EXHIBIT 99.3
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 Section 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.
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.
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
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.
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.
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;
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 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 Section 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.