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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
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RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CATUITY INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
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SEC 1913 (02-02)
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The letter and FAQ document that follow will be mailed to shareholders on or
around October 14, 2004.
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Tuesday, October 12, 2003
To Our Shareholders,
Please plan to join us next week to learn why the Board of Directors is asking
for you to approve the share consolidation proposal on the November 1, 2004
proxy. The Company's new President and CEO, John Racine, is hosting two open
informational meetings to address your questions. He will also detail a
step-by-step plan to generate revenue through a niche-market sales strategy that
will allow Catuity to create the nucleus of a new Company that will be
re-capitalized in the first quarter.
Those meetings will be held in the Sydney office of Catuity at Level 4, 68-72
Ballarat House, Wentworth Avenue in Surry Hills on:
WEDNESDAY, OCTOBER 20, 2004 THURSDAY, OCTOBER 21, 2004
AT 11 A.M. (TUESDAY, OCTOBER 19 AT 9:30 A.M. (WEDNESDAY, OCTOBER 20 at
9:00 P.M. EDT IN THE U.S.) AT 7:30 P.M. EDT IN THE U.S.)
If you cannot attend in person, we encourage you, or your trusted advisor, to
participate by calling in toll-free at:
1800-002-092 IN AUSTRALIA
1-877-232-0923 IN THE U.S.
In advance of the meeting, please review the following five pages of answers to
the most commonly asked questions relating to this share consolidation proposal.
Mr. Racine will also make a detail presentation on the state of the Company and
its plan through 2005.
Because a majority of all of Catuity's outstanding shares must approve this
proposal, we encourage you to vote FOR the share consolidation proposal. Every
vote counts.
/s/ Duncan Mount /s/ John Racine
Duncan Mount John Racine
Chairman of the Board President, CEO and Director
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WHAT YOU NEED TO KNOW ABOUT THE NOVEMBER 1 PROXY BALLOT
We are asking our shareholders to approve a share consolidation of our shares at
the November 1, 2004 special shareholders meeting. The following is designed to
answer frequently asked questions so that shareholders can make an informed
decision. The Board of Directors is supporting the resolution and strongly
encourages all shareholders to read the proxy and related materials, and to vote
IN FAVOUR of the proposal so that we can keep our valuable listing on the Nasdaq
SmallCap Market.
We encourage you to participate -- either in person or by phone -- in the
scheduled meetings to get answers your questions about the ballot and to
understand the Company's plan. If there are questions that you or your advisors
have, please do not hesitate to contact Catuity directly at 313.567.4348.
Questions can also be directed by email to either President and Chief Executive
Officer John Racine at racine@catuity.com or Chief Financial Officer Jack Lowry
at jackl@catuity.com.
WHY ARE SHAREHOLDERS BEING ASKED TO APPROVE THE SHARE CONSOLIDATION, COMMONLY
REFERRED TO AS A REVERSE STOCK SPLIT?
Following the loss of Catuity's major customer earlier this year, our share
price declined to below $1. On May 7, 2004, Nasdaq notified the Company that it
was trading below Nasdaq's minimum $1 per share bid price. The Company has until
November 3, 2004 to remedy the situation or face a de-listing from the Nasdaq
Small Cap Market. The Board of Directors of Catuity Inc. has chosen the safest
and least expensive option -- a share consolidation, also known as a reverse
stock split -- to bring the Company into compliance.
WHAT IS A SHARE CONSOLIDATION? HOW DOES IT AFFECT MY SHAREHOLDINGS? WHAT ABOUT
FRACTIONAL SHARES?
A share consolidation is a common means in the U.S. to increase share-trading
price, though it is somewhat unusual in Australia. In its simplest form, a share
consolidation is a combination of existing shares into a fewer number of shares.
Normally, the aggregate value and percentages stay the same, with the price per
share adjusting by the split factor. We are asking shareholders to authorize the
reverse split as a way to increase our share price to comply with Nasdaq listing
rules. The effect will be that your total number of shares outstanding will be
reduced, while the total value of your holdings immediately following the
reverse split will be unchanged. After a 1-for-10 share consolidation for
instance, a current holder of 500 shares would have 50 shares. If the price
prior to the reverse split were US$0.30 per share, we would anticipate an
initial post-split market price of US$3.00 per share. So, the shareholder in
this example would have had 500 shares at US$0.30 (total value US$150)
pre-split, and 50 shares at US$3.00 (total value US$150) post-split.
If a shareholder held a number of shares not evenly divided by the split factor,
then the "fractional shares" resulting from this combination would be cashed out
at the closing price of our common stock on the trading day immediately before
the effective date of the reverse split. For example, if a shareholder held 509
shares before the 1-for-10 split in the above example, then the shareholder
would have 50
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shares and would receive cash for the 9 old shares not converted (rather than
receiving 50.9 new shares). The Company estimates that the total cash cost to
the Company to pay for fractional shares would not exceed approximately US
$17,000.
WILL THE FUTURE VALUE OF MY SHARES BE AFFECTED?
Of course any share price is always difficult to forecast. Normally, the
immediate effect of a split is to reduce the number of shares and increase the
per-share trading price, by the split factor. So, a 1-for-10 reverse split will
normally result in 1/10th the number of shares, each now trading at 10 times the
pre-split market price. The Future trading price will be a function of the many
factors that normally affect a stock's price. The Board is encouraging
shareholders to meet the new CEO to learn more about the Company's plans and to
make an informed and independent judgment about the new, more focused direction
of the Company. The Directors, who are among the Company's largest shareholders,
intend to vote their shares in favour of the proposal as a reflection of their
confidence in the ability of the new management team to reverse the Company's
declining stock price.
WHAT, IF ANY, TAX CONSEQUENCES WILL RESULT FROM A SHARE CONSOLIDATION?
The tax consequences are different for our U.S. shareholders than for our
Australian shareholders. Generally, U.S. shareholders will have a taxable event
on any cash they receive in payment for fractional shares. Because our shares
are currently trading at or near their all time low, we would expect that if
U.S. shareholders experience a taxable event, they are likely to incur a capital
loss on only those fractional shares that will be repurchased by the Company.
Australian shareholders, on the other hand, will have a taxable event as a
deemed disposition of all of their shares. Depending on their cost basis, the
event will trigger either capital gain or loss. Again, because of our current
low market value, Australian shareholders will most likely experience a capital
loss for tax purposes on all shares held.
Each shareholder is encouraged to review his or her individual tax situation
with his or her trusted advisor to determine the specific impact. In an opinion
letter dated Sept. 21, 2004, the Company's auditor, Ernst & Young, provided an
overview of the possible implications for Australian-resident shareholders. We
encourage each shareholder to read the opinion. This can be found beginning on
page seven of the proxy that was recently mailed to shareholders.
I'M WORRIED THAT THE SHARE PRICE MAY DROP AFTER THE REVERSE SPLIT. WHAT IS THE
COMPANY'S PLAN TO KEEP THE PRICE FROM DECLINING AFTER THE REVERSE SPLIT?
As we noted above, normally the immediate impact of a reverse split is for the
per-share price to rise by the split factor. It is also relatively common for
the stock price to drop slightly, or increase slightly, immediately after this
adjustment, as a market reaction to the event. After that immediate reaction,
the market price will be determined by all the factors that normally affect any
stock's price. Catuity is committed to supporting the "post-reverse" share price
by conducting new investor meetings with analysts, brokers and fund managers in
both the U.S. and Australia, to do our best to increase market awareness of our
Company and our plans. In the U.S. this is commonly referred to as a "road
show". These efforts often bring in new
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investors to purchase shares that normally will support both share price and
value. As part of our efforts, the new CEO will detail specific steps that will
be taken to create a focused Company in 2005.
BUT MY SHARES TRADE ON THE AUSTRALIAN STOCK EXCHANGE, WHY SHOULD I CARE IF
CATUITY IS DE-LISTED BY NASDAQ?
We believe that Catuity's share price will be negatively affected in both the
U.S. and on the ASX if we are de-listed by Nasdaq.
The Board of Directors and the Management team believes that the loss of the
Nasdaq listing would hurt the Company by:
Increasing downward pressure on the share price and further limit liquidity for
the shares in the both the U.S. and Australia
Eliminating the possibility of attracting U.S. Institutional holders in future
capital raises
Reducing the likelihood of being able to utilize mergers and acquisitions as a
tool for growth and sustainability
Damaging Catuity's credibility with North American customers and prospects
WHY HASN'T THE RATIO OR THE DATE OF THE REVERSE SPLIT BEEN FIRMLY SET ALREADY?
The proposal that you will be voting on at the November 1st meeting will grant
the Board of Directors the authority to effect a share consolidation at either:
one-for-ten; one-for-fifteen; or one-for-twenty, at any time prior to March 31,
2005. We believe that approval of this discretion to the Board, rather than
approval of an immediate stock split of a specified ratio, provides the Board
with maximum flexibility to react to current market conditions and to therefore
act in the best interests of the Company and our shareholders
WHY DO I NEED TO MAIL IN MY PROXY BY OCTOBER 27? CAN'T I ATTEND THE MEETING AND
VOTE?
The vast majority of our Australian shareholders hold their shares as Chess
Depositary Interests (CDI's). As such, under Australian law, the holder of CDI's
must vote via the proxy form they receive in the mail. They may attend the
special meeting of shareholders, but may not vote their shares at the meeting.
For CDI holders, the proxy form marked with your voting instructions, must be
received by Computershare, Catuity's share registry, more than 48 hours before
the start of the shareholder meeting.
Similarly, in the United States, shareholders who hold their shares through
their broker (often referred to as being in street name), can only vote by
completing and mailing in their proxy to Computershare. The proxy with your
voting instructions must also be received by Computershare 48 or more hours
before the start of the shareholder meeting.
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WHAT HAPPENS IF THE VOTE FALLS SHORT ON NOVEMBER 1?
As early as November 3, the Company would be notified by Nasdaq that its shares
are to be de-listed. The U.S. shares would likely be quoted on the Nasdaq OTC
Bulletin Board ("OTCBB"). The OTCBB is a regulated quotation service for market
makers, not a stock market or exchange. The Company believes that trading on the
Bulletin Board would penalize all shareholders because the Bulletin Board is
very illiquid and does not support the Company's plan to raise capital in 2005
in the U.S. markets where its business opportunities are significantly greater
than in Australia.
WHY IS A NASDAQ LISTING VALUABLE?
The Board of Directors believes that the Company can reverse course and that its
Nasdaq listing is an essential component of the turnaround. As our financial
performance improves, our Nasdaq listing will facilitate the Company's efforts
to raise cost effective capital in the U.S. and enable a growing Catuity to use
its U.S. shares for mergers and acquisitions. Our recent conversations with
potential merger candidates have affirmed the value of the listing. The Company
would also point out that a listing on the Nasdaq National Market is very
difficult to obtain and even tougher to regain if Catuity were to be de-listed.
In 1999, Catuity invested approximately US $1.3 million to relocate its
corporate structure from Australia to the U.S. Additional one-time costs were
also incurred in 2000 to secure the Nasdaq listing as part of its strategy to
expand beyond Australia. Those funds can never be recovered, but the long-term
value of that investment would be lost for our shareholders if the Company were
de-listed.
HOW WOULD A DE-LISTING AFFECT THE BUSINESS OF CATUITY?
The Company believes that our existing and prospective customers and potential
investors would view the Nasdaq de-listing negatively. Potential investors are
likely to shun a Company traded on the OTCBB, which would further depress our
share price and ultimately increase our cost of capital. Additionally, the
Company's value as a merger partner could be greatly limited. Recent discussions
have identified many, larger private companies who are attracted to the Company,
in part, because of its valuable Nasdaq listing. Those opportunities would
likely be lost if the Company were de-listed. Lastly, the Company believes that
a de-listing could make potential customers -- retailers and financial
processors -- more reluctant to do business with Catuity because of concerns
about our viability. This would hurt our new, focused sales effort and would
limit, in the near term, our ability to generate the sales that will lift our
share price.
WOULD THE COMPANY SAVE MONEY BY BEING DE-LISTED?
The Company estimates that the only outside cost savings would be US $21,500 in
annual, minimum listing fees paid to Nasdaq. The Company will still need to
engage securities counsel and independent auditors to maintain it's listing on
the ASX. Catuity will also be required to continue to meet all U.S. Securities
and Exchange Commission rules, regulations and filings as long as it has more
than 300 shareholders. As a result, there is little cost to be saved (e.g. in
staff, management, financial printing, legal, audit, etc...) as a result of a
de-listing.
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WHAT IS DIFFERENT ABOUT THE COMPANY SINCE THE MAY 13 SHAREHOLDERS MEETING?
- - NEW MANAGEMENT AND ADDITIONAL BOARD STRENGTH WITH THE PROVEN EXPERIENCE in
bringing U.S. companies to profitability and market leadership positions. The
September 28, 2004 announcement provided an overview of their past successes.
- - A FOCUSED SALES PLAN WHICH TARGETS AN EXISTING MARKET for loyalty processing
and POS solutions for retailers with 25-250 stores, and their partners,
including merchant services companies. These clients have existing budgets and
have demonstrated that they are buying solutions. In the past, the Company
pursued large credit card issuers and was selling a loyalty technology that was
dependent on an emerging market.
- - THE CONTINUED TIGHT CONTROLS THROUGH A RESTRUCTURING OF OUR PEOPLE AND OUR
PROCESSES. Costs have been cut another 20% since the annual meeting and continue
to manage expenses very tightly with a new round of cuts to be finalized in
November.
- - A REALISTIC, STEP-BY-STEP ACTION PLAN that ...
|X| Emphasizes a niche-market sales strategy focused on middle market
retailers that are largely owner operated
|X| Leverages our ability to deliver either software or a new hosted ASP
version of our loyalty technology and/or our gift card solution
|X| Creates the nucleus of a new Company in 2005 through smart mergers that
would have at least break-even financial results in the first year
|X| Enables the new Catuity to raise a net US$3 million to US$5 million in
new capital
CEO John Racine will provide a detailed overview of our strategy in the
scheduled meetings. We strongly encourage you to take part in the update of the
turnaround plan for our Company. See the cover letter of this overview or the
Company's website at www.catuity.com, for more details on how to participate
In conjunction with the provisions of the "Safe Harbor" section to the Private
Securities Litigation Reform Act of 1995, this release may contain
forward-looking statements pertaining to future anticipated projected plans,
performance and developments, as well as other statements relating to future
operations. All such forward-looking statements are necessarily only estimates
of future results and there can be no assurance that actual results will not
materially differ from expectations. Further information on potential factors
that could affect Catuity, Inc. is included in the Company's Form 10-K, which is
filed with the US Securities & Exchange Commission.
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