AMERICAN INFLATABLES, INC.
947 Newhall Street
Costa Mesa, California 92627
(888) 904-9949
PRESS RELEASE
On November 9, 2001, the Securities and Exchange Commission (the
"Commission") declared the Registration Statement on Form S-4 of National
Paintball Supply Company, Inc. (the "Registration Statement") effective. The
Registration Statement relates to the proposed acquisition of American
Inflatables, Inc. ("American Inflatables") by National Paintball Supply Company,
Inc. ("Paintball"). The Proxy Statement/Prospectus contained in the Registration
Statement included a notice to the shareholders of American Inflatables that a
special meeting of shareholders (the "Special Meeting") would be held at 5:00
p.m., pacific time on Friday, December 7, 2001 at a location in Costa Mesa,
California.
Since the Registration Statement was declared effective, Gregg
Mulholland, the Chief Executive Officer and Chairman of the Board of American
Inflatables, and David W. Ariss, Sr., a director of American Inflatables, have
become defendants in a lawsuit, solely in their individual capacities and not in
their capacities as officers and directors of American Inflatables. The
plaintiffs in the lawsuit obtained a temporary protective order that temporarily
prohibits Mr. Mulholland until December 31, 2001, from transferring any of the
shares of stock of American Inflatables personally owned by Mr. Mulholland
reflected in the Reorganization Agreement between American Inflatables and
Paintball and in the Registration Statement. The temporary protective order
could have prevented Mr. Mulholland's shares of American Inflatables from
participating in the merger of American Inflatables and Paintball as
contemplated in the Registration Statement.
The plaintiffs have informed Paintball and American Inflatables that
they would like the merger to be consummated. Mr. Mulholland and Mr. Ariss have
informed Paintball and American Inflatables that they have reached agreement on
the material terms of a settlement to resolve the issues in the lawsuit in a
manner that will permit the merger to be consummated on the same terms as
already set forth in the Reorganization Agreement; however, it is necessary to
delay the American Inflatables Special Meeting to provide an opportunity for the
material terms to be reduced to a formal writing of full agreement. Mr.
Mulholland and Mr. Ariss have informed Paintball and American Inflatables that
they consider the statement of material terms, which they have initialed, to be
binding on them and that they expect the formal writing of full agreement to be
executed, and the temporary protective order to be modified accordingly, on or
before December 12, 2001.
Paintball and American Inflatables believe that the law suit will be
settled in accordance with the statement of material terms within the time frame
given by Mr. Mulholland and Mr. Ariss; however, there can be no guaranty that
the law suit will be settled or if it is settled that it will be settled within
the time frame indicated or with the terms described herein. Even if the lawsuit
is settled, either as described herein or otherwise, there can be no guaranty
that the merger will be consummated on the terms contemplated in the
Reorganization or at all, though Paintball currently desires to continue to
attempt to consummate the merger and American Inflatables has indicated to
Paintball that it also currently desires to continue to attempt to consummate
the merger.
American Inflatables has informed Paintball that it has postponed the
Special Meeting and that it will announce a new record date and meeting date for
the Special Meeting as soon as reasonably practicable. Set forth below is a
summary of the lawsuit against Mr. Mulholland and Mr. Ariss and the material
terms of the settlement as described to Paintball by Mr. Mulholland and
plaintiffs' counsel.
On November 13, 2001, Universal Consultants, Inc., a Nevada corporation
("UCI"), National Financial, Inc., a Nevada corporation ("NFI"), and William
Carroll, an individual resident in California and a director of UCI and NFI
(collectively, the "Plaintiffs") filed a summons and complaint (the "Lawsuit")
in the Superior Court of the State of California in Orange County. The Lawsuit
names Mr. Mulholland, Mr. Ariss and 1-10 John Does as defendants in their
individual capacities (collectively, the "Defendants"). Paintball is currently
unable to determine whether UCI and NFI are affiliates of each other.
The Lawsuit generally arose out of two transactions involving Mr.
Mulholland and American Inflatables. One involved a December 12, 2000 note for
$330,000 from American Inflatables to UCI (the "Note"), with accrued interest of
$32,185.07 to date, and a Warrant for UCI to purchase up to 1,320,000 shares of
American Inflatables stock for $0.25 per share (the "Warrant") described in
Notes F and J to American Inflatables audited financial statements contained in
the Registration Statement. The note is secured by all of American Inflatables'
real and personal property. The loan was due on March 12, 2001 and has not been
paid. Mr. Mulholland had personally guaranteed this Note and Interest.
Mr. Mulholland, Mr. Ariss and plaintiffs' counsel have informed
Paintball and American Inflatables that under the terms of the settlement, Mr.
Mulholland will secure the payment of the Note and interest with all of his own
personal shares, which will be held in an escrow until paid. Under the escrow
agreement, the escrow officer will be empowered to deliver these Mulholland
shares as required to effect the merger, and the replacement Paintball shares
will be held in escrow until the UCI debt is paid in full. UCI will retain the
right to exercise the Warrant, and if it exercises the Warrant, the principal
amount of the Note will be exonerated to the extent of the exercise price paid
by UCI (100% of the principal amount of the Note if the Warrant is exercised in
full). American Inflatables is being released of any obligation for the accrued
interest on the Note, which will be paid by Mr. Mulholland, and if UCI does not
exercise the Warrant, American Inflatables will be released of any obligation
for the principal amount of the Note, which will also be paid by Mr. Mulholland.
The settlement also provides for the security interest in American Inflatables'
property to be released by UCI, effective when Mr. Mulholland's shares have been
delivered to the escrow.
Under the other transaction, which occurred on February 7, 2000, Mr.
Mulholland sold to NFI options to purchase an aggregate of 1,500,000 shares of
American Inflatables stock owned by Mr. Mulholland for $250,000 (the "Option
Agreement"). The Option Agreement gave NFI options to purchase 1,000,000 shares
of American Inflatables stock from Mr. Mulholland for $1.00 per share and
500,000 shares for $2.00 per share. The proceeds of the sale of the options were
paid into an existing real estate purchase escrow account for the purchase of a
house in the name of Mr. Ariss (the "Ocean Vista Property"). A Trust Deed was
also executed on the Ocean Vista Property to secure performance by Mr.
Mulholland under the Option Agreement, and Mr. Mulholland agreed to indemnify
NFI for any breach by Mr. Mulholland of his obligations under the Option
Agreement. Mr. Mulholland caused American Inflatables to be a party to the
Option Agreement, in connection with which American Inflatables made certain
representations and warranties and subjected itself to certain restrictive
covenants (such as but not limited to covenants not to sell or transfer any
assets other than in the ordinary course of business, not to issue any
additional stock or cause dilution of existing stock, not to incur further debt
and to indemnify NFI for any breach by Mr. Mulholland of his obligations under
the Option Agreement). Subsequent to the execution of the Option Agreement,
American Inflatables issued 1,053,984 additional shares of its stock to Mr.
Mulholland.
Mr. Mulholland, Mr. Ariss and plaintiffs' counsel have informed
American Inflatables and Paintball that the Option Agreement and Ocean Vista
Property claims of NFI have been settled in consideration for 1,250,000 of Mr.
Mulholland's personally owned shares, which shall be transferred to NFI via the
escrow, which in turn will permit Mr. Mulholland to continue to vote all of his
personally owned shares until the shares are distributed in accordance with the
settlement agreement. The Trust Deed on the Ocean Vista Property will be
amended. In addition, Mr. Mulholland will be released by NFI from any further
obligations under the Option Agreement, and the amended Trust Deed on the Ocean
Vista Property will be canceled, once (1) Mr. Mulholland has delivered to the
escrow all of his remaining personally owned shares to effect compliance with
his obligations under both the settlement of the $330,000 Note claim and the
settlement of the Option Agreement and Ocean Vista Property claims and (2) the
balance of the settlement and close of the escrow has been completed, after the
Merger Agreement is consummated or otherwise -- including final and completed
distribution of the shares between plaintiffs and Mulholland in accordance with
the settlement agreement. Pending full performance, Mr. Mulholland and Mr. Ariss
will also execute a confession to judgment against themselves personally, which
will be held in abeyance pending full performance under the settlement, and once
the latter occurs, will be voided.
Though not addressed in the statement of material terms of the
settlement, Mr. Mulholland, Mr. Ariss and plaintiffs' counsel have informed
American Inflatables and Paintball that American Inflatables will be released
from any further obligations under the Option Agreement once (1) all settlement
implementation documents have been executed, (2) the modified temporary
protective order is filed, and (3) Mr. Mulholland has delivered to the escrow
all of his remaining personally owned shares to comply with his obligations
under the settlement of the $330,000 Note claim and the Option Agreement and
Ocean Vista Property claims. Mr. Mulholland will bear full personal
responsibility for all legal costs and damages for NFI and UCI which are agreed
to or might be ordered.
American Inflatables believes that the net effect of the settlement
will be to reduce the financial obligations of American Inflatables with Mr.
Mulholland personally assuming the released obligations.