MACRO METALS LIMITED — Proxy Solicitation & Information Statement 2005

Apr 19, 2005

BRAINYTOYS LIMITED

ABN 28 001 894 033

NOTICE OF GENERAL MEETING

DATE: 19 May 2005

PLACE: ROYAL KINGS PARK TENNIS CLUB KINGS PARK ROAD WEST PERTH

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting.

Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary on (08) 9228 0703

CONTENTS PAGE

Notice of General Meeting (setting out the proposed resolutions)
Explanatory Statement (explaining the proposed resolutions)
Glossary
Proxy Form

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

The General Meeting of the Shareholders of Brainytoys Limited will be held at 11.00am on 19 May 2005 at:

Royal Kings Park Tennis Club

Kings Park Road

West Perth

YOUR VOTE IS IMPORTANT

The business of the General Meeting affects your shareholding and your vote is important.

VOTING IN PERSON

To vote in person, attend the General Meeting on the date and at the place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the proxy form enclosed with this Notice of Meeting as soon as possible and either:

• $(a)$ send the proxy form by facsimile to the Company on facsimile number (08) 9 228 0704; or
• $(b)$ send or deliver the proxy form to the office of the Company at 6/34 York Street, North Perth, Western Australia 6006.

so that it is received not later than 11:00am (WST) on 17 May 2005. Proxy forms received later than this time will be invalid.

Your proxy form is enclosed after the Explanatory Statement

NOTICE OF GENERAL MEETING

Notice is given that the General Meeting of Shareholders of Brainytoys Limited will be held at Roya: Kings Park Tennis: Club, Kings Park Road, West Perth at 11,00am (WST) on 19 May 2005.

The Explanatory Statement to this Notice of Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the proxy form are part of this Notice of Meeting.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company on 17 May 2005 at 12:00pm.

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary.

AGENDA

$\overline{1}$ RESOLUTION 1 - ADOPTION OF INCENTIVE OPTION SCHEME

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, for the purposes of Listing Rule 7.2 (Exception 9) of the Listing Rules of Australian Stock Exchange Limited and for all other purposes, the Directors are authorised to adopt and implement the "Brainytoys Limited Incentive Option Scheme" (Scheme) on the terms and conditions of the Scheme, a summary of which is included in the Explanatory Statement accompanying this Notice."

Short Explanation: The Scheme is designed to be an incentive to key people who assist in the successful development and operation of the Company. Please refer to the Explanatory Statement for further cetails.

Voting Exclusion: The Company will disregard any votes cast on this resolution by the Directors of the Company (except those who are ineligible to participate in the Scheme), and any of their associates.

$\overline{2}$ RESOLUTION 2 - GRANT OF OPTIONS TO MR ALLEN

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Directors to grant 2,000,000 Options to Mr Ian Allen (or his nominee) on the terms and conditions in the Explanatory Statement."

Short Explanation: The ASX Listing Rules require the Company to seek shareholder approval prior to the issue of securities to a related party. Under the Corporations Act, the provision of any findncial benefit (which includes the grant of options), requires shareholder approval pursuant to the related party provisions (Part 2E). Mr Allen is a related party of the Company by virtue of the fact that he is a director.

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Mr Ian Allen or any person who may participate in the proposed issue and a person who may obtain a benefit, except a benefit solely in the capacity of a security holder, if the Resolution is passed and any associates of those persons.

$\overline{\mathbf{3}}$ RESOLUTION 3 - GRANT OF OPTIONS TO MR FRASER

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Directors to grant 2,000,000 Options to Mr Brett Fraser (or his nominee) on the terms and conditions in the Explanatory Statement."

Short Explanation: The ASX Listing Rules require the Company to seek shareholder approval prior to the issue of securities to a related party. Under the Corporations Act, the provision of any financial benefit (which includes the grant of options), requires shareholder approval pursuant to the related party provisions (Part 2E). Mr Fraser is a related party of the Combany by virtue of the fact that he is a director.

Voting Exclusion: The Company will disregard any vates cost on this Resolution by Mr Brett Fraser or any person who may participate in the proposed issue and a person who may obtain a benefit, except a benefit solely in the capacity of a security holder, if the Resolution is passed and any associates of those persons.

$\blacktriangle$ RESOLUTION 4 - GRANT OF OPTIONS TO MR READ

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution;

"That, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Directors to grant 2,000,000 Options to Mr Howard Read (or his nominee) on the terms and conditions in the Explanatory Statement."

Short Explanation: The ASX Listing Rules require the Company to seek shareholder approval prior to the issue of securities to a related party. Under the Corporations Act, the provision of any financial benefit (which includes the grant of options), requires shareholder approval pursuant to the related party provisions (Part 2E). Mr Read is a related party of the Company by virtue of the fact that he is a director.

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Mr Howard Read or any person who may participate in the proposed issue and a person who may obtain a benefit, except a benefit solely in the capacity of a security holder, if the Resolution is passed and any associates of those persons.

$\overline{\mathbf{5}}$ RESOLUTION 5 - GRANT OF OPTIONS TO MR STEPHENSON

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

"That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for the Directors to grant 2,000,000 Options to Mr Jay Stephenson (or his nominee) on the terms and conditions in the Explanatory Statement."

Short Explanation: Under Listing Rule 7.1, the Company may issue up to 15% of its ordinary share capital in any 12 month rolling period without shareholder approval. By obtaining the prior approval of Shareholders for the grant of Options under this Resolution, the Company retains the flexibility to make future issues up to that threshold. Please refer to the Explanatory Statement for details.

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Mr Jay Stephenson or any person who may participate in the proposed issue and a person who may obtain a benefit, except a benefit solely in the capacity of a security holder, if the Resolution is passed and any associates of those persons.

BY ORDER OF THE BOARD

IAN ALLEN MANAGING DIRECTOR

Voting Exclusion Note:

Where a voting exclusion applies, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the directions on the proxy form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of the Shareholders of the Company in connection with the business to be conducted at the General Meeting to be held at Royal Kings Park Tennis Club, Kings Park Road, West Perth on 19 May 2005 at 11.00am (WST).

This purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of Meeting.

If you have any questions regarding the matters set out in this Explanatory Statement or the preceding Notice, please contact the Company, your stockbroker or other professional adviser.

$1₁$ RESOLUTION 1 - ADOPTION OF INCENTIVE OPTION SCHEME

Resolution 1 seeks the approval of Shareholders for the adoption of the "Brainytoys Limited Incentive Option Scheme" (Scheme) to allow the grant of options as an exception to ASX Listing Rule 7.1 in accordance with ASX Listing Rule 7.2 exception 9(b).

Shareholders should note that no options have previously been issued under this Scheme and the objective of the Scheme is to attract, motivate and retain key employees.

It is considered by the Directors that the adoption of the Scheme and the future grant of options under the Scheme will provide select employees with the opportunity to participate in the future growth of the Company.

A summary of the terms and conditions of the Scheme is set out below:

Introduction

The Scheme is designed to provide employees with an ownership interest in the Company and to provide additional incentives for employees to increase profitability and returns to Shareholders.

The summary of the Scheme is set out below for the information of potential investors in the Company. The detailed terms and conditions of the Scheme may be obtained free of charge by contacting the Company.

General

The Directors may, in their absolute discretion offer to grant options to eligible employees under the Scheme.

The options will be issued for no consideration and will carry the right in favour of the option holder to subscribe for one (1) fully paid ordinary share in the capital of the Company.

The exercise price of the options shall be as the Directors in their absolute discretion determine, provided the exercise price shall not be less than the weighted average of the last sale price of the Company's Shares on ASX at the close of business on each of the 5 Business Days immediately preceding the date on which the Directors resolve to grant the options.

Eligible Employees

Full time or part time employees of the Company and its subsidiaries are eligible to participate in the Scheme.

Employees who join the Company or one of its subsidiaries after the date of commencing of the Scheme are also eligible employees.

Lapse of Options

Unless the Directors in their absolute discretion determine otherwise, options shall lapse upon the earlier of:

• (a) the expiry of the exercise period;
• $(b)$ the option holder ceasing to be within the category of Eligible Participant by reason of dismissal, resignation or termination of emoloyment, office or services for any reason, except the Directors may resolve within 30 days of such dismissal, resignation or termination, that the options shall lapse on other terms they consider appropriate;
• the expiry of I year after the option holder ceases to be within the $\mathcal{L}$ category of Eligible Participant by reason of retirement; and
• $(d)$ a determination by the Directors that the option holder has acted fraudulently, dishonestly or in breach of his or her obligations to the Company or an associated body corporate.

Exercise of Options

The options may not be exercised until the Shares have been quoted on ASX throughout the 12 month period immediately oreceding the exercise of the options.

Participation in Future Issues

There are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 business days after the issue is announced. This will give option nolders the opportunity to exercise their options prior to the date for determining entitlements to participate in any such issue.

Subject to the Listing Rules, if during the exercise period in respect of an option, there is a pro rata issue (except a bonus issue) to the holders of Shares, the exercise price of the options may be reduced according to the following formula:

$$
O = O - \frac{E[P - (S + D)]}{N + 1}
$$

$O' =$ the new exercise price of the option.

$O =$ the old exercise price of the option.

$E$ $=$ the number of underlying securities into which one option is exercisable.

Note: E is one (1) unless the number has changed because of a bonus issue.

• P. $\equiv$ the average market price per Share (weighted by reference to volume) of the underlying securities during the 5 Business Days ending on the day before the ex rights date or ex entitlements date.
• S the subscription price for a security under the pro rata issue. $\equiv$
• the dividend due but not yet paid on the existing underlying securities $\Box$ $=$ (except those to be issued under the pro rata issue).
• N. $\equiv$ the number of securities with rights or entitlements that must be held to receive a right to one new security.

No change will be made to the number of Shares to which an Eligible Participant is entitled.

In the event of a bonus issue of Shares being made pro-rata to Shareholders, (other than an issue in lieu of dividends), the number of Shares issued on exercise of each option will include the number of bonus Shares that would have been issued if the option had been exercised prior to the record date for the bonus issue. No adjustment will be made to the exercise price per Share of the option.

Reorganisation

The terms upon which options will be granted will not prevent them being reorganised as required by the Listing Rules on the reorganisation of the capital of the Company.

Performance Related Factors

At the absolute discretion of the Directors, the terms upon which options will be granted may incorporate performance related factors. Such factors may reflect, inter alia, profitability levels, increases in production or decreases in production costs and may be amended from time to time in a manner favourable to the option holder.

Trigger Events

Upon the occurrence of a Trigger Event, the Directors may determine:

• $(a)$ that the options may be exercised at any time from the date of such determination, and in any number until the date determined by the Directors acting bona fide so as to permit the holder to participate in any change of control arising from a Trigger Event, provided that the Directors will forthwith advise in writing each holder of such determination. Thereafter, the options shall lapse to the extent they have not been exercised; or
• $(b)$ to use their reasonable endeavours to procure that an offer is made to holders of options on like terms (having regard to the nature and value of the options) to the terms proposed under the Trigger Event in which case the Directors shall determine an appropriate period during which the holder may elect to accept the offer and, if the holder has not so elected at the end of that period, the options shall immediately become exercisable and if not exercised within 10 days, shall lapse.

Restrictions

The options are only exercisable during certain "window periods", the details of which are set out in the Scheme.

ASIC Class Order 03/184 provides that the Company is not required to issue a prospectus for the offer of options to employees under the Scheme provided a number of conditions are satisfied, including without limitation;

• $(\alpha)$ the options may not be exercised until the Shares have been quoted on ASX throughout the 12 month period immediately before the exercise of the option without suspension for more than a total of 2 trading days during that period: and
• $(b)$ the total number of Shares that would be issued under the Scheme, were each option issued pursuant to the Scheme exercised, and the number of Shares issued by the Company pursuant to any employee share or option scheme implemented by the Company during the previous 5 years may not exceed 5% of the total number of Shares on issue as at the date any options are offered pursuant to the Scheme.

$2.$ RESOLUTIONS 2, 3, 4 & 5 - GRANT OF OPTIONS

$2.1$ BACKGROUND

The Company has agreed to grant Options to the directors of the Company and the Company Secretary (together, the Related Parties) in the following amounts:

Director	Number of Options
Mr Ian Allen	2,000,000
Mr Brett Fraser	2,000,000
Mr Howard Read	2,000,000
Mr Jay Stephenson	2,000,000

Approval is being sought to grant Options to the Related Parties as consideration for work performed and to secure the ongoing commitment of the Directors and Company Secretary to the continued growth of the Company (Related Party Transaction).

Shareholder approval for the Related Party Transaction is required pursuant to ASX Listing Rule 10.11 and Chapter 2E of the Corporations Act.

$2.2$ ASX LISTING RULE 10.11

ASX Listing Rule 10.11 requires a listed company to obtain shareholder approval by ordinary resolution prior to the issue of securities (including an option) to a related party of the company.

If Resolutions 2, 3, 4 and 5 are passed, Options will be granted to the Related Parties. Mr Allen, Mr Fraser and Mr Read are related parties of the Company by virtue of the fact they are directors of the Company. Mr Stephenson is the Company Secretary and is not a related party of the Company. Notwithstanding this fact, the Board is seeking Shareholder approval under ASX Listing Rule 7.1 for the grant of Options to Mr Stephenson and is providing the same disclosure as if Mr Stephenson were a related party.

Approval pursuant to ASX Listing Rule 7.1 is not required in order to grant the Options as approval is being obtained under ASX Listing Rule 10.11. The grant of Options to the Related Parties will not be included in the 15% calculation for the purposes of ASX Listing Rule 7.1.

TECHNICAL INFORMATION REQUIRED BY ASX LISTING RULE 7.3 AND 10.13 $2.3$

ASX Listing Rules 7.3 and 10.13 set out a number of matters which must be included in a notice of meeting proposing an approval under ASX Listing Rules 7.1 and 10.11. For the purposes of ASX Listing Rules 7.3 and 10.13, the following information is provided in relation to the Related Party Transaction:

• $(a)$ the maximum number of Options to be granted by the Company is 2,000,000 Options each to Mr Allen, Mr Fraser, Mr Read and Mr Stephenson.
• the terms of the Options are set out in Section 2.5 of this Explanatory $(b)$ Statement:
• $(c)$ the Options will be granted free as consideration for performance of work, both previously and into the future, by the Related Parties for the Company and to secure the ongoing commitment of the Related Parties to the continued growth of the Company. The Board considers that the grant of the particular number of Options to the Related Parties constitutes valid consideration for work performed for the Company and is in line with corporate remuneration of similar companies;
• $(d)$ the Company acknowledges that the grant of the Options to the Related Parties who are Non-Executive Directors of the Company is contrary to recommendation 9.3 of the ASX Good Corporate Governance and Best Practice Recommendations. However, the Board considers the grant of the Options to be reasonable in the circumstances given the necessity to attract the highest calibre of professionals to the role, whilst maintaining the Company's cash reserves;
• $(e)$ the Options will be allotted not later than 1 month after the date of this Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated that the Options will be allotted on one date; and
• $(f)$ no funds will be raised from the grant of the Options.

CHAPTER 2E OF THE CORPORATIONS ACT $2.4$

Chapter 2E of the Corporations Act regulates the provision of financial benefits to related parties by a public company. Section 208 of the Corporations Act prohibits a public company giving a financial benefit to a related party unless one of a number of exceptions applies.

A "financial benefit" is defined in the Corporations Act in broad terms and includes a public company issuing securities.

For the purposes of this meeting, a "related party" includes a director of the Company. Accordingly, the proposed grant of Options to the Related Parties involves the provision of a financial benefit to a related party of the Company. Mr Stephenson is the Company Secretary of the Company and is not a related party of the Company. Notwithstanding this fact, the Board is providing the same disclosure as if Mr Stephenson were a related party.

Where no exception is applicable (as is the case in these circumstances). Section 208 of the Corporations Act provides that for a public company to give a financial benefit to a related party of that company, the public company must:

• $(a)$ obtain the approval of members in the way set out in Sections 217 to 227 of the Corporations Act; and
• $(b)$ give the benefit within 15 months after the approval is obtained.

In accordance with the requirements of Sections 217 to 227 of the Corporations Act, the following information is provided to allow shareholders to assess the proposed grant of the Options to the Related Parties:

• $(a)$ the related parties to whom the financial benefits will be given are Mr Allen, Mr Fraser, Mr Read and Mr Stephenson;
• the maximum; number of Options (being the nature of the financial $(b)$ benefit being provided) to be granted to the Related Parties is 8,000,000, with 2,000,000 Options to each of Mr Allen, Mr Fraser, Mr Read and Mr Stephenson:
• $(c)$ no funds will be raised from the grant of the Options;
• as at the date of this Notice, the annual remuneration payable to the $(d)$ Related Parties is set out below:

Person	Remuneration
Mr Allen	\$15,000
Mr Fraser 1	\$15,000
Mr Read	\$15,000
Mr Stephenson 1	\$72,000

Notes:

• $\mathbf{1}$ . The Company has entered into an agreement with Wolfstar Pty Ltd under which Wolfstar has agreed to, among other things, provides the services of Mr Stephenson as Company Secretary of the Company for a fee of \$6,000 per month.] Mr Stephenson and Mr Fraser are directors and shareholders in Wolfstar Pty Ltd.
• during the previous calendar year, the remuneration paid to the $(e)$ Related Parties is set out below:

Person	Remuneration
Mr Allen	\$3,750
Mr Fraser	\$3,750
Mr Read	\$3,750
Mr Stephenson	\$18,000

$(f)$ as at the date of this Notice, the Related Parties have notifiable interests in the securities of the Company as set out below:

Person	Shares	Options
Mr Allen	466,667	233,333
Mr Fraser	333,333	166,667
Mr Read	200,000	100,000
Mr Stephenson	Nil	Ni

$(a)$ if Shareholders approve the grant of Options to the Related Parties and all of the Options are exercised, the effect will be to dilute the shareholding of existing Shareholders by approximately 20.89% on an undiluted basis. The market price for Shares during the term of the Options would normally determine whether or not the Options are exercised. If, at the time any of the Options are exercised, the Shares are trading on ASX at a price that is higher than the exercise price of the Options, there may be a perceived cost to the Company. In the 12 months before the date of this Notice, the highest, lowest and last trading price of Shares on ASX are as set out below:

Highest	\$0.165 on 30 March 2005
Lowest	\$0.125 on 5 and 6 April 2005
l ast	\$0.125 on 6 April 2005

• $(h)$ the ASIC in reviewing documents lodged under Section 218 of the Corporations Act relating to the giving of financial benefits to related parties of public companies requires explanatory information regarding the value of the options proposed to be granted. The value of the Options and the pricing methodology is set out in Section 2.4 of this Explanatory Statement: and
• $(i)$ Mr Allen, Mr Fraser and Mr Read decline to make a recommendation to Shareholders in relation to Resolutions 2, 3 and 4 respectively due to their material personal interest in the outcome of the relevant Resolutions. The independent Directors (with respect to Resolutions that they do not have a material personal interest in) recommend that Shareholders vote in favour of Resolutions 2, 3, 4 and 5 as they are of the view that the issue of Options to the Related Parties is an appropriate form of remuneration to provide them with an incentive to maximise returns to Shareholders. The Directors are not aware of any other information that would be reasonably required by Shareho ders to allow them to make a decision whether it is in the best interests of the Company to pass the Resolutions.

$2.5$ VALUATION OF OPTIONS

The Options have been independently valued by Stanton Partners Corporate Pty Ltd using the Black Scholes pricing model and based upon the following assumptions:

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$\mathcal{V}$

• the valuation date for the Options is 31 March 2005, although the $(\alpha)$ Options will not be granted until the Company has approved the grant of the Options. This is expected to occur in mid to late May 2005;
• the market price of a fully paid Share as quoted on ASX as at 31 March $(b)$ 2005 is 15 cents (last scle price):
• $|C|$ the exercise price of the Options is 25 cents;
• $(d)$ the Options expire on 30 June 2009;
• a risk free rate of 5.70% (being the 3 to 5 year government bond rate); $(e)$
• $(f)$ a volatility factor has been set in the range of 10% to 50% with a preferred volatility of 25%. This volatility is based on the premise that a new IPO company may trade in the 10 cents to 30 cents range (50% volatility) but may also trade in a more restricted range of 18 cents to 22 cents (10% volatility) in the early term of trading the ASX. The preferred 25% volatility assumes a trading range of 15 cents to 25 cents from the initial IPO price of 20 cents. Obviously, this is a general observation and actual trading prices can vary substantially from the initial IPO price. We note that since being re-quoted on ASX as Brainytoys Limited (from 24 March 2005), the Shares have not traded above the prospectus issue price of 20 cents:
• $(q)$ the valuations ascribed to the Options may not necessarily represent the market price of the Cptions at the date of the valuation; and
• $(h)$ no discount has been applied for the Options not being listed on ASX and therefore not freely tradeable. If a discount was applied, it would not be unreasonable to apply a discount of between 25% and 50%.

Based on the above assumptions, the technical ranges of values in cents of one Option to be granted to the Related Parties are as follows:

	10% Volatility	25% Volatility	50% Volatility
Option Value	$0.22$ cents	1.57 cents	4.56 cents

Accordingly, the total value of the Options to be granted to each of the Related Parties is \$31,400 (assuming a volatility of 25%).

$2.6$ TERMS OF OPTIONS

Each Option will entitle the holder to subscribe for one fully paid ordinary Share in the Company on the following terms:

• $(a)$ the Options may be exercisable at any time prior to 5:00pm WST on 30 June 2009. Options not exercised on or before the expiry date will automatically lapse;
• $(b)$ the exercise price of each Option will be \$0.25 each:
• $(c)$ the Options may be exercised wholly or in part by completing an application form for Shares (Notice of Exercise) delivered to the Company's share registry and received by it any time prior to 5:00pm WST on 30 June 2009;

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• $(d)$ upon the exercise of a Option and receipt of all relevant documents and payment, the holder will be allotted and issued a Share ranking pari passu with the then issued Shares. The Company will apply to ASX to have the Shares granted Official Quotation. The Options will not be listed on ASX:
• $(e)$ a summary of the terms and conditions of the Options, including the Notice of Exercise, will be sent to all holders of Options when the initial holding statement is sent:
• any Notice of Exercise received by the Company's share registry on or $(f)$ prior to the expiry date will be deemed to be a Notice of Exercise as at the last Business Day of the month in which such notice is received;
• $(q)$ there will be no participating entitlement inherent in the Options to participate in the new issues of capital which may be offered to Shareholders during the currency of the Options. Prior to any new prorata issue of securities to Shareholders, holder of Options will be notified by the Company in accordance with the requirements of the ASX Listing Rules:
• $(h)$ in the event the Company proceeds with a pro rata issue lexcept a bonus issue) of securities to the holders of Shares after the date of issue of the Options, the exercise price of the Options will be adjusted in accordance with the formula set out in ASX Listing Rule 6.22.2;
• $(i)$ in the event of any reconstruction (including consolidation, sub-division, reduction or return) of the issued capital of the Company prior to the expiry date, all rights of an Option holder are to be changed in a manner consistent with the ASX Listing Rules; and
• ${jj}$ Shares issued pursuant to the exercise of an Option will be issued not more than 14 days after the date of the Notice of Exercise.

GLOSSARY

ASX means Australian Stock Exchange Limited.

ASX Listing Rules or Listing Rules means the listing rules of ASX.

Board means the board of directors of the Company.

Company means Brainytoys Limited (ABN 28 001 894 033).

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Explanatory Statement means the explanatory statement to the Memorandum.

Meeting means the meeting convened by the Notice.

Memorandum means this information memorandum.

Notice means the notice of meeting accompanying this Memorandum.

Option means an option to acquire a Share on the terms and conditions set out in Section 2.6 of this Explanatory Statement;

Resolution means a resolution contained in the Notice.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of Shares.

$\ddot{\phantom{0}}$

PROXY FORM

APPOINTMENT OF PROXY BRAINYTOYS LIMITED ABN 28 001 894 033

GENERAL MEETING

I/We

being a member of Brainytoys Limited entitled to attend and vote at the Meeting, hereby

EOP

ACAINET ABETAIN

Appoint

Name of proxy

or failing the person so named or, if no person is named, the Chairman of the Meeting or the Chairman's nominee, to vote in accordance with the following directions or, if no directions have been given, as the proxy sees fit at the General Meeting to be held ct 11.00am on 19 May 2005 at Royal Kings Park Tennis Cluband at any adjournment thereof. if no directions are given, the Chairman will vote in favour of all of the resolutions.

Voting on Business of the General Meeting

		-------	--------
Grant of Options to Mr Allen
Grant of Options to Mr Fraser
Grant of Options to Mr Read
Grant of Options to Mr Stephenson
	Adoption of Incentive Option Scheme

If you do not wish to direct your proxy how to vote, please place a mark in this box

By marking this box, you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of the interest. The Chairman will vote in favour of all of the resolutions if no directions are given.

YOU MUST EITHER MARK THE BOXES DIRECTING YOUR PROXY HOW TO VOTE OR MARK THE BOX INDICATING THAT YOU DO NOT WISH TO DIRECT YOUR PROXY HOW TO VOTE, OTHERWISE THIS APPOINTMENT OF PROXY FORM WILL BE DISREGARDED.

If you mark the abstain box for a particular item, you are directing your proxy not to vote on that item on a show of hands of on a poll and that your shares are not to be counted in computing the required majority on a poll.

Signed this day of 2005

By:

Individuals and joint holders

Signature
Signature
Signature

Companies appropriate)	(affix	common	seal	if
Director
Director/Company Secretary
Sole Director and Sole Company Secretary

BRAINYTOYS LIMITED ABN 28 001 894 033

Instructions for Completing 'Appointment of Proxy' Form

• 1. A member entitled to attend and vote at a Meeting is entitled to appoint not more than two proxies to attend and vote on their behalf. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member's voting rights. If the shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half the votes.
• A duly appointed proxy need not be a member of the Company. In the case of $\overline{2}$ . joint holders, all must sign.
• 1. Corporate shareholders should comply with the execution requirements set out on the proxy form or otherwise with the provisions of Section 127 of the Corporations Act. Section 127 of the Corporations Act provides that a company may execute a document without using its common seal if the document is signed by:
• directors of the company:
• a director and a company secretary of the company; or
• for a proprietary company that has a sole director who is also the sole company secretary - that director.

For the Company to rely on the assumptions set out in Sections 129(5) and (6) of the Corporations Act, a document must appear to have been executed in accordance with Section 127(1) or (2). This effectively means that the status of the persons signing the document or witnessing the affixing of the seal must be set out and conform to the requirements of Section 127(1) or (2) as applicable. In particular, a person who witnesses the affixing of a common seal and who is the sole director and sole company secretary of the company must state that next to his or her signature.

• $\overline{4}$ . Completion of a proxy form will not prevent individual shareholders from attending the meeting in person if they wish. Where a shareholder completes and lodges a valid proxy form and attends the meeting in person, then the proxy's authority to speak and vote for that shareholder is suspended while the shareholder is present at the meeting
• Where a proxy form or form of appointment of corporate representative is lodged 5. and is executed under power of attorney, the power of attorney must be lodged in like manner as this proxy.
• 1. To vote by proxy, please complete and sign the proxy form enclosed and either:
• $(a)$ send the proxy form by facsimile to the Company on facsimile number (08) 9228 0704; or
• $(b)$ send or deliver the proxy form in person to the office of the Company at 6/34 York Street, North Perth, Western Australia 6006,

so that it is received not later than 11:00am (WST) on 17 May 2005.

Proxy forms received later than this time will be invalid.

o/24 York Street Name Porth WA 6005

Dear Shareholder

Brainytoys Limited (the Company) has, over the past half year, experienced a major transformation.

This involved:

• a change in the nature of the business:
• a change in name from Auto Enterprises Limited to Brainytoys Limited;
• a consolidation of share capital, the raising of capital and resultant issue of further shares $\bullet$ to fund the future development of the Company; together with
• the appointment of new directors and management.

I am pleased to report that all of this was completed last month and the shares successfully relisted.

The focus of the coming few years will be on the conceptualisation, development and successful commercialisation of various toys and games.

With this in mind Alex Aguero, the Managing Director, arranged and attended a number of meetings with some of the larger international toy and games manufacturers and distributors. primarily in the United States of America.

The majority of the meetings were positive, with three of the companies expressing a desire to work with Brainytoys to further refine, develop and investigate the potential for our concepts.

You are probably aware that the time from conceptualisation to manufacture or licensing a product can be considerable. The products being developed by Brainytoys are likely to take some time before generating meaningful revenue.

The Board of Directors believes however that Brainytoys possesses a substantial competitive advantage in that:

• a number of products are already quite far into the development cycle; and
• $\bullet$ the use of innovative development and prototyping tools enables the Company to considerably shorten the cycle from conceptualisation to revenue generation.

To this end, the Company has recently ordered sophisticated 3D "printing" equipment, which it is anticipated will enhance and speed up the Company's product development processes.

One of these machines will be the first of its type in Australia.

One of the machines is supplied by Z Corporation, a company that develops, manufactures, and markets some of the world's fastest, high-definition 3D printers. These machines produce 3D physical prototypes of real-world objects with the speed, ease, and affordability of 2D desktop printing.

Leading manufacturers, Fortune 500 companies, and centres for research, including Sony, Fisher-Price, Adidas, Canon, NASA, Lockheed Martin, Northrop Grumman, BMW, Porsche, Ford, DaimlerChrysler, Harvard, MIT and Yale, rely on Z Corp.'s printers to produce prototypes as part of the development of a broad range of world-class products and technologies.

Z Corporation systems are amongst the fastest 3D printers on the market, and also offer 3D colour printing capabilities.

$\overline{\mathbf{z}}$

The other machine is supplied by Stratasys, Inc, a leading manufacturer of in-office rapid prototyping and manufacturing systems for automotive, aerospace, industrial, recreational, electronic, medical and consumer products.

Using patented rapid prototyping processes, Stratasys rapid prototyping systems create precision three-dimensional prototyping parts directly from 3D CAD systems for use in testing form, fit and function throughout the design and development process.

The machines mentioned above will enable the Company to:

• potentially reduce the time from when a concept is developed until when it is ready to be shown to a manufacturer: and
• reduce the cost of development for any concept by: $\bullet$
• o reducing or eliminating the use of costly moulds; and
• o shortening the cycle from conceptualisation to production.

I believe that the Company is currently well placed to exploit new and emerging technologies to the benefit of our shareholders. I remain optimistic that a number of exciting opportunities may emerge over the next few months, however I am sure that these will not be without their challenges.

The Directors are keen to keep shareholders informed of developments in the Company on a regular basis. We would therefore like to keep in touch with you by way of email and through our website (www.brainytoys.com).

If you wish to be kept informed on a more regular basis than just the normal mail outs to shareholders (typically the annual report), I strongly urge you to register your email address by emailing us at info@brainytoys.com. Please state that you wish to be added to the email list. You will then receive a report emailed you approximately quarterly. The report will be posted to the website simultaneously with it being emailed to you, so that all stakeholders will have an opportunity to be kept up to date.

Finally, you will note that a Notice of General Meeting is enclosed.

The purpose of this meeting is to seek shareholder approval for:

• 1. The adoption of an incentive option scheme for employees and consultants; and
• 1. The granting of options to non-executive directors.

The Directors believe that the granting of options to employees and directors provides a very strong incentive to key personnel who assist in the successful development and operation of the Company.

The Directors have deliberately decided not to draw substantial director's fees during the start-up phase of the Company. We believe that it is more appropriate for us to be rewarded in the form of options, at a proposed exercise price of \$0.25 per share.

I look forward to meeting any of you who can attend the General Meeting of the Company in May 2005.

lan Allen Chairman

19 April 2005