Metal Storm Limited -- Convertible Notes

BRISBANE, AUSTRALIA (NASDAQ: MTSX) (POMSoX code: MSTG).

Metal Storm Limited today announced that it is giving consideration to:

  1. extending the maturity date of its listed convertible notes
     (ASX: MSTG) (POMSoX code: MSTG) ("Existing Notes") from
     1 September 2009 to a later date.

     The length of the proposed extension of the maturity date of the
     Existing Notes has not yet been finalised; and

  2. raising approximately A$6 million by the offer of new convertible
     notes ("New Notes"), expected to be by a combination of:

     (i) rights issue to Existing Note holders, to be fully underwritten by
         Harmony Investment Fund Limited ("Harmony") or its associates or
         nominees; and

     (ii) placement of New Notes to Harmony or its associates or nominees.

     Neither the terms of the New Notes, nor the breakdown between the
     rights issue and placement have been finalised.

     If New Notes are offered, a prospectus will be made available to
     eligible applicants.  Eligible applicants who want to acquire the New
     Notes will need to complete the application form that will be in or
     will accompany the prospectus.

The proposal will require various consents and approvals, including Existing Note holder approval and, potentially, shareholder approval. Aspects of the proposal may also be subject to other conditions, including the sale by Harmony of some of its Existing Notes.

Metal Storm is currently negotiating a Heads of Agreement with Harmony in relation to the terms of, and the steps for implementing, the proposal. The discussions are continuing, but the terms have not yet been agreed. It may not be possible for the parties to reach agreement on suitable terms and conditions, or the structure of any final proposal may differ materially from the terms described. Metal Storm intends to progress negotiation of the Heads of Agreement as quickly as possible and will keep the market informed of substantive developments. In general terms, it is intended that funds raised by the proposed issue of New Notes would be used to pay:

--  additional interest on the Existing Notes for the extended period;
--  interest on the New Notes; and
--  working capital.

If the proposal proceeds, further details of the intended use of funds will be provided.

Notes:
Metal Storm's Australian Stock Exchange trading code: MST
Metal Storm's NASDAQ Small Cap ticker symbol: MTSX

About Metal Storm

Metal Storm Limited is a multi-national defence technology company engaged in the development of electronically initiated ballistics systems using its unique "stacked projectile" technology. The company is headquartered in Brisbane, Australia and incorporated in Australia. Metal Storm Limited technology and products are represented in the USA by Metal Storm Inc., which has offices in Arlington, Virginia.

Metal Storm is working with government agencies and departments, as well as industry, to develop a variety of systems utilising the Metal Storm non-mechanical, electronically fired stacked ammunition system.

Metal Storm's weapon technology uses computer-controlled electronic ignition and a system of stacked projectiles, to achieve a completely non-mechanical gun that is very lightweight and compact, providing a very high firepower to weight ratio. The Metal Storm weapons system utilizes multiple barrels mounted together on one platform which allows varying munitions types to be deployed in a single, low cost, lightweight weapon system. Firing the weapons by electronic ignition requires no moving parts, allowing reliable long term unattended weapon operation.

Safe Harbour

Certain statements made herein that use the words "estimate," "project," "intend," "expect," "believe" and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties which could cause the actual results, performance or achievements of the company to be materially different from those which may be expressed or implied by such statements, including, among others, risks or uncertainties associated with the development of the company's technology, the ability of the company to meet its financial requirements, the ability of the company to protect its proprietary technology, potential limitations on the company's technology, the market for the company's products, government regulation in Australia and the US, changes in tax and other laws, changes in competition and the loss of key personnel. For additional information regarding these and other risks and uncertainties associated with the company's business, reference is made to the company's reports filed from time to time with the Securities and Exchange Commission, including the company's Form 20-F.

Company Contact: Australia Dr Lee Finniear Chief Executive Officer Ph: +61 7 3123 4700 USA Peter Faulkner SVP US Operations Ph: +1 703 248 8218

Metal Storm Limited ADS (MM) (NASDAQ:MTSX)
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