[Leonard W. Burningham letterhead]
December 7, 2009
Hangman Productions, Inc.
1388 South Foothill Dr., #200
Salt Lake City, Utah 84108
Attention:
James P. Doolin, Director
Shane E. Thueson, Director
John K. Winchester, Director
Acclivity Media, LLC
912 Baxter Drive, Suite 200
South Jordan, Utah 84095
Attention:
Robert A. Bryson
Garrett R. Daw
Greg M. Smith
SCS, Inc.
455 East 500 South Street, Suite 201
Salt Lake City, Utah 84111
Attention:
Karl S. Smith, President
Re:
Engagement to perform legal services for Hangman Productions, Inc., a Utah corporation (the “Company”), regarding the proposed acquisition or reorganization between the Company and Acclivity Media, LLC, a Utah limited liability company (“Acclivity Media”), and related matters
Dear Ladies and Gentlemen:
Engagement
This letter will set forth the proposed terms of our firm’s engagement for and on behalf of the Company regarding the proposed acquisition or merger with Acclivity Media, whereby it is proposed that the Company will directly acquire all of Acclivity Media’s assets, (i)
Page 2
December 7, 2009
or all of its common stock, following a conversion to a Utah corporation under the Utah Revised Business Corporation Act; (ii) or under a merger of a to be formed wholly-owed subsidiary of the Company (“Acquisition Sub”) with and into Accliv ity Media and with Acclivity Media being the surviving corporation in the merger and becoming a wholly-owned subsidiary of the Company on the effective date of the merger, also assuming that Acclivity Media will have converted to a Utah corporation (collectively, the “Reorganization”). Our services will include the preparation of all required or necessary documentation to complete the Reorganization, including the requisite agreement and related schedules and exhibits; “due diligence” on the Company and Acclivity Media, which will be outlined in a letter to the Company and Acclivity Media; the conversion to a Utah corporation documentation for Acclivity Media, if that is a part of the terms of the Reorganization; required or necessary re-capitalizations; and necessary consents and minutes, among other documents (the “Transaction Documents”). We will also prepare and file, with the assistance of management of the parties, a Form 8-K Current Report describing the Reorg anization with the Securities and Exchange Commission (the “SEC”) on behalf of the Company following the Reorganization, which will include all of the information that Acclivity Media would have been required to file with the SEC had it filed a Form 10 Registration Statement with the SEC, in accordance with Item 5.01(8) of Form 8-K.
Unless we establish a different arrangement, our services will be performed for a flat fee of $25,000, $12,500 of which will be paid on the execution hereof by SCS, Inc, a Utah corporation and consulting firm to Acclivity Media (“SCS”), in accordance with arrangements between Acclivity Media and SCS (the “SCS Consulting Agreement”) and arrangements between the Company and SCS, and the balance of $12,500 of which will be due on the closing of the Reorganization. All currently outstanding fees and costs presently owed to us by the Company shall also be paid at closing, presently amounting to $11,544.85. Additionally, the undersigned shall acquire 100,000 shares of the Company’s common stock that SCS will receive in the Company under its SCS Consulting Agreement, a portion which will be for members of our staff, at an agreed upon purchase price with SCS of $0.01 per share, with the sale of these shares to be outlined in a Bill of Sale.
For all other or future services, we will be paid at our hourly rates, which are: Branden T. Burningham, Esq., my son, at an hourly rate of $280; Bradley C. Burningham, Esq., another son, at an hourly rate of $135; and my hourly rate is $450 per hour. We will also bill our costs, in addition to the agreed upon fees, as follows: copy costs will be billed at $0.15 per page; and facsimiles are billed at $1.25 per page, with us paying the long distance charges; any required scanning for SEC filings will be billed at the lowe r of $4 per page or our customary flat fees; Depending upon the documents filed, Edgar fees usually do not exceed $150 for SEC Form 8-K Current Report filings of this type (amendment are billed at a lesser rate as they are filed without exhibits); all other expenses such as Federal Express, other courier fees, filing fees and the like are billed at our cost. Costs will be billed and payable at the closing of the Reorganization, unless we arrange otherwise.
Page 3
December 7, 2009
We anticipate that our first draft of the Transaction Documents can be completed no later than December 31, 2009, and that subject to the review by all parties and t heir other, or additional, legal counsel, and the time that may be required for modifications to the Reorganization and related documents and exhibits resulting from such review and advice, including the 8-K Current Report, that the Reorganization could be closed by January 31, 2010. This time table is based upon our timely receiving adequate “due diligence” respecting Acclivity Media’s business, prospects, management and financial statements, and the assumption that we will have completed our own “due diligence” review of Acclivity Media and its principals by such date and that all required financial statements of the parties needed to be filed with the 8-K Current Report have been completed and provided to us. The current auditors of the Company have advised me that these dates are possible, and that they are interested in meeting with Acclivity Media principals to discuss their audit. By using one auditor between the parties, duplicate auditor fees can be avoided in future SEC filings; if Acclivity Media uses a different auditor, all audits of the reorganized company for two years thereafter will require both auditors’ consents and reviews of applicable filings that contain the reorganized company’s audited financial statements.
Conflicts of Interest
You should be aware that there is a substantial potential for a conflict of interest arising now or in the future with respect to our services that we are to render for the Company or otherwise, as related to the Reorganization, not the least of which are the following:
1.
The undersigned, Leonard W. Burningham, Esq., is a stockholder of the Company, o wning 100,000 shares (this does not take into account a planned pre-Reorganization two for one dividend with a mandatory exchange of stock certificates being required to receive the dividend that will be accounted for as a two for one forward split of the Company’s outstanding shares [that dividend will not change this current percentage of ownership]) or approximately 6.7% of the current outstanding voting securities of the Company; and the undersigned’s son, Branden T. Burningham, Esq., presently owns 2,000 shares of the Company’s common stock.
2.
We have and do represent SCS and its principal stockholder and director and executive officer, Karl S. Smith, in various other matters, and we have discussed the Reorganization with both and have provided advice about the Company and variou s aspects of the Reorganization and applicable federal securities laws, rules and regulations;
3.
SCS has a Consulting Agreement with Acclivity Media; SCS represented Acclivity Media in selecting the Company and discussing this Reorganization with the principals of the Company (though we already represented the Company); we have provided some advice to Acclivity Media through SCS or directly, based upon the SEC Consulting Agreement; SCS or Acclivity Media will select other legal counsel for Acclivity Media in connection with the Reorganization to review all aspects thereof, including our “due diligence” of the Company and
Page 4
December 7, 2009
Acclivity Media, all documentation prepared by us for the Company or Acclivity Media regarding the Reorganization or otherwise and all advice by us given to Acclivity Media as a result of the SCS Consulting Agreement or otherwise; SCS has had other dealings with certain principals of the Company; and SCS will receive up to approximately 9% of the post-Reorganization outstanding voting securities of the Company for its services to Acclivity Media under the SCS Consulting Agreement, which we assume all addressees to this Engagement Letter have received and reviewed.
4.
It is our understanding that SCS is going to be responsible for paying our fees hereunder under the SCS Consulting Agreement with Acclivity Media;
5.
SCS will convey an additional 100,000 post-Reorganization shares of the Company that SCS owns or will receive in the Company under its SCS Consulting Agreement, if the Reorganization is closed as anticipated, at an agreed upon price of $0.01 per share, which is also mentioned above, and a portion of these shares will be provided to our staff;
6.
SCS is in the process of attempting to purchase a portion of the outstanding common stock of the Company from certain current shareholders at a price of $0.01 per share, subject to disclosure about the Reorganization and related matters, and any shares so purchased shall be taken into account in computing the approximate 9% interest that SCS will be entitled to receive in the post-Reorganization Company as referenced above;
7.
We may also be paid, in addition to the compensation payable hereunder, a portion of the securities that SCS owns or will receive in the reorganized company, for other future services rendered by us that are provided to SCS; these securities may have a substantial additional value, far in excess of the fees being paid to us hereunder in connection with the Reorganization; and
8.
The undersigned and his family will benefit substantially if the Reorganization is a success and the reorganized company does well, by virtue of the holdings of common stock in the Company of the undersigned and his son, and the undersigned believes all of his and his son’s securities are “free trading” securities under federal securities laws, rules and regulations, having all been held in excess of two years, excluding any securities that may be acquired by the undersigned or us from SCS, which will be “restricted securities” subject to resale in accordance with the terms and provisions of Rule 144.
We did not participate in the negotiations that resulted in the terms and conditions of the Reorganization, and we are not in a position to control any material decisions made by, between or among the Company or Acclivity Media or SCS ; however, we could certainly influence decisions that are made. We believe that we have always acted in good faith in these types of situations, and in accordance with our best judgment, and we do not believe that any material conflicts will arise. If one does, we will immediately advise all parties; regardless, it is
Page 5
December 7, 2009
important that you have the opportunity to have independent legal counsel who may review our work and/or advice, and we would welcome any input in this respect. That includes the Company, Acclivity Media (it is our understanding that Acclivity Media will have independent legal counsel) and SCS and the principals of each of these companie s.
We will perform the services that we have been engaged to perform for the Company in our customary and usual manner, without any regard for our personal interest in the Company. It is our intention to utilize documents, forms and agreements that are substantially similar to the hundreds of other reorganizations or mergers in which we have been involved as lawyers for others, and, to the extent possible, to ensure that what we do will accomplish the goals of the parties. We believe that Acclivity Media desires to become a publicly-held company and wishes to accomplish this by the completion of the Reorganization with the Company which is already publicly-held. The Company is a “reporting issuer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and to our knowledge, is “current” in the filing of all reports that are required by it to have been fi led with the SEC. To the best of our knowledge, the filings of the Company in the Edgar Archives are true and correct in every material respect. We believe that the Company will be a good candidate (based upon our knowledge and experience in transactions involving similar “reverse” reorganizations) through which Acclivity Media can become a publicly-held company as a result of the completion of the Reorganization; however, the Company has had limited operations and could be deemed to be or have been a “shell company” under Rule 12b-2 of the Exchange Act, though its reports and registration statements do not reflect that since it began such filings in 2004; at its inception, it was organized as “BBC2, Inc.” to engage in any business, meaning that it may have been a “shell company” at its inception. It has had continuous, though limited in dollar volume, operations, since it filed its Form 10-SB Registration Statement in 2004; and that filing could be deemed to be the “Form 10 Information” required by Rule 144(i) A present “shell company” designation would make the shares issued in and subsequent to the Reorganization subject to resale under Rule 144(i), which would require a one year holding period following the filing of the “Form 10 Information” under Rule 144(i), rather than the customary six month holding period. “Form 10 Information” is also planned to be filed in the 8-K Current Report respecting the Reorganization concerning the new business direction anticipated under the Reorganization within four business days of the closing of the Reorganization. The Company will still have its present business operations, and if those business operations are deemed to be sufficient remove the Company from the “shell company” definition, and I believe they are, then the Company’s filing of the Form 10-SB in 2004 will have satisfied the filing of the “Form 10 Information” under Rule 144(i), m eaning there will only be a six month holding period on stock issuances to and subsequent to the closing of the Reorganization.
On the other hand, the Company wants to ensure that the business and prospects that Acclivity Media has represented that it has and on which the Company’s Board of Directors has made a determination to complete the Reorganization, are owned by Acclivity Media and protected for the benefit of Acclivity Media, and subsequent to the closing of the Reorganization, for the benefit of the reorganized company. Because of the matters enumerated above, and as
Page 6
December 7, 2009
indicated above, each of you and your principals should engage other legal counsel to review the Transaction Documents and these matters and any other purposes that you may wish to accomplish under the Reorganization. We urge you to do so.
Other reasons, though not believed to be exclusive, for having other legal counsel review the Transaction Documents, related documents and exhibits and other advice given by us under the Engagement Letter for each of you and your principals are as follows:
* Our current and prior representation of the Company, its principals, t he Doolin
family (who are principal stockholders of the Company), SCS and Karl S.
Smith;
*
Our interest in the Company may give rise to an appearance of impropriety;
*
Our interest in the Company may be taken into consideration in rendering advice, whether intentionally or not;
*
Our opinions may be incorrect in law or fact;
*
Our views may be skewed by our current or past legal representation of the other parties;
*
We may favor one client or another in rendering advice, whether intentionally or not;
*
One party is paying our fees, and we are receiving shares of the Company from others, in addition to our fees;
*
Some of our past opinions for the Company have covered securities of family members who were part of the other stockholders covered by such opinions, like our Rule 504 opinion dated December 15, 2004, and our “Rule 144 Blanket” opinion d ated December 15, 2004 (both of these legal opinions predate Rule 144(i) and its applicability to resales of securities by a “shell company”);
*
The Company’s current operations could be deemed to be the operations of a “shell company,” meaning that until 12 months from the filing of the 8-K Current Report on the Reorganization, no shares issued in or after the Reorganization could be sold under Rule 144(i), and once the 12 month period had lapsed, sales of any shares previously issued that had been held for at least six months could be resold under Rule 144(i), assuming the Company was “current” in its Exchange Act filings;
Page 7
December 7, 2009
*
“Shell company” determination is not exact and is at best a factual question upon which opinions may differ concerning this definition; and
*
Our potential benefit from the closing of the Reorganization, in addition to our fees.
Any questions you may have regardi ng the foregoing should be provided in writing and will be fully answered to your satisfaction.
If your Board of Directors, managers or members, in good faith and based upon our disclosure, approve of our engagement as outlined above, please sign and date below and facsimile your respective Board of Directors’ or manager’s or member’s written Consent, along with the signatures on this Engagement Letter back to me. Your signatures will also be waiving any potential conflicts of interest mentioned or implied from the foregoing disclosure. Board, management or member approval alone should not mean that you should not also have separate legal counsel.
Thank you very much.
Sincerely yours,
/s/Leonard W. Burningham
Leonard W. Burningham
ACCEPTED:
HANGMAN PRODUCTIONS, INC.
Dated: 12/7/09
.
By /s/James P. Doolin
James P. Doolin, President
Page 8
December 7, 2009
Consent of Directors of Hangman Productions, Inc.
With his signature below, each of the undersigned persons, as directors of the Company hereby represents that he has read the foregoing Engagement Letter, waives any potential conflicts of interest on behalf of the Company, subject to the disclosures outlined or implied and adopts the Engagement Letter for and on behalf of the Company.
Dated: 12/7/09
/s/James P. Doolin
James P. Doolin
Dated: 12/7/09
/s/Shane E. Thueson
Shane E. Thueson
Dated: 12/7/09
/s/John K. Winchester
John K. Winchester
Conflict Waiver
HANGMAN PRODUCTIONS, INC.
Dated: 12/7/09
By /s/James P. Doolin
James P. Doolin, President
Dated: 12/7/09
/s/J ames P. Doolin
James P. Doolin, Individually
Dated: 12/7/09
/s/Shane E. Thueson
Shane E. Thueson, Individually
Dated: 12/7/09
/s/John K. Winchester
John K. Winchester, Individually
Page 9
December 7, 2009
ACCLIVITY MEDIA, LLC
Dated: 12/9/09
By/s/Robert A. Bryson
Robert A. Bryson, Member
Dated: 12/9/09
/s/Garrett R. Daw
Garrett R. Daw, Member
Dated: 12/9/09
/s/Greg M. Smith
Greg M. Smith, Member
SCS, INC.
Dated: 12/14/09
By /s/ Karl S. Smith
Karl S. Smith, President
Dated: 12/14/09
/s/Karl S. Smith
Karl S. Smith, Individually
