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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
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)(4) 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.:
- --------------------------------------------------------------------------------
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 USA
SURRY HILLS NSW 2010 AUSTRALIA
</Table>
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 2004
We will hold the Annual Meeting of Shareholders of Catuity, Inc. at the AAP
Theatrette, AAP Centre, 259 George Street, Sydney, NSW 2000 Australia on
Thursday, May 13, 2004 at 9:30 a.m. Australian Eastern Standard Time (Wednesday
May 12, 2004 at 7:30 p.m. Eastern Daylight Time in the United States) for the
following purposes:
1. To elect four 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 election of
the nominees listed under proposals 1 through 4.
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 1, 2004. 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/ John H. Lowry
JOHN H. LOWRY III
Secretary
Detroit, Michigan
April 5, 2004
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
VOTING RIGHTS AND SOLICITATION.............................. 1
Voting.................................................... 1
Proxies................................................... 1
Solicitation of Proxies................................... 1
PROPOSALS NO. 1-4 ELECTION OF DIRECTORS..................... 2
General................................................... 2
Business Experience of Directors.......................... 2
Director Compensation..................................... 3
Recommendation of the Board of Directors.................. 3
CORPORATE GOVERNANCE........................................ 4
Board Committees and Meetings............................. 4
Report of Independent Directors........................... 5
Performance Enhancement................................... 6
Ethics and Codes of Conduct............................... 6
Risk Management........................................... 6
Continuous Disclosure..................................... 6
OWNERSHIP OF SECURITIES..................................... 7
Compliance with SEC Reporting Requirements................ 8
EXECUTIVE COMPENSATION AND RELATED INFORMATION.............. 8
Compensation Committee Report............................. 8
Compensation Philosophy and Objectives.................... 8
Compensation Components and Process....................... 9
Compensation Committee Interlocks and Insider
Participation.......................................... 11
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS..... 11
Independent Public Accountants............................ 11
Audit Fees................................................ 12
Audit Related Fees........................................ 12
Tax Fees.................................................. 12
All Other Fees............................................ 12
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.............. 13
Executive Compensation.................................... 13
Employment Contracts, Termination of Employment, and
Change in Control Agreements........................... 15
Certain Relationships and Related Transactions............ 17
STOCK PERFORMANCE GRAPH..................................... 18
SHAREHOLDER PROPOSALS FOR 2005 PROXY STATEMENT.............. 18
FORM 10-K................................................... 19
OTHER MATTERS............................................... 19
APPENDIX A.................................................. A-1
APPENDIX B.................................................. B-1
</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 13, 2004 at 9:30 a.m. Australian Eastern Standard
Time at the AAP Theatrette, AAP Centre, 259 George Street, Sydney, NSW 2000
Australia (Wednesday, May 12, 2004 at 7:30 p.m. United States Eastern Daylight
Standard Time) and at any adjournments or postponements. We first mailed these
proxy materials on or about April 8, 2004 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 1, 2004, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were 11,663,585
shares of Common Stock outstanding. Each shareholder of record on April 1, 2004
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 four candidates receiving the
highest number of affirmative votes will be elected. Any other matters to be
considered at the Annual Meeting 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 office in Detroit,
Michigan or our Australian office in Surry Hills NSW 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
1
services. The original solicitation of proxies by mail may be supplemented by a
solicitation by telephone, 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. 1-4
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 four 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)
- ---- --- -----------
Duncan P.F. Mount......................... 56 Director and Chairman(1),(2)
Michael V. Howe........................... 55 Director, President and Chief Executive
Officer
Alexander S. Dawson....................... 60 Director(1),(2)
Alan L. Gilman............................ 60 Director(1),(2)
</Table>
- ---------------
(1) Member, Audit Committee
(2) Member, Compensation Committee
BUSINESS EXPERIENCE OF DIRECTORS
Duncan P.F. Mount is currently our non-employee Chairman. He has served as
our Chairman since May 2003 and as a non-employee Director of Catuity from
December 1999 to May 2003, and as a non-employee Director of Chip Application
Technologies Limited, 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.
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 Chip Application Technologies Limited, our wholly
owned subsidiary, from November 1992 to December
2
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 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, a Master of Business Administration from Columbia
University and is a Fellow of the Institute of Chartered Accountants in
Australia.
Alan L. Gilman is currently one of our non-employee Directors. He joined
the Board of Directors, following his retirement from Arthur Andersen LLP, on
July 1, 2000 and serves as chairman of the Audit and Compensation Committees of
the Board. On February 9, 2004 he became an Executive Vice President at A. L.
Damman Company. Previously Mr. Gilman spent over 20 years with Arthur Andersen
LLP specializing in the retail industry. 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 at Arthur Andersen focusing primarily on retail, distribution and
advertising. Mr. Gilman holds a bachelor's degree in accounting from Wayne State
University and is a Certified Public Accountant.
DIRECTOR COMPENSATION
During 2003, non-employee directors received a $10,000 annual retainer fee,
paid in quarterly payments of $2,500 following each calendar quarter, for
serving on the Board. The Chairman also receives a $10,000 per year Chairman
fee. In addition, each director receives a $1,000 fee for each meeting attended
during the year. A fee of $5,000 per year is paid to the Chairperson of a
Committee and a fee of $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 a person 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 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. The Company believes that its Director Stock Option Plan, as approved by
shareholders, is beneficial because it helps to align the independent director's
interests with those of its shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the election of the nominees
listed above.
3
CORPORATE GOVERNANCE
BOARD COMMITTEES AND MEETINGS
During the year that ended on December 31, 2003, the Board of Directors
held eighteen meetings. All of the directors attended or participated in more
than 75% of (i) the eighteen 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.
SUMMARY OF MEETING ATTENDANCE BY BOARD MEMBER
<Table>
<Caption>
AUDIT COMPENSATION
BOARD MEETINGS COMMITTEE MEETINGS COMMITTEE MEETINGS
BOARD MEMBER ATTENDED/HELD (#) ATTENDED/HELD (#) ATTENDED/HELD (#)
- ------------ ----------------- ------------------ ------------------
Duncan P.F. Mount................ 18/18 4/4 5/5
Chairman
Michael V. Howe.................. 18/18 N/A N/A
President/CEO
Alexander S. Dawson.............. 18/18 3/4 5/5
Director
Alan L. Gilman................... 18/18 4/4 5/5
Director
</Table>
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 appoints the independent
auditors and is also responsible for oversight of the annual report required by
the rules of the Securities and Exchange Commission. The Audit Committee is
composed of three individuals, 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 Nasdaq Marketplace rule 4200(a)(15). 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 Item 401(h) of Regulation S-K and
Section 407 of the Sarbanes-Oxley Act of 2002. 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 2003.
The members of the Audit Committee have reviewed the Audit Committee Charter and
adopted changes in April 2004 to ensure compliance with new corporate governance
rules. A copy of the revised Audit Committee charter is attached as Appendix A
to this Proxy Statement and is available at www.catuity.com.
The Compensation Committee is responsible for establishing the compensation
levels of the Company's executive officers. Executive officers do not
participate in discussions or decisions about their own compensation level or
changes in it. In recommending and determining compensation, the committee
considers independent studies of comparable remuneration packages. This
Committee currently consists of Messrs. Gilman, Mount and Dawson with Mr. Gilman
serving as Chairman. The Compensation Committee held 5 meetings during 2003. A
copy of the Compensation Committee charter is attached as Appendix B to this
Proxy Statement and is available at www.catuity.com.
4
REPORT OF INDEPENDENT DIRECTORS
The Board of Directors has determined that Messrs. Mount, Dawson and Gilman
are independent as that term is defined in section 10A(m)(3) of the Exchange Act
and Nasdaq Marketplace Rule 4200(a)(15). The Board considers Mr. Mount to be
independent under the ASX Corporate Governance Council's best practices
recommendations despite being a substantial shareholder as defined by section 9
of the Australian Corporations Act of 2001. The Board believes that Mr. Mount's
shareholdings do not interfere in the exercise of his unfettered and independent
judgment. The independent members of the Board meet in regularly scheduled
"executive sessions" at which only independent directors are present.
The Board elected not to establish a Nomination and Governance Committee at
this time due to the small size of the Board of Directors of the Company. The
Nomination and Governance functions, which include selecting qualified
individuals for approval by shareholders to serve as members of the Board and
developing a set of corporate governance principles applicable to the Company,
are carried out by the three independent members of the Board as part of their
Board responsibilities. In lieu of establishing a Nomination and Governance
Committee, the independent directors passed a resolution adopting the following
policy in order to meet the nomination and governance requirements of Nasdaq,
the SEC, and the ASX:
The independent directors of the Board shall identify and evaluate
qualified candidates for Board membership and recommend them to the full
Board as needed. The independent directors shall determine the
appropriate size and composition of the Board and its Committees, shall
annually review the performance of the Board as a whole, its Committees,
individual directors and the CEO, and make recommendations to the full
Board for the improvement of such performance. The independent directors
shall consider and evaluate all director candidates equally regardless
of who recommends them. The independent directors shall utilize the
following criteria in evaluating any candidate's capabilities to serve
as a member of the Board: attendance, independence, time commitments,
conflicts of interest, ability to contribute to the oversight and
governance of the Company and experience with businesses of similar size
and scope as Catuity. Further, the independent directors shall review
the qualifications of candidates considering those of current directors
to determine coverage and gaps in experience in related industries and
in functional expertise. The independent directors may identify
candidates from persons known to them, from shareholder recommendations,
and, if deemed appropriate, may engage third party recruiting
professionals to identify potential candidates. The Company shall
disclose the name of the source that recommended each new nominee and
shall disclose if a third party received compensation related to
identifying and evaluating candidates.
To recommend a prospective nominee for consideration as a director,
shareholders should submit the candidate's name and qualifications in writing to
Catuity's Secretary at the following address: Catuity Inc., Attention:
Secretary, 2711 E. Jefferson Avenue, Detroit, Michigan 48207. Nominee
recommendations must be received, in writing, at least 120 calendar days before
the date of the Company's proxy statement released to shareholders in connection
with the previous year's annual meeting (December 16, 2004 for the 2005 annual
shareholder meeting).
The independent directors considered whether or not to consider candidates
for an additional Board seat during 2003 in accordance with the criteria above
and determined that adding a prospective additional Board member was not
necessary at that time.
The Board of Directors welcomes communications from all shareholders.
Shareholders may address individual Board members or the Board in its entirety
by writing to: Catuity Inc. Attention: Board of Directors (or an individual
board member's name), c/o Secretary, 2711 E. Jefferson Avenue, Detroit, Michigan
48207 or Catuity Inc. Attention: Board of Directors (or an individual board
member's name), c/o Secretary, Level 4 Ballarat House, 68-72 Wentworth Avenue,
Surry Hills NSW 2010 Australia. The Secretary of the Company has been instructed
by the Board to forward all such communications that are received directly to
the appropriate Board member without delay.
5
The Company expects that all of its board members will attend its annual
meeting of Shareholders on May 13, 2004. All board members attended the last
annual shareholders meeting held on May 15, 2003.
This report respectfully submitted by:
Duncan Mount, Chairman
Sandy Dawson
Alan Gilman
Independent members of the Board of Directors
PERFORMANCE ENHANCEMENT
As a routine practice, Board members are provided with a meeting agenda and
briefing materials prior to each meeting. In addition, individual members have
access to both the Company Secretary and independent professional advice at the
Company's expense. In order to encourage enhanced performance, the Board is in
the process of forming a policy and procedure for evaluating the performance, on
an annual basis of the Board as a whole, its committees, and each Board member.
During 2003, the Board evaluated the performance of the CEO and CFO.
ETHICS AND CODES OF CONDUCT
To ensure that the highest level of shareholder confidence could be placed
on its financial reporting, Catuity adopted a Code of Ethics for senior
financial personnel in 2002. The content of this Code was expanded in April 2004
to ensure compliance with new corporate governance rules and requirements. In
addition, the Company expanded its business and employee code of conduct,
applicable to all directors, officers and employees, in April 2004. The Company
has also expanded its Insider Trading Policy, which restricts the circumstances
under which all directors, officers and employees may trade in the company's
stock or that of its trading partners. The Code of Ethics for Senior Financial
Personnel, Business and Employee Code of Conduct and the Company's Insider
Trading Policy are available at www.catuity.com.
RISK MANAGEMENT
Due to the small size of the Company, it does not have a separate internal
audit function. The Audit Committee oversees the accounting and reporting
processes of the Company and the audits of the Company's financial statements.
The annual financial reports are audited, and each of the quarterly financial
reports are reviewed, by the Company's independent accountants. The Company's
CEO and CFO review, assess, and certify the Company's internal controls on a
quarterly basis. In addition, the Company requires each of its senior financial
personnel and each of its executives to certify, based on their knowledge, the
integrity of the financial reports.
CONTINUOUS DISCLOSURE
The Company's CEO and CFO are knowledgeable in the continuous and periodic
disclosure requirements of the SEC, Nasdaq and the ASX. The Company has adopted
the practice that the CEO and CFO are directly involved in preparing all press
releases and announcements, including those required to comply with continuous
disclosure requirements. In addition, the independent directors have an
opportunity to review and approve the content of all Company press releases and
announcements before their issuance.
Advice may be sought from outside, independent securities legal counsel
where matters of judgement may be involved. The CEO and CFO are the only
personnel in the Company authorized to discuss information with the media,
analysts, and investors.
6
OWNERSHIP OF SECURITIES
The following tables provide certain information regarding beneficial
ownership of our capital stock as of March 31, 2004 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 four most highly compensated
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, 2003. Plus one individual who would have been included
in this table but for the fact that he was not an executive officer on
the last day of our fiscal year;
- each of our Directors; and
- all of our Directors and executive officers as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF
COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ------------------------------------ -------------------------- -------
Acorn Capital Limited...................................... 1,747,717 Direct
Level 12, 90 Collins Street 62,222 Vested Options
Melbourne Vic 3000 Australia --------- 15.4
1,809,939
Hunter Hall Investment Management Limited.................. 799,236 Direct
GPO Box 4270 89,000 Vested Options
Sydney, NSW 2001 Australia --------- 7.6
888,236
Duncan P.F. Mount.......................................... 700,000 Direct
Lot 8, 54 Lane Cove Road 55,000 Vested Options
Ingleside, NSW 2101 Australia --------- 6.4
755,000
David Mac Smith............................................ 231,417 Direct
3/37 Dover Rd. 150,000 Vested Options
Rose Bay, NSW 2029 Australia --------- 3.2
381,417
Michael V. Howe............................................ 28,287 Direct
62 Hampton Road 319,000 Vested Options
Grosse Pointe Shores, MI 48230 --------- 2.9
347,287
Alexander S. Dawson........................................ 225,000 Direct
38 Macleay Street 25,000 Vested Options
Potts Point, NSW 2011 Australia --------- 2.1
250,000
John H. Lowry III.......................................... 6,332 Direct
21972 Heatheridge 125,000 Vested Options
Northville, MI 48167 --------- 1.1
131,332
Anthony B. Garton.......................................... 17,116 Direct
1605 N Edgewood Street 20,000 Vested Options
Arlington, VA 22201-3907 --------- *
37,116
Alan L. Gilman............................................. 4,000 Direct
4720 Morris Lake Circle 25,000 Vested Options
West Bloomfield, MI 48323 --------- *
29,000
Douglas G. Kilgour......................................... 5,392 Direct
93 Glencarin Ave. 6,250 Vested Options
Toronto, ON M4R 1M7 Canada --------- *
11,642
All directors and executive officers as a group............ 986,127 Direct
(7 persons) 575,250 Vested Options
--------- 12.8%
1,561,377
</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
7
common stock subject to options, warrants or other rights to purchase which
are currently exercisable or are exercisable within 60 days after March 31,
2004 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 13d-3 (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,
2004. An asterisk indicates beneficial ownership of less than 1% of the
common stock outstanding.
Catuity, Inc. is not subject to Chapter 6 of the Australian Corporations
Act 2001 dealing with the acquisition of shares (including substantial
shareholdings and takeovers).
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act, as amended, requires the
Company's directors, executive officers and beneficial owners of greater than
10% of a registered class of the Company's equity securities (the "Reporting
Persons") to file reports of ownership and changes in ownership of such equity
securities with the Securities and Exchange Commission. Officers, directors, and
greater than 10% shareholders are required by Security Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on a review of the copies of such reports and certain
representations that may have been furnished to the Company during or with
respect to the Company's fiscal year ended December 31, 2003, the Company
believes that, during such fiscal year, with one exception, all applicable
Section 16(a) filing requirements were met by the Reporting Persons. The Company
believes that Acorn Capital Limited, an Australian institutional investor, did
not file one required report. The following Reporting Persons were late in
filing one report; John H. Lowry, Jonathan R.E. Adams, Anthony B. Garton and
Douglas G. Kilgour.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors was
established in early 2001. This report describes the compensation-related
activities of the Committee and the Board as a whole taken during 2003. The
Committee sets the compensation of 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 only, and at least two, independent directors. In April
2004 the Committee adopted a Compensation Committee Charter in order to comply
with the new corporate governance requirements for Compensation Committees. The
Compensation Committee Charter is attached as Appendix B to this Proxy
Statement.
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
8
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.
- 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 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.
In January 2000, 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) (20%
above the closing price of our shares on Nasdaq on January 2, 2003). These
options vested immediately. The Compensation Committee believed that Mr. Howe's
options, at their original exercise price, failed to provide Mr. Howe with the
incentive originally intended and failed to properly align his interests in
achieving increases in share price with those of the Company's shareholders. As
a result, the Committee elected to re-place the unvested options Mr. Howe held
with 100,000 options at a price 20% above the existing share price on the date
of re-pricing.
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. Effective January 1, 2003, Mr. Lowry surrendered the 50,000 then-unvested
options he held under the grant of options included in his original contract.
These options were replaced with 25,000 options that expire December 31, 2005,
at an option exercise price of US$3.84 (50% of the exercise price
9
of the surrendered options). These options vested immediately. The Compensation
Committee believed that Mr. Lowry's options, at their original exercise price,
failed to provide Mr. Lowry with the incentive originally intended and failed to
properly align his interests in achieving increases in share price with those of
the Company's shareholders. As a result, the Committee elected to offer Mr.
Lowry the opportunity to surrender his 50,000 unvested options as of January 1,
2003 and replace them with 25,000 options (50% of the original number of
options) at 50% of the original exercise price (a premium of 129% above the then
current market price). Mr. Lowry elected to accept the Committee's offer.
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, the Committee decided to add the contractual
bonus Mr. Howe was entitled to under the terms of his employment agreement into
his base salary and establish a performance-based bonus tied to reaching certain
revenue goals into his compensation arrangement. The performance-based bonus
that was added to Mr. Howe's employment agreement is described under the
Employment Contracts section of this Proxy Statement. No performance-based bonus
was paid for 2003.
Mr. Howe does not participate in the discussions or determination of his
own compensation.
Effective September 1, 2002 Mr. Howe began voluntarily deferring 10% of his
after-tax cash compensation until shareholder approval was received to allow him
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. 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. Howe purchased shares at the fair market price
on March 31, 2003 with the compensation deferred from September 1, 2002 through
March 31, 2003. Hereafter, for as long as the Plan remains in effect and Mr.
Howe participates in the Plan, he 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
Alexander S. Dawson
Duncan P.F. Mount
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors for the
2003 fiscal year are:
Alan L. Gilman -- Chairman
Duncan P.F. Mount
Alexander S. Dawson
All of the Compensation Committee members are independent as that term is
defined in section 10A(m)(3) of the Exchange Act and Nasdaq Marketplace Rule
4200(a)(15).
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. The Audit Committee has reviewed the written
charter under which it has been operating and which was adopted by the Board of
Directors in 2003 and adopted changes in April 2004, to ensure compliance with
new corporate governance requirements and best practice recommendations. The
charter is attached as Appendix A to this proxy.
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, 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:
- The Audit Committee has reviewed and discussed the audited financial
statements with Catuity's management.
- 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).
- The Audit Committee has received the written disclosures and the
independence letter from Ernst & Young LLP required by Independence
Standards Board Standards No. 1 Independence Discussions with Audit
Committees and has discussed independence with Ernst & Young LLP.
- Based on the review and discussion referred to 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, 2003, 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
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accounting firm of Ernst & Young LLP audited the
Company's consolidated financial statements for fiscal 2003 and has been
similarly engaged in 2004. Representatives from Ernst & Young LLP are expected
to be present, via telephone, at the Annual Meeting of Shareholders and will be
11
given an opportunity to make a statement if they so desire and are expected to
be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by Ernst & Young LLP for the audit of the
Company's annual consolidated financial statements for the fiscal year ended
December 31, 2003 and 2002, and the review of the consolidated financial
statements included in the Company's Forms 10-Q for fiscal 2003 and 2002 were
$97,000 and $87,000, respectively. Audit fees are presented on an accrual basis.
All other fees are presented for services provided during the period January 1
to December 31 for the respective year.
AUDIT RELATED FEES
There were no fees billed to the Company for audit related services
rendered by Ernst & Young LLP for the fiscal year ended December 31, 2003.
For the fiscal year ended December 31, 2002, the aggregate fees billed by
Ernst & Young LLP were $29,000 and related to an S-8 filing and complex
accounting transaction advice.
TAX FEES
The aggregate fees billed to the Company for the preparation of the
Company's tax returns for the fiscal year ended December 31, 2003 and 2002, were
$41,500 and $48,000, respectively.
ALL OTHER FEES
There were no fees billed to the Company for any other services rendered by
Ernst & Young LLP for the fiscal year ended December 31, 2003 and 2002.
12
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 $100,000
(salary and bonus) for all services rendered in all capacities to Catuity during
the year ended December 31, 2003.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(2) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ------------------- ------------ ----------------
Michael V. Howe(3)................. 2003 308,000 0 0 100,000
President and CEO 2002 232,000 60,000 0 0
2001 240,000 60,000 0 0
David L. MacSmith(1)(2)(3)(4)...... 2003 223,601 0 4,646 0 300,744(5)
Former Chairman 2002 233,305 0 5,163 0 0
2001 201,761 0 4,461 100,000 0
John H. Lowry III(3)............... 2003 160,000 30,000 0 25,000
Vice President -- Finance 2002 150,000 20,000 0 0
& Administration 2001 150,000 10,000 0 0
Anthony B. Garton(1)(2)(3)......... 2003 170,000 12,100 7,048 10,000
Vice President -- Product 2002 124,250 3,039 5,163 0
Development & Implementation 2001 85,527 0 4,461 20,000
Douglas G. Kilgour(3).............. 2003 135,000 0 0 6,000
Vice President -- Sales & 2002 112,000 0 0 10,000
Marketing 2001 0 0 0 0
</Table>
The above named executives are the only employees considered to be officers
of the Company.
- ---------------
(1) Salary amounts have been translated from Australian dollars at the average
exchange rate for each year. The exchange rates were .655, .544 and .5182
for the years 2003, 2002 and 2001 respectively.
(2) Includes Australian Superannuation Guarantee Contribution, a compulsory
payment that funds retirement benefits.
(3) A portion of the executive officers' 2003 and 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.
(4) David L. MacSmith, our former Executive Chairman, was provided with an
interest-free non-recourse loan to purchase shares in our wholly-owned
subsidiary, Chip Application Technologies Pty Limited under his executive
services contract that was approved by shareholders in 1997. Mr. MacSmith is
only required to make repayments on this loan from the proceeds of either
dividends or the sale of the underlying loan shares. Mr. MacSmith's
employment with the Company terminated on August 31, 2003.
(5) Represents amounts both paid and accrued related to Mr. David L. MacSmith's
severance pay pursuant to his June 2001 employment agreement.
13
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
<Table>
<Caption>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED GRANT DATE
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT
NAME AND PRINCIPAL POSITION OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE VALUE ($)(1)
- --------------------------- --------------- ---------------- -------------- ---------- ------------
Michael V. Howe........... 100,000 41.09% $2.64 12/31/2005 1.01
President and CEO
David L. MacSmith......... -- -- -- -- --
Former Chairman
John H. Lowry III......... 25,000 10.27% $3.84 12/31/2005 0.55
Vice President -- Finance
and Administration
Anthony B. Garton......... 10,000 4.11% AU$2.37 06/30/2006 0.70
Vice President -- Product
Development and
Implementation
Douglas G. Kilgour........ 6,000 2.47% $1.54 06/30/2006 0.72
Vice President -- Sales and
Marketing
</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
SHARES ACQUIRED VALUE OPTIONS AT FY-END FY-END(2)
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- --------------- ----------- ------------------------- -------------------------
Michael V. Howe........... -0- -0- 319,000/0 $0/$0
President and CEO
David L. MacSmith......... -0- -0- 150,000/0 $0/$0
Former Chairman
John H. Lowry III......... -0- -0- 125,000/0 $0/$0
Vice President
Finance & Administration
Anthony B. Garton......... -0- -0- 20,000/10,000 $0/$0
Vice President Product
Development &
Implementation
Douglas G. Kilgour........ -0- -0- 5,000/11,000 $0/$0
Vice President Sales &
Marketing
</Table>
- ---------------
(1) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
(2) Based on the closing price per share of common stock on the Nasdaq small cap
market on the last day of 2003, less the option exercise price payable per
share.
14
TEN-YEAR OPTION REPRICINGS
<Table>
<Caption>
LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF STOCK AT EXERCISE PRICE NEW OPTION TERM
OPTIONS TIME OF AT TIME OF EXERCISE REMAINING
NAME AND PRINCIPAL POSITION DATE REPRICED (#) REPRICINGS ($) REPRICING ($) PRICE ($)(1) AT REPRICING
- --------------------------- ---------- ------------ -------------- -------------- ------------ ------------
Michael V. Howe.......... 01/02/2003 100,000 $2.20 $9.50 $2.64 6 yrs
President and CEO
John H. Lowry III........ 12/22/2003 25,000 $1.65 $7.68 $3.84 5 yrs
Vice President -- Finance
and Administration
</Table>
- ---------------
(1) An explanation of the changes to Mr. Howe's and Mr. Lowry's option grants
may be found under the section, Compensation Components and
Process -- Long-Term Equity-Based Incentive Awards of this proxy statement.
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 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.
In January 2000, 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.
15
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 was also entitled to
payment by us of certain required Australian withholding amounts. Under the June
2001 agreement, Mr. Mac. Smith received 100,000 options at an exercise price of
AU$7.75. The options vested at a rate of 26,000 shares on June 1, 2001 and
26,000 on June 1, 2002. The remaining 48,000 options vested at the rate of 2,000
shares per month beginning July 1, 2001. Mr. Mac. Smith had the right to
terminate the agreement by giving six months' notice in writing. Under the
Agreement, if a person or party gave notice of its intention to acquire, or
acquired, more than 30% of the issued capital of the Company or any parent of
the Company, all unvested shares and options would have vested and Mr. Mac.
Smith had the right to terminate the agreement at any time within a period of
six months following such event by giving three months' notice. The Company had
the right to terminate the agreement for cause, if Mr. Mac. Smith became unable
to perform his duties, or agreement had not been reached prior to June 1, 2003
on continued employment after the term. The Agreement provided that if we
terminate the agreement, Mr. Mac. Smith must resign as a Director.
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, 2003, the fair value of this
non-interest bearing loan to Mr. Mac. Smith, at the year ending foreign currency
exchange rate, amounted to approximately US$470,000. 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.
In May 2003, the Board and Mr. Mac. Smith agreed not to renew his
employment agreement when it expired on June 1, 2003 and Mr. Mac. Smith resigned
as Chairman and as a director. Under the terms of his June 2001 Agreement, Mr.
Mac. Smith was entitled to remain as an employee of the Company until August 31,
2003 and to receive one year of compensation in severance payments.
John H. Lowry III. We entered into a five-year employment agreement with
our Chief Financial Officer, John Lowry, dated April 18, 2000, as amended
effective January 1, 2003. Under the agreement, Mr. Lowry is entitled to receive
a base salary of US$160,000, which is subject to annual review for possible
increase by the President and CEO, subject to Compensation Committee approval.
We will pay Mr. Lowry a performance bonus on Catuity achieving certain
Compensation Committee established goals 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.
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
16
quarter end. Effective January 1, 2003, Mr. Lowry surrendered the 50,000
then-unvested options he held under the grant of options included in his
original contract. These options were replaced with 25,000 options that expire
December 31, 2005, at an option exercise price of US$3.84 (50% of the exercise
price of the surrendered options). These options vested immediately. In the
event Mr. Lowry voluntarily resigns, retires, or his employment with Catuity is
terminated by the Company all vested options he holds as of the termination date
will expire six months following the date of termination. 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. 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
In March 2003, our shareholders approved the participation of Mr. Duncan
Mount, a non-executive director of Catuity, in a private placement concluded in
November 2002 to three Australian investors. 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. As did 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.
In July 2003, the Company concluded a private placement in Australia of
3,000,000 shares of the Company's common stock to seven accredited investors at
a price of $2.00 AUD per share ($1.30 USD based on the foreign exchange rate in
effect on the date of the transaction). The price represented an 11% discount to
the shares' fair market value on the Australian Stock Exchange (ASX) on the
transaction date. The Company issued the shares in two tranches -- the first on
July 25, 2003 for 625,000 shares (the maximum permitted under ASX listing rules
prior to receiving shareholder approval) and the second for 2,375,000 shares on
September 22, 2003 following shareholder approval at a special meeting of
shareholders on September 19, 2003. The Company paid a placement fee of 3% of
the purchase price to the Placement Agent for both tranches. The first tranche
of shares included 362,500 shares sold to Acorn Capital Limited, a beneficial
owner of over 5% of Catuity's stock. The second tranche of shares included
196,000 shares sold to Mr. Duncan P.F. Mount, Chairman of the Company and
637,500 shares sold to Acorn Capital Limited. The proceeds from all of the
placement shares were added to the Company's general working funds to be used
for general operating purposes. The shares were sold without registration under
US securities laws pursuant to an exemption from such registration.
17
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, 2003
[PERFORMANCE GRAPH]
<Table>
<Caption>
CATUITY INC. SIC CODE INDEX NASDAQ MARKET INDEX
------------ -------------- -------------------
5/24/2000 100.00 100.00 100.00
12/31/2000 105.76 66.66 72.57
12/31/2001 17.82 36.05 57.85
12/31/2002 17.64 23.47 40.35
12/31/2003 16.11 36.96 60.67
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
COMPANY/INDEX 5/24/2000 12/31/2000 12/31/2001 12/31/2002 12/31/2003
- -------------------------------------------------------------------------------------------------------
Catuity Inc. 100.00 105.76 17.82 17.64 16.11
- -------------------------------------------------------------------------------------------------------
SIC Code Index 100.00 66.66 36.05 23.47 36.96
- -------------------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 72.57 57.85 40.35 60.67
- -------------------------------------------------------------------------------------------------------
</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 2005 PROXY STATEMENT
Shareholder proposals that are intended to be presented at the Company's
Annual Meeting of Shareholders to be held in 2005 must be received by the
Company no later than December 16, 2004 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 2005
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 22, 2005.
18
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,
2003, 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/ John H. Lowry
JOHN H. LOWRY III
Secretary
Dated: April 5, 2004
19
APPENDIX A
CATUITY INC. AUDIT COMMITTEE CHARTER (AS REVISED MARCH 11, 2004)
I. DESCRIPTION AND PURPOSE
The Audit Committee (the "Committee") is a standing committee of the Board
of Directors (the "Board") of Catuity Inc. (the "Company") whose purpose is, in
accordance with sec. 2(a)(3) of the Sarbanes-Oxley Act of 2002 (the "Act"), to
oversee the accounting and reporting processes of the Company and audits of the
Company's financial statements. The Committee shall act independently as
authorized and assist the Board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the Board and
others, the internal control structure, the audit process, and the adherence to
applicable laws and regulations. Considering the size and complexity of the
Company, the Committee shall apply reasonable materiality standards to all of
its activities.
II. COMPOSITION, EXPERTISE, AND INDEPENDENCE REQUIREMENTS OF AUDIT COMMITTEE
MEMBERS
A. NUMBER OF MEMBERS
The Committee shall consist of at least three members, comprised solely of
Independent Directors, as that term is defined below.
B. QUALIFICATIONS
1. Financial Literacy. Each member of the Committee must be able to read
and understand fundamental financial statements, including the Company's balance
sheet, income statement, and cash flow statement or must become able to do so
within a reasonable period of time after his or her appointment to the
Committee.
2. Financial Expertise. At least one member of the Committee must be an
"Audit Committee Financial Expert ("ACFE"), as defined by the SEC and determined
by the Board. An ACFE must possess all of the following attributes (the
"Attributes"):
a. an understanding of GAAP and financial statements;
b. the ability to assess the general application of GAAP in connection
with the accounting for estimates, accruals and reserves;
c. experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting
issues that can reasonably be expected to be raised by the Company's
financial statements, or experience actively supervising one or more
persons engaged in such activities;
d. an understanding of internal controls and procedures for financial
reporting; and
e. an understanding of audit committee functions generally.
The ACFE must have acquired the Attributes through any one or more of the
following:
a. education and experience as a principal financial officer,
principal accounting officer, controller, public accountant or auditor or
experience in one or more positions that involve the performance of similar
functions;
b. experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor or
person performing similar functions;
c. experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing or valuation
of financial statements; or
d. other relevant experience.
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3. Independence. As used in this Charter, "Independent Director" means a
member of the Board other than an officer or employee of the Company or its
subsidiaries or any other individual having a relationship which, 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:
a. a director who is employed by the Company or by any parent or
subsidiary of the Company within the past three years;
b. a director who accepted directly or indirectly (including
acceptance by any person who is a relative by blood, marriage or adoption
or who has the same residence as the director ("Family Member") or
acceptance by entities related to the director) any consulting, advisory,
or other compensatory fee from the Company or any of its affiliates during
the previous fiscal year, other than compensation for service on the Board
or a committee of the Board;
c. a director who is a Family Member of an individual who is, or
within the past three years was, employed by the Company or by any parent
or subsidiary of the Company as an executive officer;
d. a director who is a partner in, or a controlling shareholder or an
executive officer of, any 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 recipient's consolidated gross revenues for that year, or $200,000,
whichever is more, in the current fiscal year or any of the past three
fiscal years;
e. a director of the Company who is employed as an executive officer
of another entity where any of the executive officers of the Company serve
on the compensation committee of such other entity, or if such relationship
existed within the past three years;
f. a director who was a partner or employee of the Company's outside
auditor, and worked on the Company's audit, within the past three years;
g. a director who is an "affiliated person" of the Company or any of
its subsidiaries, where "affiliated person" means a person or entity (in
the case of the affiliated entity, "affiliated persons" include its
directors, executive officers, partners, members, principals, or designees)
who directly or indirectly controls or is controlled by or is under common
control with the Company, unless such person (i) is not the beneficial
owner of more than 10% of any class of equity securities of the Company and
(ii) is not an executive officer of the Company.
4. Limited Exception to Independent Director Requirement. Notwithstanding
the foregoing independence requirements, one director who (i) is not independent
as defined in Nasdaq Rule 4200, but (ii) meets the criteria set forth in Section
301 of the Act and associated SEC rulemaking and (iii) is not a current officer
or employee or a 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 by 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 that determination. A member appointed under
this exception may not serve longer than two years and may not chair the
Committee.
III. MEETINGS
A. FREQUENCY
The Committee shall meet as frequently as circumstances require, but in any
event on a quarterly basis. The Committee may ask members of management or
others to attend meetings and may provide pertinent information to them as the
Committee deems necessary.
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B. EXECUTIVE SESSIONS WITH KEY PERSONNEL AND AGENTS
The Committee should meet privately in executive session at least annually
with management, the independent auditor, and as a committee to discuss any
matters that the Committee or any of those groups believe should be discussed.
In addition, the Committee should communicate with management and the
independent auditor quarterly to review the Company's financial statements and
significant findings based upon the independent auditor's limited review
procedures.
C. KEEPING MINUTES
Minutes shall be taken for each Committee meeting which shall then be
approved at the next meeting of the Committee.
IV. AUTHORITY
The Committee's authority is as follows:
A. AUTHORITY TO HIRE, TERMINATE AND COMPENSATE EXTERNAL AUDITOR/SETTLE
DISPUTES
The Committee is authorized to appoint, determine the compensation of,
retain and oversee of the work of any registered public accounting firm engaged
(including resolving disagreements between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or
related work or performing other audit, review or attest services for the
Company, and each such registered public accounting firm must report directly to
the Committee.
B. AUTHORITY TO RETAIN INDEPENDENT ADVISORS
The Committee is authorized to hire at the Company's expense its own
independent counsel and other advisors, which may include special legal,
accounting, or other consultants or experts, as it determines necessary to carry
out the Committee's duties.
C. AUTHORITY TO CONDUCT INDEPENDENT INVESTIGATIONS
The Committee is authorized to conduct any investigation appropriate to
fulfilling its responsibilities and duties.
D. AUTHORITY TO DIRECTLY ACCESS CORPORATE EMPLOYEES AND INFORMATION
The Committee is authorized to fully and directly access the independent
auditor, anyone in the Company, and any and all information and records of the
Company.
V. RESPONSIBILITIES AND DUTIES
The Committee's primary responsibilities and duties are as follows:
A. IN GENERAL
1. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
2. Monitor the independence and performance of the Company's independent
auditor.
3. Provide an avenue of communication between the independent auditor and
financial management
4. Provide an avenue of communication among the independent auditor,
management, and the Board.
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B. REVIEW PROCEDURES
1. Review and reassess the adequacy of this Charter on an annual basis.
Submit the Charter to the Board for approval and have the document published at
least every three years in accordance with SEC regulations and the rules of the
stock exchange on which the Company's securities are traded.
2. Review the Company's annual audited financial statements prior to filing
or distribution. Review should include discussion with management and
independent auditor of significant issues regarding principles, practices, and
judgments.
3. In conjunction with management and the independent auditor, consider the
integrity of the Company's financial reporting processes and controls. Discuss
significant financial risk exposures and the steps management has taken to
monitor, control and report such exposures. Review significant findings prepared
by the independent auditor and the Company's financial management together with
management's responses. The scope of this review should at a minimum include a
discussion of significant deficiencies and material weaknesses in internal
controls and any fraud, whether or not material, by management as reported by
management, the auditing department or the independent auditor.
4. Review with management and the independent auditor the Company's
quarterly financial results prior to the release of earnings and/or the
Company's quarterly financial statements prior to filing or distribution.
Discuss any significant changes to the Company's accounting principles and any
items required to be communicated by the independent auditor in accordance with
SAS 61. The Chairman of the Committee may represent the entire Committee for
purposes of this review.
5. Review with the independent auditor and objectively weigh the
information provided by the independent auditor and the soundness of the
Company's accounting policies in connection with:
a. The Company's financial statements and related footnotes and the
independent auditor's report thereon, including their report on the
adequacy of the Company's internal controls and any significant
recommendations they may offer to improve internal controls;
b. Any significant accruals, reserves or estimates which may have a
material impact on the financial statements;
c. Any difficulties or disputes with management encountered by the
independent auditor during the course of the audit and any instances of
second opinions sought by management;
d. Any critical accounting policies and practices to be used by the
Company;
e. Any alternative accounting treatments under generally accepted
accounting principles discussed with management, the ramifications of those
alternatives, and external auditing preference;
f. Other material communications to management such as management
letters, internal control reports, and responses to prior management
letters.
g. The adequacy of the Company's internal controls and any significant
findings during the year and management's responses thereto, including at a
minimum significant deficiencies and material weaknesses in internal
controls and any fraud, whether or not material, by management);
h. Any difficulties encountered in the course of the audits, including
any restrictions on the scope of their work or access to required
information;
i. Any separate service that the independent auditor is providing the
Company with written confirmation from the independent auditor regarding
the nature of the service and existence of pre-approval from the Committee;
and
j. When required, the soundness of the internal quality-control
procedures of the independent auditor including its standing before the
Public Company Accounting Oversight Board and the nature of any
investigation or other proceedings related to its quality controls or
performance.
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7. Consider with management and the independent auditor the possible impact
of any pending changes in accounting standards or rules as promulgated by the
FASB or others.
8. Review with legal counsel any legal and regulatory matters that may have
a material impact on the financial statements and any reports received from
regulators, and any environmental compliance and reserves.
9. Report Committee actions to the Board with such recommendations as the
Committee may deem appropriate.
10. Review and approve all related party transactions involving the
Company.
C. INDEPENDENT AUDITOR AND OTHER REGISTERED PUBLIC ACCOUNTING FIRMS
1. The independent auditor is directly accountable to the Committee. The
Committee has the direct responsibility for the appointment, compensation,
retention and oversight of the work of any registered public accounting firm
engaged (including resolution of disagreements between management and the
auditor regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work or performing other audit, review or attest
services for the Company, and each such registered public accounting firm must
report directly to the Committee.
2. The Committee is responsible for ensuring that the independent auditor
submits on a periodic basis to the Committee a formal written statement
delineating all relationships between the independent auditor and the Company,
consistent with Independence Standards Board Standard 1, and the Committee is
responsible for actively engaging in a dialogue with the independent auditor
with respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor and for taking, or
recommending that the Board take appropriate action to oversee the independence
of the independent auditor. The Committee shall review the independence and the
performance of the auditors and appoint the independent auditor or approve any
discharge of auditors when circumstances warrant. To ensure independence, on an
annual basis, the Committee shall review and discuss with the independent
auditor all significant relationships they have with the Company that could
impair the auditor's independence.
3. The Committee shall review the independent auditor's audit
plan -- discuss scope, staffing, locations, reliance upon management, and
general audit approach to ensure completeness of coverage, reduction in
redundant efforts, and the effective use of audit resources.
4. The Committee shall approve the fees and other significant compensation
to be paid to the independent auditor.
5. The Committee shall approve any change in the independent auditor's
engagement partner or audit partner responsible for the audit of the Company's
financial statements and confirm that the independent auditor has rotated its
lead or controlling audit partner having primary responsibility for the audit or
the audit partner responsible for reviewing the audit with an assignment not to
exceed five fiscal years.
D. NON-AUDIT SERVICES
Except as provided in Section E, below, the independent auditor shall not
provide to the Company, contemporaneously with the performance of an audit, any
non-audit service, including the following:
1. bookkeeping or other services related to the accounting records or
financial statements of the Company;
2. financial information systems design and implementation;
3. appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
4. actuarial services;
5. internal audit outsourcing services;
A-5
6. management functions or human resources;
7. broker or dealer, investment adviser, or investment banking services;
8. legal services and expert services unrelated to the audit; and
9. any other service that the Public Company Accounting Oversight Board
established under Section 101 of the Sarbanes-Oxley Act of 2002 determines, by
regulation, is impermissible.
The independent auditor may engage in any non-audit service, including tax
services, that are not described in Subsections 1 through 9 above, only if
the activity is approved in advance by the Committee in accordance with
Section E, below.
E. PRE-APPROVAL REQUIREMENTS
In General All auditing services and non-audit services, other than as
provided in Section D, above, provided by the independent auditor shall be
pre-approved by the Committee upon conclusion by the Committee that rendering
the pre-approved service would not adversely affect the objectivity of the
independent auditor in performing the audit.
De Minimus Exception Notwithstanding anything to the contrary in this
Section E, this pre-approval requirement shall not apply to the provision of
non-audit services, if:
1. the aggregate amount of all such non-audit services provided to the
Company by the independent auditor constitutes not more than five percent
(5%) of the total amount of revenues paid by the Company to the independent
auditor during the fiscal year in which the non-audit services are
provided;
2. the non-audit services were not recognized by the Company at the
time of the engagement to be non-audit services; and
3. the non-audit services are promptly brought to the attention of the
Committee and approved prior to the completion of the audit by the
Committee or by one or more members of the Committee who are members of the
Board of Directors to whom authority to grant such approvals has been
delegated by the Committee.
Delegation Authority and Approval Procedures The Committee may delegate to
one or more designated members of the Committee who are independent directors of
the Board of Directors, the authority to grant pre-approvals required by this
Section E. The decisions of any Committee member to whom authority is delegated
to pre-approve an activity under this Section E shall be presented to the full
Committee at each of its scheduled meetings. The engagement to render services
may be entered into pursuant to pre-approval policies and procedures established
by the Committee, provided that the policies and procedures are detailed as to
the particular service and the Committee does not delegate its responsibilities
under the Securities Exchange Act of 1934 to management.
Disclosure to Investors Any approval by the Committee of a non-audit
service to be performed by the independent auditor shall be disclosed to
investors in periodic reports required by the Securities Exchange Act of 1934 at
such time as disclosure is required by SEC rule or regulation.
Approval of Audit Services for Other Purposes If the Committee approves an
audit service within the scope of the engagement of the independent auditor, the
audit service shall be deemed to have been pre-approved for purposes of this
Section E.
F. DUTY TO ESTABLISH OVERSIGHT PROCEDURES
1. Accounting Complaints. The Committee shall establish procedures for the
receipt, retention and treatment of complaints received by the Company regarding
accounting, internal accounting controls, or auditing matters; and the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters. These procedures, which
may be incorporated into a
A-6
more comprehensive code of ethics, shall at a minimum: (i) set forth a statement
about the Company's commitment to comply with the laws; (ii) encourage employees
to inform the Company of conduct amounting to a violation of the applicable
standards; (iii) describe prohibited conduct; (iv) set forth compliance
procedures that employees can easily use, including making anonymous complaints,
and (v) provide assurances that there will be no retaliation for reporting
suspected violations.
2. Financial Accounting Policy Dispute Resolution. The Committee shall
establish procedures for resolving disputes between the external auditor and
management over issues pertaining to financial reporting. The Committee shall
resolve these disputes, and for such purpose, the procedures may allow the
Committee to obtain a second opinion from independent advisors. The procedures
shall in no way allow the Committee to improperly influence the external auditor
in violation of sec. 303 of the Act.
VI. WRITTEN AFFIRMATION
Once each year the Committee shall provide the Company through the Board,
and the Company shall provide to the stock exchange on which the Company's
securities are traded, 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 has
accounting or related financial management expertise; and
4. The annual review and reassessment of this Charter.
A-7
APPENDIX B
CATUITY INC. COMPENSATION COMMITTEE CHARTER (AS REVISED MARCH 11, 2004)
I. PURPOSE
The Compensation Committee's (the "Committee") basic responsibility is to
review the performance of Company management in achieving corporate goals and
objectives and to assure that senior executives of the Company are compensated
effectively in a manner consistent with the strategy of the Company, competitive
practice, and the requirements of the appropriate regulatory bodies. Toward that
end, the Committee will oversee, review and administer all compensation, equity
and employee benefit plans and programs. The Committee will prepare an annual
report on executive compensation for inclusion in the Company's proxy statement.
II. COMPOSITION OF THE COMPENSATION COMMITTEE
The Committee will consist of not less than two independent directors, each
of whom will be both a "non-employee director" within the meaning of Rule 16b-3
issued by the Securities and Exchange Commission ("SEC") and an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code, as
amended. Each appointed Committee member will be subject to annual
reconfirmation and may be removed by the Board of Directors (the "Board") at any
time. The committee shall have the authority to retain and terminate any outside
advisors it deems necessary to assist in the completion of its obligations and
shall have the sole authority to approve the fees to be paid to outside
advisors.
III. RESPONSIBILITIES AND DUTIES
In carrying out its purpose, the Committee will have the following
responsibilities and duties:
1. Review annually and approve the Company's compensation strategy to
ensure that employees of the Company are rewarded appropriately for their
contributions to company growth and profitability.
2. Review annually and approve corporate goals and objectives relevant
to executive compensation and evaluate performance in light of those goals.
3. Review annually and determine the individual elements of total
compensation for the Chief Executive Officer and all other corporate
officers, and communicate in the annual Board Compensation Committee Report
to shareholders the factors and criteria on which the Chief Executive
Officer and all other corporate officers' compensation for the last year
was based.
4. Review and approve compensation for non-employee members of the
Board of Directors, including but not limited to the following elements:
retainer, meeting fees, committee fees, committee chair fees, equity or
stock compensation.
5. Make and approve stock option grants and other discretionary awards
under the Company's stock option or other equity incentive plans to all
persons who are Board members or executive officers within the meaning Rule
16b-3 issued by the SEC.
6. Grant stock options and other discretionary awards under the
Company's stock option or other equity incentive plans to all other
eligible individuals in the Company's service. The Committee may delegate
to one or more officers designated by the Committee the authority to make
grants to eligible individuals (other than any such officer) who are not
executive officers, provided that the Committee shall have fixed the price
(or a formula for determining the price) and the vesting schedule for such
grants, approved the form of documentation evidencing such grants, and
determined the appropriate number of shares or the basis for determining
such number of shares by position, compensation level or category of
personnel. Any officer(s) to whom such authority is delegated shall
regularly report to the Committee the grants so made. Any such delegation
may be revoked at any time by the Committee.
B-1
7. Amend the provisions of the Company's stock option or other equity
incentive plans, to the extent authorized by the Board, and make
recommendations to the Board with respect to incentive compensation and
equity-based plans.
8. Approve for submission to the shareholders, stock option or other
equity incentive plans or amendments thereto.
9. Oversee and periodically review the operation of all of the
Company's employee benefit plans, including but not limited to the Section
401(k) Plan, the Executive Director Stock Purchase Plan, the Director and
Employee Stock Option Plans and any Employee Stock Purchase Plans.
Responsibility for day-to-day administration, including the preparation and
filing of all government reports and the preparation and delivery of all
required employee materials and communications, will be performed by
company personnel.
10. Ensure that the annual incentive compensation plan is administered
in a manner consistent with the Company's compensation strategy and the
terms of such plan, including but not limited to the following:
participation, target annual incentive awards, corporate financial goals,
actual awards paid to executive officers, total funds reserved for payment
under the plan, and potential qualification under IRS Code Section 162(m).
11. Review matters related to executive management performance,
compensation and succession planning and executive development for
executive staff.
12. Exercise, as necessary and appropriate, all of the authority of
the Board of Directors with respect to the election of officers of the
Company during the periods between the regular meetings of the Board.
13. Have full access to the Company's executives and personnel as
necessary to carry out its responsibilities.
14. Obtain such data or other resources as it deems necessary to
perform its duties, including but not limited to obtaining external
consultant reports or published salary surveys, and engaging independent
compensation consultants and other professionals to assist in the design,
formulation, analysis and implementation of compensation programs for the
Company's executive officers and other key employees.
15. Have responsibility for the review and approval of all reports and
summaries of compensation policies and decisions as may be appropriate for
operational purposes or as may be required under applicable law.
16. Perform any other activities consistent with this Charter, the
Company's Bylaws and governing law as the Committee or the Board deems
necessary or appropriate.
17. Review the Committee Charter from time to time and recommend any
changes to the Board.
18. Report to the Board of Directors on the major items covered at
each Committee meeting.
Notwithstanding the foregoing, any action of the Committee may be subject
to Board review and may be revised, modified or rescinded by the Board.
IV. COMPENSATION COMMITTEE MEETINGS
The Committee will meet as often as necessary to carry out its
responsibilities. Meetings may be called by the Chairman of the Committee and/or
by the management of the Company. Minutes of each meeting will be duly filed in
the Company records. Reports of meetings of the Committee will be made to the
Board of Directors at its next regularly scheduled meeting following the
Committee meeting accompanied by any recommendations to the Board of Directors
approved by the Committee.
The Committee will also meet as and when necessary to act upon any other
matters within its jurisdiction under this Charter. A majority of the total
number of members of the Compensation Committee will constitute a quorum at all
Committee meetings. Minutes will be kept of each meeting of the Committee.
B-2
CATUITY INC.
ARBN 089 327 882 PROXY FORM
ALL CORRESPONDENCE TO:
Computershare Investor Services Pty Limited
Mark this box with an `X' GPO Box 7045 Sydney
if you have made any changes [ ] New South Wales 2001 Australia
to your address details Enquiries (within Australia) 1300 855 080
(see reverse) (outside Australia) 61 3 9415 4000
Facsimile 61 2 8234 5050
www.computershare.com
APPOINTMENT OF PROXY
I/We being a member/s of Catuity Inc. and entitled to attend and vote hereby
appoint
[ ] the Chairman [ ]Write here the name of the person you are
of the Meeting OR appointing if this person IS SOMEONE OTHER
(mark with an `X') THAN the Chairman of the 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 given, as the proxy sees fit) at the Annual General Meeting of Catuity
Inc. to be held at AAP Theatrette, AAP Centre, 259 George Street, Sydney NSW on
Thursday 13 May 2004 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 Duncan P.F Mount as a Director [ ] [ ] [ ]
2. To elect Michael V. Howe as a Director [ ] [ ] [ ]
3. To elect Alexander S. Dawson as a Director [ ] [ ] [ ]
4. To elect Alan L. Gilman 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 and your votes
will not be counted in computing the required majority on a poll.
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
[ ] [ ] [ ]
SOLE DIRECTOR AND DIRECTOR DIRECTOR/COMPANY
SOLE COMPANY SECRETARY SECRETARY
HOW TO COMPLETE THE 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
three 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 may vote as he or she chooses. 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) 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.
(b) 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 13 May 2004. Any Proxy
Form received after that time will not be valid for the scheduled
meeting.
CATUITY INC.
ARBN 089 327 882 CDI VOTING INSTRUCTION FORM [ ]
ALL CORRESPONDENCE TO:
Mark this box with an `X' Computershare Investor Services Pty Limited
if you have made any changes [ ] GPO Box 7045 Sydney
to your address details New South Wales 2001 Australia
(see reverse) Enquiries (within Australia) 1300 855 080
(outside Australia) 61 3 9415 4000
Facsimile 61 2 8234 5050
www.computershare.com
ANNUAL MEETING OF SHAREHOLDERS - THURSDAY 13 MAY 2004
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 of Shareholders 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.
FOR AGAINST ABSTAIN*
1. To elect Duncan P.F Mount as a Director [ ] [ ] [ ]
2. To elect Michael V. Howe as a Director [ ] [ ] [ ]
3. To elect Alexander S. Dawson as a Director [ ] [ ] [ ]
4. To elect Alan L. Gilman 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 and your votes will
not be counted in computing the required majority on a poll.
By execution of this CDI Voting Instruction Form the undersigned hereby
authorises CHESS Depositary Nominees Pty Ltd to appoint such proxies or their
substitutes to vote in their discretion on such business as may properly come
before the meeting.
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
[ ] [ ] [ ]
SOLE DIRECTOR AND DIRECTOR DIRECTOR/COMPANY
SOLE COMPANY SECRETARY SECRETARY
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 1/04/04
(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
Australian time on 11 May 04. 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, GPO Box 4195 Sydney New South Wales 2001 Delivery:
Level 2/60 Carrington Street, Sydney.
CATUITY INC.
ARBN 089 327 882
ALL CORRESPONDENCE TO:
Computershare Investor Services Pty Limited
GPO Box 7045 Sydney
New South Wales 2001 Australia
Enquiries (within Australia) 1300 855 080
(outside Australia) 61 3 9415 4000
Facsimile 61 2 8234 5050
www.computershare.com
8 April 2004
Dear Securityholder,
We have been trying to contact you in connection with matters arising from your
securityholding in Catuity Inc.. Unfortunately, our correspondence has been
returned to us marked "Unknown at the current address". For security reasons we
have flagged this against your securityholding which will exclude you from
future mailings other than notices of meetings.
We value you as a securityholder and request that you supply your current
address so that we can keep you informed about our Company. Where the
correspondence has been returned to us in error we request that you advise us of
this so that we may correct our records.
You are requested to include the following;
- - Securityholder Reference Number (SRN) or Holder Identification Number (HIN);
- - ASX trading code;
- - Name of company in which security is held;
- - Old address; and
- - New address.
Please ensure that the notification is signed by all holders and forwarded to
our Share Registry at:
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne Victoria 3001
Australia
In addition, if your holding is sponsored within the CHESS environment you need
to advise your sponsoring participant (in most cases this would be your broker)
of your change of address so that your records with CHESS are also updated.
Yours sincerely
000000 0000000000 0 0000
CATUITY INC.
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MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2
ADD 3
ADD 4
ADD 5 C 1234567890 J N T
ADD 6
[ ] 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
01 - Mr. D. P. F. Mount [ ] [ ]
02 - Mr. A. S. Dawson [ ] [ ]
03 - Mr. A. L. Gillman [ ] [ ]
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 HHH P P P P 003350
- --------------------------------------------------------------------------------
PROXY - CATUITY INC.
- --------------------------------------------------------------------------------
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 13, 2004 IN
SYDNEY, AUSTRALIA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY
The undersigned hereby constitutes and appoints Duncan P. F. Mount,
with full power of substitution, for and on behalf of the undersigned to vote as
proxy, as directed and permitted herein, at the Annual Meeting of Shareholders
of the Company to be held at the AAP Centre Theatrette, 259 George Street,
Sydney NSW 2000 on Thursday, May 13, 2004 at 9:30 a.m. (Wednesday, May 12, 2004
at 7:30 p.m. Eastern Daylight Time in the United States), and at any adjournment
thereof, upon matters set forth in the Proxy Statement and, in his judgment and
discretion, upon such other business as may properly come before the meeting.
PLEASE MARK THIS PROXY AND SIGN AND DATE IT ON THE REVERSE SIDE AND RETURN IT IN
THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)