MACRO METALS LIMITED — M&A Activity 2004

Jul 13, 2004

AUTO ENTERPRISES LIMITED

ABN 28 001 894 033

Registered Office: c/ Stirling Warton Williams Level 11 St James Centre 111 Elizabeth Street SYDNEY 2000 Postal Address: Company Secretary ATL 1/15 Station Street NAREMBURN 2065

Telephone Contact: Company Secretary, Don Wilson Tel 02 9439 9964 Mobile 0425 323 011 Facsimile 02 9439 9963 Email wilcar7@bigpond.com

12 July 2004

Company Announcements Australian Stock Exchange Limited ('ASX') Exchange Centre 20 Bridge Street SYDNEY NSW 2000

AGREEMENT TO ACQUIRE BRAINY TOYS

The Company has entered a conditional agreement to acquire Brainytoys.com Pty Ltd, a business established to develop, manufacture, license and market toys, games, educational and animation products developed by Mr Alex Aguero.

An Information Memorandum will be prepared to accompany a notice of meeting of shareholders that will consider enabling resolutions to effect the acquisition and apply for re-quotation of the Company's securities for trading on ASX.

Further information will be issued to ASX when available.

A copy of the Heads of Agreement is attached.

Yours sincerely

DON WILSON Company Secretary

Unsigned Online Announcement

HEADS OF ACQUISITION AGREEMENT

AUTO ENTERPRISES LIMITED

AND

BRAINYTOYS.COM PTY LTD

28June 2004

HEADS OF AGREEMENT TO ACQUIRE BRAINYTOYS.COM PTY LTD

HEADS OF AGREEMENT dated 28 June 2004

BETWEEN

AUTO ENTERPRISES LIMITED (ACN 001 894 033)

C/- Stirling Warton Williams, Level 11,111 Elizabeth Street, Sydney, New South Wales 2000 ("the Purchaser")

AND

ALEX AGUERO of 6B Bowen Street. O'Connor, Western Australia 6163 ("the Vendor")

AND

BRAINYTOYS.com PTY LTD (ACN 091 822 481) OF 6B Bowen Street, O'Connor, Western Australia, 6163 ("the Company")

AND

LOTHBURY PTY LTD (ACN 009 364 863) of 19 Charles Street, South Perth, Western Australia, 6151 ("the Adviser")

(1) RECITALS

• Alex Aquero is the registered and beneficial owner of 2 ordinary shares of \$1 each representing the whole of the issued capital in the Company.
• The Purchaser is desirous of acquiring and the Vendor is desirous of selling the whole of the issued capital of the Company in consideration of and subject to the terms and conditions described herein.
• While the parties intend that the Heads of Agreement will be binding (subject to the terms and conditions detailed herein) it is acknowledged that solicitors may improve the draft, resulting in minor modifications for the preparation of the final Acquisition Agreement.

AGREEMENT

(2) DEFINITIONS

In this Agreement:

"Accounts" means the unaudited Balance Sheet and Profit and Loss Statement for the period ending 30 June 2003 together with the notes forming part thereof;

"Acquisition Terms" means the Terms detailed in clauses 3 to 4 inclusive;

"Advisers Engagement Terms" means the Terms detailed in Schedule 1;

"Heads of Agreement Date" means 28 June 2004:

"Assessment" means a notice of assessment of tax under the Tax Act issued after the date of this Agreement in relation to Brainy that involves or could involve Brainy in liability to the Purchaser under this Agreement;

"Associate" has the meaning given to that term by sections 10 to 17 of the Corporations Act:

"ASX" means Australian Stock Exchange Limited:

"Auto" means Auto Enterprises Limited:

"Auto Options" means a free option to subscribe for a new share in Auto at any time up to $30^th$ June 2009 at an issue price of 5 cents pre Capital Reconstruction and 25 cents post Capital Reconstruction:

"Auto Warranties" means the warranties given by Auto under clause 10 and set out in Schedule 3:

"Auto Shares" means ordinary shares in Auto Enterprises Limited "Balance Sheet Date" means 30 June;

"Brainy Related Royalty" means 1% of the annual sales generated by the Company;

"Brainy Shares" means the whole of the issued capital of the Company;

"Brainy and Vendor Warranties" means the warranties given by the vendor and Brainy under Clause 9 and set out in Schedule 2:

"Business" means the business carried on by Brainy;

"Business Day" means a day on which banks (as defined in the Banking Act 1959 (Cth)) are open for general banking business in New South Wales, excluding Saturdays and Sundays.

"Capital Reconstruction" means the consolidation of 5 existing Auto Shares into 1 Auto share:

"Claim" includes a claim, notice, demand, action, proceeding, litigation, investigation, judgment, damage, loss, cost, expense or liability however arising, whether present, unascertained, immediate, future or contingent, whether based in contract, tort or statute and whether involving a third party or a party to this Agreement;

"Completion" means completion of the Stage 1 transaction contemplated by this Agreement as described in clause 4.1;

"Completion Date" means the date on which the Completion takes place.

"Conditions" means the conditions set out in clause 4;

"Confidential Information" means, in respect of a party:

• all information of or used by that party which relate to its transactions, $(a)$ operations and affairs;
• $(b)$ all other information treated by the party as confidential;
• $(c)$ all notes, data, reports and other records (whether or not in tangible form) based on, incorporating or derived from information referred to in paragraphs $(a)$ or $(b)$ ; and
• all copies (whether or not in tangible form) of the information, notes, reports $(d)$ and records referred to in paragraphs (a), (b) or (c),

that is not public knowledge (otherwise than as a result of a breach of a confidentiality obligation of a party);

"Due Diligence" means the due diligence exercise to be conducted by the Purchaser and its advisers into Brainy, inter alia, to:

• assist in the drafting of the Explanatory Memorandum and the Independent $(a)$ Expert's Report; and
• $(b)$ to allow the Purchaser to determine whether to proceed with the transactions contemplated by this Agreement:

"Encumbrance" includes mortgage, charge, lien, restriction against transfer, encumbrance and other third party interest;

"Explanatory Memorandum" means the memorandum prepared in accordance with ASIC Policy Statement 74 to be sent to shareholders of Auto describing, inter alia, the transactions contemplated by this Agreement:

"First Cash Sum" means the sum of \$25,000;

"Group and Vendor Warranties" means the warranties given by Brainy and the Vendor as set out in Schedule 2;

"Heads of Agreement" means this Agreement;

"Independent Expert's Report" means the report prepared by an independent expert commissioned by the Purchaser in accordance with ASIC Policy Statement $74:$

"Insolvency Event" in relation to a party means:

• $(a)$ the party or a subsidiary of the party resolving that it be wound up;
• $(b)$ the appointment of a provisional liquidator of the party or of a subsidiary of the party;
• $(c)$ the making of an order by accord of the winding up of the party or of a subsidiary of the party;
• $(d)$ an administrator of the party, or of a subsidiary of the party, being appointed under section 436A, 436B or 436C of the Corporations Act;
• the party or a subsidiary of the party executing a deed of company $(e)$ arrangement; or
• the appointment of a receiver, or receiver and manager, in relation to the $(f)$ whole, or a substantial part, of the property of the party or of a subsidiary of the party:

"Intellectual Property Rights" means all intellectual property and proprietary rights (whether registered or unregistered) excluding mobile phone and internet applications but including:

• $(a)$ Business Name, domain names and internet portals;
• $(b)$ Trade or Service Marks:
• $(c)$ any right to have information (including Confidential Information) kept confidential: and
• $(d)$ patents, patent applications, drawings, discoveries, inventions, improvements, trade secrets, technical data, formulae, computer programs, data bases, know-how, logos, designs, design rights, copyright and similar industrial or intellectual property rights;

"law" includes any statute, legislation, law, regulation, by-law, scheme, determination, ordinance, rule or other statutory provision (whether Commonwealth, State or Municipal):

"Liabilities" includes all liabilities (whether actual, contingent or prospective), losses, damages, costs and expenses of whatever description;

"Listing Rules" means the Official Listing Rules of the ASX as amended or replaced from time to time:

"Material" means a material breach, material inaccuracy, material adverse change or a matter that gives rise to an exposure or liability of \$20,000 or more;

"Material Contract" means any contract or commitment which is Material to the Business of Brainv:

"Prospectus Issue" means the issue of not less than 31,250,000 shares at an issue price of 4 cents (representing 20 cents following capital reconstruction) per share to raise \$1,250,000, or such additional sum as is necessary to comply with Chapters 1 and 2 of the ASX Listing Provisions:

"Minimum Capital Subscription" means the sum of \$400,000 at an issue price of 3 cents per share (with 1 for 2 free options for each share subscribed for);

"Purchase Conditions" means the conditions detailed in clause 4;

"Records" means all original and copy records, documents, books, files, reports, accounts, plans, correspondence, letters and papers of every description and other material regardless of their form or medium and whether coming into existence before, on or after the date of this agreement, belonging or relating to or used by Brainy including (without limitation) certificates of registration, minute books, statutory books and registers, books of account, Taxation returns, title deeds and other documents of title, customer lists, price lists, computer programs and software, and trading and financial records;

"Related Body Corporate" has the meaning given in Section 9 of the Corporations Act:

RelatedParty Loans means all amounts due by the Company to the Vendor and /or any related body corporate.

"Sophisticated Investor" means subscribers pursuant to clause 4.122;

"Sophisticated Investor Share and Options Issue" means the issue of up to 27,782,000 shares and 13,891,000 free Auto Options to raise \$833,460 subject to the Minimum Capital Subscription;

"Success Fee" means the sum of one hundred and twenty thousand dollars;

"Stage 1 Shares" means 35,953,000 new ordinary shares each in Auto;

"Stage 2 Shares and Options" means 25 million Auto shares and 12.5 million Auto Options:

"Tax" means all forms of taxes, duties, imposts, charges, withholdings, rates, levies or other governmental impositions of whatever nature and by whatever authority imposed, assessed or charged together with all costs, charges, interest, penalties, fines, expenses and other additional statutory charges incidental or related to the imposition, and

"Taxation" has a corresponding meaning;

"Tax Act" mans the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997. The Taxation Administration Act 1953. Income Tax Rates Tax 1986 and other Rating Acts, the income tax regulations and related commonwealth income taxation legislation and regulations.

"The Second Cash Sum" means the sum of \$50,000 for purchase and assignment in entirety of all related party loans.

3. STRUCTURE OF THE HEADS OF AGREEMENT

$3.1$ Rights, Conditions and Obligations

In consideration for the payment of the sum of \$1 immediately following the execution of the Heads of Agreement by the Vendor and Adviser the Purchaser shall have the right to acquire the Brainy Shares upon the Acquisition Terms.

$3.2$ The Role of the Adviser

In consideration for the Success Fee and for the exclusive engagement of the Adviser or its licensed nominee on the Adviser's Engagement Terms the Adviser shall use its reasonable endeavours to arrange all of the matters set out in clauses 4 and 5

$3.3$ Finalisation of the Agreement

This Heads of Agreement document shall (i) constitute the basis for the preparation of a final agreement between the parties and the parties hereto acknowledge that such agreement will not contain any material amendments to the provisions of the Heads of Agreement, and (ii) irrevocably commit Auto and it's directors to submit the transaction described herein (pursuant to Clause 4.121) for the approval of Auto shareholders in general meeting.

THE ACQUISITION TRANSACTION 4.

In consideration for the purchase of the Brainy Shares and subject to the two stage terms and conditions described in clauses 4.1 and 4.2 of this Agreement:

$4.1$ Stage 1 Consideration Terms

Subject to satisfying Condition Precedent 4.1.2 the Purchaser agrees to issue to the Vendor Stage 1 shares and to pay to the Vendor the Brainy Related Royalty and the First Cash Sum.

• 4.1.2 Stage 1 Condition Precedent
• $4.1.2.1$ The approval of Auto shareholders in general meeting in accordance with the provisions of the ASX Listing Requirements and the Corporations Act, and any other matters as appropriate including the prospectus issue and resolutions pertaining to capital reconstruction.
• 4.1.2.2 The Completion of the Sophisticated Investor Shares and Options Issue for not less than the Minimum Capital Subscription.

$4.2$ Stage 2 Consideration Terms

Subject to satisfying Condition Precedent 4.2.1 the Purchaser agrees to issue to the Vendor the Stage 2 Shares and Options and to pay to the Vendor the Second Cash Sum.

4.2.1 Condition Precedent

The issue of the Stage 2 Shares and Options is subject to the Completion of the Prospectus Issue. The Prospectus Issue shall be structured to provide priority incentivised subscription access to shareholders on the Auto register at the date of the prospectus, including share option issues.

$5₁$ ACTION BEFORE COMPLETION

$5.1$ Due Diligence and Independent Expert's Report

• 5.1.1 The Purchaser will conduct its Due Diligence and preparation of the Explanatory Memorandum (with the assistance of the Adviser) and commission an independent expert to prepare the Independent Expert's Report.
• 5.1.2 For the purposes of Due Diligence and preparation of the Independent Expert's Report and Explanatory Memorandum the Vendor and the Company:
• will permit the Purchaser to interview any relevant person $(i)$ connected with the Company;
• promptly make available to the Purchaser or its advisers any $(ii)$ information requested by them:
• $(iii)$ allow the Purchaser and its advisers to take copies of such information as they require;
• (iv) give all assistance to the Purchaser, its advisers and the independent expert retained to prepare the Independent Expert's Report and the Explanatory Memorandum and if requested by Auto provide written approval to the material disclosed in the Explanatory Memorandum concerning the Company.
• 5.1.3 The cost of preparation of the Independent Expert's Report and Explanatory Memorandum will be borne by the Purchaser.

$5.2$ Conduct of the business

Until Completion:

• 5.2.1 The Company will carry on its business in the ordinary course;

• 5.2.2 The Company will collaborate fully with the Purchaser in relation to all Material matters concerning the running of the Company and, except as provided in this Agreement of with the prior written consent of the Purchaser, will not:

• $(i)$ dispose of the whole or any part of the legal beneficial interest in the Existing Brainy Shares; or

• $(ii)$ declare or pay or permit Brainy to declare or pay any dividend or make any other distribution of the Brainy group assets, property or profits; or
• (iii) alter or permit the alteration of the Constitution of Brainy; or
• pass any resolution or permit any resolution to be passed under $(iv)$ the Constitution of Brainy other than in the ordinary course of business.

6. COMPLETION

$6.1$ Time and place

Provided that all of the Conditions detailed in clause 4.2 have been fulfilled or waived under clause 6. Completion will take place on a date to be agreed, or the 14^th day following satisfaction, or waiver, of condition precedent clause 4.1.2 at the offices of Stirling Warton Williams, Level 11,111 Elizabeth Street, Sydney.

$6.2$ Issue of Auto Shares

Upon the fulfilment of conditions set out in clause 4.1 Auto will procure at completion

the issue and allotment of (i) the Stage 1 ordinary fully paid shares in Auto to the Vendor at completion and (ii) the Sophisticated Investors Share and Option Issue.

Upon the fulfilment of conditions set out in clause 4.2 Auto will procure the issue and allotment of the Stage 2 shares and options.

$6.3$ Other Completion obligations of Auto

At Completion, Auto must:

• cause any persons notified in writing by the Vendor to Auto before $6.3.1$ Completion to be appointed as directors and, where requested by the Vendor, secretary of Auto;
• 6.3.2 cause the resignation of each existing director and secretary of Auto;
• $6.3.3$ cause the revocation, with effect from Completion, of all authorities relating to the bank accounts of Auto;
• 6.3.4 deliver to the Vendor all Records complete and up to date.

$\overline{z}$ . QUOTATION

The Vendor acknowledges that the ASX may impose escrow restrictions preventing, for a period determined by the ASX, the transfer of the Auto Shares issued to the Vendor under stages 1 and 2. If the ASX does not impose restrictions for a longer period the Vendor agrees with Auto that it will not transfer, or otherwise dispose of, 50% of the Auto Shares until after 12 months from the date of issue and the other 50% after 24 months from the date of issue. The Vendor agrees to enter into an escrow deed to this effect and for a holding lock to be placed on the transfer of the Auto Shares. Once the restrictions on the transfer elapse. Auto will promptly make application for the official quotation on the ASX of the Vendor Shares so that such shares are quoted with the existing ordinary shares in Auto.

$\mathbf{a}$ SIMULTANEOUS ACTIONS AT COMPLETION

In respect of Completion:

• the obligations of the parties under this agreement are interdependent; $(a)$ and
• $(b)$ all actions required to be performed will be taken to have occurred simultaneously on the Completion Date.

9. WARRANTIES BY THE VENDOR

$9.1$ Representations and Warranties by Brainy and the Vendor

Except where expressly indicated to the contrary in this Agreement, Brainy and the Vendor represents and warrants to the Purchaser that (i) each of the Brainy and Vendor Warranties is true and accurate at the date of this Agreement and will be true and accurate immediately prior to Completion and (ii) the Brainy liabilities due to the vendor or third parties at the date of Completion will not exceed \$75,000.

$9.2$ Application of the Vendor and Brainy Warranties

Each of the Vendor and Brainy Warranties:

• $(i)$ remains in full force and effect after Completion;
• is separate and independent and is not limited by reference to any $(ii)$ other Warranty or any other provision in this Agreement.

$9.3$ The Vendor and Brainy Indemnity

The Vendor and Brainy indemnifies Auto:

$(a)$ from all Liabilities which Brainy suffers or incurs by reason of or in connection with:

• $(i)$ any of the Brainy Warranties being untrue or inaccurate in any respect:
• $(ii)$ any other covenant or representation of Brainy in this Agreement being untrue or inaccurate in any respect which in aggregate is Material: or
• any failure by Brainy or the Vendor to fulfil its obligations under $(iii)$ this Agreement; and
• $(b)$ from all Claims made by any third party in relation:
• to a matter which constitutes, or in circumstances that constitute, $(i)$ a breach of or inaccuracy in any of the Brainy Warranties or any other covenant or representation of Brainy or the Vendor in this Agreement; or
• any failure by Brainy or the Vendor to fulfil their respective $(ii)$ obligations under this Agreement.

$10.$ REPRESENTATIONS AND WARRANTIES BY AUTO

Except where expressly indicated to the contrary in this Agreement, Auto represents and warrants to the Vendor that each of the Auto Warranties is true and accurate at the date of this Agreement and will be true and accurate on the Completion Date.

$10.1$ Application of Auto Warranties

Each of the Auto Warranties:

• remains in full force and effect after Completion; $(a)$
• is separate and independent and is not limited by reference to any $(b)$ other Auto Warranty or any other provision of this Agreement.

$10.2₁$ Auto Indemnity

Auto indemnifies the Vendor:

• $(a)$ from all Liabilities which the Vendor suffers or incurs by reason of or in connection with:
• $(i)$ any of the Auto Warranties being untrue or inaccurate in a respect:
• $(ii)$ any other covenant or representation of Auto in this Agreement being untrue or inaccurate in any respect; or
• any failure by Auto to fulfil its obligations under this Agreement; $(iii)$ and

• $(b)$ from all Claims made by any third party in relation:

• $(i)$ to a matter which constitutes, or in circumstances that constitute. a breach of or inaccuracy in any of the Auto Warranties or any other covenant or representation of Auto in this Agreement; or

• $(ii)$ any failure by Auto to fulfil its obligations under this Agreement.

$10.3$ Notice of potential Claim

As soon as practicable in the circumstances after a party first becomes aware of anything which is or may be reasonably likely to give rise to a Claim under clause 8, 9 and 10 it must notify the other parties in writing of that fact, together with reasonable details of such Claim as are available to the party at that time

$11₁$ AWARENESS

Where any Brainy and Vendor Warranty or Auto Warranty is qualified to the knowledge or awareness of either Brainy or Auto, as the case may be, it will be deemed to have been given to the best of their knowledge, information and belief, having made due and careful enquiry of the directors and secretaries of each of Auto and Brainy.

$11.1$ Survival

The provisions of this clause 11 remain in full force and effect after Completion.

$12.$ LIMITATION OF LIABILITY

$12.1$ Limitations of liability of Brainy and the Vendor

Brainy and the Vendor will not be liable in respect of any Claims arising from a breach of a Warranty:

• unless Auto has given written notice to the Vendor of the Claim within $(a)$ 2 years after the Completion Date;
• $(b)$ unless the amount finally awarded or agreed as being payable in respect of one or more Claims exceeds \$20,000 in which case all Claims, including Claims previously notified, shall accrue and be recoverable from the Vendor.

$12.2$ Limitations of Liability for Auto

Auto will not be liable in respect of any Claims arising from a breach of a Auto Warranty.

• unless the Vendor has given written notice to Auto within 2 years after $(a)$ the Completion Date;
• (b) unless the amount finally awarded or agreed as being payable in respect of one or more Claims exceeds \$20,000 in which case all Claims,

including Claims previously notified, shall accrue and be recoverable from Auto.

$12.3$ Maximum Liability for Claim

• The maximum aggregate amount recoverable by Auto from the $(a)$ Vendor in respect of all Claims arising from a breach of a Brainy or Vendor Warranty is \$1,000,000.
• $(b)$ The maximum aggregate amount recoverable by the Vendor from Auto in respect of all Claims arising from a breach of Auto's Warranty is \$1,000,000.

$13₁$ ASSESSMENT OF TAX

$13.1$ Notice of Assessment

If an Assessment is issued after the Completion Date for any period prior to the Completion Date, Auto will, or will procure that it will, promptly on becoming aware of the Assessment, and in any event no later than 10 Business Days after the receipt of the Assessment, notify the Vendor of the Assessment and furnish it with a copy. The Vendor will be required to pay the Assessment as it relates to any period prior to the Completion Date which is not disclosed in the Accounts.

$14₁$ CONFIDENTIALITY AND PUBLICITY

$14.1$ Confidentiality

A party ("Recipient"):

• $(a)$ must keep confidential any Confidential Information of another party ("Disclosing Party") disclosed to the Recipient by the disclosing Party, or of which the Recipient becomes aware, at any time up to Completion, except information which is public knowledge otherwise than as a result of a breach of confidentiality by the Recipient or any of its permitted disclosees; and
• may disclose any Confidential Information in respect of which the $(b)$ Recipient has an obligation of confidentiality under clause 14.1(a) only:
• to those of the Recipient's officers or employees or financial, $(i)$ legal or other advisers who:
  • $(A)$ have a need to know for the purposes of this agreement or the transactions contemplated by it; and
  • $(B)$ undertake to the Recipient (and, where required by the Disclosing Party, to the Disclosing Party also) a corresponding obligation of confidentiality to that undertaken by the Recipient under this clause 14.1; or

$(ii)$ if required to do so by law or the Listing Rules of ASX.

$14.2$ Confidential Information – until Completion or termination

Auto must comply with those provisions with respect to Confidential Information until the first to occur of:

• Completion: or $(a)$
• $(b)$ a period of six months after termination of this agreement.

$14.3$ Confidential Information - after Completion

The Vendor must not, and must ensure that each of its Related Bodies Corporate (as defined in sections 9 and 50 of the Corporations Act) and its and their respective officers and employees must not, after completion without the prior written consent of Auto use or disclose any Confidential Information unless required to do so by law.

$14.4$ Announcements

A party must not make or authorise a press release or public announcement relating to the negotiations of the parties or the subject matter or provisions of this agreement ("Announcement") unless:

• $(a)$ it is required to be made by law or the Listing Rules of ASX and before it is made that party has:
• $(i)$ notified Auto and the Vendor; and
• given Auto and the Vendor a reasonable opportunity to comment $(ii)$ on the contents of, and the requirement for, the Announcement; or
• $(b)$ it has the prior written approval of Auto and the Vendor.

$15.$ TERMINATION

$15.1$ Default

• $(a)$ If the Vendor or Brainy default in the performance of any of their respective obligations under this Agreement, Auto may give notice in writing to the Vendor requiring it to remedy the default within 30 days of the notice (if capable of being remedied) and if such default is not so remedied Auto can then give another written notice at the end of the 30 days terminating the Agreement immediately.
• $(b)$ If Auto defaults in the performance of any of its obligations under this Agreement, the Vendor may give notice in writing to auto requiring it to remedy the default within 30 days of the notice (if capable of being remedied) and if such default is not so remedied the Vendor can then give another written notice at the end of the 30 days terminating the Agreement immediately.

$15.2$ Insolvency and litigation

• $(a)$ Auto may terminate this Agreement by giving notice to the other parties if:
• $(i)$ an Insolvency Event occurs in relation to Brainy; or
• $(ii)$ litigation proceedings are commenced against Brainy, where the amount claimed is in excess of \$1 million and which is not dismissed within 30 days of filing such a claim and where such claim would have a Material adverse effect on the business of Brainy, except litigation which the Vendor and Auto agree to be excluded from this Clause.
• $(b)$ The Vendor will have a right to terminate this Agreement by giving a notice to the other parties if:
• an Insolvency Event occurs in relation to Auto; or $(i)$
• litigation proceedings are commenced against Auto by any party. $(ii)$ other than a party to this Agreement, where the amount claimed in excess of \$200,000 and which is not dismissed within 30 days of filing such claim and where such claim would have a Material adverse effect on a business of Auto.

$15.3$ After termination

On termination of this agreement for any reason, each party must stop, and must cause its permitted disclosees to stop, using confidential Information of another party and, at the other party's option:

• $(a)$ return to the other party:
• destroy and certify in writing to the other party the destruction of; or $(b)$
• destroy and permit a representative of the other party to witness the $(c)$ destruction of,

all Confidential Information in its possession or control.

$15.4$ Survival

Clauses 14, 15 and 18 continue to apply after termination of this agreement.

$15.5$ Accrued rights

Termination of this agreement does not affect any accrued rights or remedies of a party.

ASSIGNMENT 16.

A party must not assign this Agreement or any right under this Agreement without the prior written consent of the other parties.

$17₁$ WAIVER

$17.1$ Failure to require performance is not a waiver

The failure of a party at any time to require performance of any obligation under this Agreement is not a waiver of that party's right:

• to claim damages for breach of that obligation; and $(a)$
• $(b)$ at any other time to require performance of that or any other obligation under this Agreement,

unless written notice to that effect is given in accordance with clause 17.2.

$17.2$ Waiver

Waiver of any provision of or right under this Agreement:

• must be in writing signed by the party entitled to the benefit of that $(a)$ provision or right; and
• $(b)$ is effective only to the extent set out in any written waiver.

$18.$ NOTICES

$18.1$ Service of notices

A party giving or serving notice or notifying under this agreement must do so in writing:

• directed to the recipient's address specified in this clause, as varied by $(a)$ any notice; and
• $(b)$ hand delivered or sent by prepaid post or facsimile to that address.

The parties' addresses and facsimile numbers are:

The Purchasers

Attention:	Company Secretary
Address:	C/- Stirling Warton Williams Level 11 111 Elizabeth Street Sydney New South Wales	2000

Facsimile "02 8236 7555

The Vendor

Address:	6B Bowen Street
		O'Connor Western Australia 6163

Facsimile:

The Adviser

	Attention: Charles MacKinnon
Address:	Lothbury Pty Ltd 19 Charles Street South Perth Western Australia 6151

18.2 Deemed receipt

A notice given in accordance with clause 18.1 is taken to be received:

• if hand delivered, on delivery; $(a)$
• if sent by prepaid post, two Business Days after the date of posting; or $(b)$
• $(c)$ if sent by facsimile, when the sender's facsimile system generates a message con firming successful transmission of the total number of pages of the notice unless, within one Business Day after the transmission, the recipient informs the sender that it has not received the entire notice.

Execution $18.3$

A notice given in accordance with clause 18.1 is sufficiently signed for or on behalf of a party if:

• $(a)$ in the case of a company, it is signed by a director, secretary or other officer of the company; or
• in the case of an individual, it is signed by that party. $(b)$

$18.4$ Other modes of service permitted

The provisions of this clause 18 are in addition to any other mode of service permitted by law.

$18.5$ Interpretation

In this clause "notice":

includes a demand, request, consent, approval, offer and any other instrument or communication made, required or authorised to be given under this agreement.

19. GENERAL

$19.1$ Duration of Provision

On completion of the transactions contemplated in this Agreement, the provisions of this Agreement will not merge and, to the extent any provision has not been fulfilled, will remain in force.

$19.2$ Further Action

Each party must use all reasonable endeavours to do all things necessary or desirable to give full effect to this Agreement.

$19.3₁$ Counterparts

This Agreement may be executed in any number of counterparts.

$19.4$ Alteration

This Agreement may be altered only in writing signed by each party.

$19.5$ Costs

The Parties must each bear their own respective legal costs incurred in negotiating, preparing and executing this Agreement.

19.6 Stamp duty and similar Taxes

The Purchaser must bear the stamp duty or other Taxes of a similar nature on this Agreement or the transactions contemplated to take place upon Completion of this Agreement.

19.7 Entire Agreement

• $(a)$ This Agreement constitutes the entire agreement between the parties as to its subject matter; and
• if there is any inconsistency between this Agreement and the Heads $(b)$ or the Amendment Agreement, the terms of this Agreement shall prevail.

$20.$ GOVERNING LAW AND JURISDICTION

This Agreement is governed by the law applicable in New South Wales and each party irrevocably and unconditionally submits to the jurisdiction of the courts of New South Wales.

$21.$ INTERPRETATION

In this agreement:

• headings are for ease of reference only and do not affect the meaning $(a)$ of this agreement;
• $(b)$ the singular includes the plural and vice versa and words importing a gender include other genders;
• $(c)$ other grammatical forms of defined words or expressions have corresponding meanings;
• $(d)$ a reference to a clause, paragraph, schedule, annexure or attachment is a reference to a clause or paragraph of or schedule, annexure or attachment to this Agreement and a reference to this Agreement includes its schedules, annexures and attachments;
• a reference to a document or agreement, including this agreement, $(e)$ includes a reference to that document or agreement as novated. altered or replaced from time to time:
• a reference to 'A\$', '\$A', 'dollars' or '\$' is a reference to Australian $(f)$ currency;
• a reference to a specific time for the performance of an obligation is a $(q)$ reference to that time in Sydney. Australia even if the obligation is to be performed elsewhere;
• $(h)$ a reference to a party includes a reference to the party's executors, administrators, successors, substitutes and assigns;
• $(i)$ words and expressions importing natural persons include partnerships. bodies corporate, associations, governments and governmental and local authorities and agencies, and vice versa;
• a reference to any legislation or statutory instrument or regulation is $\left($ i construed in accordance with the Acts Interpretation Act 1901 (C'th) or the equivalent State legislation, as applicable;
• $(k)$ a reference to writing includes typewriting, printing, lithography, photography and an y other method of representing or reproducing words, figures or symbols in a permanent and visible form;
• $($ | if a day for payment under this agreement falls on a day which is not a Business Day, payment is due on the next Business Day;
• if a provision of this Agreement binds two or more parties that $(m)$ provision binds those parties jointly and severally; and
• $(n)$ if a party comprises two or more persons, the provisions of this agreement binding that party bind those persons jointly and severally.

EXECUTED as an agreement.

EXECUTED by AUTO ENTERPRISES LIMITED in accordance with the Corporations Act )
Signature of director	Signature of director
. Name of director (print)	Signature of director (print)
EXECUTED by BRAINY TOYS.com PTY LTD in accordance with the Corporations Act ) .
Signature of director	Signature of director
Name of director (print)	Signature of director (print)
EXECUTED by ALEX AGUERO
. . Signature
EXECUTED by LOTHBURY PTY LTD in ) accordance with the Corporations Act
Signature of Directors
Name(s) of Directors

SCHEDULE 1

28 June 2004 The Chairman Auto Enterprises Ltd c/o Stirling Warton Williams Level 11. Elizabeth Street SYDNEY

We write to record the basis of our exclusive arrangement to achieve the implementation of the Acquisition by Auto Enterprises Ltd ("Auto") of Brainy Toys.com Pty Ltd. The proposed terms and conditions are as follows.

Terms of Reference

Lothbury Pty Ltd ("Lothbury") is to arrange and coordinate all aspects of the proposed Brainy acquisition by Auto including the drafting of the Heads of Acquisition Agreement, the raising of the seed capital, assistance in the convening of an Auto shareholders meeting to consider the Brainy acquisition (Stage 1), the structure of the Auto Board (post Brainy acquisition), the preparation of a prospectus involving the raising of further capital of approximately \$1.25 million (Stage 2) and all matters pertaining to the ASX re-quotation and generally supervising the preparation of all legal documentation. The first draft of the Heads of Acquisition Agreement prepared by Lothbury is attached hereto.

In consideration for providing the aforementioned turn key service Lothbury is to be paid a success fee of \$120,000 (inclusive of out of pocket expenses) payable following the approval of the ASX to Auto's re-quotation and the Stage 2 Prospectus capital raising. Auto shall be Lothbury's client in this matter.

Lothbury confirms that the licences, which may be required to be held to action this matter, are held by the parties who will process this transaction.

Lothbury is likely to accept a fee payment in the form of Auto share allotments.

If you are in agreement with the above, please sign and return the attached copy.

Yours sincerely

Charles MacKinnon Director

SCHEDULE 2

BRAINY AND VENDOR WARRANTIES

$\mathbf{1}$ . Capacity

• $1.1$ This Agreement constitutes a valid and legally binding obligation of Brainy and the Vendor in accordance with its terms.
• $1.2$ Brainy is duly registered in its jurisdiction of registration.
• $1.3$ The execution, delivery and performance of this Agreement does not breach the constitution of Brainy.
• $1.4$ The Vendor and Brainy each have the power, and each have taken all corporate action required, to execute and deliver this Agreement and, subject to the satisfaction of the Conditions Precedent, perform their respective obligations under this Agreement.
• $1.5$ As far as Brainy is aware, the execution, delivery and (subject to satisfaction of the Conditions Precedent) performance of this Agreement by the Vendor and Brainy does not breach or conflict with any statute or law, or any document or agreement to which Brainy is a party or which is binding on it or its assets.
• $1.6$ True and complete copies of the constitution and all amendments thereto of each have been provided to Auto before the date of this Agreement.
• $1.7$ Brainy is neither insolvent or has gone into liquidation or convened any meeting or passed any resolution for winding up, no petition for winding up has been presented against Brainy and no receiver or receiver and manager of the undertaking or assets (or any part thereof) of Brainy has been appointed or is threatened or expected to be appointed.
• 1.8 As far as Brainy is aware, all accounts, books, ledgers, financial and other records of whatsoever kind have been reasonably and properly maintained and in all substantial respects contain due records of all matters required to be entered therein by any relevant legislation, and there has not been removed therefrom any Material records or information.

$2₁$ Accounts

• $2.1$ The Accounts give a true and fair view of the state of affairs of Brainy as at the Balance Sheet Date and loss for the period ended on that date, and
• were prepared in accordance with the Corporations Act and $(a)$ Accounting Standards applied on a consistent basis.

• contain proper and adequate provision for a full disclosure of all $(b)$ liabilities, whether actual, contingent or otherwise, of Brainy at the Balance Sheet Date: and

• are not affected by any abnormal, extraordinary, or non-recurring $(c)$ items other than disclosed in the Accounts.

• $2.2$ Since the Balance Sheet Date:
• there has been no Material adverse change in the assets, $(a)$ liabilities, turnover, earnings, financial condition, trading position, affairs or prospects of any member of Brainy.
• no dividend or distribution of capital or income has been $(b)$ declared, made, paid or determined to be payable in respect of any share capital of Brainy whether of cash, specific assets or otherwise;
• Brainy has carried on the Business in the ordinary and usual $(c)$ course and has not entered into any contracts or arrangements other than in the ordinary and usual course of carrying on business of the Business:
• Brainy has not incurred or undertaken any actual or contingent $(d)$ liabilities or obligations, including Taxation, except in the ordinary and usual course of business:
• Brainy has not acquired or disposed of or dealt with any assets $(e)$ nor has it entered into any agreement or option to acquire or dispose of any assets, other than in the normal course of business or full market value:
• $(f)$ except in the ordinary and usual course of business, Brainy has not borrowed money;
• except by operation of law or in the ordinary and usual course of $(q)$ its business. Brainy has not granted any Encumbrance over any of its inventory or assets;
• Brainy has not entered into or altered any contract or service $(h)$ with any officer, employees or agents, or increased or agreed to increase the rate of remuneration or compensation payable to any of its officers, employees or agents other than in the ordinary course of business:
• Brainy has not implemented any new accounting or valuation $\left($ i method for its business, assets, property or rights;
• $\left(\mathbf{i}\right)$ no resolutions have been passed by the member or directors of Brainy except in the ordinary and usual course of business or accept in relation to transactions done with Auto or relating to Auto and those necessary to give effect to this agreement.
• $2.3$ Brainy has not provided any letter of comfort or made any representation or given any undertaking to any person in respect of the obligations or solvency of any other person or in support of or as an inducement to or otherwise in connection with the provision of financial accommodation, whether or not considered by Brainy to be legally binding.

$2.4.$ Auto has been provided with full details in complete terms of every Material contract under which Brainy receives, or is entitled to receive, financial accommodation from any person.

3. Commitments

• $3.1$ As far as Brainy is aware, there are no existing contracts for the purchase by Brainy of any stock other than those made in the ordinary course of business.
• $3.2$ Other than the Material Contracts. Brainy is not a party to any contract or commitment entered into of any one or more of the following which is outside the ordinary course of business:
• involves total aggregate commitments or liabilities in excess of $(a)$ \$50,000:
• $(b)$ contain any onerous or unusual term that has a Material effect;
• are incapable of being fulfilled or performed on time without any $(c)$ due or unusual expenditure of money of efforts which is Material:
• $(d)$ not terminable on six months notice or less:
• entitles the other party to terminate or impose terms less $(e)$ favourable by reason of the change of ownership of Brainy; or
• $(f)$ not on arms length.

4. Records

• $4.1$ The Records:
• $(a)$ are in the position of the relevant member of Brainy;
• have been reasonably, properly and accurately kept and $(b)$ completed:
• do not contain Material inaccuracies or discrepancies of any $(c)$ kind; and
• $(d)$ as far as necessary, have been prepared in accordance with requirements of the Corporations Act and the Accounting Standard.

5. Tax

• $5.1$ Tax under Tax Act, for the income year covered by the Accounts and all prior income years has been duly assessed and paid or has been provided for in the Accounts.
• All taxes other than Tax under the Tax Act which have been assessed or $5.2$ imposed or are lawfully assessable to or payable by Brainy and which were due and payable as at the Balance Sheet Date have been paid.

$5.3$ There is no unresolved dispute between any Revenue Authority in respect of Tax nor is Brainy involved in any audit of its Tax returns nor, as far as Brainy is aware are, any circumstances subsisting which could cause a dispute to arise.

6. Litigation

• 6.1 Brainy is not engaged in any prosecution, litigation or arbitration proceedings, and there are no such proceedings threatened to Brainy in respect of which written communication has been given or received by Brainy and which combined effect is Material, and there are no such proceedings pending or disputes in existence which could lead to such proceedings.
• $6.2$ There are no unsatisfied judgements, awards, claims or demands against Brainy that Brainy is aware of.

7. Intellectual Property

• $7.1$ Intellectual Property Rights relating to or used in Brainy's Business are:
• legally and beneficially vested in or licensed by Brainy free and $(a)$ clear from all Encumbrances:
• $(b)$ as far as Brainy is aware are not presently being infringed;
• $(c)$ with respect to Material Intellectual Property Rights described in Schedule 5.
• $7.2$ As far as Brainy is aware, it is not infringing or has not infringed the Intellectual Property Rights of any person.
• $7.3$ Brainy has taken reasonable steps to prevent any infringement of Intellectual Property Rights relating to or used in the Brainy business.

8. Securities

• 8.1 Brainy has not given or created nor will it without the prior written consent of Auto give, or create, any general or specific mortgage, charge, encumbrance or lien over its assets or the undertaking or any part thereof including called and uncalled capital or unissued shares or options thereon prior to Completion other than:
• liens arising solely by operation of law in the ordinary course of $(a)$ the business (including without limitation, retention of title arrangements where the amount secured has been due for less than 30 days or is being contested in good faith and by appropriate means: and
• $(b)$ any mechanics, workmen's or other like lien arising in the ordinary course of business.
• 8.2 Brainy has not given or created nor will it give or create without the prior written consent of Auto any guarantees or indemnities in favour of any person, before the date of this Agreement.

9. Business and Assets

$9.1$ Other than as disclosed, each of the assets of Brainy used in their businesses, disclosed in its financial or taxation records or included in the Accounts ("Assets"), is owned absolutely both legally and beneficially by Brainy free and clear of all Encumbrances and Brainy holds no other assets other than the Assets.

$10.$ Information

• $10.1$ All information contained in this Agreement is true and accurate in all respects.
• $10.2$ Brainy and the Vendor have provided Auto with all information regarding Brainy and the Business which is Material for disclosure to a person intending to purchase all of the issued share capital of Brainy and such information is and remains true and accurate in all Material respects.
• $10.3$ All copies of documents provided to Brainy are true copies.

$11.$ Compliance with Applicable Laws

$11.1$ Brainy has complied with all applicable laws in all Material respects (whether applicable to the conduct of the Business, the use of the Properties and the other assets of Brainy or in any other manner) and as far as Brainy is aware there has been no contravention or allegation of any contravention of any applicable law.

SCHEDULE 3

AUTO WARRANTIES

1. Capacity

• $1.1$ This Agreement constitutes a valid and legally binding obligations of Auto in accordance with its terms.
• $1.2$ Auto is duly registered in its jurisdiction of registration.
• $1.3$ The execution, delivery and performance of this Agreement does not breach the constitution of Auto.
• $14$ Auto has the power, and has taken all corporate action required, to execute and deliver this Agreement and, subject to the satisfaction of the Conditions Precedent, perform its obligations under this Agreement.
• $1.5$ As far as Auto is aware, the execution, delivery and (subject to satisfaction of the Conditions Precedent) performance of this Agreement by Auto does not breach or conflict with any statute or law, or any document or agreement to which Auto is a party or which is binding on it or its assets.
• $1.6$ No member of Auto is insolvent or has gone into liquidation or passed any resolution for winding up, no petition for winding up has been presented against any member of the Auto Group and no receiver or receiver and manager of the undertaking or assets (or any part thereof) of any member of the Auto Group has been appointed or is threatened or expected to be appointed.
• $1.7$ As far as Auto is aware, all accounts, books, ledgers, financial and other records of whatsoever kind of each member of the Auto Group have been reasonably and properly maintained in all substantial respects and contain due records of all matters required to be entered therein by any relevant legislation, and there has not been removed therefrom any Material records or information.

$2.$ Share Consideration

• $2.1$ Auto allots and issues the Auto Shares pursuant to this Agreement, then as at Completion:
• $(a)$ the Auto Shares are free of any Encumbrance;
• $(b)$ each share comprising the Auto Shares is, or will upon allotment be, fully paid up and issued in accordance with the constitution of Auto and
• $(c)$ legal and beneficial ownership in the Auto Shares will vest in the Vendor.