Exhibit 4.3




---



##### 



Contents1
    
    
    Interpretation
    
    
    11.1
    
    
    Definitions
    
    
    11.2
    
    
    Construction
    
    
    41.3
    
    
    Headings
    
    
    52
    
    
    Operative provisions
    
    
    52.1
    
    
    Line facility
    
    
    52.2
    
    
    Exclusivity
    
    
    53
    
    
    Drawings
    
    
    53.1
    
    
    Entitlement
    
    
    53.2
    
    
    Investment procedure
    
    
    63.3
    
    
    ASX Approvals and Waivers
    
    
    63.4
    
    
    Conditions
    
    
    63.5
    
    
    Waiver of compliance
    
    
    73.6
    
    
    Confirmation of Drawdown
    
    
    74
    
    
    Pricing
    
    
    84.1
    
    
    Purchase Price
    
    
    84.2
    
    
    Adjustments
    
    
    84.3
    
    
    Investment Shares
    
    
    84.4
    
    
    Investment Amount
    
    
    85
    
    
    Closing
    
    
    95.1
    
    
    Closing Date
    
    
    95.2
    
    
    Actions on closing
    
    
    95.3
    
    
    Actions after closing
    
    
    106
    
    
    Company Acknowledgement
    
    
    106.1
    
    
    Dilution
    
    
    106.2
    
    
    Board resolutions
    
    
    117
    
    
    Representations and warranties
    
    
    117.1
    
    
    Warranties
    
    
    117.2
    
    
    Application
    
    
    117.3
    
    
    Official quotation
    
    
    117.4
    
    
    Organisation and qualification
    
    
    117.5
    
    
    Issue of Shares
    
    
    127.6
    
    
    Securities on issue
    
    
    137.7
    
    
    Regulatory issues
    
    
    137.8
    
    
    No Company Material Adverse Effect
    
    
    137.9
    
    
    Litigation
    
    
    137.10
    
    
    Disclosure
    
    
    147.11
    
    
    Entitlement to rely on disclosure exemption
    
    
    147.12
    
    
    No conflicts
    
    
    147.13
    
    
    Self reliance
    
    
    15
 page i




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##### 



Contents8
    
    
    Mutual Representations and Warranties
    
    
    158.1
    
    
    General
    
    
    158.2
    
    
    Warranties
    
    
    159
    
    
    Indemnity by the Company
    
    
    1510
    
    
    Indemnity by the Investor
    
    
    1711
    
    
    Other agreements of the parties
    
    
    1911.1
    
    
    Listing
    
    
    1911.2
    
    
    Disclosure of transactions and other material information
    
    
    1911.3
    
    
    Negative covenants
    
    
    2011.4
    
    
    Maximum holding
    
    
    2012
    
    
    Fees and costs
    
    
    2012.1
    
    
    Commitment Fee
    
    
    2012.2
    
    
    Approval of Commitment Fee Shares
    
    
    2112.3
    
    
    Repayment of Commitment Fee
    
    
    2112.4
    
    
    Commission
    
    
    2112.5
    
    
    General costs and expenses
    
    
    2212.6
    
    
    Transaction costs
    
    
    2212.7
    
    
    Statutory charges and duties etc
    
    
    2213
    
    
    Goods and services tax
    
    
    2213.1
    
    
    Recovery of GST on supplies and adjustments under this document
    
    
    2213.2
    
    
    Other GST matters
    
    
    2313.3
    
    
    Withholding gross-up
    
    
    2314
    
    
    Proceeds
    
    
    2314.1
    
    
    Use of Proceeds
    
    
    2315
    
    
    Term and termination
    
    
    2415.1
    
    
    Term
    
    
    2415.2
    
    
    Termination by the Company
    
    
    2415.3
    
    
    Events of default
    
    
    2415.4
    
    
    Consequences of an Event of Default
    
    
    2515.5
    
    
    Effect of termination
    
    
    2516
    
    
    Notices
    
    
    2616.1
    
    
    General
    
    
    2616.2
    
    
    How to give a communication
    
    
    2616.3
    
    
    Particulars for delivery of notices
    
    
    2716.4
    
    
    Communications by post
    
    
    2716.5
    
    
    Communications by fax
    
    
    2716.6
    
    
    Communications by email
    
    
    2716.7
    
    
    After hours communications
    
    
    2716.8
    
    
    Process service
    
    
    28
 page ii




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##### 



Contents17
    
    
    Execution
    
    
    2817.1
    
    
    Sufficient execution
    
    
    2817.2
    
    
    Other modes of service permitted
    
    
    2817.3
    
    
    Interpretation
    
    
    2818
    
    
    General
    
    
    2818.1
    
    
    Approvals and consent
    
    
    2818.2
    
    
    Assignment
    
    
    2818.3
    
    
    Entire document
    
    
    2818.4
    
    
    Execution of separate documents
    
    
    2918.5
    
    
    Further acts
    
    
    2918.6
    
    
    Governing law and jurisdiction
    
    
    2918.7
    
    
    Rights cumulative
    
    
    2918.8
    
    
    Severability
    
    
    2918.9
    
    
    Stamp duty
    
    
    2918.10
    
    
    Variation
    
    
    2918.11
    
    
    Waiver
    
    
    30Schedule 1  Investment Notice
    
    
    32Schedule 2  Form of closing statement
    
    
    33Schedule 3  Board resolution
    
    
    35
 page iii




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##### 



DatePartiesDutchess Opportunity Fund II LPof 50 Commonwealth Avenue, Suite 2, Boston, MA
02116, USA (the Investor)Metal Storm Limited ACN 064 270 006of Unit 4, 848 Boundary Road, Richlands, Queensland,
Australia (Company)BackgroundThe Investor has agreed to grant to the Company and the Company has agreed to
accept a $25,000,000 Line on the terms and conditions set out in this document.Agreed terms1
    
    Interpretation1.1
    
    DefinitionsThe following terms used in this document have the following meanings, unless the
context otherwise requires:Approval Datemeans 30 September 2010.ASICmeans the Australian Securities and Investment Commission.ASXmeans ASX Limited ACN 008 624 691 or the securities exchange operated by it, as the
context requires.Available Amountmeans the Line Amount less the aggregate of the Proposed Investment
Amounts already paid or payable by the Investor under this document.Base Pricemeans $0.001 per Share.Businessin respect of the Company and its Subsidiaries, the businesses they each carry
on at the Execution Date.Business Daymeans a day on which banks are open for general banking business in
Brisbane, Queensland excluding Saturdays and Sundays.CHESSmeans Clearing House Subregister System.
 page 1




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##### 



Closing Datemeans, in relation to each Drawdown, the day determined in accordance with
clause 5.1.Closing Statementmeans the statement to be given by the Investor to the Company on the
Closing Date in accordance with clause 5.2in the form of schedule 2.Commitment Feehas the meaning given in clause 12.1.Commitment Fee Sharesmeans the First Tranche Commitment Fee Shares and the Second
Tranche Commitment Fee Shares.Company Material Adverse Effectmeans any effect on the assets, business, operations,
properties or prospects of the Company and its Subsidiaries, that is material and adverse
to the Company and its Subsidiaries, taken as a whole.Conditionsmeans the conditions to a Drawdown set out in clause 3.3.Confirmation Statementmeans a statement given by the Investor to the Company in
accordance with clause 3.6.Constitutionmeans the constitution of the Company (as amended from time to time).Corporations Actmeans the Corporations Act 2001(Cth).Drawingmeans an exercise by the Company of its entitlement under this document to
require the Investor to subscribe for (or to cause another person to subscribe for)
Shares on the terms and conditions of this document and Drawdownhas an equivalent
meaning.Event of Defaultmeans an event of default described in clause 15.3.Execution Datemeans the date the last of the parties executes this document.First Tranche Commitment Fee Shareshas the meaning given in clause 12.1(c).Floormeans the price per Share identified by the Company in an Investment Notice.Governmental Authorityincludes any governmental, semi-governmental, municipal or
statutory authority, instrumentality, organisation, body or delegate (including without
limitation any town planning or development authority, public utility, environmental,
building, health, safety or other body or authority) having jurisdiction, authority or
power over or in respect of the Company or the Business carried on by the Company and its
Subsidiaries as at the Execution Date.GSThas the meaning given to that term in the GST Act.GST Actmeans A New TaxSystem (Goods and Services Tax) Act1999 (Cth).Investment Amountmeans the amount payable by the Investor on the Closing Date as
calculated under clause 4.4.
 page 2




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##### 



Investment Datemeans the date on which the Investor receives an Investment Notice from
the Company.Investment Limitmeans the limit set in accordance with clause 3.2(b).Investment Noticemeans a notice given in accordance with clause 3.1and substantially in
the form set out in schedule 1.Investment Shareshas the meaning given in clause 4.3.Linemeans the facility granted under this document.Line Amountmeans $25,000,000 or such other amount agreed to by the parties in writing.Line Periodmeans the period starting on the Execution Date and ending on the date 3
years from that date.Listing Rulesmeans the Listing Rules of ASX from time to time.Pricing Periodmeans the period starting on and from the Trading Day immediately after an
Investment Date and ending at 5.00 pm on the Trading Day which is five consecutive
Trading Days after the Investment Date.Proposed Investment Amountmeans the amount specified by the Company in its Investment
Notice.Purchase Pricemeans the subscription price per Investment Share determined in accordance
with clause 4.1.Second Tranche Commitment Fee Shareshas the meaning given in clause 12.1(d).Sharesmeans fully paid ordinary shares in the capital of the Company.Shareholder Approvalmeans the approval of the shareholders of the Company in general
meeting for the Company issuing under this document:
 (a)
    
    the Commitment Fee Shares; and(b)
    
    the Investment Shares for a period of three months after the date of the
general meeting.
 Subsidiariesmeans:
 (a)
    
    Metal Storm Inc.;(b)
    
    ProCam Machine LLC;(c)
    
    Metal Storm USA Ltd; and(d)
    
    Digigun LLC,
 and Subsidiarymeans any one of them.Trading Dayhas the meaning given to that expression in the market rules of the ASX from
time to time.VWAPmeans the volume weighted average price of Shares traded on ASX.
 page 3




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##### 



1.2
    
    ConstructionUnless expressed to the contrary, in this document:
 (a)
    
    words in the singular include the plural and vice versa;(b)
    
    any gender includes the other genders;(c)
    
    if a word or phrase is defined its other grammatical forms have
corresponding meanings;(d)
    
    includes means includes without limitation;(e)
    
    no rule of construction will apply to a clause to the disadvantage of a
party merely because that party put forward the clause or would otherwise benefit
from it;(f)
    
    a reference to:
 (i)
    
    a person includes a partnership, joint venture,
unincorporated association, corporation and a government or statutory body or
authority;(ii)
    
    a person includes the persons legal personal
representatives, successors, assigns and persons substituted by novation;(iii)
    
    any legislation includes subordinate legislation under it
and includes that legislation and subordinate legislation as modified or
replaced;(iv)
    
    an obligation includes a warranty or representation and a
reference to a failure to comply with an obligation includes a breach of
warranty or representation;(v)
    
    a right includes a benefit, remedy, discretion or power;(vi)
    
    time is to local time in Brisbane;(vii)
    
    $ or dollars is a reference to Australian currency;(viii)
    
    this or any other document includes the document as novated, varied or
replaced and despite any change in the identity of the parties;(ix)
    
    writing includes:
 (A)
    
    any mode of representing or reproducing words
in tangible and permanently visible form, and includes fax
transmissions; and(B)
    
    words created or stored in any electronic
medium and retrievable in perceivable form
 (x)
    
    this document includes all schedules and annexures to it;
and
 (g)
    
    if the date on or by which any act must be done under this document is
not a Business Day, the act must be done on or by the next Business Day; and
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##### 



(h)
    
    where time is to be calculated by reference to a day or event, that day
or the day of that event is excluded.
 1.3
    
    HeadingsHeadings do not affect the interpretation of this document.
 2
    
    Operative provisions2.1
    
    Line facility
 (a)
    
    The Investor grants to the Company a Line on the terms and conditions of this
document under which the Company may, during the Line Period, require the Investor
to subscribe for (or cause to be subscribed for) a number of Shares having a total
issue price not exceeding the Line Amount.(b)
    
    The Company has no obligation to make any Drawing during the Line Period.(c)
    
    The Investor agrees that during the Line Period it will subscribe for (or
cause to be subscribed for) Shares having a total issue price not exceeding the Line
Amount on the terms and conditions described in this document, if required by the
Company.
 2.2
    
    Exclusivity
 (a)
    
    For so long as the Company has rights under this document to make Drawings and
provided always that the Investor is not in default of its obligations under this
document, the Company and its Subsidiaries must not enter into any equity line of
credit arrangements with any third party requiring that third party to subscribe for
Shares in a structured way over time, without first obtaining the Investors
consent, which cannot be unreasonably withheld.(b)
    
    For the avoidance of doubt, clause 2.2(a) does not restrict the Company
from undertaking a rights issue, share purchase plan, raising money through
placements of Shares or security issues not in the nature of an on-going equity line
of credit arrangement.
 3
    
    Drawings3.1
    
    Entitlement
 (a)
    
    Subject to this document, the Company may at any time during the Line Period,
drawdown any of the Available Amount by following the procedure and satisfying the
conditions set out in this document.(b)
    
    The Company must not give an Investment Notice:
 (i)
    
    at any time during a Pricing Period;
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(ii)
    
    if the completion of any Drawing would result in the
Investor or the Company being in breach of this document, any applicable
Australian law or the Listing Rules; or(iii)
    
    prior to the issue of the First Tranche Commitment Fee
Shares.
 3.2
    
    Investment procedure
 (a)
    
    If the Company wishes to drawdown any of the Available Amount, it must deliver
to the Investor an Investment Notice duly executed by the Company which complies
with this document.(b)
    
    Subject to clause 3.2(c) and unless the Investor has given its prior
written consent to a higher Investment Limit for one or more Drawings, an Investment
Notice must not require the Investor to subscribe for a number of Shares for which
the Proposed Investment Amount is more than the lesser of:
 (i)
    
    $200,000; and(ii)
    
    the dollar amount calculated by multiplying the number of
Commitment Fee Shares issued in accordance with this document by the VWAP for
the five Trading Days immediately prior to the Investment Date.
 (c)
    
    For any Drawing before the Shareholder Approval, the Investment Notice
must not require the Investor to subscribe for a number of Shares for which the
Proposed Investment Amount is more than the lesser of:
 (i)
    
    $100,000; and(ii)
    
    the dollar amount calculated by multiplying the number of
First Tranche Commitment Fee Shares issued in accordance with this document
by the VWAP for the five Trading Days immediately prior to the Investment
Date.
 3.3
    
    ASX Approvals and Waivers
 (a)
    
    The Company acknowledges that it bears the responsibility of the application
for Shares issued under this document and must be able to deliver the Commitment Fee
Shares and the Investment Shares in accordance with this document.(b)
    
    For the avoidance of doubt, the Company may issue any Shares under this
document without shareholder approval to the extent permitted under Listing Rule
7.1.
 3.4
    
    ConditionsThe Investors obligations under clause 5to subscribe for Shares under this
document are subject to and conditional upon the following conditions having been
satisfied or fulfilled in respect of each Drawdown:
 (a)
    
    (entitlement to make Drawdown)the Company being entitled under this
document to make a Drawdown;
 page 6




---



##### 



(b)
    
    (approval) the Company obtaining approval of the shareholders of the
Company in general meeting pursuant to Listing Rule 7.1 for the issue of Shares
under the Drawdown (if required);(c)
    
    (Investment Limit)the Investment Limit not having been exceeded;(d)
    
    (availability of funds)the provision of subscription monies in
accordance with the Investment Notice will not cause the Available Amount to be
exceeded; and(e)
    
    (representations and warranties)each representation and warranty by the
Company in this document is true and correct as at the Investment Date as though it
had been made on and as of the Investment Date.
 3.5
    
    Waiver of complianceThe Conditions are for the benefit of the Investor only. They may only be waived
by the Investor in its absolute and sole discretion and only by notice in writing to the
Company. Any Investment Notice or purported Drawing which does not comply with this
document is invalid and ineffective.3.6
    
    Confirmation of Drawdown
 (a)
    
    The Investor must no later than two Business Days after receipt of an
Investment Notice either:
 (i)
    
    advise the Company that the Conditions have not been
complied with together with written particulars of the non-compliance; or(ii)
    
    give the Company a Confirmation Statement confirming:
 (A)
    
    the Investment Date;(B)
    
    the Pricing Period;(C)
    
    the Closing Date; and(D)
    
    the name of the person to whom the Investment
Shares are to be issued.
 (b)
    
    The provision by the Investor of a Confirmation Statement under clause
3.6(a) is not a release or waiver by the Investor of any obligation of the Company
to satisfy the Conditions.(c)
    
    If, within two Business Days after receipt of an Investment Notice, the
Investor has not:
 (i)
    
    informed the Company in accordance with clause 3.6(a)(i)
that the Conditions have not been complied with; or(ii)
    
    given the Company a Confirmation Statement in accordance
with clause 3.6(a)(ii),
 the Investor will be deemed to have given the Company a Confirmation Statement on
the third Business Day after receipt of the Investment Notice.
 page 7




---



##### 



4
    
    Pricing4.1
    
    Purchase PriceFor any Drawdown, if the Investor is required under this document to subscribe for
Shares, it must do so at a Purchase Price per Share equal to the lowest of the daily VWAP
on each Trading Day during the Pricing Period.For example, if the daily VWAP during a Pricing Period are:Day 1 = $0.017
Day 2 = $0.018
Day 3 = $0.018
Day 4 = $0.019
Day 5 = $0.020,
the Purchase Price for that Pricing Period will be $0.017 per Share.4.2
    
    Adjustments
 (a)
    
    An Adjustment Eventoccurs if the VWAP for a Trading Day in the Pricing Period
is less than the Floor.(b)
    
    A Knockout Dayis a day on which an Adjustment Event occurs.(c)
    
    Notwithstanding anything else contained in this document, if a Knockout
Day occurs during a Pricing Period:
 (i)
    
    the Investor, in its sole discretion, may reduce the
Proposed Investment Amount by 1/5th for every Knockout Day which
occurs during the Pricing Period; and(ii)
    
    in calculating the Purchase Price in clause 4.1:
 (A)
    
    the prices on any Knockout Day will be
disregarded; and(B)
    
    the number of Trading Days comprising the
Pricing Period will be reduced by the number of Knockout Days that
occur during that period.
 4.3
    
    Investment SharesInvestment Sharesmeans the number of Shares to be issued under a Drawdown which
is equal to the Proposed Investment Amount, as adjusted under clause 4.2, divided by the
Purchase Price.4.4
    
    Investment Amount
 Investment Amount
 (a)
    
    the Proposed Investment Amount; and(b)
    
    the aggregate of all monies due and payable by the Company:
 page 8




---



##### 



(i)
    
    to the Investor as at the relevant Closing Date under this
document including monies payable under clauses 12.4(Commission), 12.5
(General costs and expenses) and 13(Goods and Services Tax) or otherwise;
and(ii)
    
    to third parties pursuant to clause 12.6(Transaction Costs).
 5
    
    Closing5.1
    
    Closing Date
 (a)
    
    Subject to clause 5.1(b), the Closing Date in relation to any given Drawdown
is the date which is no later than five Trading Days after the end of the Pricing
Period and which is notified by the Investor to the Company no later than the
Trading Day immediately after the end of the Pricing Period.(b)
    
    Despite anything else in this document, if the issue of the Investment
Shares will require the approval of the shareholders of the Company in general
meeting under the Corporations Act or the Listing Rules, the Closing Date in
relation to the Drawdown will be the date that is two Business Days after the date
on which approval to the issue of the Investment Shares is obtained.(c)
    
    The issue of Investment Shares will take place via the CHESS Delivery
versus Payment settlement service.
 5.2
    
    Actions on closing
 (a)
    
    Subject to the Conditions having been fulfilled (or waived by the Investor)
and any approval of shareholders required under clause 5.1(b) having been obtained,
on the Closing Date:
 (i)
    
    the Investor must:
 (A)
    
    give the Company a Closing Statement;(B)
    
    subscribe for the Investment Shares at the
Purchase Price; and(C)
    
    if the allottee of the Investment Shares is a
nominee of the Investor and is not an existing member of the Company,
provide to the Company a written consent from the allottee:
 (1)
    
    consenting to the issue of the
Investment Shares to it;(2)
    
    consenting to become a member
of the Company; and(3)
    
    agreeing to be bound by the
Constitution on the issue of the Investment Shares to it; and
 (D)
    
    pay the Company the Investment Amount; and
 (ii)
    
    the Company must:
 page 9




---



##### 



(A)
    
    do, and cause its share registry to do,
everything required on its or its share registrys behalf to
facilitate the CHESS Delivery versus Payment settlement of any
Drawdown to be settled in accordance with this document ;(B)
    
    allot and issue the Investment Shares to the
Investor or its nominee; and(C)
    
    lodge with ASX an application for quotation
in respect of the Investment Shares and pay any fees or other costs
associated with it.
 (b)
    
    The Company must use its best endeavours to obtain a grant of quotation
from ASX for the Investment Shares within five Business Days after the Closing Date,
including complying with any reasonable condition required by ASX as a condition of
it granting quotation.(c)
    
    The obligations of the Investor and the Company on the Closing Date are
interdependent.
 5.3
    
    Actions after closing
 (a)
    
    On the Business Day after the Closing Date, the Company must lodge with ASX a
notice which complies with section 708A(6) of the Corporations Act.(b)
    
    No later than two Business Days after the Closing Date, the Company must
cause its share registry to deliver to the Investor or the allottee of the
Investment Shares:
 (i)
    
    a holding statement evidencing the allotment and issue of
the Investment Shares on the Closing Date; and(ii)
    
    details of all necessary identification numbers and other
information necessary to enable the allottee to deal immediately with the
issued Investment Shares.
 (c)
    
    The Company requests, authorises and directs the Investor to withhold
from the Investment Amount to be paid to the Company pursuant to clause 5.2(a)(i)(D)
any monies specified in clause 4.4(b)(i), and to pay those monies directly to the
Investor or its nominee.
 6
    
    Company Acknowledgement6.1
    
    Dilution
 (a)
    
    The Company acknowledges that the number of Shares issuable as a result of
Drawdowns occurring pursuant to this document may increase in certain circumstances
including the circumstance in which the trading price of the Shares declines during
the Line Period.(b)
    
    The Companys executive officers and directors have studied and warrant
that they fully understand the nature of the transactions
 page 10




---



##### 



contemplated by this document and acknowledge that it may potentially result in
having a dilutionary effect on its existing shareholders.
 6.2
    
    Board resolutionsThe Company agrees to provide to the Investor contemporaneously with the execution
of this document duly adopted board resolutions substantially in the form attached to
this document as schedule 3.7
    
    Representations and warranties7.1
    
    Warranties
 (a)
    
    The Company acknowledges that the Investor has entered into this document in
reliance on the Companys representations and warranties set out in this document.(b)
    
    The Company gives to the Investor the representations and warranties set
out in this clause to the best of its knowledge and belief. Each representation and
warranty is a separate representation and warranty and is in no way limited by any
other representation and warranty.(c)
    
    The Company shall immediately notify the Investor upon becoming aware of
any breach or representation or warranty given by the Company under this document.
 7.2
    
    Application
 (a)
    
    Subject to clause 7.2(b) and the disclosures provided to the Investor from
time to time by the Company in writing and any announcements made by the Company to
ASX, each of the warranties in this clause 7applies as at the Execution Date and on
each Closing Date.(b)
    
    The warranties in clause 7.9are given as at the Execution Date and each
Investment Date only.
 7.3
    
    Official quotation
 (a)
    
    The Company is admitted to the official list of ASX and its Shares are
admitted to official quotation on ASX.(b)
    
    The Company is not aware of any reason that the Shares could be removed
or suspended from official quotation on ASX or the Company removed from the official
list of ASX.
 7.4
    
    Organisation and qualification
 (a)
    
    The Company and each of its Subsidiaries is duly qualified to do business and
is in good standing in every jurisdiction in which its ownership of material
property or the nature of its Business makes such qualification necessary and
without such qualification or good standing there would be a Company Material
Adverse Effect.
 page 11




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##### 



(b)
    
    No resolution to alter the Constitution having a Company Material Adverse
Effect has been passed or if passed will have a Company Material Adverse Effect.(c)
    
    None of the following has occurred in relation to the Company or any of
its Subsidiaries:
 (i)
    
    no resolution for their winding up has been passed and no
meeting of members or creditors has been convened for that purpose;(ii)
    
    no winding up application has been made to a court, and no
event has occurred which would entitle any person to apply to a court to wind
them up in insolvency;(iii)
    
    no composition or arrangement has been entered into with
any of their creditors;(iv)
    
    no demand has been received under section 459E of the
Corporations Act;(v)
    
    no receiver or other controller (as that expression is
defined in the Corporations Act) has been appointed to them or any of their
material assets;(vi)
    
    none of the entities are externally administered bodies
corporate (as that expression is defined in the Corporations Act);(vii)
    
    no distress, execution or other similar order or process
has been levied on any of their material property or assets;(viii)
    
    none of the entities has received from the Australian Securities &
Investments Commission any notice or warning of possible cancellation of
registration of the Company which cannot be rectified within seven Business
Days of receipt; and(ix)
    
    no event has occurred which would entitle a person to take
any proceeding or step the effect of which would result in the appointment of
a receiver or receiver and manager, to the entity.
 7.5
    
    Issue of Shares
 (a)
    
    The Commitment Fee Shares and the Investment Shares will be capable of
quotation by ASX.(b)
    
    Upon issue of the Commitment Fee Shares and the Investment Shares:
 (i)
    
    all of the Commitment Fee Shares and the Investment Shares
will be validly issued, fully paid, issued in accordance with applicable
securities law and free from all encumbrances or third party interests or
rights; and(ii)
    
    the Commitment Fee Shares and the Investment Shares will
rank equally with all existing Shares on and from the date of issue in
respect of all rights issues, bonus share issues and dividends
 page 12




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which have a record date for determining entitlements on or after the date
of issue of those Investment Shares.
 7.6
    
    Securities on issueThe Companys Appendix 3B dated 4 June 2010 accurately describes the number and
type of securities on issue by the Company as at the date of execution of this document.7.7
    
    Regulatory issues
 (a)
    
    No stop order, trading halt, suspension of trading, cessation of quotation, or
removal of the Company or the Shares from the official list of ASX has been
requested by the Company or imposed by ASIC, ASX or any other Governmental Authority
or regulatory body with respect to public trading in the Shares on ASX (except for
any trading halt of 2 days or less, or as otherwise agreed to by the Investor).(b)
    
    There exists no fact or circumstance that may cause the Company to
request, or ASIC, ASX or any other Governmental Authority to impose, any of the
sanctions in clause 7.7(a).(c)
    
    The Company is in compliance with the Listing Rules and the Corporations
Act and no fact exists which may result in the Company not complying with the
Listing Rules or Corporations Act.
 7.8
    
    No Company Material Adverse Effect
 (a)
    
    Since 20 April 2010, there has not been an event or condition that has had, or
may have, a Company Material Adverse Effect.(b)
    
    Since the date of the Companys latest audited financial statements the
Company has not incurred any liabilities (contingent or otherwise) other than
expenses incurred in the ordinary course of business which is consistent with best
practice principles and liabilities not required to be reflected in the Companys
financial statements pursuant to the financial standards under which such financial
statements are prepared.(c)
    
    The Company and its Subsidiaries have not altered their method of
accounting and as at the date of execution of this document, the Company and its
Subsidiaries have filed or caused to be filed all tax returns, business activity
statements and other filings as required under the applicable tax law.(d)
    
    The Company has not declared or made any dividend or distribution of cash
or other property to its shareholders or purchased redeemed or made any agreements
to purchase or redeem any Shares.
 7.9
    
    LitigationThere are no pending actions, suits or proceedings against or affecting the
Company its Subsidiaries or any director of officer of the Company or Subsidiary or any
of its or their properties, and to the Companys knowledge no such actions suits or
proceedings are threatened or contemplated.
 page 13




---



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7.10
    
    Disclosure
 (a)
    
    The materials delivered and statements made by the Company and its
representatives to the Investor in connection with this document do not:
 (i)
    
    contain any untrue statement of a material fact or
misleading statement; or(ii)
    
    omit to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which
they were made, not misleading.
 (b)
    
    Neither the Company nor any of its Subsidiaries has incurred any
indebtedness or any security interest in any of its assets that remains outstanding,
except as disclosed in the Companys public filings.(c)
    
    Neither the Company nor any Subsidiary has made any agreement, offer,
tender or quotation which remains outstanding and currently capable of acceptance
relating to the purchase or sale of any business or assets of the Company or any of
its Subsidiaries.
 7.11
    
    Entitlement to rely on disclosure exemptionAs at the date of execution of this document, each Closing Date and each date on
which the Company issues a notice which complies with section 708A(6) of the Corporations
Act, the Investor is entitled to rely on the sale offer exemption under s 708A(5) of the
Corporations Act in respect of the Investment Shares and in particular:
 (a)
    
    the Shares were quoted on the ASX at all times for the preceding 12
months, without suspension for more than five Business Days;(b)
    
    the Shares have been quoted securities at all times in the three months
before the day on which they have been or are to be issued;(c)
    
    no exemption under Section 111AS or Section 111AT of the Corporations Act
applied to the Company , or any director, or auditor of the Company during the
preceding 12 months;(d)
    
    no order under section 340 or Section 341 of the Corporations Act applied
to the Company, or any director or auditor of the Company during the preceding 12
months; and(e)
    
    there exist no circumstances that would cause ASIC to make a
determination under section 708A(2) of the Corporations Act and no such
determination has been made.
 7.12
    
    No conflictsThe execution, delivery and performance of this document will not:
 (a)
    
    breach the Constitution; or(b)
    
    result in a material violation of any law, rule, court order, (including
the Corporations Act, the Listing Rules or any other Commonwealth or State laws).
 page 14




---



##### 



7.13
    
    Self relianceThe Companys decision to enter into this document has been based solely on its
own evaluation of the contemplated transaction. The Company has been represented and
advised by advisors of their own choice, including legal counsel, who have assisted the
Company in understanding and evaluating the risks and merits associated with the
contemplated transaction under this document.8
    
    Mutual Representations and Warranties8.1
    
    General
 (a)
    
    Each party gives to the other the representations and warranties set out in
this clause to the best of its knowledge and belief. Each representation and
warranty is a separate representation and warranty and is in no way limited by any
other representation or warranty.(b)
    
    Each of the warranties in this clause 8applies as at the Execution Date,
on each Closing Date and on each date between them.
 8.2
    
    Warranties
 (a)
    
    The party:
 (i)
    
    is a body corporate validly existing under the laws of its
place of incorporation or establishment; and(ii)
    
    has the corporate power to enter into and perform its
obligations under this document and to carry out the transactions
contemplated by this document.
 (b)
    
    This document is a valid and binding obligation in accordance with its
terms and conditions.(c)
    
    Neither the execution nor performance of this document nor any
transaction contemplated under this document will violate in any material respect
any provision of:
 (i)
    
    any judgement binding on it;(ii)
    
    its constituent documents; and(iii)
    
    any applicable law binding on it.
 (d)
    
    Each partys decision to enter this document has been based solely on its
respective independent evaluations.
 9
    
    Indemnity by the Company
 (a)
    
    Subject to clause 9(b), in consideration of the Investors execution and
delivery of this document and acquiring the Investment Shares under it and in
addition to all of the Companys other obligations under this document, the Company
must continuously indemnify the Investor and
 page 15




---



##### 



its lawful successors in title and its officers and employees (collectively, the
Indemnified Persons) from and against any and all third party actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages and
expenses in connection therewith (Indemnified Liabilities), incurred by any
Indemnified Person as a result of, or arising out of, or relating to:
 (i)
    
    any misrepresentation or breach of any representation or
warranty made by the Company in this document or any other certificate,
instrument or document contemplated by it;(ii)
    
    any material breach of any obligation of the Company
contained in this document or any other certificate, instrument or document
contemplated by it;(iii)
    
    any proceeding, cause of action, suit or claim brought
against an Indemnified Person and arising out of or resulting from the
execution, delivery, performance or enforcement of this document except where
the proceeding, cause of action, suit or claim is brought by ASIC or an
equivalent regulator in the Investors home jurisdiction; and(iv)
    
    any document, certificate or instrument between the Company
and a third party.
 (b)
    
    The indemnity in clause9(a) does not extend to and will not be deemed to
be an indemnity for an Indemnified Person against:
 (i)
    
    Indemnified Liabilities arising out of or as a result of
the wilful default, misconduct, dishonesty, fraud or gross negligence of the
Indemnified Person;(ii)
    
    any penalty or fine which the Indemnified Person is
required to pay for any contravention of the Corporations Act or any other
law;(iii)
    
    any announcement, advertisement or publicity made or
distributed by the Indemnified Person in relation to this document or the
transactions contemplated by this document if the content of the
announcement, advertisement or publicity was not first approved by the
Company; and(iv)
    
    any obligation of the Investor to subscribe for Shares
under this document.
 (c)
    
    If an Indemnified Person becomes aware that any act, matter or thing may
give rise to any Indemnified Liabilities against it in relation to which the Company
would be required to indemnify it under clause 9(a), the Investor must:
 (i)
    
    notify the Company of the act, matter or thing and give
details as far as practicable; and(ii)
    
    take any reasonable action to mitigate the extent of the
Indemnified Liabilities.
 page 16




---



##### 



(d)
    
    Notice given by the Investor pursuant to clause9(c)(i) by any
Indemnified Person will operate as notice given on behalf of all Indemnified
Persons.(e)
    
    Subject to clause 9(g), the Company will be entitled to defend or
institute such legal or other proceedings as it sees fit in respect of any
Indemnified Liabilities in the name of any or all Indemnified Persons and conduct
the same under the sole management and control of the Company (the Relevant
Proceedings) provided that the Company must:
 (i)
    
    pay the costs and expenses of the Relevant Proceedings;(ii)
    
    indemnify and keep indemnified each Indemnified Person
against all Indemnified Liabilities incurred by an Indemnified Person as a
result of, or arising out of or in relation to any Relevant Proceedings; and(iii)
    
    pay the Indemnified Liabilities contemplated in clause
9(e)(ii)to the relevant Indemnified Person immediately on demand.
 (f)
    
    Subject to clause 9(g), the Investor must, and where the relevant
Indemnified Person is not the Investor, the Investor must procure the relevant
Indemnified Person to, at the expense of the Company on a full indemnity basis to:
 (i)
    
    take such reasonable action as the Company requests to
avoid, dispute, resist, appeal, compromise or defend any Indemnified
Liabilities;(ii)
    
    not admit any liability for or settle any Indemnified
Liabilities without the prior written consent of the Company; and(iii)
    
    promptly render all reasonable assistance and co-operation
to the Company in the conduct of any legal or other proceedings.
 (g)
    
    Clauses9(e) and 9(f)will only operate if the Company acknowledges,
subject to clauses9(a) and 9(b), to indemnify the Indemnified Person under clause
9(a).
 10
    
    Indemnity by the Investor
 (a)
    
    Subject to clause 10(b), in consideration of the Companys execution and
delivery of this document and in addition to all of the Investors other obligations
under this document, the Investor must continuously indemnify the Company, its
lawful successors in title and its officers and employees (collectively, in this
clause the Indemnified Persons) from and against any and all third party actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages and expenses in connection therewith (Indemnified Liabilities), incurred by
any Indemnified Person as a result of, or arising out of, or relating to:
 page 17




---



##### 



(i)
    
    any misrepresentation or breach of any representation or
warranty made by the Investor in this document or any other certificate,
instrument or document contemplated by it; and(ii)
    
    any material breach of any obligation of the Investor
contained in this document or any other certificate, instrument or document
contemplated by it.
 (b)
    
    The indemnity in clause10(a) does not extend to and will not be deemed
to be an indemnity for an Indemnified Person against:
 (i)
    
    Indemnified Liabilities arising out of or as a result of
the wilful default, misconduct, dishonesty, fraud or gross negligence of the
Indemnified Person;(ii)
    
    any penalty or fine which the Indemnified Person is
required to pay for any contravention of the Corporations Act or any other
law; or(iii)
    
    any announcement, advertisement or publicity made or
distributed by the Indemnified Person in relation to this document or the
transactions contemplated by this document if the content of the
announcement, advertisement or publicity was not first approved by the
Investor.
 (c)
    
    If an Indemnified Person becomes aware that any act, matter or thing may
give rise to any Indemnified Liabilities against it in relation to which the
Investor would be required to indemnify it under clause 10(a), the Company must:
 (i)
    
    notify the Investor of the act, matter or thing and give
details as far as practicable;(ii)
    
    take any reasonable action to mitigate the extent of the
Indemnified Liabilities.
 (d)
    
    Notice given by the Company pursuant to clause10(c)(i) will operate as
notice given on behalf of all Indemnified Persons.(e)
    
    Subject to clause10(g), the Investor will be entitled to defend or
institute such legal or other proceedings as it sees fit in respect of any
Indemnified Liabilities in the name of any or all Indemnified Persons and conduct
the same under the sole management and control of the Investor (the Relevant
Proceedings) provided that the Investor must:
 (i)
    
    pay the costs and expenses of the Relevant Proceedings;(ii)
    
    indemnify and keep indemnified each Indemnified Person
against all Indemnified Liabilities incurred by an Indemnified Person as a
result of, or arising out of or in relation to any Relevant Proceedings; and(iii)
    
    pay the Indemnified Liabilities contemplated in clause
10(e)(ii) to the relevant Indemnified Person immediately on demand.
 page 18




---



##### 



(f)
    
    Subject to clause 10.1(g), the Company must, and where the relevant
Indemnified Person is not the Company, the Company must procure the relevant
Indemnified Person to, at the expense of the Investor on a full indemnity basis to:
 (i)
    
    take such reasonable action as the Investor requests to
avoid, dispute, resist, appeal, compromise or defend any Indemnified
Liabilities;(ii)
    
    not admit any liability for or settle any Indemnified
Liabilities without the prior written consent of the Investor; and(iii)
    
    promptly render all reasonable assistance and co-operation
to the Investor in the conduct of any legal or other proceedings.
 (g)
    
    Clauses10(e) and 10(f) will only operate if the Investor acknowledges,
subject to clauses10(a) and 10(b), to indemnify the Indemnified Person under clause
10(a).(h)
    
    The maximum aggregate liability of the Investor under clause 10 (a) is an
amount equal to the $400,000.
 11
    
    Other agreements of the parties11.1
    
    ListingNeither the Company nor any of its Subsidiaries will take any action which the
Investor would reasonably expect to result in the removal of the Company from the
official list of ASX or suspension of quotation of the Investment Shares on ASX except
where such action is required by law or by the Listing Rules or in order for the officers
of the Company to act in accordance with their duties.11.2
    
    Disclosure of transactions and other material information
 (a)
    
    Subject to clause 11.2(b) of this document, the Company shall not, and shall
cause any of its related parties and all persons acting on behalf of the Company not
to issue an public release or announcement concerning this document, its terms,
subject matter or content or disclose any information provided to it by or on behalf
of the Investor without the prior written consent of the Investor.(b)
    
    Where an announcement is required to be made to the ASX pursuant to the
Listing Rules, or as required by any other applicable law or regulations then to the
extent possible prior to its release, the Company must consult with the Investor in
connection with any press release or other public disclosure relating to this
document, this transaction, the giving of any Investment Notice or the issue of any
Investment Shares.(c)
    
    For the avoidance of doubt, the provision in clause 11.2applies for so
long as the Company is entitled to make Drawings under this document, and in any
event ceases to operate two years after the earlier of:
 page 19




---



##### 



(i)
    
    the termination of this document pursuant to clauses 15.2
or 15.4; and(ii)
    
    the end of the Line Period.
 11.3
    
    Negative covenantsThe Company must use reasonable endeavours to ensure that none of the following
occurs except where required by law or by the Listing Rules without the prior written
approval of the Investor, such approval not to be unreasonably withheld:
 (a)
    
    a reorganisation, reclassification, reconstruction, consolidation or
subdivision of the capital of the Company or the creation of any different class of
securities in the capital of the Company other than employee options approved by the
Company in general meeting or issued pursuant to any employee or executive share
option plan of the Company;(b)
    
    any buyback, redemption, reduction or cancellation of shares or share
capital; or(c)
    
    any decision that will, or is likely to cause a Company Material Adverse
Effect.
 11.4
    
    Maximum holdingThe Investor acknowledges and agrees that during the term of this document it must
not hold more than that number of Shares which is 19.9% of the total issued Shares of the
Company from time to time.12
    
    Fees and costs12.1
    
    Commitment Fee
 (a)
    
    The Company must pay the Investor a commitment fee of $400,000 (Commitment
Fee) in accordance with this clause.(b)
    
    The Company may satisfy its obligation to pay the Commitment Fee by
issuing to the Investor or its nominee the Commitment Fee Shares as follows:
 (i)
    
    the First Tranche Commitment Fee Shares on the Execution
Date ; and(ii)
    
    the Second Tranche Commitment Fee Shares on the date on
which the Shareholder Approval is obtained.
 (c)
    
    First Tranche Commitment Fee Sharesmeans the number of Shares calculated
under the following formula:First Tranche Commitment Fee Shares = $200,000 ÷ VWAPwhere, for the purposes of this clause 12.1(c), VWAPmeans the volume weighted
average price of Shares traded on ASX on the five Trading Days before the
Execution Date.
 page 20




---



##### 



(d)
    
    Second Tranche Commitment Fee Sharesmeans the number of Shares
calculated under the following formula:Second Tranche Commitment Fee Shares = $200,000 ÷ VWAPwhere, for the purposes of this clause 12.1(d), VWAPmeans the volume weighted
average price of Shares traded on ASX on the five Trading Days before the date of
the meeting to obtain the Shareholder Approval.
 12.2
    
    Approval of Commitment Fee Shares
 (a)
    
    The Company must seek the Shareholder Approval on or before the Approval Date.(b)
    
    If
 (i)
    
    Shareholder Approval is not obtained by the Approval Date;
and(ii)
    
    this document is terminated under clause 15.4(a),
 the Investor must, within 30 Business Days of termination of this document and at
the Investors sole discretion either:
 (iii)
    
    pay the Company a cash amount of $150,000; or(iv)
    
    sell the number of Shares equal to the number of First
Tranche Commitment Fee Shares on ASX in such manner, at such price and on
such other terms as the Investor determines in good faith and pay the Company
the net proceeds of sale (after deduction of any brokerage and other selling
costs, taxes and charges) less $50,000.
 12.3
    
    Repayment of Commitment FeeIn the event that the Company makes Drawings under this document for which the
aggregate Proposed Investment Amount equals or exceeds $3,000,000, the Investor must,
within 30 Business Days of termination of this document pursuant to clause 15sell the
number of Shares equal to the number of Commitment Fee Shares in ordinary trading on ASX
in such manner, at such price and on such other terms as the Investor determines in good
faith and pay the Company the net proceeds of sale (after deduction of any brokerage and
other selling costs, taxes and charges) in consideration of the issue of the Commitment
Fee Shares.12.4
    
    Commission
 (a)
    
    Subject to clause 12.4(b), on the Closing Date for any Drawing made by the
Company under this document, the Company must pay the Investor an amount equivalent
to 6% of the Proposed Investment Amount as adjusted under clause 4.2for the
Drawing.(b)
    
    Any amounts payable under clause 12.4(a) must be paid in accordance with
clause 4.4as a deduction from the Proposed Investment Amount under a Drawdown.
 page 21




---



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12.5
    
    General costs and expenses
 (a)
    
    The Company must pay the legal fees and expenses of the Investor on a full
indemnity basis incurred in relation to the preparation, and negotiation of this
document up to a maximum of $10,000 (inclusive of GST and inclusive of any amount
paid by the Company prior to the Execution Date).(b)
    
    Any amounts payable under clause 12.5(a) must be paid in accordance with
clause 4.4as a deduction from the Proposed Investment Amount under a Drawdown.
 12.6
    
    Transaction costsThe Company must pay any transaction costs associated with the issue of the
Investment Fee Shares (including, registry fees, wire fees and statement of holding
costs)12.7
    
    Statutory charges and duties etcThe Company indemnifies the Investor and agrees to keep it indemnified against any
stamp duty, debits and other taxes (including fines, penalties, litigation or
administrative proceedings and interest provided they are not incurred as a consequence
of the action or inaction of the Investor or any of their respective officers, employees
or agents) that may be payable on the issue of the Investment Shares in accordance with
the terms of this document, or on the execution and delivery of this document, which are
or may be required to be paid under the laws of any Australian jurisdiction.13
    
    Goods and services tax13.1
    
    Recovery of GST on supplies and adjustments under this document
 (a)
    
    All consideration provided under this document is exclusive of GST, unless it
is expressed to be GST-inclusive.(b)
    
    Where a party (Supplier) makes a taxable supply to another party
(Recipient) under or in connection with this document, the Recipient must pay to the
Supplier an additional amount equal to the GST payable on the supply (unless the
consideration for that taxable supply is expressed to include GST). The additional
amount must be paid by the Recipient at the later of the following:
 (i)
    
    the date when any consideration for the taxable supply is
first paid or provided; and(ii)
    
    the date when the Supplier issues a tax invoice to the
Recipient.
 (c)
    
    If, under or in connection with this document, the Supplier has an
adjustment for a supply under the GST law which varies the amount of GST payable by
the Supplier, the Supplier will adjust the amount payable by the Recipient to take
account of the varied GST amount. The
 page 22




---



##### 



Supplier must issue an adjustment note to the Recipient within 28 days of becoming
aware of the adjustment.
 13.2
    
    Other GST matters
 (a)
    
    If a party is entitled to be reimbursed or indemnified under this document,
the amount to be reimbursed or indemnified is reduced by the amount of GST for which
there is an entitlement to claim an input tax credit on an acquisition associated
with the reimbursement or indemnity. The reduction is to be made before any
increase under clause 13.1(b). An entity is assumed to be entitled to a full input
tax credit on an acquisition associated with the reimbursement or indemnity unless
it demonstrates otherwise before the date the reimbursement or indemnity is made.(b)
    
    Any reference in this document to cost, expense, liability or similar
amount (Expense) is a reference to that Expense exclusive of GST (unless that
Expense is expressed to be GST-inclusive).(c)
    
    This clause will not merge on completion and will survive the termination
of this document by any party.(d)
    
    Terms used in this clause that are not otherwise defined in this document
have the meanings given to them in the GST Act.
 13.3
    
    Withholding gross-upIf the Company is required by law to withhold or deduct an amount from any amount
payable to the Investor then:
 (a)
    
    the Company shall pay the amount required to be withheld or deducted to
the relevant revenue or collection authority within the timeframe allowed for such
repayment; and(b)
    
    the Company shall pay additional amounts as necessary to ensure that
after making the deduction or withholding, the Investor receives the full amount
required to be paid before giving effect to such deduction.
 14
    
    Proceeds14.1
    
    Use of ProceedsThe Company shall use the proceeds of any and all Drawdowns for working capital
purposes that are reasonable in light of the nature of the Companys business as at the
Execution Date and not, among other things, for dividend payments. For the avoidance of
doubt, the Company may use the proceeds of any Drawdown to make any payments associated
with the Companys existing convertible notes which are quoted on ASX, including the
payment of interest.
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##### 



15
    
    Term and termination15.1
    
    TermSubject to clauses 15.2(a) and 15.4(a), this document ends at the end of the Line
Period unless otherwise agreed.15.2
    
    Termination by the Company
 (a)
    
    The Company may by giving written notice to the Investor, cancel the Line
Facility and terminate this document at any time(b)
    
    If this document is terminated under clause 15.2(a), any amounts payable
under this document which are unpaid as at the date of termination, become
immediately payable.
 15.3
    
    Events of defaultAn Event of Default occurs if any of the following events occur:
 (a)
    
    Shareholder Approval is not obtained on or before the Approval Date;(b)
    
    the VWAP for five consecutive Trading Days during the Line Period is less
than the Base Price;(c)
    
    the Company or any Subsidiary of the Company defaults in duly performing
or observing any of the undertakings or documents on its part contained in this
document and such default, if capable of remedy, remains unremedied for a period of
30 days after notice from the Investor requiring such default to be remedied;(d)
    
    a stop order, trading halt, suspension of trading, cessation of
quotation, or removal of the Company or the Shares from ASXs Official List has been
requested by the Company or imposed by ASIC, the ASX or any other Governmental
Authority or regulatory body with respect to public trading in the Shares on the ASX
(except for any trading halt of 2 days or less, or as otherwise agreed to by the
Investor);(e)
    
    the Company does not comply with clause 5.3of this document or, despite
so complying, the Commitment Fee Shares or the Investment Shares the subject of a
cleansing statement are not, in the Investors reasonable opinion, able to be freely
traded following their quotation on ASX without the issue of a prospectus under
Part 6D.2 of the Corporations Act;(f)
    
    the Commitment Fee Shares or Investment Shares are not be quoted on ASX
within the timeframes set out in this document;(g)
    
    any of the representations or warranties contained is found to have been
false or misleading in any material respect when made or become false or misleading
in any material respect;(h)
    
    a material judgment is entered against the Company or any Subsidiary of
the Company;(i)
    
    any event occurs which has a Company Material Adverse Effect;
 page 24




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##### 



(j)
    
    an order is made or a resolution is passed for the winding up of the
Company or any Subsidiary of the Company or any meeting is convened for the purposes
of considering such a resolution;(k)
    
    a receiver or receiver and manager is appointed to any material
undertaking or property of the Company or any Subsidiary of the Company, or any part
of such property;(l)
    
    an administrator or controller is appointed to the Company or any
Subsidiary of the Company;(m)
    
    the Company or any Subsidiary of the Company suspends payment of its
debts or, the Company seeks or is required to seek the approval of its shareholders
for a disposal of its main undertaking or a major asset under chapter 11 of the
Listing Rules;(n)
    
    the Company or any Subsidiary of the Company being or becoming unable to
pay its debts when they are due or being unable to pay its debts within the meaning
of the Corporations Act;(o)
    
    a step is taken under sections 601AA, 601AB or 601AC of the Corporations
Act to cancel the registration of the Company or any Subsidiary of the Company;(p)
    
    a compromise or arrangement is proposed between the Company or any
Subsidiary of the Company and its creditors or any class of them; or(q)
    
    all or a material part of the assets of the Company or any Subsidiary of
the Company are compulsorily acquired by a Governmental Authority (or a Governmental
Authority orders the sale or divestiture of those assets or a Governmental Authority
takes a step for the purpose of doing so or proposes to do so.
 15.4
    
    Consequences of an Event of Default
 (a)
    
    If an Event of Default occurs, the Investor may, by giving written notice to
the Company, cancel the Line facility and terminate this document.(b)
    
    If this document is terminated under clause 15.4(a), any amounts payable
under this document to the non-defaulting party which are unpaid as at the date of
termination, become immediately payable.
 15.5
    
    Effect of termination
 (a)
    
    On termination of this document for any reason, subject to clause 15.5(b), all
future obligations of the Company and the Investor to each other end.(b)
    
    Notwithstanding clause 15.5(a):
 (i)
    
    all provisions which by their nature survive the
termination of this document, including clauses 15.2(b) and 15.4(b), remain
in full force and effect;
 page 25




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(ii)
    
    any other document between the Company and the Investor and
any other third party remains in full force and effect according to the tenor
of that document;(iii)
    
    all accrued and outstanding obligations of the parties as
at the date of termination remain despite termination;(iv)
    
    if this document is terminated by the Investor for an Event
of Default before a Closing Date, the Investor has no obligation to subscribe
for Shares. If this document is terminated for any other reason, any
outstanding obligation of the Investor to subscribe for Shares arising under
a valid Drawdown Notice survives and continues after termination; and(v)
    
    if this document is terminated at any time, any obligation
the Company may have to issue Shares to the Investor or its nominee or to
apply for or to obtain the grant of quotation of those Shares in accordance
with this document survives and continues after termination.
 16
    
    Notices16.1
    
    GeneralA notice, demand, certification, process or other communication relating to this
document must be in writing in English and may be given by an agent of the sender.16.2
    
    How to give a communicationIn addition to any other lawful means, a communication may be given by being:
 (a)
    
    personally delivered;(b)
    
    left at the partys current delivery address for notices;(c)
    
    sent to the partys current postal address for notices by pre-paid
ordinary mail or, if the address is outside Australia, by pre-paid airmail;(d)
    
    sent by fax to the partys current fax number for notices; or(e)
    
    emailed to the email address last notified by the addressee..
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##### 



16.3
    
    Particulars for delivery of notices
 (a)
    
    The particulars for delivery of notices are initially:
 The Investor:Delivery address:
    
    Dutchess OpportunityFund II LPPostal address:
    
    50 Commonwealth Avenue, Suite 2, Boston, MA 02116
USAFax:
    
    +1 (0) 617 249 0947Attention:
    
    Mr Douglas H LeightonEmail:
    
    dleighton@dpef.comThe Company:Delivery address:
    
    Unit 4, 848 Boundary Road, Richlands, 
Queensland, AustraliaPostal address:
    
    same as delivery addressFax:
    
    +61 7 3217 0811Attention:
    
    Chief Executive OfficerEmail:
    
    lfinniear@metalstorm.com
 (b)
    
    Each party may change its particulars for delivery of notices by notice
to each other party.
 16.4
    
    Communications by postSubject to clause 16.7, a communication is given if posted:
 (a)
    
    within Australia to an Australian postal address, three Business Days
after posting; or(b)
    
    outside of Australia to an Australian postal address or within Australia
to an address outside of Australia, ten Business Days after posting.
 16.5
    
    Communications by faxSubject to clause 16.7, a communication is given if sent by fax, when the senders
fax machine produces a report that the fax was sent in full to the addressee. That
report is conclusive evidence that the addressee received the fax in full at the time
indicated on that report.16.6
    
    Communications by emailA communication is given if sent by email, when a delivery confirmation report is
received by the sender, unless subsequently the sender receives a delivery failure
notification, indicating that the electronic mail has not been delivered.16.7
    
    After hours communicationsIf a communication is given:
 page 27




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##### 



(a)
    
    after 5.00 pm in the place of receipt; or(b)
    
    on a day which is a Saturday, Sunday or bank or public holiday in the
place of receipt,
 it is taken as having been given at 9.00 am on the next day which is not a Saturday,
Sunday or bank or public holiday in that place.16.8
    
    Process serviceAny process or other document relating to litigation, administrative or arbitral
proceedings relating to this document may be served by any method contemplated by this
clause 16or in accordance with any applicable law.17
    
    Execution17.1
    
    Sufficient executionA notice given in accordance with this clause is sufficiently signed for or on
behalf of a party if:
 (a)
    
    in the case of a company, it is signed by a director, secretary or other
officer of the company; or(b)
    
    in the case of an individual, it is signed by that party.
 17.2
    
    Other modes of service permittedThe provisions of this clause are in addition to any other mode of service
permitted by law.17.3
    
    InterpretationIn this clause, noticeincludes a demand, request, consent, approval, offer and
any other instrument or communication made, required or authorised to be given under this
document.18
    
    General18.1
    
    Approvals and consentExcept when the contrary is stated in this document, a party may give or withhold
any approval or consent to be given under this document in its absolute discretion and
subject to those conditions determined by it.18.2
    
    AssignmentA party must not assign or transfer any of the rights to which it is entitled or
the obligations by which it is burdened under this document without the written consent
of the other party.18.3
    
    Entire documentThis document contains everything the parties have agreed on in relation to the
matters those documents deal with. No party can rely on an earlier document
 page 28




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##### 



or anything said or done by another party, or by a director, officer, agent or employee
of that party, before this document was executed, save as permitted by law.18.4
    
    Execution of separate documents
 (a)
    
    This document is properly executed if each party executes either this document
or an identical document. In the latter case, this document takes effect when the
separately executed documents are exchanged between the parties.(b)
    
    Notwithstanding anything else in this document a party can enter into
this document by signing a facsimile copy of it and sending the signed page by
facsimile to the other party or its solicitor.(c)
    
    This document is deemed to have been entered into by all parties at the
time the last of the parties has entered into it.
 18.5
    
    Further actsEach party must promptly execute all documents and do all things that another
party from time to time reasonably requests to effect, perfect or complete this document
and all transactions incidental to it.18.6
    
    Governing law and jurisdictionThis document is governed by the law applicable in Queensland, Australia. Each
party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the
courts of that State.18.7
    
    Rights cumulativeExcept when the contrary is stated in this document, the rights of a party under
this document are cumulative and are in addition to the other rights of that party.18.8
    
    SeverabilityIf a clause or part of a clause of this document can be read in a way that makes
it illegal, unenforceable or invalid, but can also be read in a way that makes it legal,
enforceable and valid, it must be read in the latter way. If any clause or part of a
clause is illegal, unenforceable or invalid, that clause or part is to be treated as
removed from this document, but the rest of this document is not affected.18.9
    
    Stamp dutyThe Company must promptly pay all stamp duty payable in connection with this
document and any document incidental to it.18.10
    
    VariationThis document may only be varied by the written document of the parties.
 page 29




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##### 



18.11
    
    WaiverThe fact that a party fails to do, or delays in doing, something the party is
entitled to do under this document, does not amount to a waiver of any obligation of, or
breach of obligation by, another party. A waiver by a party is only effective if it is
in writing. A written waiver by a party is only effective in relation to the particular
obligation or breach in respect of which it is given. It is not to be taken as an
implied waiver of any other obligation or breach or as an implied waiver of that
obligation or breach in relation to any other occasion.
 page 30




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##### 



Executed
 Executedby Dutchess Opportunity
    
    
    )Fund II LPby its duly appointed officer
    
    
    )in the presence of:
    
    
    )/s/ Theodore Smith
Witness
    
    
    
    
    
    /s/ Douglas Leighton
OfficerTheodore Smith

Name of Witness (print)
    
    
    
    
    
    Douglas Leighton

Name of Officer (print)Executedby Metal Storm Limited
    
    
    ))/s/ Peter R. Wetzig
    
    
    
    
    
    /s/ Lee J. FinnearCompany Secretary / Director
    
    
    
    
    
    DirectorPeter R. Wetzig

Name of Company Secretary/Director
(print)
    
    
    
    
    
    Dr. Lee J. Finnear

Name of Director (print)
 page 31




---



##### 



To:
    
    Dutchess Opportunity Fund II LPAttention: Douglas H Leighton
  1.
    
    We give you notice that we require you to subscribe for Shares totalling $ (Proposed
Investment Amount) on [               ] (Closing Date). The Available Amount
as at [          ] is:The Floor is $[     ].2.
    
    We confirm that the Company [delete one][has obtained approval of shareholders of the Company in general meeting for the issue of
Shares under this Drawdown at a meeting of shareholders on ] OR[does not require shareholder approval for the issue of Shares under this Drawdown as the
Company has sufficient room in its Listing Rule 7.1 limit to issue these Shares]3.
    
    We request that the proceeds of the Investment Amount be remitted to account number [     ]
at[     ].4.
    
    Expressions defined in the Line Agreement have the same meaning in this Investment Notice.
  Executedby Metal Storm Limited
    
    
    ))Company Secretary/Director
    
    
    
    
    
    DirectorName of Company Secretary/Director
(print)
    
    
    
    
    
    Name of Director (print)
 page 32




---



##### 



clause 5.2(a)(i)(A)
 To:
    
    The SecretaryMetal Storm LimitedACN 064 270 006
 Closing Statement  Investment Dated [ ]
 [insert date]
 Calculation of Purchase Price
 Trading Days during Pricing Period
    
    VWAP[insert date of Day 1][insert date of Day 2][insert date of Day 3][insert date of Day 4][insert date of Day 5]Lowest price
 
 Calculation of Investment Amount
 
 
 
 (a)
    
    Less:Costs and
fees(b)
    
    Less:Commission(c)
    
    Less:GST (if
any)
 page 33




---



##### 



Investment
Amount payable to the
Company
 
 Calculation of number of Investment Shares to be subscribed
 Investment Amount
PurchasePrice
    
    Shares
   (a)
    
    consents to the issue of the Investment Shares to it;(b)
    
    consents to become a member of the Company; and(c)
    
    agrees to be bound by the Companys constitution on the issue of the
Investment Shares to it.
 Executedby Dutchess Opportunity Fund II
    
    
    )LPby its duly appointed officer in the
    
    
    )presence of:
    
    
    )Witness
    
    
    
    
    
    OfficerName of Witness (print)
    
    
    
    
    
    Name of Officer (print)
 page 34




---



##### 



1
    
    Documents
 Company Agreement
 2
    
    Approval of Transaction
  (a)
    
    the entry into the transactions evidenced by the Agreement is;
 (i)
    
    in the best interest of the Company and for its commercial
benefit; and(ii)
    
    in accordance with the constitution of the Company; and
 (b)
    
    the Companys execution of the Agreement and the carrying out of the
transactions contemplated therein would not cause the Company to contravene:
 (i)
    
    Section 260A of the Corporations Act (relating to the
provision by the Company of financial assistance for acquiring the Companys
shares);(ii)
    
    Chapter 2E of the Corporations Act (relating to the
provision of financial benefits to related parties of a public company); or(iii)
    
    any provision of the Corporations Act or of any statute by
which the Company is bound.
 Resolved
  3
    
    Approval of Execution
 Resolved
 page 35




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##### 



4
    
    Authorised Officers
 Resolved
  5
    
    Further Assurances
 Resolved
  page 36