Letter to CDI Holders to be included in the EGM material

27 September 2022

Structural Monitoring Systems CDI Holders,

We have been asked by the Board to prepare a statement to our fellow CDI holders of Structural Monitoring Systems for inclusion in the materials for the EGM. The EGM has only now been convened after we requested CHESS (owned by ASX), and who owns all the shares in the Company, to convene a meeting on our behalf. We consider that a change to the current Board is required as we have concerns about this Board’s level of compliance with the law, contractual agreements and trust over the past year. We firmly believe that the 1,000 word limit, even if a statutory provision, proves insufficient to properly address these issues.

The inadequacy of 1,000 words to make our case is highlighted by the fact that the preceding paragraph, by itself, constitutes 10.1% of the allowable text. You should be aware that the Board has, despite our substantial holding, continued to refuse to honor our request for the CDI registry so that we may make our case directly to our fellow CDI holders. As such, we feel the best forum to currently communicate with you is through our website (www.smsrequisition.com) and through direct conversations, which can be arranged by emailing sms@drakemanagement.com.

We plan to hold back on a broader presentation to CDI holders until we move closer to the meeting and/or can communicate with all CDI holders directly. We consider that members of the Board have acted in bad faith from the beginning of the events leading up to the Requisition, and the current Board’s refusal to provide the CDI holder registry in July, and again this week post announcing the EGM, is further proof that members of this Board continue to not honor their obligations.

In addition to withholding the registry, the Board has failed to honor the negotiated agreement between SMS and Drake from October 2021, that among other things, gave Drake the unrestricted ability to name a Board member. We attempted to exercise this right when it became clear to us in June that the Board was not looking out for the best interests of all shareholders. We started the EGM process in July in order to enforce the agreement without taking the Company to court, and but for the months of technical gimmicks employed by SMS’s legal counsel, this would have been over by now and the Company would be moving forward. None of this would be necessary if the Board lived by its commitments, but a demonstrated track record of breaking them has left us, and many other CDI holders, with no confidence in this Board’s ability to execute on a business plan for the benefit of all CDI holders.

It is clear that Mr. Mclarty, Mr. Wright and Mr. Love, who signs every single letter from the Company, view this as some sort of game to extend Mr. Mclarty and Mr. Wrights tenure. They have spent a tremendous amount of the Company’s money ignoring the rights of CDI holders and fighting against good corporate governance in an effort to protect the income stream of two conflicted directors, and will have nothing to show for it other than a legal bill. We do not know what they are so desperate to hide, but we do intend to get to the bottom of it once we are in a position to investigate further.

To that end, we strongly urge the CDI holders to replace Mr. Mclarty and Mr. Wright, who have no experience in the aerospace industry and own less than 3% of the Company combined (according to our data) with Andrew Roberto and Heinrich Loechteken. Mr. Roberto brings years of public and private company board experience with a focus on corporate governance and shareholder rights and will represent all CDI holders by way Drake’s almost 17% stake. Mr Loechteken brings over two decades of aerospace industry experience and independently owns roughly 1.2% of the Company. While Mr. Mclarty and Mr. Wright are clear holdovers from former CEO Toby Chandler’s years in charge, Mr. Roberto and Mr. Loechteken represent a clear break from that era and their appointment to the Board will mark the transition to a professionally run company focused on delivering tangible results to CDI holders.

If you would like to reach out, please do not hesitate to email sms@drakemanagement.com. We would be happy to arrange a phone call with you or add you to our distribution list so that we can communicate directly. We will be releasing more information in the days and weeks leading up to the vote on our website, so please check in from time to time. We would much prefer to have the ability to reach out to all CDI holders directly, but at the present time, without the Company registry we have no means to do so other than providing our contact information and website in this form. We hope the Company will act with integrity and provide the registry in short order.

Finally, this EGM offers a clear choice. CDI holders can decide to keep Mr. Mclarty and Mr. Wright, likely condemning the company to continue the status quo of the last decade made up of slow progress in the business punctuated by expensive capital raises and rights offerings. This capital has often been consumed by Board fees and broker underwriting fees, including to Mr. Mclarty’s MAC Equity Partners. The alternative is to elect Mr. Roberto and Mr. Loechteken who will each act independently of company management and other Board members and will be purely focused on the performance of the Company and the share price.


Anthony Faillace

Drake Management & affiliates