GUARANTY & INDEMNIFICATION AGREEMENT OF
GREGG R. MULHOLLAND
This Guaranty and Indemnification Agreement (the "Guaranty") dated as
of May 16, 2002, is made by Gregg R. Mulholland, an individual resident in the
State of California ("Guarantor"), in favor of William R. Fairbanks, an
individual resident in the State of South Carolina, Red Oak Limited Partnership,
a South Carolina limited partnership, and Douglas A. Brown, an individual
resident in the State of South Carolina (each an "ASDG Shareholder"), and the
sole shareholders of American Sports Development Group, Inc., a South Carolina
corporation ("ASDG").
RECITALS
A. The ASDG Shareholders and American Inflatables, Inc., a Delaware
corporation ("Inflatables"), have entered into a Share Exchange
Agreement dated May 16, 2002 (the "Share Exchange Agreement") pursuant
to which the ASDG Shareholders will become holders of a supermajority
of the outstanding common stock of Inflatables.
B. Guarantor is currently a director and the President and Chief Executive
Officer of Inflatables and the beneficial owner of approximately 34.9%
of Inflatables' outstanding common stock.
C. Paul D. Copenbarger, dba Copenbarger & Associates ("Copenbarger"), has
alleged that he is a judgment creditor of Gregg R. Mulholland in
connection with action number 807767 (the "First Copenbarger Action"),
in the Superior Court of the State of California, County of Orange (the
"California Court"), entitled Copenbarger v. Ariss. Copenbarger has
brought an action (case no. 02CC05-736, the "Second Copenbarger
Action") in the California Court naming Universal Consultants, Inc.,
National Financial, Inc., Paintball Incorporated (which may be a
reference to ASDG), Inflatables, William Carroll, Gregg Mulholland
and Does 1 through 100 as defendants (each a "Copenbarger Defendant")
seeking an order forbidding any such defendant from transferring
property belonging to Mr. Mulholland. The California Court has enjoined
the Copenbarger Defendants from transferring any shares of stock of
Inflatables in which Mr. Mulholland has an interest until completion of
proceedings therein or until further order of Court.
D. The ASDG Shareholders are unwilling to enter into the Share Exchange
Agreement unless Guarantor guaranties the performance of Inflatables'
obligations under the Share Exchange Agreement as provided in this
Guaranty and Guarantor desires to enter into this Guaranty in order to
induce the ASDG Shareholders to enter into the Share Exchange
Agreement.
GUARANTY
NOW THEREFOR, in consideration of the premises herein and in the Share
Exchange Agreement, and in order to induce the ASDG Shareholders to enter into
the Share Exchange Agreement, the Guarantor hereby agrees with the ASDG
Shareholders as follows:
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ARTICLE I
DEFINITIONS
All capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such in the Share Exchange Agreement.
ARTICLE II
GUARANTY
2.1 Guaranty. Guarantor hereby irrevocably, fully and unconditionally,
guarantees to the ASDG Shareholders and their successors and assigns, the full
and prompt performance by Inflatables of all of Inflatables' agreements,
covenants and obligations incurred pursuant to and/or arising in connection with
the Share Exchange Agreement and any related agreement or instrument and the
truthfulness, completeness and correctness of all representations and warranties
of Inflatables contained in the Share Exchange Agreement and any related
agreement or instrument.
2.2 Guarantor's Obligations Unconditional and Independent.
(a) The obligations of Guarantor under this Guaranty are
independent of the obligations under the Share Exchange Agreement and any other
related documents, and a separate action or actions may be brought and
prosecuted against Guarantor to enforce his obligations under this Guaranty,
irrespective of whether any action is brought against Inflatables or whether
Inflatables is joined in any such action.
(b) The liability of Guarantor hereunder shall be absolute and
unconditional, irrespective of (i) any lack of validity or enforceability of any
provision of the Share Exchange Agreement or any related agreement or
instrument; (ii) any amendment or waiver of or consent to any departure from any
provision of the Share Exchange Agreement or any related agreement or
instrument; (iii) the existence of any claim, set-off, defense or other right
that the Guarantor may have against any Person, or (iv) any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
Guarantor or any other guarantor in respect of Inflatables' representations,
warranties, agreements, covenants, or obligations under the Share Exchange
Agreement, this Guaranty or any agreement or instrument relating thereto.
(c) This Guaranty is a continuing guaranty and shall remain in
full force and effect as long as the Share Exchange Agreement or any provision
thereof is in force and effect.
2.3 Indemnification. Guarantor hereby agrees to defend, indemnify and
hold harmless the ASDG Shareholders and their affiliates, employees, agents and
contractors from and against any and all losses, damages, claims, obligations,
fines, penalties and liabilities of any sort or kind (including without
limitation reasonable attorneys fees) arising in connection with the breach by
Inflatables of any of its representations, warranties, agreements, covenants or
obligations set forth in the Share Exchange Agreement or any related agreement
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or instrument and any breach by Guarantor of any of his representations,
warranties, agreements, covenants or obligations set forth in the Shareholders
Agreement.
2.4 Escrow of Inflatables Stock. In order to ensure performance of
Guarantor's obligations hereunder, Guarantor hereby agrees to place 875,000
shares of Inflatables' common stock held by Guarantor (the "Escrowed Shares")
into escrow pursuant to that certain Escrow Agreement of even date herewith (the
"Mulholland Escrow Agreement"), by and between the ASDG Shareholders, Guarantor,
Universal Consultants, Inc., a Nevada corporation ("UCI"), National Financial,
Inc., a Nevada corporation ("NFI"), William Carroll, an individual resident in
the State of California, Robert B. Beauchamp, Meir J. Westreich, and Douglas R.
Holmes (Messrs. Beauchamp, Westreich and Holmes are hereinafter referred to
collectively as the "Mulholland Escrow Agent"). Guarantor hereby agrees that his
obligations hereunder may be satisfied by the transfer to the ASDG Shareholders
of such shares as contemplated in the Mulholland Escrow Agreement to the extent
the value of such shares is equal to Guarantor's obligations hereunder. The
Escrowed Shares shall include any securities or property payable with respect to
the Escrowed Shares as a result of any stock dividend, split-up or combination,
or into which Inflatables Common Stock shall be converted or exchanged as a
result of any merger, reclassification or reorganization.
2.5 Copenbarger Action. Guarantor hereby covenants to exert his best
efforts to cause the California Court, as promptly as practicable, to void and
set aside any judgment lien or the like applicable to the Escrowed Shares
granted in connection with the First Copenbarger Action and to seek to cause the
California Court, as promptly as practicable, to void and set aside all
restraining orders, injunctions and the like in the Second Copenbarger Action
applicable to the Escrowed Shares and have the Second Copenbarger Action
dismissed. Without limiting the foregoing, Guarantor hereby agrees to (1) file a
motion with the California Court, in form and substance acceptable to the ASDG
Shareholders, to set aside all judgment liens and the like against him in the
First Copenbarger Action within ten (10) days of the date hereof and to
diligently pursue such motion with Guarantor's best efforts and (2) file a
motion with the California Court, in form and substance acceptable to the ASDG
Shareholders, to set aside any and all restraining orders, injunctions and the
like applicable to the Escrowed Shares in the Second Copenbarger Action within
ten (10) days of the date hereof and to diligently pursue such motion with
Guarantor's best efforts.
ARTICLE III
WAIVERS & SUBROGATION
3.1 Waivers. Guarantor hereby waives, to the extent permitted by
applicable law, (i) the benefits of promptness, diligence, presentment or demand
of payment; (ii) notice of acceptance and notice of the incurrence of any
liability by Inflatables; (iii) notice of any actions taken by Inflatables under
the Share Exchange Agreement or any other related agreement or instrument; (iv)
all other notices, demands and protests, and all other formalities of every kind
in connection with the enforcement of the covenants, agreements, or obligations
of any party hereunder, the omission of or delay in which, but for the
provisions of this Article III, might constitute grounds for relieving Guarantor
of his obligations hereunder; (v) any right to compel or direct any party to
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seek payment or recovery of any amounts owed under this Guaranty from any one
particular fund or source; (vi) any requirement that any party protect, secure,
perfect or insure any security interest or lien or any property subject thereto
or exhaust any right or take any action against Inflatables or any other Person
or any collateral and (vii) any other defense available to Guarantor.
3.2 Subrogation. Guarantor hereby irrevocably waives and agrees he will
not exercise any and all rights which he has or may have at any time or from
time to time (whether arising directly or indirectly by operation of law or
contract) to assert any claim against Inflatables on account of any payments
made under the Share Exchange Agreement, this Guaranty or otherwise, including,
without limitation, any and all existing and future rights of subrogation,
reimbursement, exoneration, contribution and/or indemnity. If any amount shall
be paid to Guarantor on account of such subrogation rights at any time when any
obligation or liability owed to any ASDG Shareholder shall not have been paid in
full, such amount shall be held in trust for the benefit of the ASDG
Shareholders, shall be segregated from the other funds of Guarantor and shall
forthwith be paid over to the ASDG Shareholders to be applied in whole or in
part by the ASDG Shareholders against the liability owed to any ASDG
Shareholder, whether matured or unmatured, and all such other expenses in
accordance with the terms of the Share Exchange Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. All notices and communications provided for in this
Guaranty shall be given in accordance with the terms of the notice provisions
contained in the Share Exchange Agreement. The address and fax number for
notices to Gregg R. Mulholland are:
947 Newhall Street
Costa Mesa, CA 92627
Fax: (949) 515-9765
4.2 Amendment, Waiver in Writing. No amendment of any provision of this
Guaranty shall be effective unless it is in writing and signed by Guarantor and
the ASDG Shareholders, and no waiver of any provision of this Guaranty, and no
consent to any departure by Guarantor therefrom, shall be effective unless it is
in writing and signed by the ASDG Shareholders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
4.3 Rights of the ASDG Shareholders. No failure on the part of any ASDG
Shareholder, to exercise, and no delay in exercising, any right hereunder or
under the Share Exchange Agreement or any related agreement or instrument shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of any ASDG Shareholder provided herein and
in the Share Exchange Agreement and any related agreement or instrument are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law or in equity. The rights of the ASDG Shareholders under this
Guaranty, the Share Exchange Agreement or any agreement or instrument against
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any party thereto are not conditional or contingent on any attempt by any ASDG
Shareholder to exercise any of its rights under this Guaranty, the Share
Exchange Agreement or any agreement or instrument against such party or against
any other Person.
4.4 Severability. Whenever possible, each provision of this Guaranty
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Guaranty.
4.5 No Strict Construction. The language used in this Guaranty shall be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Person.
4.6 Captions. The captions used in this Guaranty are for convenience of
reference only and do not constitute a part of this Guaranty and shall not be
deemed to limit, characterize or in any way affect any provision of this
Guaranty, and all provisions of this Guaranty shall be enforced and construed as
if no caption had been used in this Guaranty.
4.7 Counterparts. This Guaranty may be executed in multiple
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument. Rebuttable proof of
execution of this Guaranty by any party may be made by presentation of a copy of
this Guaranty bearing a facsimile or photostatic copy of the signature of the
party whose execution is sought to be proved, and such copies shall be as valid
as the originals and as admissible as evidence of proof of the execution and
terms and provisions hereof as the originals.
4.8 Governing Law. All questions concerning the construction, validity
and interpretation of this Guaranty shall be governed by and construed in
accordance with the domestic laws of the State of South Carolina, without giving
effect to any provision (whether of the State of South Carolina or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of South Carolina.
4.9 Time is of the Essence. Guarantor agrees and stipulates that time
is of the essence with regard to his performance of his obligations under this
Guaranty.
4.10 Successors & Assigns. This Guaranty shall be binding on Guarantor
and his successors and assigns, and inure, together with all rights and remedies
of the ASDG Shareholders, to the benefit of the ASDG Shareholders and their
successors, transferees and assigns.
4.11 Fraudulent Transfers and Conveyances. Guarantor and the ASDG
Shareholders (by their acceptance of the benefits of this Guaranty) hereby
confirm that it is their intention that this Guaranty not constitute a
fraudulent transfer or conveyance for purposes of any applicable bankruptcy law,
fraudulent transfer or conveyance law or similar state or federal law. To
effectuate the foregoing intention, Guarantor and the ASDG Shareholders (by
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their acceptance of the benefits of this Guaranty) hereby irrevocably agree that
the obligations and liabilities guaranteed by Guarantor shall be limited to such
amount as will, after giving effect to such maximum amount and all other
(contingent or otherwise) liabilities of Guarantor that are relevant under such
laws, and after giving effect to any rights to contribution pursuant to any
agreement providing for an equitable contribution among any other guarantors,
result in the liabilities guaranteed by Guarantor in respect of such maximum
amount not constituting a fraudulent transfer or conveyance.
4.12 Relationship to the Share Exchange Agreement. The terms of this
Guaranty are an addition to the terms of the Share Exchange Agreement and are
not to be construed in any way as a limitation on the rights of the ASDG
Shareholders or as a limitation on the agreements, covenants, or obligations of
the Guarantor.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first written above.
/s/ Gregg R. Mulholland
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Gregg R. Mulholland
Accepted:
/s/ William R. Fairbanks
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William R. Fairbanks
RED OAK LIMITED PARTNERSHIP
By: /s/ William R. Faribanks
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William R. Fairbanks, General Partner
/s/ Douglas A. Brown
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Douglas A. Brown