), in
the case of a default under the G.P. Loan, the forfeiture of the General Partner’s interest in the
Partnership as a general partner (the “General Partnership Interest:”) and a portion of his interest
held as a limited partner (his “Limited Partnership Interest”).
DGGN\51550\925467.3
ACCORDINGLY, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Partners hereby agree to amend the Agreement
in the manner set forth in this Amendment.
1. Approval of Bank Loan. The Partners hereby approve the terms of the Bank Loan
as more particularly described in Exhibit “A” attached hereto. Without limiting the generality of
the foregoing, the Limited Partners, and each of them, herein acknowledge and represent that
they have read and approved the terms and the documents evidencing the Bank Loan. The
Partners hereby authorize the General Partner to execute and deliver any and all promissory
notes, business loan agreements, deeds of trust, hazardous insurance disclosures, partnership
authorizations, hazardous substances certificate and indemnity agreement, disbursement request
and authorization and other documents, instruments and instructions that are necessary or proper
for the closing of the Bank Loan.
2. G.P. Loan. The Partners hereby authorize the Partnership to enter into the G.P.
Loan on the terms and conditions set forth in this Paragraph 2. The original principal amount of
the G.P. Loan shall be $510,000, which shall constitute the sum of (a) the net proceeds of the
Bank Loan (all of which shall be distributed to the General Partner upon closing the Bank Loan)
and (b) reimbursement by the General Partner to the Partnership of all costs incurred by the
Partnership in obtaining the Bank Loan that are included in the original principal balance of the
Bank Loan.
2.1 Note. The G.P. Loan shall be evidenced by a Promissory Note in the form
and substance set forth in Exhibit B (the “Note”). The Note shall not constitute a negotiable
instrument.
2.2 Defaults.
2.2.1 General Partnership Interest. In the event of a material default
under the Note or this Amendment which is not cured within fifteen (15) days of written notice
by the Limited Partner to the General Partner, (i) the General Partner shall forfeit his General
Partnership interest, and such General Partnership interest (including, without limitation, the
economic interest and the management interest represented by such General Partnership Interest)
shall be reallocated to one or more of the Limited Partners as the Limited Partners may agree, or,
if the Limited Partners are unable to agree, then to each of the Limited Partners equally, (ii) each
of the Limited Partners receiving the General Partnership Interest shall have all the rights and
duties of a “General Partner” under the Agreement and (iii) all rights of the General Partner as a
“General Partner” under the Agreement shall cease, provided that the General Partner shall
remain liable in accordance with the terms of the Agreement for all matters occurring prior to
such reallocation.
2.2.2 Limited Partnership Interest. In addition, in the event of a material
default under the Note or this Amendment which is not cured within fifteen (15) days of written
notice from the Limited Partner to the General Partner, the General Partner shall forfeit a portion
of his Limited Partnership interest as follows: a portion of the General Partner’s Limited
Partnership interest equal to the relationship of (x) the amount required to repay the Bank Loan
in full (including, without limitation, all fees, interest, expenses, prepayment penalties or other
DGGN\51550\925467.3 2
penalties) (the “Repayment Amount”) minus $193,979.97, which is the amount agreed upon by
the General Partner and the Limited Partners as the current value of the General Partner’s
General Partnership Interest forfeited pursuant to Section 2.2.1, to (y) $2,284,653, which is the
amount agreed upon by the General Partner and the Limited Partners as the current value of the
General Partner’s Limited Partnership Interest. Thus, if the Repayment Amount is $440,000,
then 10.77% of the General Partner’s interest as a limited partner (equal to 3.48% of the total
economic interest of all partners in the Partnership) is subject to such sale or repossession and the
remaining 89.33% of the General Partner’s Limited Partnership interest (equal to 28.85% of the
total economic interest of all partners in the Partnership) shall be held by the General Partner free
and clear of the forfeiture provisions of this Amendment. The forfeited Limited Partnership
interest shall be reallocated equally to the Limited Partners.
2.2.3 When No Notice is Required. Notwithstanding the terms of
Paragraphs 2.2.1 and 2.2.2, above, the forfeiture described in Paragraphs 2.2.1 and 2.2.2, above,
shall be automatically and without further action by the General Partner or any Limited Partner if
(i) the General Partner remains in the capacity as the general partner of the Partnership on the
date of a material default under the Note in this Agreement, and (ii) the General Partner has
failed to provide the notice to the Limited Partners required by the terms of Paragraph 2.4,
below.
2.2.4 No Further Liability. Upon the occurrence of the forfeitures set
forth in Paragraphs 2.2.1 and 2.2.2, above, the General Partner shall have no further obligations
under the G.P. Loan.
2.3 No Escrow. The Partners agree that there shall be no escrow for the
G.P. Loan. The General Partner shall be entitled to cause the net proceeds to be disbursed
directly to the General Partner. Prior to such time, the General Partner shall execute the Note.
The originals of the Note shall be maintained by the Partnership with its other books and records.
Prior to the closing of the Bank Loan, the General Partner shall supply copies of the fully
executed Note to the Limited Partners.
2.4 Notice of Default. The General Partner will immediately notify the
Limited Partners of any default under the Bank Loan or the G.P. Loan. The General Partner, on
behalf of the Partnership, will make a written request to the Bank to provide notice to the
Limited Partners of any default under the Bank Loan in the form attached hereto as Exhibit “C”,
which request will not be revoked, rescinded or modified without the consent of the Limited
Partners. The General Partner acknowledges and consents to the filing by the Limited Partners
of a request for notice of foreclosure for the Partnership Property pursuant to California Civil
Code Section 2924b with the Sonoma County recorder’s office.
2.5 Special Rules Until Retirement of G.P. Loan. Until the G.P. Loan is paid
off and retired in full, the following special rules shall apply.
2.5.1 Automatic Electronic Payment. The General Partner shall
authorize the Partnership’s property manager and/or accountant to provide for the automatic
debit of monies otherwise distributed to the General Partner on account of his limited partner
interest for payment to the Bank of the monthly principal and interest payments on the Bank
DGGN\51550\925467.3 3
Loan. The General Partner shall provide written instructions to the Partnership’s property
manager and/or accountant, as appropriate, in the form attached hereto as Exhibit “D” that the
instruction to so debit the General Partner draw shall not be revoked, rescinded or modified
without notice to and approval of the Limited Partners. Payments made on the Bank Loan in
the manner described in this Paragraph 2.5.1 shall reduce the General Partner’s obligations
under the Note.
2.5.2 Refinance Prior to Maturity Date of Bank Loan. In the event
that the Partnership should elect to refinance the Partnership Property prior to the maturity
date of the Bank Loan, the Partners shall agree that cash otherwise distributed to the General
Partner on account of his general and limited partner interests shall reduce the then existing
unpaid principal balance of the G.P. Loan.
2.5.3 No Amendment of Loan Documents. The General Partner shall
not amend the terms of the Bank Loan or the G.P. Loan without the consent of the Limited
Partners.
2.5.4 No Loans or Guaranties. Notwithstanding anything to the
contrary contained in the Agreement, the General Partner shall not(a) permit the Partnership
to make any loans directly or indirectly for the benefit of the General Partner, or (b) guaranty
any obligations of any party for such purposes, or (c) refinance the Bank Loan with a
replacement loan in substantially the unpaid principal balance of the Bank Loan or (d) to
refinance the Partnership Property for the purpose of or that results in the distribution of loan
proceeds to the Partners. Nothing in this Paragraph 2.5.4 shall prevent the General Partner
from refinancing the Partnership Property for a Partnership purpose.
2.6 Use of Proceeds. Immediately upon disbursement of the G.P. Loan, the
General Partner will use a portion of the proceeds of the G.P. Loan to repay in full that certain
loan from Kelly Moffat to the General Partner (currently outstanding balance of approximately
$80,000) and that certain mortgage loan from Chase Bank with respect to certain property owned
by Sean Duggan (currently outstanding balance of approximately $60,745.85).
3. Management Fee. The management fees payable by the Partnership to the
General Partner shall not exceed $2,000.00 per month for the period from the Effective Date
until the fifth anniversary of the Effective Date, and shall not exceed $2,250.00 per month
thereafter.
4. Representation. The Partners acknowledge that the General Partner was
represented by the law firm of Miller Starr Regalia (James Frassetto) with respect to the Bank
Loan and the G.P. Loan and in the negotiation and preparation of this Amendment and that the
Limited Partners were represented by the law firm of Farella Braun & Martel LLP (Jonathan H.
Lemberg) with respect to the Bank Loan and the G.P. Loan and in the negotiation and
preparation of this Amendment.
5. Interpretation of Recitals and Exhibits. The Partners agree that the Recitals to this
Amendment and Exhibits A, A-1, B, C and D to this Amendment are hereby incorporated into
this Amendment and constitute a material part hereof.
DGGN\51550\925467.3 4
EXHIBIT A
Lender: First Community Bank
Loan Amount: $510,000
Loan Terms: See Promissory Note attached hereto and incorporated herein
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EXHIBIT A-1
First Community Bank Promissory Note
[See Next 4 Pages]
DGGN\51550\925467.3
EXHIBIT B
Form of G. P. Loan Promissory Note
[See Next 4 Pages]
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EXHIBIT B
PROMISSORY NOTE
Principal: $510,000.00
Loan Date: February __, 2014
Maturity: February __, 2024
Borrower: Lynn Duggan
Lender: The Duggan Family Limited Partnership
414 Aviation Blvd.
Santa Rosa, CA 95403
Principal Amount: $510,000.00 Date of Note: February __ 2014
PROMISE TO PAY. Lynn Duggan ("Borrower") promises to pay to The Duggan Family Limited Partnership
("Lender"), in lawful money of the United States of America, the principal amount of Five Hundred Ten
Thousand & 00/100 Dollars ($510,000.00), together with interest on the unpaid principal balance from
February __, 2014, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in
accordance: with the following payment schedule, which calculates interest on the unpaid principal balances as
.described in the "INTEREST CALCULATION METHOD" paragraph using the interest rates described in this
paragraph: 84 monthly consecutive principal and interest payments in the Initial amount of $2,921.38 each,
beginning April 1, 2014, with interest calculated on the unpaid principal balances using an interest rate Of
5.250%; 35 monthly consecutive principal and interest payments in the initialamount of "$2,921.38
each,::beginning April 1, 2021, with interest calculated on the unpaid principal balances using an interest rate
based on the then monthly average Of weekly average yields on United States Treasury Securities adjusted to a
constant maturity of five (5) years, as published by the Federal Reserve Bank in its Statistical Release H-15
"Selected Interest Rates" (currently 1.650%), plus a margin of 4.000 percentage points, adjusted if necessary for
the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 5.650%; and one
principal and interest payment of $421,260.49 on March 1, 2024, with interest calculated on the unpaid principal
balances using an interest rate based on the then monthly average of weekly average yields on United States
Treasury Securities adjusted to a constant maturity of five (5) years, as published by the Federal Reserve Bank in
its Statistical Release H-15 "Selected Interest Rates" (currently 1.650%), plus a margin of 4.000 percentage
points, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial
interest rate of 5.650%. This estimated final payment is based on the assumption that all payments will be made
exactly as scheduled, and that the Index does not change; the actual final payment will be for all principal and
accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed
or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal;
then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on
changes in an independent index which is the then monthly average of weekly average yields on United States Treasury
Securities adjusted to a constant maturity of five (5) years, as published by the Federal Reserve Bank in its Statistical
Release H-15 "Selected Interest Rates" (the "Index"). The Index is not necessarily the lowest rate charged by Lender on
its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after
notifying Borrower. Lender will: tell Borrower the current Index rate upon Borrower's request. The interest rate change
will not occur more often than each five years, based upon the monthly average of weakly average yields on United
States Treasury Securities adjusted to a constant maturity of five (5) years, with the first interest rate change occurring
eighty-three months from the first payment due date. Borrower understands that Lender may make loans based on other
rates as well. The Index currently is 1.650% per annum. The interest rate or rates to be applied to the unpaid principal
balance during this Note will be the rate or rates set forth herein in the "Payment" section. Notwithstanding any other
DGGN\51550\926775.2
provision of this Note, after the first payment stream, the interest rate for each subsequent payment stream will be
effective as of the due date of the last payment in the just-ending payment stream.
NOTICE: Under no circumstances
will the interest rate on this Note be less than 5.250% per annum or more than the maximum rate allowed by applicable
law. Whenever increases occur in the interest rate, Lender, at its option,: may do one or more of the following: (A)
increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date,: (B) increase
Borrower's payments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue
Borrower's payments at the same amount and increase Borrower's final payment.
INTEREST CALCULATION METHOD. Interest on this Note is computed on a 30/360 simple interest basis; that
is, with the exception of odd days before the first full payment cycle, monthly interest is calculated by applying the
ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by a
month of 30 days. Interest for the odd days before the first full month is calculated on the basis of the actual days
and a 360-day year. All interest payable under this Note is computed using this method.
PREPAYMENT FEE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the
date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Upon prepayment of this Note, Lender is entitled to the following prepayment fee:
Should Borrower prepay, in part or in full, the principal balance due on this Note at any time during the loan
term, Borrower shall pay to Lender a premium as follows: 1st loan year 5%; 2nd loan year 4%; 3rd loan year
3%; 4th loan year 2%; 5th loan year 1%. "Loan Year" as used herein shall mean the twelve month period
commencing on the date of the Note and on each anniversary of the date of the Note.
The prepayment premium will not be enforced during the last two (2) months of year five period. For purposes of
this provision, reference to the amounts prepaid shall mean the total amount of principal paid by or on behalf of
Borrower, net of any regularly scheduled principal payments due under this Note.
In exception to the prepayment premium, the prepayment premium will not be enforced on payments up to 20%
each calendar year unless payment will paid loan in full.
Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in
Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without
recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's
rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written
communications concerning disputed amounts, including any check or other payment instrument that indicates
that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or delivered to: The Duggan Family
Limited Partnership, at the above address.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 6.000% of the regularly scheduled
payment or $50.00, whichever is greater.
INTEREST AFTER DEFAULT. Upon default, the interest rate on this Note shall, if permitted under applicable law,
immediately increase by adding an additional 5.000 percentage point margin ("Default Rate Margin"). The Default Rate
Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. After
maturity, or after this Note would have matured had there been no default, the Default Rate Margin will continue to
apply to the final interest rate described in this Note.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Partnership Loan Acceleration. At any time that Borrower is acting as the General Partner of Lender, First
Community Bank (or any successor lender thereunder) (the “Bank”) declares the amounts due under that
DGGN\51550\926775.2 2
certain Business Loan Agreement between Lender and the Bank dated as of the date of this Note to be
immediately due and payable.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition
contained in this Note or in any of the related documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the related documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either
now or at the time made or furnished or becomes false or misleading at any time thereafter.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's
accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, In Its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with: respect to any guarantor;-endorser,
surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or
accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under,
any guaranty of the indebtedness evidenced by this Note.
Cure Provisions. If any default; other than a default in payment is curable and if Borrower has not been given
a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured
if Borrower, after Lender sends written notice to Borrower demanding cure of such default; (1) cures the default
within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which
Lender deems. in Lender's sole discretion to be sufficient to cure the default and thereafter continu
Preview
1 Lisa C. McCurdy (SBN 228755) Joy Chen (SBN 316842) 2 GREENBERG TRAURIG, LLP 1840 Century Park East, Suite 1900 3 Los Angeles, California 90067-2121 Telephone: (310) 586-7700 4 Facsimile: (310) 586-7800 mccurdyl@gtlaw.com 5 chenjoy@gtlaw.com 6 Attorneys for Plaintiff SEAN DUGGAN, individually and derivatively on behalf of 7 the Duggan Family Limited Partnership 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SONOMA 11 SEAN DUGGAN, an individual, on his CASE NO. SCV-268905 12 own behalf and derivatively on behalf of the Duggan Family Limited Partnership; Assigned for all purposes to Hon. Bradford 13 DeMeo, Dept. 17 Plaintiff, 14 DECLARATION OF SEAN DUGGAN IN v. SUPPORT OF EX PARTE APPLICATION 15 FOR (I) APPOINTMENT OF RECEIVER; LYNN DUGGAN, an individual; and DOES 1 (II) ORDER TO SHOW CAUSE RE 16 through 25, inclusive, PRELIMINARY INJUNCTION AND CONFIRMATION OF RECEIVER; AND 17 Defendants, (III) TEMPORARY RESTRAINING ORDER 18 -and- 19 THE DUGGAN FAMILY LIMITED Date: June 21, 2022 PARTNERSHIP, a California Limited Time: 10:30 a.m. review 20 Partnership, KELLY MOFFAT, an individual, Dept: 17 21 Nominal Defendants. Action filed: July 27, 2021 Trial date: May 12, 2023 22 23 24 25 26 27 28 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 1 DECLARATION OF SEAN DUGGAN 2 I, Sean Duggan, declare as follows: 3 1. I am a Limited Partner in the Duggan Family Limited Partnership (the “Partnership”). I 4 have personal knowledge of the facts set forth herein, and could and would competently testify thereto if 5 called upon to do so. 6 2. I also am a General Partner in the Partnership by virtue of Lynn Duggan’s default. 7 3. I have spent my career working in accounting and international corporate tax in firms 8 such as Pricewaterhouse Coopers, KPMG, and Ernst & Young. Mostly recently, I was an international 9 tax partner at Squar Milner (now BakerTilly) in Newport Beach, California. 10 4. The Duggan Family Limited Partnership was formed in November 1997 via the 11 Agreement of Limited Partnership. A true and correct copy of the Agreement of Limited Partnership is 12 attached hereto as Exhibit A. 13 5. After the original co-General Partners passed away, my father, Lynn Duggan (“Lynn”) 14 became General Partner, and the Limited Partners then were equally Lynn, my sister Kelly Moffat, and 15 myself (the “Partners”). 16 6. In February 2014, the Partners entered into the First Amendment to the Agreement (the 17 “Amendment”). The purpose of the Amendment was to allow Lynn to secure a loan from the 18 Partnership. The Partners agreed, on specific terms, to approve the Partnership’s borrowing a $510,000 19 loan (the “Bank Loan”) from First Community Bank (now Poppy Bank), which was secured by the 20 Partnership Property, the Summerfield Shopping Center, located at 530, 535, 551, 554, 567, 569, 573, 21 and 585 Summerfield Road, Santa Rosa, California (the “Partnership Property”). The Partnership would 22 obtain the Bank Loan, and in turn, loan a principal amount of $510,000 to Lynn (the “G.P. Loan”), also 23 on specific terms. A true and correct copy of the Amendment is attached hereto as Exhibit B. 24 7. In March 2020, as a result of the COVID-19 pandemic, Lynn informed Kelly and me that 25 distributions to the Partners would (supposedly) be halted. On March 31, 2020, I asked Lynn whether 26 he was continuing to pay the G.P. Loan from his Limited Partner distributions, to which Lynn responded 27 that $2,000 of the amount owed was coming from his management fee, and the remaining $921.38 was 28 coming from his “own funds.” Upon further inquiry, Lynn explained that the loan payments, since 1 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 1 April 2014, have been coming from his “monthly management fee of $2,000 ([his] sole funds separate 2 from partnership distributions) and $921.38 from [his] monthly partner’s distribution.” A true and 3 correct copy of this email exchange is attached hereto as Exhibit C. 4 8. On January 8, 2021, I was notified that Lynn and Kelly entered into an agreement 5 wherein Lynn purported to sell 1% of his General Partner interest to Kelly, for $125,000 payable in cash 6 (the “January 2021 PSA”). On January 15, 2021, I objected by sending a written Notice of Default to 7 Lynn and Kelly on the grounds that the January 2021 PSA was not permitted by the Amendment. A true 8 and correct copy of this email exchange is attached hereto as Exhibit D. 9 9. In a January 21, 2021 response, Lynn’s counsel told me that no monetary default had 10 occurred, and I should not worry because (1) Lynn was making his monthly payments “by automatic 11 electronic transfer right of the top from gross receipts,” (2) “[m]onthly rentals, in even these worst of 12 times, have been in the $25,000 to $35,000 range and Lynn’s share of net rental income will always pay 13 the monthly payment on the GP Loan,” and (3) “Lynn possesses no ability (or inclination) to prevent 14 monthly payments from being made like clockwork.” A true and correct copy of this correspondence is 15 attached hereto Exhibit E. 16 10. I have received only three distributions from the Partnership, since December 2020 to 17 present. 18 11. Although counsel for Lynn Duggan informed me that the January 2021 PSA was 19 rescinded, I was later informed that Lynn and Kelly had done virtually the same deal by way of a May 20 2021 PSA. I again noticed a default, which never was cured. Further, Lynn and Moffat entered into the 21 PSA knowing that the GP points were collateral for the loan, as evidenced by the email chain 22 negotiating the implementation of the GP Loan on December 11, 2013 – December 12, 2013 between 23 Sean, Kelly, Lynn and James Frassetto (GP counsel), subject: “Partnership Issues – Atty fees, 24 collateral.” Therefore, they knew the GP was collateral for the loan and still pursued the PSA. In this 25 exchange, I insisted on the GP points as collateral, my sister argued for GP points as collateral and 26 James Frassetto discussed Lynn was open to GP points as collateral. A true and correct copy of this 27 correspondence is attached hereto as Exhibit F. 28 2 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 1 12. In April 2021, Lynn’s counsel took the position that the COVID-19 pandemic had 2 resulted in a “decrease (virtual elimination) of net income to distribute.” However, at this time, the 3 Partnership’s financial records reflected it did have net income. 4 13. On August 20, 2021, Lynn informed Kelly and me that that he was making a distribution 5 of $80,000, divided as follows: $27,466.66 to Lynn, $26,666.67 to Kelly, and $25,866.67 to me. A true 6 and correct copy of Lynn’s email is attached hereto as Exhibit G. 7 14. In March 2022, the same distribution methodology was used: $27,466.66 to Lynn, 8 $26,666.67 to Kelly, and $25,866.67 to me. 9 15. Even prior to the COVID-19 pandemic, Lynn made another improper distribution as 10 follows: $18,095 to Lynn, $16,599 to Kelly, and $16,599 to me, a total of $51,293. 11 16. Prior to the pandemic, there were monthly distributions and quarterly distributions for 12 estimated tax purposes. These have been terminated and distributions now appear to be made at 13 random. 14 17. I recently received the Partnership tax return and my own K-1 return for the Partnership. 15 In reviewing each, the numbers reflected cannot be reconciled without an accounting. From the limited 16 information provided to me, however, and based on what I know are amounts properly distributable to 17 the GP (both as Partnership distributions and management fees), amounts improperly distributed to the 18 GP based on an incorrect 3% allocation (thereby reducing payments owed to the limited partners) will 19 total well into the hundreds of thousands of dollars as it is now apparent this has occurred since Lynn 20 became the GP. 21 18. I have seen Partnership check numbers 1435 and 1477 from January and March of 2021 22 for $15,000 and $65,000 drawn to Miller Starr. 23 19. In addition, the Partnership Property has been placed on the market at various points in 24 the past unsuccessfully. In the last year, it was listed at $13 million. However, I recently discovered 25 through my own diligence that the listing price for the Property has been reduced to $10.5 million. I 26 have not been consulted regarding plans for the Property or even notified regarding subsequent listing 27 price reductions. Based on past history and the fact that I was forced to file this litigation to protect the 28 Partnership and its limited partners, I am exigently concerned that the GP will sell the Partnership assets 3 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 1 and Property at below market value based on his desire to obtain cash and in the hopes of ending and 2 obtaining an advantage in the litigation. 3 20. Attached hereto as Exhibit H is a true and correct copy of an email from Lynn Duggan to 4 me and others, which forwarded to me a February 18, 2010 correspondence from the then-tenant of the 5 theater space, Ky Boyd of Sonoma Motion Picture Company, to Lynn Duggan, in response to 6 correspondence from Mr. Wasem as President of Selway. In this correspondence, Mr. Boyd expresses 7 concern about Mr. Wasem’s conflict of interest in negotiating Boyd’s possible extension of the Sonoma 8 Motion Picture Company lease because of Mr. Wasem’s other business interests in the theater industry 9 (in direct competition with Mr. Boyd and his business. Mr. Boyd states that Mr. Wasem “has a vested 10 interest in the success of our primary competitor” at the Property. Mr. Boyd requests that his lease 11 negotiations take place directly with the Partnership, and that Selway “specifically not be involved.” 12 21. Attached hereto as Exhibit I is a true and correct copy of an email from Larry Wasem to 13 me and others, attaching the October 14, 2009 Lease, entered into between the Partnership as owner, and 14 inter alia, Larry Wasem, as tenant, which lease was set to commence by its terms on September 1, 2010, 15 following the expiration of Mr. Boyd’s lease (but negotiated the year prior). I also was active in 16 negotiating this lease with Mr. Wasem. 17 22. Attached hereto as Exhibit J is a true and correct copy of a news article from March 18 2010, which chronicles these issues, the conflict of interest, and Mr. Boyd’s loss of the lease. 19 23. Attached hereto as Exhibit K is a true and correct copy of a July 21, 2021 email from my 20 father, sharing that Summerfield Cinemas received shuttered venue federal assistance. 21 24. I believe that without a receiver who can oversee management of the Property and ensure 22 proper administration, accountings and distributions related to the Partnership, harm will continue to the 23 Partnership and its partners. The receiver will be beneficial as the automatic transfer of the GP points 24 upon default were contemplated in the First Amendment to avoid legal disputes and should result in 25 Kelly and myself being co-equal GP which should have occurred upon failure to cure numerous 26 defaults. If this property is sold prior to curing the GP point dispute, numerous sacrifices made by 27 generations of the Duggan family, going back to my great-grandparents, cannot be cured. The land will 28 simply be gone. There is quite literally no risk of harm to the Partnership in taking this action; to the 4 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 1 contrary, the Partnership can only benefit and, thus, there can be no legitimate opposition to the request 2 for installation of a professional receiver. 3 25. Attached hereto as Exhibit L is a true and correct copy of redacted relevant excerpts 4 from the 2011 K-1 tax return for the Partnership, demonstrating that the incorrect distribution 5 calculations have been going on since at least that time. 6 I declare under penalty of perjury that the foregoing is true and correct, and that this declaration 7 was executed on June 21, 2022, in Newport Beach, California. 8 9 ____________________________ 10 Sean Duggan 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 DECLARATION OF SEAN DUGGAN ACTIVE 65621463v1 EXHIBIT A EXHIBIT B FIRST AMENDMENT TO THE AGREEMENT OF LIMITED PARTNERSHIP OF THE DUGGAN FAMILY LIMITED PARTNERSHIP This FIRST AMENDMENT TO THE AGREEMENT OF LIMITED PARTNERSHIP OF THE DUGGAN FAMILY LIMITED PARTNERSHIP (the “Agreement”) is made as of this _____ day of February 2014 (the “Effective Date”), by and among LYNN DUGGAN (the “General Partner”) and SEAN P. DUGGAN and KELLY A. MOFFAT (together the “Limited Partners”). The General Partner and the Limited Partners are referred to herein collectively as the “Partners”. RECITALS This Amendment is made with reference to the following facts: A. Joseph Duggan and Barbara Duggan , as co-trustees of the Duggan Family Living Trust (the “Original Co-General Partners”), the General Partner and the Limited Partners formed a limited partnership (“the Partnership”) pursuant to the terms of that certain Agreement of Limited Partnership dated November 1997 (the “Agreement”) to own that certain real property commonly known as the Summerfield Shopping Center located at 530, 535, 551, 554, 567, 569, 573, 575 and 585 Summerfield Road, Santa Rosa, California (the “Partnership Property”). B. The Original Co-General Partners have passed away and all the current Partners and their respective ownership interests in the Partnership are as follows: General Partner Lynn Duggan 3.0% Limited Partners Lynn Duggan 32.333334% Sean P. Duggan 32.333333% Kelly A. Moffat 32.333333% C. The Partners wish to amend the Agreement to provide, among other things, for (i) the approval of a $510,000 mortgage (the “Bank Loan”) in favor of First Community Bank (the “Bank”) to be secured by the Partnership Property, (ii) a loan by the Partnership to the General Partner of the net proceeds of the loan (the “G.P. Loan”); and (iii), in the case of a default under the G.P. Loan, the forfeiture of the General Partner’s interest in the Partnership as a general partner (the “General Partnership Interest:”) and a portion of his interest held as a limited partner (his “Limited Partnership Interest”). DGGN\51550\925467.3 ACCORDINGLY, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Partners hereby agree to amend the Agreement in the manner set forth in this Amendment. 1. Approval of Bank Loan. The Partners hereby approve the terms of the Bank Loan as more particularly described in Exhibit “A” attached hereto. Without limiting the generality of the foregoing, the Limited Partners, and each of them, herein acknowledge and represent that they have read and approved the terms and the documents evidencing the Bank Loan. The Partners hereby authorize the General Partner to execute and deliver any and all promissory notes, business loan agreements, deeds of trust, hazardous insurance disclosures, partnership authorizations, hazardous substances certificate and indemnity agreement, disbursement request and authorization and other documents, instruments and instructions that are necessary or proper for the closing of the Bank Loan. 2. G.P. Loan. The Partners hereby authorize the Partnership to enter into the G.P. Loan on the terms and conditions set forth in this Paragraph 2. The original principal amount of the G.P. Loan shall be $510,000, which shall constitute the sum of (a) the net proceeds of the Bank Loan (all of which shall be distributed to the General Partner upon closing the Bank Loan) and (b) reimbursement by the General Partner to the Partnership of all costs incurred by the Partnership in obtaining the Bank Loan that are included in the original principal balance of the Bank Loan. 2.1 Note. The G.P. Loan shall be evidenced by a Promissory Note in the form and substance set forth in Exhibit B (the “Note”). The Note shall not constitute a negotiable instrument. 2.2 Defaults. 2.2.1 General Partnership Interest. In the event of a material default under the Note or this Amendment which is not cured within fifteen (15) days of written notice by the Limited Partner to the General Partner, (i) the General Partner shall forfeit his General Partnership interest, and such General Partnership interest (including, without limitation, the economic interest and the management interest represented by such General Partnership Interest) shall be reallocated to one or more of the Limited Partners as the Limited Partners may agree, or, if the Limited Partners are unable to agree, then to each of the Limited Partners equally, (ii) each of the Limited Partners receiving the General Partnership Interest shall have all the rights and duties of a “General Partner” under the Agreement and (iii) all rights of the General Partner as a “General Partner” under the Agreement shall cease, provided that the General Partner shall remain liable in accordance with the terms of the Agreement for all matters occurring prior to such reallocation. 2.2.2 Limited Partnership Interest. In addition, in the event of a material default under the Note or this Amendment which is not cured within fifteen (15) days of written notice from the Limited Partner to the General Partner, the General Partner shall forfeit a portion of his Limited Partnership interest as follows: a portion of the General Partner’s Limited Partnership interest equal to the relationship of (x) the amount required to repay the Bank Loan in full (including, without limitation, all fees, interest, expenses, prepayment penalties or other DGGN\51550\925467.3 2 penalties) (the “Repayment Amount”) minus $193,979.97, which is the amount agreed upon by the General Partner and the Limited Partners as the current value of the General Partner’s General Partnership Interest forfeited pursuant to Section 2.2.1, to (y) $2,284,653, which is the amount agreed upon by the General Partner and the Limited Partners as the current value of the General Partner’s Limited Partnership Interest. Thus, if the Repayment Amount is $440,000, then 10.77% of the General Partner’s interest as a limited partner (equal to 3.48% of the total economic interest of all partners in the Partnership) is subject to such sale or repossession and the remaining 89.33% of the General Partner’s Limited Partnership interest (equal to 28.85% of the total economic interest of all partners in the Partnership) shall be held by the General Partner free and clear of the forfeiture provisions of this Amendment. The forfeited Limited Partnership interest shall be reallocated equally to the Limited Partners. 2.2.3 When No Notice is Required. Notwithstanding the terms of Paragraphs 2.2.1 and 2.2.2, above, the forfeiture described in Paragraphs 2.2.1 and 2.2.2, above, shall be automatically and without further action by the General Partner or any Limited Partner if (i) the General Partner remains in the capacity as the general partner of the Partnership on the date of a material default under the Note in this Agreement, and (ii) the General Partner has failed to provide the notice to the Limited Partners required by the terms of Paragraph 2.4, below. 2.2.4 No Further Liability. Upon the occurrence of the forfeitures set forth in Paragraphs 2.2.1 and 2.2.2, above, the General Partner shall have no further obligations under the G.P. Loan. 2.3 No Escrow. The Partners agree that there shall be no escrow for the G.P. Loan. The General Partner shall be entitled to cause the net proceeds to be disbursed directly to the General Partner. Prior to such time, the General Partner shall execute the Note. The originals of the Note shall be maintained by the Partnership with its other books and records. Prior to the closing of the Bank Loan, the General Partner shall supply copies of the fully executed Note to the Limited Partners. 2.4 Notice of Default. The General Partner will immediately notify the Limited Partners of any default under the Bank Loan or the G.P. Loan. The General Partner, on behalf of the Partnership, will make a written request to the Bank to provide notice to the Limited Partners of any default under the Bank Loan in the form attached hereto as Exhibit “C”, which request will not be revoked, rescinded or modified without the consent of the Limited Partners. The General Partner acknowledges and consents to the filing by the Limited Partners of a request for notice of foreclosure for the Partnership Property pursuant to California Civil Code Section 2924b with the Sonoma County recorder’s office. 2.5 Special Rules Until Retirement of G.P. Loan. Until the G.P. Loan is paid off and retired in full, the following special rules shall apply. 2.5.1 Automatic Electronic Payment. The General Partner shall authorize the Partnership’s property manager and/or accountant to provide for the automatic debit of monies otherwise distributed to the General Partner on account of his limited partner interest for payment to the Bank of the monthly principal and interest payments on the Bank DGGN\51550\925467.3 3 Loan. The General Partner shall provide written instructions to the Partnership’s property manager and/or accountant, as appropriate, in the form attached hereto as Exhibit “D” that the instruction to so debit the General Partner draw shall not be revoked, rescinded or modified without notice to and approval of the Limited Partners. Payments made on the Bank Loan in the manner described in this Paragraph 2.5.1 shall reduce the General Partner’s obligations under the Note. 2.5.2 Refinance Prior to Maturity Date of Bank Loan. In the event that the Partnership should elect to refinance the Partnership Property prior to the maturity date of the Bank Loan, the Partners shall agree that cash otherwise distributed to the General Partner on account of his general and limited partner interests shall reduce the then existing unpaid principal balance of the G.P. Loan. 2.5.3 No Amendment of Loan Documents. The General Partner shall not amend the terms of the Bank Loan or the G.P. Loan without the consent of the Limited Partners. 2.5.4 No Loans or Guaranties. Notwithstanding anything to the contrary contained in the Agreement, the General Partner shall not(a) permit the Partnership to make any loans directly or indirectly for the benefit of the General Partner, or (b) guaranty any obligations of any party for such purposes, or (c) refinance the Bank Loan with a replacement loan in substantially the unpaid principal balance of the Bank Loan or (d) to refinance the Partnership Property for the purpose of or that results in the distribution of loan proceeds to the Partners. Nothing in this Paragraph 2.5.4 shall prevent the General Partner from refinancing the Partnership Property for a Partnership purpose. 2.6 Use of Proceeds. Immediately upon disbursement of the G.P. Loan, the General Partner will use a portion of the proceeds of the G.P. Loan to repay in full that certain loan from Kelly Moffat to the General Partner (currently outstanding balance of approximately $80,000) and that certain mortgage loan from Chase Bank with respect to certain property owned by Sean Duggan (currently outstanding balance of approximately $60,745.85). 3. Management Fee. The management fees payable by the Partnership to the General Partner shall not exceed $2,000.00 per month for the period from the Effective Date until the fifth anniversary of the Effective Date, and shall not exceed $2,250.00 per month thereafter. 4. Representation. The Partners acknowledge that the General Partner was represented by the law firm of Miller Starr Regalia (James Frassetto) with respect to the Bank Loan and the G.P. Loan and in the negotiation and preparation of this Amendment and that the Limited Partners were represented by the law firm of Farella Braun & Martel LLP (Jonathan H. Lemberg) with respect to the Bank Loan and the G.P. Loan and in the negotiation and preparation of this Amendment. 5. Interpretation of Recitals and Exhibits. The Partners agree that the Recitals to this Amendment and Exhibits A, A-1, B, C and D to this Amendment are hereby incorporated into this Amendment and constitute a material part hereof. DGGN\51550\925467.3 4 EXHIBIT A Lender: First Community Bank Loan Amount: $510,000 Loan Terms: See Promissory Note attached hereto and incorporated herein DGGN\51550\925467.3 EXHIBIT A-1 First Community Bank Promissory Note [See Next 4 Pages] DGGN\51550\925467.3 EXHIBIT B Form of G. P. Loan Promissory Note [See Next 4 Pages] DGGN\51550\925467.3 EXHIBIT B PROMISSORY NOTE Principal: $510,000.00 Loan Date: February __, 2014 Maturity: February __, 2024 Borrower: Lynn Duggan Lender: The Duggan Family Limited Partnership 414 Aviation Blvd. Santa Rosa, CA 95403 Principal Amount: $510,000.00 Date of Note: February __ 2014 PROMISE TO PAY. Lynn Duggan ("Borrower") promises to pay to The Duggan Family Limited Partnership ("Lender"), in lawful money of the United States of America, the principal amount of Five Hundred Ten Thousand & 00/100 Dollars ($510,000.00), together with interest on the unpaid principal balance from February __, 2014, until paid in full. PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance: with the following payment schedule, which calculates interest on the unpaid principal balances as .described in the "INTEREST CALCULATION METHOD" paragraph using the interest rates described in this paragraph: 84 monthly consecutive principal and interest payments in the Initial amount of $2,921.38 each, beginning April 1, 2014, with interest calculated on the unpaid principal balances using an interest rate Of 5.250%; 35 monthly consecutive principal and interest payments in the initialamount of "$2,921.38 each,::beginning April 1, 2021, with interest calculated on the unpaid principal balances using an interest rate based on the then monthly average Of weekly average yields on United States Treasury Securities adjusted to a constant maturity of five (5) years, as published by the Federal Reserve Bank in its Statistical Release H-15 "Selected Interest Rates" (currently 1.650%), plus a margin of 4.000 percentage points, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 5.650%; and one principal and interest payment of $421,260.49 on March 1, 2024, with interest calculated on the unpaid principal balances using an interest rate based on the then monthly average of weekly average yields on United States Treasury Securities adjusted to a constant maturity of five (5) years, as published by the Federal Reserve Bank in its Statistical Release H-15 "Selected Interest Rates" (currently 1.650%), plus a margin of 4.000 percentage points, adjusted if necessary for the minimum and maximum rate limitations for this loan, resulting in an initial interest rate of 5.650%. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled, and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the then monthly average of weekly average yields on United States Treasury Securities adjusted to a constant maturity of five (5) years, as published by the Federal Reserve Bank in its Statistical Release H-15 "Selected Interest Rates" (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will: tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each five years, based upon the monthly average of weakly average yields on United States Treasury Securities adjusted to a constant maturity of five (5) years, with the first interest rate change occurring eighty-three months from the first payment due date. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 1.650% per annum. The interest rate or rates to be applied to the unpaid principal balance during this Note will be the rate or rates set forth herein in the "Payment" section. Notwithstanding any other DGGN\51550\926775.2 provision of this Note, after the first payment stream, the interest rate for each subsequent payment stream will be effective as of the due date of the last payment in the just-ending payment stream. NOTICE: Under no circumstances will the interest rate on this Note be less than 5.250% per annum or more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option,: may do one or more of the following: (A) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date,: (B) increase Borrower's payments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue Borrower's payments at the same amount and increase Borrower's final payment. INTEREST CALCULATION METHOD. Interest on this Note is computed on a 30/360 simple interest basis; that is, with the exception of odd days before the first full payment cycle, monthly interest is calculated by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by a month of 30 days. Interest for the odd days before the first full month is calculated on the basis of the actual days and a 360-day year. All interest payable under this Note is computed using this method. PREPAYMENT FEE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Upon prepayment of this Note, Lender is entitled to the following prepayment fee: Should Borrower prepay, in part or in full, the principal balance due on this Note at any time during the loan term, Borrower shall pay to Lender a premium as follows: 1st loan year 5%; 2nd loan year 4%; 3rd loan year 3%; 4th loan year 2%; 5th loan year 1%. "Loan Year" as used herein shall mean the twelve month period commencing on the date of the Note and on each anniversary of the date of the Note. The prepayment premium will not be enforced during the last two (2) months of year five period. For purposes of this provision, reference to the amounts prepaid shall mean the total amount of principal paid by or on behalf of Borrower, net of any regularly scheduled principal payments due under this Note. In exception to the prepayment premium, the prepayment premium will not be enforced on payments up to 20% each calendar year unless payment will paid loan in full. Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: The Duggan Family Limited Partnership, at the above address. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 6.000% of the regularly scheduled payment or $50.00, whichever is greater. INTEREST AFTER DEFAULT. Upon default, the interest rate on this Note shall, if permitted under applicable law, immediately increase by adding an additional 5.000 percentage point margin ("Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. After maturity, or after this Note would have matured had there been no default, the Default Rate Margin will continue to apply to the final interest rate described in this Note. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Partnership Loan Acceleration. At any time that Borrower is acting as the General Partner of Lender, First Community Bank (or any successor lender thereunder) (the “Bank”) declares the amounts due under that DGGN\51550\926775.2 2 certain Business Loan Agreement between Lender and the Bank dated as of the date of this Note to be immediately due and payable. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, In Its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with: respect to any guarantor;-endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. Cure Provisions. If any default; other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default; (1) cures the default within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems. in Lender's sole discretion to be sufficient to cure the default and thereafter continu