KIT digital Receives Revised Offer from Group Led by Former Chair

Attention: Bill Russell, ChairmanDear KIT digital Board of Directors,On November 23, 2012, we sent you a detailed letter describing ourdisappointment in the performance of KIT digital Inc.'s (NASDAQ: KITD) current management team in both administering the business andcapitalizing on strategic opportunities that could have generated significantvalue for the Company's shareholders (the "Initial Letter").  In our InitialLetter, we also outlined our own turnaround plan for KITD and urged you toimmediately engage with us regarding a provisional offer to acquire theCompany.Since sending the Initial Letter additional information has come to ourattention that paints an even more troubling state of affairs within theCompany than we originally believed. We believe management is confused at thecurrent crossroads and that the Company is severely limited in its options—asituation that will likely deteriorate with time.Your demonstrated lack of urgency regarding alternatives to create value forshareholders is particularly unacceptable given that: o KITD has a very low cash balance (less than $7 million of unrestricted cash available to fund operating activities) and we believe the Company is operating at a significant cash burn in the near-term — providing an extremely short runway to solve its manifold issues; o The Company requires additional capital but the recent, dramatic downward share price movement and lack of audited financials will make it very difficult to raise additional financing at anything but terribly dilutive terms–in fact we believe the Company failed in a desperate attempt to close a financing even prior to its announcement that it was restating historical financials and delaying third quarter results; o The Company appears to have misrepresented the reason for the delayed release of its 10-Q for the period ending September 30, 2012, and inappropriately utilized the filing extension granted to companies due to Hurricane Sandy in an attempt to obfuscate the underlying liquidity issues and accounting issues afflicting the Company; o KITD is in material, technical default under its senior secured note issued to Western Technology Investment ("WTI") due to the Company's restatement of its historical financials, enabling WTI to pursue all rights available to it under the secured note agreement to remedy this default—including foreclosure on all of KITD's assets and intellectual property globally; o Based on the current price of KITD common stock, the terms of the Share Purchase Agreement entered into between KITD and Hyro Limited ("Hyro") on April 21, 2012 obligate the Company to issue nearly twenty (20) million new shares to Hyro shareholders within the next 30 days; and o KITD's current share price and its lack of audited financials puts the Company at serious risk of running afoul of the NASDAQ continued listing requirements.We have also received numerous unsolicited accounts of announcements andcomments made by KITD management last week to employees, vendors and customersthat call into question management's grasp of the Company's challenges ortheir ability to navigate the Company out of its dire straits. We believethese communications included claims that (a) acquisition offers received bythe Company in the past have been too low to be considered; (b) the Companywill pursue a standalone path and will not entertain future acquisitionoffers; (c) the Company has not and will not consider filing for bankruptcyprotection; and (d) the Company has enough cash to weather this period andwill be breakeven by January or February. Although we appreciate management'sdesire to calm the Company's various constituencies, reckless statements likethese undermine credibility, encourage complacency and prevent the Companyfrom successfully addressing its myriad challenges.More importantly, we are aware of numerous strategic and financial partiesinterested in the Company that have been ignored, rebuffed and stonewalled inrecent months and weeks by the Company and its financial advisors, or havebeen paralyzed for months by standstill provisions included in the formconfidentiality agreement propagated by the Company as a requisite forentering into any acquisition dialogue.If any of the foregoing conclusions are based on incorrect information, pleaseopenly correct our understanding.  We fear that KITD's current structural, commercial and liquidity challengeswill worsen and compound—leaving the Company and its shareholders withlimited, if any, options to preserve or generate value for shareholders. Assuch, we urge you to take immediate action to the benefit of shareholders and: o Execute on the operational turnaround plan articulated in our Initial Letter; o Clearly explain your balance sheet fortification strategy to KITD shareholders, specifically how you intend to avoid a foreclosure by WTI or a similar action taken by a replacement, "last resort" lender; o Conduct an open and transparent auction of the business (without discriminating against any prospective bidders) with a reasonable minimum bid price; and o Release any party that is currently subject to a standstill provision from any restrictions on participating within or pursuing a transaction to acquire the Company.With respect to our provisional buy-out offer from the Initial Letter, neitheryou nor your advisors have engaged with us directly. However, several daysafter you received our Initial Letter, we were contacted by an executive ofJEC Capital (the New York hedge fund that currently controls the Company andfor which current KITD CEO Peter Heiland serves as Managing Director), whostated that you were not taking our offer seriously because you were unsure ofour financial backing, and encouraged us to submit an offer to the board ofKITD using a "customary offer letter format".  While we believe this isa delaying tactic—since we used a standard, conditional offer structure andyou are aware of at least one of our large private equity partners—we havenevertheless complied with this request. Earlier today, December 5, 2012, weseparately submitted a revised, non-binding offer letter in a customary formatto the Company's board of directors, as well as a draft confidentialityagreement that we would be prepared to sign in order to pursue a potentialtransaction. As part of this documentation, we said we would expect to be ableto reach a definitive and binding acquisition agreement within thirty (30)days of being granted due diligence access.Given the current price of KITD stock, compounded by the Company's strategicdrift and worsening liquidity and capital structure issues, we have loweredour indicative offer to acquire the Company to a range of $1.35 -$1.70 pershare—representing, at the midpoint of the range, a 112% premium to the $0.72closing price of the Company's shares on Tuesday, December 4, 2012. Our offeris subject to due diligence, your release of certain parties from standstillagreements, and a mutually acceptable definitive agreement.We believe that time is of the essence and are prepared to immediately engagewith the Company and its legal and financial advisors regarding thistransaction. In the absence of a response to this letter by 5pm ET onWednesday, December 12, 2012 that generates demonstrable progress towards atransaction, we will evaluate other options available to us—including, but notlimited, to an offer extended directly to shareholders and/or alternativeentry points into the Company's capital structure.We look forward to your timely response.Respectfully,Kaleil Isaza TuzmanOn behalf of KIT Capital, Ltd.Contact: Jonathan CutlerJCUTLER MEDIA GROUPJC@jcutlermedia.com