UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-03389
CATUITY, INC.
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-3518829
State of Incorporation I.R.S. Employer I.D. No.
2711 E. JEFFERSON AVE.
DETROIT, MICHIGAN 48207
(248) 208-2500
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes [ ] No [ ]
The aggregate market value, as determined by the last sale price of
$6.60 on the Nasdaq Small Cap Market, of the voting stock held by non-affiliates
(shareholders holding less than 5% of the outstanding Common Stock, excluding
directors and officers), as of June 30, 2004 was $5,129,632.
As of April 15, 2005, there were 778,184 shares of the registrant's
common stock issued and outstanding.
As used in this Form 10-K/A, "Company," "us," "we," "our," and similar
terms means Catuity, Inc., a Delaware corporation, and one or more of its
subsidiaries.
EXPLANATORY NOTE
On March 31, 2005, we filed our Annual Report on Form 10-K for the fiscal
year ended December 31, 2004 with the Securities and Exchange Commission. This
Amendment No. 1 to our Form 10-K is filed to: (i) amend Part III, Items 10, 11,
12, 13 and 14; and (ii) amend Part IV, Item 15 (Exhibits, Financial Statements,
Schedules and Reports on Form 8-K) to include an Exhibit that was inadvertently
omitted.
With the exception of the foregoing, no other changes have been made to
our Form 10-K for the fiscal year ended December 31, 2004. Except as described
below, this Amendment has not been updated to reflect events occurring
subsequent to the original filing date of our Form 10-K. For all other
subsequent events, refer to our subsequent periodic and current filings.
PART III
ITEM 10 CORPORATE GOVERNANCE & COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Board Committees and Meetings
During the year that ended on December 31, 2004, the Board of Directors
held fifteen meetings. All of the directors attended or participated in more
than 75% of (i) the fifteen 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
BOARD COMPENSATION
MEETINGS AUDIT COMMITTEE COMMITTEE
ATTENDED/ MEETINGS MEETINGS
BOARD MEMBER HELD(#) ATTENDED/HELD(#) ATTENDED/HELD(#)
------------ ------- --------------- ---------------
Duncan P.F. Mount-Chairman 15/15 3/4 3/3
Alfred H. (John) Racine, III- 3/15 N/A N/A
President/CEO (1)
Alexander S. Dawson-Director 14/15 4/4 3/3
Alan L. Gilman-Director 14/15 4/4 3/3
Clifford W. Chapman Jr. (1) 3/15 N/A N/A
(1) Appointed to the board of directors on September 23, 2004.
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.
During 2004, the Board had 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
auditor 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 2004.
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 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 3 meetings during 2004. A
copy of the Compensation Committee charter is available at www.catuity.com.
Report of Independent Directors
The Board of Directors has determined that Messrs. Mount, Dawson, Gilman
and Chapman 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.
On March 22, 2005, the Board approved the establishment of a Nomination
and Governance Committee effective July 1, 2005, subject to shareholder approval
at the Company's Annual Meeting. 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, have been 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 in 2004, 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 (February 1, 2006 for the 2006 annual
shareholder meeting).
The independent directors considered whether or not to consider candidates
for an additional Board seat during 2004 in accordance with the criteria above
and determined that given the Merger and Acquisition strategy adopted by the
Company in May 2004, it was in the best interests of the Company to add a fourth
independent director with M&A experience to assist in the Company's turnaround.
As a result, Mr. Clifford W. Chapman Jr. was appointed to the Board on September
23, 2004.
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, Suite 37 (Level 2) 89-97 Jones St., Ultimo NSW
2007. 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.
The Company expects that all of its board members will attend its 2005
Annual Meeting of Shareholders. Messrs. Mount and Dawson attended the last
annual shareholders meeting held on May 13, 2004. Mr. Gilman attended the
meeting telephonically.
This report respectfully submitted by:
Duncan Mount, Chairman
Alexander S. Dawson
Alan Gilman
Clifford W. Chapman Jr.
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
intends to have the Nomination and Governance Committee establish policies and
procedures for evaluating the performance, on an annual basis of the Board as a
whole, its committees, and each Board member.
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 review and
approve the content of all Company press releases and announcements before they
are issued.
Advice may be sought from outside, independent securities legal counsel
where matters of judgment may be involved. The CEO and CFO are the only
personnel in the Company authorized to discuss information with the media,
analysts, and investors.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 2004, the Company
believes that, during such fiscal year, with three exceptions, all applicable
Section 16(a) filing requirements were met by the Reporting Persons. The
following Reporting Persons were late in filing one Form 4 report; Duncan P.F.
Mount, Alexander S. Dawson and Alan L. Gilman
ITEM 11 EXECUTIVE COMPENSATION
Executive Compensation
The following tables provide certain summary information concerning
compensation and stock options for our Chief Executive Officer and the named
executive officers that earned more than $100,000 (salary and bonus) for all
services rendered in all capacities to Catuity during the year ended December
31, 2004. The persons named below are the only executive officers of the
Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- ------- ------------ ---------- --------------
Alfred H. Racine (1) 2004 66,667 77,914
President and CEO
Michael V. Howe(4) 2004 230,769 0 0 0 300,000 (3)
Former President and CEO 2003 308,000 0 0 6,667
2002 232,000 60,000 0 0
John H. Lowry III (4) 2004 160,000 0 0 0
Vice President -- 2003 160,000 30,000 0 1,667
CFO, Secretary and 2002 150,000 20,000 0 0
Treasurer
Anthony B. Garton (4) 2004 102,708 0 4,928 0
(5) Former Vice 2003 170,000 12,100 7,048 667
President- Product 2002 124,250 3,039 5,163 0
Development &
Implementation
(1) Mr. Racine was named President and CEO on September 23, 2004. Options
granted are per his employment agreement are pending shareholder approval
(2) Includes Australian Superannuation Guarantee Contribution, a compulsory
payment that funds retirement benefits.
(3) Represents a severance amount both accrued and paid to Michael V. Howe our
former President and CEO. Mr. Howe's employment with the Company
terminated on September 23, 2004.
(4) A portion of the executive officers' 2003 and 2002 salary was used to
purchase the Company's stock under an executive stock purchase plan. The
shares were purchased at market price, therefore, no additional
compensation resulted.
(5) Salary amounts have been translated from Australian dollars at the average
exchange rate for each year. The exchange rates were .737, .655 and .544
for the years 2004, 2003 and 2002 respectively.
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF SHARE
PERCENT OF TOTAL PRICE
NUMBER OF SECURITIES OPTIONS GRANTED TO APPRECIATION FOR
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE EXPIRATION OPTION TERM
NAME AND PRINCIPAL POSITION GRANTED YEAR ($/SHARE) DATE 5%/10%(3)
--------------------------- -------------------- ------------------- -------------- ---------- -----------------
Alfred H. (John) Racine III (1) 77,914 49.0% $4.20 09/23/2009 $72,305/$199,460
President and CEO
Michael V. Howe - - - -
Former President and CEO
John H. Lowry III
Vice President - CFO,Secretary & - - - -
Treasurer
Anthony B. Garton
Former Vice President - Product - - - -
Development and Implementation
- --------------
(1) Options granted are pending Shareholder approval.
(2) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
(3) The potential realizable value is reported net of the option price, but
before the income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% from the
date of grant to the expiration of the options.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT FY-END FY-END(1)
NAME AND PRINCIPAL POSITION ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISEABLE EXERCISABLE/UNEXERCISEABLE
--------------------------- ----------- -------------- -------------------------- --------------------------
Alfred H. (John) Racine III 0 0 0/77,914 $0/$0
President and CEO
Michael V. Howe
Former President and CEO 0 0 21,267/0 $0/$0
John H. Lowry III
Vice President - CFO, 0 0 8,333/0 $0/$0
Secretary & Treasurer
Anthony B. Garton
Former Vice President Product
Development & Implementation 0 0 0/0 $0/$0
- ----------
(1) Based on the closing price per share of common stock on the Nasdaq small
cap market on the last day of 2004, less the option exercise price payable
per share.
Employment Contracts, Termination of Employment and Change in Control Agreements
Alfred H. (John) Racine III. We entered into a one year agreement with our
President and Chief Executive Officer, Alfred Henry (John) Racine III on
September 23, 2004. Pursuant to the agreement, Mr. Racine's salary is $250,000
per year and he was granted 77,914 option shares of Catuity common stock subject
to shareholder approval. Mr. Racine's agreement may be extended by mutual
written agreement between Mr. Racine and the Board of Director's. The agreement
may be terminated by either Mr. Racine or the Company upon 30 days written
notice, with no further obligations.
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 received a base
salary of $300,000. Mr. Howe was also entitled to receive a performance-based,
target cash bonus. The Compensation Committee had the right to amend salary and
bonus amounts in Mr. Howe's Employment Agreement pursuant to an annual review.
Mr. Howe was eligible to receive a performance bonus if Catuity achieved certain
Compensation Committee established goals for Net Revenue as defined in the
Agreement and Net Income Before Extraordinary Items and Non-Cash Stock
Compensation Expense ).
In September 2004, Mr. Howe resigned as President and Chief Executive
Officer. Under the terms of his agreement, Mr. Howe received 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 10,000 shares of common
stock, at an exercise price of $115.20, which vested 3,333 on commencement of
employment and 333 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 3,333 then-unvested
options he held under the grant of options included in his original contract.
These options were replaced with 1,667 options that expire December 31, 2005, at
an option exercise price of $57.60 (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.
Board Compensation
The maximum amount that may be paid to all non-executive directors
annually is $104,000. Of that total, we pay each director a $10,000 annual
retainer fee, paid in quarterly payments of $2,500 following each calendar
quarter. The Chairman of the Board also receives a $10,000 per year Chairman
fee. In addition, each director receives $12,000 in fees for attendance at Board
meetings so long as the Director attends at least 75% of the meetings held
during the year. Fees of $7,500 per year are paid to the Chairperson of the
Audit Committee and $5,000 per year to Board members serving as audit committee
members. The Chairperson of the Compensation Committee receives $5,000 per year
and members receive $2,000 per year. 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 667 Catuity shares. In
addition, on the last business day of September of every year, the Chairman
receives 417 options and each director then in office will receive a stock
option to acquire 333 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.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors for
the 2004 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.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Securities
The following table provides certain information regarding beneficial
ownership of our capital stock as of March 31, 2005 by: (i) each person who is
known by us to beneficially own more than five percent of our common stock; (ii)
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, 2004,
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; (iii)
each of our Directors; and (iv) all of our Directors and executive officers as a
group.
AMOUNT AND NATURE OF COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED(2)
- ------------------------------------ ---------------------------------- --------
Acorn Capital Limited 108,846 Direct
Level 12, 90 Collins Street 0 Vested Options
------
Melbourne Vic 3000 Australia 108,846 14.0
Duncan P.F. Mount 46,666 Direct
Lot 8, 54 Lane Cove Road 2,167 Vested Options
------
Ingleside, NSW 2101 Australia 48,833 6.3
Alfred H. Racine III 0 Direct
11 Altamont Circle, #51 50,644 Vested 6.1
------
Charlottesville, VA 22902 50,644
Michael V. Howe 3,450 Direct
62 Hampton Road 21,267 Vested Options
------
Grosse Pointe Shores, MI 48230 24,717 3.1
Alexander S. Dawson 15,000 Direct
38 Macleay Street 2,000 Vested Options 2.2
------
Potts Point, NSW 2011 Australia 17,000
John H. Lowry III 422 Direct
21972 Heatheridge 8,333 Vested Options
------
Northville, MI 48167 8,755 1.1
AMOUNT AND NATURE OF COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED(2)
- ------------------------------------ --------------------------------- -------
Anthony B. Garton 277 Direct
65 Wilson St. 0 Vested Options
------
Newtown, NSW 2042 277 *
Alan L. Gilman 267 Direct
4720 Morris Lake Circle 2,000 Vested Options
------
West Bloomfield, MI 48323 2,267 *
Clifford W. Chapman Jr. 0 Direct
10 Warren Ave. 667 Vested Options
------
Spring Lake, NJ 07762 667 *
All directors and executive officers 62,355 Direct
as a group (6 persons) 65,811 Vested Options
------
128,166 15.2%
- -----------------
(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 common stock
subject to options, warrants or other rights to purchase which are
currently exercisable or are exercisable within 60 days after March 31,
2005 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, 2005. An asterisk indicates beneficial ownership
of less than 1% of the common stock outstanding.
EQUITY COMPENSATION PLAN INFORMATION
The following table reflects information about the securities authorized
for issuance under our equity compensation plans as of December 31, 2004.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF NUMBER OF SECURITIES
SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON FUTURE ISSUANCE UNDER
EXERCISE OF WEIGHTED-AVERAGE EQUITY COMPENSATION PLANS
OUTSTANDING EXERCISE PRICE OF (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY OPTIONS OUTSTANDING OPTIONS IN COLUMN (a)
------------- ----------------- ------------------- -------------------------------
(a) (b) (c)
----------------- ------------------- -------------------------------
Equity compensation plans 53,630 $ 91.02 18,370
approved by security holders
Equity compensation plans 77,914 $ 4.20 0
not approved by security holders (1)
(1) The options granted to Mr. Racine are conditional and pending approval by
the Company's shareholders at the 2005 Annual Meeting.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 31, 2003 the employment of the Company's former executive
chairman, Mr. David Mac Smith was terminated. Pursuant to the terms and
conditions of Mr. Mac Smith's employment agreement, Mr. Mac Smith was entitled
to receive one year of salary as severance. During the period of September 2003
through August 2004, Mr. Mac Smith received monthly payments in full
satisfaction of the Company's severance obligation. Mr. Mac Smith received his
final payment in August of 2004. At the time of his termination, Mr. Mac Smith
was in possession of shares of Catuity stock subject to loans the Company made
to Mr. Mac Smith to enable him to acquire the shares pursuant to a 1995
Executive Share Plan Agreement (the Plan) and Mr. Mac Smith's employment
agreement. Under the terms of the Plan, the Company has the right to buy-back
all of the shares subject to the loans within one year of Mr. Mac Smith's
termination. As previously disclosed, on August 24, 2004 the Company advised Mr.
Mac Smith that it was exercising its right to buy-back all of his shares subject
to loans from the Company. In April 2005, the Company and Mr. Mac Smith received
the valuation report of the independent valuation expert nominated by the
President of the Australian Institute of Chartered Accountants to establish the
fair value of each share subject to the Company loans. The Company intends to
complete the steps necessary to complete the buy-back of the loan shares in the
near term. Mr. Mac Smith has indicated he objects to the Company's actions and
has advised the Company that he may seek legal remedy if the Company takes
action. The Company believes, after consulting with legal counsel, that it is
proceeding appropriately and in accordance with the agreement with Mr. Mac
Smith, to complete the buy-back. It is management's view that any claim brought
by Mr. Mac Smith would not be material and it is the Company's intention to
vigorously defend its rights and the interest of all shareholders.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent Public Accountants
The independent public accounting firm of BDO Seidman LLP audited the
Company's consolidated financial statements for fiscal 2004. The independent
auditing firm of Ernst & Young LLP audited the Company's financial statements in
2003 and performed the first and second quarter's financial reviews in 2004. BDO
Seidman LLP was named the Company's auditors on November 04, 2004 and performed
the third quarter financial review. Additional information on the Company's
independent public accounting firms is available in the Company's current report
on Form 8-K, which is incorporated herein by reference. Representatives from BDO
Seidman LLP are expected to be present, via telephone, at the Annual Meeting of
Shareholders and will be 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 BDO Seidman LLP for the audit of the
Company's annual consolidated financial statements for the fiscal year ended
December 31, 2004, and the review of the consolidated financial statements
included in the Company's Form 10-Q for the third quarter of 2004 were $63,000.
The aggregate fees billed by Ernst & Young LLP for audit of the Company's annual
consolidated financial statements for the fiscal year 2003 and the review of the
consolidated financial statements included in the Company's Form 10-Q for the
first and second quarters of 2004 were $97,000 and $18,000 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 BDO Seidman LLP for the fiscal year ended December 31, 2004. Ernst &
Young billed a total of $1,000 for fees associated with the preparation of a
letter provided to the ASX for the second quarter of 2004 review.
For the fiscal year ended December 31, 2003, there were no fees billed to the
Company for audit related services rendered by Ernst & Young LLP
Tax Fees
The aggregate fees billed to the Company for the preparation of the
Company's Australian tax returns by Ernst & Young, for the fiscal years ended
December 31, 2003 and 2002, were $16,000 and $41,500, respectively.
All Other Fees
For the fiscal year ended December 31, 2004, the aggregate fees for other
services billed to the Company by BDO Seidman LLP were $21,000 and related to
consulting services and audit assistance with the Loyalty Magic acquisition. In
addition, there were also $7,500 in fees billed by McInnes, Graham & Gibbs for
the audit of Loyalty
Magic's financial statements for the year ended June 30, 2003. There were no
fees billed to the Company for any other services rendered by Ernst & Young for
the fiscal years ended December 31, 2004 and 2003.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed herewith as part of this Form 10-K/A:
1. Share Sale Agreement between Catuity Inc. and the shareholders of
Loyalty Magic Pty. Ltd., dated March 17, 2005.
EXHIBIT INDEX
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the SEC. Catuity shall furnish copies of
exhibits for a reasonable fee (covering the expense of furnishing copies) upon
request.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3(a) Registrant's Certificate of Incorporation, which appears as Exhibit 3.3
to Registrant's Form 10-12G filed March 21, 2000, which is incorporated
herein by reference.
3(b) Registrant's Certificate of Amendment to the Certificate of
Incorporation, which appears as Exhibit 3.4 to Registrant's Form 10-12G
filed March 21, 2000, which is incorporated herein by reference.
3(c) Registrant's By-Laws, which appears as Exhibit 3.5 to Registrant's Form
10-12G filed March 21, 2000, which is incorporated herein by reference.
3(d) Certificate of Registration of Card Technologies Australia Limited,
which appears as Exhibit 3.1 to Registrant's Form 10-12G filed March
21, 2000, which is incorporated herein by reference.
3(e) Certificate of Registration on change of name from Card Technologies
Australia Limited to Chip Application Technologies Limited, which
appears as Exhibit 3.2 to Registrant's Form 10-12G filed March 21,
2000, which is incorporated herein by reference.
3(f) Bylaws of Catuity, Inc. (formerly Novatec Inc.) as amended June 25,
2001, which appears as Exhibit 3(ii) to Registrant's Form 10-Q for the
quarter ended June 30, 2001, which is incorporated herein by reference.
3(g) Bylaws of Catuity Inc. (formerly Novatec Inc.) as amended effective
September 1, 2004, which appears as Exhibit 3(g) to Registrant's
Form 10-Q for the quarter ended June 30, 2004, which is incorporated
herein by reference.
3(h) Certificate of Amendment of Amended Certificate of Incorporation of
Catuity Inc., which is incorporated herein by reference
10(a) Registrant's 2000 Director Stock Option Plan, which appears as Exhibit
4.2 to Registrant's Form S-8 filed December 20, 2000, which is
incorporated herein by reference.*
10(d) Employment agreement of John H.Lowry III, which appears as Exhibit
10.10 to Registrant's Form 10-12G filed March 21, 2000, which is
incorporated herein by reference.*
10(d-1) Amendment to John H. Lowry III Employment Agreement with Catuity Inc.,
which appears as Exhibit 10(d-1) to Registrant's Form 10-Q for the
quarter ended June 30, 2004, which is incorporated herein by
reference. *
10(h) Lease for premises located at 68-72 Wentworth Avenue Surry Hills, New
South Wales, Australia, which appears as Exhibit 10.11 to Registrant's
Form 10-12G filed March 21, 2000, which is incorporated herein by
reference.
10(i) Lease for premises located at 2711 East Jefferson Avenue, Detroit,
Michigan, which appears as Exhibit 10.12 to Registrant's Form 10-12G
filed March 21, 2000, which is incorporated herein by reference.
10(k) Smart Loyalty Technical Work Group Agreement between Visa U.S.A. and
Chip Application Technologies limited, which appears as Exhibit 10.14
to Registrant's Form 10-12G filed March 21, 2000, which is
incorporated herein by reference.
10(l) Partner Program Loyalty Services Agreement between Visa International
Service Association and Chip Application, Technologies Limited, which
appears as Exhibit 10.15 to Registrant's Form 10-12G filed March 21,
2000, which is incorporated herein by reference.
10(n) Form of Indemnification Agreement, which appears as Exhibit 10.24 to
Registrant's Form 10-12G filed March 21, 2000, which is incorporated
herein by reference.
10(o) Form of Stock option Plan and Form of Stock Option Agreement under
Plan, which appears as Exhibit 10.25 to Registrant's Form 10-12G filed
March 21, 2000, which is incorporated herein by reference.*
10(p) Catuity, Inc. 2000 Director Stock Option Plan as approved by the
Shareholders of Catuity, Inc. on May 23, 2001, which appears as
Exhibit 10.2(bb) to Registrant's Form 10-Q for the quarter ended June
30, 2001, which is incorporated herein by reference.*
10(s) Amendment to Stock Option Plan, as approved by the Shareholders of
Catuity, Inc. on May 24, 2001, which appears as Exhibit 10(s) to
Registrant's Form 10-K for the year ended December 31, 2001, which is
incorporated herein by reference. *
10(t) Consulting agreement between Visa U.S.A and Catuity, Inc., signed
November 17, 2000, which appears as Exhibit 10(t) to Registrant's form
10-K for the year ended December 31, 2001, which is incorporated
herein by reference.
10(u) Catuity, Inc. 2002 Executive Stock Purchase Plan, which appears as
Exhibit 4.1 to Registrant's Form S-8 filed December 6, 2002, which is
incorporated here in by reference.*
10(v) Catuity, Inc. 2003 Executive Director Stock Purchase Plan, which
appears as Exhibit 10(v) to Registrant's Form 10-K for the year ended
December 31, 2003, which is incorporated herein by reference
10(w) Employment Agreement of Alfred H. Racine, with Catuity Inc. dated
September 23, 2004., which appears as exhibit 10(w) to Registrant's
Form 8-K filed September 28, 2004, which is incorporated herein by
reference. *
10(x) Share Sale Agreement between Catuity Inc. and the shareholders of
Loyalty Magic Pty. Ltd., dated March 17, 2005, which is filed
herewith.
16.1 Letter from Ernst & Young LLP to the Securities and Exchange
Commission regarding change in certifying accountant, which appears as
exhibit 16.1 to Registrant's Form 8-K dated September 24, 2004.
21 Subsidiaries of Registrant as of March 30, 2005
23.1 Consent of Independent Accountants-BDO SEIDMAN, LLP
23.2 Consent of Independent Accountants-Ernst & Young, LLP
24 Powers of Attorney Contained on Page 44 of Catuity's Annual Report on
Form 10-K for the fiscal year ended December 31, 2004, which is
incorporated herein by reference.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by Alfred H. Racine, the Registrant's Chief Executive Officer.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, by John H. Lowry, the Registrant's Chief Financial Officer.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Alfred
H. Racine and John H. Lowry
99.1 Audit Committee Charter, which appears as Exhibit 99.1 to Registrant's
Form 10-Q filed November 14, 2000, which is incorporated herein by
reference.
99.2 Catuity, Inc. Audit Committee charter as amended October 22, 2001,
which appears as exhibit 99.2 to Registrant's Form 10-Q for the
quarter ended September 30, 2001, which is incorporated herein by
reference
99.3 Catuity Inc. Audit Committee charter as amended March 11, 2004
99.4 Catuity Inc. Compensation Committee charter as amended March 11, 2004.
* Indicates that exhibit is a management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CATUITY INC.
DATE: APRIL 29, 2005 By: /s/ John H. Lowry
----------------------
John H. Lowry
Vice President, Chief Financial Officer, Secretary
and Treasurer
POWER OF ATTORNEY
Know All Persons By These Presents, that each person whose signature
appears below constitutes and appoints John H. Lowry his or her
attorneys-in-fact, for such person in any and all capacities, to sign any
amendments to this report and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that either of said attorney-in-fact, or
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE(s) DATE
--------- -------- ----
/s/ Duncan P F. Mount Chairman and Director April 29, 2005
- ---------------------
Duncan P. F. Mount
/s/ Alfred H. Racine President, CEO and Director April 29, 2005
--------------------
Alfred H. Racine
/s/ Clifford Chapman Director April 29, 2005
--------------------
Clifford Chapman
/s/ Alexander S. Dawson Director April 29, 2005
- -----------------------
Alexander S. Dawson
/s/ Alan L. Gilman Director April 29, 2005
- ------------------
Alan L. Gilman
/s/ John H. Lowry Vice President, CFO, Secretary and April 29, 2005
- ----------------- Treasurer
John H. Lowry
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10(x) Share Sale Agreement between Catuity, Inc. and the shareholders of
Loyalty Magic Pty. Ltd., dated March 17, 2005.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002