Document:

exv4w2

Exhibit 4.2

GEM Equity Line Facility Agreement

GEM Global Yield Fund Ltd

GEM Investment Advisors, Inc

Metal Storm Limited

 

 

Table of contents

	 	 	 	 	 	 	 

	Parties	 	 	1	 
	 
	 	 	 	 	 	 
	Background	 	 	1	 
	 
	 	 	 	 	 	 
	Operative provisions	 	 	1	 
	 
	 	 	 	 	 	 
	1

	 	Equity Line facility
	 	 	1	 
	 

	 	Commitment
	 	 	1	 
	 

	 	Exclusivity
	 	 	1	 
	 

	 	Use of Proceeds
	 	 	1	 
	 
	 	 	 	 	 	 
	2

	 	Drawings
	 	 	2	 
	 

	 	Entitlement
	 	 	2	 
	 

	 	Drawdown procedure
	 	 	2	 
	 

	 	Drawdown conditions
	 	 	3	 
	 

	 	Drawing Limits
	 	 	5	 
	 

	 	Requirements for Drawdown Notices
	 	 	6	 
	 

	 	First Drawdown
	 	 	6	 
	 

	 	Type 1 Drawdown
	 	 	6	 
	 

	 	Type 2 Drawdown
	 	 	7	 
	 

	 	Waiver of compliance
	 	 	7	 
	 

	 	Confirmation of drawdown
	 	 	7	 
	 
	 	 	 	 	 	 
	3

	 	Pricing
	 	 	8	 
	 

	 	Calculation of Total Purchase Price
	 	 	8	 
	 

	 	Drawdown Shares
	 	 	8	 
	 

	 	Purchase Price
	 	 	9	 
	 

	 	Adjustments — First Drawdown or Type 1 Drawdown
	 	 	9	 
	 

	 	Adjustments — Type 2 Drawdown
	 	 	9	 
	 

	 	Disposal during Pricing Period
	 	 	10	 
	 
	 	 	 	 	 	 
	4

	 	Closing
	 	 	10	 
	 

	 	Closing Date
	 	 	10	 
	 

	 	Actions on closing
	 	 	11	 
	 

	 	Actions after closing
	 	 	12	 
	 
	 	 	 	 	 	 
	5

	 	Representations and warranties
	 	 	12	 
	 

	 	Warranties
	 	 	12	 
	 

	 	Application
	 	 	12	 
	 

	 	Official quotation
	 	 	12	 
	 

	 	Organisation and qualification
	 	 	13	 
	 

	 	Issue of Shares
	 	 	13	 
	 

	 	No conflicts
	 	 	14	 
	 

	 	Financial statements
	 	 	14	 
	 

	 	Information accurate and complete
	 	 	16	 
	 

	 	CHESS
	 	 	16	 
	 
	 	 	 	 	 	 
	6

	 	Mutual Representations and Warranties
	 	 	16	 
	 

	 	General
	 	 	16	 
	 

	 	Warranties
	 	 	16	 
	 
	 	 	 	 	 	 
	7

	 	Indemnity by the Company
	 	 	17	 

 

 

	 	 	 	 	 	 	 

	8

	 	Indemnity by GEM
	 	 	19	 
	 
	 	 	 	 	 	 
	9

	 	Other agreements of the Parties
	 	 	20	 
	 

	 	Listing
	 	 	20	 
	 

	 	Disclosure of transactions and other material information
	 	 	20	 
	 

	 	Negative covenants
	 	 	21	 
	 

	 	Holding and trading Shares
	 	 	22	 
	 

	 	Maximum holding
	 	 	22	 
	 
	 	 	 	 	 	 
	10

	 	Options
	 	 	22	 
	 
	 	 	 	 	 	 
	11

	 	Fees and costs
	 	 	22	 
	 

	 	Commitment Fee
	 	 	22	 
	 

	 	Scrip payment
	 	 	22	 
	 

	 	Establishment Fee
	 	 	23	 
	 

	 	General costs and expenses
	 	 	23	 
	 

	 	Statutory charges and duties etc
	 	 	23	 
	 
	 	 	 	 	 	 
	12

	 	Goods and services tax
	 	 	23	 
	 

	 	Recovery of GST on supplies and adjustments under this agreement
	 	 	23	 
	 

	 	Other GST matters
	 	 	24	 
	 
	 	 	 	 	 	 
	13

	 	Term and termination
	 	 	24	 
	 

	 	Term
	 	 	24	 
	 

	 	Events of default
	 	 	24	 
	 

	 	Consequences of an Event of Default
	 	 	25	 
	 

	 	Effect of termination
	 	 	26	 
	 
	 	 	 	 	 	 
	14

	 	Notices
	 	 	26	 
	 

	 	Service of notices
	 	 	26	 
	 

	 	Receipt
	 	 	27	 
	 

	 	Execution
	 	 	27	 
	 

	 	Other modes of service permitted
	 	 	28	 
	 

	 	Interpretation
	 	 	28	 
	 
	 	 	 	 	 	 
	15

	 	General
	 	 	28	 
	 

	 	Approvals and consent
	 	 	28	 
	 

	 	Assignment
	 	 	28	 
	 

	 	Entire agreement
	 	 	28	 
	 

	 	Execution of separate documents
	 	 	28	 
	 

	 	Further acts
	 	 	29	 
	 

	 	Governing law and jurisdiction
	 	 	29	 
	 

	 	Rights cumulative
	 	 	29	 
	 

	 	Severability
	 	 	29	 
	 

	 	Stamp duty
	 	 	29	 
	 

	 	Variation
	 	 	29	 
	 

	 	Waiver
	 	 	29	 
	 

	 	Calculation of time periods
	 	 	29	 
	 
	 	 	 	 	 	 
	16

	 	Definitions and interpretation
	 	 	30	 
	 

	 	Interpretation
	 	 	30	 
	 

	 	Interpretation
	 	 	35	 
	 
	 	 	 	 	 	 
	Execution	 	 	36	 

 

 

	 	 	 	 	 	 	 

	Schedule 1	 	 	37	 
	 

	 	Drawdown notice
	 	 	37	 
	 
	 	 	 	 	 	 
	Schedule 2	 	 	40	 
	 

	 	Form of Resolution of Directors (clause 2.4.2)
	 	 	40	 
	 
	 	 	 	 	 	 
	Schedule 3	 	 	41	 
	 

	 	New issue announcement, Application for quotation of
additional securities and
agreement (Appendix 3B of the Listing Rules) (clause 2.4.3)
	 	 	41	 
	 
	 	 	 	 	 	 
	Schedule 4	 	 	42	 
	 

	 	Share Lending Agreement
	 	 	42	 
	 
	 	 	 	 	 	 
	Schedule 5	 	 	43	 
	 

	 	Form of closing statement (clause 4.3.1(a))
	 	 	43	 
	 
	 	 	 	 	 	 
	Schedule 6	 	 	46	 
	 

	 	Option terms and conditions (clause 10)
	 	 	46	 
	 

	 	Option terms and conditions of issue
	 	 	48	 

 

 

GEM Equity Line Facility Agreement

Parties

Metal Storm Limited ACN 064 270 006 of Unit 4, 848 Boundary Road, Richlands, Queensland,
Australia (Company)

GEM Global Yield Fund Ltd of C/- CM Group, Commerce House, 1 Bowring Road,
Ramsey, Isle of Man, IM8 2JQ (GEM)

GEM Investment Advisors, Inc of 27th Floor, 590 Madison Avenue, New York, NY 10022
United States of America (GEM Advisors)

Background

GEM has agreed to grant to the Company and the Company has agreed to accept an A$20,200,000
Equity Line on the terms and conditions set out in this agreement.

Operative provisions

	1	 	Equity Line facility

Commitment

	1.1	 	GEM grants to the Company an Equity Line on the terms and conditions of this agreement under
which the Company may, during the Commitment Period, require GEM to subscribe for (or cause to
be subscribed for) such a number of Shares having a total issue price not exceeding the Total
Commitment.
	 
	1.2	 	GEM agrees that during the Commitment Period it will subscribe for (or cause to be subscribed
for) Shares having a total issue price not exceeding the Total Commitment on the terms and
conditions described in this agreement.
	 
	1.3	 	The Company must use its best endeavours to obtain the Shareholder Approval by no later than
the Approval Date.

Exclusivity

	1.4	 	For so long as the Company has rights under this agreement to make Drawings and provided
always that GEM is not in default of its obligations under this agreement, the Company and its
Controlled Entities must not solicit, negotiate or enter into any Equity Line with any third
party without the prior written consent of GEM. For the avoidance of doubt, this does not
restrict the Company from undertaking a rights issue or share purchase plan.

Use of Proceeds

	1.5	 	The Company must use the proceeds from GEM’s subscription for Shares for the Permitted Use.
GEM may but is under no obligation to monitor whether the proceeds are actually applied in
accordance with this clause.

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GEM Equity Line Facility Agreement

	2	 	Drawings

Entitlement

	2.1	 	Subject to this agreement, the Company may at any time during the Commitment Period, drawdown
any of the Available Commitment by following the procedure and satisfying the conditions set
out in this agreement.
	 
	2.2	 	The Company must not give a Drawdown Notice:

	 	2.2.1	 	at any time during a Pricing Period; or
	 
	 	2.2.2	 	if the completion of any Drawing would result in GEM, GEM Advisors or
the Company being in breach of this agreement, any applicable Australian law or the
Listing Rules.

	2.3	 	The Company must give GEM a valid Drawdown Notice for not more than $1,000,000, by no later
than the date which is 10 Business Days after the date of this Agreement.

Drawdown procedure

	2.4	 	If the Company wishes to drawdown any of the Available Commitment, it must deliver to GEM:

	 	2.4.1	 	(Drawdown Notice) a Drawdown Notice duly executed by the Company which
complies with this agreement;
	 
	 	2.4.2	 	(directors’ resolutions) an extract from the minutes of a meeting of
directors of the Company or from a circulating resolution, certified as correct by a
director of the Company, evidencing that the directors of the Company have duly
passed resolutions which are in a form which is the same as or substantially similar
to those set out in Schedule 2;
	 
	 	2.4.3	 	(Application for grant of quotation) a copy of the proposed Listing
Application in relation to the Proposed Drawdown Shares; and
	 
	 	2.4.4	 	(shareholder approval) if the issue of Shares to GEM or its nominee
requires the approval of the Company in general meeting for any reason:

	 	(a)	 	a certificate signed by two directors of the Company
that the approval has been obtained in accordance with law and the Listing
Rules; and
	 
	 	(b)	 	an extract from the minutes of the general meeting,
certified as correct by two directors of the Company, evidencing that such
approval has been obtained.

2

 

GEM Equity Line Facility Agreement

Drawdown conditions

	2.5	 	GEM’s obligations under clause 4 to subscribe for Shares under this agreement are subject to
and conditional upon the following conditions having been satisfied or fulfilled in respect of
each Drawdown:

	 	2.5.1	 	(Drawdown Procedure) the Company being entitled under this agreement to
make a Drawdown and having complied with the drawdown procedure in this agreement;
	 
	 	2.5.2	 	(Drawing Limit) the Drawing Limits in clause 2.6 not having been
exceeded;
	 
	 	2.5.3	 	(Drawdown Documents) GEM having received properly completed and duly
executed Drawdown Documents in respect of the relevant Drawing;
	 
	 	2.5.4	 	(no breach or default) the Company not being in breach of this agreement
and no Event of Default has occurred or subsists as at the date of the relevant
Drawdown Date, the relevant Closing Date or will result from the provision of monies
under the Drawing;
	 
	 	2.5.5	 	(availability of funds) the provision of subscription monies in
accordance with the Drawdown Notice will not cause the Available Commitment to be
exceeded;
	 
	 	2.5.6	 	(representations and warranties) each representation and warranty by the
Company in this agreement is true and correct and is neither misleading nor
deceptive in any respect as at the Drawdown Date or at the relevant Closing Date as
though it had been made on and as of each of those dates;
	 
	 	2.5.7	 	(Authorisations) all Authorisations necessary to be obtained by the
Company for the Drawing have been obtained and evidence provided to GEM including,
without limitation, any approvals required under either Chapter 7 or 10 of the
Listing Rules;
	 
	 	2.5.8	 	(closing trade price) the closing trade price of a Share quoted on ASX
on the Trading Day immediately preceding the Drawdown Date is equal to or higher
than the Threshold Price;
	 
	 	2.5.9	 	(liquidity) during the 10 Trading Days prior to and excluding the
Drawdown Date:

	 	(a)	 	the Shares were continuously quoted on ASX; and
	 
	 	(b)	 	there was no actual or threatened trading halt of the
Shares or suspension of the Shares from quotation (whether at the request
of the Company or otherwise). A trading halt or suspension is only taken
to have been threatened if the Company has received notice of that threat
from ASX;

3

 

GEM Equity Line Facility Agreement

	 	2.5.10	 	(share lending) all of the following has occurred in respect of each proposed
Drawdown:

	 	(a)	 	GEM has entered into a Share Lending Agreement with
the Share Lender; and
	 
	 	(b)	 	For the First Drawdown — the Share Lender has lent to
GEM or its nominee and delivered to either of them under the Share Lending
Agreement such a number of Shares which:

	 	•	 	If the Trading Value is less than $1 million — no
less than twice the number of Proposed Drawdown Shares up to a
maximum equal to the maximum number of Shares which when taken
with the number of Options that the Company is required to
grant to GEM or its nominee under clause 10, the Company can
issue or grant without having to obtain shareholder approval
under the Listing Rules.
	 
	 	•	 	If the Trading Value is more than $1 million -
no less than the number of Proposed Drawdown Shares,

	 	 	 	Trading Value means the dollar amount calculated in accordance with
the following formula:
	 
	 	 	 	Trading Value = Benchmark Price x 10 x Trading Volume
	 
	 	 	 	Where
	 
	 	 	 	Benchmark Price means the volume weighted average price of
Shares traded on ASX over the 10 Trading Days ending on the
date immediately prior to the Drawdown Date.
	 
	 	 	 	Trading Volume means the average daily number of Shares
traded on ASX during the 10 Trading Days ending on the date
immediately prior to the Drawdown Date and excluding any Shares
traded on any day during that period when the closing trade price of
the Shares was less than the Threshold Price.
	 
	 	(c)	 	For a Type 1 Drawdown — the Share Lender has lent to
GEM or its nominee and delivered to either of them under the Share Lending
Agreement such a number of Shares which:

	 	•	 	If the Trading Value is less than $400,000 — is
no less than twice the number of Proposed Drawdown Shares.
	 
	 	•	 	If the Trading Value is more than $400,000 — is
no less than the number of Proposed Drawdown Shares.

4

 

GEM Equity Line Facility Agreement

	 	 	 	Trading Value means the dollar amount calculated in accordance with
the following formula:
	 
	 	 	 	Trading Value = Benchmark Price x 15 x Trading Volume
	 
	 	 	 	Where
	 
	 	 	 	Benchmark Price means the volume weighted average price of
Shares traded on ASX over the 15 Trading Days ending on the
date immediately prior to the Drawdown Date.
	 
	 	 	 	Trading Volume means the average daily number of Shares
traded on ASX during the 15 Trading Days ending on the date
immediately prior to the Drawdown Date and excluding any Shares
traded on any day during that period when the closing trade price of
the Shares was less than the Threshold Price.
	 
	 	(d)	 	For a Type 2 Drawdown — -the Share Lender has lent to
GEM or its nominee and delivered to either of them under the Share Lending
Agreement such a number of Shares which is no less than the number of
Proposed Drawdown Shares; and
	 
	 	(e)	 	the Share Lender has otherwise complied with all of
its essential obligations under the Share Lending Agreement.

Drawing Limits

	2.6	 	The Company cannot require GEM in a Drawdown Notice to subscribe for such a number of Shares
which is more than:

	 	2.6.1	 	For the First Drawdown:

	 	(a)	 	If the Trading Value is equal to or less than $1
million — half of the maximum number of Shares which when taken with the
number of Options that the Company is required to grant to GEM or its
nominee under clause 10, that the Company can issue or grant without
having to obtain shareholder approval under the Listing Rules.
	 
	 	(b)	 	If the Trading Value is more than $1 million — the
maximum number of Shares which when taken with the number of Options that
the Company is required to grant to GEM or its nominee under clause 10,
that the Company can issue or grant without having to obtain shareholder
approval under the Listing Rules.

	 	2.6.2	 	For Type 1 Drawdowns — the number of Shares determined in accordance
with the following formula:
	 
	 	 	 	Maximum Proposed Drawdown Shares = $400,000 ÷ Benchmark Price
	 
	 	 	 	Where

5

 

GEM Equity Line Facility Agreement

	 	 	 	Benchmark Price is 90% of the volume weighted average price of Shares traded on
ASX over the 15 Trading Days ending on the date immediately prior to the
Drawdown Date.
	 
	 	2.6.3	 	In all other cases — the number calculated under the following formula:
	 
	 	 	 	Drawing Limit = 700% x Trading Volume
	 
	 	 	 	where:
	 
	 	 	 	Trading Volume means the average daily number of Shares traded on ASX during
the number of Trading Days specified in the Drawdown Notice, prior to and
excluding the Drawdown Date, and excluding any Shares traded on any day during
that period when the closing trade price of the Shares was less than the
Threshold Price.

Requirements for Drawdown Notices

	2.7	 	A Drawdown Notice is irrevocable and will either be the First Drawdown, a Type 1 Drawdown or
Type 2 Drawdown.

First Drawdown

	2.8	 	The First Drawdown must:

	 	2.8.1	 	be in the form set out in Schedule 1 except that it does not need to specify:

	 	(a)	 	the number of Trading Days to determine the Trading
Volume;
	 
	 	(b)	 	that the number of Proposed Drawdown Shares does not
exceed 700% of the Trading Volume; or
	 
	 	(c)	 	the closing trade price of a Share on the Trading Day
immediately preceding the Drawdown Date; and

	 	2.8.2	 	specify:

	 	(a)	 	the calculation of the maximum number of Shares that
can be Drawn under clause 2.6.1.
	 
	 	(b)	 	the calculation of the Shares to be lent under clause
2.5.10(b).

Type 1 Drawdown

	2.9	 	A Type 1 Drawdown must:

	 	2.9.1	 	be in the form set out in Schedule 1 except that it does not need to specify:

6

 

GEM Equity Line Facility Agreement

	 	(a)	 	the number of Trading Days to determine the Trading
Volume;
	 
	 	(b)	 	that the number of Proposed Drawdown Shares does not
exceed 700% of the Trading Volume; or
	 
	 	(c)	 	the closing trade price of a Share on the Trading Day
immediately preceding the Drawdown Date; and

	 	2.9.2	 	specify:

	 	(a)	 	the Proposed Drawdown Shares.
	 
	 	(b)	 	the calculation of the maximum number of Shares that
can be Drawn under clause 2.6.2; and
	 
	 	(c)	 	the calculation of the Trading Value and the Shares
to be lent under clause 2.5.10(c).

Type 2 Drawdown

	2.10	 	A Type 2 Drawdown must be in the form set out in Schedule 1 and specify 15 consecutive
Trading Days as the period specified for the purposes of determining the Trading Volume.
	 
	2.11	 	All Drawdown Notices must

	 	2.11.1	 	be duly completed and signed by the Company; and
	 
	 	2.11.2	 	be delivered to GEM on a Business Day by no later than 9.00 am on that Business
Day.

	2.12	 	The Closing Date specified in a Drawdown Notice must be a Business Day.

Waiver of compliance

	2.13	 	The drawdown procedure in clause 2.4 and drawdown conditions in clauses 2.5 to 2.12 are for
the benefit of GEM only. They may only be waived by GEM in its absolute and sole discretion
and only by notice in writing to the Company. Any Drawdown Notice or purported Drawing which
does not comply with this agreement is invalid and ineffective.

Confirmation of drawdown

	2.14	 	GEM must no later than three Business Days after receipt of a Drawdown Notice either:

	 	2.14.1	 	advise the Company that the drawdown procedure in clause 2.4 or the drawdown
conditions in clauses 2.5 to 2.12 have not been complied with together with written
particulars of the non-compliance; or
	 
	 	2.14.2	 	give the Company a Confirmation Statement confirming:

	 	(i)	 	the Drawdown Date;

7

 

GEM Equity Line Facility Agreement

	 	(ii)	 	the Pricing Period;
	 
	 	(iii)	 	the Closing Date; and
	 
	 	(iv)	 	the name of the person to whom
the Drawdown Shares are to be issued in accordance with clause
4.3.2.

	2.15	 	The provision by GEM of a Confirmation Statement under clause 2.14:

	 	2.15.1	 	is not a release or waiver by GEM of any obligation of the Company to satisfy the
drawdown procedures or conditions; and
	 
	 	2.15.2	 	does not impose an unconditional obligation on GEM to subscribe for any Shares.
GEM’s obligation remains subject to the conditions in this agreement being
fulfilled.

	2.16	 	If, within three Business Days after receipt of a Drawdown Notice, GEM has not:

	 	2.16.1	 	informed the Company in accordance with clause 2.14.1 that the drawdown procedure
or the drawdown conditions have not been complied with; or
	 
	 	2.16.2	 	given the Company a Confirmation Statement in accordance with clause 2.14.2,

	 	 	GEM will be deemed to have given the Company a Confirmation Statement on the fourth
Business Day after receipt of the Drawdown Notice.
	 
	2.17	 	GEM is under no obligation to confirm a Drawdown or to subscribe for Shares under this
agreement if any of the representations and warranties in this agreement are not true and
correct as at the Drawdown Date or if any other drawdown condition has not been complied with.

	3	 	Pricing

Calculation of Total Purchase Price

	3.1	 	The Total Purchase Price is the amount which is equal to the number of Drawdown Shares
multiplied by the Purchase Price.

Drawdown Shares

	3.2	 	The Drawdown Shares comprise:

	 	3.2.1	 	For the First Drawdown and a Type 1 Drawdown — the higher of:

	 	(a)	 	the Proposed Drawdown Shares, as adjusted in
accordance with this clause 3; and
	 
	 	(b)	 	the number of Shares that GEM is required to
re-deliver to the Share Lender on the maturity date under the Share
Lending Agreement.

8

 

GEM Equity Line Facility Agreement

	 	3.2.2	 	For a Type 2 Drawdown — the Proposed Drawdown Shares as adjusted in
accordance with this clause 3.

Purchase Price

	3.3	 	For any Drawdown, if GEM is required under this agreement to subscribe for Shares, it must do
so at a Purchase Price per Share equal to 90% of the average closing trade price of Shares
during the Pricing Period as adjusted under clause 3.8.2.

Adjustments — First Drawdown or Type 1 Drawdown

	3.4	 	Each of the following events during a Pricing Period for the First Drawdown or a Type 1
Drawdown is an Adjustment Event:

	 	3.4.1	 	the volume weighted average price of Shares traded on ASX during a
Trading Day in the Pricing Period is less than the Threshold Price;
	 
	 	3.4.2	 	an event occurs which has a Material Adverse Effect or which in GEM’s
reasonable opinion is likely to have a Material Adverse Effect.

Adjustments — Type 2 Drawdown

	3.5	 	Each of the following events during a Pricing Period for a Type 2 Drawdown is an Adjustment
Event:

	 	3.5.1	 	the volume weighted average price of Shares traded on ASX during a
Trading Day in the Pricing Period multiplied by 90%, is less than the
Threshold Price;
	 
	 	3.5.2	 	trading in the Shares on ASX is suspended or halted;
	 
	 	3.5.3	 	the number of Shares traded on ASX on any Trading Day is less than 25%
of the Trading Volume (as defined in clause 2.6); and
	 
	 	3.5.4	 	an event occurs which has a Material Adverse Effect or which in GEM’s
reasonable opinion is likely to have a Material Adverse Effect.

	3.6	 	A Knockout Day is a day on which an Adjustment Events occurs.
	 
	3.7	 	Notwithstanding anything else contained in this agreement, if a Knockout Day occurs during a
Pricing Period of the First Drawdown or a Type 1 Drawdown:

	 	3.7.1	 	the Proposed Drawdown Shares will be reduced by:

	 	(a)	 	for the First Drawdown — 1/10th for every
Knockout Day which occurs during the Pricing Period; or
	 
	 	(b)	 	for a Type 1 Drawdown — 1/15th for every
Knockout Day which occurs during the Pricing Period; and

	 	3.7.2	 	in calculating the average closing trade price in clause 3.3, the
closing trade price on any Knockout Day will be disregarded and the number of
Trading Days comprising the Pricing Period will be reduced by the number of Knockout
Days that occur during that period.

9

 

GEM Equity Line Facility Agreement

	3.8	 	Notwithstanding anything else contained in this agreement, if a Knockout Day occurs during a
Pricing Period , for a Type 2 Drawdown:

	 	3.8.1	 	the Proposed Drawdown Shares will be reduced by 1/15th for
every Knockout Day which occurs during any other Pricing Period under this
agreement; and
	 
	 	3.8.2	 	in calculating the average closing trade price in clause 3.3, the
closing trade price on any Knockout Day will be disregarded and the number of
Trading Days comprising the Pricing Period will be reduced by the number of Knockout
Days that occur during that period.

	3.9	 	GEM has the right in its absolute discretion (but not the obligation):

	 	3.9.1	 	For a Type 2 Drawdown — to reduce the Proposed Drawdown Shares
(following adjustment, if any, under clause 3.8.1) by up to 50% of the number of
Proposed Drawdown Shares; or
	 
	 	3.9.2	 	For a Type 2 Drawdown — increase the Proposed Drawdown Shares (with or
without adjustment under clause 3.8.1) by up to 200%, provided that GEM cannot
require the Company on the Closing Date to issue any Shares to GEM or its nominee if
to do so would be in breach of any Australian law or the Listing Rules; and
	 
	 	3.9.3	 	For a Type 1 Drawdown — increase the Proposed Drawdown Shares by up to
100%, provided that GEM cannot require the Company on the Closing Date to issue any
Shares to GEM or its nominee if to do so would be in breach of any Australian law or
the Listing Rules.

Disposal during Pricing Period

	3.10	 	For a Type 2 Drawdown, GEM must not, on any Trading Day during the Pricing Period:

	 	3.10.1	 	if the First Drawdown is a Type 2 Drawdown under this agreement, sell Shares
representing more than 1/10th of the Shares specified in the First
Drawdown Notice; or
	 
	 	3.10.2	 	in respect of any other Type 2 Drawdown under this agreement, sell Shares
representing more than 1/15th of the Shares specified in a Drawdown
Notice.

	4	 	Closing

Closing Date

	4.1	 	Subject to clause 4.2, the Closing Date in relation to any given Drawdown is the date which
is the Trading Day immediately after the end of the Pricing Period.
	 
	4.2	 	Despite anything else in this agreement, if GEM’s nominee for the issue of Drawdown Shares is
the Share Lender and the issue of the Drawdown Shares will require

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GEM Equity Line Facility Agreement

	 	 	shareholder approval under
the Corporations Act or the Listing Rules, the Closing Date in relation to any given Drawdown
will be the date that is two Business Days after the date on which shareholder approval to the
issue of the Drawdown Shares to the Share Lender is obtained.

Actions on closing

	4.3	 	Subject to the Company having complied with the drawdown procedure in clause 2.4, the
drawdown conditions in clause 2.5 having been fulfilled (or waived by GEM) and any shareholder
approval required under clause 4.2 having been obtained, on the Closing Date:

	 	4.3.1	 	GEM must:

	 	(a)	 	give the Company a Closing Statement;
	 
	 	(b)	 	subscribe for the Drawdown Shares at the Purchase
Price; and
	 
	 	(c)	 	if the allottee of the Drawdown Shares is a nominee
of GEM and is not the Share Lender or an existing member of the Company,
provide to the Company a written consent from the allottee:

	 	•	 	consenting to the issue of the Drawdown Shares to
it;
	 
	 	•	 	consenting to become a member of the Company; and
	 
	 	•	 	agreeing to be bound by the Constitution on the
issue of the Drawdown Shares to it; and

	 	(d)	 	pay the Company the Drawdown Amount; and

	 	4.3.2	 	the Company must:

	 	(a)	 	allot and issue the Drawdown Shares to GEM or its
nominee; and
	 
	 	(b)	 	lodge with ASX the Listing Application (amended as
appropriate) in respect of the Drawdown Shares and pay any fees or other
costs associated with it.

	4.4	 	The Company must use its best endeavours to obtain a grant of quotation from ASX for the
Drawdown 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.
	 
	4.5	 	The Drawdown Amount is an amount equal to the difference between:

	 	4.5.1	 	the Total Purchase Price calculated under clause 3; and
	 
	 	4.5.2	 	all monies due and payable by the Company to GEM or GEM Advisors as at
the relevant Closing Date under this agreement including monies payable under clause
11 (Fees and costs) and clause 12 (Goods and Services Tax) or otherwise.

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GEM Equity Line Facility Agreement

	4.6	 	The obligations of GEM and the Company on the Closing Date are interdependent.

Actions after closing

	4.7	 	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.
	 
	4.8	 	No later than two Business Days after the Closing Date, the Company must cause its share
registry to deliver to GEM or the allottee of the Drawdown Shares:

	 	4.8.1	 	a holding statement evidencing the allotment and issue of the Drawdown
Shares on the Closing Date; and
	 
	 	4.8.2	 	details of all necessary identification numbers and other information
necessary to enable the allottee to deal immediately with the issued Drawdown
Shares.

	4.9	 	The Company hereby requests, authorises and directs GEM to withhold from the Drawdown Amount
to be paid to the Company pursuant to clause 4.3.1(d) any monies specified in clause 4.5.2 and
to pay those monies directly to GEM or GEM Advisors (as the case may be) or its nominee.
	 
	5	 	Representations and warranties

Warranties

	5.1	 	The Company gives to GEM and GEM Advisors the representations and warranties set out in this
clause. Each representation and warranty is a separate representation and warranty and is in
no way limited by any other representation and warranty. Where a representation or warranty
is qualified by announcements by the Company or disclosures which the Company has made to GEM
and GEM Advisors, it is only qualified by written disclosures given to GEM and GEM Advisors.

Application

	5.2	 	Subject to the disclosures provided to GEM from time to time by the Company in writing and
any announcements made by the Company to ASX:

	 	5.2.1	 	each of the warranties in this clause 5 (other than clauses 5.12 — 5.17)
applies as at the date of this agreement, on each Closing Date and on each date
between them; and
	 
	 	5.2.2	 	each of the warranties in clauses 5.12 to 5.17 applies as at the date of
this agreement.

Official quotation

	5.3	 	The Company is admitted to the official list of ASX and its Shares are admitted to official
quotation on ASX.
	 
	5.4	 	There is no reason that the Shares could be removed or suspended from official quotation on
ASX or the Company removed from the official list of ASX.

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GEM Equity Line Facility Agreement

Organisation and qualification

	5.5	 	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, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect.
	 
	5.6	 	No resolution to alter the Constitution having a Material Adverse Effect has been passed or
if passed will have a Material Adverse Effect.
	 
	5.7	 	None of the following has occurred in relation to the Company or any of its Subsidiaries:

	 	5.7.1	 	no resolution for their winding up has been passed and no meeting of
members or creditors has been convened for that purpose;
	 
	 	5.7.2	 	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;
	 
	 	5.7.3	 	no composition or arrangement has been entered into with any of their
creditors;
	 
	 	5.7.4	 	no demand has been received under section 459E of the Corporations Act;
	 
	 	5.7.5	 	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;
	 
	 	5.7.6	 	none of the entities are externally administered bodies corporate (as
that expression is defined in the Corporations Act);
	 
	 	5.7.7	 	none of the entities are insolvent within the meaning in section 95A of
the Corporations Act;
	 
	 	5.7.8	 	no distress, execution or other similar order or process has been levied
on any of their material property or assets;
	 
	 	5.7.9	 	none of the entities has received from ASIC any notice or warning of
possible cancellation of registration of the Company which cannot be rectified
within seven Business Days of receipt; and
	 
	 	5.7.10	 	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.

Issue of Shares

	5.8	 	The Drawdown Shares will be capable of quotation by ASX.
	 
	5.9	 	Upon issue of the Drawdown Shares:

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GEM Equity Line Facility Agreement

	 	5.9.1	 	all of the Drawdown Shares will be validly issued and fully paid and
free from all Liens; and
	 
	 	5.9.2	 	the Drawdown 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 which have a record date for determining entitlements on or after the date
of issue of those Drawdown Shares.

	5.10	 	The issue of Shares and any grant of Options under this document is made for the purposes of
raising funds for the Permitted Use. The issue of Shares and any grant of Options is not made
for a purpose specified in section 707(3)(b)(i) of the Corporations Act.

No conflicts

	5.11	 	The execution, delivery and performance of this agreement will not:

	 	5.11.1	 	breach the Constitution;
	 
	 	5.11.2	 	result in a material breach of any material agreement, indenture or instrument to
which the Company or any Subsidiary is a party; or
	 
	 	5.11.3	 	subject to the Company having obtained all necessary Authorisations for each
Drawing, 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).

Financial statements

	5.12	 	Except as disclosed in the financial statements, the Company’s financial statements as at 30
June 2009 (Balance Date):

	 	5.12.1	 	have been prepared by the Company in accordance with the Corporations Act, the
Accounting Standards and generally accepted accounting principles in Australia;
	 
	 	5.12.2	 	present a true and fair view of the profit or loss of the Company and its
Subsidiaries for the relevant accounting periods to which they relate and the state
of affairs of the Company and its Subsidiaries as at the Balance Date;
	 
	 	5.12.3	 	accurately disclose the assets and liabilities of the Company and its Subsidiaries
at the Balance Date;
	 
	 	5.12.4	 	provide fully for all liabilities of the Company and its Subsidiaries for tax at
the Balance Date;
	 
	 	5.12.5	 	are not affected by any unusual or non-recurring item; and
	 
	 	5.12.6	 	take account of all gains and losses whether realised or unrealised arising from
foreign currency transactions as at the Balance Date.

	5.13	 	Subject to disclosures made by the Company to ASX on or before the date of this agreement,
since the Balance Date:

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GEM Equity Line Facility Agreement

	 	5.13.1	 	to the best of the Company’s knowledge and belief, after having made reasonable
enquiry, no material change has occurred which would result in a Material Adverse
Effect; and
	 
	 	5.13.2	 	the Company has not declared or paid any dividend, nor has there been any other
distribution of property to its members.

	5.14	 	The Company or a Subsidiary is the beneficial owner of each of the material assets included
in the Company’s financial statements except to the extent that a material asset of the
Company may, in the ordinary course of business of the Company, have changed, been reduced, or
disposed of after the Balance Date.
	 
	5.15	 	The Company has not since the Balance Date acquired or disposed of any material assets other
than in the ordinary course of business of the Company.
	 
	5.16	 	There is no default under any material mortgage, encumbrance or Lien to which the Company or
any of its Subsidiaries is a party or to which any material property or assets of the Company
or any of its Subsidiaries are subject and there has not occurred since the Balance Date any
event which with the passage of time or giving of notice would constitute a default.
	 
	5.17	 	The Company or its Subsidiaries does not have any material debts or liabilities other than
those debts and liabilities disclosed in the Company’s financial statements and debts and
liabilities which have been incurred in the ordinary course of the ordinary business of the
Company up to the date of this agreement and are neither of an unusual nature or an unusually
large amount.
	 
	5.18	 	Particulars of all material bills of exchange, promissory notes and other negotiable or
transferable instruments in respect of which the Company has any liability (other than cheques
drawn by the Company in the ordinary course of business) have been fully disclosed to GEM.
	 
	5.19	 	Subject to the accounting provisions in the financial statements, the Company reasonably
believes that the material trade debts owing at the Balance Date and the date of this
agreement are good debts and will produce the full amount of the debts without deduction.
	 
	5.20	 	The rate of depreciation applied in respect of each material depreciable asset of the Company
in the Company’s financial statements has been consistently applied over the previous
accounting periods of the Company and is adequate to write down the value of each such fixed
asset to its realisable value at the end of its effective working life.
	 
	5.21	 	The Company will upon reasonable request of GEM, make available to GEM such information as
GEM may reasonably require in order to verify these warranties, provided that the Company is
under no obligation to provide GEM with information which is subject to confidentiality
restrictions or which would otherwise result in the Company or any of its Subsidiaries
breaching an agreement, law or Authorisation.

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GEM Equity Line Facility Agreement

Information accurate and complete

	5.22	 	The Company has lodged, as and when required (or as varied by any relief sought), all
documents required to be lodged by it with the ASIC and ASX which would be likely to be
material to GEM as the grantor of the Equity Line under this agreement (Disclosure Documents).
	 
	5.23	 	The Disclosure Documents are fair and accurate and otherwise comply in all material respects
with the requirements of the Corporations Act and the Listing Rules and at the time they were
lodged with the ASX or ASIC, contained no untrue statement of a material fact or omitted to
state a material fact required to be stated or were, in light of the circumstances under which
they were made, not misleading or deceptive.
	 
	5.24	 	As at the date of this agreement, the Company has disclosed all materially price sensitive
information required by the Listing Rules and, as at each Drawdown Date and Closing Date, the
Company will have disclosed all materially price sensitive information required by the Listing
Rules as at those dates.
	 
	5.25	 	The Company has not, by act or omission, made any disclosure to GEM such that if GEM enters
into or completes any of the transactions contemplated under this
agreement, a breach by any party of Part 7.10 Division 3 (Insider Trading) of the
Corporations Act or similar law of this jurisdiction will occur or arise.

CHESS

	5.26	 	The Company is a CHESS participant under the Listing Rules and must for so long as GEM holds
Shares operate an electronic issuer sponsored sub-register and an electronic CHESS
sub-register.
	 
	6	 	Mutual Representations and Warranties

General

	6.1	 	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.
	 
	6.2	 	Each of the warranties in this clause 6 applies as at the date of this agreement, on each
Closing Date and on each date between them.

Warranties

	6.3	 	The party:

	 	6.3.1	 	is a body corporate validly existing under the laws of its place of
incorporation or establishment; and
	 
	 	6.3.2	 	has the corporate power to enter into and perform its obligations under
this agreement and to carry out the transactions contemplated by this agreement.

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GEM Equity Line Facility Agreement

	6.4	 	This agreement is a valid and binding obligation in accordance with its terms and conditions.
	 
	6.5	 	Neither the execution nor performance by this agreement nor any transaction contemplated
under this agreement will violate in any material respect any provision of:

	 	6.5.1	 	any judgement binding on it;
	 
	 	6.5.2	 	its constituent documents;
	 
	 	6.5.3	 	subject to the Company having obtained all necessary Authorisations for
each Drawing, any applicable law binding on it; and
	 
	 	6.5.4	 	any other material document, agreement, authorisation or other
arrangement binding upon it.

	6.6	 	Each party’s decision to enter this agreement has been based solely on their respective
independent evaluations.

	7	 	Indemnity by the Company
	 
	7.1	 	Subject to clause 7.2, in consideration of GEM’s execution and delivery of this
agreement and acquiring the Drawdown Shares under it and in addition to all of the Company’s
other obligations under this agreement, the Company must continuously indemnify GEM and GEM
Advisors and their respective lawful successors in title and officers, employees and advisers
(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:

	 	7.1.1	 	any misrepresentation or breach of any representation or warranty made
by or on behalf of the Company in this agreement or any other certificate,
instrument or document contemplated by it;
	 
	 	7.1.2	 	any material breach of any obligation of the Company contained in this
agreement or any other certificate, instrument or document contemplated by it; and
	 
	 	7.1.3	 	any proceeding, investigation, cause of action, suit or claim brought,
made or threatened against an Indemnified Person and arising out of or resulting
from the execution, delivery, performance or enforcement of this agreement or any
other certificate, instrument or document contemplated by any of them.

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GEM Equity Line Facility Agreement

	7.2	 	The indemnity in clause 7.1 does not extend to and will not be deemed to be an indemnity for
an Indemnified Person against:

	 	7.2.1	 	Indemnified Liabilities arising out of or as a result of the wilful
default, misconduct, dishonesty, fraud or gross negligence of the Indemnified
Person;
	 
	 	7.2.2	 	any penalty or fine which the Indemnified Person is required to pay for
any contravention of the Corporations Act or any other law;
	 
	 	7.2.3	 	any announcement, advertisement or publicity made or distributed by the
Indemnified Person in relation to this agreement or the transactions contemplated by
this agreement if the content of the announcement, advertisement or publicity was
not first approved by the Company; and
	 
	 	7.2.4	 	any obligation of GEM or GEM Advisors to subscribe for Shares under this
agreement.

	7.3	 	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 7.1, GEM must notify the Company of the act, matter or thing and
give details as far as practicable.
	 
	7.4	 	Notice given by GEM pursuant to clause 7.3 by any Indemnified Person will operate as notice
given on behalf of all Indemnified Persons.
	 
	7.5	 	Subject to clause 7.7, 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:

	 	7.5.1	 	pay the costs and expenses of the Relevant Proceedings;
	 
	 	7.5.2	 	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
	 
	 	7.5.3	 	pay the Indemnified Liabilities contemplated in clause 7.5.2 to the
relevant Indemnified Person immediately on demand.

	7.6	 	Subject to clause 7.7, GEM must, and where the relevant Indemnified Person is not GEM, GEM
must procure the relevant Indemnified Person to, at the expense of the Company on a full
indemnity basis to:

	 	7.6.1	 	take such reasonable action as the Company requests to avoid, dispute,
resist, appeal, compromise or defend any Indemnified Liabilities;
	 
	 	7.6.2	 	not admit any liability for or settle any Indemnified Liabilities
without the prior written consent of the Company; and

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GEM Equity Line Facility Agreement

	 	7.6.3	 	promptly render all reasonable assistance and co-operation to the
Company in the conduct of any legal or other proceedings.

	7.7	 	Clauses 7.5 and 7.6 will only operate if the Company acknowledges, subject to clauses 7.1 and
7.2, to indemnify the Indemnified Person under clause 7.1.
	 
	8	 	Indemnity by GEM
	 
	8.1	 	Subject to clause 8.2, in consideration of the Company’s execution and delivery of this
agreement and in addition to all of GEM’s other obligations under this agreement, GEM 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:

	 	8.1.1	 	any misrepresentation or breach of any representation or warranty made
by GEM in this agreement or any other certificate, instrument or document
contemplated by it;
	 
	 	8.1.2	 	any material breach of any obligation of GEM contained in this agreement
or any other certificate, instrument or document contemplated by it; and
	 
	 	8.1.3	 	any proceeding, investigation, cause of action, suit or claim brought,
made or threatened against such Indemnified Person and arising out of or resulting
from the execution, delivery, performance or enforcement of this agreement or any
other certificate, instrument or document contemplated by any of them.

	8.2	 	The indemnity in clause 8.1 does not extend to and will not be deemed to be an indemnity for
an Indemnified Person against:

	 	8.2.1	 	Indemnified Liabilities arising out of or as a result of the wilful
default, misconduct, dishonesty, fraud or gross negligence of an Indemnified Person;
	 
	 	8.2.2	 	any penalty or fine which the Indemnified Person is required to pay for
any contravention of the Corporations Act or any other law; or
	 
	 	8.2.3	 	any announcement, advertisement or publicity made or distributed by the
Indemnified Person in relation to this agreement or the transactions contemplated by
this agreement if the content of the announcement, advertisement or publicity was
not first approved by GEM.

	8.3	 	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 GEM would be required to indemnify it
under clause 8.1, the Company must notify GEM of the act, matter or thing and give details as
far as practicable.

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GEM Equity Line Facility Agreement

	8.4	 	Notice given by the Company pursuant to clause 8.3 will operate as notice given on behalf of
all Indemnified Persons.
	 
	8.5	 	Subject to clause 8.7, GEM 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 GEM (the
Relevant Proceedings) provided that GEM must:

	 	8.5.1	 	Pay the costs and expenses of the Relevant Proceedings;
	 
	 	8.5.2	 	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
	 
	 	8.5.3	 	pay the Indemnified Liabilities contemplated in clause 8.5.2 to the
relevant Indemnified Person immediately on demand.

	8.6	 	Subject to clause 8.7, 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 GEM on
a full indemnity basis to:

	 	8.6.1	 	take such reasonable action as GEM requests to avoid, dispute, resist,
appeal, compromise or defend any Indemnified Liabilities;
	 
	 	8.6.2	 	not admit any liability for or settle any Indemnified Liabilities
without the prior written consent of GEM; and
	 
	 	8.6.3	 	promptly render all reasonable assistance and co-operation to GEM in the
conduct of any legal or other proceedings.

	8.7	 	Clauses 8.5 and 8.6 will only operate if GEM acknowledges, subject to clauses 8.1 and 8.2, to
indemnify the Indemnified Person under clause 8.1.
	 
	9	 	Other agreements of the Parties

Listing

	9.1	 	Neither the Company nor any of its Subsidiaries will take any action which GEM would
reasonably expect to result in the removal of the Company from the official list of ASX or
suspension of quotation of the Drawdown 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.

Disclosure of transactions and other material information

	9.2	 	Subject to this clause, the Company must disclose this transaction on the date of this
agreement.
	 
	9.3	 	Prior to its release, the Company must consult with GEM in connection with any press release
or other public disclosure relating to this transaction, the giving of any Drawdown Notice or
the issue of any Drawdown Shares. However, the Company will 

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GEM Equity Line Facility Agreement

	 	 	be entitled to make any press
release or other public disclosure relating to this transaction, the giving of any Drawdown
Notice or the issue of any Drawdown Shares which is required by any applicable law and
regulations (including the Listing Rules).

	9.4	 	Except as contemplated under this agreement, the Company must not disclose to GEM any inside
information to which section 1043A of the Corporations Act would apply (Inside Information).
	 
	9.5	 	If the Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents breach clause 9.4, in addition to any other remedy, GEM may
make a public disclosure, in the form of a press release, public advertisement or otherwise,
of any Inside Information.
	 
	9.6	 	GEM will not have any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, shareholders or agents for any loss or damage
suffered due to any such disclosure under clause 9.5 unless such disclosure is known to GEM to
be misleading or deceptive.
	 
	9.7	 	Subject to this clause 9, the Company must give GEM prior and reasonable opportunity to
comment on any submission made to ASX in relation to, and including the form of any notice and
explanatory memorandum convening any meeting of its members to approve, the issue of the
Drawdown Shares for the purposes of the Listing Rules.
	 
	9.8	 	For the avoidance of doubt, the provisions in clause 9.2 to 9.7 apply for so long as the
Company is entitled to make Drawings under this agreement, and in any event cease to operate
at the end of the Commitment Period.
	 
	9.9	 	The Company must ensure that the exemption in section 708A(5) applies to any issue of Shares
under this agreement.

Negative covenants

	9.10	 	The 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 GEM, such
approval not to be unreasonably withheld:

	 	9.10.1	 	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;
	 
	 	9.10.2	 	any buyback, redemption, reduction or cancellation of shares or share capital;
	 
	 	9.10.3	 	any decision that will, or is likely to cause a Material Adverse Effect on the
Company or its Business.

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GEM Equity Line Facility Agreement

Holding and trading Shares

	9.11	 	GEM acknowledges and agrees that during the term of this agreement it must not sell any
Shares that it is not the registered holder of, other than Shares:

	 	9.11.1	 	it is entitled or required to subscribe for under a Draw Down Notice or Option; or
	 
	 	9.11.2	 	it is entitled to take a transfer of in accordance with a Share Lending Agreement.

Maximum holding

	9.12	 	GEM acknowledges and agrees that during the term of this agreement it must not hold more than
that number of Shares which is 19.9% of the total issued Shares of the Company.

	10	 	Options

	10.1	 	In consideration of GEM entering into this document, the Company must, on the Closing
Date of each Drawdown under this document:

	 	10.1.1	 	grant to GEM or its nominee that number of Options which is equal to 20% of the
number of Drawdown Shares issued under that Drawdown; and
	 
	 	10.1.2	 	deliver to GEM or its nominee Option Certificates evidencing the grant of those
Options.

	11	 	Fees and costs

Commitment Fee

	11.1	 	Subject to and conditional upon the members of the Company in general meeting on or before
the Approval Date approving the Company entering into this Agreement and subject to clause
13.4, the Company must pay GEM Advisors a commitment fee of $303,000 (Commitment Fee) in
accordance with this clause.

Scrip payment

	11.2	 	If the Shareholder Approval is obtained by the Approval Date, the Company may satisfy its
obligation to pay the Commitment Fee by issuing to GEM or its nominee on the first Closing
Date which occurs after the date of the Shareholder Approval, the number of Shares calculated
under the following formula:
	 
	 	 	Shares to be issued for the Commitment Fee = $303,000 ÷ Initial Purchase Price
	 
	 	 	Where:
	 
	 	 	Initial Purchase Price means the Purchase Price per Share that was issued under the First
Drawdown under this Agreement.

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GEM Equity Line Facility Agreement

Establishment Fee

	11.3	 	In consideration for GEM and GEM Advisors entering into this agreement, the Company must pay
GEM Advisors an Establishment Fee of $200,000 in full without set off, counterclaim or
deduction on the Business Day immediately after the Approval Date by bank cheque or other form
of immediately available funds.
	 
	11.4	 	If Shareholder Approval is obtained by the Approval Date, GEM Advisors waives its right to be
paid the Establishment Fee and releases the Company from its obligation to pay the
Establishment Fee.

General costs and expenses

	11.5	 	The Company must pay the legal fees and expenses of GEM on a full indemnity basis incurred in
relation to the preparation, and negotiation of this agreement up to a maximum of US$20,000
(inclusive of GST).

Statutory charges and duties etc

	11.6	 	The Company indemnifies GEM and GEM Advisors and agrees to keep them indemnified against any
stamp duty, debits and other taxes (including fines, penalties and interest provided they are
not incurred as a consequence of the action or inaction of GEM or GEM Advisors or any of their
respective officers, employees or agents) that may be payable on the issue of the Drawdown
Shares in accordance with the terms of this agreement, or on the execution and delivery of
this agreement, which are or may be required to be paid under the laws of any Australian
jurisdiction.

	12	 	Goods and services tax

Recovery of GST on supplies and adjustments under this agreement

	12.1	 	All consideration provided under this agreement is exclusive of GST, unless it is expressed
to be GST-inclusive.
	 
	12.2	 	Where a party (Supplier) makes a taxable supply to another party (Recipient) under or in
connection with this agreement, 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:

	 	12.2.1	 	The date when any consideration for the taxable supply is first paid or provided.
	 
	 	12.2.2	 	The date when the Supplier issues a tax invoice to the Recipient.

	12.3	 	If, under or in connection with this agreement, 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
Supplier must issue an adjustment note to the Recipient within 28 days of becoming aware of
the adjustment.

23

 

GEM Equity Line Facility Agreement

Other GST matters

	12.4	 	If a party is entitled to be reimbursed or indemnified under this agreement, 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 12.2. 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.
	 
	12.5	 	Any reference in this agreement 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).
	 
	12.6	 	This clause will not merge on completion and will survive the termination of this agreement
by any party.
	 
	12.7	 	Terms used in this clause that are not otherwise defined in this agreement have the meanings
given to them in the GST Act.
	 
	13	 	Term and termination

Term

	13.1	 	Subject to clause 13.3, this agreement ends at the end of the Commitment Period unless
otherwise agreed.

Events of default

	13.2	 	An Event of Default occurs if any of the following events occur:

	 	13.2.1	 	the Company defaults in duly performing or observing any of the undertakings or
agreements on its part contained in this agreement and such default, if capable of
remedy, remains unremedied for a period of 30 days after notice from GEM requiring
such default to be remedied;
	 
	 	13.2.2	 	any of the representations or warranties herein contained is found to have been
false or misleading in any material respect when made or become false or misleading
in any material respect;
	 
	 	13.2.3	 	a material judgment is entered against the Company or any Subsidiary of the
Company;
	 
	 	13.2.4	 	any event occurs which has a Material Adverse Effect;
	 
	 	13.2.5	 	a petition is lodged or 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 the said resolutions;
	 
	 	13.2.6	 	a receiver or receiver and manager of any material undertaking or property of the
Company or any Subsidiary of the Company or any part thereof is appointed;

24

 

GEM Equity Line Facility Agreement

	 	13.2.7	 	an administrator or controller is appointed to the Company or any Subsidiary of
the Company;
	 
	 	13.2.8	 	the Company or any Subsidiary of the Company suspends payment of its debts or if
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;
	 
	 	13.2.9	 	the Company or any Subsidiary 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;
	 
	 	13.2.10	 	ASIC, ASX, any Governmental Authority or any person appointed under legislation
exercises formal powers to conduct an investigation into matters concerning all or
any part of the affairs of the Company or any Subsidiary of the Company (other than
as part of an industry or sector or in the ordinary course of the authority’s
activities);
	 
	 	13.2.11	 	a step is taken under sections 601AA, 601AB or 601AC of the Corporations Act to
cancel the registration of the Company or one of its Subsidiaries;
	 
	 	13.2.12	 	a compromise or arrangement is proposed between the Company or any Subsidiary of
the Company and its creditors or any class of them;
	 
	 	13.2.13	 	any Authorisation which is:

	 	(a)	 	necessary for the execution, delivery or performance
by the Company or any Subsidiary of the Company, or the validity or
enforceability, of any transaction contemplated under this agreement; or
	 
	 	(b)	 	material to the conduct by the Company or any
Subsidiary of the Company of its business,

	 	 	 	is not obtained or maintained on terms reasonably acceptable to GEM or is
revoked; or
	 
	 	13.2.14	 	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.

Consequences of an Event of Default

	13.3	 	If an Event of Default occurs, at any time thereafter, GEM may by giving written notice to
the Company cancel the Equity Line facility and terminate this agreement.
	 
	13.4	 	If GEM terminates this agreement under clause 13.3, the following amounts become immediately
payable by the Company:

25

 

GEM Equity Line Facility Agreement

	 	13.4.1	 	The Establishment Fee if it is unpaid or to the extent that it is unpaid as at the
date of termination;
	 
	 	13.4.2	 	Any other amounts payable by the Company under this agreement which are unpaid as
at the date of termination.

Effect of termination

	13.5	 	On termination of this agreement for any reason, subject to clause 13.6, all future
obligations of the Company and GEM to each other end.
	 
	13.6	 	Notwithstanding clause 13.5:

	 	13.6.1	 	all provisions which by their nature survive the termination of this agreement,
including clause 13.4, remain in full force and effect;
	 
	 	13.6.2	 	any other agreement between the Company, GEM or GEM Advisors, and any other third
party remains in full force and effect according to the tenor of that agreement;
	 
	 	13.6.3	 	all accrued and outstanding obligations of the parties as at the date of
termination remain despite termination;
	 
	 	13.6.4	 	if this agreement is terminated by GEM for an Event of Default before a Closing
Date, GEM has no obligation to subscribe for Shares. If this agreement is
terminated for any other reason, any outstanding obligation of GEM to subscribe for
Shares arising under a valid Drawdown Notice survives and continues after
termination; and
	 
	 	13.6.5	 	if this agreement is terminated at any time, any obligation the Company may have
to issue Shares to GEM or its nominee or to apply for or to obtain the grant of
quotation of those Shares in accordance with this agreement survives and continues
after termination.

	14	 	Notices

Service of notices

	14.1	 	Notwithstanding anything else in this agreement and this clause 14:

	 	14.1.1	 	any notice which the Company is required to give in accordance with clause 2, 3 or
4; and
	 
	 	14.1.2	 	any notice or statement which GEM is required to give under any of clause 2, 3 or
4,

	 	 	must given by facsimile in accordance with this clause 14.
	 
	14.2	 	A party giving or serving notice or notifying under this agreement must do so in writing:

26

 

GEM Equity Line Facility Agreement

	 	14.2.1	 	directed to the recipient’s address specified in this clause, as varied by any
notice; and
	 
	 	14.2.2	 	hand delivered or sent by prepaid post or facsimile to that address.

	14.3	 	The parties’ addresses and facsimile numbers are:
	 
	GEM and GEM Advisors

	 	 	 	 	 

	Attention

	 	Mr Clive Needham
	 	Mr Christopher Brown
	 
	 	 	 	 
	Address:

	 	GEM Global Yield Fund Ltd
	 	c/- GEM Advisors Inc
	 

	 	C/- CM Group
	 	27th Floor
	 

	 	Commerce House
	 	590 Madison Avenue
	 

	 	1 Bowring Road
	 	New York, NY 10022
	 

	 	Ramsey, Isle of Man, IM8, 2JQ
	 	United States of America
	 
	 	 	 	 
	Facsimile no:

	 	+44 (0)1624 816645
	 	(1) 212 265 4035

	with a copy to:

	 	 	 

	Attention

	 	Mr Eugene Fung
	 
	 	 
	Address:

	 	DLA Phillips Fox
	 

	 	Lawyers
	 

	 	Level 28, Waterfront Place
	 

	 	1 Eagle Street, Brisbane
	 

	 	Queensland, Australia, 4000
	 
	 	 
	Facsimile No:

	 	+61 7 3229 4077

	The Company

	 	 	 

	Attention:

	 	Chief Executive Officer
	 
	 	 
	Address:

	 	Unit 4, 848 Boundary Road, Richlands, Queensland, Australia
	 
	 	 
	Facsimile no:

	 	+61 7 3217 0811

Receipt

	14.4	 	A notice given in accordance with this clause is taken to be received:

	 	14.4.1	 	If hand delivered, on delivery;
	 
	 	14.4.2	 	If send by prepaid post, five Business Days (or, in the case of a notice or
communication posted to another country, nine) after the date of posting; or
	 
	 	14.4.3	 	if sent by facsimile, when the sender’s facsimile system generates a message
confirming successful transmission of the total number of pages of the notice
unless, within one Business Day after the transmission, the recipient informs the
sender that it has not received the entire notice.

Execution

	14.5	 	A notice given in accordance with this clause is sufficiently signed for or on behalf of a
party if:

27

 

GEM Equity Line Facility Agreement

	 	14.5.1	 	in the case of a company, it is signed by a director, secretary or other officer
of the company; or
	 
	 	14.5.2	 	in the case of an individual, it is signed by that party.

Other modes of service permitted

	14.6	 	The provisions of this clause are in addition to any other mode of service permitted by law.

Interpretation

	14.7	 	In this clause, notice includes a demand, request, consent, approval, offer and any other
instrument or communication made, required or authorised to be given under this agreement.
	 
	15	 	General

Approvals and consent

	15.1	 	Except when the contrary is stated in this agreement, a GEM may give or withhold any approval
or consent to be given under this agreement in its absolute discretion and subject to those
conditions determined by it. GEM is not obliged to give its reasons for giving or withholding
any approval or consent or for giving any approval or consent subject to conditions.

Assignment

	15.2	 	GEM and GEM Advisors are entitled to assign all or part of the benefit of this Agreement
(including any right, actual, prospective or contingent, to be issued Shares, Options or other
securities of the Company) to any person without the consent of the Company.
	 
	15.3	 	The Company must not assign or transfer any of the rights to which it is entitled or the
obligations by which it is burdened under this agreement without the written consent of GEM
and GEM Advisors.

Entire agreement

	15.4	 	This agreement contains everything the parties have agreed on in relation to the matters
those documents deal with. No party can rely on an earlier document or anything said or done
by another party, or by a director, officer, agent or employee of that party, before this
agreement was executed, save as permitted by law.

Execution of separate documents

	15.5	 	This agreement is properly executed if each party executes either this agreement or an
identical document. In the latter case, this agreement takes effect when the separately
executed documents are exchanged between the parties.
	 
	15.6	 	Notwithstanding anything else in this agreement a party can enter into this agreement by
signing a facsimile copy of it and sending the signed page by facsimile to the other party or
its solicitor.

28

 

GEM Equity Line Facility Agreement

	15.7	 	This agreement is deemed to have been entered into by all parties at the time the last
of the parties has entered into it.

Further acts

	15.8	 	Each 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 agreement and all transactions
incidental to it.

Governing law and jurisdiction

	15.9	 	This agreement 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.

Rights cumulative

	15.10	 	Except when the contrary is stated in this agreement, the rights of a party under this
agreement are cumulative and are in addition to the other rights of that party.

Severability

	15.11	 	If a clause or part of a clause of this agreement 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 agreement, but the rest of this agreement is not affected.

Stamp duty

	15.12	 	The Company must promptly pay all stamp duty payable in connection with this agreement and
any document incidental to it.

Variation

	15.13	 	This agreement may only be varied by the written agreement of the parties.

Waiver

	15.14	 	The fact that a party fails to do, or delays in doing, something the party is entitled to do
under this agreement, 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.

Calculation of time periods

	15.15	 	Where this agreement expresses:

	 	15.15.1	 	a period of time in which an action is to be performed or an event is to occur;

29

 

GEM Equity Line Facility Agreement

	 	15.15.2	 	a period of time calculated by reference to whether parties taken have received
notice from another party, then irrespective of whether:

	 	(a)	 	the relevant action is to be performed by the Company
or the relevant event or receipt of notice is to occur in Australia; or
	 
	 	(b)	 	the relevant action is to be performed by GEM or
GEM Advisors or the relevant event or receipt of notice is to occur
outside Australia,

the period of time will be calculated solely by reference to Sydney time.

	16	 	Definitions and interpretation

Interpretation

	16.1	 	The following terms used in this agreement will bear the following meanings, unless the
context otherwise requires:
	 
	 	 	Words and expressions used but not expressly defined in this agreement, which are also
used in the Corporations Act or the Listing Rules, have the same meanings given to those
words or expressions in the Corporations Act or the Listing Rules.
	 
	 	 	Accounting Standards means:

	 	(a)	 	accounting standards as defined in section 9 of the Corporations Act;
	 
	 	(b)	 	the requirements of the Corporations Act for the preparation and content
of financial statements; and
	 
	 	(c)	 	generally accepted principles and practices consistently applied in
Australia, including any domestically accepted international accounting standards,
except principles and practices that are inconsistent with (a) or (b).

Approval Date means the date which is 10 weeks from the date of this document.

ASIC means the Australian Securities & Investments Commission or any successor body.

ASX means ASX Limited ACN 008 624 691.

Authorisation includes:

	 	(a)	 	any consent, authorisation, registration, filing, agreement,
notarisation, certificate, permission, licence, approval or exemption from, by or
with a Governmental Authority;
	 
	 	(b)	 	in relation to anything which is prohibited or restricted by law if a
Governmental Authority takes certain action within a specified period, the 

30

 

GEM Equity Line Facility Agreement

	 	 	 	expiry of
that period without the Governmental Authority taking that action; and

	 	(c)	 	all approvals, permissions or consents required under any applicable laws
(including the Corporations Act and the Foreign Acquisitions and Takeovers Act) or
the Listing Rules.

Available Commitment means the Total Commitment less the aggregate Total Purchase Price
already paid or payable by GEM under this agreement.

Business in respect of the Company and its Subsidiaries, the businesses they each carry
on at the date of this agreement.

Business Day means a day on which banks are open for general banking business in Sydney,
New South Wales, excluding Saturdays and Sundays.

CHESS means Clearing House Subregister System.

Closing Date means, in relation to each Drawdown, the day determined in accordance with
clause 4.1.

Closing Statement means the statement to be given by GEM to the Company on the Closing
Date in accordance with clause 4.3 in the form of Schedule 5.

Commitment Fee means the fee payable by the Company to GEM Advisors in accordance with
clause 11.

Commitment Period means the period starting on the date of this agreement and ending on
the date 3 years from that date.

Confirmation Statement means a statement given by GEM to the Company in accordance with
clauses 2.14 to 2.16.

Constitution means the constitution of the Company (as amended from time to time).

Controlled Entities in relation to the Company means each entity which the Company
controls as that expression is defined in section 50AA of the Corporations Act.

Corporations Act means the Corporations Act 2001 (Cth).

Disclosing Party means the Company, or any of its related bodies corporate, when they are
the party giving information.

Disclosure Documents has the meaning given in clause 5.22.

Drawdown Amount means the amount payable by GEM on the Closing Date as calculated under
clause 4.5.

Drawdown Date means the date on which GEM receives from the Company a Drawdown Notice.

31

 

GEM Equity Line Facility Agreement

Drawdown Documents means each of the documents which must be given to GEM under clause
2.4.

Drawdown Notice means a notice given in accordance with clause 2 and substantially in the
form set out in Schedule 1, with the necessary changes for each type of Drawdown.

Drawdown Shares has the meaning given in clause 3.

Drawing means an exercise by the Company of its entitlement under this agreement to
require GEM to subscribe for (or to cause another person to subscribe for) Shares on the
terms and conditions of this agreement and ‘Drawdown’ has an equivalent meaning.

Drawing Limit means the limit set in accordance with clause 2.6.

Equity Line means the facility granted under this agreement and also includes any
relevant agreement (as that expression is defined in the Corporations Act) under which
the Company, at its discretion, may require any financial investor to subscribe for
Shares in a structured way over time in a manner similar to this agreement but does not
include one-off equity placements.

Establishment Fee has the meaning given in clause 11.3.

Event of Default means an event of default described in clause 13.

First Drawdown means the first Drawing made under this agreement.

Governmental Authority includes 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 date of this agreement.

GST has the meaning given to that term in the GST Act.

GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth).

Liability means any liability whether present, unascertained, actual, contingent or
prospective.

Lien with respect to any asset, means any mortgage, lien, pledge, encumbrance, charge or
security interest of any kind in or on such asset or the revenues or income thereon or
there from save for such matters in the ordinary course of business.

Listing Application means the form of new issue announcement, application to ASX for
quotation of additional securities and agreement which is required by the Listing Rules
to be lodged with ASX as a condition of the grant of quotation of newly issued unquoted
securities of the Company from time to time. The current form as at the

32

 

GEM Equity Line Facility Agreement

date of this
agreement is the form in Appendix 3B of the Listing Rules, a copy of which is attached to
Schedule 3.

Listing Rules means the Listing Rules of the ASX from time to time in force.

Market Rules means the ASX Market Rules from time to time in force.

Material Adverse Effect means any effect on the business, operations, properties,
financial condition or prospects of the Company and its Subsidiaries, that is material
and adverse to the Company and its Subsidiaries, taken as a whole, and/or any condition,
circumstances or situation that would prohibit or otherwise interfere with the ability of
the Company to enter into and perform any of its obligations under this agreement in any
material respect.

Option Certificate means a certificate evidencing the grant by the Company to GEM or its
nominee of Options in a form which is the same as or substantially similar to the form
set out in Schedule 6.

Option means an option to subscribe for unissued Shares on the terms and conditions set
out in Schedule 6.

Permitted Use means working capital.

Person means an individual or a corporation, a general or limited partnership, a trust,
an incorporated or unincorporated association, a joint venture, a limited liability
company, a limited liability partnership, a joint stock company, a government (or an
agency or political subdivision) or any other entity of any kind.

Potential Event of Default means any event, thing or circumstance which with the giving
of notice or passage of time or both would become an Event of Default.

Pricing Period means the period starting on and from the Trading Day immediately after a
Drawdown Date and ending at 5.00 pm on the Trading Day which is:

	 	(a)	 	in respect of the First Drawdown under this agreement, 10 consecutive
Trading Days after the Drawdown Date; or
	 
	 	(b)	 	in respect of any other Drawdown under this agreement, 15 consecutive
Trading Days after the Drawdown Date.

Proposed Drawdown Shares means the number of shares specified by the Company in its
Drawdown Notice as the number of Drawdown Shares to be subscribed for by GEM or its
nominee.

Purchase Price means the subscription price per Share determined in accordance with
clause 3.3.

Shares means fully paid ordinary shares in the capital of the Company.

Shareholder Approval means the approval of the members of the Company in general meeting
for the Company entering into this Agreement and granting Options in accordance with this
Agreement.

33

 

 GEM Equity Line Facility Agreement

Share Lender means the share lender under the Share Lending Agreement.

Share Lending Agreement means the share lending agreement substantially in the form set
out in Schedule 4.

Subsidiary or Subsidiaries means a Person or Persons whose accounts are consolidated with
the accounts of the Company.

Threshold Price means:

	 	(a)	 	for the First Drawdown or a Type 1 Drawdown, 90% of the volume weighted
average price of Shares traded on ASX over:

	 	(i)	 	in respect of the First Drawdown under this
agreement, 10 consecutive Trading Days ending on the date immediately
prior to a Drawdown Date; or
	 
	 	(ii)	 	in respect of any other Drawdown under this
agreement, 15 consecutive Trading Days ending on the date immediately
prior to a Drawdown Date; and

	 	(b)	 	for a Type 2 Drawdown, no less than:

	 	(i)	 	$0.01 per share;
	 
	 	(ii)	 	any other price per Share that GEM and the Company
agree in writing,

subject to the discretion of the Company to nominate a price per Share in
respect of any Drawdown higher than that calculated in accordance with
paragraph (a) or (b) of this definition, provided always that the Company is
not able to so nominate during a Pricing Period

Total Commitment means A$20,200,000 or such other amount agreed to by all the parties in
writing.

Total Purchase Price means in relation to a Drawdown Amount the total purchase price
calculated under clause 3.

Trading Day has the meaning given to that expression in the Market Rules from time to
time.

Trading Volume has the meaning given in clause 2.6.

Type 1 Drawdown means a Drawdown which is specified in a Drawdown Notice as a Type 1
Drawdown and which complies with this Agreement.

Type 2 Drawdown means a Drawdown which is specified in a Drawdown Notice as a Type 2
Drawdown and which complies with this Agreement.

34

 

GEM Equity Line Facility Agreement

Interpretation

	16.2	 	In this agreement, unless the context otherwise requires:

	 	16.2.1	 	The headings in this agreement are for convenience only, and shall be ignored in
construing its terms;
	 
	 	16.2.2	 	the singular includes the plural and vice versa;
	 
	 	16.2.3	 	words importing a gender include the other genders;
	 
	 	16.2.4	 	other grammatical forms of defined words or phrases have corresponding meanings;
	 
	 	16.2.5	 	a reference to a clause, part of a clause, schedule or annexure is a reference to
that clause or part of a clause of or schedule or annexure to this agreement;
	 
	 	16.2.6	 	a reference to this ‘agreement’ includes its recitals, schedules and any annexures
as it may from time to time be amended and except to the extent that the context
clearly otherwise indicates includes all supplemental or collateral deeds whether or
not they are expressly incorporated in such reference;
	 
	 	16.2.7	 	legislation referred to in this agreement is as amended, re-enacted or replaced
from time to time;
	 
	 	16.2.8	 	a reference to a party is a reference to a party to this agreement;
	 
	 	16.2.9	 	a reference to a party to this agreement includes that party’s successors and
permitted assigns;
	 
	 	16.2.10	 	a reference to a document or agreement, including this agreement, includes a
reference to that document or agreement as novated, altered or replaced from time to
time and, in the case of this agreement, to any supplemental or collateral document
to this agreement;
	 
	 	16.2.11	 	a reference to ‘cents’ ‘dollar’ or ‘$‘, is a reference to the currency of
Australia;
	 
	 	16.2.12	 	use of a term denoting subject matter which comprises more than one part or
aspect includes a reference to each or any part or aspect of the subject matter;
	 
	 	16.2.13	 	a term of this agreement which has the effect of requiring anything to be done on
or by a date which is not a business day must be interpreted as if it required it to
be done on or by the next business day;
	 
	 	16.2.14	 	a reference to a group of Persons is a reference to all of them collectively, to
any two or more of them collectively and to each of them individually; and
	 
	 	16.2.15	 	a reference to any time means Sydney time, unless otherwise indicated.

35

 

GEM Equity Line Facility Agreement

Execution

Executed as an agreement

Date:

Executed by Metal Storm Limited ACN 064 270 006 in accordance with
section 127(1) of the Corporations Act 2001 by being signed by:

	 	 	 

	/s/ Dr. Lee J Finniear

	 	/s/ Mr. Terry O’Dwyer
	 

	 	 
	Signature of Director

	 	Signature of Chairman
	 
	 	 
	Dr. Lee J. Finniear

	 	Mr Terry O’ Dwyer
	 

	 	 
	Print full name

	 	Print full name

 

			
	*	 	Delete whichever is not applicable

Executed by GEM Global Yield Fund Ltd by being signed by:

	 	 	 

	/s/ L. Walker

	 	/s/ Clive Needham
	 

	 	 
	Signature of witness

	 	Signature of authorised person
	 
	 	 
	L. Walker

	 	Clive Needham
	 

	 	 
	Name of witness (print)

	 	Name of authorised person (print)
	 
	 	 
	Executed by GEM Investment Advisors, Inc by being signed by:
	 
	 	 
	/s/ Warren Baker

	 	/s/ Chris Brown
	 

	 	 
	Signature of witness

	 	Signature of authorised person
	 
	 	 
	Warren Baker

	 	Chris Brown
	 

	 	 
	Name of witness (print)

	 	Name of authorised person (print)

36

 

GEM Equity Line Facility Agreement

Schedule 1

Drawdown notice

			
	To:	 	GEM Investment Advisors, Inc

Attention: Mr Christopher Brown

Under the GEM Equity Line Facility Agreement dated [     ] (Facility Agreement):

	1.	 	We give you irrevocable notice that we require you to subscribe for [     ] Shares (Proposed Drawdown
Shares) on [                    ] (Closing Date). This is a Type 1/Type 2 Drawdown Notice
	 
	2.	 	The Available Commitment as at [          ] is:
	 
	 	 	 

	 
	3.	 	Type 2 Drawdown only — Number of Trading Days to determine Trading Volume
	 
	 	 	[see clause2.10]
	 
	4.	 	The Trading Volume before the Drawdown Date was:
	 
	 	 	 

	 
	5.	 	Type 2 Drawdown only — the number of Proposed Drawdown Shares does not exceed 700% of the
Trading Volume.
	 
	6.	 	*No Authorisations are required under the Facility Agreement to be obtained by the Company
for the allotment and issue of shares to GEM or the Share Lender
	 
	 	 	or
	 
		 	*All Authorisations (including approval under Listing Rules 7.1 and 10.11) required to be
obtained by the Company for the allotment and issue of shares to GEM or the Share Lender
have been obtained. Details of the Authorisations obtained and the dates obtained follow:
	 
		 	*Delete whichever is inapplicable
	 
	7.	 	Type 2 Drawdown only — the closing trade price of a share on the Trading Day immediately
preceding the Drawdown Date was: [        ]
	 
	8.	 	The Threshold Price is $[          ].
	 
	9.	 	For Type 1 Drawdowns:

	 	(a)	 	the number of Proposed Drawdown Shares is [insert]

37

 

GEM Equity Line Facility Agreement

	 	 	 	[Note — it must not exceed the number calculated as follows:
	 
	 	 	 	Maximum Proposed Drawdown Shares = $400,000 ÷ Benchmark Price
	 
	 	 	 	Where
	 
	 	 	 	Benchmark Price is the volume weighted average price of Shares traded on
ASX over the 15 Trading Days ending on the date immediately prior to the
Drawdown Date.]
	 
	 	(b)	 	the Maximum Proposed Drawdown Shares in accordance with clause 2.6.2 of the
Facility Agreement was calculated as follows;
	 
	 	 	 	[insert]

	10.	 	We attach the following Drawdown documents:

	 	(a)	 	Certified extracts of directors’ resolutions
	 
	 	(b)	 	Draft Listing Application
	 
	 	(c)	 	[evidence of shareholder approvals and compliance with requirements]

	11.	 	We request that the proceeds of the Drawdown Amount be remitted to account number [     ] at
	 
	 	 	[     ].
	 
	12.	 	We represent and warrant that subject to the disclosures contained in the annexure to this
Drawdown Notice:

	 	(a)	 	All materially price sensitive information regarding the Company and its
Subsidiaries required to be disclosed under the Listing Rules has been disclosed to
ASX;
	 
	 	(b)	 	the representations and warranties in the Facility Agreement (other than
those set out in clauses 5.12 to 5.17 are true as though they had been made at the
date of this Drawdown Notice and will be as at the Closing Date specified above in
respect of the facts and circumstances then subsisting; and
	 
	 	(c)	 	no Event of Default or Potential Event of Default is subsisting or will
result from the provision of the Drawing.

	13.	 	Expressions defined in the Facility Agreement have the same meaning in this Drawdown Notice.

					
	 	 	 	 	 
	Dated this
	 	day of
	 	20

38

 

GEM Equity Line Facility Agreement

Executed by Metal Storm Limited ACN 064 270 006 in accordance with section 127(1)
of the Corporations Act 2001 by being signed by:

	 	 	 

	 

	 	 
	 

	 	 
	Signature of Director

	 	Signature of *Director/*Company Secretary
	 

	 	 
	 

	 	 
	Print full name

	 	Print full name

 

			
	*	 	Delete whichever is not applicable

39

 

GEM Equity Line Facility Agreement

Schedule 2

Form of Resolution of Directors (clause 2.4.2)

The directors noted that the Company had entered into an Equity Line Facility Agreement (the
Facility Agreement) with GEM Global Yield Fund Ltd and GEM Investment Advisors, Inc dated [          ].

Resolutions

It was resolved as separate resolutions that:

	•	 	the Company give GEM a Drawdown Notice for [      ] Shares;
	 
	•	 	the tabled draft Listing Application be and is hereby approved noting that the
final number of Shares for which quotation is sought may change once the final number of
Drawdown Shares is known;
	 
	•	 	the Company pay GEM Advisors [insert commitment fee] on the Closing Date, by the
issue of [insert shares] [Note — required only for first Drawdown after shareholder approval];
	 
	•	 	it was the opinion of the directors that the drawdown and the transactions
required as conditions of the drawdown:

	 	•	 	are in the best interests of the Company as a whole; and
	 
	 	•	 	do not materially prejudice:

	 	•	 	the interests of the Company or its shareholders as a whole;
or
	 
	 	•	 	the Company’s ability to pay its creditors.

Expressions defined in the Facility Agreement have the same meaning in this Schedule 2

40

 

GEM Equity Line Facility Agreement

Schedule 3

New issue announcement, Application for quotation of additional securities and agreement (Appendix
3B of the Listing Rules) (clause 2.4.3)

See attached

41

 

GEM Equity Line Facility Agreement

Schedule 4

Share Lending Agreement

See attached

42

 

GEM Equity Line Facility Agreement

Schedule 5

Form of closing statement (clause 4.3.1(a))

			
	To:	 	The Secretary

Metal Storm Limited ACN 064 270 006

Closing Statement — Drawdown dated [          ]

In accordance with the GEM Equity Line Facility Agreement, in relation to the Type 2 Drawdown made
on [insert date], GEM or its nominee subscribes for the Drawdown Shares set out below at the price
per Drawdown Share calculated below:

Calculation of Purchase Price

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Closing trade price (disregarding the	 	 
	 	Trading Days during Pricing Period	 	 	closing trade price below the Threshold Price)	 	 
	 	[insert date of Day 1]
	 	 	 	 	 	 
	 	[insert date of Day 2]
	 	 	 	 	 	 
	 	[etc]
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 
	 	[insert date of Day 15]
	 	 	 	 	 	 
	 	Average closing trade price
	 	 	 	 	 	 
	 

43

 

GEM Equity Line Facility Agreement

Purchase Price per Drawdown Share (90% x average closing trade price)

 

Calculation of number of Drawdown Shares to be subscribed

Number of Knockout Days (X)

 

Clause 3.5 adjustment

 

Proposed Drawdown Shares

 

Number of Drawdown Shares — Proposed Drawdown Shares adjusted in accordance with Clause 3

 

Total Purchase Price (Purchase Price x number of Drawdown Shares to be subscribed)

 

Less: Costs and fees

 

Less: GST (if any)

 

44

 

GEM Equity Line Facility Agreement

Net amount payable to the Company

 

Wire details (date, bank and account details)

 

Name of allottee

If the allottee is GEM, GEM:

	 	(a)	 	consents to the issue of the Drawdown 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
Drawdown Shares to it.

45

 

GEM Equity Line Facility Agreement

Schedule 6

Option terms and conditions (clause 10)

See annexure

46

 

GEM Equity Line Facility Agreement

Option Certificate

Metal Storm Limited ACN 064 270 006

registered under the provisions of the Corporations Act 2001

	 	 	 

	Registered Office:

	 	Unit 4, 848 Boundary Road, Richlands, Queensland, Australia
	 
	 	 
	Option Certificate No:
	 	 
	 
	 	 
	This is to certify that
	 	 
	 
	 	 
	Name:
	 	 
	 
	 	 
	Address
	 	 

is the Registered holder of the following options in the above named Company:

	 	 	 	 	 	 
	 
	 	Date of grant	 	 	No of options	 
	 	 
	 	 	 	 
	 

subject to the terms and conditions of issue set out in the attachment to this certificate.

Executed by Metal Storm Limited ACN 064 270 006 by being signed by:

	 	 	 

	 

	 	 
	Signature of Director

	 	Signature of *Director/*Company Secretary
	 
	 	 
	 

	 	 
	Print full name

	 	Print full name

 

			
	*	 	Delete whichever is not applicable

47

 

GEM Equity Line Facility Agreement

Option terms and conditions of issue

Entitlement

	1.	 	Subject to and conditional upon any adjustment in accordance with these conditions,
each Option entitles the holder to subscribe for one fully paid ordinary share upon payment of
the Exercise Price.

Exercise Price

	2.	 	The Exercise Price of each Option is $0.035.

Exercise Period

	3.	 	An Option is exercisable at any time on or before 5.00pm (Sydney time) on the third
anniversary of the date of grant (the Expiry Date). Options not exercised by the Expiry Date
lapse.

Manner of exercise of Options

	4.	 	Each Option may be exercised by notice in writing addressed to the Company’s
registered office. The minimum number of Options that may be exercised at any one time is
1,000. Payment of the Exercise Price for each Option must accompany each notice of exercise
of option. All cheques must be payable to the Company and be crossed ‘not negotiable’.

Ranking of Shares

	5.	 	Shares issued on the exercise of Options 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 which have a record date for determining entitlements on or after the date of issue
of those shares

Timing of issue of shares

	6.	 	After an Option is validly exercised, the Company must as soon as possible:

	 	(a)	 	issue and allot the share as soon as possible; and
	 
	 	(b)	 	do all such acts matters and things to obtain the grant of quotation for
the shares on ASX no later than 5 business days from the date of exercise of the
Option.

Options transferrable

	7.	 	Options may be transferred in the same manner as shares and may be exercised by any
other person or body corporate.

48

 

GEM Equity Line Facility Agreement

Participation in new issues

	8.	 	An Option holder may participate in new issues of securities to holders of shares
only if and to the extent that:

	 	(a)	 	an Option has been exercised; and
	 
	 	(b)	 	a share has been issued in respect of the exercise before the record date
for determining entitlements to the new issue.

	9.	 	The Company must give notice to the Option holder of any new issue not less than 10
Business Days before the record date for determining entitlements to the issue.

Adjustment for bonus issues of shares

	10.	 	If the Company makes a bonus issue of shares or other securities to existing
shareholders (other than an issue in lieu or in satisfaction, of dividends or by way of
dividend reinvestment):

	 	(a)	 	the number of shares which must be issued on the exercise of a Option
will be increased by the number of shares which the Option holder would have
received if the Option holder had exercised the Option before the record date for
the bonus issue; and
	 
	 	(b)	 	no change will be made to the Exercise Price.

Adjustment for rights issue

	11.	 	If the Company makes an issue of shares pro rata to existing shareholders (other
than an issue in lieu of in satisfaction of dividends or by way of dividend reinvestment) the
Exercise Price of a Option will be reduced according to the following formula:
	 
	 	 	New exercise price = O - E[P-(S+D)]

N + 1

	 	O 	= 	the old Exercise Price of the Option.
	 
	 	E 	= 	the number of underlying shares into which one Option is exercisable.
	 
	 	P 	= 	the average market price per share (weighted by reference to volume)
of the underlying shares during the 5 trading days ending on the day before the ex
rights date or ex entitlements date.
	 
	 	S 	= 	the Purchase Price of a share under the pro rata issue.
	 
	 	D 	= 	the dividend due but not yet paid on the existing underlying shares
(except those to be issued under the pro rata issue).
	 
	 	N 	= 	the number of shares with rights or entitlements that must be held to
receive a right to one new share.

49

 

GEM Equity Line Facility Agreement

Reconstructions

	12.	 	If there is any reconstruction of the issued share capital of the Company, the
number of shares to which the Option holder is entitled, and/or the Exercise Price, must be
reconstructed in a manner which will not result in any benefits being conferred on the Option
holder which are not conferred on shareholders (subject to the provisions with respect to
rounding of entitlements as sanctioned by the meeting of shareholders approving the
reconstruction of capital), but in all other respects, the terms for the exercise of a Option
will remain unchanged.

Interpretation

	13.	 	These terms and conditions of issue must be interpreted in the same way as the
Equity Line Facility Agreement under which the Option was issued.

50exv4w3

Exhibit 4.3

22 June 2010

Dutchess Opportunity Fund II LP

Metal Storm Limited ACN 064 270 006

Line Agreement

 

 

	 	 	 	 	 	 	 	 	 	 	 
	Contents	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	1	 	 	Interpretation	 	 	1	 
	 

	 	 	1.1	 	 	Definitions
	 	 	1	 
	 

	 	 	1.2	 	 	Construction
	 	 	4	 
	 

	 	 	1.3	 	 	Headings
	 	 	5	 
	 
	2	 	 	Operative provisions	 	 	5	 
	 

	 	 	2.1	 	 	Line facility
	 	 	5	 
	 

	 	 	2.2	 	 	Exclusivity
	 	 	5	 
	 
	3	 	 	Drawings	 	 	5	 
	 

	 	 	3.1	 	 	Entitlement
	 	 	5	 
	 

	 	 	3.2	 	 	Investment procedure
	 	 	6	 
	 

	 	 	3.3	 	 	ASX Approvals and Waivers
	 	 	6	 
	 

	 	 	3.4	 	 	Conditions
	 	 	6	 
	 

	 	 	3.5	 	 	Waiver of compliance
	 	 	7	 
	 

	 	 	3.6	 	 	Confirmation of Drawdown
	 	 	7	 
	 
	4	 	 	Pricing	 	 	8	 
	 

	 	 	4.1	 	 	Purchase Price
	 	 	8	 
	 

	 	 	4.2	 	 	Adjustments
	 	 	8	 
	 

	 	 	4.3	 	 	Investment Shares
	 	 	8	 
	 

	 	 	4.4	 	 	Investment Amount
	 	 	8	 
	 
	5	 	 	Closing	 	 	9	 
	 

	 	 	5.1	 	 	Closing Date
	 	 	9	 
	 

	 	 	5.2	 	 	Actions on closing
	 	 	9	 
	 

	 	 	5.3	 	 	Actions after closing
	 	 	10	 
	 
	6	 	 	Company Acknowledgement	 	 	10	 
	 

	 	 	6.1	 	 	Dilution
	 	 	10	 
	 

	 	 	6.2	 	 	Board resolutions
	 	 	11	 
	 
	7	 	 	Representations and warranties	 	 	11	 
	 

	 	 	7.1	 	 	Warranties
	 	 	11	 
	 

	 	 	7.2	 	 	Application
	 	 	11	 
	 

	 	 	7.3	 	 	Official quotation
	 	 	11	 
	 

	 	 	7.4	 	 	Organisation and qualification
	 	 	11	 
	 

	 	 	7.5	 	 	Issue of Shares
	 	 	12	 
	 

	 	 	7.6	 	 	Securities on issue
	 	 	13	 
	 

	 	 	7.7	 	 	Regulatory issues
	 	 	13	 
	 

	 	 	7.8	 	 	No Company Material Adverse Effect
	 	 	13	 
	 

	 	 	7.9	 	 	Litigation
	 	 	13	 
	 

	 	 	7.10	 	 	Disclosure
	 	 	14	 
	 

	 	 	7.11	 	 	Entitlement to rely on disclosure exemption
	 	 	14	 
	 

	 	 	7.12	 	 	No conflicts
	 	 	14	 
	 

	 	 	7.13	 	 	Self reliance
	 	 	15	 

page i

 

	 	 	 	 	 	 	 	 	 	 	 
	Contents	 	 	 	 	 	 	 	 	 	 
	 
	8	 	 	Mutual Representations and Warranties	 	 	15	 
	 

	 	 	8.1	 	 	General
	 	 	15	 
	 

	 	 	8.2	 	 	Warranties
	 	 	15	 
	 
	9	 	 	Indemnity by the Company	 	 	15	 
	 
	10	 	 	Indemnity by the Investor	 	 	17	 
	 
	11	 	 	Other agreements of the parties	 	 	19	 
	 

	 	 	11.1	 	 	Listing
	 	 	19	 
	 

	 	 	11.2	 	 	Disclosure of transactions and other material information
	 	 	19	 
	 

	 	 	11.3	 	 	Negative covenants
	 	 	20	 
	 

	 	 	11.4	 	 	Maximum holding
	 	 	20	 
	 
	12	 	 	Fees and costs	 	 	20	 
	 

	 	 	12.1	 	 	Commitment Fee
	 	 	20	 
	 

	 	 	12.2	 	 	Approval of Commitment Fee Shares
	 	 	21	 
	 

	 	 	12.3	 	 	Repayment of Commitment Fee
	 	 	21	 
	 

	 	 	12.4	 	 	Commission
	 	 	21	 
	 

	 	 	12.5	 	 	General costs and expenses
	 	 	22	 
	 

	 	 	12.6	 	 	Transaction costs
	 	 	22	 
	 

	 	 	12.7	 	 	Statutory charges and duties etc
	 	 	22	 
	 
	13	 	 	Goods and services tax	 	 	22	 
	 

	 	 	13.1	 	 	Recovery of GST on supplies and adjustments under this document
	 	 	 22	 
	 

	 	 	13.2	 	 	Other GST matters
	 	 	23	 
	 

	 	 	13.3	 	 	Withholding gross-up
	 	 	23	 
	 
	14	 	 	Proceeds	 	 	23	 
	 

	 	 	14.1	 	 	Use of Proceeds
	 	 	23	 
	 
	15	 	 	Term and termination	 	 	24	 
	 

	 	 	15.1	 	 	Term
	 	 	24	 
	 

	 	 	15.2	 	 	Termination by the Company
	 	 	24	 
	 

	 	 	15.3	 	 	Events of default
	 	 	24	 
	 

	 	 	15.4	 	 	Consequences of an Event of Default
	 	 	25	 
	 

	 	 	15.5	 	 	Effect of termination
	 	 	25	 
	 
	16	 	 	Notices	 	 	26	 
	 

	 	 	16.1	 	 	General
	 	 	26	 
	 

	 	 	16.2	 	 	How to give a communication
	 	 	26	 
	 

	 	 	16.3	 	 	Particulars for delivery of notices
	 	 	27	 
	 

	 	 	16.4	 	 	Communications by post
	 	 	27	 
	 

	 	 	16.5	 	 	Communications by fax
	 	 	27	 
	 

	 	 	16.6	 	 	Communications by email
	 	 	27	 
	 

	 	 	16.7	 	 	After hours communications
	 	 	27	 
	 

	 	 	16.8	 	 	Process service
	 	 	28	 

page ii

 

	 	 	 	 	 	 	 	 	 	 	 
	Contents	 	 	 	 	 	 	 	 	 	 
	 
	17	 	 	Execution	 	 	28	 
	 

	 	 	17.1	 	 	Sufficient execution
	 	 	28	 
	 

	 	 	17.2	 	 	Other modes of service permitted
	 	 	28	 
	 

	 	 	17.3	 	 	Interpretation
	 	 	28	 
	 
	18	 	 	General	 	 	28	 
	 

	 	 	18.1	 	 	Approvals and consent
	 	 	28	 
	 

	 	 	18.2	 	 	Assignment
	 	 	28	 
	 

	 	 	18.3	 	 	Entire document
	 	 	28	 
	 

	 	 	18.4	 	 	Execution of separate documents
	 	 	29	 
	 

	 	 	18.5	 	 	Further acts
	 	 	29	 
	 

	 	 	18.6	 	 	Governing law and jurisdiction
	 	 	29	 
	 

	 	 	18.7	 	 	Rights cumulative
	 	 	29	 
	 

	 	 	18.8	 	 	Severability
	 	 	29	 
	 

	 	 	18.9	 	 	Stamp duty
	 	 	29	 
	 

	 	 	18.10	 	 	Variation
	 	 	29	 
	 

	 	 	18.11	 	 	Waiver
	 	 	30	 
	 
	Schedule 1 — Investment Notice	 	 	32	 
	 
	Schedule 2 — Form of closing statement	 	 	33	 
	 
	Schedule 3 — Board resolution	 	 	35	 

page iii

 

	 	 	Date
	 
	 	 	Parties
	 
	 	 	Dutchess Opportunity Fund II LP of 50 Commonwealth Avenue, Suite 2, Boston, MA
02116, USA (the Investor)
	 
	 	 	Metal Storm Limited ACN 064 270 006 of Unit 4, 848 Boundary Road, Richlands, Queensland,
Australia (Company)
	 
	 	 	Background
	 
	 	 	The 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 terms
	 
	1	 	Interpretation
	 
	1.1	 	Definitions
	 
	 	 	The following terms used in this document have the following meanings, unless the
context otherwise requires:
	 
	 	 	Approval Date means 30 September 2010.
	 
	 	 	ASIC means the Australian Securities and Investment Commission.
	 
	 	 	ASX means ASX Limited ACN 008 624 691 or the securities exchange operated by it, as the
context requires.
	 
	 	 	Available Amount means the Line Amount less the aggregate of the Proposed Investment
Amounts already paid or payable by the Investor under this document.
	 
	 	 	Base Price means $0.001 per Share.
	 
	 	 	Business in respect of the Company and its Subsidiaries, the businesses they each carry
on at the Execution Date.
	 
	 	 	Business Day means a day on which banks are open for general banking business in
Brisbane, Queensland excluding Saturdays and Sundays.
	 
	 	 	CHESS means Clearing House Subregister System.

page 1

 

	 	 	Closing Date means, in relation to each Drawdown, the day determined in accordance with
clause 5.1.
	 
	 	 	Closing Statement means the statement to be given by the Investor to the Company on the
Closing Date in accordance with clause 5.2 in the form of schedule 2.
	 
	 	 	Commitment Fee has the meaning given in clause 12.1.
	 
	 	 	Commitment Fee Shares means the First Tranche Commitment Fee Shares and the Second
Tranche Commitment Fee Shares.
	 
	 	 	Company Material Adverse Effect means 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.
	 
	 	 	Conditions means the conditions to a Drawdown set out in clause 3.3.
	 
	 	 	Confirmation Statement means a statement given by the Investor to the Company in
accordance with clause 3.6.
	 
	 	 	Constitution means the constitution of the Company (as amended from time to time).
	 
	 	 	Corporations Act means the Corporations Act 2001 (Cth).
	 
	 	 	Drawing means 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 Drawdown has an equivalent
meaning.
	 
	 	 	Event of Default means an event of default described in clause 15.3.
	 
	 	 	Execution Date means the date the last of the parties executes this document.
	 
	 	 	First Tranche Commitment Fee Shares has the meaning given in clause 12.1(c).
	 
	 	 	Floor means the price per Share identified by the Company in an Investment Notice.
	 
	 	 	Governmental Authority includes 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.
	 
	 	 	GST has the meaning given to that term in the GST Act.
	 
	 	 	GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth).
	 
	 	 	Investment Amount means the amount payable by the Investor on the Closing Date as
calculated under clause 4.4.

page 2

 

	 	 	Investment Date means the date on which the Investor receives an Investment Notice from
the Company.
	 
	 	 	Investment Limit means the limit set in accordance with clause 3.2(b).
	 
	 	 	Investment Notice means a notice given in accordance with clause 3.1 and substantially in
the form set out in schedule 1.
	 
	 	 	Investment Shares has the meaning given in clause 4.3.
	 
	 	 	Line means the facility granted under this document.
	 
	 	 	Line Amount means $25,000,000 or such other amount agreed to by the parties in writing.
	 
	 	 	Line Period means the period starting on the Execution Date and ending on the date 3
years from that date.
	 
	 	 	Listing Rules means the Listing Rules of ASX from time to time.
	 
	 	 	Pricing Period means 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 Amount means the amount specified by the Company in its Investment
Notice.
	 
	 	 	Purchase Price means the subscription price per Investment Share determined in accordance
with clause 4.1.
	 
	 	 	Second Tranche Commitment Fee Shares has the meaning given in clause 12.1(d).
	 
	 	 	Shares means fully paid ordinary shares in the capital of the Company.
	 
	 	 	Shareholder Approval means 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.

	 	 	Subsidiaries means:

	 	(a)	 	Metal Storm Inc.;
	 
	 	(b)	 	ProCam Machine LLC;
	 
	 	(c)	 	Metal Storm USA Ltd; and
	 
	 	(d)	 	Digigun LLC,

	 	 	and Subsidiary means any one of them.
	 
	 	 	Trading Day has the meaning given to that expression in the market rules of the ASX from
time to time.
	 
	 	 	VWAP means the volume weighted average price of Shares traded on ASX.

page 3

 

	1.2	 	Construction
	 
	 	 	Unless 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

page 4

 

	 	(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	 	Headings
	 
	 	 	Headings do not affect the interpretation of this document.

	2	 	Operative provisions
	 
	2.1	 	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	 	Drawings
	 
	3.1	 	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;

page 5

 

	 	(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	 	Conditions
	 
	 	 	The Investor’s obligations under clause 5 to 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 compliance
	 
	 	 	The 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	 	Pricing
	 
	4.1	 	Purchase Price
	 
	 	 	For 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 Event occurs if the VWAP for a Trading Day in the Pricing Period
is less than the Floor.
	 
	 	(b)	 	A Knockout Day is 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 Shares
	 
	 	 	Investment Shares means 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

The Investment Amount is an amount equal to the difference between:

	 	(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	 	Closing
	 
	5.1	 	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 Acknowledgement
	 
	6.1	 	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 resolutions
	 
	 	 	The 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 warranties
	 
	7.1	 	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 7 applies as at the Execution Date and on
each Closing Date.
	 
	 	(b)	 	The warranties in clause 7.9 are 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

 

	 	(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

 

	 	 	 	which have a record date for determining entitlements on or after the date
of issue of those Investment Shares.

	7.6	 	Securities on issue
	 
	 	 	The 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	 	Litigation
	 
	 	 	There 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

 

	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 exemption
	 
	 	 	As 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 conflicts
	 
	 	 	The 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 reliance
	 
	 	 	The 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 Warranties
	 
	8.1	 	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 8 applies 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 clause 9(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 clause 9(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)	 	Clauses 9(e) and 9(f) will only operate if the Company acknowledges,
subject to clauses 9(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 clause 10(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 clause 10(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)	 	Clauses 10(e) and 10(f) will only operate if the Investor acknowledges,
subject to clauses 10(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 parties
	 
	11.1	 	Listing
	 
	 	 	Neither 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 11.2 applies 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 covenants
	 
	 	 	The 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 holding
	 
	 	 	The 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 costs
	 
	12.1	 	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 Shares means the number of Shares calculated
under the following formula:
	 
	 	 	 	First Tranche Commitment Fee Shares = $200,000 ÷ VWAP
	 
	 	 	 	where, for the purposes of this clause 12.1(c), VWAP means 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 Shares means the number of Shares
calculated under the following formula:
	 
	 	 	 	Second Tranche Commitment Fee Shares = $200,000 ÷ VWAP
	 
	 	 	 	where, for the purposes of this clause 12.1(d), VWAP means 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 Fee
	 
	 	 	In 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 15 sell 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 4.2 for the
Drawing.
	 
	 	(b)	 	Any amounts payable under clause 12.4(a) must be paid in accordance with
clause 4.4 as a deduction from the Proposed Investment Amount under a Drawdown.

page 21

 

	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 4.4 as a deduction from the Proposed Investment Amount under a Drawdown.

	12.6	 	Transaction costs
	 
	 	 	The 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 etc
	 
	 	 	The 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 tax
	 
	13.1	 	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-up
	 
	 	 	If 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	 	Proceeds
	 
	14.1	 	Use of Proceeds
	 
	 	 	The 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.

page 23

 

	15	 	Term and termination
	 
	15.1	 	Term
	 
	 	 	Subject 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 default
	 
	 	 	An 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 5.3 of 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

 

	 	(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

 

	 	(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	 	Notices
	 
	16.1	 	General
	 
	 	 	A 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 communication
	 
	 	 	In 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..

page 26

 

	16.3	 	Particulars for delivery of notices

	 	(a)	 	The particulars for delivery of notices are initially:

	 	 	 

	The Investor:
	 	 
	 
	 	 
	Delivery address:

	 	Dutchess Opportunity
	 

	 	Fund II LP
	 
	 	 
	Postal address:

	 	50 Commonwealth Avenue, Suite 2, Boston, MA 02116
USA
	 
	 	 
	Fax:

	 	+1 (0) 617 249 0947
	 
	 	 
	Attention:

	 	Mr Douglas H Leighton
	 
	 	 
	Email:

	 	dleighton@dpef.com
	 
	 	 
	The Company:
	 	 
	 
	 	 
	Delivery address:

	 	Unit 4, 848 Boundary Road, Richlands, 

Queensland, Australia
	 
	 	 
	Postal address:

	 	same as delivery address
	 
	 	 
	Fax:

	 	+61 7 3217 0811
	 
	 	 
	Attention:

	 	Chief Executive Officer
	 
	 	 
	Email:

	 	lfinniear@metalstorm.com

	 	(b)	 	Each party may change its particulars for delivery of notices by notice
to each other party.

	16.4	 	Communications by post
	 
	 	 	Subject 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 fax
	 
	 	 	Subject 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 email
	 
	 	 	A 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 communications
	 
	 	 	If a communication is given:

page 27

 

	 	(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 service
	 
	 	 	Any 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 16 or in accordance with any applicable law.
	 
	17	 	Execution
	 
	17.1	 	Sufficient execution
	 
	 	 	A 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 permitted
	 
	 	 	The provisions of this clause are in addition to any other mode of service
permitted by law.
	 
	17.3	 	Interpretation
	 
	 	 	In this clause, notice includes a demand, request, consent, approval, offer and
any other instrument or communication made, required or authorised to be given under this
document.
	 
	18	 	General
	 
	18.1	 	Approvals and consent
	 
	 	 	Except 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	 	Assignment
	 
	 	 	A 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 document
	 
	 	 	This 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

 

		 	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 acts
	 
	 	 	Each 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 jurisdiction
	 
	 	 	This 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 cumulative
	 
	 	 	Except 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	 	Severability
	 
	 	 	If 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 duty
	 
	 	 	The Company must promptly pay all stamp duty payable in connection with this
document and any document incidental to it.
	 
	18.10	 	Variation
	 
	 	 	This document may only be varied by the written document of the parties.       

page 29

 

	18.11	 	Waiver
	 
	 	 	The 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

 

Executed as an agreement

	 	 	 	 	 	 	 
	Executed by Dutchess Opportunity 

	 	 	)	 	 	 
	Fund II LP by its duly appointed officer

	 	 	)	 	 	 
	in the presence of:

	 	 	)	 	 	 
	 
	 	 	 	 	 	 
	/s/ Theodore Smith

 

Witness

	 	 	 	 	 	/s/ Douglas Leighton

 

Officer
	 
	 	 	 	 	 	 
	Theodore Smith
 

Name of Witness (print)

	 	 	 	 	 	Douglas Leighton
 

Name of Officer (print)
	 
	 	 	 	 	 	 
	Executed by Metal Storm Limited

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 
	 	 	 	 	 	 
	/s/ Peter R. Wetzig
 

	 	 	 	 	 	/s/ Lee J. Finnear
 

	Company Secretary / Director

	 	 	 	 	 	Director
	 
	 	 	 	 	 	 
	Peter R. Wetzig
 

Name of Company Secretary/Director
(print)

	 	 	 	 	 	Dr. Lee J. Finnear
 

Name of Director (print)

page 31

 

Schedule 1

Investment Notice

			
	To:	 	Dutchess Opportunity Fund II LP

Attention: Douglas H Leighton

Under the Line Agreement dated [     ]:

	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.

Dated this                      day of                     20

	 	 	 	 	 	 	 

	Executed by Metal Storm Limited

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 
	 

Company Secretary/Director

	 	 	 	 	 	 

Director
	 
	 	 	 	 	 	 
	 

Name of Company Secretary/Director
(print)

	 	 	 	 	 	 

Name of Director (print)

page 32

 

Schedule 2

Form of Closing Statement (clause 5.2(a)(i)(A))

			
	To:	 	The Secretary

Metal Storm Limited ACN 064 270 006

Closing Statement — Investment Dated [          ]

In accordance with the Line Agreement, in relation to the Drawdown made on [insert date],
the Investor or its nominee subscribes for the Investment Shares set out below at the price per
Investment Share calculated below:

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
	 	 

Purchase
Price per Investment Share (average closing trade
price)  

Calculation of Investment Amount

Proposed
Investment
Amount 

Number of
Knockout
Days. 

Clause 4.2
adjustment. 

	 	(a)	 	Less: Costs and
fees 

	 
	 	(b)	 	Less:
Commission 

	 
	 	(c)	 	Less: GST (if
any) 

page 33

 

Investment
Amount payable to the
Company 

Wire
details (date, bank and account
details) 

Calculation of number of Investment Shares to be subscribed

	 	 	 

	Investment Amount

 

Purchase Price

	 	Shares

Name of allottee

If the allottee is the Investor, the Investor:

	 	(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.

	 	 	 	 	 	 	 

	Executed by Dutchess Opportunity Fund II

	 	 	)	 	 	 
	LP by its duly appointed officer in the

	 	 	)	 	 	 
	presence of:

	 	 	)	 	 	 
	 
	 
	 	 	 	 	 	 
	 

Witness

	 	 	 	 	 	 

Officer
	 
	 	 	 	 	 	 
	 

Name of Witness (print)

	 	 	 	 	 	 

Name of Officer (print)

page 34

 

Schedule 3

Board resolution (clause 6.2)

Metal Storm Limited

(ACN 064 270 006)

	1	 	Documents

Metal Storm Limited (Company) proposes to enter into an agreement with Dutchess Opportunity
Fund II LP on or about [Insert] June 2010 (Agreement).

	2	 	Approval of Transaction

The directors acknowledge the accuracy of the Company’s representations and warranties
contained in the Agreement and note that:

	 	(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 that:

The Agreement, and the transactions contemplated in the Agreement are each approved.

	3	 	Approval of Execution

Resolved that:

page 35

 

The Company execute and deliver the Agreement in a form and with any changes (whether or not
material and whether or not involving changes to the parties) as any director or secretary of the
Company who executes the Agreement may, as conclusively evidenced by their execution approve.

	4	 	Authorised Officers

Resolved that:

The following persons [insert] be severally authorised to execute and deliver for and on behalf of
the Company all documents, notices, instruments, certificates and communications necessary or
desirable to be executed and delivered by and on behalf of the Company in accordance with this
Agreement.

	5	 	Further Assurances

Resolved that:

Each director, secretary and Authorised Officer (appointed pursuant to resolution 4) of the Company
be severally authorised to do any act, matter or thing and to execute and deliver any other
document as he or she may deem necessary, advisable or incidental in connection with the preceding
resolutions or any document and to perform the obligations of the Company under the Agreement.

page 36

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