[July 27, 2017]

SITO Mobile Directors Issue Letter to Board Regarding Deficient Board Proceedings and Breach of Fiduciary Duties

Matthew Stecker and Thomas Thekkethala, directors on the Board of SITO Mobile Ltd. (NASDAQ:SITO), release a letter sent to their fellow Board members outlining significant concerns regarding the manner in which a small sub-set coalition of directors has been conducting business under the guise their coalition is representative of the entire Board.

The full text of the letter follows below:

Board of Directors
SITO Mobile, Ltd.
The Newport Corporate Center
100 Town Square Place, Suite 204
Jersey City, NJ 07310

Re: Deficient Board Proceedings / Breach of Fiduciary Duties

Dear Messrs. Rosenthal, Durden, Fisher and Pallack:

Yesterday, SITO Mobile released a letter to shareholders, under the signature of Mr. Pallack, that purports to reflect the views of the Company, and implicitly- the Board. That letter certainly does not reflect our views as directors nor the interests of all shareholders. Accordingly, we are compelled to offer our views in response and will proceed to release this letter publicly in response to the erroneous representations in your release mentioned above.

As you know, we have expressed numerous concerns regarding your conduct and decisions since we were appointed to the new board of SITO Mobile. We are now compelled to put our concerns in writing to share with you on an equal basis as it has become clear that not all directors are involved in all conversations and there appears to be a pattern of selectively sharing information.

Simply put, we believe the Board has been proceeding in an inappropriate and self-serving manner that will disadvantage shareholders and that raises serious questions about a breach of your fiduciary duties. Unfortunately for shareholders, under the direction of your sub-set coalition of directors, there has been no change from the practices of the previous board, just more of the same.

Board hijacked by special interests

Shareholders will be disappointed to learn that a majority of the nominees they elected to clean up SITO Mobile have instead endorsed pre-existing conflicts of interest and self-interested decisions.

As you know, Mr. Rosenthal, the sole holdover from the old board, was not subject to a shareholder vote. Despite being part of the problems the new board was elected to fix, your coalition decided to allow him to carry over, impeding the fresh start shareholders demanded. What is more disappointing is that despite the clear conflict of interest created by Mr. Rosenthal's simultaneous service as a director of comScore (News - Alert), Inc., your coalition saw fit to install him as Chair over our vocal objections.

As the board has moved forward, your coalition has chosen to act as though it is the entire board, in direct breach of your duty to work with all directors, depriving us - as the elected representatives of all shareholders - the right to be apprised of and deliberate on the Company's actions. As you know, all directors have the right to attend and be heard at board meetings and to participate in the supervision of the Company. Unfortunately, under Mr. Rosenthal's leadership, this has been ignored.

Following the seating of the new board, your coalition initially at least went through the motions of attempting to make it appear as if there was honest deliberation. This charade was dropped with the meeting called for July 23. For this meeting as noticed, no schedule or agenda was attached. However, what did become clear is that there has been a covert yet growing pattern of self-serving decisions at the expense of all shareholders:

Pre-arranged a major dilutive and below-market financing, selectively revealing the financing only to insiders. Shareholders would be shocked to learn it was not until the financing was fully subscribed that he full board was notified and even then it was in a false effort to provide the appearance of board consent.

When the meeting on July 23 began, Mr. Pallack began reading detailed resolutions which were designed to approve the proposed financing, later disclosed publicly on July 24. It was clear that the majority faction of the board had worked through this financing in detail, without any notice to or input from us as directors. Moreover, when a full prospectus was released at 8 a.m. the following morning (July 24), it became clear that some investors had been contacted in advance of the board "meeting" to respond to the proposed offering and that the documents themselves were prepared but not shared well in advance of the board meeting designed to approve them.

What is most shocking is that the Company's largest shareholder was not made aware of the financing and has since said it is willing to propose an alternative that would be accretive to shareholder value. This is an opportunity the Board has ignored at your direction.

When Mr. Stecker asked why no agenda for the meeting had been provided, the response stated (falsely) that no such agenda had been contemplated. Yet, when Mr. Stecker asked what notes Mr. Pallack was reading from, he was told disingenuously by another coalition director that the complex financial mechanics Mr. Pallack had been mechanically reciting for the purposes of making a motion were not pre-meditated, but rather flowed naturally "because he was smart". At several points during this discussion, Company counsel asked whether they had "covered everything in their notes", further suggesting there was prior discussion and planning by your coalition.

Mr. Stecker is the Chair of the Audit Committee, and in that role - even above and beyond his role as a board member - Mr. Stecker should have been intimately involved in any proposed financing, and its impact on all stakeholders. In fact, Mr. Stecker had a meeting scheduled for July 21 (the Friday prior to the July 23 board meeting) with Mr. Mark Del Priore, the Company's CFO - which was cancelled at the last minute, for apparently pretextual reasons. This was obviously a lie to not reveal the true work the Company was doing under your coalition's direction that was being actively hidden from us.

The Company will argue that selective disclosure to directors may have been made because we have not signed newly-issued "confidentiality agreements". We note that we were properly seated as directors in advance of the drafting of any such superfluous agreements and that we are bound by all statutory obligations. Requiring board members to pass loyalty oaths issued arbitrarily by an unruly majority should be no test for continued board participation of duly elected directors.

Forced through outrageous management compensation for an unqualified management team. In that same 'meeting', outrageous compensation packages and contracts for the executive team handpicked by your coalition were forced through. As you know, we have been strong advocates for setting reasonable compensation based on performance for a company this size - and the Board had originally discussed, come to agreement on, and voted on and approved a reasonable management compensation package. We were then very surprised when the issue of "management compensation" came up on a subsequent call and even more shocked to find out in an email sent during the call that certain members of your coalition, without consulting others, had been "renegotiating" the management package - and had taken it from reasonable to outrageous.

Specifically, we believe that the design and pay opportunity of annual bonuses to executives for fiscal 2017 are not in-line with bonuses of publicly-listed companies in the same industry and of similar size to SITO Mobile. We also take issue with certain aspects of recent equity awards to executives including the automatic acceleration of awards upon termination (other than for cause).

In light of this, Mr. Stecker asked that the Compensation Committee, including Mr. Thekkethala as a member, be permitted to review the matter. This committee did not meet on the issue, however, and instead, at the same July 23 meeting, your coalition "took the issue back" from the Compensation Committee and rammed through an approval vote of what had been merely a management "wish list" of compensation demands.

What is even more troubling is that this outrageous compensation package is going to reward a management team that is quite simply not up to the job. From the outset of the new board's installment, your coalition of directors have single-mindedly pursued a thesis that a management team led by Mr. Pallack was the route that the Company should take. Mr. Pallack had no previous experience as a chief executive in a public company and no experience in advertising technology.

Over our objections, you refused to even consider interviewing a single alternate candidate or even adding other experienced executives into the team. Mr. Stecker had even personally offered to help the team in an operating capacity, but was summarily rebuffed. While we believe Mr. Pallack to be a strong sales leader, we have always been completely amazed by coalition directors' opinion that Mr. Pallack alone can lead the Company - an attitude that led to the acceptance of the outrageous compensation request for him and his team.

Company counsel, Pepper Hamilton, colluded with your coalition to exclude certain directors from deliberation and their advice. Pepper Hamilton has a conflict of interest that, despite their best representations, they have proven unable to avoid, and for this reason alone should recuse themselves from work with the Company.

Pepper Hamilton were the attorneys for Mr. Stephen Baksa, the investor who led the proxy contest that resulted in the installment of this current board, and while the firm has since purported to state that they no longer will represent Mr. Baksa personally, they have showed in all of their actions that they still favor working with Mr. Baksa over other investors, and have demonstrated absolute loyalty to your coalition - the group of directors known to Mr. Baksa. While these are only the most prominent of the recent board actions, this has been a recurring theme.

Shareholders need a board they can trust

We are of the view that we as directors were elected to represent all shareholders, not just one. On behalf of all shareholders we demand:

1. The dilutive and below-market financing be halted until the issues we have outlined be addressed to the satisfaction of all directors.

2. In the interest of providing the fresh start shareholders expect, and removal of the clear conflict of interest, Mr. Rosenthal should resign as Chair and director. We can only conclude it is because of his influence that the poison pill that was campaigned so hard against has remained in place.

3. The Board should consider in good faith a proper search for a well-qualified executive team.

We look forward to you confirming your action on these items on a prompt basis.

Sincerely,

Matthew Stecker

Director

Thomas Thekkethala

Director

View source version on businesswire.com: http://www.businesswire.com/news/home/20170727006715/en/

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