Sydney, July 28, 2006 (ABN Newswire) - Metal Storm (ASX: MST)(NASDAQ: MTSX) has today lodged with ASIC a prospectus for an underwritten A$27.5 million capital raising through a Renounceable Rights Issue of unsecured Convertible Notes and attaching Options. The funds raised will be primarily used to fund the advancement of the company's commercialisation strategy and to finance specific product development programs.

Approximately 203.7 million Notes with a face value of A$0.135 are being offered to eligible shareholders on the basis of 1 Note for each 2.674 ordinary shares on issue to raise approximately A$27.5 million.

The issue is fully underwritten by Patersons Securities Limited and sub-underwritten to the extent of A$26.125 million by Harmony Investment Fund Limited.

Convertible Note holders will receive a fixed rate of return of 10% per annum paid three monthly in arrears, for a three year period. The full terms of the Notes are set out in the prospectus, a copy of which will be available for review on the company's website at www.metalstorm.com.

Investors will also receive one Option for every two Notes allotted for no additional consideration. The Options may be exercised at any time before 5pm AEST on the date which is three years from the date of issue of the Options by paying the exercise price of A$0.15 per Option.

The Convertible Notes and the Options will be quoted on ASX. Ordinary shares issued on conversion of the Notes or exercise of the Options will rank equally in all respects with all other ordinary shares on issue.

The net funds raised, together with existing cash reserves and confirmed revenues from current operations, are expected to be sufficient to cover the estimated cost of existing and planned operations and interest payable on the Convertible Notes through to the August 2009, without assuming additional income from other sources or from the exercise of options.

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