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                                                                     EXHIBIT 4.2

          **CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF
            THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY
              FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.**


                 DEED OF AMENDMENT TO RESEARCH AGREEMENT BETWEEN
                COMMONWEALTH OF AUSTRALIA AND METAL STORM LIMITED

THIS DEED is made between:

the COMMONWEALTH OF AUSTRALIA (ABN 68 706 814 312) ("the Commonwealth")
represented by the Defence Science and Technology Organisation of the Department
of Defence ("DSTO"); and

METAL STORM LIMITED (ACN 064 270 006) a company incorporated in Australia and
having its registered office at Level 34 Central Plaza One, 345 Queen Street,
Brisbane, Queensland, Australia 4000 ("Metal Storm").

BACKGROUND:

A    The Commonwealth (through DSTO) and Metal Storm have previously entered
     into an agreement dated 20 April 2001 for the conduct of research
     activities and prescribing arrangements for the exchange of information for
     International Collaborations to which DSTO may be a party, relating to the
     Metal Storm Gun Hardware and Metal Storm Gun System Technology ("the
     Research Agreement").

B.   DSTO and Metal Storm now wish to amend that Research Agreement in the
     manner set out in this Deed.

THE PARTIES AGREE AS FOLLOWS:

1.   Amendments to Sub-Clause 1.1.

1.1  A new defined term is inserted into Clause 1.1 of the Research Agreement as
     follows:

     "Commercialise" and Commercialisation" means to do any of the following for
     the purpose of commercial gain: develop, manufacture, use, hire, sell,
     offer for sale or license or make arrangements to do any of those things;

     "Research Outputs" means results arising from research work done under a
     Project Schedule including without limitation, research and ballistics
     data, specifications, routine technical reports, six monthly reports,
     favourable and unfavourab1e results, modelling and simulation outcomes, and
     the dates, types, data and results from any firings;

2.   Amendments to Sub-Clause 3.2

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2.1  Clause 3.2 of the Research Agreement is deleted and replaced with:

"3.2 The Parties acknowledge that:-

         3.2.1    clauses 5, 6, 10, 11 (other than clause 11.3 whose continuing
                  operation will be in accordance with Sub-Clause 3.2.2 of this
                  Deed set out immediately below), 12, l3, l4, 15, 19, 20, 22,
                  24 and 25 of the E & R Agreement continue in effect to the
                  extent specified in that agreement; and

         3.2.2    the exercise of Metal Storm's Commercialisation rights of the
                  Research Results as described in Clause 11.1 of the E & R
                  Agreement is subject to payment of a royalty to DSTO
                  calculated in accordance with Clause 6, paid in accordance
                  with Clauses 7 and 8 and is otherwise subject to the terms and
                  conditions, of Annexure E to this Research Agreement."

3.   Amendments to Sub-Clause 5.3

3.1  Clause 5.3 of the Research Agreement is deleted and replaced with:

     "The Co-Ordinating Committee will:-

     5.3.1        meet as necessary but at no greater interval than four months;

     5.3.2        be the forum at which DSTO will disclose to Metal Storm such
                  of the following as pertains to all persons representing
                  private sector commercial businesses (or at the Chief WSD's
                  absolute discretion, persons representing non-private sector
                  entities) who have:

                  (a)     been briefed on the technical workings and features of
                          Metal Storm Gun System Technology since the last
                          Co-Ordinating Committee meeting;

                  (b)     attended any firings directly related to the Metal
                          Storm Gun System Technology; and

                  (c)     made enquiries of the Chief, WSD as to the Metal Storm
                          Gun System Technology.

4.   Amendments to Clause 8

4.1  Sub-Clause 8.1 of the Research Agreement is deleted and replaced with:

     "8.1   Metal Storm will own DSTO Developed Improvements subject to:-

            (a)   The provisions of Clause 11;

            (b)   any inconsistent requirements or restrictions relating to the
                  ownership, use or disclosure of such Improvements developed or
                  acquired pursuant to any International Collaboration;

<PAGE>

     provided that any Commercialisation of the DSTO Developed Improvements by
     Metal Storm will be in accordance with the terms and conditions at
     Annexure E."

4.2  Sub-Clauses 8.4 and 8.5 of the Research Agreement are deleted.

5.   Addition of new Clause 8A.

5.1  New Clause 8 A. is inserted immediately after Clause 8 and before Clause 9
     of the Research Agreement as follows:

     "8A. OWNERSHIP AND COMMERCIALISATION OF INTELLECTUAL PROPERTY DEVELOPED OR
          ACQUIRED BY DSTO OUTSIDE OF THIS RESEARCH AGREEMENT

     8A.l Where DSTO develops or acquires Intellectual Property rights over
          which it has possession and unencumbered free right of ownership,
          dealing and disposal, and those rights:-

          (a)  arise from research activities conducted outside of this Research
               Agreement;

          (b)  which relate directly to the Metal Storm Gun Hardware or the
               Metal Storm Gun Technology; and

          (c)  in relation to which DSTO has by way of separate agreement
               granted Metal Storm non-exclusive entitlements to Commercialise
               but on more specific terms to be agreed;

          the more specific terms will be those terms and conditions set out at
          Annexure E.

     8A.2 The Parties will as necessary identify the relevant Intellectual
          Property arising from the other agreements referred to in, and the
          subject of, Clause 8A.1 by way of signed acknowledgments in the form
          of the Acknowledgment set out in Clause 13 of Annexure E."

6.   Amendments to Sub-Clauses 9.1 & 9.2

6.1  Sub-Clauses 9.1 and 9.2 of the Research Agreement are deleted and replaced
     with:

     "9.1 Subject to this Agreement, Metal Storm hereby grants the Commonwealth
          a non-exclusive, world-wide, and perpetual licence to use any
          Improvements developed or acquired by or for Metal Storm ("Metal Storm
          Developed Improvements") whether pursuant to this Agreement or
          otherwise, including the DSTO Developed Improvements referred to in
          Sub-Clause 8.1 above, for:-

     9.1.1 Defence Research Use which right will be royalty free;

     9.1.2 International Collaboration; and

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9.1.3    to acquire goods or services incorporating or using the Metal Storm
         Developed Improvements for Defence Use in accordance with the
         following:-

          9.1.3.1 Metal Storm will have the first right of refusal to supply any
                  Commonwealth acquisition requiring use of the Metal Storm
                  Developed Improvements, the specific terms and conditions of
                  such right of refusal to be agreed by the Metal Storm and the
                  Commonwealth. These will include terms which address, price,
                  quality, warranties, timeliness and performance (provided that
                  the Commonwealth will not be obliged to make any form of
                  payment in relation to use of DSTO Developed Improvements);

          9.1.3.2 if, not-withstanding good faith efforts by Metal Storm and the
                  Commonwealth to agree on the specific terms and conditions of
                  such right of refusal or the terms for a particular
                  acquisition, those Parties are unable to agree within a period
                  of one hundred and eighty (180) days, then Metal Storm agrees
                  to license a third party nominated by the Commonwealth
                  acquisition requirements (subject to commercially reasonable
                  royalty payments to Metal Storm but provided that the
                  Commonwealth will not be obliged to make any form of payment
                  in relation to use of DSTO Developed Improvements). If Metal
                  Storm fails to so license the nominated third party, the
                  Commonwealth will have the right to license that third party
                  to develop and manufacture products to meet the Commonwealth
                  acquisition requirements (subject to commercially reasonable
                  royalty payments to Metal Storm but provided that in making
                  such payments, the Commonwealth will not be obliged to make
                  any form of payment in relation to use of DSTO Developed
                  Improvements). Any licence to a third party pursuant to this
                  clause will also be strictly limited to the nominated purpose
                  and be subject to confidentiality obligations in favour of
                  both the Commonwealth and Metal Storm."

7.       Amendments to Clause 11

7.1      Clause 11 of the Research Agreement is amended by adding a new
         Sub-Clause 11.6 as follows:-

         "11.6    Where the ownership of the relevant DSTO Developed
                  Improvements vests in the Commonwealth pursuant to Sub-Clauses
                  11.4 and 11.5 above, Metal Storm will not be entitled to
                  Commercialise such DSTO Developed Improvements."

8.       Addition of new Sub-Clauses 13.5 and 13.6

8.1      New Sub-Clauses 13.5 and 13.6 are inserted immediately after Sub-Clause
         13.4 and before Clause 14 of the Research Agreement as follows:

         "13.5    In order to facilitate the transfer of information and
                  materials contemplated by Sub-Clauses 13.3 and 13.4, the
                  Parties will make arrangements for the exchange between them
                  of technical information on the relevant Improvements

<PAGE>

                  and on the Research Outputs arising from the Research
                  Activities which arrangements may be by way of regular
                  technical review meetings to be scheduled by mutual agreement
                  notwithstanding the exchange/ placement of one Party's
                  Personnel at the other's premises as provided in Sub-Clause
                  13.4.

         13.6     The Parties will ensure:-

                  (a)     that the technical review meetings referred to in
                          Sub-Clause 13.5 are held at least monthly and a
                          convenient venue to be agreed by the Parties in
                          writing and may be held by teleconferencing, video
                          conferencing, other form of instantaneous
                          communication or otherwise as mutually agreed;

                  (b)     the flow of relevant information including the prompt
                          reporting of Improvements and Research Outputs and in
                          the case of DSTO, making available to Metal Storm
                          copies of any reports prepared for the Australian
                          Defence Forces on such of the Research Activities as
                          has been sponsored by them;

                  (c)     that each of their Personnel who attend the technical
                          review meetings are suitably qualified and informed in
                          relation to the matters to be considered at the
                          meetings and be able to provide sufficient information
                          on a relevant matter to enable the other Party's
                          Personnel to properly assess the progress under this
                          Research Agreement."

9.       Amendments to Sub-Clauses 16.4 & 16.5

9.1      Sub-Clauses 16.4 and 16.5 of the Research Agreement are deleted.

10.      Amendments to Clause 23

10.1     Clause 23 of the Research Agreement is deleted and replaced with the
         following:-

         "23   PUBLICITY

          23.1 Neither Party will make any press release or public statement
               concerning details of this Agreement or either Party's
               involvement in it, except:-

               23.1.1     with the prior written consent of the other Party
                          PROVIDED THAT such consent will not be required where
                          Metal Storm is required to disclose details, or
                          provide copies (with any commercially sensitive
                          aspects appropriately masked), of this Agreement for
                          its dealings with third parties in relation to
                          possible Commercialisation activities authorised by
                          this Agreement;

               23.1.2     to the extent required by law or by Government or
                          other public regulatory requirement; or

               23.1.3     as may be necessary to satisfy the procedures or
                          policies of DSTO or the Commonwealth.


<PAGE>

      23.2  Metal Storm shall not release any advertising or promotional
            material which states or implies any Commonwealth, Department of
            Defence or DSTO endorsement of its goods and/or services."

11.   Addition of new Annexure E

1.1   New Annexure E is inserted immediately after existing Annexure D of the
      Research Agreement as follows:


                               "ANNEXURE E to the
                               RESEARCH AGREEMENT:

                  TERMS AND CONDITIONS TO APPLY TO EXERCISE OF
                     COMMERCIALISATION RIGHTS BY METAL STORM

1.    INTERPRETATION

1.1   In these terms and conditions, unless the contrary intention appears:

      "Acknowledgment" means an acknowledgment signed by the Parties in the form
      of the acknowledgment described in Clause 13 of this Annexure E;

      "Commencement Date" means the date of execution of this Deed of Amendment
      to the Research Agreement;

      "Commercialise" and "Commercialisation" means to do any of the following
      for the purpose of commercial gain: develop, manufacture, use, hire, sell,
      offer for sale or license or make arrangements to do any of those things;

      "Development" means any improvement in, or material variation of, the
      Foreground IP, and includes any further development (including derivative
      product, technology and know-how) of the Foreground IP;

      "Foreground IP" means the Research Results; the DSTO Developed
      Improvements; or the DSTO owned Intellectual Property rights referred to
      in Clause 8A of this Research Agreement as further specified in an
      Acknowledgement;

      "Licence Period" is without limit as to time in the case of the Research
      Results and the DSTO Developed Improvements; and in the case of the DSTO
      owned Intellectual Property rights referred to in Clause 8A of this
      Research Agreement, the duration of the non-exclusive right to
      Commercialise as conferred on Metal Storm by DSTO under such other
      separate written agreement as referred to in Sub-Clause 8A.l(c);

      "Licensed Product" means:-

      (a)   a product which is based on, or which incorporates, Foreground IP;
            or

      (b)   the licensing or sub-licensing of rights to Commercialise products
            based on, or which incorporate, Foreground IP.

<PAGE>

         "Metal Storm Development" means a Development made or acquired by Metal
         Storm or a sub-licensee or sub-contractor, of Metal Storm;

         "Net Invoice Price" means the gross invoice price for any Licensed
         Product sold or supplied less any bona fide amounts included for
         freight, transit insurance, government taxes and charges, and Third
         Party Royalties. With respect to the sale or supply of Licensed
         Products to a person, firm or company directly or indirectly
         controlling, controlled by, under common control with, or enjoying a
         specially favoured course of dealing with Metal Storm, "Net Invoice
         Price" is the amount which would be billed on an arms length basis to a
         bona fide third party less any of the preceding deductions as are
         factually applicable;

         "Quarter Date" means each December, March, June and September ("the
         Quarter Date") in each year during the term of this Research Agreement;

         "sale", "sell" and "sold" includes selling, licensing, hiring out or
         otherwise disposing of, or allowing the use by third parties of, or
         providing to third parties services using, Licensed Products;

         "Royalty Rate" means, unless otherwise agreed by the Parties in
         writing, that rate for the relevant Licensed Product as specified in
         Sub-Clause 6.1 of this Annexure E;

         "Third Party Royalties" means royalties payable by Metal Storm to third
         parties not related to it for use of the third parties' Intellectual
         Property incorporated into Licensed Products;

1.2      In these terms and conditions in this Annexure E to the Research
         Agreement, unless the contrary intention appears a reference to an
         amount of money is a reference to the amount in the lawful currency of
         the Commonwealth of Australia.

1.3      In the event of any conflict or inconsistency between the provisions in
         these terms and conditions in this Annexure E and an Acknowledgement,
         the provisions of these terms and conditions shall prevail.

2.       COMMERCIALISATION RIGHTS

2.1      Subject to the terms and conditions of this Annexure E and the Research
         Agreement, Metal Storm may Commercialise the Foreground IP to develop,
         make, market, sell, maintain, repair and modify Licensed Products for
         the Licence Period.

2.2      Metal Storm will not use the Foreground IP otherwise than pursuant to,
         and in accordance with, this Research Agreement.

2.3      None of the Commercialisation rights referred to in the terms and
         conditions of this Annexure E shall be construed as overriding, or as
         granting approval, consent or authorisation under, any laws or legal
         requirements (including any export approvals that may be required) and
         it shall be the responsibility of the Metal Storm in exercising its
         rights and in engaging in any activities in relation to this Research
         Agreement, to comply with all applicable laws and legal requirements.

<PAGE>

2.4      To the extent that it does not conflict with the provisions of Clause
         28 of this Research Agreement, DSTO will take such steps as it
         considers appropriate to support an application for export approval by
         Metal Storm pursuant to Sub-Clause 2.3.

3.       METAL STORM DEVELOPMENTS

3.1      Intellectual Property in Metal Storm Developments will be owned by
         Metal Storm, but this will not affect ownership of the Foreground IP or
         obligations under this Research Agreement.

3.2      Metal Storm Developments will be dealt with as though they were Metal
         Storm Developed Improvements for purposes of DSTO exercising the
         licences and rights conferred on it under Clause 9 of this Research
         Agreement such that those licences and rights apply to the Metal Storm
         Developments (but provided that the Commonwealth will not be obliged to
         make any form of payment in relation to use of Foreground IP).

4.       MARKETING

4.1      Marketing of the Foreground IP and Licensed Products is the sole
         responsibility of the Metal Storm and DSTO has no obligations to
         undertake or assist with any marketing activities.

4.2      Metal Storm must not make any use of the name or logos of DSTO or the
         Commonwealth for advertising, product endorsement or other publicity
         purposes without previously having obtained the specific written
         consent of DSTO and the use of such name shall be subject to any
         conditions attaching to such consent.

4.3      The Metal Storm must not make any false or misleading statements in
         relation to the Foreground IP or Licensed Products.

5.       REPORTING

5.1      Metal Storm will provide to DSTO such reports and information
         concerning its activities in relation to its Commercialisation
         activities and those of its sub-licensees and sub-contractors, as DSTO
         may reasonably request in writing from time to time. This information
         will include: details of Metal Storm Developments, Licensed Products,
         gross invoice prices for Licensed Products, and marketing activities
         conducted during the relevant period.

5.2      Without limiting Sub-Clause 5.1 of this Annexure E, the Metal Storm
         will provide reports every 6 months (unless otherwise agreed).

6.       OBLIGATION TO PAY ROYALTIES

6.1      In respect to each category of Licensed Product set out below, Metal
         Storm will pay royalties to DSTO calculated using the relevant Royalty
         Rate as applied to the Net Invoice Price (in the case of (a)) of, or
         the relevant revenues (in the case of (b)) from, each Licensed Product
         sold or supplied by Metal Storm in the relevant category:-

<PAGE>

         (a)      As to products manufactured by or subcontract manufactured by
                  Metal Storm which are based on, or which incorporate,
                  Foreground IP, the Royalty Rate is CONFIDENTIAL MATERIAL
                  REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
                  COMMISSION and the royalty payable is:-

                  CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
                  SECURITIES AND EXCHANGE COMMISSION. x Net Invoice Price of the
                  relevant Licensed Product.

         (b)      As to licensing or sub-licensing of the rights to
                  Commercialise products other than for manufacturing by Metal
                  Storm or Metal Storm subcontractors based on, or which
                  incorporate, Foreground IP, the Royalty Rate is CONFIDENTIAL
                  MATERIAL REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND
                  EXCHANGE COMMISSION and the royalty payable is:-

                  CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
                  SECURITIES AND EXCHANGE COMMISSION x the sum of the fees and
                  all other payments received by Metal Storm in consideration of
                  the granting of such Commercialisation rights less any bona
                  fide amounts included for freight, transit insurance,
                  government taxes and charges and Third Party Royalties. With
                  respect to the sale or supply of Licensed Products to a
                  person, firm or company directly or indirectly controlling,
                  controlled by, under common control with, or enjoying a
                  specially favoured course of dealing with Metal Storm, the
                  "sum of fees and other payments received" is the amount which
                  would be billed on an arms length basis to a bona fide third
                  party less any of the preceding deductions as are factually
                  applicable;

                  PROVIDED THAT no royalties will be payable on Licensed
                  Products sold to the Commonwealth for Defence Use where the
                  price has been reduced by the amount of royalty which Metal
                  Storm would otherwise have been required to pay pursuant to
                  this Sub-Clause 6.1.

6.2      Royalty payments for Licensed Products which are taken to have been
         sold in accordance with Sub-Clause 6.4 of this Annexure E in the
         initial period from the Commencement Date until the first Quarter Date
         after the Commencement Date will be paid within 1 month of that Quarter
         Date.

6.3      Subsequent royalty payments will be paid quarterly within 1 month
         following the end of each Quarter Date, for Licensed Products that are
         taken to have been sold in accordance with Sub-Clause 6.4 of this
         Annexure E in the 3 month period (or lesser period if applicable with
         respect to the first and last period) ending on the applicable Quarter
         Dates. If this Research Agreement expires or is terminated during any
         such 3 month period, the date of the expiration or termination of this
         Research Agreement will be taken to be the Quarter Date for that
         period.

6.4(a)   Subject to Clause 6.4(b), for the purposes of this Research Agreement,
         a sale of a Licensed Product is taken to have occurred:-

         (i)  upon receipt by the Metal Storm of payment for that Licensed
              Product; or

<PAGE>

         (ii) sixty (60) days after the date of invoice seeking such payment;

         (whichever occurs sooner). AND in respect of a Licensed Product for
         which no payment (in cash and or in kind) is made or given for the
         supply of the Licensed Product (other than in circumstances where a
         Licensed Product is provided without charge for bona-fide, arms length
         promotion purposes), a sale will be taken to have occurred on the date
         of supply of that Licensed Product.

6.4(b)   In the event that payment to Metal Storm for Licensed Products is
         delayed for any event or reason beyond Metal Storm's control (other
         than in in the case of delinquent debtors), and provided that Metal
         Storm gives notice to DSTO of such an event, Metal Storm's obligation
         to make payment to DSTO under Clause 6.4(a) will be postponed for the
         duration of that event.

6.5      Metal Storm will provide DSTO with a statement of each payment payable
         under Sub-Clause 6.1 of this Annexure E by no later than the last day
         on which the payment is required to be made and will attach each such
         statement to the relevant payment remittance. Where no payments under
         Sub-Clause 6.1 of this Annexure E are payable, Metal Storm will provide
         a statement to that effect. Unless DSTO otherwise specifies in writing
         to Metal Storm, all statements will include: the number and category of
         Licensed Products sold; the gross invoice price, Net Invoice Price,
         quantity and customer with respect to each order; the amount of royalty
         payable to DSTO; in the case where Clause 6.1(b) applies, the sum of
         the fees and all other payments received by Metal Storm in
         consideration of the granting of the relevant Commercialisation rights
         (including the amounts deducted for freight, transit insurance,
         government taxes and charges and Third Party Royalties) and such other
         information as DSTO may reasonably require.

6.6      The Parties agree to review the Royalty Rate on the fifth anniversary
         of the Commencement Date.

7.       GENERAL PAYMENT TERMS

7.1      If any amount payable by Metal Storm under this Research Agreement is
         in arrears then interest at the rate of CONFIDENTIAL MATERIAL REDACTED
         AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION per
         annum greater than the average weighted yield of 13 week Australian
         Treasury Notes, calculated on the money overdue during the period of
         arrears, will be paid by Metal Storm to DSTO on demand by DSTO but
         without prejudice to any other rights or remedies that DSTO may have.

7.2      Subject to Clause 30 of this Research Agreement ("Goods and Services
         Tax"), all payments to be made under this Research Agreement must, to
         the full extent permitted by law, be made without any deduction for, or
         on any account of, any income or other taxes, imposts, deductions or
         other withholdings of any kind (collectively "withholdings"). If Metal
         Storm is compelled by law to deduct any withholdings from any payment,
         Metal Storm must ensure that the deduction made does not exceed the
         minimum legal liability in that regard. To the full extent permitted by
         law, Metal Storm must also pay to DSTO whatever additional amount is
         necessary (after allowing,

<PAGE>

         for the avoidance of doubt, for withholdings from that amount) to
         ensure DSTO receives the full amount of the payment due under this
         Research Agreement as if the withholdings had not been deducted.

8.       RECORDS & ACCESS

8.1      Metal Storm will keep at its registered office in Australia records and
         books of account relating to all sales (wherever occurring) of Licensed
         Products giving true and clear particulars for calculation of payments
         to be made under this Research Agreement. If requested by DSTO Metal
         Storm will produce a certificate by the auditors or accountants of
         Metal Storm as to the truth and completeness of the records and books.

8.2      DSTO may, by written notice to Metal Storm, require Metal Storm to
         produce to DSTO the records and books referred to in Sub-Clause 8.1 of
         this Annexure E, and Metal Storm will comply with any such request.

8.3      DSTO's representatives (which will include external accountants or
         auditors nominated by DSTO) will have the right to inspect the records
         and books referred to in Sub-Clause 8.1 of this Annexure E at any
         reasonable time during business hours after giving written notice.

8.4      DSTO will be entitled to take copies and extracts of the records and
         books referred to in Sub-Clause 8.1 of this Annexure E and have such
         records and books examined by the said representatives. Metal Storm
         will give such representatives all such assistance as is necessary,
         including access to facilities and other documents, to enable the
         amount of any payments payable under this Research Agreement to be
         ascertained.

8.5      On providing 2 days written notice to Metal Storm, DSTO's
         representatives will be entitled during business hours to visit the
         premises of Metal Storm and inspect those parts of Metal Storm's
         facilities, Licensed Products, promotional materials, documents,
         records and other materials which are relevant to the performance of
         this Research Agreement. Metal Storm will provide DSTO's
         representatives with all reasonable assistance in relation to the
         matters referred to in this Sub-Clause.

8.6      Metal Storm will ensure that DSTO has similar rights to those referred
         to in Clause 8 of this Annexure E with respect to any sub-licensees or
         sub-contractors of Metal Storm.

8.7      In exercising its rights under this Clause 8 to access, inspect, copy
         and have certified relevant records and books of account ("access
         rights"), DSTO shall endeavour (but is not obliged) to co-ordinate the
         timing of its access rights with the occasion of the attendance of
         Metal Storm's external auditors at Metal Storm's registered office,
         such attendance being within 75 days of the 30 June and 31 December of
         any year.

8.8      If the DSTO nominated independent accountant identifies a deviation
         CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE SECURITIES
         AND EXCHANGE COMMISSION from the amounts identified as payable to DSTO
         in statements provided by Metal Storm pursuant to Sub-Clause 6.5, then
         the independent accountant's costs shall be paid by Metal Storm.

9.       INSURANCE

<PAGE>

9.1      Subject to Sub-Clause 9.2, Metal Storm shall ensure that prior to any
         commercial release of products incorporating Licensed Intellectual
         Property, Metal Storm Background Information, Metal Storm Developed
         Improvements, Foreground IP or Metal Storm Developments, Metal Storm
         will secure and maintain adequate product liability insurance.

9.2      In the event that such product liability insurance is not available or
         if available, such insurance in Metal Storm's view is not commercially
         viable, Metal Storm and DSTO will consult with the objective of
         determining a mutually acceptable course of action which shall take
         into consideration the commercial position of Metal Storm.

9.3      Metal Storm will, upon the request of DSTO, produce evidence of the
         currency of the insurance policies refererd to in Sub-Clauses 9.1 and
         9.2 of the terms and conditions in this Annexure E.

9.4      Metal Storm will at all times comply with the terms of such insurance
         policies referred to in Sub-Clauses 9.1and 9.2 of this Annexure E.

9.5      Metal Storm will ensure that the insurance policies referred to in
         Sub-Clauses 9.1 and 9.2 of this Annexure E will remain in force for a
         period of not les than 6 years after the expiration or termination of
         the Commercialisation licences and rights referred to in Clause 2 of
         this Annexure E.

10.      SUB-LICENCES AND SUB-CONTRACTS

10.1     If Metal Storm wishes to sub-license or sub-contract any of its
         Commercialisation rights, interest or obligations under this Research
         Agreement, then it must comply with Sub-Clause 10.2 below and provide
         to DSTO copies of any such sub-licences (with masking of any
         commercially confidential elements not relevant or relating to DSTO)
         within 30 days of their execution.

10.2     Any approved sub-licences and sub-contracts referred to in Sub-Clause
         10.1 that is entered into by Metal Storm will include:

         (a)    provisions which bind the sub-licensee or sub-contractor to no
                less onerous obligations as apply to Metal Storm under the
                terms and conditions contained in this Annexure E and this
                Research Agreement;

         (b)    terms and conditions which give the sub-licensee or
                sub-contractor rights which are no greater or more favourable
                than those rights Metal Storm has under the terms and
                conditions contained in this Annexure E and this Research
                Agreement (but a sub-licensee will have no right to assign,
                charge, offer for security or otherwise deal with, or purport
                to do any of the foregoing with respect to, such sub-license
                rights or interest);

         (c)    a provision to the effect that Metal Storm may terminate the
                sub-licence or sub-contract agreement on the happening of any
                events in relation to the sub-licensee or subcontractor which
                would, if the same occurred in relation to Metal Storm, give
                DSTO the right to terminate this Research Agreement.

<PAGE>

10.3     Metal Storm shall be fully responsible for all acts and omissions of
         each sub-licensee and sub-contractor (and their officers and employees)
         as if those acts or omissions were acts or omissions of the Licensee
         under this Agreement.

10.4     Metal Storm will take all reasonable steps (which may include seeking
         urgent interlocutory relief in the Courts where appropriate) to ensure
         that all sub-licensees and sub-contractors comply with their
         obligations under their agreements with Metal Storm.

11.      LIABILITY

11.1     Subject to Clause 11.2, nothing in this Research Agreement is to be
         construed as a representation or warranty:

         (a)  that the use of the Foreground IP or the manufacture or sale of
              Licensed Products will not infringe any third party Intellectual
              Property rights or give rise to a claim for "passing off" or for
              misleading or deceptive conduct or claims of a similar nature by
              third parties;

         (b)  that any applications. for registration of Intellectual Property
              rights in any part of the Foreground IP will success in
              registration;

         (c)  that any registration of Intellectual Property rights in any part
              of the Foreground IP will not subsequently be declared invalid or
              cease to be registered; or

         (d)  as to merchantability or fitness for a particular purpose of the
              Foreground IP or Licensed Products.

11.2     DSTO hereby represents and warrants that at the date of this Deed, no
         claim has been made against it relating to, and the Chief WSD is not
         aware of, third party rights which it would be infringed by the grant
         of the licence to which these terms relate, or the use of the
         Foreground IP by Metal Storm.

11.3     Metal Storm assumes the sole risk of interpreting and applying
         Foreground IP and releases and agrees to indemnify and hold harmless
         DSTO from and against all liability, claims and costs (including legal
         costs on a solicitor and own client basis), directly or indirectly
         relating to, or arising from:

         (a)  any breach of the terms of this Research Agreement by Metal Storm,
              its employees, advisers, subcontractors or sub-licensees;

         (b)  any unlawful or negligent act or omission of the Metal Storm, its
              employees, advisers, subcontractors or sub-licensees;

         (c)  the use of, or reliance on Foreground IP by Metal Storm or its
              sub-licensees or sub-contractors; or

<PAGE>

         (e)      the use, manufacture, sale or supply of Licensed Products by
                  Metal Storm or its sub-licensees or sub-contractors or the use
                  of, or reliance on, such Licensed Products by any persons.

11.4     DSTO does not give any warranty nor accept any liability in relation to
         Foreground IP except to the extent, if any, required by law. If, apart
         from this clause any warranty or condition would be implied, whether by
         law, custom or otherwise, that warranty or condition is, to the fullest
         extent permitted by law, excluded. With respect to any non- excludable
         implied warranty or condition, DSTO's liability for breach thereof is
         limited to the fullest extent permitted by law and without limiting the
         generality of the foregoing where such liability can be limited to the
         replacement or repair of goods or the re-supply of services or the
         payment of the cost of such replacement, repair or re-supply, such
         liability will be limited to anyone or more of them at DSTO's
         discretion.

12.      INTELLECTUAL PROPERTY INFRINGEMENT

12.1     If either Party becomes aware of any infringement or threatened
         infringement of the Foreground IP, or any allegation that the
         Foreground IP infringes the rights of third parties, then (unless
         prevented from doing so by confidentiality obligations) it will
         immediately notify the other Party in writing providing particulars of
         the infringement or threatened infringement. Either Party may put
         forward proposals to the other Party for dealing with the infringement
         or threatened infringement.

12.2     The Parties will attempt to agree on a course of action to deal with
         any infringement or threatened infringement as referred to in
         Sub-Clause 12.1 of this Annexure E. However, if:

         (a)      the Parties are unable to reach agreement within 30 days (or
                  such other period agreed in writing between the Parties) of
                  the original notification under Sub- Clause 12.1 of this
                  Annexure E; or

         (b)      a Party reasonably believes that urgent action is needed to
                  deal with any infringement or threatened infringement;

         then either Party shall be free to act independently (provided that it
         keeps the other Party informed of its actions) and, in doing so, may
         request that the other Party provide it with information, documents and
         things in the other Party's possession which are relevant to the action
         being taken. The other Party shall use its best endeavours to comply
         with the requesting Party's request provided that such request is
         reasonable and the other Party's costs and expenses in so complying are
         paid for by the requesting Party. Any award of damages or costs in
         favour of a Party as a result of actions taken by it as permitted under
         this Clause may be retained by that Party subject to any agreement
         between the Parties to the contrary.

<PAGE>

13.      FORM OF ACKNOWLEDGEMENT

13.1     An Acknowledgement to be signed by the Parties will be largely in the
         following form:-

    "ACKNOWLEDGEMENT BY DSTO AND METAL STORM OF FOREGROUND IP SUBJECT TO THE
          TERMS AND CONDITIONS OF ANNEXURE E TO THE RESEARCH AGREEMENT

The following Foreground IP is as at the date of this Acknowledgement subject to
the operation of the terms and conditions of Annexure E: to the Research
Agreement:-

Item 1-Research Results:

(description)

Item 2-DSTO Developed Improvements:
(description)

Item 3-Intelectual Property developed or acquired by DSTO outside of the
Research Agreement and to which Clause 8A of the Research Agreement applies:

(description)

ACKNOWLEDGED for and on                   ACKNOWLEDGED for and on
behalf of COMMONWEALTH OF                 behalf of METAL STORM LIMITED
AUSTRALIA

by                                        by
  ----------------------------              --------------------------------

(Name of Officer)                         (Name of Officer)

an officer duly authorised to sign        an officer duly authorised to sign
on its behalf:                            on its behalf:

------------------------------
(Signature of Officer)                    (Signature of Officer)


DATE                                     DATE
     -------------------------             ---------------------------------

<PAGE>

EXECUTED AS A DEED by the Parties' duly authorised representatives:

SIGNED, SEALED AND DELIVERED        )
for and on behalf of COMMONWEALTH   )
OF AUSTRALIA                        )
                                    )
by W.R. Dickson                     )                /S/ W.R. Dickson
-------------------------------------                ----------------
(Name of Officer)                                    (Signature of Officer)
an officer duly authorised to sign on its
behalf in the presence of:


G.L. Mincham                                         /S/ G.L. Mincham
------------------------------------                 ----------------
(Name of Witness)                                    (Name of Witness)

DATE:  13 September 2002

SIGNED, SEALED AND DELIVERED        )
for and on behalf of METAL STORM    )
LIMITED                             )
                                    )
by Peter Pursey                     )                /S/ P Pursey
   ----------------------------------                ------------
(Name of Officer)                                    (Signature of Officer)
an officer duly authorised to sign on its
behalf in the presence of:


Terence James O'Dwyer                                /S/ T. J. O'Dwyer
--------------------------------------               -----------------
(Name of Witness)                                    (Name of Witness)

DATE:  13 September 2002