Market turmoil has led the Craig brothers to remove a key debt-to-equity conversion right in their $11.6 million loan agreement with Craig Wireless Systems, in which they are controlling shareholders.

Drew and Boyd Craig, who are also co-CEOs of the Winnipeg-based company, in a statement said they agreed to waive the conversion right ‘in light of the recent volatility of capital markets and the inability to predict the market price of the company’s shares upon maturity of the loan.’

They added the move would also avoid a ‘significant dilution’ of the ownership interest of other company shareholders should they convert all or part of the loan into subordinate voting shares.

The Craigs’ conversion right clause was originally included in a recent debt refinancing that saw a $6.6-million loan from Boyd Craig, set to expire on July 18, 2008, replaced with a new one-year $11.6-million loan that would pay out 15% per annum in interest.

In the wake of the global credit crunch, Canadian entertainment companies have had increasing difficulty raising funds in debt markets, and so have had to rely on majority stakeholders for new equity.

Drew Craig, who is also co-chairman of Peace Arch Entertainment, last year joined fellow investor Jeff Sagansky to provide the Toronto-based producer and distributor with a bridge loan worth $2.65 million, due within one year at 12% interest.

Stock in Craig Wireless Systems has been hammered by the market meltdown, falling from a 52-week high of $4.09 on the Toronto Stock Exchange to close at $0.12 on Thursday.

The company in October announced that former Alliance Atlantis Communications executive David Lazzarato had resigned as CEO after only seven months in the post.

Craig Wireless Systems has its origins in the former telecommunication assets of Craig Media, which were not acquired by when CHUM Ltd. bought Craig Media in 2004.