Ann: Letter to Shareholders , page-2

26 October 2011
[Shareholder]
[Address]
Dear Shareholder
Non-renounceable entitlement offer to raise up to approximately A$6.6 million
This letter is to notify you that on 25 October 2011 Metal Storm Limited (ASX: MST) (Metal Storm)
announced a non-renounceable pro rata entitlement offer of ordinary shares in Metal Storm to eligible
shareholders in Australia, New Zealand and Singapore to raise up to approximately A$6.6 million
(Entitlement Offer). The Entitlement Offer is not underwritten.
This is an important capital raising for Metal Storm. The Metal Storm Board recommends the Entitlement
Offer to all Eligible Shareholders who are entitled to subscribe for the same number of shares they currently
hold at an issue price of $0.003 per share.
Details about the Entitlement Offer
The key information in connection with the Entitlement Offer and important dates are set out below for your
reference:
Details of the Entitlement
Offer
The Entitlement Offer is non-renounceable and is being undertaken on the
basis of one new fully paid ordinary share (New Share) at an issue price of
A$0.003 per share for every one share held.
Who will be eligible to
participate?
The record date for determining shareholder entitlements is 7.00 pm (Sydney
time) on 3 November 2011 (Record Date). Only shareholders who at the
time have a registered address in Australia, New Zealand or Singapore will
be eligible to participate in the Entitlement Offer (Eligible Shareholders).
What happens if the
aggregate payment
amount for the New
Shares I wish to subscribe
for under the Entitlement
Offer includes a fraction of
a cent?
In these circumstances, the aggregate payment amount will be rounded to
the nearest cent. Your entitlement to New Shares and the aggregate
payment amount to subscribe for those New Shares will be set out in the
Entitlement and Acceptance Form that will accompany an offer booklet which
is expected to be despatched to Eligible Shareholders on or about
7 November 2011 (Entitlement Offer Booklet).
Will optionholders be
eligible to participate?
Letters were sent to optionholders on 25 October 2011 to notify them that
they must exercise their options by the Record Date should they wish to be
eligible to participate in the Entitlement Offer (assuming they have a
registered address in Australia, New Zealand or Singapore).
How many securities will
be issued?
Metal Storm may allot up to approximately 2,225,078,911 New Shares under
the Entitlement Offer.
How will the New Shares
be treated?
The New Shares issued will rank equally with existing shares in Metal Storm.
Metal Storm has applied for quotation of all of the New Shares on ASX.
Can I apply for more than
my entitlement?
Eligible Shareholders will be entitled to apply for New Shares in excess of
their entitlement (Additional New Shares) at the same issue price of $0.003.
If the Entitlement Offer is oversubscribed, applications for Additional New
Shares may be scaled back in whole or part.
Metal Storm Limited
Is the Entitlement Offer
subject to a minimum
amount of funds being
raised?
No, the Entitlement Offer is not subject to a minimum amount of funds being
raised. So long as the Entitlement Offer is not oversubscribed, the Company
will accept all valid applications for New Shares and Additional New Shares in
full.
What happens if there is a
shortfall in subscriptions?
To the extent that there is a shortfall in subscriptions under the Entitlement
Offer, the Directors reserve the right to allocate top up shares or place any
shortfall at their discretion within three months of the closing date of the
Entitlement Offer.
Is there a broker to the
Entitlement Offer?
No.
Will brokers who lodge
acceptances receive a
handling fee?
There will be no handling fee payable to brokers for acceptances lodged by
them on behalf of Eligible Shareholders.
What will the funds raised
be used for?
The funds raised from the Entitlement Offer will be used by Metal Storm to
provide working capital to:
• continue the development of its current products;
• reduce its reliance on Metal Storm’s equity line of credit with
Dutchess Opportunity Fund II LP, at least in the short term; and
• cover Metal Storm’s ongoing overhead and operating costs.
Further details will be provided in the Entitlement Offer Booklet to be sent to
Eligible Shareholders which Eligible Shareholders should read carefully
before deciding whether to participate in the Entitlement Offer.
The Entitlement Offer provides an equitable way for Metal Storm to raise funds from existing, Eligible
Shareholders.
Full details of the Entitlement Offer will be set out in the Entitlement Offer Booklet.
The Entitlement Offer Booklet is expected to be despatched to Eligible Shareholders on or about
7 November 2011 and will be made available on Metal Storm’s website (www.metalstorm.com) and on
ASX’s company announcements platform (accessible at www.asx.com.au).
The important dates for the Entitlement Offer are:
Ex date – Shares trade without an entitlement to participate in the Entitlement
Offer
27 October 2011
Record Date to determine entitlements (7.00 pm Sydney time) 3 November 2011
Anticipated date for despatch of the Entitlement Offer Booklet and Entitlement and
Acceptance Forms to Eligible Shareholders
7 November 2011
Entitlement Offer opens 7 November 2011
Entitlement Offer closes (5.00 pm Sydney time) – last date for lodgement of
Entitlement and Acceptance Forms and payment in full
21 November 2011
New Shares quoted on a deferred settlement basis 22 November 2011
Allotment of New Shares issued under the Entitlement Offer 29 November 2011
Normal trading of New Shares commences on ASX 30 November 2011
Eligible Shareholders who wish to participate in the Entitlement Offer will need to use the Entitlement and
Acceptance Form that accompanies the Entitlement Offer Booklet in accordance with the instructions printed
Metal Storm Limited
on that form. Eligible Shareholders should read the Entitlement Offer Booklet carefully before deciding
whether to participate in the Entitlement Offer.
Important notice to Ineligible Shareholders
Shareholders that are not Eligible Shareholders (Ineligible Shareholders) are not eligible to participate in
the Entitlement Offer.
Metal Storm has determined that it is unreasonable to extend the Entitlement Offer to Ineligible
Shareholders. Metal Storm made this decision after considering:
• the cost of complying with legal and regulatory requirements outside Australia, New Zealand and
Singapore;
• the number of Ineligible Shareholders; and
• the number and value of New Shares which could be offered to Ineligible Shareholders.
The securities to be issued under the Entitlement Offer have not and will not be registered under the United
States Securities Act of 1933, as amended (US Securities Act), or the securities laws of any state or other
jurisdiction of the United States and, in connection with the Entitlement Offer, may not be offered or sold in
the United States or to, or for the account or benefit of, US persons (as defined in Rule 902(k) under
Regulation S of the US Securities Act).
Further information on the Entitlement Offer
For further information on the Entitlement Offer you should contact the Entitlement Offer information line on
1300 661 673 (within Australia) or +61 3 9415 4382 (outside Australia).
Update on proposed changes to the terms of the convertible notes
On 17 October 2011, Metal Storm announced that Lind Partners, LLC, as manager of the Australian Special
Opportunity Fund LP (ASOF), had agreed to purchase existing Secured Notes with a face value of
approximately A$13 million and assist the Company with a reorganisation of its capital structure. One of the
proposals supported by ASOF is an extension to the maturity date of Metal Storm’s existing Secured Notes
and Interest Bearing Notes for three years to 1 March 2015. Metal Storm has agreed to seek approval from
its noteholders and shareholders for this extension.
In addition to the proposed extension to the maturity date of these convertible notes, Metal Storm also
proposes to seek approval from noteholders and shareholders to amend the conversion price of the
convertible notes so that the convertible notes will convert on a market-based formula without a minimum
conversion price (which is significantly above the current share price).
Further information about the proposed amendment to the conversion price and other amendments to the
convertible notes will be set out in the notices of meeting for the noteholder and shareholder meetings.
Yours faithfully
Brett Farmer
Company Secretary