JERSEY CITY, N.J.--(BUSINESS WIRE)--TAR SITO LendCo LLC (“TAR”), SITO Mobile Ltd.’s (NASDAQ:SITO) senior secured lender announces it has filed a complaint against SITO indicating it has defaulted on its loan documents as the result of, among other things, various breaches.
On July 11, 2017, TAR became the secured lender and successor collateral agent under certain security and loan agreements previously entered into between Fortress Credit Co LLC and SITO. Under the terms of such agreements, SITO is required to, among other things, use their best efforts to pursue the monetization of SITO’s patent portfolio — which serves as collateral for the secured loan — as well as provide detailed information relating thereto. Such loan documents further provide that TAR, as secured lender and collateral agent, can declare the balance of the patent revenue stream to be immediately due and payable, upon a default, in the amount of $5 million if the payment occurs prior to March 31, 2018, and $7.5 million thereafter (in each case less any amounts previously paid out).
TAR has tried repeatedly to obtain information regarding SITO’s best efforts, if any, to monetize the patent portfolio, and other information required to be provided by SITO under the loan documents. Rather than acting in accordance with the terms of the loan documents, SITO’s board has proceeded in a reckless manner that has left TAR no option but to place SITO in default on its loan.
SITO Stockholders should wonder why, rather than provide basic information (including the company’s cash position), SITO’s board is prepared to accumulate legal fees and create distraction for the company by defaulting on their loan. As long as the loan agreement is in place, the company is unable to incur debt or otherwise access a working capital facility, and it is obligated to spend significant time and effort to monetize its patent portfolio, rather than advance the business of the company. It makes no sense that SITO has refused to engage with TAR in an attempt to settle this matter amicably.
SITO has failed to meet or has breached, and therefore defaulted on its obligations under the loan documents by:
- Failing to comply with its obligations to use best efforts to monetize the patents that are collateral under the loan documents.
- Failing to provide monthly (and on demand) certifications on information relating to the patent portfolio, including among other things, the company’s efforts with respect to the monetization of such patents.
- Failing to provide reports to TAR calculating patent monetization revenues by the 15th of every month.
- Having incurred indebtedness outside of the ordinary course of the company’s business by paying the legal fees of a SITO stockholder.
- Failing to provide monthly certifications regarding the company’s amount of cash and cash equivalents on hand.
Additionally, the company has failed to hold an annual meeting in 2017 as required by Nasdaq listing requirements.
While TAR has accommodated SITO’s failure to comply with the loan documents reasonably and has been willing to entertain reasonable proposals from the company to settle this dispute in an amicable fashion, stockholders should be asking serious questions about the board’s willingness to default on the loan:
- As the licensing of these patents would provide significant additional revenue to the company, which would presumably have a positive effect on SITO’s stock price performance, how can the board claim to be acting in the best interests of shareholders by failing to execute on these opportunities?
- Is it possible that the board — blinded by their animosity for a former large investor which has continuously pushed the company to enhance stockholder value — is putting thwarting said investor above their responsibility to stockholders?
- Is it possible that the company is in even more dire financial straits than they have indicated?
TAR encourages the board to act in accordance with their fiduciary duties and resolve this matter quickly.