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The Studio of the Future

The Goal:In aggregation with the presently operating “State of the Art” physical property“The Q” will implement a plan which will allow for a boutique facility to encompass all the necessary functions and vendors in one place to handle allpre-production, production, and post-production requirements for any filmproject. Our goal is to provide the optimal environment for the film industry.Presently, the Albuquerque Studios provides much of the necessary vendors andequipment needed to operate at a base level. Although our plan is to keep manyof the vendors that are already available to the studio, we will enhance certainfunctions with the latest modern equipment provided by our partner, VisionGlobal of Montreal. Along with a strong history of facility management, theywill provide state of the art grip and lighting equipment, which is the largestpotential for revenue in this area and is not presently owned by the studio. Byproviding this within our plan, we will immediately improve the studio’s yearlyrevenues generating capability drastically. We have also secured exclusive relationshipswith emerging technologies that will change the face of how films are madewhile radically improving quality and reducing costs. The company, Sky PilotFilms, has created a new 3-D technology which will revolutionize, not only howfilms are made, but at a lower cost. Special effects and CGI have reached a newhigh within the industry with an appetite that can only grow. Sky Pilot’s abilityto provide this at a quality yet unseen coupled with a lower cost will allow anyproduction, on any scale, to benefit. Their plan is to make “The Q” their homeoffice requiring any production, wishing to take advantage of their product, tocome through “The Q.” A thorough description of this new technology and applications is provided under separate cover, “Sky Pilot Business Plan.”

It is clear that due to the recent increase in New Mexico’s film industry com-mitment with new subsidies for TV programs, the Albuquerque Studios willhave advantages and opportunities well into the future. This, along with, theinfusion of new product supply from our network, provides a substantial stability quotient that decreases the risk involved which is almost unheard of in this industry. Rounding out our commitment to the future, we have included on our team one of the most accomplished film financiers of ourage, Laura Fazio, CEO Twin Oakes adviser. Her vested interest in the successof this project insures the strength of our future together.

“The Q”

The Albuquerque Studios Project (“The Q”) is the acquisition plan to purchasecontrolling interest from the mezzanine bank, now owners of the property, at a significant discount of its original value and increase its viability andmarket share in not only New Mexico, but also the film industry as a whole.In conjunction with our group of young and talented industry professionals,we have put together a partnership with leading film industry professionalsthat will take this studio to a new level of commerce in the trade. Our part-nership is dedicated to implementing the industry’s newest technologies toprovide a platform of unique services briefly outlined herein.

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The Property

The 28-acre accommodation contains eight sound stages, production office space,mill space, and an ample back lot. A 90-minute flight from LAX and 5 minutes fromAlbuquerque International Airport, Albuquerque Studios is highly accessible. Thelot sits on a 9,000 acre development on Albuquerque’s southeast mesa, which willincorporate the very best practices of planned and sustainable urban development.

Along those lines, we expect to integrate elements of wind, solar and other alternative energies into “The Q.” With our on going relationship with or-ganizations such as Solar City, Windtronics and Advance Solar Products, weplan to bring “The Q” to a LEED Certified building. This would accomplishmany goals. Some of which are: our overhead would be greatly reduced, ourimage as a “Green” Studio would attract talent and projects, and the state and UNM would certainly find it a to be feather in their caps.

Built for just over 100 Million dollars in 2007, this state of the art facility has been home to some of the entertainment industries most well know suc-cesses. AMC’s “Breaking Bad,” Disney’s “The Lone Ranger,” and Marvel’sblockbuster hit, “The Avengers,” to name a few. The world headquarters of the REELZ CHANNEL has also made its home here, since 2009.

Location

The property is located in the Southeast Quadrant of Albuquerque. Albuquerquehas many varied landscapes allowing for a wide assortment of visual backdropsfrom the Cibola National Forest to the Sandia Mountains to the ChihuahuanDessert. Also the Rio Grande River flows from north to south through the centerof the city. Listed by CNN in 2007 as the 6th fastest growing city in the UnitedStates, Albuquerque has a population of just below 900,000 and is the largest cityin the state. The Studio sits 2 minutes from Interstate 25, which runs north andsouth along the Rio Grande. Boasting one of the highest elevations for a majorcity in the country, Albuquerque is tempered by its southwestern continentalposition, which provides low humidity all year round. Other adjacent popularattractions surrounding the facility is the NASA Spaceport, the Kirtland Air ForceBase, Sandia National Laboratories, Sandia Science and Technology Park, HardRock Casino, Hard Rock Pavilion, National Museum of Nuclear Science andHistory, Albuquerque International Sunport (Airport), and Eclipse Aerospace.

New Mexico is on the verge of a new film industry boom. Boasting the largestamount of local film professionals outside of New York and LA, New Mexico hasrecently told the world that they are serious about the film industry staying andgrowing here. With 300 days of sunshine a year and a sprawling landscape thatcan accommodate 6 out of 7 climate zones, New Mexico is a viable alternative toshooting almost anywhere in the world. Although considered a southern state interms of latitude, its high elevation provides for four seasons throughout the state.Its optimal environment with this combination allows for summer productionto be cool, and winter production to be filled with sunshine.

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New Mexico’s Commitment to the Industry:

Lawmakers of New Mexico have acted on their promise and recently approvedthe “Breaking Bad Law” which has committed the state to the future growth ofthe film industry within. The following is a breakdown of the 3 programs relatingto the film industry and its tax incentives program with a comparison to its com-petitors on a national level.Three programs are now available in New Mexico.

New 30% Refundable Tax Credit–Up from 25% for qualified productions:(http://www.afci.org/browse/united_states.php)

Per statute, if your project is intended for commercial exploitation and exhibition, it iseligible to receive a 25% refundable tax credit on direct and post-production expendi-tures subject to state taxation. We are also excited to announce that a bill just passed inMarch that included language allowing an additional 5% credit on direct productionexpenditures for qualifying television series or on resident wages and fringes for pro-ductions that utilizes a sizeable sound stage for 10 or 15 days of principal photography.(The number of required days is based on the size of the project’s budget.)

There is no minimum budget or spend requirement. And New Mexico does notrequire submission of a distribution plan from the production company to takeadvantage of the film credit. There is no application fee and no pre-qualifica-tion. New Mexico’s direct qualifying expenditures include, but are not limitedto, resident payroll (fringes included), non-resident per diem, rentals/expend-ables from vendors with local physical presence, as well as property rentals andlocation fees. Non-resident talent that have a management company, aka actor’sloan out, may also qualify for the credit through a personal business service (or“super loan out,”) often established by the payroll company, for up to a $5M taxcredit. Payment for post-production services may also qualify when those servicesare rendered in New Mexico and are subject to state taxation.

After production, and upon submission of the tax application and backup docu-mentation, the New Mexico Tax and Revenue Department conducts an internalreview, free of charge, to determine the project’s approved claim amount per thequalifying expenditures (a 3 to 6 month process). As this is a fully refundable taxcredit, the company files their state tax (or informational) return after the close oftheir taxable year to receive the check or deposit. The filing entity does not have tobe based in NM and may not have other tax liability, yet may still file a return toreceive the credit. The credit is not transferable or assignable. For projects that crosstaxable years, a claim is submitted for each year in which expenditures occurred.

A credit claim of less than $2M per taxable year will be paid out immediatelyupon authorization of the filed tax return. A credit claim of $2M– $5M will bepaid out in two payments: one immediately upon authorization of the filed return and the second twelve months later. A tax credit of $5M or more will be paid in three installments and requires an external CPA audit.

New Mexico allocates $50M each July 1 to expend on authorized credit claims.If the $50M has been expended in a given year, your company will still receivethe credit; however, your (first) authorized claim will be paid at the beginningof the upcoming fiscal year (July 1). New Mexico has also allowed for anymonies not spent (up to $10M) to be carried over to the following year.

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Film Investment Loan Program

New Mexico is only state with this type of program

Loan Amounts:Minimum: $500K Maximum: $15M Loan shall not exceed 100% of the production budget. Marketing and distributioncosts will not be considered part of the production budget.

Interest Rate:Fixed interest rate: National Prime Rate (as published daily in the Wall StreetJournal) plus 150 basis points (1.5%) based on the date of SIC approval. Backend participation has been eliminated.

Payback Terms:Not to exceed two (2) years. Term begins at closing of loan.

Guarantor:Full, unconditional and irrevocable Letter of Credit from a U.S. incorporated bankwith at least an “A” credit rating from a nationally recognized rating agency requiredor cash escrow account. Amount guaranteed must be principal plus accrued interest.Guarantor shall not expire earlier than sixty (60) days after maturity.

Distribution:A distribution contract must be “in place with a reputable distribution company,”meaning a signed contract. A letter of intent, deal memo, or sales agent wouldnot be accepted. A distribution agreement covers not only theatrical distributionbut also other avenues of distribution such as direct-to-video, cable and TV, etc.This is a statutory requirement and there are no exceptions.

Crew:At least seventy-five percent (75%) of the BTL crew (body count) and payroll must beallocated to New Mexico residents. Crew members will be approved upfront throughTaxation & Revenue, and only crew members filing a New Mexico tax return as aResident or First-Year Resident will be considered a New Mexico resident for this purpose.

Shooting Days:At least eighty-five percent (85%) of the film must be shot in New Mexico, and this is based on principal and second unit.

Script:The Film Division will determine eligibility based upon the script’s content. Scriptscontaining excessive or gratuitous violence, sexual content or language, culturally sen-sitive material (glorification of drugs, suicide, irresponsibility with racial or religioussubject matter, etc…) or a combination of the above, would most likely be ineligible.

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Film Crew Advancement

FCAP is an incentive for production companies to help create more job oppor-tunities for New Mexican film and television crew professionals. A productioncompany is reimbursed 50% of a participant’s wages for up to 1040 hours phys-ically worked by the qualifying crew member in a specialized craft position. Thison-the-job training program is in addition to the 25% film production tax rebate.

As an example, a New Mexican Grip who is ready to move up to the Best Boyposition and has no credits as a Best Boy or only one credit as a Best Boy from a film or television project (that had a budget over one million) would qualify.The Key Grip would be that crew member’s mentor.

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The Partners

Vision GlobaleWith more than 500 employees, Vision Globale (http://www.visionglobale.ca),headquartered in Montreal, is the most important Canadian-owned companyoffering services related to the film and television industries. The offer covers thefull range of requirements: in studios, camera and lighting rental; post-production;visual effects and 3-D animation; production and management of assets for dis-tribution and broadcast through film, television, internet and mobile networks.

Through internal growth and business acquisitions, Vision Globale has becomea leader in the industry. The offer, unequalled in North America, includes 18world-class sound stages totaling over 225,000 square feet, technologies to supportthe most ambitious projects and highly skilled talents. Vision Globale has alsodeveloped proprietary online transaction and distribution platforms for videoon demand (VOD) and digital cinema (DCI) and, in addition, owns propertyrights on technologies being used for digital image restoration and for 2-D conversion into 3-D stereoscopic images. In 2013, Vision Globale will expandits operations to surpass 350,000 square feet of sound stages, which will includeMotion Capture capabilities. It will also double its visual effects capacity as wellas continue its R&D development on proprietary technologies.

This will be their first direct interest in the US market Their intent is to parlay theadvantages of post production subsidies and capabilities in Canada with the expan-sive natural scenery backdrop of the Southwest thereby expanding market share.

Sky Pilot FilmsSky Pilot Films is commercializing a patented, game changing solution thatcompletely transforms the process of live action filming, motion capture, 3-Dvisualization, CGI animation and the production of visual FX in the film,television, video game and location-based entertainment industries. Thetechnology comprises an advanced sensor and software system that providesfull face and body motion capture, in uncannily realistic 3-D, using a singlelens camera-eliminating bulky and expensive stereoscopic rigs. Images andmetadata of any native subject are captured without the need for eliminatingspecial suits, sensors or markers. Landscapes, structures, flora, fauna andother objects previously unattainable are all now capture in natural light, to a resolution of over 3.8 million polygons, frame by frame, at variable speeds—all captured and viewable by directors in real time. The company has designeda fully automated ‘Camera to Screen’ film production pipeline solution.

Pandoodle CorporationElliot Lewitt, President of Digital Media based in Los Angeles, will be integratingPandoodle into “The Q” with all the latest in animation-based technologies. Pan-doodle Corporation is a world leader in personalized interactive animation-basedproducts. Our technology allows your viewers to put their child into your animatedDVD video or interact online with their favorite characters. We provide brandedproperty owners new, high-margin products that significantly increase both theirrevenues and brand strength. Leveraging our patented technologies, Pandoodle allows your audience to make our customer’s audience more actively engaged with

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branded content though a personalized and interactive experience, while at thesame time providing high-margin merchandising opportunities. The personalizedand interactive experience provided by Pandoodle is key in defining and executingan effective trans media strategy for your customers, in which we provide prod-ucts through a variety of online and mobile platforms.

Pandoodle has corporate offices in Silicon Valley, Hollywood, Columbia SC,and New York in addition to development and production facilities worldwide.We offer you the world’s best technology and production team for cross-plat-form, personalized and interactive animation. Pandoodle provides a completesolution, working behind the scenes through a comprehensive engagementprocess to manage development, production and product delivery of personal-ized and interactive products on behalf of our customers.

Twin Oaks AdvisorsTwin Oaks Advisors is a privately held firm specializing in the provision of advisory services to the media and entertainment industry. The firm’s seniormanagement has a strong track record in structuring and arranging financingfor intellectual property based transactions. During the last five years, TwinOaks Advisors principals have raised over $4.5 bln in junior and senior capitalfor leading entertainment companies. The firm has strong relationships withprivate equity and hedge funds as well as key global strategic investors interestedin expanding their profile in the media and entertainment industry. (Please seeAppendixes for information on Twin Oaks President and CEO Laura Fazio.)

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Job Creation & Sustainment

A projected breakdown for DIRECT jobs that would be immediately created orsustained within this proposed plan are as follows:

YEAR 1:The Q Studio (Facility Management and Day to Day Operations)

• 30 Employees 10–Administrative support7–Property and grounds maintenance3–On Site Engineers5–On Site Security Staff5–Equipment rental and maintenance (G&E)

Sky Pilot Films:•25-30 Employees

10 Technicians10 Administrative Staff5–10 Sales and support staff

Pandoodle Corporation• 5+ Employees

We estimate that they would need a support staff on site at inception, and could open a larger footprint within the studio in the future.

REELZ Channel, LLC• 50+ Employees

3 Feature Film Productions:• 80+ Employees per film - Each film production lasting 4 months

This estimate is very conservative but is directly created/sustained positions that would otherwise not be unless this acquisition is finalized.

1 Major Feature Film (Annualized)• 200 Employees

1 Major Television Series100+ Employees

Creates sustained positions for several years

YEAR 2:Raise our feature film slate to 5 produced annually

YEAR 3:Raise our feature film slate to 7 produced annuallyIncrease major television series to 2 produced annually

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Indirect Job Creation/Sustained

In 2012, the New Mexico Economic Development Department (NMEDD)reported that the economic impact of Media Industry Productions was 673.80million dollars. Although this amount is statewide, The Greater Albuquerquearea boasts (by far) the largest studios in the state and we expect a much largerimpact once “The Q” is acquired and developed. Here is a conservative break-down of 4 industries effected by this growth.

Four industries indirectly impacted by growth of Film Production in Albuquerque:• 960 Restaurants • 144 Hotels • 8 major Rental Car Companies• 37 Lumber Yards

A total of 1,149 businesses of which would benefit from the growth of Film Production in Albuquerque and with that growth, it could be argued that if only5% of these companies hire just one (1) employee, this would create 58 new jobs.

We conclude that the acquisition and implementation of “The Q” would con-servatively create/sustain directly and indirectly at least 578 JOBS.

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University of New Mexico

This Branch of UNM lies directly adjacent to the Albuquerque Studios. TheInterdisciplinary Film and Digital Media Program (IFDM) at the Universityof New Mexico is a model of interdisciplinary education that will give theirstudents necessary critical, creative, and technical skills to apply digital tech-nologies in innovative and productive ways. Established in 2005 under theState of New Mexico’s Media Industries Strategy Plan (MISP), IFDM isbuilt on existing strengths in the Anderson School of Management, Artsand Sciences, College of Fine Arts, and the School of Engineering, alongwith other schools and colleges, the IFDM Program has four objectives:

• Integrate Filmmaking and Digital Media• Build a Native New Mexican Film Industry• Train the Citizens of New Mexico • Foster Research

“The Q” plans on integrating our new technologies in the media world withan exclusive program with IFDM students allowing them opportunities towork on cutting edge projects produced in the facility.

Map of University of New Mexico in proximity to “The Q”

University of New Mexico

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Offering

“The Q” is offering a sixty percent (60%) ownership of Albuquerque Studios, acquiredfrom the mezzanine bank, at a full value of twenty-one million dollars ($21M) (US).

60% of $21,000,000 = $12,600,000 Investment.

Our 20% equity partner, Vision Globale, who will also be providing facilitymanagement services, will invest $2,520,000.

60% Ownership = $12,600,000

20% Vision Globale = ($2,520,000)

Sky Pilot Films = $3,000,000

Pandoodle Corporation = $1,000,000

Miscellanious Improvements and Operations = $920,000

Project Funding Requirement = $15,000,000

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Appendix 1

Laura Fazio recently formed Twin Oaks Advisors in order to provide advisoryservices for the media and entertainment industry sector. Prior to forming TwinOaks Advisors, Laura was the Managing Director and Head of the Advisory andCapital Markets practice for the Global Telecom, Media and Technology sectorat Aladdin Capital. Prior to joining Aladdin, Ms Fazio was the Global Head ofMedia and Entertainment Structured Finance at Deutsche Bank Securities until2008. From 1998 until 2007, Ms Fazio headed Dresdner Kleinwort’s Media andEntertainment practice in the US, where she advised on and arranged over $5billion in capital for nine media transactions including the raise of over $1.4 bil-lion for Dune Capital (production partner for Twentieth Century Fox), over $1billion for Legendary Pictures (production partner for Warner Brothers), and$915 million for the acquisition of DreamWorks film library by Soros StrategicPartners and Dune Capital. In addition to the above landmark transactions, Ms.Fazio advised on the sale of Warner Village Cinemas Italian cinema chain as wellas the financial restructuring of Village Roadshow Pictures. From 1992–98, MsFazio served as the US head of media and entertainment at ABN AMRO, managingthe global relationships for flagship media companies including Time Warner,Viacom, NewsCorp, Sony and Disney. Transaction credits include advising andarranging the June 1998 $400 million New Line cinema film securitization as wellas the $225 million Sony Palisades Partners international film rights acquisitionsfacility. Ms. Fazio has an MBA from the American Graduate School of Interna-tional Management at Thunderbird and a BA from American University.

The global film business is being revolutionised as billions of dollars of bank finance pours into the sector. Laura Fazio, formerly managing director and NorthAmerican group head for corporate finance and origination’s media industry prac-tice, Dresdner Kleinwort, gives Richard Brass her assessment of the situation

One name close to the explosion in film financing is that of investment bankinggiant Dresdner Kleinwort–and in particular, Laura Fazio, who until last week wasthe bank’s media expert (at press time it was announced Fazio was joining DeutscheBank as managing director and global head of media and entertainment financewithin the bank’s securitised products group of its global markets division).

While many institutions have dived into film recently, Dresdner’s activity in the industry, and Fazio’s involvement in some of the biggest deals, go back many years.

Before joining Dresdner in 1998, Fazio was part of big deals involvingNew Line, New Millennium, Galaxy and Sony while working for ABN-Amro, and her recent deals are even more impressive.

In June, Dresdner closed the Legendary Pictures deal, and other recent financings include Spyglass Entertainment’s $275m, Twentieth Century Fox’s $597m recapitalisation of Dune Entertainment and last year’s $750m deal for DreamWorks. And there is more to come.

“We’ve always been very much involved in the film side,” says Fazio, speakingfor Dresdner Kleinwort before the announcement of her move to DeutscheBank. “I’ve been doing the film-financing business for 15-plus years. But you’vegone from a deal here and a deal there to the pace increasing dramatically.”

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“The film industry’s constant hunger for finance is one of its most outstand-ing features for bankers,” she says. “I finance the cable business as well, andwhen a cable network is built, it’s built, and there’s not much more for you to do. With film there’s an evergreen financing requirement.”

“Right now there’s a perfect storm in film. You’ve got scrutiny from the parentcompanies, you’ve got an ability and a level of comfort in providing the investorswith data, and you’ve got the rise of the hedge funds and private equity, who arehungry for off-the-run assets and willing to look at this esoteric asset class.”

“You put all of these things together and you have demand. You have appetitefrom the investors and you have appetite from the issuer. That’s what’s causedmore than $11bn in financings in the last 20 months.”

“The essence of slate financing appeal,” Fazio says, “is it mitigates the risk associatedwith this industry, and its not-undeserved reputation for chance and heavy losses.”

“Our data and our Monte Carlo [a risk assessment tool in which possible scenariosare played out] give us a great deal of comfort and give our investors comfortthat, with at least a 15-picture film slate–and my committees are more comfort-able with a 25-picture film slate–and with a major studio distributor and therelative value analysis, both quantitative and qualitative, we see an opportunityto manage the risk and provide acceptable returns to our investor base.”

She is also in no doubt, that slate financing is imposing a new financial regimeon film-makers that will create long-term benefits for the industry. “I think thiskind of financing is making the film industry much more fiscally prudent.”

I’ve had studio heads tell me, “I like having hedge-fund guys in with me, becauseI’m not always the bad guy when it comes to sitting down with the talent or mymarketing people.” I can say, “Hey, I’m being dictated to by my equity partners.”

But can financing really keep going at this pace? “No doubt about it,” saysFazio. She believes another $15bn in the next year is achievable. “I think thatwould be a valid number. What happens is each of these libraries gets larger,there are opportunities not just from the large majors, but from independentand satellite studios, and then there’s the global opportunity.”

“Dresdner is doing its part to reach that figure. The bank is putting finishingtouches on a series of deals with figures,” Fazio says, “around $750m and $500m.”

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Appendix 2

New Mexico Economic Development Employment Incentives Earthtone Pictures/Sky Pilot

Hard Incentives:The State of New Mexico has calculated and approved the following incentive values:

Tax Adjustment/Abatement:Industrial Revenue Bonds: $2,458,639Property Tax Exemption: $169,031Gross Receipt Tax Exemption: $158,234

Cash Refund Payments:Job Training Incentive Program: $2,186,808High Wage Job Tax Credit: $1,339,950

New Mexico Film Office–Film Post Production Credit: 25% of expenses (the amount will be determined by post-production workdone in New Mexico on any film project no matter filmed).

NM Finance Authority - New Market Tax Credit Program:Up to $10,000,000.00 (we Project $7,500,000.00) Low interest loan with 25% forgiveness at term

Potential $2+ Million grant for Targeted industry

Hard Incentive Value total ranges between $9–12million depending on postproduction projects, facility strategies and hiring levels/quantity.

We are not likely to utilize all of the above grant and or loan programs. However, we would expect to utilize the Job Training Incentive Program—$2,186,808 and the High Wage Job Tax Credit—$1,339,950

©EarthTone Pictures & Jekyll Island Films