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EXHIBIT 4.10
 EXECUTION COPY
 
 Cash Advance Facility Agreement
 Metal Storm Limited
 Harmony Investment Fund Limited




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Table of Contents
 1
    
    INTERPRETATION
    
    
    12
    
    FACILITY AND PURPOSE
    
    
    83
    
    CONDITIONS PRECEDENT
    
    
    84
    
    DRAWDOWN NOTICE
    
    
    95
    
    INTEREST
    
    
    106
    
    PREPAYMENT AND CANCELLATION
    
    
    117
    
    REPAYMENT
    
    
    138
    
    FEES
    
    
    139
    
    COMPANYS REPRESENTATIONS AND WARRANTIES
    
    
    1310
    
    UNDERTAKINGS FROM THE COMPANY
    
    
    1511
    
    FINANCIER'S RIGHTS ON DEFAULT
    
    
    1812
    
    COSTS AND EXPENSES
    
    
    2113
    
    PAYMENTS
    
    
    2214
    
    ILLEGALITY AND INCREASED COSTS
    
    
    2415
    
    NOTICES
    
    
    2516
    
    GENERAL
    
    
    25SCHEDULE 1
    
    
    30SCHEDULE 2
    
    
    32




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Parties
 Metal Storm Limited Company
 Harmony Investment Fund Limited, th , , , , Financier
 Agreement
 1
    
    INTERPRETATION1.1
    
    DefinitionsThe following words have these meanings in this document:Accountsincludes:
 (a)
    
    a statement of financial performance and statement of financial position; and(b)
    
    statements, reports and notes attached to, or intended to be read with, any
documents referred to in paragraph (a), including auditors reports and directors
reports.
 Approved Purpose
 ASIC
 ASX
 Authorised Officer
 Authorisation
 (a)
    
    any consent, authorisation, registration, filing, lodgement, agreement,
notarisation, certificate, permission, licence, approval, authority or exemption from,
by or with a Governmental Agency; or(b)
    
    in relation to anything which will be fully or partly prohibited or
restricted by law if a Governmental Agency intervenes or acts in any way within a
specified period after lodgement, filing, registration or notification, the expiry of
that period without intervention or action.
 Availability Period
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Avoided Transaction
 Break Costs
 Business Day
 Charge
 Commitment
 Confidential Information
 (a)
    
    is or becomes public knowledge; or(b)
    
    has been independently developed or acquired by the Financier,
  Control
 Controller Corporations Act
 Convertible Notes
 Corporations Act Corporations Act 2001
 Distribution
 Dollars, A$ $
 Drawdown Date
 Drawdown Notice
 Drawing
 2




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Encumbrance Income Tax Assessment Act
1936 Taxation Administration Act 1953
 Event of Default
 Event of Insolvency
 (a)
    
    (dissolution) the corporation is dissolved (whether pursuant to Chapter 5A of
the Corporations Actor otherwise);(b)
    
    (Controller or liquidator appointed) a Controller, liquidator, provisional
liquidator, trustee or administrator is appointed in respect of the corporation or any
of its assets;(c)
    
    (steps to dissolve or appoint liquidator or administrator) an application is
made to a court or a meeting is convened, or a resolution is passed (or notice is
given of such meeting or resolution) or a notice is issued or any other step is taken
by any person for the corporation to be wound up or dissolved or for the appointment
of a liquidator, provisional liquidator, trustee or administrator to the corporation
or any of its assets;(d)
    
    (scheme of arrangement) the corporation:
 (A)
    
    resolves to enter into, or enters into, a scheme of
arrangement, a deed of company arrangement or composition with its creditors
or an assignment for their benefit;(B)
    
    proposes or is subject to a moratorium of its debts; or(C)
    
    takes proceedings or actions similar to those mentioned in
this paragraph as a result of which the corporations assets are, or are
proposed to be, submitted to the control of its creditors;
 (e)
    
    (protection from creditors) the corporation seeks or obtains protection from
its creditors under any statute or any other law;(f)
    
    (insolvent) the corporation is unable to pay all of its debts as and when
they become due and payable or is deemed to be insolvent under any provision of the
Corporations Actor any statute or any other law;(g)
    
    (attachment, distress) any attachment, distress, execution or other process
is made or levied against any asset of the corporation;(h)
    
    (cease business) the corporation ceases to carry on all or a substantial part
of its business (or threatens to do so); or(i)
    
    (analogous process) an event occurs in relation to the corporation which is
analogous to anything referred to above or which has a substantially similar effect.
 3




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Facility
 Facilitation Agreement
 Final Repayment Date
 Governmental Agency
 Harmony Facilitation Options
 Interest Payment Date
 Interest Rate
 Intellectual Property
 (a)
    
    a patent, trade mark, service mark, copyright, registered design, trade
secret, domain name or confidential information; or(b)
    
    a licence or other right to use or to grant the use of any of the foregoing
or to be the registered proprietor or user of any of the foregoing.
 Lease
 (a)
    
    a lease, charter, bailment, hire purchase or hiring arrangement of any
property;(b)
    
    a right to use Intellectual Property or a franchise; or(c)
    
    an agreement under which property is or may be used or operated by a person
other than the owner.
 Lender Options
 Letter of Offer
 Licence
 Marketable Security Corporations Act
 Material Adverse Effect
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (a)
    
    the assets, accounting methods, financial condition or trading position of
the Company or a Related Entity of the Company;(b)
    
    the capacity of the Company or a Related Entity of the Company to comply on
time with its obligations under any Transaction Document;(c)
    
    the ability of the Financier to exercise its rights under any Transaction
Document;(d)
    
    the realisable value of the Secured Property or any asset subject to a
Security Document; or(e)
    
    the ability of the Company to ensure that:
 (i)
    
    the Rights Issue Prospectus is issued to shareholders in
accordance with all applicable laws by 31 July 2006; or(ii)
    
    all Options and Convertible Notes are issued and quoted on
the ASX by no later than 31 August 2006.
 Material Contract
 
    
    Singapore Technologies Kinetic Ltd (STK) dated 28 September 2005; and
    
    Electro Optic Systems Holdings Pty Limited dated 2 August 2005 (EOS).
 Option
 Potential Event of Default
 Prescribed Rate
 Principal Outstanding
 Related Entity Corporations Act
 Reserve Requirement
 Rights Issue
 Rights Issue Document
 5




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (a)
    
    the Letter of Offer;(b)
    
    the Rights Issue Prospectus;(c)
    
    any terms and conditions of the Convertible Notes;(d)
    
    any agreement relating to the issue of the Options;(e)
    
    any other agreement to which the Company is a party in connection with the
Rights Issue.
 Rights Issue Proceeds
 Rights Issue Prospectus
 Secured Property
 Security Documents
 (a)
    
    the documents described in item 7 of schedule 1, and any Security Interest at
any time which is collateral to any of them; and(b)
    
    such other documents as may be agreed from time to time by the Company and
the Financier.
 Security Interest
 Share
 Taxes
 Transaction Documents
 (a)
    
    this document;(b)
    
    the Security Documents;(c)
    
    any document which the Company and the Financier agree will be a Transaction
Document including any documents specifically identified in item 8 of schedule 1; and
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (d)
    
    any other documents contemplated by or referred to in any of those documents.
 Undrawn Commitment
 1.2
    
    Interpretation
  (a)
    
    (variation or replacement) a reference to this document or any other document
includes any variation or replacement of it;(b)
    
    (statutes and regulations) a reference to a statute or other law includes
regulations and other instruments under it and any consolidations, amendments,
re-enactments and replacements of it;(c)
    
    (singular and plural) the singular includes the plural and vice versa;(d)
    
    (gender) a reference to one gender includes each other gender;(e)
    
    (person) the word person includes a firm, corporation, body corporate,
unincorporated association or Governmental Agency;(f)
    
    (successors) a reference to a person includes a reference to the persons
executors, administrators, legal personal representatives, successors and permitted
assigns;(g)
    
    (joint and several) an agreement on the part of, or in favour of, two or more
persons binds or is for the benefit of them and any one or more of them jointly and
severally;(h)
    
    (party) a reference to a party means a person who is named as a party to, and
is bound to comply with the provisions of, this document;(i)
    
    (without limitation) a reference to includes or including means
includes, without limitation and including, without limitation respectively;(j)
    
    (defined terms) where a word or phrase is given a defined meaning in this
document, the other grammatical forms of the word or phrase have a corresponding
meaning;(k)
    
    (acts and omissions) a reference to an act includes an omission and doing an
act includes executing a document;(l)
    
    (groups etc) a reference to any thing is a reference to the whole or any part
of it and a reference to a group of persons or things is a reference to each of them
individually and any two or more of them collectively; and(m)
    
    (rights) a reference to a right includes an interest, power, remedy,
privilege and cause of action however arising.
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 1.3
    
    HeadingsA heading is for reference only. It does not affect the meaning or interpretation of this
document.1.4
    
    SchedulesA schedule attached to this document forms part of it.1.5
    
    Business Day ruleAnything required by this document to be done on a day which is not a Business Day is to be
done on the preceding Business Day.2
    
    FACILITY AND PURPOSE2.1
    
    Facility
 (a)
    
    Subject to the other provisions of this document, the Financier agrees to
provide a loan facility to the Company of an amount not exceeding the Commitment.(b)
    
    If the Company wishes to use the Facility it may do so by giving one or more
requests which must be made during the Availability Period in accordance with this
document.
 2.2
    
    Approved PurposeThe Company may use the Facility only for the Approved Purpose. The Financier is not
obliged to enquire as to whether the Facility is used for that purpose.3
    
    CONDITIONS PRECEDENT3.1
    
    Conditions precedent to first DrawingThe Financier is not obliged to provide any financial accommodation to the Company under
this document unless and until the Financier has received each of the following in form and
substance satisfactory to it:
 (a)
    
    (searches, enquiries, requisitions) the results of all searches, inspections,
enquiries and replies to all requisitions requested or made by the Financier or its
solicitors or both;(b)
    
    (other authorisations) a copy of all documents evidencing any action or
consent necessary to ensure that the Company is unconditionally bound by the terms and
conditions of the Transaction Documents to which it is a party;
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (c)
    
    (Transaction Documents) each Transaction Document duly executed and delivered
and, if required by the Financier, evidence of it being duly stamped and registered;(d)
    
    (Lender Options) evidence that the Company has entered the Facilitation
Agreement;(e)
    
    (third party consents)evidence that the Company has obtained all
authorisations or other consents or approvals which may be required under the Material
Contracts to enable the Company to enter the Transaction Documents;(f)
    
    (costs, charges and expenses) evidence that the Company has paid all costs,
charges and expenses referred to in clause 12; and(g)
    
    (other) such other approvals, certificates, opinions, statutory declarations
and other documents as the Financier may reasonably require.
 3.2
    
    Conditions precedent to each DrawingThe obligation of the Financier to provide any financial accommodation to the Company under
this document is and remains subject to the further conditions precedent that:
 (a)
    
    (Drawdown Notice) the Financier has received a Drawdown Notice in respect of
that financial accommodation;(b)
    
    (Drawdown Notice warranties true) the Financier is satisfied that the
statements and the representations and warranties contained in the Drawdown Notice are
true and not misleading and as at the date of the provision of that financial
accommodation;(c)
    
    (Commitment) the Principal Outstanding under the Facility would not, if the
Drawing were to be made, exceed the Commitment;(d)
    
    (no Event of Default) no Event of Default or Potential Event of Default has
occurred or would result from the provision of that financial accommodation; and(e)
    
    (other) the Financier has received the other approvals, certificates,
opinions and documents which it has reasonably required.
 4
    
    DRAWDOWN NOTICE4.1
    
    Drawdown NoticeIf the Company requires a Drawing, then it must give a notice to the Financier by 11.00 am
at least 5 clear Business Days (or such shorter period as the Financier may otherwise
approve) before the proposed Drawdown Date specified in the notice.
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 4.2
    
    Form of Drawdown NoticeThe Drawdown Notice must:
 (a)
    
    (be in prescribed form) be in the form of schedule 2 or such other form as
the Financier may approve;(b)
    
    (be signed) be signed by an Authorised Officer of the Company;(c)
    
    (specify Drawdown Date) specify the proposed Drawdown Date which must be a
Business Day during the relevant Availability Period;(d)
    
    (specify amount) specify the amount of the proposed Drawing which must be a
multiple of $A500,000 and the account into which the proposed Drawing is to be paid or
the payee of any cheque required to be drawn by the Financier; and(e)
    
    (duly completed) otherwise be duly completed to the satisfaction of the
Financier.
 4.3
    
    Drawdown Notice irrevocableThe Drawdown Notice is irrevocable and is effective from the time of its actual receipt in
legible form by the Financier.4.4
    
    Drawdown Notice for Financiers benefit onlyThe requirement of the Drawdown Notice is for the Financiers benefit only and the
Financier may waive the requirement at any time and in any manner.4.5
    
    Deemed DrawingAny amount (other than a Drawing) whether of interest, fees or otherwise which is
capitalised under this document or otherwise comes to form part of the Principal
Outstanding shall be treated as a deemed Drawing under the Facility. The Drawdown Date for
the Drawing is the date of capitalisation or the date upon which the amount otherwise comes
to form part of the Principal Outstanding.5
    
    INTEREST5.1
    
    Covenant to pay interestThe Company must pay interest on the daily balance of each Drawing:
 (a)
    
    from and including its Drawdown Date until the Drawing is repaid in full;(b)
    
    at the Prescribed Rate (subject to clause 5.2 below); and(c)
    
    quarterly in arrears on each Interest Payment Date.
  10




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 5.2
    
    Interest in absence of defaultIf the Company pays to the Financier the amount due under clause 5.1 for a particular
Drawing on the Interest Payment Date for that amount and no Event of Default or Potential
Event of Default has occurred, then the Financier will, notwithstanding clause 5.1, accept
interest for that Drawing at the Interest Rate.5.3
    
    Undertaking to pay interest on overdue amountsWithout affecting the Companys obligation to pay any amount owing under or in connection
with this document when due, the Company must pay interest on any amount which is not paid
to the Financier on time:
 (a)
    
    at the Prescribed Rate;(b)
    
    calculated by the Financier for each day that the amount is payable but
unpaid;(c)
    
    calculated on daily balances and on the basis of a 365 day year (366 days in
a leap year); and(d)
    
    on the date of a demand for payment from the Financier to the Company.
 5.4
    
    Capitalisation of interestWithout affecting the Companys obligation to pay any amount owing under or in connection
with this document when due, interest that is not paid when due under this document may be
capitalised by the Financier at such intervals as the Financier elects. If no election is
made, it is to be capitalised monthly.5.5
    
    MergerIf the obligation of the Company to pay any amount under this document becomes merged in
any agreement, judgment, order or other document, then the Company must pay interest on the
amount owing from time to time under that agreement, judgment, order or other document at
the Prescribed Rate or the rate fixed by or payable under that agreement, judgment, order
or other document (whichever is higher).6
    
    PREPAYMENT AND CANCELLATION6.1
    
    PrepaymentIn addition to making the repayments required by any other clause of this document which
requires or permits payment or repayment at an earlier date, the Company may prepay any
Drawing in accordance with this clause 6.1 and must make the prepayment required in clause
6.3.
 
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 6.2
    
    Prepayment mechanicsThe Company may:
 (a)
    
    at any time;(b)
    
    on giving not less than 5 Business Days prior notice to the Financier
specifying the proposed prepayment date and the amount of the proposed prepayment
which must, in the case of a partial prepayment, be at least $500,000 and an integral
multiple of $500,000 or such other amount agreed by the Financier; and(c)
    
    subject to clauses 6.3 and 6.5, without premium or penalty,
 prepay all or part of any Drawing, as the case may be, in accordance with the notice given
by the Company together with interest on that prepaid Drawing or part of it, as the case
may be, up to that date as well as any Break Costs associated with the repayment.
 6.3
    
    Proceeds of the Rights IssueThe Company must:
 (a)
    
    within 1 Business Day of the closing date for acceptance of the Rights Issue,
notify the Financier of the anticipated Rights Issue Proceeds and give the Financier
notice of its intention to prepay the Facility under this clause 6.3; and(b)
    
    apply the Rights Issue Proceeds to prepay the Principal Outstanding such
prepayment to be made promptly on receipt of those proceeds.
 The Commitment will be reduced by the amount of the Rights Issue Proceeds received by the
Company. The Commitment will be reduced to zero where the Rights Issue Proceeds exceed
the Commitment.6.4
    
    Prepayments not available to be re-borrowedAny prepayment notice given under clause 6.2 or 6.3 is irrevocable and any Drawing which is
prepaid in accordance with this document may not be re-borrowed.6.5
    
    Prepayment indemnityIf the Company repays or prepays all or part of any Drawing on a day which is not the Final
Repayment Date then the Company must pay to the Financier an amount, as certified by the
Financier in writing, to be necessary to indemnify the Financier against any liability or
loss arising from, and any costs, charges and expenses incurred in connection with, that
Drawing or the relevant part of it being repaid, including liability, loss, costs, charges,
Taxes, Break Costs or expenses:
 (a)
    
    on account of lost profits;(b)
    
    on account of funds borrowed, contracted for or used to fund the Drawing or
the relevant part of it, as the case may be; and
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (c)
    
    in connection with the variation, termination or closing out of any loans,
swap agreements, fixed interest rate funding arrangements, hedge contracts, forward
purchase contracts or any other contracts arranged or used by the Financier for the
purpose of or in connection with funding, providing or maintaining the Drawing or the
relevant part of it.
 This Clause 6.5 applies to any payment or repayment made under this document, including
under clauses 6.2, 11.2 or 14.1 but not 6.3.6.6
    
    CancellationThe Company may not cancel the whole or any part of the Commitment unless the Financier
otherwise agrees.7
    
    REPAYMENTSubject to the other provisions of this document, the Company must repay to the Financier
on the Final Repayment Date:
 (a)
    
    the Principal Outstanding; and(b)
    
    all interest, fees and other money payable to the Financier under the
Transaction Documents (including, without limitation, all money payable under clause 6
or clause 8 of this document).
 8
    
    FEES8.1
    
    Undrawn Commitment FeeThe Company must pay to the Financier quarterly in arrears on each Interest Payment Date an
undrawn commitment fee at the rate specified in item 5 of schedule 1.The undrawn commitment
fee will be calculated in respect of each day from (and including) the date of this
document or the previous Interest Payment Date, as the case may be, to (but excluding) the
Interest Payment Date (except that the undrawn commitment fee to be paid on the Final
Repayment Date is to be calculated to include that date).9
    
    COMPANYS REPRESENTATIONS AND WARRANTIES9.1
    
    General representations and warrantiesThe Company represents and warrants that:
 (a)
    
    (power) it has power to enter into, and comply with its obligations under,
the Transaction Documents to which it is a party;
 13




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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (b)
    
    (valid obligations) each of its obligations under the Transaction Documents
to which it is a party constitute its binding obligations and are completely and
lawfully enforceable against it in accordance with their terms;(c)
    
    (authorisations) it has in full force and effect the Authorisations necessary
to enter into the Transaction Documents to which it is a party, comply with its
obligations under them and allow them to be enforced;(d)
    
    (no contravention) it is not, and will not by entering into the Transaction
Documents to which it is a party and the transactions under them, be in contravention
of any law, regulation, obligation, undertaking, deed, warranty or any directive of
any Governmental Agency;(e)
    
    (disclosure) it has fully disclosed in writing to the Financier all facts of
which it has knowledge or which it possesses which are material to the Financiers
assessment of the nature and degree of risk undertaken by it in granting financial
accommodation to the Company and in entering into the Transaction Documents;(f)
    
    (accuracy of information) all information disclosed to the Financier by or on
behalf of the Company in connection with the Transaction Documents (including
disclosures through the due diligence referred to in the Letter of Offer and the
Accounts and other financial information provided under clause 10.2) is not incorrect
or misleading in any respect;(g)
    
    (no proceedings) there is no impending or threatened proceeding, suit enquiry
or other action which may affect it or any of its assets before any tribunal, court,
commission, or Governmental Agency;(h)
    
    (not trustee) it is not the trustee of any trust or settlement which has not
been disclosed to the Financier in writing and agreed to by the Financier in writing;(i)
    
    (no material adverse change) there has been no material adverse change in its
assets, accounting methods, financial position or trading position since the date on
which it last submitted to the Financier any information in relation to its financial
affairs;(j)
    
    (no Event of Insolvency) no Event of Insolvency has occurred or would be
likely to occur as a result of any party (other than the Financier) entering into the
Transaction Documents to which it is a party and complying with its obligations under
them;(k)
    
    (no Event of Default) no Event of Default or Potential Event of Default has
occurred;(l)
    
    (corporate existence) if it is a corporation, it has been duly incorporated
as a company limited by shares under the Corporations Actand is validly existing
under those laws and has power and authority to carry on its business as it is now
being conducted;
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (m)
    
    (filings under theCorporations Act) if it is a corporation, it has filed
with ASIC all corporate notices and other documents as required by the Corporations
Actand all such filings are complete and accurate; and(n)
    
    (benefit) if it is a corporation, it will receive reasonable commercial
benefits by reason of the execution and delivery of the Transaction Documents to which
it is a party.
 9.2
    
    RepetitionThe representations and warranties in clause 9.1 are taken to be made also:
 (a)
    
    (each drawdown date) on each day the Financier provides financial
accommodation to or at the Companys request; and(b)
    
    (monthly) on the last Business Day of each month after the date of this
document.
 9.3
    
    RelianceThe Company acknowledges that the Financier is granting or agreeing to grant financial
accommodation to or at the Companys request in reliance on the representations and
warranties in clause 9.1.10
    
    UNDERTAKINGS FROM THE COMPANY10.1
    
    GeneralThe Company must:
 (a)
    
    (comply with obligations) comply with all its obligations under the
Transaction Documents and the Rights Issue Documents;(b)
    
    (obtain Authorisations) obtain, keep in force and comply with the terms of
all Authorisations necessary to enable the Company to enter into the Transaction
Documents and the Rights Issue Documents, fully comply with its obligations under them
and allow them to be enforced;(c)
    
    (comply with laws) comply with all laws binding on it or any of its assets
and all requirements or orders of any Governmental Agency;(d)
    
    (maintain written financial records) maintain written financial records which
record correctly its transactions and financial position and performance;(e)
    
    (provision of information) provide the Financier with any information the
Financier reasonably requests (including information relating to the performance of
the Companys obligations under the Transaction Documents and information relating to
the Companys assets, accounting methods or financial position) promptly on being
requested to do so;(f)
    
    (Event of Default) ensure that no Event of Default occurs;
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (g)
    
    (give notice) give notice to the Financier as soon as it becomes aware of any
Event of Default, Potential Event of Default or any event or series of events (whether
related or not) which may adversely affect the Companys ability to perform its
obligations under the Transaction Documents or the Rights Issue Documents;(h)
    
    (issue of Options) issue the Lender Options to the Financier on the earlier
of:
 (i)
    
    31 August 2006 or such later date as the parties agree; and(ii)
    
    the date of the issue of Convertible Notes in accordance with
the disclosure document for the Rights Issue,
 in consideration of the Financier entering into this document;
 (i)
    
    (Rights Issue Prospectus) use its best endeavours to ensure that the Rights
Issue Prospectus is issued to shareholders by no later than 31 July 2006 or such later
date as the parties agree in accordance with all applicable laws;(j)
    
    (compliance with law) comply with all laws of and incidental to the Rights
Issue and use its best endeavours to obtain all Authorisations necessary for the
commencement and due completion of the Rights Issue;(k)
    
    (Completion of Rights Issue) use its best endeavours to ensure that the
Rights Issue is completed and that all Options and Convertible Notes are duly issued
by no later than 31 August 2006 or such later date as the parties agree; and(l)
    
    (ASX Quotation) use its best endeavours to ensure that the Convertible Notes
and all Options are quoted by ASX by no later than 31 August 2006 or such later date
as the parties agree.
 10.2
    
    Reporting
 (a)
    
    (Accounts) The Company must give the Financier copies of its consolidated and
unconsolidated annual Accounts, as soon as possible after its annual balance date (and
at the latest, 120 days after that date). Such Accounts must be:
 (i)
    
    certified by two directors of the Company as an accurate and
complete statement of its financial position; and(ii)
    
    if requested by the Financier, audited by an auditor approved
by the Financier.
 (b)
    
    (cashflow report) Prior to each of its annual balance dates the Company must
give the Financier a report (certified by two directors of the Company as an accurate
report) setting out details of its expected cashflows for the next financial year and
the underlying assumptions.
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Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (c)
    
    (other information)Such other information relating to business and
operations of the Company (including the commercialisation of the key technology of
the Company) as the Financier may request from time to time.
 10.3
    
    Negative undertakings
 The Company must not do any of the following things without the Financiers prior approval;
 (a)
    
    (permit Event of Default) cause or permit any Event of Default to occur;(b)
    
    (grant Encumbrance) grant any Encumbrance (other than any lien arising by
operation of law) in respect of any of its assets or undertaking;(c)
    
    (lease or sell) lease, sell or otherwise deal with (or agree to lease, sell
or deal with any part of the Secured Property) or enter into any document, contract or
agreement in connection with any part of the Secured Property except for disposals of
individual items of equipment in the ordinary course of business where the value of
the equipment sold does not exceed $50,000;(d)
    
    (Approved Purpose) use the Facility otherwise than for the Approved Purpose;(e)
    
    (make Distributions) make any Distribution;(f)
    
    (grant leases etc) other than in the ordinary course of business, grant,
vary, terminate, accept a surrender of or waive any rights under, any Lease or Licence
to use or occupy the Secured Property or cause or permit the rent or licence fee
payable under any such Lease or Licence to be determined;(g)
    
    (obtain protection) take steps to obtain protection under any statute or any
other law which allows or causes the Companys rights in connection with the Secured
Property to be prejudiced;(h)
    
    (Variation of Material Contracts)
 (i)
    
    amend or vary a Material Contract, or consent to any
amendment or variation of a Material Contract;(ii)
    
    cancel, terminate, release, surrender, accept repudiation,
repudiate, rescind, avoid or discharge (except by performance) all or part of
a Material Contract;(iii)
    
    waive, extend or grant time or indulgence in respect of, any
provision of a Material Contract; or(iv)
    
    do or permit anything which would enable or give grounds to
another party to do
 (i)
    
    (change business) materially change the nature of its business;
 17




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (j)
    
    (other transactions) enter any transaction other than on arms length
commercial terms and for valuable commercial consideration; or(k)
    
    (prejudicially affect value or the Financiers rights) otherwise do or permit
anything to be done as a result of which:
 (i)
    
    the realisable value of the Secured Property is or may be
reduced; or(ii)
    
    the Financier rights under any Transaction Document are or
may be prejudiced.
 11
    
    FINANCIERS RIGHTS ON DEFAULT11.1
    
    Events of DefaultAn Event of Default occurs if:
 (a)
    
    (Transaction Documents  monetary obligation) the Company does not pay any
amount payable by it under this document on time and in the manner in which the
Company has agreed to pay it;(b)
    
    (other monetary obligation not complied with) any other monetary obligation
of the Company in an amount of $50,000 or more to any person, whether actual,
contingent or otherwise:
 (i)
    
    is not satisfied on time; or(ii)
    
    becomes due and payable or can be rendered due and payable
before its stated date of maturity other than due to a voluntary prepayment;
 (c)
    
    (Event of Insolvency) an Event of Insolvency occurs in connection with the
Company;(d)
    
    (breach of representation or warranty) a representation or warranty made or
taken to be made by the Company in any Transaction Document or elsewhere is incorrect
or misleading when made or taken to be made;(e)
    
    (enforcement against Secured Property of the Company) an Encumbrance,
judgment or order becomes enforceable, is enforced or is sought to be enforced against
the Secured Property, the Company or its assets;(f)
    
    (appointment of Controller) a Controller is appointed in respect of the
Companys assets or undertaking;(g)
    
    (floating Security Interest crystallises) a floating Security Interest over
any of the Companys assets or undertaking crystallises;
 18




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (h)
    
    (provision of Transaction Document void) a provision of a Transaction
Document is or becomes wholly or partly void, voidable or unenforceable or is claimed
to be so by a person other than the Financier;(i)
    
    (Material Adverse Effect) an event, circumstance or omission or series of
events circumstances or omissions (whether related or not) occurs or takes place
which, in the opinion of the Financier has or may have a Material Adverse Effect;(j)
    
    (reduction of capital and changes to constituent documents) without the
Financiers consent:
 (i)
    
    the Company reduces or attempts to reduce its capital or
passes a resolution referred to in section 254N(1) or 260B of the Corporations
Act; or(ii)
    
    an amendment is made to the Companys constituent documents
which limits the Companys capacity or its directors powers,
 (k)
    
    (change in Control) if the Company is a corporation, there is in the
Financiers opinion a material change in the Control, ownership or management of the
Company without the Financiers consent which negatively affects the Companys ability
to meet its financial obligations under the Convertible Notes or this document;(l)
    
    (breach of undertaking) the Company does not comply on time with undertaking
it has given to the Financier;(m)
    
    (events re Related Entity) any of the events described in (b), (c), (e), (f),
above occurs in connection with a Related Entity of the Company;(n)
    
    (Security Documents enforceable) an event of default however described occurs
under a Security Document, or a Security Document otherwise becomes enforceable;(o)
    
    (cash held) cash held in the Companys bank accounts or in Marketable
Securities falls below the levels set out in the following table:
 Period
    
    Minimum Cash BalanceSubscription to 31 Dec 06
    
    A$22.5 million1 Jan 07 to 30 June 07
    
    A$19.5 million1 July 07 to 31 Dec 07
    
    A$15 million1 Jan 08 to 30 June 08
    
    A$12.5 million1 July 08 to 31 Dec 08
    
    A$7.5 million
 (p)
    
    (material contract) any Material Contract is breached , terminated, able to
be terminated or found to be void or voidable;
 19




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (q)
    
    (commercialisation of technology) the process of commercialisation of the key
technology of the Company failing to achieve the following milestones to the
satisfaction of the Financier:
 (i)
    
    two (2) fully functional prototypes of stabilized remotely
operable weapons systems including an Electro Optic Systems electronic fire
control system and a Metal Storm ballistic weapon, as defined in the Teaming
Agreement between Electro Optic Systems Pty Ltd and Metal Storm Ltd. dated
August 2, 2005 (subsequently named the Redback System), are assembled and
ready for inspection by representatives of the Financier and customers before
30 June 2007;(ii)
    
    two (2) fully functional prototype units of the Three Shot
Grenade Launcher (known as the 3GL) are assembled and ready for inspection
by representatives of the Financier and customers before 30 June 2007; and(iii)
    
    a successful live test firing of low velocity air burst
rounds and low velocity high explosive rounds suitable for Metal Storm
Ballistic Weapons in conjunction Singapore Technologies Kinetics Ltd (as
defined in the Teaming Agreement between Metal Storm Ltd and Singapore
Technologies Kinetics Ltd. dated 28 September 2005) before 30 June 2007;
 (r)
    
    (authorisations) the Company or a Related Entity of the Company fails to
obtain or preserve any and all Authorisations, Licences, Leases or Intellectual
Property which is material to its business operations;(s)
    
    (litigation) the Company or a Related Entity of the Company engages in or
otherwise becomes a party to or the subject of any litigation, dispute or challenge in
relation to any Intellectual Property, Licenses or Leases which is, or potentially is
materially adverse to the Companys or a Related Entitys business operations;(t)
    
    (other obligations) the Company or a Related Entity of the Company does not
comply on time with any other obligation imposed on it by:
 (i)
    
    any Transaction Document;(ii)
    
    any Rights Issue Document(iii)
    
    any other document or agreement between the Financier and
the Company or the Related Entity of the Company; or(iv)
    
    any law;
 (u)
    
    (Issue of Options) the Company does not issue the Lender Options to the
Financier by 31 August 2006 or such later date as the parties agree;(v)
    
    (Rights Issue Prospectus) the Rights Issue Prospectus is not issued to
shareholders in accordance with all applicable laws by 31 July 2006 or such later date
as the parties agree;
 20




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (w)
    
    (Completion of Rights Issue) the Rights Issue is not completed and Options and
Convertible Notes are not issued by 31 August 2006 or such later date as the parties
agree; or(x)
    
    (ASX Quotation) the Convertible Notes and Options are not quoted ASX by 31
August 2006 or such later date as the parties agree.
 11.2
    
    Powers on defaultUpon the occurrence of an Event of Default and at any time thereafter the Financier may by
notice to the Company do any one or more of the following:
 (a)
    
    (accelerate debt) declare that:
 (i)
    
    the Principal Outstanding; and(ii)
    
    all interest, fees and all other money payable to the
Financier under or in connection with the Transaction Documents,
  (iii)
    
    immediately payable; or(iv)
    
    payable on demand,
  (b)
    
    (terminate Financiers obligations) terminate any of the Financiers
obligations under the Transaction Documents which are specified in the notice.
 12
    
    COSTS AND EXPENSES
  12.1
    
    (costs, charges, etc) costs, charges and expenses incurred by the Financier, its agents,
contractors and employees in connection with:
 (a)
    
    the preparation, negotiation, execution, stamping and registration of the
Transaction Documents;(b)
    
    any consent or waiver, or any request for consent or waiver (whether or not
given), under the Transaction Documents or the variation or discharge of it;(c)
    
    the occurrence of any Event of Default or Potential Event of Default;(d)
    
    a payment being made by the Company in any currency other than the currency
in which the payment was due to be made;
 21




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (e)
    
    the exercise, enforcement or protection (or any attempt to exercise, enforce
or protect) any of its rights under the Transaction Documents including any expenses
incurred in employing or retaining any consultant or valuer or other professional or
technical person; and(f)
    
    a payment, settlement, transaction, transfer or any other dealing being an
Avoided Transaction,
 including, in each case, legal costs and expenses on a solicitor and own client basis or a
full indemnity basis, whichever is the higher.12.2
    
    (Taxes) Taxes, registration and other fees, and account charges by the Financier, in each
case, including fines and penalties for late payment, arising directly or indirectly in
connection with the execution, delivery or compliance with the Transaction Documents, any
payment, receipt or supply in relation to them and any transactions contemplated by them.13
    
    PAYMENTS13.1
    
    PaymentsThe Company must make all payments under this document:
 (a)
    
    (manner of payment) in immediately available funds in Australian dollars;(b)
    
    (time for payment) not later than 11.00 am (local time in the place of
payment) on the due date;(c)
    
    (direction for payment) to the account specified by the Financier to the
Company or as the Financier otherwise directs from time to time for the purposes of
this document; and(d)
    
    (without counterclaim) without any counterclaim, deduction, withholding or
set-off unless a law compels the Company to do so.
 13.2
    
    Deduction and withholdingsIf a law compels the Company to make a deduction, withholding or set-off (including any
interest withholding tax which may be payable in connection with the Transaction Documents,
then it must:
 (a)
    
    (minimum deduction) ensure that deduction, withholding or set-off does not
exceed the minimum amount required by law; and(b)
    
    (increase payment) increase the amount of the payment to the Financier to an
amount which will result in the receipt by the Financier of the full amount which
would have been payable to the Financier if no deduction, withholding or set-off had
been required.
 22




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 
 13.3
    
    CurrencyIf a payment is due in a currency and the Financier receives payment in a different
currency, then the Financier may convert the amount received into the due currency at the
exchange rate at which the Financier is able to purchase the due currency with the amount
received at the time of its receipt. The Financier may make any number of currency
conversions into any number of currencies in order to do so. The Company satisfies its
obligation to pay in the due currency only to the extent of the amount of the due currency
ultimately purchased by the Financier after deducting the costs of any such conversions.13.4
    
    Goods and Services Tax
 (a)
    
    All amounts paid or payable to the Financier under this document (including
amounts payable under this clause) are expressed on a GST exclusive basis.(b)
    
    If the Financier makes a taxable supply under this document to
another party, that other party (the Recipient) must pay the Financier, in addition to
the GST exclusive consideration, a further amount on account of GST, such amount to
be:
 (i)
    
    calculated by multiplying the GST-exclusive consideration by
the prevailing GST rate; and(ii)
    
    payable by the Recipient to the Financier at the same time
and in the same manner as the GST-exclusive consideration for that taxable
supply.
 (c)
    
    The Financier must give to the Recipient a tax invoice for any taxable supply
made by the Financier under this document, promptly on request.(d)
    
    If a party to this document is under an obligation to indemnify or reimburse
the Financier in relation to a taxable supply to the Financier by any third party, the
amount so payable to the Financier will be reduced by the amount of the input tax
credit (if any) which the Financier is entitled to receive in relation to that taxable
supply.(e)
    
    In this clause 13.4, each of GST, taxable supply, tax invoice and input tax
credit has the meaning given in section 195-1 of A New Tax System (Goods and Services
Tax) Act 1999(Ch).
 13.5
    
    Application of MoneyUnless the right is excluded in a Transaction Document, the Financier may apply money paid
by the Company in satisfaction of such obligations of the Company under any Transaction
Document as the Financier may determine in its discretion.
 23




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 14
    
    ILLEGALITY AND INCREASED COSTS14.1
    
    IllegalityIf as a result of a change in a present or future Reserve Requirement, law or regulation,
or the official interpretation or implementation of any of them, the Financier determines
that it is impossible or contrary to a Reserve Requirement, law or regulation:
 (a)
    
    for the Financier to maintain the Facility or comply with its obligations
under any Transaction Document; or(b)
    
    for a person (including the Financier) to observe or remain bound by any
transaction entered into by the Financier for the purpose of putting the Financier in
funds to allow it to provide or maintain all or any of the Facility,
  (c)
    
    the aggregate Principal Outstanding; and(d)
    
    all interest, fees and other money payable to the Financier under or in
connection with the Transaction Documents.
 14.2
    
    Increased costsIf as a result of a present or future Reserve Requirement, law, regulation or Taxes or the
interpretation or implementation of any of them, the Financier determines that there is a
direct or indirect:
 (a)
    
    increase in any cost to the Financier (or any Related Entity of it):
 (i)
    
    of funding, maintaining or providing the Facility; or(ii)
    
    because the Financier (or any Related Entity of it) is not
allowed to claim an input tax credit, or is allowed to claim only a reduced
input tax credit, for any Taxes paid in connection with the purchase by, or
supply to, the Financier (or any Related Entity of it), of any thing; or
 (b)
    
    reduction in any effective return to, or in any amount receivable or received
by, the Financier (or any Related Entity of it) under or in connection with the
Facility,
  24




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 15
    
    NOTICES15.1
    
    NoticesAny notice, demand, consent or other communication given or made under this document or any
Transaction Document must be:
 (a)
    
    (writing) in writing and clearly readable;(b)
    
    (signature) signed by the party giving or making it (or signed on that
partys behalf by its Authorised Officer); and(c)
    
    (address) left at the address of the recipient, or sent by prepaid ordinary
post to that address or sent to the facsimile number of the recipient, as specified in
each case in item 1 or item 2 of schedule 1.
 15.2
    
    Change of addressA party may change its address or facsimile number for the purpose of service of notices,
by giving notice of that change to each other party in accordance with the provisions of
clause 15.1.15.3
    
    ReceiptProof of posting or delivery of a letter or of dispatch of a facsimile is proof of receipt:
 (a)
    
    (post) in the case of a document sent by prepaid ordinary post: on the second
Business Day after the date of posting;(b)
    
    (delivery) in the case of a document left at the address: on the day and at
the time at which delivery was made; and(c)
    
    (facsimile) in the case of a facsimile: on the day and at the time at which
the transmitting facsimile machine indicates that the facsimile was sent in its
entirety to the facsimile number of the recipient for the purposes of this clause.
 16
    
    GENERAL16.1
    
    CertificatesA certificate signed by the Financier or an Authorised Officer of the Financier stating:
 (a)
    
    (money payable) the amount of any money owing or payable to the Financier
under this document or under any Transaction Document; or(b)
    
    (other) anything else relevant to the establishment of any of the Financiers
rights or the Companys liabilities under this document or any Transaction Document,
  25




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 16.2
    
    Reinstatement of rightsIf a payment, settlement, transaction, transfer or any other dealing in connection with
this document or any other Transaction Document or the Secured Property is avoided for any
reason, including:
 (a)
    
    (bankruptcy or insolvency) as a result of any law relating to bankruptcy,
insolvency or the protection of creditors; or(b)
    
    (legal limitation) any legal limitation, disability or incapacity of or
affecting any person,
  (c)
    
    (Companys liability) the Companys liability under this document (and in
particular the amount of Principal Outstanding and any other money owing or payable to
the Financier under this document) and the Financiers rights are the same as if the
Avoided Transaction had not taken place;(d)
    
    (restoration by Company) the Company must immediately do all things to
satisfactorily restore to the Financier any Security Interest held by it immediately
before the Avoided Transaction took place; and(e)
    
    (recovery from Company) the Financier may recover from the Company all
charges, costs and expenses (including legal costs on the basis set out in clause 12)
and Taxes incurred by it in connection with the Avoided Transaction in addition to any
other money recoverable by it from the Company.
 16.3
    
    Application of statutesAll legislation which:
 (a)
    
    (affects Company) affects in the Companys favour any obligation under or in
connection with this document or any Transaction Document; or(b)
    
    (Companys rights) delays, prevents or prejudicially affects the exercise by
the Financier, an Attorney or a Receiver of any right,
  16.4
    
    Rights
 (a)
    
    (cumulative rights) The Financiers rights in this document and all
Transaction Documents are cumulative with and do not exclude any other right.(b)
    
    (exercise of rights by the Financier) The Financier may exercise or not
exercise a right (including the making or not making of any determination) under any
Transaction Document in its absolute discretion and the Financier is not required to
give any reasons for its decision.
 26




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 (c)
    
    (the Financier not liable for loss) The Financier is not liable for any loss
arising out of or in connection with its omission under any Transaction Document to
exercise any right or to make any determination, or any delay in exercising any right
or in making any determination, or the exercise or partial exercise of any right.(d)
    
    (enforcement by the Financier) To the extent permitted by law, the Financier
may enforce or act on a breach of the Companys obligations despite the termination of
the agreement recorded in this document or any Transaction Document.
 16.5
    
    Waivers, variations and consents
 (a)
    
    (in writing) Any waiver or consent by the Financier under any Transaction
Document is effective only if it is in writing signed by or on behalf of the Financier
and then only to the extent expressly stated in writing and in the specific instance
and for the specific purpose for which it is given.(b)
    
    (no waiver) No failure on the part of the Financier to exercise, or delay on
its part in exercising, any of its rights under any Transaction Document operates as
a waiver of them.(c)
    
    (exercise of rights) A single or partial exercise of any right by the
Financier does not preclude any further or other exercise of that right or the
exercise of any other rights.(d)
    
    (variations in writing) No provision of any Transaction Document or right
conferred by any of them can be varied except in writing signed by the parties.
 16.6
    
    Time of the essenceTime is of the essence in respect of all obligations of the Company to pay money under any
Transaction Document.16.7
    
    InvalidityIf any part of this document is for any reason unenforceable that part is to be read down
to the extent necessary to preserve its operation and if it cannot be read down it is to be
severed.16.8
    
    Assigning and encumbering rights
 (a)
    
    (the Financier) The Financier may without the Companys consent:
 (i)
    
    assign to any person its rights under this document or any
Transaction Document; or(ii)
    
    create or allow to exist any Security Interest over its
rights under this document or any Transaction Document.
 (b)
    
    (Company) The Company must not assign any of its rights under this document
or grant or allow to exist any Security Interest over any of those rights without the
Financiers consent.
 27




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 
 16.9
    
    Confidentiality
 (a)
    
    The Financier must keep confidential the Confidential Information.(b)
    
    The Company irrevocably consents and agrees to the Financier providing
Confidential Information and information concerning the Company only:
 (i)
    
    (disclosure) to a person who is:
 (A)
    
    an assignee or potential assignee of;(B)
    
    a beneficiary or potential beneficiary of;(C)
    
    a participant or potential participant in; or(D)
    
    the holder or potential holder of a Security Interest
over,
  (ii)
    
    (required by law) if required by law;(iii)
    
    (publicly available) if the information is publicly
available; or(iv)
    
    (duty to disclose) if the Financier is under a public duty to
disclose the information.
 16.10
    
    No mergerNone of the rights or obligations of the parties merge on completion of any transaction
under this document but survive the execution and delivery of any assignment or instrument
entered into in implementation of any transaction.16.11
    
    Set-offIf the Company does not pay on time any amount payable by the Company to the Financier
under any Transaction Document, then the Company authorises the Financier:
 (a)
    
    (application) to apply any credit balance in any currency in any account of
the Company with any branch or office of the Financier towards satisfaction of that
amount; and(b)
    
    (authorisation) in the name of the Company or the Financier, to do anything
including:
 (i)
    
    execute any document; and(ii)
    
    effect any currency conversion,
  28




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 16.12
    
    Further assurancesThe Company must do anything required by the Financier to bind the Company and its
successors under this document and to otherwise perfect the Financiers rights under this
document or any other Transaction Document.16.13
    
    Governing law and jurisdictionThis document is governed by the law of the State or Territory specified in item 9 of
schedule 1 and the parties submit to the non-exclusive jurisdiction of its courts.16.14
    
    CounterpartsIf this document is signed in counterparts, then:
 (a)
    
    each is deemed an original; and(b)
    
    together they constitute one document.
 29




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Schedule 1
 (Details of Facility)
 item 1:
    
    Details of Company and Address for Service of Notices (clause 15)Name:
    
    Metal Storm LimitedACN:
    
    064 270 006Address:
    
    Central Plaza One, Level 34, 345 Queen
Street, Brisbane QLD 4000Attention:
    
    Company SecretaryFacsimile Number:
    
    +61 7 3221 9788item 2:
    
    Details of Financier and Address for Service of Notices (clause 15)Name:
    
    Harmony Investment Fund LimitedCompany Registration No.
    
    CB-150702Address:
    
    c/o Harmony Capital Partners Pte Limited16 Raffles Quay#40-01 Hong Leong BuildingSingapore048581Attention:
    
    The Managing DirectorFacsimile No:
    
    + 65 6720 1688item 3:
    
    Facility and Purpose (Clause 2)Commitment:
    

    A$5,000,000Availability Period:
    
    To the date which is 5 Business Days
prior to the Final Repayment Date.Approved Purpose:
    
    To meet general working capital
requirements of the Company, pending
completion of the Rights Issue
 30




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 item 4:
    
    Repayment:(Clause 7)Final Repayment Date
    One year from the earlier to occur of:
 
    
    the date of the first drawing under this document; or
    
    31 August 2006,
 item 5:
    
    Interest and Fees: (Clause 8)Interest Rate
    
    10% per annumUndrawn Commitment Fee:
    
    2% per annum of the Undrawn Commitmentitem 7:
    
    Security Documents (Clause 1.1 - Definition):The Security Documents include the following:
 
    
    the Charge
 item 8:
    
    Transaction Document (Clause 1.1 - Definition):The Transaction Documents include the following:
 
    
    The Facilitation Agreement
 Item 9:
    
    Governing Law (Clause 16.13)State/Territory
    
    New South Wales
 31




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Schedule 2
 Drawdown Notice
 To:
    
    Harmony Capital Partners Pte LimitedSingapore Registration No. 200509326WOn behalf ofHarmony Investment Fund Limited,a company incorporated in Cayman
Islands, with Company Registration No. CB-150702, c/o Campbell
Corporate Services, 4th Floor Scotia Centre,PO Box 268,
George Town,Grand Cayman,Cayman Islands (Financier)Attention: Vincent Ng / Suresh Withana
  Facility Agreement between Harmony Investment Fund Limited and Metal Storm Limited (Facility
Agreement)
   (a)
    
    the proposed Drawdown Date is [          ];(b)
    
    the amount of the proposed Drawing is $[          ];(c)
    
    the account into which the proposed Drawing is to be paid is account no. [          ] in
the name of [                    ] at the [          ] branch of [          ] OR the payee to whom the Drawing is to be
paid is [                    ] *; and(d)
    
    the purpose for which the proposed Drawing is required is an Approved Purpose.
    Name:Authorised Officer
of the Company* Delete whichever is inapplicable
 32




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##### 



Cash Advance Facility Agreement
    
    HENRY DAVIS YORK
 Signed
 Executedfor and on behalf of
Metal Storm LimitedACN 064 270
006 by its duly authorised
officers/s/ JAMES D. MACDONALD

Signature of secretary
    
    
    
    /s/ TERENCE J. ODWYER

Signature of directorJames Donald MacDonald
    
    
    
    Terence James ODwyerPrint name
    
    
    
    Print nameExecutedfor and on behalf of
Harmony Investment Fund Limited
by its
duly authorised officer/s/ SURESH WITHANA

Signature of authorised officerSuresh WithanaPrint name
 33




---



##### 



Annexure A to Cash Advance Facility Agreement
 Option terms for New Options of Metal Storm Limited to be issued in accordance with term sheet for
Harmony proposal
 Company
 (a)
    
    New options will be issued on the basis of:
 (i)
    
    one option for every two convertible notes allotted pursuant to the convertible
notes rights issue (Convertible Notes) at no additional consideration (Convertible
Note Options);(ii)
    
    10,000,000 options to Harmony Investment Fund Limited (Harmony) at the
earlier of completion of the Convertible Notes rights issue or [31 August 2006] or
such later date as the Company and Harmony agree, in consideration of Harmony
providing the Company a working capital facility (Lender Options); and(iii)
    
    65,000,000 options to Harmony at the completion of the Convertible Notes
rights issue in consideration of Harmony agreeing to sub-underwrite the Convertible
Notes rights issue (Facilitation Options),(collectively, New Options).
 (b)
    
    Each New Option entitles the holder to subscribe for one fully paid ordinary share in
the capital of the Company (Share) upon exercise of the New Option and payment of the Exercise
Price (defined below).(c)
    
    Each New Option is exercisable at $0.165 (Exercise Price), payable in full on exercise of the
New Option.(d)
    
    The New Options expire at 5pm Australian Eastern Standard Time on the date which is three
years from the date of issue of the New Options (Expiry Date).(e)
    
    The Company must give the holder of each New Option a certificate or holding statement
stating:
 (i)
    
    the number of New Options issued to each holder;(ii)
    
    the Exercise Price of the New Options; and(iii)
    
    the date of issue of the New Options.




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##### 



(f)
    
    Holders may exercise New Options in whole or in part at any time prior to the Expiry
Date. Any New Option not exercised, automatically expires on the Expiry Date.(g)
    
    New Options may only be exercised by the delivery to the registered office of the Company or
the share registry of a notice in writing (Exercise Notice set out in Annexure A) stating
the intention of the holder to:
 (i)
    
    exercise all or a specified number of New Options; and(ii)
    
    pay the Exercise Price in full for the exercise of each such New Option.
 (h)
    
    The Exercise Notice must be accompanied by the certificate or holding statement for the
New Options being exercised, and a cheque made payable to the Company for the Exercise Price
for the New Options being exercised.(i)
    
    The New Options will be deemed to have been exercised on the date the Exercise Notice is
received by the Company or the share registry.(j)
    
    The Company will allot the Shares to which a holder is entitled following exercise of New
Options and deliver a holding statement with respect to such Shares within the timeframe
required by the Listing Rules.(k)
    
    The exercise of only some New Options will not affect the rights of the holder to the balance
of the New Options held by them.(l)
    
    If the holder of the New Options exercises less than the total number of New Options
registered in the holders name:
 (i)
    
    the holder of the New Options must surrender its New Option certificate, if one
has been issued by the Company; and(ii)
    
    the Company must cancel the certificate and issue the holder of the New
Options a new certificate or holding statement stating the remaining number of New
Options held by the holder and stating the information set out in item (e) above.
 (m)
    
    New Options will not confer an entitlement to receive dividends declared and paid by the
Company, nor an entitlement to vote at general meetings of the Company unless the holder of
the New Options has exercised its New Options before the record date for determining these
entitlements and participates as a result of holding Shares.(n)
    
    All Shares issued on exercise of a New Option will:
 (i)
    
    rank equally in all respects (including, without limitation, rights relating to
dividends) with other issued Shares;
 page 2




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##### 



(ii)
    
    be issued credited as fully paid;(iii)
    
    be duly authorised and issued by all necessary corporate action; and(iv)
    
    be allotted and issued free from all liens, charges and encumbrances whether
known about or not including statutory and other pre-emption rights and any transfer
restrictions.
 (o)
    
    The Company will apply to Australian Stock Exchange Limited for official quotation of
the New Options and Shares issued upon exercise of New Options within the time period required
by the ASX Listing Rules.(p)
    
    The New Options may be transferred at any time in accordance with the Corporations Act 2001
(Cth) and the Listing Rules.(q)
    
    A holder of New Options does not have the right to participate in bonus issues or new issues
of securities offered to shareholders until Shares are allotted to the holder pursuant to the
exercise of the relevant New Options.(r)
    
    In the event of a reorganisation (including, without limitation, consolidation, sub-division,
reduction or return) of the capital of the Company, the rights of the holders of New Options
(including, without limitation, the number of New Options to which the New Option holder is
entitled to and the exercise price) will be changed (as appropriate) in accordance with the
Listing Rules applying to a reorganisation of capital at the time of the reorganisation.(s)
    
    If the Company makes a pro rata Issue (other than a bonus issue) to existing shareholders and
no Share has been issued in respect of the New Options before the record date for determining
entitlements to the issue, the Exercise Price of each New Option will be reduced in the manner
permitted by the Listing Rules applying at the time of the pro rata issue.(t)
    
    If the Company makes a bonus issue to existing shareholders and no Share has been issued in
respect of a New Option before the record date for determining entitlements to the issue, then
the number of Shares over which that New Option is exercisable will be increased in the manner
permitted by the Listing Rules applying at the time of the bonus issue.(u)
    
    The Company is entitled to treat the registered holder of a New Option as the absolute holder
of that New Option and is not bound to recognise any equitable or other claim to, or interest
in, that New Option on the part of any person other than the registered holder, except as
ordered by a court of competent jurisdiction or as required by statute.
 
 page 3




---



##### 



Annexure A
 Exercise Notice
 To:
    
    The DirectorsMetal Storm LimitedLevel 34354 Queen StreetBRISBANE QLD 4000
 Option Holder Options Shares
   For and on behalf of the Option HolderDateSignedName (print)
 page 4




---



##### 



Deed of Charge
 Metal Storm Limited  (Chargor)
 Harmony Investment Fund Limited  (Chargee)




---



##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Table of Contents
 1
    
    INTERPRETATION
    
    
    12
    
    CHARGE
    
    
    53
    
    NATURE OF CHARGE
    
    
    54
    
    PAYMENTS AND INTEREST
    
    
    75
    
    CHARGORS REPRESENTATIONS AND WARRANTIES
    
    
    76
    
    UNDERTAKINGS
    
    
    87
    
    RESTRICTIVE UNDERTAKINGS
    
    
    98
    
    THE CHARGEES RIGHT TO ENTER
    
    
    99
    
    RIGHTS ON DEFAULT
    
    
    1010
    
    APPOINTMENT OF RECEIVER
    
    
    1111
    
    RIGHTS OF THE CHARGEE
    
    
    1212
    
    APPLICATION OF MONEY
    
    
    1213
    
    PAYMENT TO PRIOR SECURITY INTEREST HOLDERS
    
    
    1314
    
    POWER OF ATTORNEY
    
    
    1415
    
    GENERAL
    
    
    15SCHEDULE 1
    
    
    18SCHEDULE 2
    
    
    19




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Parties
 Metal Storm Limited ACN 064 270 006 Chargor
 Harmony Investment Fund Limited Chargee
 Agreement
 17
    
    INTERPRETATION17.1
    
    Cash Advance Facility Agreement DefinitionsA term which has a defined meaning in the Cash Advance Facility Agreement will have the
same in this document, unless the context indicates otherwise.17.2
    
    DefinitionsThe following words have these meanings in this charge:Associated Rightsmeans in relation to any contract or arrangement (including any Material
Contract) all rights of the Chargor:
 (a)
    
    for the enforcement of the contract or arrangement; and(b)
    
    to vary, repudiate, rescind, avoid or terminate the contract or arrangement
or to waive any rights under it; and(c)
    
    to receive all money or payments under or in connection with it.
 Attorneymeans an attorney appointed under clause 30.1 and
any attorney of that attorney.Cash Advance Facility Agreementmeans the cash advance facility agreement dated on or about
the date of this charge between the Chargor and the Chargee.Compensation Moneymeans any money which is payable to the Chargor as purchase money,
compensation, damages or otherwise as a result of the compulsory acquisition, requisition,
resumption, destruction, severance or injury to the Secured Property, or as a result of a
re-alignment of the boundaries of any real property comprising the Secured Property or a
restriction of rights in relation to the use of the Secured Property.Dollars, A$ and $means the lawful currency of the Commonwealth of Australia.Environmentmeans all aspects of the surroundings of human kind (whether natural or
artificial, and whether living or inanimate) and anything else deemed to form part of the
environment under any statute or other law of any State, Territory or Commonwealth of
Australia.
 Page 1




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Environmental Lawmeans any statute or other law, or any requirements or orders of any
Governmental Agency, relating to the protection of the Environment or the use, storage or
disposal of hazardous substances.Event of Crystallisationmeans any of the following events:
 (a)
    
    (dealing with Secured Property) the Chargor breaches its obligations under
any of clauses 23.1(a), 23.1(b),
7.1(c), 7.1(d) or 7.1(e) or does anything which, in itself may not be a breach of
those obligations, but which is part of a process or course of action by the Chargor
which results in the Chargor breaching its obligations under any of those clauses;(b)
    
    (enforcement of this charge) the commencement of any step to enforce this
charge;(c)
    
    (specified events of default) any of the events described in any of
paragraphs of the definition of Event of Default;(d)
    
    (other circumstances provided by law) any other circumstance in which any
relevant law provides for a floating charge to become a fixed charge.
 Event of Defaulthas the meaning given in the Cash Advance Facility Agreement.Insurancemeans the insurance which the Chargor is required to maintain under this charge.Insurance Proceedsmeans any money which is payable to the Chargor pursuant to any
Insurance.Receivermeans a receiver or receiver and manager of the Secured Property appointed under
this charge.Secured Moneymeans all money which, at any time and for any reason and on any basis
(whether or not contemplated by the parties at the date of this charge):
 (a)
    
    the Chargor is or becomes actually or contingently liable to pay to the
Chargee or for the Chargees account;(b)
    
    comprises financial accommodation provided by the Chargee to the Chargor;(c)
    
    the Chargor and the Chargee agree will form part of the Secured Money;(d)
    
    the Chargee is entitled to debit to the Chargors account or is liable to pay
by reason of any act or omission of the Chargor; or(e)
    
    reasonably foreseeably may fall within paragraph (a), (b), (c) or (d) above
at any time,
 irrespective of:
 (i)
    
    whether the liability of the Chargor:
 (A)
    
    is alone, or several or joint with any
other person;
 Page 2




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 (B)
    
    is personal;(C)
    
    is incurred as principal debtor or in any
other capacity including as surety; or(D)
    
    is ascertained or unascertained; and
 (ii)
    
    whether the Chargee:
 (A)
    
    is the original obligee or an assignee deriving from it; or(B)
    
    is the original chargee or an assignee deriving from it,
 and irrespective of:
 (C)
    
    when the assignment took place; and(D)
    
    whether the Chargor had notice of or consented to the assignment.
 Secured Propertymeans all the present and future assets, undertaking and rights of the
Chargor, irrespective of:
 (a)
    
    where located;(b)
    
    when acquired; and(c)
    
    the capacity in which the Chargor holds or comes to hold the
same, and includes its share premiums and capital, paid or unpaid, called or uncalled.
 Transaction Documentsmeans:
 (a)
    
    this charge;(d)
    
    the Cash Advance Facility Agreement;(e)
    
    any other document or agreement concerning the provision of Secured Money;(g)
    
    any document which the Chargor and the Chargee agree will be a Transaction
Document.
 17.3
    
    InterpretationIn this charge, unless the contrary intention appears:
 (a)
    
    (variation or replacement) a reference to this charge or any other document
includes any variation or replacement of it;(b)
    
    (statutes and regulations) a reference to a statute or other law includes
regulations and other instruments under it and any consolidations, amendments,
re-enactments and replacements of it;(c)
    
    (singular and plural) the singular includes the plural and vice versa;
 Page 3




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 (d)
    
    (gender) a reference to one gender includes each other gender;(e)
    
    (person) the word person includes a firm, corporation, body corporate,
unincorporated association or Governmental Agency;(f)
    
    (successors) a reference to a person includes a reference to the persons
executors, administrators, legal personal representatives, successors and permitted
assigns;(g)
    
    (joint and several) an agreement on the part of, or in favour of, two or more
persons binds or is for the benefit of them and any one or more of them jointly and
severally;(h)
    
    (party) a reference to a party means a person who is named as a party to, and
is bound to comply with the provisions of, this charge;(i)
    
    (without limitation) a reference to includes or including means
includes, without limitation and including, without limitation respectively;(j)
    
    (defined terms) where a word or phrase is given a defined meaning in this
charge, the other grammatical forms of the word of phrase have a corresponding
meaning;(k)
    
    (acts and omissions) a reference to an act includes an omission and doing an
act includes executing a document;(l)
    
    (groups etc) a reference to any thing (including the Secured Money or the
Secured Property) is a reference to the whole or any part of it and a reference to a
group of persons or things (including the Chargor) is a reference to each of them
individually and any two or more of them collectively; and(m)
    
    (rights) a reference to a right includes an interest, power, remedy,
privilege and cause of action however arising.
 17.4
    
    HeadingsA heading is for reference only. It does not affect the meaning or interpretation of this
charge.17.5
    
    SchedulesA schedule attached to this charge forms part of it.17.6
    
    Business Day ruleAnything required by this charge to be done on a day which is not a Business Day is to be
done on the preceding Business Day.
 Page 4




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 18
    
    CHARGE18.1
    
    ChargeThe Chargor charges all of the Secured Property to the Chargee as security for the payment
of the Secured Money.18.2
    
    PriorityThis charge is a first ranking security over the Secured Property except in respect of any
Secured Property secured under any Security Interest specified in item 4 of schedule 1.18.3
    
    PostponementSubject to clause 18.2 the Chargor postpones any Security Interest which has arisen or
which arises in the future by operation of law or statute over the Secured Property in
favour of the Chargor in its own right or in any capacity so that every such Security
Interest ranks in priority after this charge.19
    
    NATURE OF CHARGE19.1
    
    Nature of chargeThis charge is:
 (a)
    
    (fixed charge) a fixed charge by way of equitable mortgage over the Chargors
right, title and interest, present and future, in or arising under or in connection
with:
 (i)
    
    (real property etc) any real property and other immoveable
property, and all buildings, fences, improvements and other erections, trade
and other fixtures, fixed plant and machinery on, and the rights attached to,
that real property;(ii)
    
    (shares, stocks etc) all Marketable Securities, debt
instruments, debenture stock, loan capital and other securities in or of any
body corporate or unincorporated or any Governmental Agency, whether or not
constituting or secured by a mortgage or charge, and all and any rights
arising from any of them;(iii)
    
    (title documents) all documents evidencing the Chargors
title to Secured Property;(iv)
    
    (engines, machinery etc) engines, machinery and plant (other
than engines, machinery and plant which are acquired or manufactured by the
Chargor for the purpose of resale or sale in the ordinary course of the
Chargors ordinary business, or which are leased by the Chargor, or which are
valued at less than $50,000);(v)
    
    (book debts etc) all book debts of the Chargor, all proceeds
of book debts of the Chargor and all invoices, ledgers, records and any other
items which relate to the business transacted from time to
 Page 5




---



##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 time by the Chargor and all Security Interests, guarantees and other
rights which the Chargor holds to enforce payment of its book debts;(vi)
    
    (Intellectual Property) Intellectual Property and goodwill;(vii)
    
    (capital) uncalled and called but unpaid capital (including
any share premiums);(viii)
    
    (agreements) all Rights Issue Documents, Material Contracts, agreements or
arrangements of any nature (including each Insurance Policy) and all
corresponding Associated Rights;(ix)
    
    (personal property) all personal property not acquired for
the purpose of disposal in the ordinary course of the Chargors ordinary
business;(x)
    
    (Insurance Proceeds) any Insurance Proceeds which are payable
or paid to, or receivable or received by, the Chargor;(xi)
    
    (Compensation Money) any Compensation Money which is paid or
payable to, or receivable or received by, the Chargor; and(xii)
    
    (Leases of Licences) all Leases or Licences held by or on
behalf of the Chargor; and
 (b)
    
    (floating charge) subject to clauses 19.2 and 19.3, a floating charge over
the Chargors right, title and interest, present and future, in or arising under or in
connection with all Secured Property which is not subject to the fixed charge created
under clause 19.1(a).
 19.2
    
    CrystallisationTo the extent that this charge operates as a floating charge it will crystallise and become
fixed with respect to:
 (a)
    
    (specific Secured Property) particular Secured Property on the Chargee giving
the Chargor a notice to the effect that this charge has become crystallised with
respect to that Secured Property, which notice may be given at any time; and(b)
    
    (all Secured Property) all Secured Property, automatically and without
notice, if an Event of Crystallisation occurs.
 19.3
    
    Re-floatingIf this charge has become a fixed charge over Secured Property under clause 19.2, then it
will immediately become floating over that Secured Property on the Chargee giving the
Chargor notice to that effect. After that notice is given that Secured Property will also
be subject to the further operation of clause 19.2.
 Page 6




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 20
    
    PAYMENTS AND INTEREST20.1
    
    Covenant to payThe Chargor must pay the Secured Money:
 (a)
    
    (Event of Default) if an Event of Default occurs, as specified in clause
25.1; and(b)
    
    (other circumstances) in any other case, in accordance with the terms of any
written agreement between the Chargee and the Chargor or, in the absence of any
written agreement, on demand by the Chargee.
 20.2
    
    InterestUnless otherwise specified in a Transaction Document:
 (a)
    
    (payment of interest) the Chargor must pay interest calculated on the daily
balances of the Secured Money:
 (i)
    
    if a rate is specified in any Transaction Document, at that
rate; or(ii)
    
    if no rate is specified in the Transaction Document, at such
rates as determined by the Chargee from time to time (whether or not notified
to the Chargor);
 (b)
    
    (rate of interest) the Chargor must pay interest calculated in accordance
with this clause 20.2 on demand; and(c)
    
    (capitalised interest) whether or not a demand for payment has been made and
whether or not that demand (if any) has been satisfied, interest may be capitalised by
the Chargee at the periods elected by it or, if no election is made, monthly on the
day of each month determined by the Chargee, and capitalised interest bears interest
in the manner specified in this clause 20.2.
 21
    
    CHARGORS REPRESENTATIONS AND WARRANTIES21.1
    
    Representations and warrantiesEach of the representations and warranties made by the Chargor under the Cash Advance
Facility Agreement are deemed to also be made by the Chargor under this Charge:
 (a)
    
    on entering into this Charge;(b)
    
    on the last Business Day of each month after the date of this charge.
 21.2
    
    RelianceThe Chargor acknowledges that the Chargee is granting or agreeing to grant financial
accommodation to or at the Chargors request in reliance on the representations and
warranties in clause 9.1.
 Page 7




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 22
    
    UNDERTAKINGS22.1
    
    GeneralEach of the undertakings given by the Chargor under the Cash Advance Facility Agreement are
also taken to be given by the Chargor under this Charge.22.2
    
    Insurance UndertakingsThe Chargor must:
 (a)
    
    (insure) insure and keep insured in its name all the Secured Property of an
insurable nature:
 (i)
    
    for its full insurable value;(ii)
    
    with an insurer approved by the Chargee; and(iii)
    
    on a replacement and reinstatement basis against all risks
which a prudent owner of property of a similar type to the Secured Property
would insure against and against any other risks, including loss of rent, that
the Chargee requires;
 (b)
    
    (public risk insurance) take out and maintain a policy of public risk
insurance in respect of the Secured Property for at least $20,000,000 in respect of
any one claim or series of claims arising out of the one event or for any other amount
as the Chargee from time to time requires;(c)
    
    (not prejudice Insurance) not do or permit anything to be done which may
prejudice any Insurance;(d)
    
    (notify entitlement to claim) notify the Chargee as soon as anything happens
which entitles a claim to be made under any Insurance Policy;(e)
    
    (no variation etc) not vary, cancel or allow to lapse any Insurance Policy
without the Chargees consent;(f)
    
    (notify prejudicial event) without limiting its obligations under clause
22.2(c), notify the Chargee immediately when anything occurs which could prejudice any
Insurance or when any Insurance Policy is cancelled;(g)
    
    (disclose facts to insurer) disclose to an insurer all facts which are or may
be material to the insurers risk before entering into any Insurance Policy; and(h)
    
    (provide information to the Chargee) use its best endeavours to provide any
information or evidence to enable the Chargee to collect or recover any money due
under an Insurance Policy; and(i)
    
    (policy terms) ensure that each Insurance Policy:
 (i)
    
    note the Chargees interest as mortgagee or chargee; and(ii)
    
    is on such terms and contain such endorsements as the Chargee
may require.
 Page 8




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##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 (j)
    
    (Insurance Proceeds)pay to the Chargee any Insurance Proceeds, which the
Chargee must apply either in reinstating the Secured Property if the Chargor is not
in default or may otherwise apply any proceeds in accordance with
clause 28.
 23
    
    RESTRICTIVE UNDERTAKINGS23.1
    
    RestrictionsThe Chargor must not, without the Chargees consent:
 (a)
    
    (deal with Secured Property subject to fixed charge) sell, transfer, part
with possession of, surrender or otherwise deal with Secured Property or any of its
rights in connection with Secured Property, which is subject to a fixed charge (other
than Leases or Licences relating to premises occupied by the Chargor, in relation to
which the Chargor is free to deal in the ordinary course of business);(b)
    
    (deal with Secured Property subject to floating charge other than in the
ordinary course of ordinary business) sell, transfer, part with possession of,
surrender or otherwise deal with Secured Property, or any of its rights in connection
with Secured Property, which is subject to a floating charge except in the ordinary
course of its ordinary business;(c)
    
    (commercial dealings) deal in any way with any person except at arms length
in the ordinary course of business for valuable commercial consideration;(d)
    
    (create Encumbrances) create or allow to exist Encumbrances over the Secured
Property except those to which this charge is expressed to be subject or Encumbrances
in the Chargees favour;(e)
    
    (prejudicially affect value or the Chargees rights) otherwise do or permit
anything to be done as a result of which:
 (i)
    
    the realisable value of the Secured Property is or may be
reduced; or(ii)
    
    the Chargees rights under any Transaction Document are or
may be prejudiced;
 24
    
    THE CHARGEES RIGHT TO ENTER24.1
    
    Right to enterThe Chargee (or any agent, professional adviser or other person appointed by the Chargee)
may at any time enter on the Secured Property or on any property occupied by the Chargor to
do one or more of the following:
 (a)
    
    (inspection) inspect the condition of the Secured Property;




---



##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 (b)
    
    (determine compliance) determine whether the terms of this charge are being
complied with;(c)
    
    (inspect and copy documents) inspect and take copies of records, papers and
other material which the Chargee considers may relate to the Secured Property;(d)
    
    (investigate assets) investigate the Chargors accounting methods, assets,
financial condition and trading position; and(e)
    
    (environmental audit) carry out an environmental audit, assessment or
investigation in connection with any Secured Property.
 24.2
    
    NoticeUnless a Potential Event of Default or Event of Default has occurred, the Chargee must give
the Chargor reasonable notice of entry.24.3
    
    AssistanceThe Chargor must give the Chargee and any person authorised by it to enter on its behalf
reasonable assistance including obtaining any necessary consent.24.4
    
    The Chargee not mortgagee in possessionThe Chargee is not to be regarded as a mortgagee in possession despite it or any person
authorised by it having entered onto any real property under this
clause 24.25
    
    RIGHTS ON DEFAULT25.1
    
    Rights on defaultAfter an Event of Default occurs, despite any previous omission to exercise any of its
rights or any waiver of those rights and any agreement or arrangement between the Chargor
and the Chargee to the contrary:
 (a)
    
    (acceleration) all Secured Money is immediately due and payable;(b)
    
    (exercise of rights) the Chargee may immediately exercise any of its rights
arising from the Chargors default.
 25.2
    
    Application of statutesTo the extent permitted by law and subject to clause 25.3 below:
 (a)
    
    (statutory notice) any statute or any other law which requires the giving of
notice or the lapse of time before the Chargee, a Receiver or an Attorney can exercise
a right arising under this charge or conferred by law in relation to this charge is
excluded from applying to this charge; and(b)
    
    (no notice) the Chargee or a Receiver is not required to give any notice or
demand to any person or allow any time to pass before exercising any right arising
under this charge or conferred by law in relation to this charge.




---



##### 



Fixed and Floating Charge
    
    HENRY DAVIS YORK
 25.3
    
    NoticeWhere the Chargor and the Chargee are unable to exclude a law requiring the giving of
notice or the lapse of time before the Chargee or a Receiver can exercise a right arising
under this charge or conferred by law in relation to this charge, then:
 (a)
    
    (mandatory notice period) if the law does not allow the period of notice or
lapse of time to be limited by the Chargor and the Chargee, the Chargee must give or
permit any mandatory period of notice or lapse of time where that law applies; or(b)
    
    (limited notice period) if the law allows the period of notice or lapse of
time to be limited or fixed by the Chargor and the Chargee, then to the extent that
the law applies, one day is the period during which:
 (i)
    
    the default must continue before a notice or demand may be
given requiring payment of the Secured Money or the performance of any
obligation; or(ii)
    
    the default must continue after notice or demand has been
made before the right may be exercised by the Chargee or a Receiver.
 25.4
    
    Exercise of RightsNeither the Chargee nor any Attorney or Receiver is to be liable to the Chargor for any
loss, liability, cost or expense arising (whether directly or indirectly) as a result of
the Chargee, any Attorney or any Receiver (or any agent, contractor or employee of any of
them) exercising or failing to exercise any rights in connection with any Transaction
Document.26
    
    APPOINTMENT OF RECEIVER26.1
    
    ReceiverThe Chargee may:
 (a)
    
    (appointment of Receiver) after an Event of Default occurs, appoint any one
or more persons to be a receiver or a receiver and manager of the Secured Property;(b)
    
    (removal of Receiver) remove a Receiver; and(c)
    
    (appointment of new Receiver) appoint a new Receiver if a Receiver is
removed, retires or dies.
 26.2
    
    More than one ReceiverIf more than one Receiver is appointed, they may be appointed jointly and severally or
jointly or severally.




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 26.3
    
    Receiver is agent of ChargorA Receiver is the Chargors agent and the Chargor is solely responsible for the Receivers
acts or defaults and for the Receivers remuneration.26.4
    
    RemunerationA Receiver is to be remunerated at a rate agreed with the Chargee or, failing agreement, at
a rate fixed by the Chargee.26.5
    
    Rights of ReceiverIn addition to all rights conferred on a Receiver by statute or other law and by the other
provisions of this charge, the Receiver may do or agree to do any of the things specified
in Schedule 2 as it thinks fit unless they are specifically excluded by the terms of its
appointment.27
    
    RIGHTS OF THE CHARGEE27.1
    
    The Chargee may exercise rightsAt any time after an Event of Default occurs, the Chargee may exercise each of the rights
conferred on a Receiver under this charge as though each of the powers set out or referred
to in the relevant clause was construed so that a reference to the Receiver is a reference
to the Chargee.27.2
    
    The Chargee not a mortgagee in possessionIf the Chargee takes possession of the Secured Property, it is not liable to account as
mortgagee in possession for anything except actual receipts and it is not liable for any
loss on realisation or for any default or omission for which a mortgagee in possession
might be liable.27.3
    
    DelegationThe Chargee may delegate its rights to any person.28
    
    APPLICATION OF MONEY28.1
    
    Order of applicationSubject to clauses 28.2 and 28.3, all money received in connection with the exercise of rights
because an Event of Default occurs is to be applied in the following order:
 (a)
    
    (prior Security Interests) first, in payment to any person holding a Security
Interest over the Secured Property which ranks in priority to this charge and which is
known to the Chargee, in the order of, and to the extent of, its priority;




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 (b)
    
    (costs, charges etc) secondly, in satisfying all costs, charges and expenses
incurred by the Chargee, a Receiver or any person authorised by the Chargee in
exercising or attempting to exercise its rights;(c)
    
    (Receivers remuneration) thirdly, in payment to a Receiver of any
remuneration due to the Receiver;(d)
    
    (Secured Money) fourthly, in satisfaction of the Secured Money in such order
of priority and as to principal or interest or both as the Chargee thinks fit;(e)
    
    (subsequent Security Interests) fifthly, in payment to any person holding a
Security Interest over the Secured Property which ranks after this charge and which is
known to the Chargee, in the order of and to the extent of its order of priority; and(f)
    
    (Chargor) sixthly, in payment to the Chargor, without interest, in making a
deposit to a bank account in the Chargors name and on that placement the Chargee will
not be under any further liability in respect of it.
 28.2
    
    Cleared fundsIn applying any money towards the satisfaction of the Secured Money, the Chargor is to be
credited only with funds which have been cleared and are not subject to any set-off or
claim.28.3
    
    Contingent amountsIf any Secured Money is contingently owing at the time of an application of money under
clause 28.1, then:
 (a)
    
    (retention of money) the Chargee may retain from money received in connection
with the exercise of its rights an amount equal to the contingently owing Secured
Money; and(b)
    
    (deposit of money retained) the amount retained may be deposited in an
interest-bearing account in the joint names of the Chargee and the Chargor with any
person on terms which the Chargee thinks fit until that part of the Secured Money
ceases to be contingently owing. At that time that amount is to be applied in
accordance with clause 28.1. Any amount then remaining in the account will continue to be
dealt with in accordance with this clause 28.3.
 29
    
    PAYMENT TO PRIOR SECURITY INTEREST HOLDERS29.1
    
    Prior Security InterestsAfter an Event of Default occurs, the Chargee may pay any money it thinks fit in full or
partial discharge of the money secured by any Security Interest having priority over this
charge, and the money so paid forms part of the Secured Money.




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 29.2
    
    No duty to enquireIn exercising its rights under clause 29.1, the Chargee need not enquire whether any money
which is claimed to be payable under any prior Security Interest is in fact payable, and
the Chargee may rely on a certificate signed by or on behalf of the holder of that Security
Interest as to the money payable under that Security Interest as conclusive evidence of
that fact.30
    
    POWER OF ATTORNEY30.1
    
    AttorneyThe Chargor for valuable consideration and by way of security for compliance with its
obligations irrevocably appoints the Chargee, every Authorised Officer of the Chargee and
each Receiver jointly and each of them severally to be its attorneys.30.2
    
    PowersEach Attorney may in the name of the Chargor exercise one or more of the following rights:
 (a)
    
    (powers of attorney) it may do anything which:
 (i)
    
    the Chargor ought to do under or in connection with any of
the Transaction Documents; or(ii)
    
    the Chargee, an Attorney or a Receiver considers appropriate:
 (A)
    
    to give effect to the exercise of the Chargees rights; or(B)
    
    to enforce, protect or preserve the
Secured Property or to preserve and collect any money payable in
connection with the Secured Property; or
 (iii)
    
    the Chargee or a Receiver may do;
 (b)
    
    (powers after Event of Default) after an Event of Default occurs it may
exercise all the Chargors rights in connection with:
 (i)
    
    the Secured Property, including to complete any contract for
the sale or leasing of the Secured Property; or(ii)
    
    the transfer of the Secured Property; and
 (c)
    
    (appointment of own Attorney) may appoint its own attorney and may revoke
that appointment.
 30.3
    
    ConflictsAn Attorney may exercise its rights despite any conflict of interest or duty on its part.




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 30.4
    
    RatificationThe Chargor must ratify anything done or purported to be done by an Attorney under this
clause 30.31
    
    GENERAL31.1
    
    Continuing securityThis charge is a continuing security despite any settlement of account, intervening payment
or anything else and remains in force until a final discharge of it is provided to the
Chargor.31.2
    
    No MarshallingThe Chargee is not obliged to marshal or appropriate in favour of the Chargor or to apply,
enforce or exercise:
 (a)
    
    any Security Interest, collateral security or any other Transaction Document
or other instrument held by the Chargee; or(b)
    
    any asset which the Chargee holds or may otherwise be entitled to receive or
have a claim on.
 31.3
    
    No mergerNo Security Interest, judgment, order, contract, cause of action, remedy or any other thing
in respect of the Secured Money merges with or prejudicially affects nor is merged in or
prejudicially affected by, or is in any way abrogated or released by, this charge or any
obligations of the Chargor or the rights of the Chargee, any Attorney or any Receiver.31.4
    
    Persons dealing with the Chargee
 (a)
    
    (no enquiry into exercise of rights) Any person dealing with the Chargee, an
Attorney or a Receiver, or a person to whom is tendered for registration an instrument
executed by any of them, need not make any enquiry as to whether the Chargee, an
Attorney or Receiver is entitled to exercise, and has properly exercised, its rights
and in particular that person is not required to enquire whether:
 (i)
    
    an Event of Default has occurred;(ii)
    
    any Secured Money is owing or payable; or(iii)
    
    an Attorney or a Receiver has been properly appointed.
 (b)
    
    (reliance) A person can rely on this clause 31.4 despite any express or
constructive knowledge of any matter referred to in it.
 31.5
    
    Waivers, variations and consents
 (a)
    
    (in writing) Any waiver or consent by the Chargee, an Attorney or a Receiver
is effective only if it is in writing signed by or on behalf of the




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Chargee, the Attorney or the Receiver and then only to the extent expressly stated
in writing and in the specific instance and for the specific purpose for which it
is given.(b)
    
    (no waiver) No failure on the part of the Chargee, an Attorney or a Receiver
to exercise, or delay on its part in exercising, any of its rights operates as a
waiver of them.(c)
    
    (exercise of rights) A single or partial exercise of any right by the
Chargee, an Attorney or a Receiver does not preclude any further or other exercise of
that right or the exercise of any other rights.(d)
    
    (variations in writing) No provision of this charge or right conferred by it
can be varied except in writing signed by the parties.
 31.6
    
    InvalidityIf any part of this charge is for any reason unenforceable that part is to be read down to
the extent necessary to preserve its operation and if it cannot be read down it is to be
severed.31.7
    
    Further assurances
 (a)
    
    (perfect interest) The Chargor must do anything required by the Chargee to
perfect the Chargees interest in the Secured Property and its rights under the
Transaction Documents or to provide the Chargee with more effective security over the
Secured Property for the payment of the Secured Money.(b)
    
    (execution of mortgage) Without limiting clause 31.7(a), the Chargor must on
request from the Chargee execute a legal or statutory mortgage over any real property.
That mortgage must be in the form and substance required by the Chargee and is to
secure the Secured Money.
 31.8
    
    Priority AmountFor the purpose only of fixing priorities in accordance with section 282 of the
Corporations Actbetween this charge and any other charge given by the Chargor the maximum
prospective liability secured by this charge is the amount set out in item 3 of schedule 1.
This amount may be increased at any time by the Chargee lodging a notice to that effect in
accordance with the Corporations Act.31.9
    
    Governing law and jurisdictionThis charge is governed by the law of the State or Territory specified in item 5 of
schedule 1 and the parties submit to the non-exclusive jurisdiction of its courts.31.10
    
    CounterpartsIf this charge is signed in counterparts, then:
 (a)
    
    each is deemed an original; and(b)
    
    together they constitute one document.




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 31.11
    
    NoticesClause 15 of the Cash Advance Facility Agreement will apply to any notice, demand, consent
or other communication under this document.




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Schedule 1
 item 1:
    
    Details of Chargor:Name:
    
    Metal Storm LimitedACN:
    
    064 270 006Address:
    
    Central Plaza One, Level 34, 345 Queen
Street, Brisbane QLD 4000Attention:
    
    Company SecretaryFacsimile Number:
    
    (07) 3221 9788item 2:
    
    Details of Chargee:Name:
    
    Harmony Investment Fund LimitedCompany registration No
    
    CB-150702Address:
    
    c/o Harmony Capital Partners Pte Limited16 Raffles Quay#40-01Hong Leong BuildingSingapore048581Attention:
    
    The Managing DirectorFacsimile No:
    
    + 65 6720 1688item 3:
    
    Maximum Prospective
Liability:
    
    $15,000,000item 4:
    
    Prior Encumbrances:
    
    Nilitem 5:
    
    State/Territory:
    
    New South Walesitem 6:
    
    Trust:
    
    Not applicable.Trust Deed:
    
    Not applicable.
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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 Schedule 2
  1.
    
    enter, take possession of, have access to and make use of the Secured Property;2.
    
    without limiting its right to re-enter the Secured Property under clause 1 above, give up
possession of the Secured Property;3.
    
    receive rents, profits income and other moneys derived from the Secured Property;4.
    
    exercise the Chargors rights in connection with the Secured Property;5.
    
    manage the Secured Property;6.
    
    carry on or concur in carrying on any business or pursuit carried on by or on behalf of the
Chargor or otherwise in connection with the Secured Property and borrow and raise money
required from time to time for that purpose from any person including the Chargee and secure
that money by mortgage or charge in the Chargors name over the Secured Property;7.
    
    grant an option to purchase, lease or license in connection with the Secured Property on any
terms;8.
    
    sell the Secured Property on any terms9.
    
    execute transfers or other assurances of the Secured Property in the name and on behalf of
the Chargor or otherwise;10.
    
    do anything to effect or complete a sale or lease of the Secured Property and set aside from
the proceeds of sale any amount to meet future claims until the possibility of claims being
made is ended;11.
    
    compromise, conduct, defend, institute or settle in the Chargors name any legal proceedings
in connection with the Secured Property, any Insurance or this charge and execute releases or
other discharges in connection with them;12.
    
    exchange the Secured Property with any person for any interest in any other property and that
interest will immediately take the place of or form part of the Secured Property, as the case
requires, and may be dealt with by it accordingly;13.
    
    do anything to protect or enhance the value of the Secured Property or protect the Chargees
or the Chargors interest in the Secured Property; or14.
    
    delegate its rights (including this right of delegation) to any person for any period;15.
    
    lease or license, or vary, terminate, renew, surrender, or accept the surrender of a lease or
licence of, the Secured Property, and compromise with or make concessions to tenants, lessees
or licensees for any period and on any terms;16.
    
    engage persons (including its employees, consultants and professional advisers) in exercising
its rights under this Schedule;
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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 17.
    
    spend money or incur liabilities in exercising its rights under this schedule and this money
or these liabilities will form part of the Secured Money;18.
    
    comply with the Chargors obligations under any agreement between the Chargor and any other
person relating to the Secured Property;19.
    
    create or vary any Encumbrances over the Secured Property;20.
    
    acquire in any manner any asset (after that acquisition it will be included in the Secured
Property);21.
    
    commence, defend, conduct, settle, discontinue or compromise proceedings in the name of the
Chargor or otherwise;22.
    
    enter into and execute documents or agreements on behalf of the Receiver or the Chargor
(including using the Chargors seal and signing, accepting and endorsing cheques, promissory
notes and bills of exchange);23.
    
    exercise any voting or other rights or powers in respect of any of the Secured Property and
do anything in relation to Marketable Securities;24.
    
    make calls on the members of the Chargor in respect of any unpaid capital;25.
    
    exercise any other rights as specified by the Chargee; and26.
    
    do such further acts as may be incidental to any of the other powers referred to in this
schedule.
 Page 20




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Fixed and Floating Charge
    
    HENRY DAVIS YORK
 
 Signed
 Executedfor and on behalf of
Metal Storm LimitedACN 064 270
006 by its duly authorised
officers/s/ JAMES D. MACDONALD
    
    /s/ TERENCE J. ODWYERSignature of secretary
    
    Signature of directorJames Donald MacDonald
    
    Terence James ODwyerPrint name
    
    Print nameExecutedfor and on behalf of
Harmony Investment Fund Limited
by its duly
 authorised officer:/s/ SURESH WITHANASignature of authorised officerSuresh WithanaPrint name
 Page 21