Letter to Shareholders of Structural Monitoring Systems PLC

31 July 2022

Fellow Shareholders of Structural Monitoring Systems,

I am writing this letter to you to shed some light on our decision to call a meeting of shareholders a few weeks ago. I feel it is imperative that all shareholders understand both what is currently going on at Structural Monitoring Systems and the myriad of events leading to our involvement in June.

To provide some background, Drake Management, which includes the affiliates Drake Private Investments and Drake Special Situations (Drake), is wholly owned by me (Anthony Faillace) a US based private investor. Drake has been an investor in SMS since 2011 with its current position constituting about 18% of the outstanding shares, making it by far the largest single holder. Through a number of vehicles, Drake owns and manages over 50 private market investments in addition to an institutional size portfolio of public market securities, including SMS.

While we had been concerned about the direction of SMS for some time prior to October 2021, it was at that time that we filed our first Notice of Requisition in order to stop the then-CEO Toby Chandler from completing a capital raise which was so ill-conceived that we, as the largest investor, and, as we understand it, much of the Board, did not know about the plan until two days prior to its supposed completion date. Our Notice of Requisition led to a negotiation with the Board of Directors of SMS in October of 2021 resulting in a 9-part agreement between SMS and Drake Private Investments, the two key terms of which were 1) the removal of Toby Chandler from SMS and 2) the option for Drake to designate a Board Member if/when we felt it appropriate. It should be noted that Bryant Mclarty, upon hearing of this deal, likely from his childhood friend Mr. Chandler, approached the Board and threatened to deliver his own Notice of Requisition if he were not temporarily named to the Board. To avoid a three-way battle and further distraction to the company from its focus on getting the STC from the FAA, we agreed to support Mr. Mclarty’s temporary appointment to the Board so long as he and the Board agreed to our terms.

On October 19th, 2021, Sam Wright emailed us with the upcoming agenda for the Board Meeting to take place the next day, which showed a resolution would be passed affirming the agreement with Drake and reiterated that Mr. Mclarty’s appointment to the SMS Board would be conditional upon affirming his commitment to the deal. On October 21st, we received written confirmation from then-Chairman Will Rouse that the Board was in agreement with Drake’s requirements and had passed the resolution at the meeting.

In retrospect, it was clearly a mistake to not have taken a board seat in October 2021. Unfortunately, events took a much worse turn in June when we learned from a news release that Mr. Chandler was finally gone from the company (far later than anticipated), the Head of Investor Relations Steve Forman was released seemingly without any plan, and the Chairman of the Board Will Rouse had resigned with no obvious successor. We then learned that Mr. Mclarty had appointed himself the Chairman without the required Board vote. Additionally, the most senior CVM employee, who is coincidently the only employee at SMS with airline experience, reached out to us and advised that without our intervention he planned to resign. His plan to resign was due to the fact it had been almost a year without any resolution to discussions related to implementing a long-term incentive compensation program, as we were told that Mr. Mclarty continued to refuse to engage in any substantive discussions with him.

This obvious chaos led Drake to reach out to the Board and then notify it on June 27, 2022 that we intended to take up the board seat provided in the October 2021 agreement. At that time, we simply wanted to participate in the process of working through these challenges in a collaborative manner. Incredibly, Mr. Mclarty and Mr. Wright initially refused to acknowledge our outreach or right to a board seat despite the October 2021 agreement which they were both a party to. In response, we filed our initial Notice of Requisition on June 30th 2022, which was ignored outright by the company. In our judgement, this is not only poor corporate governance, but also very likely violation of ASX listing requirements. The only response we received was an email from Mr. Mclarty on June 30th that read “No talking Anthony. Talking is done.” Up until this point, there had been no talking at all.

In an effort to foster a constructive dialogue, we decided to pull the initial Notice of Requisition a few days later. We continued to try and reach out to the Board but received no meaningful responses other than the vague promise of a future call, to which there was no follow up. At that point, we refiled our Notice of Requisition on July 8th and, while he was upset, Mr. Mclarty did eventually agree to what became an eye opening call peppered with expletives that took place at 11:30 pm US EST on July 10th 2022 . The key takeaways from the call was that Mr. Mclarty refused to acknowledge the binding agreement struck in October, to which he was a party, refused to honor his commitment to step down from the Board and vowed to never allow a Drake representative on the Board. He then told us he was going to announce an executive, whose identity he refused to divulge, in a matter of days, even though our previously filed Notice of Requisition, if passed, would immediately kick the person off the Board and out of the company. It was clear to us from the call he viewed the rushed appointment of the unnamed executive, (who we now know to be Ross Love), as a way for him to retain his seat and control of the company from the Boardroom in Perth. We later learned that there was little to no engagement with the rest of the Board prior to Mr. Mclarty and Mr. Wright forcing a vote on the appointment of Mr. Love.

Subsequent to Mr. Love being named on July 12th, 2022, we have had the opportunity to speak to him a number of times and were prepared to offer support during his so called “probationary” period. On July 29th, 2022 we notified SMS of our intention to drop Resolution 5 of the Requisition in order to allow Mr. Love to continue as Executive Director as we attempted to sort out the problems created by Mr. Mclarty and Mr. Wright. Given the actions of the past 24 hours, it is now hard to imagine Mr. Love is willing to work in good faith with an independent Board.

Our opposition to the continued involvement of Mr. Mclarty and Mr. Wright in the company, much less as Board members, comes down to four main reasons. First, as participants in the October 2021 agreement with Drake, it is particularly outrageous that they have refused to honor our right to name a Board member. Second, I do not believe they can be considered independent from Mr. Love given the rushed and secretive process they used to jam him into his role on the Board. Third, we do not consider that either Mr. Mclarty or Mr. Wright have the required degree of industry expertise or professional experience necessary to add value to SMS and its Board or governance processes. Fourth, Mr. Mclarty agreed that his appointment was to be temporary in order to transition from Mr. Chandler to a new management team and independent Board. This clear understanding was a condition to his nomination in October 2021, without which he would not have had the votes to join the Board. His recent pivot to a permanent seat to represent “the long-term Australian sharebase” seems to imply these shareholders have an interest beyond getting SMS to function properly, reach CVM commercialization, earn significant profits and have the share price appreciate as the market comes to understand the company better. We seek to represent all shareholders and do right by them, regardless of nationality.

In place of Mr. Mclarty and Mr. Wright, I have nominated through the requisition process Andrew Roberto, my colleague at Drake and Heinrich Loechteken, a long-time airline industry executive, as well as long time shareholder with over 1.6 million shares. Each of their bios are included on the last page of this letter. As a CFA charterholder and finance professional, Mr. Roberto’s principal function will be to fully understand the various SMS finance and legal/contractual issues and to use his board experience to ensure the Board is functioning in a professional and independent manner in the interest of all. I consider that Mr. Loechteken, along with Rick Duerloo, a key current Board member and senior executive at Pratt & Whitney, should be able to offer the management team real help in understanding the particular issues related to commercializing the CVM technology in the airline industry.

As the largest shareholder, I do not take these actions lightly. At Drake we must choose how to best use our time and we strongly believe that SMS can be a leader in the aerospace industry by ultimately changing the way maintenance is performed on the global commercial aviation fleet. To achieve it’s potential, SMS will require a carefully considered strategy, significant managerial effort and precise execution. We do not believe that this is possible without an effective and competent Board of Directors. As such, the choice is now very straightforward and we are compelled to act in the best interests of all shareholders.

Shareholders will either allow Mr. Mclarty and Mr. Wright, who in our opinion would be viewed at any other serious publicly-listed company as unqualified nominees, to continue to operate in a completely unprofessional manner or it will choose to let Mr. Roberto and Mr. Loechteken assist the other board members, management and key employees to address the very real challenges and opportunities SMS faces now and into the future.

On July 22nd, 2022 SMS put out a statement regarding our Notice of Requisition dated July 8th, 2022, saying “the Company now believes Drake Private holds greater than 5% of the voting rights of the shares on issue.” Tonight, the company is backtracking and saying that although Drake is a 5% shareholder, Drake does somehow not have a right to call a meeting and SMS has not provided any explanation to us beyond the vagaries noted in their release. This is absolutely unacceptable and shows how little regard the trio of Mr. Mclarty, Mr. Wright and Mr. Love have for shareholders, much less their largest shareholder. Their actions show that, contrary to the assurances by Mr. Love less than a week ago, they do not believe in good corporate governance and accountability to all investors. The only solution is for a new board with a real plan to commercialize CVM and respect shareholder rights.

Make no mistake, despite their best efforts to subvert the legal corporate governance process, there will be a meeting in the near future and we encourage you to support us so that SMS will be best positioned to the future.

Sincerely,

Anthony Faillace

Drake Management & affiliates

For inquiries, please reach out to us at sms@drakemanagement.com or visit www.smsrequisition.com