ASX ANNOUNCEMENTPOTENTIAL DISPUTE RELATING TO CONVERSION PRICEOF...

ASX ANNOUNCEMENT
POTENTIAL DISPUTE RELATING TO CONVERSION PRICE
OF CONVERTIBLE NOTES
BACKGROUND
On 04 September 2007, Brainytoys Limited (“BRT�) announced to the Market
that it had entered into certain arrangements with Noble Investments Pty Ltd
(Noble), a substantial shareholder and secured convertible note holder.
The announcement and the agreement foreshadowed certain proposed
amendments to an existing convertible note facility together with the proposed
provision by Noble of a further $500,000 facility to supplement an existing undrawn
facility of $500,000.
The agreement, if implemented, would inter alia have (i) changed the conversion
price on $200,000 of notes already drawn down to a price of 6 cents per share
compared with a 20% discount to 3 months VWAP, estimated at approximately
11 cents (if converted now) compared to the last sale price of 17 cents per
share, causing the issue of a further 1,515,152 shares in excess of the existing
position, (ii) resulted in a fee of $100,000 ultimately satisfied by the issue of
BRT shares at 6.8 cents per share (1,470,588 shares), and (iii) committed BRT
to a conversion price of 6 cents per share compared with the existing
arrangement of 20% discount to 3 months VWAP for %500,000 of un-drawn
notes.
SUBSEQUENT EVENTS
Since the date of the agreement the Company’s prospects, financial
circumstances, and market rating have improved appreciably. Consequently,
BRT did not proceed to enter into a binding convertible note agreement
recording the amended arrangements and additional facility fee, nor did it
exercise its rights to draw down any further note tranches or convene an extraordinary
general meeting of shareholders to approve the various changes.
BRT has recently received a letter from Noble’s solicitor inter alia informing it
that it was seeking the execution of the revised convertible note deed (thereby
triggering the various incremental benefits for its client.) BRT does not intend to
capitulate to this demand because it would be detrimental to, and not in the best
interests of shareholders.
POTENTIAL LITIGATION
It is possible that Noble will issue court proceedings to seek to enforce its
alleged position. If so the matter will be vigorously defended and the Directors
are confident of a satisfactory outcome for BRT. In the worse case scenario
however, the financial loss incurred would take the form of an issue of
incremental shares as indicated above, as compared to the status quo.
ENDS
11 December 2007
For further information contact:
Graham Nicol
Company Secretary
Ph: (08) 9331 8441
[email protected]