March 31, 2003

Mr. Robert MacLean

InternetStudios.com, Inc.

1351 4th Street, Suite 227

Santa Monica, California 90401

Re: Debt & Equity Financing - Private Placement

Dear Mr. MacLean:

This letter agreement (this "Agreement") will confirm the arrangements under
which CapStone Investments ("CapStone") is authorized to act as placement agent
("Agent" or "Agency") for InternetStudios.com, Inc., a Nevada corporation
("ISTO") and Acquisition Corp., a California corporation ("AC"), wholly owned by
ISTO, in connection with the proposed offering of up to approximately
$10,000,000 of debt and equity securities of ISTO/AC (the "Securities") having
the terms and conditions set forth herein.

The services provided by CapStone are separated into the following basic areas:
due diligence and deal financing. A description of CapStone's functions and
activities in each of these areas and the applicable compensation to CapStone
are described as follows:

Due Diligence

CapStone will review the due diligence files prepared by ISTO/AC's counsel and
other advisors for the transaction. CapStone will provide ISTO/AC with a due
diligence checklist to assist in the preparation of the required due diligence
files. CapStone will make comments where appropriate and may request additional
documentation.

It is recognized and understood that there is no assurance that CapStone's due
diligence review process will confirm that you should, in CapStone's judgment,
proceed with the proposal. If CapStone advises not to proceed with the proposal
based on its due diligence review, it will discuss those factors supporting its
conclusion. Before a negative conclusion is arrived at, CapStone may, if
appropriate under the circumstances, discuss its concerns with you to determine
if the proposal can be modified or adjusted in order to allow CapStone to
proceed with the engagement.

The fee charged by CapStone for the Due Diligence portion of the engagement is
THIRTY FIVE THOUSAND DOLLARS ($35,000.00), due and payable at the outset of the
engagement, should ISTO/AC elect to engage CapStone.

Deal Financing

ISTO/AC will prepare a Private Placement Memorandum or Offering Circular
relating to the Shares pursuant to an exemption from the registration of the
Securities Act of 1933 as amended (the "1933 Act") provided for in Sections 4(2)
and 4(6), and Rule 506, "Regulation D" and pursuant to various Blue Sky
registration, qualification, notification or other applicable requirements. The
Securities, which will either be in the form of Common Stock (Equity) or
debentures (debt), shall have the following terms and conditions, among others.

The offering of either Common Stock or debentures shall be a minimum dollar
amount to be sold of $10,000,000.00 and the maximum amount shall be
$15,000,000.00. It is CapStone's understanding that at least $5,000,000.00 of
the money raised will be used to purchase the RKO Pictures film library.

Fees

As compensation for the services of CapStone hereunder, ISTO/AC shall pay to
CapStone the following fees:

As noted above, a nonrefundable retainer in the amount of $35,000.00 payable
upon execution of this Agreement.

A cash fee equal to five percent (5%) of all monies raised by CapStone and
payable at final closing.

Warrants representing five percent (5%) of the shares or debentures placed by
CapStone at a strike price to be determined.

In the event that ISTO/AC decides to sever its relationship with CapStone, then
ISTO/AC shall pay CapStone a fee of $100,000 to be paid upon termination or some
other mutually agreed upon date.

Final Closing shall be deemed to have occurred as of the date when all
conditions set forth in this Agreement have been satisfied.

Retention

ISTO/AC hereby retains CapStone, and CapStone agrees to act, in accordance with
the provisions of this paragraph, as representative and placement agent in
connection with the private issuance or sale of the Securities during the term
of this Agreement. In connection with this engagement, CapStone's services may
include (i) assistance in preparation materials (which will include a Private
Placement Memorandum or Institutional Group Selling Document) describing
ISTO/AC, its business, operations, assets and prospects (the "Offering
Materials") and (ii) identifying and contacting qualified potential purchasers
of the Securities.

CapStone acknowledges and agrees that ISTO/AC shall retain the sole and
exclusive right to accept or reject any proposed sale of Securities and ISTO/AC
shall not incur any liability to CapStone for such rejection. ISTO/AC may
terminate the offer and sale of the Securities at any time in its sole
discretion.

ISTO/AC understands that CapStone will be acting as the exclusive Agent of
ISTO/AC in the offering and sale of the Securities and acknowledges and agrees
that in connection therewith CapStone will use its "best efforts" to place the
Securities. The exclusive Agency granted CapStone hereunder shall extend to any
other equity or debt financing, out of the ordinary course, which may be
considered during the term hereof and ISTO/AC agrees to refer all proposals for
any such financing to CapStone. ISTO/AC expressly acknowledges and agrees that
CapStone's obligations hereunder are not on a firm commitment basis and that the
execution of this Agreement does not constitute a commitment by CapStone to
purchase the Securities and does not ensure the successful placement of the
Securities or any portion thereof.

Additional Financing - Acquisition Of Domestic & Foreign Distribution Rights

If ISTO/AC seeks to reacquire the foreign and domestic distribution rights to
the RKO library, CapStone shall have the first right of refusal for any
additional financing relating to such acquisition.

Additional Financing - Private Placement or Strategic Alliance

It is contemplated that ISTO/AC may require the completion of additional Private
Placement Offerings or Strategic Alliances ("PPO") for ISTO/AC beginning within
approximately 120 days after the completion of this Private Placement. CapStone
shall have the first right of refusal for the additional Private Placements or
to offer these Private Placement(s) to an appropriate underwriter to act as
exclusive agent to coordinate and arrange the syndicate to place said Private
Placement Offering(s).

Additional Financing-Public Offering

It is contemplated that ISTO/AC may seek an Initial Public Offering ("IPO") of
ISTO/AC at some point after the completion of the Private Placement or Strategic
Alliance. CapStone shall have the first right of refusal to take the IPO to an
appropriate underwriter of its choice which would act as exclusive agent to
coordinate and arrange the syndicate to place said public offering on a best
efforts basis of the securities to be issued by ISTO/AC.

It is contemplated that ISTO/AC and the said underwriter would enter into an
underwriting agreement (the "Underwriting Agreement") in form and substance
satisfactory to counsel for the lead underwriter and counsel for ISTO/AC. The
Underwriting Agreement shall contain terms and conditions as are customary in
such an agreement including a discussion of fees.

Additional Terms and Conditions

Term.

CapStone will, on a "best efforts" basis through its registered personnel or
through separate registered broker-dealers, arrange for the Private Placement
Offering within 120 days following the completion and approval of the pricing of
the Securities or the Private Placement Memorandum or the Institutional Group
Selling Document ("Term").

Renewal

. This Agreement and the Term shall be automatically renewed for successive 90
day periods but may be terminated by CapStone or ISTO/AC by written notice and
under the following conditions: if by no fault of ISTO/AC, CapStone is unable to
raise i) the minimum funds, from all sources, within 90 days after the beginning
of the Term or ii) the maximum funds, from all sources, within 120 days after
the beginning of the Term, both parties shall be released from any obligation to
the other under this letter or otherwise once all commissions due CapStone on
funds raised through the date of cancellation are paid.

However, if a Letter of Intent is received or funds placed into escrow during
the Term or within eighteen months of the termination of this Agreement with or
by a third party to whom ISTO/AC was introduced or contacted by anyone, then
CapStone's fee will be due and payable as provided herein.

Escrow

. It is agreed and understood that CapStone can require that an escrow agent or
investment fund hold the investor proceeds and CapStone can require that the
escrow agent or fund manager holding the investor proceeds available for
distribution to the issuer directly distribute to CapStone and any other
placement agents any cash portion of the selling commissions due on the funds
raised.

Registration

. In the event ISTO/AC undertakes a public offering, ISTO/AC hereby grants
CapStone "piggyback" registration rights for the Common Stock or any Common
Stock underlying any warrants issued as a fee to CapStone as described herein.

Information

. During the course of the Term of this Agreement, ISTO/AC agrees to furnish
CapStone with such information about ISTO/AC as CapStone reasonably requests,
including information to be included in a private placement memorandum, offering
circular or other disclosure document ("Company Information"). ISTO/AC
represents and warrants to CapStone that all Company Information will be
accurate and complete in all material respects and will not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements contained therein, in light of the circumstances under which such
statements are made, not misleading, in each case at the time such information
is furnished. ISTO/AC agrees to advise CapStone during the period of the
engagement of all developments materially affecting ISTO/AC or the accuracy of
the Company Information previously furnished to CapStone or prospective
purchasers of the Securities. If in addition, any representations and warranties
made by ISTO/AC to purchasers of the Securities pursuant to the transactions
contemplated hereby shall be deemed to be incorporated into this Agreement and
any opinions delivered by or on behalf of ISTO/AC to the purchasers of any such
Securities shall expressly provide that CapStone may rely upon such opinions.
ISTO/AC acknowledges and confirms that CapStone may rely upon such opinions.
ISTO/AC acknowledges and confirms that CapStone (i) will be relying solely on
such information and other information available from generally recognized
public sources in performing the services contemplated hereunder, (ii) will not
independently verify the accuracy or completeness of such information, (iii)
does not assume responsibility for the accuracy or completeness thereof, and
(iv) will make appropriate disclaimers consistent with the foregoing and their
affiliates may share with each other, any information related to ISTO/AC or
ISTO/AC's affiliates (including information relating to creditworthiness).

Blue Sky Laws

. ISTO/AC will endeavor in good faith, in cooperation with CapStone and its
counsel, to qualify, to the extent required by applicable law, the sale of the
Securities for Offer and Sale under the applicable securities or "blue sky" laws
of such jurisdictions as CapStone may designate, and ISTO/AC will use its best
efforts to maintain such qualifications in effect for as long as may be required
for the distribution of the Securities. In each jurisdiction where the
Securities shall have been qualified as above provided, ISTO/AC will make and
file such statements and reports in each year as are or may be required by the
laws of such jurisdiction. ISTO/AC shall pay all fees, charges, expenses and
disbursements relating to the Offering, including, without limitation, all fees,
charges, expenses and disbursements in connection with (i) the preparation,
printing, filing, distribution and mailing of the Confidential Offering
Memorandum and any supplement and amendment thereto and all other documents
relating to the Offering and the purchase, sale and delivery of the Securities,
including the cost of all copies thereof; (ii) the issuance, sale, transfer and
delivery of the Securities, including any transfer of other taxes payable
thereon and the fees of any transfer agent or registrar; (iii) the registration
or qualification of the Securities for Offer and Sale under the securities laws
of such states and other jurisdictions as CapStone may designate (including,
without limitation, all filing and registration fees and the reasonable "blue
sky" fees and disbursements); and (iv) not to exceed $25,000 subject to the
Companies pre-approval, in it's sole discretion, travel and lodging expenses and
other out-of-pocket expenses incurred by CapStone in connection with this
Offering. Upon CapStone's request, ISTO/AC shall provide funds to pay for all
such fees, charges, expenses and disbursements in advance.

Indemnification

. ISTO/AC agrees to indemnify CapStone and its affiliates and each person in
control of CapStone and its affiliates and their respective officers, directors,
employees, agents and representatives and their respective affiliates and
control persons arising out of or based upon any untrue statement of any
material fact contained in the Offering Materials or Confidential Information or
the omission or alleged omission to state therein a material fact to be stated
therein or necessary to make the statements therein in the light of the
circumstances under which they are made, not misleading; provided, however, that
ISTO/AC shall not be liable in any such case to the extent that any such loss,
claim, damage, liability, or action arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made
therein upon, and conformity with, information relating to any such indemnified
party furnished to ISTO/AC by such indemnified party specifically for the use in
the preparation thereof; provided, further, that no such indemnity shall be
provided against negligent acts of, or willful conduct by, such parties
otherwise entitled to indemnification herein.

CapStone agrees to indemnify ISTO/AC and its affiliates and each person in
control of ISTO/AC and its affiliates and there respective officers, directors,
employees, agents and representatives and their respective affiliates and
control persons arising out of or based upon any information relating to such
indemnifying party furnished to ISTO/AC in writing by such indemnifying party
specifically for use in the preparation of the Offering Materials or
Confidential Information, if such information constituted an untrue statement or
alleged untrue statement of any material fact therein or the omission or alleged
omission to state therein a material fact required to be therein or necessary to
make the statements therein, in the light of the circumstances under which they
are made, not misleading; provided, however, that no such indemnity shall be
provided against negligent acts of, or willful conduct by, such parties
otherwise entitled to indemnification herein.

Provided further, the obligation to indemnify is limited to the amount of
compensation received by CapStone under this engagement.

Expenses.

ISTO/AC agrees to pre-pay for all pre-approved CapStone expenses related to
travel, accommodations and entertainment required and incident to the
performance of their duties hereunder.

Other Services

. ISTO/AC acknowledges and agrees that CapStone and/or its affiliates may be
requested by ISTO/AC to provide additional services with respect to ISTO/AC or
other matters contemplated hereby. Any such services will be set out in and
governed by a separate agreement(s) (containing terms relating, without
limitation, to services, fees and indemnification) in form and substance
satisfactory to ISTO/AC and CapStone (or any such affiliate). Nothing in this
Agreement is intended to obligate or commit CapStone or any of its affiliates to
provide any services or financing other than as set out herein.

No Shareholder Rights

. ISTO/AC acknowledges and agrees that CapStone has been retained only by
ISTO/AC and that ISTO/AC's engagement of CapStone is not deemed to be on behalf
of and is not intended to confer rights upon any shareholder, owner or partner
of ISTO/AC or any other person not a party hereto as against CapStone or any of
their affiliates or the respective directors, officers, employees, agents and
representatives of CapStone and its affiliates. Unless otherwise expressly
agreed, no person or entity other than ISTO/AC is authorized to rely upon
ISTO/AC's engagement of CapStone or any statements, advice, opinions, or conduct
by CapStone.

Successors and Assigns

. This engagement agreement is binding on all successors and assigns. However,
it shall not be assigned without the prior written consent of the other party.
This agreement shall be construed in accordance with and enforceable under the
laws of the State of California.

Governing Law

. This Agreement constitutes the entire agreement between us, and supersedes all
other prior agreements and understandings, other written and oral, between the
parties hereto with respect to the subject matter hereof and cannot be amended
or otherwise modified except in writing executed by the parties hereof. Any
dispute arising from the interpretation, validity or performance of this
Agreement or any of its terms and provisions shall be submitted to arbitration
in San Diego County, California before, JAMS/Endispute, Inc.

Miscellaneous.

This Agreement may be executed in two or more counterparts, including
electronically transmitted counterparts, all of which together shall be
considered a single instrument. The term "affiliate" as used herein shall have
the meaning ascribed to such term in the rules and regulations promulgated under
the Securities Exchange Act of 1934, as amended.

 

 

 

We are delighted to accept this engagement and look forward to working with you
on this assignment. Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter.

Very truly yours,

CapStone Investments

Dated: March 26, 2003

 

By: /s/ Steven P. Capozza

Steven P. Capozza, President

 

AGREED AND ACCEPTED:

InternetStudios.com

Dated: _______________________

 

By: /s/ Robert MacLean

Robert MacLean

Its_________________________________

 

 

Acquisition Corp.

Dated: _______________________

 

 

By: /s/ Robert MacLean

Robert MacLean

Its ____________________________________