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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
CATUITY INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
CATUITY INC.
<Table>
LEVEL 4 BALLARAT HOUSE 2711 E. JEFFERSON AVE.
68-72 WENTWORTH AVE. DETROIT, MICHIGAN 48207
SURRY HILLS NSW 2010 AUSTRALIA
</Table>
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2003
We will hold the Annual Meeting of Shareholders of Catuity, Inc. at the AAP
Centre Theatrette, 259 George Street, Sydney, NSW 2000 Australia on Thursday May
15, 2003 at 9:30 a.m. Australian Eastern Standard Time (Wednesday May 14, 2003
at 7:30 p.m. Eastern Daylight Time in the United States) for the following
purposes:
1. To elect six members of the board of directors to serve until the
next Annual Meeting and until their successors have been elected and
qualified;
The Board of Directors recommend a vote FOR approval of the
election of the nominees listed under Proposals 1 through 6.
2. To act upon such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
We have described the items of business more fully in the Proxy Statement
accompanying this Notice. The record date for determining those shareholders who
were entitled to notice of, and to vote at, the Annual Meeting and at any
adjournment is April 2, 2003. The stock transfer books will not be closed
between the record date and the date of the Annual Meeting. A list of
shareholders entitled to vote at the Annual Meeting will be available for
inspection at Catuity's offices.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy promptly in the accompanying reply
envelope. Please refer to the enclosed voting form for instructions. You may
revoke your proxy at any time prior to the Annual Meeting. If you decide to
attend the Annual Meeting and wish to change your proxy vote, you may do so
automatically by voting in person at the Annual Meeting.
By Order of the Board of Directors
/s/ Jack H. Lowry
JOHN H. LOWRY III
Secretary
Detroit, Michigan
April 4, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
VOTING RIGHTS AND SOLICITATION.............................. 1
Voting.................................................... 1
Proxies................................................... 1
Solicitation of Proxies................................... 1
PROPOSALS NO. 1-6 ELECTION OF DIRECTORS..................... 2
General................................................... 2
Business Experience of Directors.......................... 2
Board Committees and Meetings............................. 3
Director Compensation..................................... 4
Recommendation of the Board of Directors.................. 4
OWNERSHIP OF SECURITIES..................................... 5
Compliance with SEC Reporting Requirements................ 6
EXECUTIVE COMPENSATION AND RELATED INFORMATION.............. 6
Compensation Committee Report............................. 6
Compensation Philosophy and Objectives.................... 6
Compensation Components and Process....................... 7
Compensation Committee Interlocks and Insider
Participation.......................................... 8
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS..... 8
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.............. 10
Executive Compensation.................................... 10
Employment Contracts, Termination of Employment, and
Change in Control Agreements........................... 11
Certain Relationships and Related Transactions............ 13
STOCK PERFORMANCE GRAPH..................................... 14
Shareholder Proposals for 2004 Proxy Statement............ 14
FORM 10-K................................................... 15
OTHER MATTERS............................................... 15
</Table>
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
We are furnishing these proxy materials for the solicitation of proxies by
the Catuity Inc. Board of Directors for our Annual Meeting of the Shareholders
to be held on Thursday, May 15, 2003 at 9:30 a.m. (AEDT) at the AAP Theatrette,
AAP Centre, 259 George Street, Sydney, NSW 2000 Australia (Wednesday, May 14,
2003 at 7:30 p.m. United States Eastern Daylight Time) and at any adjournments
or postponements. We first mailed these proxy materials on or about April 11,
2003 to all shareholders entitled to vote at the Annual Meeting.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are listed in the accompanying Notice of Annual Meeting of Shareholders.
We have described each proposal in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
VOTING
Our Common Stock is the only type of security entitled to vote at the
Annual Meeting. On April 2, 2003, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were 8,633,555 shares
of Common Stock outstanding. Each shareholder of record on April 2, 2003 is
entitled to one vote for each share of Common Stock held on that date. One third
of the outstanding shares of Common Stock entitled to vote must be present or
represented at the Annual Meeting in order to have a quorum for the conduct of
business generally. Abstentions and broker non-votes are counted as present for
the purpose of determining the presence of a quorum for the transaction of
business. In the election of directors, the six candidates receiving the highest
number of affirmative votes will be elected. Any other matters that may be
considered at the Annual Meeting will require the approval by affirmative vote
of a majority of our outstanding voting shares present or represented and
entitled to vote on those matters at the Annual Meeting. Abstentions and broker
non-votes can have the effect of preventing approval of a proposal where the
number of affirmative votes, though a majority of the votes cast, does not
constitute a majority of the shares present or represented and entitled to vote
on the particular matter. The inspector of election appointed for the Annual
Meeting will tabulate all votes. The inspector will separately tabulate
affirmative and negative votes, abstentions, and broker non-votes.
PROXIES
Whether or not you are able to attend the Annual Meeting, we urge you to
vote your proxy. Catuity's Board of Directors is soliciting your proxy, and the
Board will vote your proxy as you direct on your proxy when properly completed.
If you sign and return your proxy but do not specify any voting directions, your
proxy will be voted FOR the proposals, and in the discretion of the proxy
holders as to other matters that may properly come before the Annual Meeting.
You may revoke or change your proxy at any time before the Annual Meeting. To do
this, send a written notice of revocation or another signed proxy with a later
date to Catuity's Secretary at our principal executive offices before the
beginning of the Annual Meeting. You may also revoke your proxy by attending the
Annual Meeting and voting in person.
SOLICITATION OF PROXIES
Catuity will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional solicitation material we furnish to shareholders. We will
furnish copies of solicitation material to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to the beneficial owners,
and we have retained Proxy Services Inc. to assist us in this endeavor. We
anticipate that we will pay US$1,500, plus reasonable out of pocket expenses,
for these services. The original solicitation of proxies by mail may be
supplemented by a solicitation by telephone,
1
telegram, or other means by our Directors, officers, or employees. We will not
pay any additional compensation to these individuals for these services. Except
as described above, we do not presently intend to solicit proxies other than by
mail or via the Internet.
PROPOSALS NO. 1-6
ELECTION OF DIRECTORS
GENERAL
The names of our nominees for director, their positions and offices with
Catuity are set forth in the table below. The proxy holders intend to vote all
proxies received by them in the accompanying form for the nominees listed below
unless otherwise instructed. If any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who your Board may designate to fill the vacancy. As of the date of this
Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a director. The six nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected directors to serve until the next Annual Meeting and
until their successors have been elected and qualified. Shareholders may not
cumulate votes in the election of directors.
<Table>
<Caption>
NAME AGE POSITION(S)
---- --- -----------
David L. Mac. Smith.............. 52 Director and Chairman(2)
Michael V. Howe.................. 54 Director, President and Chief Executive Officer(2)
Alexander S. Dawson.............. 59 Director(1),(2)
Duncan P.F. Mount................ 55 Director(1)
Alan L. Gilman................... 59 Director(1),(2)
Robert C. Robins................. 61 Director
</Table>
- ---------------
(1) Member, Audit Committee
(2) Member, Compensation Committee
BUSINESS EXPERIENCE OF DIRECTORS
David L. Mac. Smith is our founder and currently our Chairman of the Board.
He has been the Chief Executive Officer and Managing Director of Chip
Application Technologies ("CAT"), our wholly owned subsidiary, since November
1992. In December 1999, he became our President and CEO. In January 2000, he
resigned as our President and CEO and became our Chairman. Prior to November
1992, he was the founder and, from 1982 to 1991, CEO of Technology Investment
Management Limited, a funds management company with specific focus on technology
related businesses. He has a Bachelor of Law degree from the Australian National
University.
Michael V. Howe has served as our President and Chief Executive Officer
since January 2000. From December 1995 through December 1999, he was the
Director of Marketing Communications for United Airlines, responsible for the
United Mileage Plus loyalty rewards program and the United partnership program.
Prior to joining United Airlines, he served as the Chief Executive Officer of
Young and Rubicam Advertising in Detroit, Michigan from October 1990 to November
1995. He has a Bachelor of Business Administration from John Carroll University
and a Master of Business Administration from Michigan State University.
Alexander S. Dawson is currently one of our non-employee Directors. He
served as the Chairman of CAT, our wholly owned subsidiary, from November 1992
to December 1999. From April 1987 to January 1991, he was Chief Executive
Officer of Arnotts Ltd., Australia's largest biscuit and snack food
manufacturing company. From January 1988 to December 1990, he was a member of
the Business
2
Council of Australia. He served as Chairman of United Distillers (Australasia)
Limited from August 1994 to March 1996. He has a Bachelor of Commerce degree
from the University of New South Wales and a Master of Business Administration
from Columbia University. Mr. Dawson is a member of the Institute of Chartered
Accountants in Australia.
Duncan P.F. Mount is currently one of our non-employee Directors. He served
as a non-employee Director of CAT, our wholly owned subsidiary, from March 1999
to December 1999. From October 1996 to September 1999, he was the Asian adviser
to CEF.TAL Investment Management Limited, a Hong Kong based joint venture
between the Canadian Imperial Bank of Commerce, Cheung Kong Holdings Limited and
TAL Investment Counsel. He spent 17 years in Hong Kong as the Managing Director
of Gartmore Investment Management Limited, from May 1980 to October 1988, and as
managing director of CEF Investment Management Limited from May 1988 to October
1996, entities which are fund management and investment companies. From October
1996 to December 1998, he was Managing Director of CEF.TAL Australia Limited. He
holds a Bachelor and Master of Arts degree in Economics and Law (Hons) from
Cambridge University.
Alan L. Gilman joined the Board of Directors on July 1, 2000 following his
retirement from Arthur Andersen LLP. For 22 years prior to retirement, Mr.
Gilman was a partner with Arthur Andersen LLP and specialized in the retail
industry. Most recently he managed the Arthur Andersen Competency Center,
specializing in retail consulting. From September 1992 to August 1999, he served
as the managing partner of Senn-Delaney, a unit of Arthur Andersen specializing
in the retail industry. In addition to his role with Senn-Delaney, he held
worldwide leadership responsibility for Arthur Andersen's retail industry and
consumer products activities. Prior to September 1992, he was an Audit Partner
focusing primarily on retail distribution and advertising. Mr. Gilman is also
serving as the chairman of the Audit and Compensation Committees of the Board.
Robert C. Robins joined the Board of Directors on October 9, 2000 following
his retirement from Visa USA. He is currently an Executive Vice President of
Business Development with National Processing Corporation. Mr. Robins was
Executive Vice President of Visa USA in charge of the bankcard association's
division that markets Visa products and services to merchants across the United
States. Prior to that he spent seven years in various sales and marketing
management positions with American Cyanamid Company. He also was with Alba Inc.
and the Nestle Corporation in both field sales and corporate management
positions.
BOARD COMMITTEES AND MEETINGS
During the year that ended on December 31, 2002, the Board of Directors and
its' committees held twenty-one meetings. All of the directors attended or
participated in more than 75% of the aggregate of (i) the total number of
meetings of the Board of Directors and (ii) the total number of meetings held by
all Committees of the Board on which each such director served.
Each of our directors holds office until the next annual meeting of
shareholders or until his successor has been duly elected or qualified or until
his earlier death, resignation or removal. Executive officers are appointed by,
and serve at the discretion of, our Board of Directors.
The board has two standing Committees: the Audit Committee and the
Compensation Committee.
The Audit Committee assists the Board in monitoring the integrity of the
Company's financial statements, the independent accountant's qualifications and
independence, the performance of the independent accountants and compliance by
the Company with legal and regulatory requirements. It selects the independent
auditors and is also responsible for oversight of the annual report required by
the rules of the Securities and Exchange Commission to be included in the proxy
statement. The Audit Committee is composed of three individuals, including
Messrs. Gilman (the Chairman), Mount and Dawson, each of whom is independent as
that term is defined in section 10A(m)(3) of the Exchange Act and the listing
standards of the Nasdaq. The Board of Directors has determined that Mr. Gilman,
formerly a partner with Arthur Andersen LLP is an audit committee financial
expert as defined in section 3(a)(58)
3
of the Exchange Act and the related rules of the Commission. In addition, the
Board of Directors has determined that both Mr. Dawson and Mr. Mount have
significant experience in reviewing, understanding and evaluating financial
statements and are financially literate. The Audit Committee held four meetings
during 2002.
The Compensation Committee is responsible for establishing the compensation
levels of the Company's executive officers. Members of the Committee who are
also executive officers do not participate in discussions or decisions about
their own compensation level or changes in it. This Committee currently consists
of Messrs. Mac. Smith, Howe, Gilman and Dawson with Mr. Gilman serving as
Chairman. The Compensation Committee held three meetings during 2002.
DIRECTOR COMPENSATION
During 2002, non-employee directors received a US$10,000 annual retainer
fee, paid in quarterly payments of US$2,500 following each calendar quarter, for
serving on the Board. In addition, each director receives a US$1,000 fee for
each meeting attended during the year. A fee of US$5,000 per year is paid to the
Chairperson of a Committee and a fee of US$2,000 per year is paid to Board
members who serve as Committee members as part of Director compensation. Under
the Director Stock Option Plan, upon the date each non-employee director first
becomes a member of the Board, the director automatically receives a stock
option to acquire 10,000 Catuity shares. In addition, on the last business day
of September of every year, each non-employee director then in office will
receive a stock option to acquire 5,000 Catuity shares. The exercise price per
share of any option is the fair market value on the date of grant.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommend a vote FOR the election of the nominees
listed above.
4
OWNERSHIP OF SECURITIES
The following tables set forth certain information regarding beneficial
ownership of our capital stock as of March 31, 2003 by:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- our Chief Executive Officer and the other named executive officers
included in the Compensation Tables below;
- each of our Directors; and
- all of our Directors and executive officers as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) PERCENT OWNED(2)
- ------------------------------------ ---------------------- ----------------
Duncan P.F. Mount(3).............................. 500,000 Direct
8 Longworth Avenue 50,000 Vested Options
---------
Point Piper, NSW 2027 550,000 6.3
Australia
David Mac. Smith.................................. 255,363 Direct
3/37 Dover Rd 198,000 Vested Options
---------
Rose Bay, NSW 2029 453,363 5.1
Australia
Michael V. Howe................................... 14,332 Direct
62 Hampton Road 319,000 Vested Options
---------
Grosse Pointe Shores, MI 48230 333,332 3.7
Alexander S. Dawson............................... 185,000 Direct
38 Macleay Street 20,000 Vested Options
---------
Potts Point, NSW 2011 205,000 2.4
Australia
John H. Lowry III................................. 2,888 Direct
21972 Heatheridge 105,000 Vested Options
---------
Northville, MI 48167 107,888 1.2
Anthony B. Garton................................. 12,958 Direct
2700 Clarendon Blvd. #211 27,500 Vested Options
---------
Arlington, VA 21146 40,458 *
Jonathan R.E. Adams............................... 2,749 Direct
10 Riggs Avenue 30,000 Vested Options
---------
Severna Park, MD 21146 32,749 *
Alan L. Gilman.................................... 1,500 Direct
4720 Morris Lake Circle 20,000 Vested Options
---------
West Bloomfield, MI 48323 21,500 *
Robert C. Robins.................................. 500 Direct
901 Glenway 20,000 Vested Options
---------
Hillsborough, CA 94010 20,500 *
Douglas G. Kilgour................................ 2,482 Direct
1321 Orleans #1213 2,500 Vested Options
---------
Detroit, MI 48207 4,982 *
All directors and executive officers as a group
(10 persons).................................... 977,772 Direct
792,000 Vested Options
---------
1,769,772 18.8%
</Table>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of
5
common stock subject to options, warrants or other rights to purchase which
are currently exercisable or are exercisable within 60 days after March 31,
2003 are deemed vested and outstanding for purposes of computing the
percentage ownership of any other person. Except as indicated by footnotes
and subject to community property laws, where applicable, the persons named
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Share data does not
include any Shares the beneficial ownership of which has been disclaimed
pursuant to SEC Rules.
(2) Percentage of Beneficial Ownership is calculated on the basis of the amount
of outstanding securities plus those securities of the named person deemed
to be outstanding under Rule 13-d3 (promulgated under the Securities and
Exchange Act of 1934, as amended) by virtue of such securities being subject
to rights to acquire beneficial ownership within 60 days after March 31,
2003. An asterisk indicates beneficial ownership of less than 1% of the
common stock outstanding.
(3) Direct ownership number includes 500,000 shares held by Boom Australia Pty
Ltd., the trustee of the Mount Family Trust, of which Mr. Mount is a
director. Vested options number includes 30,000 warrants held by Boom
Australia Pty Ltd. and 20,000 options held by Mr. Mount.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in their ownership to the
Securities and Exchange Commission ("SEC"). The SEC has established specific due
dates, and Catuity is required to disclose in this Proxy Statement any failure
to file by those dates. Based upon a review of the copies of Section 16(a)
reports for 2002 fiscal year transactions, we believe that there has been
compliance with all Section 16(a) filing requirements applicable to such
officers, Directors, and ten-percent beneficial owners for such fiscal year
except for the following individuals that were late in filing one report; John
H. Lowry, Jonathan R.E. Adams, Anthony B. Garton, Douglas G. Kilgour, Alexander
S. Dawson, Alan L. Gilman, Duncan P.F. Mount and Robert C. Robins. There were no
known failures to file required reports under Section 16(a).
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors was
constituted in early 2001. This report describes the compensation-related
activities of the Committee and the Board as a whole taken during 2002. The
Committee sets the compensation of the Chairman and the Chief Executive Officer,
reviews the design, administration and effectiveness of compensation programs
for other key executives, and approves stock option grants for all executive
officers. The Committee is composed of both executive Directors and outside
Directors. Executive Directors do not participate in the discussions or
determination of their own compensation.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
the executive officers should be designed to attract, motivate and retain
talented executives responsible for the success of the Company, should be
determined within a competitive framework and be based on individual
contribution, customer satisfaction and financial performance relative to that
of the technology industry. Within this philosophy, the Committee's objectives
are to:
- Offer a total compensation program that takes into consideration the
compensation practices of companies in the markets that the Company
competes for executive talent.
6
- Provide annual variable incentive awards that take into account the
Company's overall financial performance in terms of designated corporate
objectives.
- Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.
COMPENSATION COMPONENTS AND PROCESS
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term,
equity-based incentive awards.
Base Salary. The base salary of each executive officer is determined at
levels considered appropriate, given available information for comparable
positions at other companies. The Company's objective is to provide base salary
levels that are competitive with salaries offered at other companies in the
markets where the Company competes for talent.
Variable Incentive Awards. The Company has adopted an incentive award
program to provide a portion of the annual compensation of each executive
officer in variable incentive awards. Performance based bonuses may be awarded,
at the discretion of the Board, to an executive officer when his/her
performance, as measured against specific objectives, is meritorious.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's
long-term, equity-based incentive awards is to align the interests of the
executive officers with shareholders and to provide each executive officer with
a significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business through the award of options. The Committee
determines the size of long-term, equity based incentives according to each
executive's position within the Company and sets a level it considers
appropriate to create a meaningful opportunity for stock ownership. In addition,
the Committee takes into consideration an individual's recent performance, his
or her potential for future responsibility and promotion, and the number of
vested options held by each individual at the time of the new grant. The
relevant weight given to each of these factors varies among individuals at the
Committee's discretion.
CEO Compensation. The Board established Mr. Howe's annual base salary and
incentive compensation in December 1999. For the three calendar years 2000
through 2002 Mr. Howe received no increases in compensation, during which time
the Committee was able to assess his performance from the perspective of the
type of company, management team, and customer relationships he was establishing
for the long-term success of Catuity. Effective January 1, 2003, and following
shareholder approval, Mr. Howe's employment agreement was extended and amended.
In determining the changes in Mr. Howe's compensation and his amended employment
agreement, the Committee considered Mr. Howe's performance in the three years he
has been the President and CEO of the Company, the Company's financial
performance in very difficult market conditions relative to the performance of
other U.S. technology companies over the same period, customer relationships
established during the three years and their potential for future revenue to the
Company, Mr. Howe's stature within the payment and loyalty industries in which
the Company competes, and information available regarding the compensation
levels of other Presidents and CEOs with similar responsibilities as Mr. Howe's.
Due to the significant declines in the U.S. stock markets throughout the three
year period, and particularly in the technology sector, the Committee determined
that the options awarded to Mr. Howe in January 2000 no longer aligned Mr.
Howe's interests to those of the shareholders in the manner the options
originally were intended. Finally, it determined that a salary increase
averaging approximately seven percent per year was within the increases other
Presidents and CEOs received during the three year period of Mr. Howe's
employment.
Mr. Howe does not participate in the discussions or determination of his
own compensation.
Chairman Compensation. The Board approved the employment agreement of Mr.
Mac. Smith in June 2001 and received shareholder approval in 2002. The agreement
remained in effect during the period January 1 through December 31, 2002. On May
1, 2002 Mr. Mac. Smith received the salary increase specified in his employment
agreement. In establishing Mr. Mac. Smith's compensation, the Committee
7
considered the level of his involvement with the Company and his overall
performance. A portion of his total compensation, in the form of stock option
grants, will be determined by the Company's performance and stock price
appreciation in order to align the goals of the chairman with the long-term
interests of shareholders.
Mr. Mac. Smith does not participate in the discussions or determination of
his own compensation.
Effective September 1, 2002 Mr. Mac. Smith and Mr. Howe began voluntarily
deferring 10% of their after-tax cash compensation until shareholder approval
was received to allow them to purchase Catuity stock at the fair market price on
the last trading day of each calendar month through an Executive Director Stock
Purchase Plan ("Plan"). In the event the shareholders did not approve the plan,
Mr. Mac. Smith and Mr. Howe agreed to forego the deferred compensation. In March
2003, at a special meeting of the shareholders, the shareholders approved the
Plan. Pursuant to the Provisions in the plan, on March 31, 2003, Mr. Mac. Smith
and Mr. Howe purchased shares at the fair market price on March 31, 2003 with
the compensation each had deferred from September 1, 2002 through March 31,
2003. Hereafter, for as long as the Plan remains in effect and they participate
in the Plan, each will purchase, at the fair market value on the last trading
day of each calendar month, the maximum number of shares possible with the
compensation deferred in the month.
Submitted by the Compensation Committee
Alan L. Gilman -- Chairman
David L. Mac. Smith
Michael V. Howe
Alexander S. Dawson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors for the
2002 fiscal year are:
Alan L. Gilman -- Chairman
David L. Mac. Smith
Michael V. Howe
Alexander S. Dawson
Two of the members (Messrs. Mac, Smith and Howe) are executive officers,
and the other two members are not otherwise officers or employees of Catuity.
No executive officer of Catuity has served on the Board of Directors or
compensation committee of any other entity that has, or has had, one or more
executive officers serving as a member of the Board of Directors of Catuity.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors consists of three directors,
all of whom are independent for purposes of both the existing and proposed
Nasdaq listing requirements and the U.S. Securities and Exchange Commission's
recently adopted rules promulgated under the Sarbanes-Oxley Act of 2002. The
Audit Committee has reviewed the written charter under which it has been
operating and which was adopted by the Board of Directors and made several
changes to reflect the rules and regulations of the SEC as amended by the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, the proposed
Nasdaq Listing Requirements and the recommendations of the Conference Board
Commission on Public Trust and Private Enterprise. The amended charter is
attached as Appendix A to this proxy statement in accordance with SEC
requirements.
The Audit Committee of the Board of Directors serves as the representative
of the Board for general oversight of Catuity's financial accounting and
reporting process, system of internal control, audit process,
8
and process for monitoring compliance with laws and regulations. Catuity's
management has primary responsibility for preparing Catuity's financial
statements and Catuity's financial reporting process. Catuity's independent
accountants, Ernst & Young LLP, are responsible for expressing an opinion on the
conformity of Catuity's audited financial statements to generally accepted
accounting principles.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited
financial statements with Catuity's management.
2. The Audit Committee has discussed with the independent accountants
the matters required to be discussed by SAS 61 (Codification of Statements
on Auditing Standard, AU 380).
3. The Audit Committee has received the written disclosures and the
letter from the independent accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standards No. 1,
Independence Discussions with Audit Committees) and has discussed with the
independent accountants the independent accountants' independence.
4. The Audit Committee has received the written disclosure of fees
paid to the independent accountants for services provided during 2002,
which are as follows:
<Table>
AUDIT FEES
Audit Fees.................................................. US$87,000
ALL OTHER FEES
Audit Related............................................... 29,000
Tax Related................................................. 3,000
----------
TOTAL FEES.................................................. US$119,000
==========
</Table>
5. Based on the review and discussion referred to in paragraphs (1)
through (4) above, the Audit Committee recommended to the Board of
Directors, and the Board has approved, that the audited financial
statements be included in Catuity's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, for filing with the Securities and
Exchange Commission. The undersigned members of the Audit Committee have
submitted this Report to the Board of Directors:
Alan L. Gilman, Chairman
Alexander S. Dawson
Duncan P.F. Mount
9
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
EXECUTIVE COMPENSATION
The following tables provide certain summary information concerning
compensation and stock options for our Chief Executive Officer and the four most
highly compensated named executive officers that earned more than US$100,000
(salary and bonus) for all services rendered in all capacities to Catuity during
the year ended December 31, 2002.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
AWARDS
-------------------------
ANNUAL COMPENSATION OTHER ANNUAL
------------------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(US$) BONUS(US$) (US$)(2) OPTIONS(#)
- --------------------------- ---- ----------- ---------- ------------ ----------
Michael V. Howe....................... 2002 232,000 60,000 -0- -0-
President and CEO 2001 240,000 60,000 -0- -0-
2000 240,000 60,000 -0- 315,000
David L. Mac.Smith(1)................. 2002 233,305 -0- 5,163 -0-
Chairman 2001 201,761 -0- 4,461 100,000
2000 156,263 -0- 4,450 -0-
John H. Lowry III(3).................. 2002 150,000 20,000 -0- -0-
Vice President -- Finance and 2001 150,000 10,000 -0- -0-
Administration 2000 99,000 -0- -0- 150,000
Jonathan R.E. Adams(3)................ 2002 136,250 -0- -0- -0-
Vice President -- Corporate
Development 2001 125,000 -0- -0- -0-
2000 125,000 -0- -0- 50,000
Anthony B. Garton(1)(3)............... 2002 124,250 3,039 5,163 -0-
Vice President -- Product Development 2001 85,527 -0- 4,461 20,000
and Implementation 2000 94,238 -0- 3,687 7,500
</Table>
- ---------------
(1) Salary amounts have been translated from Australian dollars at the average
exchange rate for each year. The exchange rates were .544, .5182 and .5828,
for the years 2002, 2001, and 2000 respectively.
(2) Includes Australian Superannuation Guarantee Levy, a compulsory payment that
funds retirement benefits.
(3) A portion of the executive officers 2002 salary was used to purchase the
Company's stock under an executive stock purchase plan. The shares were
purchased at market price, therefore, no additional compensation resulted.
10
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
<Table>
<Caption>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE PRICE
UNDERLYING OPTIONS EMPLOYEES IN PER SHARE EXPIRATION
NAME AND PRINCIPAL POSITION GRANTED FISCAL YEAR (US$/SH) DATE
- --------------------------- -------------------- ------------------ -------------- ----------
Michael V. Howe..................... -0- -- -- --
President and CEO
David L. Mac. Smith................. -0- -- -- --
Chairman
John H. Lowry III................... -0- -- -- --
Vice President -- Finance and
Administration
Anthony B. Garton................... -0- -- -- --
Vice President -- Product
Development and Implementation
Jonathan R.E. Adams................. -0- -- -- --
Vice President -- Corporate
Development
</Table>
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<Table>
<Caption>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
NAME AND PRINCIPAL SHARES ACQUIRED VALUE OPTIONS AT FY-END FY-END(1)
POSITION ON EXERCISE REALIZED(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------ --------------- ----------- ------------------------- -------------------------
Michael V. Howe.......... -0- -0- 219,000/96,000 $0/$0
President and CEO
David L. Mac. Smith...... -0- -0- 188,000/12,000 $0/$0
Chairman
John H. Lowry III........ -0- -0- 100,000/50,000 $0/$0
Vice President -- Finance
and Administration
Anthony B. Garton........ -0- -0- 27,500/0 $0/$0
Vice President Product
Development and
Implementation
Jonathan R.E. Adams...... -0- -0- 20,000/30,000 $0/$0
Vice President --
Corporate Development
</Table>
- ---------------
(1) Based on the closing price per share of common stock on the Nasdaq small cap
market on the last day of 2002, less the option exercise price payable per
share.
(2) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
AGREEMENTS
Michael V. Howe. We entered into a five-year employment agreement with our
President and Chief Executive Officer, Michael Howe, dated December 5, 1999, as
amended effective January 1, 2003. Under the agreement, Mr. Howe is entitled to
receive a base salary of US$300,000. Mr. Howe is also entitled to receive a
performance-based, target cash bonus. The Compensation Committee may amend
salary and bonus amounts in Mr. Howe's Employment Agreement pursuant to an
annual review. We will pay Mr. Howe a performance bonus on Catuity achieving
certain Compensation Committee established goals
11
for Net Revenue (NR) as defined in the Agreement and Net Income Before
Extraordinary Items and Non-Cash Stock Compensation Expense (NI). The basis for
the bonus is described below:
- If NR is below the established goal and NI is less than 90% of the goal,
no bonus is earned.
- If NR is at least equal to the established goal and NI is between 90% and
99.9% of the goal, 50% of the targeted bonus is earned.
- If NR and NI are between 100% and 110% of the established goal, 100% of
the targeted bonus is earned.
- If NR and NI are between 110.1% and 120% of the established, 125% of the
targeted bonus is earned.
- If NR and NI are greater than 120% of the established goal, 150% of the
targeted bonus is earned.
The targeted bonus for 2003, at 100% achievement, is US$60,000. If one of
the measurement criteria (NR or NI) is in one of the above ranges and the other
is in a different range, the bonus amount shall be determined at the lower of
the two ranges. The goals for NR, NI and the target bonus amount at 100%
achievement of the goals will be established annually by the Compensation
Committee.
Mr. Howe received options to purchase up to 315,000 shares of common stock,
at an exercise price of US$9.50, which vested 75,000 on commencement of
employment and 12,000 at the end of each calendar quarter through the quarter
ending December 31, 2004 contingent upon his continued employment at the quarter
end. Effective January 1, 2003, Mr. Howe surrendered the 96,000 then-unvested
options he held under the grant of options included in his original contract.
These options were replaced with 100,000 options that expire December 31, 2005,
at an option exercise price of US$2.64 (AU$4.70) (this price was 20% above the
closing price of our shares on Nasdaq on January 2, 2003). These options vested
immediately. If the Company terminates Mr. Howe without cause during the term of
the amended agreement, or if the agreement is not renewed at the end of its
term, all vested options he holds as of the termination date will expire on
December 31, 2008. If his employment terminates due to death or incapacity due
to disability during the term of this amended agreement, his vested options will
expire one (1) year from the date of termination. Any unvested options held as
of the date of termination expire immediately without regard to the reason for
termination.
If we terminate the agreement without cause, Mr. Howe is entitled to one
year's written notice. We have the right to pay one year's base salary to effect
immediate termination. Mr. Howe may voluntarily terminate the agreement at any
time provided we are given 6 months' advance written notice.
David L. Mac. Smith. We entered into a two-year employment agreement with
our Chairman, David L. Mac. Smith, effective June 1, 2001. Under the agreement,
Mr. Mac. Smith received a base salary of AU$410,000 from June 1, 2001 to May 1,
2002 and a 10% increase on May 1, 2002. Mr. Mac. Smith is also entitled to
payment by us of certain required Australian withholding amounts. Under the
agreement Mr. Mac. Smith received 100,000 options at an exercise price of
AU$7.75. The options vest at a rate of 26,000 shares on June 1, 2001 and 26,000
on June 1, 2002. The remaining 48,000 options vest at the rate of 2,000 shares
per month beginning July 1, 2001. Mr. Mac. Smith may terminate the agreement by
giving six months' notice in writing. If a person or party gives notice of its
intention to acquire, or acquires, more than 30% of the issued capital of the
Company or any parent of the Company, all unvested shares and options will vest
and Mr. Mac. Smith may terminate the agreement at any time within a period of
six months following such event by giving three months' notice. We may terminate
the agreement for cause or, if Mr. Mac. Smith becomes unable to perform his
duties. The agreement terminates on September 1, 2003 if it is not renewed prior
to June 1, 2003. The agreement also provides for certain termination payments,
including a salary continuation for twelve months following termination.
Under a previous employment contract, entered into on May 1, 1995, Mr. Mac.
Smith was entitled to the equivalent of 10% of any shares issued until the time
we became listed on the Australian Stock Exchange. A loan from us was made
available to acquire these shares. At December 31, 2002, this non-interest
bearing loan to Mr. Mac. Smith, at the year ending foreign currency exchange
rate, amounted to
12
US$509,000. Our recourse for repayment of the loan is limited to dividends and
share sale proceeds. Mr. Mac. Smith may transfer shares subject to the loan to
members of his family or entities controlled by one or more members of his
family ("Related Party") without any obligation to repay the loan. In the event
of a transfer, however, the Related Party receiving the shares must comply with
all terms of the loan agreement. The sale, transfer, or disposal of any shares
by Mr. Mac. Smith or Related Party to any other person will trigger repayment of
the loan applicable to such shares.
John H. Lowry III. We entered into a five-year employment agreement with
our Chief Financial Officer, John Lowry, effective May 1, 2000. Under the
agreement, Mr. Lowry is entitled to receive a base salary of US$150,000, which
is subject to annual review for possible increase by the President and CEO. Mr.
Lowry is also entitled to receive a performance-based bonus, which will be
determined by the Board each year as part of the budget review.
Mr. Lowry received options to purchase up to 150,000 shares of common
stock, at an exercise price of US$7.68, which vested 50,000 on commencement of
employment and 5,000 at the end of each calendar quarter through the quarter
ending June 30, 2005 contingent upon his continued employment at the quarter
end. All options expire on the earlier of December 31, 2008 or the date six
months after cessation of employment.
If we terminate the agreement without cause, Mr. Lowry is entitled to nine
months' written notice. We have the right to pay nine months' salary to effect
immediate termination. Mr. Lowry may voluntarily terminate the agreement at any
time provided we are given 4 months' advance written notice.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no reportable relationships or transactions entered into in 2002
between the Company and a Director, executive officer or person beneficially
owning more than 5% of our common stock.
In November 2002, we concluded a private placement in Australia of a total
of 543,666 shares of our common stock (including Mr. Mount's 90,000 shares) to
three investors at a price of AU$3.75 per share (US$2.11 based on the foreign
exchange rate in effect on the date of the transaction). The price equaled our
shares' fair market value on the Australian Stock Exchange (ASX) on the
transaction date. In addition, each investor received one warrant share for
every three (3) shares purchased. Each warrant entitles the investor to purchase
a share of common stock at AU$4.20 AUD (US$2.37) until November 1, 2004 when the
warrants expire. The exercise price of the warrants represented approximately a
12% premium over the fair market price of the Company's shares on the date of
transaction. A placement fee of 3% of the purchase price was paid to each
investor. The proceeds were added to our general working funds to be used for
general operating purposes and to further the Company's investigation into the
data analytics and predictive modeling aspects of Customer Relationship
Management. Mr. Mount wished to participate in this placement and purchase
90,000 shares at the same price and on the same terms as the unrelated
investors, however his participation, under Australian Stock Exchange rules, was
subject to our submitting this transaction to our shareholders for approval.
In March 2003, our shareholders approved Mr. Mount's participation in the
placement, and Mr. Mount purchased 90,000 shares at a price of AU$3.75 per share
(US$2.11), for aggregate proceeds of AU$337,500 (US$189,900 based on the foreign
exchange rate in effect on the date of the transaction). These shares -- like
the shares sold to the other unrelated investors -- were sold without
registration under US securities laws pursuant to an exemption from such
registration. As a result, Mr. Mount will not be able to publicly resell these
shares for at least one year absent a registration or other available exemption
from registration. Like the two unrelated investors, Mr. Mount also received one
warrant for each three shares purchased (30,000 warrants in Mr. Mount's case)
exercisable at AU$4.20 (US$2.37) until November 1, 2004 and a 3% placement fee.
13
STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming US$100 invested on May 24, 2000 (the date on which Catuity's shares
became registered under Section 12 of the Exchange Act), along with the
composite prices of companies listed on Nasdaq and Catuity's SIC Code Index.
COMPARISON OF CUMULATIVE TOTAL RETURN -- MAY 24, 2000 TO DECEMBER 31, 2002
[PERFORMANCE GRAPH]
<Table>
<Caption>
CATUITY INC. SIC CODE INDEX NASDAQ MARKET INDEX
------------ -------------- -------------------
5/24/2000 100.00 100.00 100.00
12/29/2000 105.76 66.66 72.57
12/31/2001 17.82 36.05 57.85
12/31/2002 17.64 23.47 40.35
</Table>
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
COMPANY/INDEX 5/24/2000 12/29/2000 12/31/2001 12/31/2002
- ---------------------------------------------------------------------------------------------------
Catuity Inc. 100.00 105.76 17.82 17.64
- -----------------------------------------------------------------------------------------------
SIC Code Index 100.00 66.66 36.05 23.47
- -----------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 72.57 57.85 40.35
- ---------------------------------------------------------------------------------------------------
</Table>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report and the Company Stock
Performance Graph will not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by reference into any
future filings made by the Company under those statutes.
SHAREHOLDER PROPOSALS FOR 2004 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the Company's
Annual Meeting of Shareholders to be held in 2004 must be received by the
Company no later than December 12, 2003 in order to be included in the proxy
statement and related proxy materials. The Company's Bylaws do not place any
particular time limits or procedural requirements on a shareholder who does not
seek inclusion of the proposal in the proxy material and submits a proposal
outside of the process described in Rule 14a-8 of the Securities Exchange Act of
1934, as amended. Please send any such proposals to Catuity Inc., 2711 E.
Jefferson Ave, Detroit, Michigan 48207, Attn: Investor Relations.
In addition, the proxy solicited by the Board of Directors for the 2004
Annual Meeting of Shareholders will confer discretionary authority to vote on
any Shareholder proposal presented at that meeting, unless the Company is
provided with notice of such proposal no later than February 16, 2004.
14
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO CATUITY INC., 2711 E. JEFFERSON AVE, DETROIT,
MICHIGAN 48207, ATTN: INVESTOR RELATIONS.
OTHER MATTERS
The Board knows of no other matters to be presented for Shareholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
By Order of the Board of Directors
/s/ Jack H. Lowry
JOHN H. LOWRY III
Secretary
Dated: April 4, 2003
15
APPENDIX A
CATUITY, INC. AUDIT COMMITTEE CHARTER (REVISED MARCH 7, 2003)
ORGANIZATION
This charter governs the operations of the Audit Committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the Board of Directors. The committee shall be appointed by the Board of
Directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company as described in
the Independence paragraph below. All committee members shall be financially
literate, [or shall become financially literate within a reasonable period of
time after appointment to the committee,] and at least one member shall be a
"financial expert" as such term is defined in Section 407 of the Sarbanes-Oxley
Act of 2002, and rules issued by the Securities and Exchange Commission.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls and the annual independent audit of
the Company's financial statements. In so doing, it is the responsibility of the
committee to maintain free and open communication between the committee,
independent auditors and management of the Company.
In discharging its duties, the committee is directly responsible for:
1. Approving the appointment of the Company's outside auditors
2. Approving all audit services and pre-approving non-audit services to
be performed by the outside auditors
3. Pre-approving annual audit fees and non-audit fees
4. Resolving disagreements between the Company's management and the
outside auditors
5. Establishing procedures for the confidential and anonymous submission
by employees of questions and concerns regarding accounting and
auditing matters and
6. Investigating any matter brought to its attention with full access to
all books, records, facilities, and personnel of the Company and with
the authority and Company funds to retain outside counsel, or other
advisors for this purpose.
The Committee may delegate authority to complete certain duties to a single
member of the Committee.
INDEPENDENCE
As used in this charter, "Independent Director" means a person other than
an officer or employee of the Company or its subsidiaries, or any other
individual having a relationship that, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
The following persons shall not be considered independent:
1. A director who is employed by, or otherwise affiliated with, the
Company or any of its affiliates for the current year or any of the
last three years
A-1
2. A director who, other than as a member of the audit committee, the
Board of Directors, or any other Board committee, accepts any
consulting, advisory, or other compensatory fee from the Company;
3. A director who is a member of the immediate family of an individual
who has been employed by the Company or any of its affiliates in the
past year as an executive officer. Immediate family includes a
person's spouse, parents, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and
anyone who resides in the director's home;
4. A director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's
securities) that exceed five percent (5%) of the Company's
consolidated gross revenues for that year, or $200,000, whichever is
more;
5. A director who is employed as an executive of another entity where
any of the Company's executives serve on that entity's compensation
committee.
Notwithstanding the above, one director who is not independent, as defined
above, and is not a current employee or immediate family member of an employee,
may be appointed to the committee, if the Board, under exceptional and limited
circumstances, determines that membership on the committee by that director is
required in the best interests of the Company and its shareholders, and the
Board discloses, in the next annual proxy statement subsequent to such
determination, the nature of the relationship and the reasons for the
determination.
RESPONSIBILITIES AND PROCESSES
The Audit Committee is responsible for the duties set forth in this charter
but is not responsible for either the preparation of the financial statements or
the auditing of the financial statements. Management has the responsibility for
preparing the financial statements and implementing internal controls and the
independent accountants have the responsibility for auditing the financial
statements and monitoring the effectiveness of the internal controls. The review
of the financial statements performed by the Audit Committee is not of the same
quality as the audit performed by the independent accountants. The committee, in
carrying out its responsibilities, believes its policies and procedures should
remain flexible, in order to best react to changing conditions and
circumstances. The committee should take the appropriate actions to assist the
Company in establishing internal corporate controls for quality financial
reporting, sound business risk practices, and ethical behavior.
The Audit Committee is responsible for:
1. The appointment, compensation and oversight of the Company's outside
auditors
2. Monitoring the integrity of the Company's financial reporting process
and systems of internal control regarding finance, accounting, and
legal compliance on behalf of the Board and
3. Reporting the results of their activities to the Board.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are to report directly to the
committee, and are ultimately accountable to the Board and the Audit Committee,
as representatives of the Company's shareholders. The committee shall have the
ultimate authority and responsibility to evaluate and, where appropriate,
replace the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company pursuant to the independence
requirements set forth in the Sarbanes-Oxley Act of 2002 and the matters
included in the written disclosures required by the Independence Standards
Board. Annually, the
A-2
committee shall review and recommend to the board the selection of the Company's
independent auditors, subject to shareholders' approval, if required.
1. The committee shall meet with, or discuss with, the independent
auditors:
2. The overall scope and plans for their audit including the adequacy of
staffing
3. The pre-approval of audit fees and the pre-approval of the nature and
scope of non-audit services and fees.
4. Any difficulties or disputes with management encountered by the
independent auditors during the course of the audit and any instances
of second opinions sought by management
Any difficulties encountered in the course of the audit including any
restrictions on the scope of their work or access to required information
Notwithstanding number 2 above, the pre-approval requirement shall not
apply to the provision of non-audit services if the aggregate amount of all such
non-audit services provided to the Company by the independent auditors
constitutes no more than five percent (5%) of the total audit fees paid by the
Company to the internal auditors during the fiscal year in which the non-audit
services are provided.
The committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examinations.
The committee shall review with management and the independent auditors:
1. The financial statements to be included in the Company's Annual
Report on Form 10-K prior to the release of earnings or filing with
the SEC
2. The report by the independent auditors of (i) all critical accounting
policies and practices to be used, (ii) all alternative treatments of
financial information within generally accepted accounting principles
that have been discussed with management, the ramifications of the
use of the alternative disclosures and treatments, and the treatment
preferred by the independent auditor; and (iii) other material
written communications between the independent auditor and
management.
3. Their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant accruals,
reserves or estimates that may have a material impact on the
financial statements and the clarity of the disclosures in the
financial statements
4. Their assessment of the adequacy and effectiveness of the Company's
internal accounting and financial controls, including the Company's
system to monitor and manage business risk, and legal and ethical
compliance programs. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to
the committee by the independent auditors under generally accepted
auditing standards
5. The possible impact of any pending changes in accounting standards or
rules as promulgated by the SEC or FASB
6. The Company's quarterly reports on Form 10-Q
Once each year the committee shall provide the Board, and the Company shall
provide to the SEC and Nasdaq, written confirmation regarding:
1. Any determination that the Board has made regarding the independence
of directors who are members of the committee pursuant to this
charter
2. The financial literacy of the committee members
3. The determination that at least one of the committee members
qualifies as a "financial expert" as defined in the Sarbanes-Oxley
Act of 2002
4. An annual review and assessment of this charter.
A-3
CATUITY INC. CDI VOTING INSTRUCTIONS FORM
ARBN 089 327 882
ALL CORRESPONDENCE TO:
Computershare Investor Services Pty Limited
GPO Box 7045 Sydney
New South Wales 1115 Australia
Enquiries (within Australia) 1300 855 080
(outside Australia) 61 3 9615 5970
Facsimile 61 2 8235 8220
www.computershare.com
Mark this box with an 'X' if you have made any changes to your address
details (see reverse) / /
ANNUAL MEETING OF STOCKHOLDERS - THURSDAY 15 MAY 2003
YOUR VOTING INSTRUCTIONS ARE BEING SOUGHT SO THAT CHESS DEPOSITARY NOMINEES PTY
LTD MAY RESPOND TO A PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS OF
CATUITY INC.
VOTING INSTRUCTIONS TO CHESS DEPOSITARY NOMINEES PTY LTD
I/We being a holder of CHESS Depositary Interests of the above Company hereby
direct CHESS Depositary Nominees Pty Ltd to vote the shares underlying my/our
holding at the Annual Meeting in respect of the resolutions outlined below, as
follows:
CHESS DEPOSITARY NOMINEES PTY LTD WILL VOTE AS DIRECTED. PLEASE MARK WITH AN
/X/ TO INDICATE YOUR DIRECTIONS.
<Table>
<Caption>
FOR AGAINST
1. To elect Mr D L MacSmith as a director / / / /
2. To elect Mr A S Dawson as a director / / / /
3. To elect Mr D P F Mount as a director / / / /
4. To elect Mr M V Howe as a director / / / /
5. To elect Mr A L Gilman as a director / / / /
6. To elect Mr R C Robins as a director / / / /
</Table>
PLEASE SIGN HERE THIS SECTION MUST BE SIGNED IN ACCORDANCE WITH THE
INSTRUCTIONS OVERLEAF TO ENABLE YOUR DIRECTIONS TO BE IMPLEMENTED.
<Table>
<Caption>
INDIVIDUAL OR SECURITYHOLDER 1 SECURITYHOLDER 2 SECURITYHOLDER 3
- ------------------------------ ------------------------------ ------------------------------
| | | | | |
| | | | | |
| | | | | |
- ------------------------------ ------------------------------ ------------------------------
SOLE DIRECTOR AND SOLE COMPANY DIRECTOR DIRECTOR/COMPANY SECRETARY
SECRETARY
</Table>
/ /
----------------------------------- ------------------------- ------------
CONTACT NAME CONTACT DAYTIME TELEPHONE DATE
CAT 004715-V2
]INSTRUCTION FOR COMPLETION OF CDI VOTING INSTRUCTION FORM
YOUR VOTE IS IMPORTANT
Each Catuity Inc. CHESS Depositary Interest (CDI) is equivalent to one share
of Company Common Stock, so that every one CDI that you own at 2/04/2003
(record date) entitles you to one vote.
You can vote by completing, signing and returning your CDI Voting
Instruction Form. The CDI Voting Instruction Form gives your voting
instructions to CHESS Depositary Nominees Pty Ltd, which will vote the
underlying shares on your behalf. You need to return your completed CDI
Voting Instruction Form so that it is received at the address shown on the
Form by not later than 9:30am Australia time on 13/05/2003. That will give
CHESS Depositary Nominees Pty Ltd enough time to tabulate all CHESS
Depositary Interest votes and to vote the underlying shares.
SIGNATURE(s) OF CHESS DEPOSITARY INTEREST HOLDERS
Each holder must sign this form. If your CDIs are held in joint names, all
holders must sign in the boxes. If you are signing as an Attorney, then the
Power of Attorney must have been noted by the Company's Australian Registry
or a certified copy of it must accompany this form.
Only duly authorised officer/s can sign on behalf of a company. Please sign
in the boxes provided, which state the office held by the signatory, ie.
Sole Director and Sole Company Secretary, or Director, or Director and
Company Secretary.
If you require further information on how to complete the CDI Voting
Instruction Form, telephone the Registry on 1300 855 080.
LODGEMENT OF NOTICE
CDI Voting Instruction Forms must be returned to Computershare Investor
Services Pty Limited, Level 3 60 Carrington Street Sydney NSW 2000
Australia Facsimile: 61 2 8235 8220 or GPO Box 4195 Sydney New South Wales
1115 Australia.
FOR ASSISTANCE PLEASE CONTACT COMPUTERSHARE INVESTOR SERVICES PTY LIMITED ON
1300 855 080
<Table>
CATUITY INC. PROXY FORM
ARBN 089 327 882
ALL CORRESPONDENCE TO:
Computershare Investor Services Pty Limited
GPO Box 7045 Sydney
New South Wales 1115 Australia
Mark this box with an 'X' if you have Enquires (within Australia) 1300 855 080
made any changes to your address details (see reverse) / / (outside Australia) 61 3 9615 5970
Facsimile 61 2 8235 8220
www.computershare.com
APPOINTMENT OF PROXY
I/We begin a member/s of Catuity Inc and entitled to attend and vote hereby appoint
/ / the Chairman OR / / Write here the name of the person you are appointing if
of the Meeting this person IS SOMEONE OTHER THAN the Chairman of the
(mark with an 'X') Meeting.
or failing the person named, or if no person is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting
on my/our behalf and to vote in accordance with the following directions (or if no directions have been give, to vote FOR the
proposals and as the proxy sees fit on other matters that may properly come before the Annual Meeting) at the Annual Meeting of
Shareholders of Catuity Inc to be held at AAP Centre Theatrette, 259 George Street, Sydney NSW on Thursday 15 May 2003 at 9:30am
and at any adjournment of that meeting.
VOTING DIRECTIONS TO YOUR PROXY - PLEASE MARK / X / TO INDICATE YOUR DIRECTIONS
FOR AGAINST ABSTAIN*
1. To elect Mr D L MacSmith as a director / / / / / /
2. To elect Mr A S Dawson as a director / / / / / /
3. To elect Mr D P F Mount as a director / / / / / /
4. To elect Mr M V Howe as a director / / / / / /
5. To elect Mr A L. Gilman as a director / / / / / /
6. To elect Mr R C Robins as a director / / / / / /
* If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or
on a poll, or if your votes entitlement cannot be voted by the Chairman of the Meeting, your votes will not be counted in
computing the required majority on a poll.
APPOINTING A SECOND PROXY
I/We wish to appoint a second proxy
/ / Mark with 'X' if you AND / / % OR / / State the percentage of your voting rights or the
wish to appoint a second number of securities for this Proxy Form.
proxy.
PLEASE SIGN HERE THIS SECTION MUST BE SIGNED IN ACCORDANCE WITH THE INSTRUCTIONS OVERLEAF TO ENABLE YOUR DIRECTIONS TO BE
IMPLEMENTED.
INDIVIDUAL OR SECURITYHOLDER 1 SECURITYHOLDER 2 SECURITYHOLDER 3
- ------------------------------ ------------------------------ ------------------------------
| | | | | |
| | | | | |
| | | | | |
- ------------------------------ ------------------------------ ------------------------------
INDIVIDUAL/SOLE DIRECTOR AND DIRECTOR DIRECTOR/COMPANY SECRETARY
SOLE COMPANY SECRETARY
/ /
----------------------------------------------- ----------------------------------------------- ---------------
CONTACT NAME CONTACT DAYTIME TELEPHONE DATE
CAT 004 715-V2 +
</Table>
HOW TO COMPLETE THIS PROXY FORM
1 YOUR ADDRESS
This is your address as it appears on the company's share register. If
this information is incorrect, please mark the box and make the
correction on the form. Securityholders sponsored by a broker (in which
case your reference number overleaf will commence with an 'x') should
advise your broker of any changes. PLEASE NOTE, YOU CANNOT CHANGE
OWNERSHIP OF YOUR SECURITIES USING THIS FORM.
2 APPOINTMENT OF A PROXY
If you wish to appoint the Chairman of the Meeting as your proxy, mark
the box. If the person you wish to appoint as your proxy is someone
other than the Chairman of the Meeting please write the name of that
person. If you leave this section blank, or your named proxy does not
attend the meeting, the Chairman of the Meeting will be your proxy. A
proxy need not be a securityholder of the company.
3 VOTES ON ITEMS OF BUSINESS
You may direct your proxy how to vote by placing a mark in one of the
boxes opposite each item of business. All your securities will be voted
in accordance with such a direction unless you indicate only a portion
of voting rights are to be voted on any item by inserting the percentage
or number of securities you wish to vote in the appropriate box or
boxes. If you do not mark any of the boxes on a given item, your proxy
will vote FOR the proposal. If you mark more than one box on an item
your vote on that item will be invalid.
4 APPOINTMENT OF A SECOND PROXY
You are entitled to appoint up to two persons as proxies to attend the
meeting and vote on a poll. If you wish to appoint a second proxy, an
additional Proxy Form may be obtained by telephoning the company's share
registry or you may copy this form.
To appoint a second proxy you must:
(a) indicate that you wish to appoint a second proxy by marking the box.
(b) on each of the first Proxy Form and the second Proxy Form state the
percentage of your voting rights or number of securities applicable
to that form. If the appointments do not specify the percentage or
number of votes that each proxy may exercise, each proxy may
exercise half your votes. Fractions of votes will be disregarded.
(c) return both forms together in the same envelope.
5 SIGNING INSTRUCTIONS
You must sign this form as follows in the spaces provided:
Individual: where the holding is in one name, the holder must
sign.
Joint Holding: where the holding is in more than one name, all of
the securityholders should sign.
Power of Attorney: to sign under Power of Attorney, you must have
already lodged this document with the registry. If
you have not previously lodged this document for
notation, please attach a certified photocopy of the
Power of Attorney to this form when you return it.
Companies: where the company has a Sole Director who is also the
Sole Company Secretary, this form must be signed by
that person. If the company (pursuant to section 204A
of the Corporations Act 2001) does not have a Company
Secretary, a Sole Director can also sign alone.
Otherwise this form must be signed by a Director
jointly with either another Director or a Company
Secretary. Please indicate the office held by signing
in the appropriate place.
If a representative of the corporation is to attend the meeting the
appropriate "Certificate of Appointment of Corporate Representative"
should be produced prior to admission. A form of the certificate may be
obtained from the company's share registry.
LODGEMENT OF A PROXY
This Proxy Form (and any Power of Attorney under which it is signed)
must be received at an address given below no later than 48 hours before
the commencement of the meeting at 9:30am on Thursday 15 May 2003. Any
Proxy Form received after that time will not be valid for the scheduled
meeting.
<Table>
DOCUMENTS MAY BE LODGED USING THE REPLY PAID ENVELOPE OR: Catuity Inc. share registry
- - by posting, delivery or facsimile to Catuity Inc. share Computershare Investor Services Pty Limited
registry at the address opposite GPO Box 4195
Sydney New South Wales 1115
Australia
Facsimile 61282358220 004715-V2
</Table>
+
CATUITY, INC. 000000 0000000000 0 0000
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3
ADD 4 HOLDER ACCOUNT NUMBER
ADD 5
ADD 6 [BAR CODE]
C 1234567890 J N T
[ ] Mark this box with an X if
you have made changes to
your name or address details
above.
================================================================================
ANNUAL MEETING PROXY CARD
================================================================================
A ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees.
FOR WITHHOLD FOR WITHHOLD
01 - Mr. D. L. MacSmith [ ] [ ] 05 - Mr. A. L. Gilman [ ] [ ]
02 - Mr. A.S. Dawson [ ] [ ] 06 - Mr. R. C. Robins [ ] [ ]
03 - Mr. D. P. F. Mount
04 - Mr. M. V. Howe
B AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy.
All joint holders must sign. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
- ------------------------------ ------------------------------ -------------------
| | | | | |
| | | | | / / |
| | | | | |
- ------------------------------ ------------------------------ -------------------
1 U P X H H H P P P P 001979
+
================================================================================
PROXY - CATUITY, INC.
================================================================================
LEVEL 4 BALLARAT HOUSE
68-72 WENTWORTH AVE.
SURRY HILLS, NSW 2010 AUSTRALIA
2711 E. JEFFERSON AVE.
DETROIT, MI 48207 USA
MEETING DETAILS
AAP THEATRETTE, AAP CENTER, 259 GEORGE STREET, SYDNEY, NSW 2000 AUSTRALIA
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING - MAY 14, 2003 AT 7:30 P.M. EASTERN DAYLIGHT TIME IN THE UNITED STATES
MAY 15, 2003 AT 9:30 A.M. AUSTRALIAN EASTERN STANDARD TIME
David L. MacSmith and Michael V. Howe, or any of them, each with the power of
substitution, are hereby authorized to represent and vote the shares of the
undersigned, with all the powers which the undersigned would possess if
personally present, at the Annual Meeting of Stockholders of Catuity, Inc. to be
held on May 14, 2003 at 7:30 p.m. Eastern Daylight Time in the United States and
May 15, 2003 at 9:30 a.m. Australian Eastern Standard Time or at any
postponement or adjournment thereof.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED BY THE STOCKHOLDER. IF NO SUCH
DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR THE
NOMINEES IN ITEM 1.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
(Continued and to be voted on reverse side.)