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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CATUITY INC
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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):
[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:
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2) Aggregate number of securities to which transaction applies:
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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):
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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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.
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NOTICE OF 2006 ANNUAL MEETING AND PROXY STATEMENT
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ALFRED H. (JOHN) RACINE, III
President and
Chief Executive Officer
March 31, 2006
To our Stockholders:
This year's annual meeting of stockholders will be held at The American
Conference Center, 780 Third Avenue C-2, New York, New York 10017 on May 11,
2006, at 4:30 P.M. EDT (May 12, 2006, at 6:30 A.M. Australian Eastern Standard
Time).
The Board of Directors and I cordially invite you to attend.
Registration will begin at 3:30 P.M. Only those stockholders who owned shares on
the record date, March 31, 2006, are entitled to vote and attend the meeting.
During the course of the meeting there will be the usual time for
discussion of the items on the agenda and for questions regarding Catuity's
affairs. Directors and officers will be available to talk individually with
stockholders before and after the meeting.
YOUR VOTE IS VERY IMPORTANT. STOCKHOLDERS OF RECORD CAN VOTE BY
COMPLETING AND MAILING THE ATTACHED PROXY CARD IN THE ENCLOSED ENVELOPE. IF YOUR
SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER HOLDER OF RECORD, YOU
WILL RECEIVE INSTRUCTIONS FROM THE HOLDER OF RECORD THAT YOU MUST FOLLOW IN
ORDER FOR YOU TO VOTE YOUR SHARES.
If you have any questions about the meeting, please contact Mr. John H.
Lowry, III, Secretary of Catuity Inc., 37650 Professional Center Drive, Suite
145A, Livonia, Michigan 48154. The telephone number is (734) 779-9000 extension
202. E-Mail: shareholder@catuity.com
Sincerely,
/s/ John Racine
Alfred H. (John) Racine, III
President and CEO
NOTICE OF 2006 ANNUAL MEETING
CATUITY INC.
37650 PROFESSIONAL CENTER DRIVE LEVEL 5
SUITE 145A 140 BOURKE ST.
LIVONIA, MICHIGAN 48154 MELBOURNE, VIC
UNITED STATES 3000 AUSTRALIA
TIME . . . . . . . 4:30 p.m. on May 11, 2006 EDT
(6:30 a.m. on May 12, 2006 Australian Eastern Standard Time)
PLACE. . . . . . . The American Conference Center
780 Third Avenue C-2
New York, New York 10017
PROPOSALS (1) To elect Alexander S. Dawson as a director to hold
office until the next annual meeting and until his
successor is duly elected.
(2) To elect Alfred H. (John) Racine, III as a director to
hold office until the next annual meeting and until his
successor is duly elected.
(3) To elect Geoffrey C. Wild as a director to hold office
until the next annual meeting and until his successor
is duly elected.
(4) To elect Donald C. Campion as a director to hold office
until the next annual meeting and until his successor
is duly elected.
(5) To elect Clifford W. Chapman, Jr. as a director to hold
office until the next annual meeting and until his
successor is duly elected.
(6) To approve the grant of options to acquire 50,000
shares of common stock and the grant of 100,000 shares
of restricted stock to Mr. Alfred H. (John) Racine, III
in accordance with Australian Stock Exchange Limited
Listing Rule 10.14.
(7) To approve the issue of up to 400,000 shares of common
stock pursuant to Australian Stock Exchange Limited
Listing Rule 7.1.
RECORD DATE . . . Only stockholders of record at the close of business on
March 31, 2006 for U.S. stockholders and April 1, 2006 for
Australian stockholders are entitled to notice of and to
vote at the meeting or any adjournment thereof. The stock
transfer books will not be closed between the record date
and the date of the Annual Meeting. A list of stockholders
entitled to vote at the Annual Meeting will be available for
inspection at Catuity's offices.
PROXY VOTING . . . It is important that your shares be represented and voted
whether you plan to attend the Annual Meeting or not. Please
MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card
in the enclosed postage-paid envelope. Any proxy may be
revoked at any time prior to its exercise at the Annual
Meeting.
/s/ John H. Lowry
JOHN H. LOWRY, III, Secretary
Livonia, Michigan
March 31, 2006
TABLE OF CONTENTS
VOTING RIGHTS AND SOLICITATION..................................................................................1
VOTING.......................................................................................................1
PROXIES......................................................................................................2
SOLICITATION OF PROXIES......................................................................................2
ANNUAL REPORT...................................................................................................2
INCORPORATION BY REFERENCE......................................................................................2
PROPOSALS 1-5 (ELECTION OF DIRECTORS)..........................................................................2
GENERAL......................................................................................................2
BUSINESS EXPERIENCE OF DIRECTORS.............................................................................3
RECOMMENDATION OF THE BOARD OF DIRECTORS.....................................................................5
PROPOSAL 6 (APPROVAL OF OPTION AND RESTRICTED STOCK AWARDS TO ALFRED H. (JOHN) RACINE, III)....................5
GENERAL......................................................................................................5
VOTING EXCLUSION STATEMENT...................................................................................6
RECOMMENDATION OF THE BOARD OF DIRECTORS.....................................................................6
PROPOSAL 7 (APPROVAL OF THE ISSUE OF UP TO 400,000 SHARES OF COMMON STOCK).....................................6
GENERAL......................................................................................................6
LISTING RULE REQUIREMENTS....................................................................................7
VOTING EXCLUSION STATEMENT...................................................................................7
RECOMMENDATION OF THE BOARD OF DIRECTORS.....................................................................7
CORPORATE GOVERNANCE............................................................................................7
BOARD COMMITTEES AND MEETINGS................................................................................7
CONSIDERATION OF DIRECTOR NOMINEES...........................................................................8
REPORT OF INDEPENDENT DIRECTORS.............................................................................10
PERFORMANCE ENHANCEMENT.....................................................................................11
ETHICS AND CODES OF CONDUCT.................................................................................11
RISK MANAGEMENT.............................................................................................11
CONTINUOUS DISCLOSURE.......................................................................................11
MANAGEMENT AND COMPENSATION....................................................................................11
EXECUTIVE OFFICERS..........................................................................................11
EXECUTIVE COMPENSATION......................................................................................12
REPORT OF THE COMPENSATION COMMITTEE...........................................................................15
CERTAIN TRANSACTIONS...........................................................................................16
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS........................................................16
COMPLIANCE WITH SEC REPORTING REQUIREMENTS.....................................................................17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................17
INDEPENDENT PUBLIC ACCOUNTANTS.................................................................................18
AUDIT FEES..................................................................................................18
AUDIT RELATED FEES..........................................................................................18
TAX FEES....................................................................................................19
ALL OTHER FEES..............................................................................................19
STOCKHOLDER PROPOSALS FOR 2007 PROXY STATEMENT.................................................................19
FORM 10-KSB....................................................................................................19
OTHER MATTERS..................................................................................................19
PROXY STATEMENT FOR 2006 ANNUAL MEETING OF STOCKHOLDERS
We are furnishing these proxy materials for the solicitation of proxies
by our Board of Directors for our Annual Meeting of Stockholders to be held on
May 11, 2006 at 4:30 p.m. Eastern Daylight Time at the American Conference
Center, 780 Third Avenue C-2, New York, New York 10017 (May 12, 2006 at 6:30
a.m. Australian Eastern Standard Time) and at any adjournments or postponements.
We first mailed these proxy materials on or about April 10, 2006 to all
stockholders 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 Stockholders.
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 March 31, 2006, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 2,111,807 shares
of common stock outstanding. Each stockholder of record, on March 31, 2006 for
U.S. stockholders and April 1, 2006 for Australian stockholders, is entitled to
one vote for each share of common stock held on that date.
If your shares are held in "street name," your brokerage firm, under
certain circumstances, may vote your shares for you if you do not return your
proxy. Brokerage firms have authority under the rules of the NASDAQ Stock Market
("NASDAQ") to vote customers' unvoted shares on some routine matters. If you do
not return your completed proxy, your brokerage firm may either vote your shares
on routine matters or leave your shares unvoted. Proposals 1-5, the election of
directors, and Proposal 6, the approval of Mr. Racine's equity incentive awards
are considered routine matters.
Proxies returned without your voting instructions with respect to non-routine
matters are referred to as "broker non-votes." Proposal seven is considered a
non-routine matter. Your broker or bank may not vote on this proposal without
your instructions. We encourage you to provide voting instructions to your
brokerage firm by returning your completed proxy. This ensures your shares will
be voted at the meeting on all proposals according to your instructions. You
should receive directions from your brokerage firm about how to submit your
proxy to them at the time you receive this proxy statement.
Directors will be elected by a plurality of all votes cast at the
Annual Meeting. Accordingly, abstentions and broker non-votes will have no
effect on the results of the vote. Any other matters to be considered at the
Annual Meeting require the approval by affirmative vote of a majority of the
voting shares present or represented and entitled to vote on those matters at
the Annual Meeting. Abstentions are treated as shares present or represented at
the annual meeting and entitled to vote at the Annual Meeting and have the
practical effect of a "no" vote. Broker non-votes are considered to not be
entitled to vote on non-routine matters, and are neither counted towards the
base number (a majority of which is required for passage) nor as a vote either
affirmatively or negatively.
The presence, in person or by proxy, of outstanding shares of common
stock representing one-third of the total shares outstanding is necessary to
constitute a quorum for the transaction of business at the Annual Meeting.
Shares that reflect abstentions or broker non-votes will be counted for purposes
of determining whether a quorum is present for the transaction of business at
the Annual Meeting. The inspector of elections appointed for the Annual Meeting
will tabulate all votes. The inspector will separately tabulate affirmative and
negative votes, abstentions, and broker non-votes.
If there is not a quorum at the Annual Meeting, the chairman of the
Annual Meeting may adjourn the Annual Meeting until such time as there is a
quorum. The Annual Meeting may be reconvened without notice to the stockholders,
other than an announcement at the prior adjournment of the Annual Meeting,
within 30 days after the original meeting date, and a quorum must be present at
such reconvened Annual Meeting.
Information concerning principal holders of our common stock is
discussed under "Security Ownership of Certain Beneficial Owners and
Management."
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 Board 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
Livonia, Michigan or our Australian office in Melbourne, VIC 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 stockholders. 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. We
may retain a proxy solicitation service to assist us in obtaining proxies from
our stockholders. We anticipate that we will pay no more than $10,000USD, plus
reasonable out of pocket expenses for these services, if needed. 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.
ANNUAL REPORT
Stockholders are concurrently being furnished with a copy of Catuity's
2005 Annual Report, which contains its audited financial statements as of
December 31, 2005. In addition, copies of Catuity's Annual Report on Form 10-KSB
for the year ended December 31, 2005, as filed with the Securities and Exchange
Commission (the "SEC"), will be sent to any stockholder, without charge, upon
written request to Mr. John H. Lowry, III, Secretary of Catuity Inc., 37650
Professional Center Drive, Suite 145A, Livonia, Michigan 48154.
INCORPORATION BY REFERENCE
To the extent this proxy statement will be specifically incorporated by
reference into any filing by Catuity under the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the sections of this proxy statement entitled
"Report of the Audit Committee" and "Report of the Compensation Committee" shall
not be deemed to be so incorporated unless specifically otherwise provided in
any such filing.
As used in this proxy statement, "Company," "us," "we," "our," and
similar terms means Catuity Inc., a Delaware corporation, and one or more of its
subsidiaries.
PROPOSALS 1-5
(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 Board intends to vote all
proxies received by it 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 the 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 five nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected. Each of our directors holds office until the next
annual meeting of stockholders or until his successor has been duly elected or
qualified or until his earlier death, resignation or removal. Stockholders may
not cumulate votes in the election of directors.
2
NAME AGE POSITION(s)
- ---- --- -----------
Alexander S. Dawson 62 Director and Chairman (1), (2), (3)
Alfred H. (John) Racine, III 41 Director, President and Chief Executive Officer
Geoffrey C. Wild 66 Director (1), (3)
Donald C. Campion 57 Director (1), (2)
Clifford W. Chapman, Jr. 37 Director (2), (3)
- ----------
(1) Member, Audit Committee
(2) Member, Compensation Committee
(3) Member, Governance and
Nominating Committee
BUSINESS EXPERIENCE OF DIRECTORS
Alexander S. Dawson is our non-executive Chairman of the Board of
Directors. He served as the Chairman of CAT, our wholly owned subsidiary, from
November 1992 to December 1999. From April 1987 to January 1991, he was Chief
Executive Officer of Arnotts Ltd., Australia's largest biscuit and snack food
manufacturing company. From January 1988 to December 1990 he was a member of the
Business Council of Australia. He served as Chairman of United Distillers
(Australasia) Limited from August 1994 to March 1996. Mr. Dawson is a Fellow of
The Institute of Chartered Accountants in Australia, has a Bachelor of Commerce
degree from the University of New South Wales and a Master of Business
Administration from Columbia University.
Geoffrey C. Wild is one of our independent directors and is Chairman of
the Governance and Nominating Committee. He had a distinguished career in
advertising and marketing for 30 years and was awarded Australia's highest
honor, the Order of Australia (AM). In 1972, he founded Clemenger Advertising
Agency in Sydney and merged with US-based BBDO Group where he oversaw a
Pan-Asian expansion strategy through acquisition and start-up. He was Chairman
of the Advertising Federation of Australia, chairman of the Advertising Industry
Council and is a recognized authority on branding, advertising, marketing and
loyalty. Mr. Wild currently serves as the non-Executive Chairman of WPP Holdings
(Australia) Pty. Ltd., the Group which owns Ogilvy & Mather, J Walter Thompson,
Young & Rubicam, Hill & Knowlton and Burson Marsteller. He was a director of TAB
Limited and currently serves on the boards of ComOps Limited, and the Arab Bank
Australia Limited. He is also a long serving Board member of the PGA
(Professional Golf Association) and IBIS World, the business and economic
forecasting group. He was awarded the Order of Australia (AM) for his
contribution to tourism, business and the Olympics. He is a Fellow of the
Advertising Institute (by examination) FAIA, and a Fellow of the Australian
Institute of Company Directors FICD.
Alfred H. (John) Racine, III is our President and Chief Executive
Officer and is a member of the Board of Directors. Prior to joining Catuity Mr.
Racine founded Altamont Partners in Charlottesville, Virginia in 1997. Altamont
Partners has advised many of the leading payment organizations in North America
and Europe regarding strategic and merger related issues. Prior to his tenure
with Altamont Partners, Mr. Racine was a principal at SNL Financial, also in
Charlottesville, Virginia, the highly regarded merger and financial analytics
provider for the financial services industry. From 1995-1997 Mr. Racine played a
key role in SNL's emergence as a market leader in the face of larger,
established competitors. Prior to that he spent five years in a variety of
operational and strategic roles in the financial services division at Thomson
Financial. Before spending the last 14 years working in the financial services
and payments industries Mr. Racine worked in the media industry at leading
companies including Ingersoll Publishing Co. and Capital Cities-ABC. He attended
Southern Illinois University at Carbondale.
Donald C. Campion is one of our independent directors and is Chairman
of our Audit Committee. Mr. Campion is a member of the Board of Directors of
Haynes International and also serves as the Chairman of its Audit Committee and
as a member of its Compensation Committee. He is also a member of the Board of
Directors of McLeodUSA, Inc., a privately held telecommunications company, where
he serves as the Chairman of its Audit Committee. Mr. Campion served as the
Chief Financial Officer for VeriFone, North America's largest point of sale
terminal manufacturer. He was also the Chief Financial Officer of several other
corporations, including Special Devices, Inc., Cambridge Industries, Inc.,
Oxford Automotive, Inc., and Delco Electronics Corporation. Previously, Mr.
Campion held a variety of Senior Management roles with General Motors and its
affiliates. He holds an MBA and a BS in Applied Mathematics from the University
of Michigan.
3
Clifford W. Chapman, Jr. is one of our independent directors and the
Chairman of our Compensation Committee. In addition to working with Andersen
Consulting and Booz Allen & Hamilton, Mr. Chapman has also played key leadership
roles in two high profile successes. Most recently he was the CEO and investor
in the turnaround of mindSHIFT Technologies, a managed services provider focused
on IT outsourcing for small and medium enterprises. From June 2002 through
October 2003 he restructured the sales process, cut costs and acquired three
companies to take mindSHIFT to profitability. Prior to mindSHIFT, Mr. Chapman
was the VP of Business Integration for AppNet, a full-service Internet
professional service and managed hosting company. Prior to AppNet, Mr. Chapman
co-founded NMP, a full-service consulting business and managed hosting company.
He has also worked with numerous start-up businesses. Mr. Chapman holds an MBA
from Columbia Business School and a BS in Computer Engineering from Lehigh
University.
2005 DIRECTOR COMPENSATION
Prior to July 1, 2005, all non-employee directors received a $10,000
USD annual retainer fee, paid in quarterly installments of $2,500 USD following
the end of each calendar quarter, for serving on the Board. The Chairman of the
Board received an additional $10,000 USD per year for serving as Chairman. Each
director received an additional $12,000 USD in fees for attendance at Board
meetings, so long as the director attended at least 75% of the meetings held
during the year. Fees of $7,500 USD per year were paid to the Chairperson of the
Audit Committee and $5,000 USD per year to Board members serving as Audit
Committee members. The Chairperson of the Compensation Committee received $5,000
USD per year and members of the Compensation Committee received $2,000 USD per
year. Under the Director Stock Option Plan, upon the date a person first became
a member of the Board, the director automatically received 667 stock options. In
addition, on the last business day of September of every year, the Chairman
received 417 stock options and each director then in office received 333 stock
options. The exercise price per share of any option granted is the fair market
value on the date of grant and the option shares are fully vested on the date of
grant.
At our 2005 Annual Meeting, stockholders approved a change to the
director compensation structure. Effective July 1, 2005, each independent
director receives an annual retainer of $25,000 USD, paid in quarterly
installments of $6,250 USD following the end of each calendar quarter, so long
as the director attends at least 75% of the board meetings held during the year.
If a director attends less than 75% of all board meetings held in the year,
he/she receives the same percentage of $25,000 USD as the percentage of meetings
attended. The Chairman of the Board receives an additional $20,000 USD for
serving as Chairman. The Chairperson of the Audit Committee receives $12,500 USD
and Audit Committee members receive $7,500 USD per year for serving on that
committee. The Chairperson of the Compensation Committee receives $7,500 USD and
Compensation Committee members receive $4,000 USD per year for serving on the
committee. A new committee was established to oversee all corporate governance
matters and the nomination process for future directors. The Chairperson of the
Governance and Nominating Committee receives $7,500 USD and Governance and
Nominating Committee members receive $4,000 USD per year for serving on that
committee.
Until such time as the Catuity has been profitable and cash flow
positive for two consecutive quarters, all directors who hold less than 5% of
Catuity's total outstanding shares must take 50% of their otherwise cash based
compensation in the form of Restricted Stock, to be issued pursuant to the 2005
Non-Employee Director Restricted Stock Plan approved by stockholders. Due to
unfavorable tax consequences, any director who holds more than 5% of the
Company's outstanding shares may choose to have 50% of his/her otherwise cash
based compensation deferred and not paid until the Company has been profitable
and cash flow positive for two consecutive quarters, rather than receive
restricted stock. Any director may voluntarily elect to take up to 100% of
his/her compensation in the form of restricted stock.
Also at our 2005 Annual Meeting, stockholders approved that, under the
Director Stock Option Plan, outside directors shall receive non-qualified
options to purchase 2,500 shares of Catuity's common stock on the date they join
the Board. In addition, the Chairman will receive non-qualified options to
purchase 3,000 shares of Catuity's common stock, and each of the other outside
directors will receive options to purchase 2,500 shares on the last business day
in September of each succeeding year for as long as the director remains on the
Board. The option issue price will be the closing price on the grant date, or
the closing price on the last trading day preceding the grant date in the event
the grant date falls on a weekend or holiday. The options vest on the date of
grant and expire after eight years, or six months after the director ceases to
be a member of the Board, whichever occurs first. The Plan is limited so that no
more than 58,667 option shares may be outstanding at any one time.
4
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF ALL OF THE NOMINEES LISTED ABOVE.
PROPOSAL 6
(APPROVAL OF OPTION AND RESTRICTED STOCK AWARDS TO ALFRED H. (JOHN) RACINE, III)
GENERAL
The sixth matter to be considered at the annual meeting will be the
approval of a proposed stock option grant and restricted stock award to our
President and Chief Executive Officer, Alfred H. (John) Racine, III. Mr. Racine
is also a member of the Board of Directors.
We entered into an employment agreement with Mr. Racine on September
23, 2004. The employment agreement was amended effective as of September 7, 2005
and amended again on December 21, 2005. Under the first amendment to the
employment agreement, we awarded Mr. Racine an option to purchase 50,000 shares
of our common stock at an exercise price of $14.43 USD per share. This grant was
and is expressly conditioned on obtaining stockholder approval. Mr. Racine did
not receive any anti-dilution protection on the grant. The options have a term
of ten (10) years from September 23, 2005 (September 23, 2015), and will vest on
the following schedule: (i) twenty-five percent (25%) upon execution of the
first amendment (on September 23, 2005); (ii) twenty-five percent (25%) on the
first anniversary of the first amendment (September 23, 2006); and (iii) the
remaining fifty percent (50%) on the second anniversary of the first amendment
(September 23, 2007). The options were awarded pursuant to Catuity's shareholder
approved Employee Stock Option Plan. Should Mr. Racine exercise his options, the
funds received will be used by the Company for general working capital purposes.
In the event Mr. Racine voluntarily resigns, retires, or his employment
with Catuity is terminated, all vested options held as of the termination date
will expire six (6) months following the date of termination. If Mr. Racine's
employment terminates due to his death or disability during the term of the
employment 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 the stockholders do
not approve the award described in this Proposal 6, then all of the options will
be forfeited.
Under the first amendment to Mr. Racine's employment agreement dated
September 7, 2005, we awarded him 100,000 shares of restricted stock. This award
was and is expressly conditioned on obtaining stockholder approval. Mr. Racine
did not receive any anti-dilution protection on the award. The restricted shares
will vest on the following schedule: (i) 33,334 restricted shares will vest when
the 30 day average closing price of our common stock on the NASDAQ exceeds
$15.00; (ii) 33,333 restricted shares will vest when the 30 day average closing
price of our common stock on the NASDAQ exceeds $20.625; and (iii) 33,333
restricted shares will vest when the 30 day average closing price of our common
stock on the NASDAQ exceeds $26.25. The restricted shares will vest upon a
change of control where Mr. Racine loses his position as long as the
consideration paid to Catuity stockholders in such transaction is greater than
$10.00 per share. The restricted shares were awarded pursuant to Catuity's
shareholder approved Employee Restricted Stock Plan.
Under the second amendment to Mr. Racine's employment agreement, dated
December 21, 2005, we awarded him a restricted stock bonus equal to 50% of his
base salary ($125,000.00) if Catuity achieves positive earnings, before
deductions for interest, taxes, depreciation and amortization ("EBITDA") for
2006, including the effect of the bonus. The restricted stock awarded as bonus
compensation will vest one year from the date of grant. If we do not achieve
positive EBITDA in 2006, Mr. Racine will forfeit these restricted shares. The
number of shares actually granted will be determined by dividing $125,000 by the
closing price of our common stock on NASDAQ on the first trading day of 2007.
The restricted shares were awarded pursuant to Catuity's shareholder approved
Employee Restricted Stock Plan.
5
In the event Mr. Racine voluntarily resigns or Catuity terminates his
employment for cause, all unvested restricted shares will be forfeited. If the
stockholders do not approve the award described in this Proposal 6, then all of
the restricted shares will be forfeited.
VOTING EXCLUSION STATEMENT
In accordance with ASX Listing Rules 10.15.5 and 14.11, we will
disregard any votes cast on Proposal 6 by Mr. Racine, an affiliate of Mr.
Racine, or any Director of Catuity who is eligible to participate in the
Employee Stock Option Plan or Employee Restricted Stock Plan. Mr. Racine is the
only member of the Board of Directors who is eligible to participate in the
employee Plans. However, we need not disregard the vote if it is cast by a
person as proxy for a person who is entitled to vote, in accordance with the
directions on the proxy form; or if it is cast by such person chairing the
meeting as proxy for a person who is entitled to vote, in accordance with a
direction on the proxy form to vote as the proxy decides.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD, OTHER THAN MR. RACINE, UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE GRANT OF OPTIONS AND THE AWARD OF RESTRICTED STOCK TO MR.
RACINE.
PROPOSAL 7
(APPROVAL OF THE ISSUE OF UP TO 400,000 SHARES OF COMMON STOCK)
GENERAL
We are seeking your approval to issue up to 400,000 shares of our
common stock (including shares issuable pursuant to warrants or similar
securities under which shares may be acquired) in one or more transactions from
time to time over the three months following the date of the Annual Meeting. The
shares would be issued at prices deemed to be fair consideration by our Board of
Directors based on prevailing market prices, and may be issued at a discount of
not greater than 20% to market price depending on the circumstances of the
issue. Under no circumstances will we issue shares at a price less than $6.25
USD per share.
If 400,000 shares were issued at the closing price of our common stock
on the NASDAQ SmallCap Market on March 21, 2006 ($7.69 USD), we would be issuing
approximately 19% of our currently outstanding number of shares for gross
proceeds of $3,076,000 USD. We may either issue shares directly in exchange for
cash, or combine direct share issues with warrants or similar securities. We
have not established any specific terms for any such warrants or similar
securities. The total number of shares that may be issued, in the aggregate,
both directly or combined with such warrants or similar securities will not
exceed the 400,000 share cap, nor will the price per share to be paid be less
than the $6.25 USD floor.
If we issue shares, we will either use the cash proceeds from sales of
the shares for working capital and capital expenditures, and/or for other
purposes including asset and/or business acquisitions, as and when needed.
Prospective stock purchasers would be parties who are permissible purchasers
under available exemptions from registration under applicable U.S. and other
securities laws. We have no plans, proposals, or arrangements with any specific
stock purchasers, placement agents, acquisition targets or other acquirers for
our shares. We have, however, identified several possible targets for
acquisitions in the near future, and have had discussions with several such
parties. Acquisition targets would be companies or asset portfolios that are in
the same, or a related, line of business as we are in, that our Board views as
compatible with our business objectives. We are seeking stockholder approval for
this issue now, so that we may be able to expeditiously execute such
transactions as and when the Board deems advisable, without the delays required
to call and convene a special stockholders meeting for the transaction. Unless
otherwise required by applicable law or regulation, we do not intend to seek
further stockholder authorization for a specific transaction or issue that
occurs under the authorization of this Proposal 7 (if approved by stockholders).
6
LISTING RULE REQUIREMENTS
Our common stock is traded on the NASDAQ SmallCap Stock Market under
the symbol "CTTY" and on the Australian Stock Exchange Limited ("ASX") under the
symbols "CAT" and "CATN." Consequently, we are subject to the Marketplace Rules
promulgated by the National Association of Securities Dealers, Inc. (the
"Marketplace Rules") and the Listing Rules promulgated by the ASX. The issue of
the shares of common stock described above does not require stockholder approval
under Delaware law. However, certain significant issues of shares do require
stockholder approval under the Marketplace Rules and the ASX Listing Rules.
Specifically, Marketplace Rule 4350(i)(1)(D) ("Rule 4350") requires
NASDAQ-listed issuers to obtain stockholder approval prior to any issue or
potential issue of securities representing 20% or more of the outstanding common
stock or voting power of a listed company (on an as-converted or as-exercised
basis) before such issue. This offering will be for less than 20% of our
outstanding common stock, and therefore Rule 4350 does not require us to obtain
approval from our stockholders. ASX Listing Rule 7.1, however, requires
stockholder approval for an issue in excess of 15% of our issued and outstanding
shares of common stock in any 12-month period. This proposed issue would exceed
15% of our total issued and outstanding shares, therefore, stockholder approval
is required under ASX Listing Rule 7.1.
This proposal seeks your approval of the issue of up to 400,000 shares
of our common stock within the three months following the date of the Annual
Meeting, consistent with the terms and for the purposes described above as
required by ASX Listing Rule 7.1.
VOTING EXCLUSION STATEMENT
We will disregard any votes cast on Proposal 7 by a person who may
participate in the proposed issue and a person who might obtain a benefit,
except a benefit solely in the capacity of a holder of ordinary securities, if
the proposal is passed. However, we need not disregard the vote if it is cast by
a person as proxy for a person who is entitled to vote, in accordance with the
directions on the proxy form; or if it is cast by such person chairing the
meeting as proxy for a person who is entitled to vote, in accordance with a
direction on the proxy form to vote as the proxy decides.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THIS PROPOSAL 7.
CORPORATE GOVERNANCE
BOARD COMMITTEES AND MEETINGS
During the year ending on December 31, 2005, the Board of Directors
held 18 meetings. The table below sets forth the total number of meetings held
by the Board and all Committees of the Board on which each such director served.
SUMMARY OF MEETING ATTENDANCE BY BOARD MEMBER **
GOVERNANCE AND
NOMINATING COMPENSATION
AUDIT COMMITTEE COMMITTEE COMMITTEE
BOARD MEETINGS MEETINGS MEETINGS MEETINGS
BOARD MEMBER ATTENDED/HELD (#) ATTENDED/HELD (#) ATTENDED/HELD (#) ATTENDED/HELD (#)
- ------------ ----------------- ----------------- ----------------- -----------------
Alexander S. Dawson 16/18 4/5 1/1 5/6
Geoffrey C. Wild (1) 3/4 2/2 1/1 N/A
Alfred H. (John) Racine, III 18/18 N/A N/A N/A
Donald C. Campion (2) 4/4 2/2 N/A 3/3
Clifford W. Chapman, Jr. (3) 16/18 1/1 1/1 6/6
Duncan P.F. Mount (4) 9/9 1/2 N/A N/A
Alan L. Gilman (5) 7/7 2/2 N/A 2/2
7
- ----------
** Because of the amount of change in Board membership during 2005, the table
above reflects the number of meetings each member attended compared to the
number of meetings he was eligible to attend during the year. There were a total
of 18 full board meetings, five audit committee meetings, one governance and
nominating committee meeting, and six compensation committee meetings held in
2005.
1. Mr. Wild joined the Board on September 2, 2005 and immediately became
the chairman of the Governance and Nominating Committee and a member
of the Audit Committee.
2. Mr. Campion joined the Board on August 26, 2005 and immediately became
the chairman of the Audit Committee and a member of the Compensation
Committee.
3. Mr. Chapman served as a member of the Audit Committee from June 22,
2005 until September 2, 2005 when Mr. Wild joined the Board.
4. Former director. Mr. Mount resigned on June 22, 2005.
5. Former director. Mr. Gilman passed away on June 9, 2005.
During 2005, the Board had three standing Committees: the Audit
Committee, the Compensation Committee and the Governance and Nominating
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. Campion (the Chairman), Wild
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. Campion is an audit committee financial
expert as defined in Item 401(e)(2) of Regulation S-B and Section 407 of the
Sarbanes-Oxley Act of 2002. In addition, the Board of Directors has determined
that both Mr. Dawson and Mr. Wild have significant experience in reviewing,
understanding and evaluating financial statements and are financially literate.
The Audit Committee held five meetings during 2005. A copy of the 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 Compensation
Committee considers independent studies of comparable remuneration packages. The
Compensation Committee currently consists of Messrs. Chapman, Dawson and
Campion, with Mr. Chapman serving as Chairman. The Compensation Committee held
six meetings during 2005. A copy of the Compensation Committee charter is
available at www.catuity.com.
On March 22, 2005, the Board approved the establishment of a Governance
and Nominating Committee, which became effective on July 1, 2005. The Board is
currently in the process of evaluating a proposed Governance and Nominating
Committee charter. The Governance and Nominating Committee, among other
functions, is responsible for (1) developing and monitoring our corporate
governance principles; (2) assisting the Board in identifying individuals
qualified to become members of the Board and members of its various committees,
consistent with criteria approved by the Board; (3) selecting the director
nominees for each annual meeting of stockholders and the committee nominees; and
(4) overseeing the evaluation of the Board and management. Prior to July 1,
2005, these functions were previously carried out by the independent members of
the Board as part of their Board responsibilities. The Governance and Nominating
Committee is currently in the process of establishing a policy with regard to
the consideration of director candidates recommended by stockholders. The
Governance and Nominating Committee held one meeting during 2005. The Governance
and Nominating Committee currently consists of Messrs. Wild, Dawson and Chapman,
with Mr. Wild serving as Chairman, all of whom are independent.
CONSIDERATION OF DIRECTOR NOMINEES
Board Membership Criteria
The Board of Directors has established criteria for Board membership.
These criteria include the following minimum qualifications that the Board
believes must be met by a Governance and Nominating Committee-recommended
nominee for a position on the Board:
o The candidate must have experience at a strategic or policymaking
level in a business, government, non-profit or academic
organization of high standing;
8
o The candidate must be highly accomplished in his or her field,
with superior credentials and recognition;
o The candidate must be well regarded in the community and must
have a long-term reputation for high ethical and moral standards;
o The candidate must have sufficient time and availability to
devote to Catuity's affairs, particularly in light of the number
of boards on which the nominee may serve; and
o The candidate's principal business or occupation must not be such
as to place the candidate in competition with Catuity or conflict
with the discharge of a director's responsibilities to Catuity or
its stockholders.
In addition to the minimum qualifications for each nominee set forth above, the
Governance and Nominating Committee will recommend director candidates to the
full Board for nomination, or present director candidates to the full Board for
consideration, to help ensure that:
o A majority of the Board of Directors shall be "independent" as
defined by the NASDAQ rules;
o Each of its Audit, Compensation and Governance and Nominating
Committees shall be comprised entirely of independent directors;
and
o At least one member of the Audit Committee shall have such
experience, education and qualifications necessary to qualify as
an "audit committee financial expert" as defined by the rules of
the SEC.
Identifying and Evaluating Nominees
The Governance and Nominating Committee may solicit recommendations for
director nominees from any or all of the following sources: non-management
directors, executive officers, third-party search firms or any other source it
deems appropriate. The Governance and Nominating Committee will review and
evaluate the qualifications of any proposed director candidate that it is
considering or has been recommended to it by a stockholder in compliance with
the Governance and Nominating Committee's procedures for that purpose, and
conduct inquiries it deems appropriate into the background of these proposed
director candidates. When nominating a sitting director for re-election, the
Governance and Nominating Committee will consider the director's performance
on the Board and the director's qualifications in respect to the criteria set
forth above. Other than circumstances in which we are legally required by
contract or otherwise to provide third parties with the ability to nominate
directors, the Governance and Nominating Committee will evaluate all proposed
director candidates based on the same criteria and in substantially the same
manner, with no regard to the source of the initial recommendation of the
proposed director candidate.
9
REPORT OF INDEPENDENT DIRECTORS
The Board of Directors has determined that Messrs. Dawson, Wild,
Campion 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 independent
members of the Board meet in regularly scheduled "executive sessions" at which
only independent directors are present.
The Board of Directors welcomes communications from all stockholders.
Stockholders 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, 37650 Professional Center Drive, Suite
145A, Livonia, Michigan 48154 or Catuity Inc. Attention: Board of Directors (or
an individual board member's name), c/o Secretary, Level 5, 140 Bourke St.,
Melbourne, VIC 3000. The Secretary has been instructed by the Board to forward
all such communications that are received directly to the appropriate Board
member without delay.
We expect that all of our board members will attend the Annual Meeting.
Messrs. Dawson and Racine attended the last annual stockholders meeting held on
July 19, 2005 in Australia (July 18, 2005 U.S. time).
This report respectfully submitted by:
Alexander S. Dawson, Chairman
Geoffrey C. Wild
Donald C. Campion
Clifford W. Chapman, Jr.
Independent members of the Board of Directors
10
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 Catuity's Secretary and independent professional advice at
our expense.
ETHICS AND CODES OF CONDUCT
To ensure that the highest level of stockholder 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, Catuity expanded its business and employee code of conduct, applicable
to all directors, officers and employees, in April 2004. Catuity has also
expanded its Insider Trading Policy, which restricts the circumstances under
which all directors, officers and employees may trade in Catuity stock or that
of its trading partners. The Code of Ethics for Senior Financial Personnel,
Business and Employee Code of Conduct and the Insider Trading Policy are
available at www.catuity.com.
RISK MANAGEMENT
Due to Catuity's small size it does not have a separate internal audit
function. The Audit Committee oversees the accounting and reporting processes of
Catuity and the audits of its financial statements. The annual financial reports
are audited, and Catuity's independent accountants review each of the quarterly
financial reports. Catuity's CEO and CFO review, assess, and certify its
internal controls on a quarterly basis. In addition, Catuity 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
Catuity's CEO and CFO are knowledgeable in the continuous and periodic
disclosure requirements of the SEC, NASDAQ and the ASX. Catuity 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 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 at Catuity authorized to discuss information with the media, analysts,
and investors.
MANAGEMENT AND COMPENSATION
EXECUTIVE OFFICERS
The persons listed below are the current executive officers of Catuity
and its subsidiary, Loyalty Magic Pty. Ltd. Each is appointed by, and serves at
the pleasure of, the Board.
NAME AGE OFFICE
---- --- ------
Alfred H. (John) Racine, III................ 41 President, Chief Executive Officer and Director
John H. Lowry, III.......................... 58 Vice President, Chief Financial Officer, Treasurer and
Secretary
Chris Leach................................. 56 Chief Executive Officer of Loyalty Magic Pty. Ltd.
Background information for Mr. Racine is provided under "Election of
Directors," above.
11
John H. Lowry, III has served as our Vice President and Chief Financial
Officer since May 2000 and since July 2000, has also served as Secretary and
Treasurer. From August 1992 to January 2000, he was Vice President of Finance
for Kelly Services, a Michigan based publicly held staffing services company,
responsible for all financial activities for operations of over 500 staffing
offices in 190 cities with annual sales exceeding $800 million. From August 1982
to July 1992 he was Corporate Controller and Senior Financial Officer for Crain
Communications, a magazine publishing company in Michigan. Prior to this he was
a Senior Manager at Arthur Andersen. He holds a Masters degree in Business
Administration and a Bachelor of Engineering degree from the University of
Michigan.
Chris Leach is the CEO of our Australian subsidiary, Loyalty Magic Pty.
Ltd. Since April 2001, Mr. Leach has led Loyalty Magic Pty. Ltd. through a
conversion from being a software provider to becoming a loyalty processor that
enables programs that affect more than three million consumers in Australia and
New Zealand. In addition to his responsibilities at Loyalty Magic, Mr. Leach
also oversees product innovation for all of Catuity. Prior to Loyalty Magic, he
was Managing Director for Global Knowledge Australia, a technical training
organization. In the U.S., he was a partner in Key Method, a physical therapy
technology company that specialized in industrial therapy and return to work
programs. He also worked for National Computer Systems ("NCS", now a Carlson
Marketing company) where he designed and implemented marketing & sales programs
to sell the NCS products into the vertical markets of medical and human
resources information systems. Mr. Leach also worked for IBM and the East
Asiatic Company in South Africa. He holds an MBA from Stellenbosch University,
plus a Human Resources Management Honours degree and a BA from Witwatersrand
University, South Africa.
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 $100,000 (salary and bonus) for all
services rendered in all capacities to Catuity during the year ended
December 31, 2005.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
NAME AND OTHER ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) COMPENSATION($)
- ------------------ ---- --------- -------- --------------- ---------------- ------------ ---------------
Alfred H.(John)Racine, III 2005 250,000 30,000 0 0* 50,000 0
President and CEO 2004 66,667 0 0 77,914 0
John H. Lowry, III 2005 170,000 25,000 0 0* 10,000 0
Vice President - CFO, 2004 160,000 0 0 0 0 0
Secretary and Treasurer 2003 160,000 30,000 0 0 1,667 0
- ----------
* 100,000 restricted stock shares were granted, subject to stockholder
approval, to Mr. Racine in 2005 and 20,000 shares of restricted stock were
granted to Mr. Lowry in 2005. These shares are subject to vesting
restrictions and the value of these shares will be determined by an
independent valuation firm.
12
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF SHARE
NUMBER OF SECURITIES OPTIONS GRANTED TO PRICE APPRECIATION
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE EXPIRATION FOR OPTION TERM
NAME AND PRINCIPAL POSITION GRANTED YEAR ($/SHARE) DATE 5%/10%(2)
- --------------------------- ------- ---- --------- ---- ---------
Alfred H. (John) Racine, III - 50,000(1) 22.5% 14.43 9/23/2015 453,747/
President and CEO 1,149,885
John H. Lowry, III 66,160/
Vice President - CFO, 10,000 4.5% 10.52 9/20/2015 167,662
Secretary & Treasurer
- ----------
(1) Options granted are pending stockholder approval.
(2) 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
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED OPTIONS AT FY-END MONEY OPTIONS AT FY-End(1)
NAME AND PRINCIPAL POSITION ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISEABLE EXERCISABLE/UNEXERCISEABLE
- --------------------------- ----------- -------------- -------------------------- --------------------------
Alfred H. (John) Racine, III 0 0 77,914/50,000 $137,908/$0
President and CEO
John H. Lowry, III 0 0 8,333/10,000 $0/$0
Vice President - CFO,
Secretary & Treasurer
- ----------
(1) Based on the closing price per share of common stock on the NASDAQ small
cap market on the last trading day of 2005, less the option exercise price
payable per share.
EQUITY COMPENSATION PLAN INFORMATION
The following table reflects information about the securities authorized for
issue under our equity compensation plans as of December 31, 2005.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY: OUTSTANDING OPTIONS OUTSTANDING OPTIONS IN COLUMN (a)
- ------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 255,668 (1) $21.45 43,734
Equity compensation plans
not approved by security holders -0- -0- -0-
- ----------
(1) 50,000 of the options granted to Mr. Racine are conditional and pending
approval by Catuity's stockholders at the 2006 Annual Meeting.
13
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 H. (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 stockholder approval. On September 23, 2005 and December 21, 2005, Mr.
Racine's agreement was amended by the Compensation Committee. The amendments
extended the term of Mr. Racine's agreement to September 30, 2007. Under the
amended terms, Mr. Racine's salary is subject to a 5% increase on September 23,
2006 and he was awarded a cash bonus of $30,000 for his performance in 2005. In
addition, subject to stockholder approval, Mr. Racine received an option award
to purchase 50,000 shares of our common stock. The exercise price was $14.43,
the average of the 30 day closing price of our common stock on NASDAQ prior to
the date of the grant. The options have a term of ten (10) years from September
23, 2005 (September 23, 2015), and will vest on the following schedule: (i)
twenty-five percent (25%) on September 23, 2005, the date of the first
amendment; (ii) twenty-five percent (25%) on September 23, 2006, the first
anniversary of the first amendment; and (iii) the remaining fifty percent (50%)
on September 23, 2007, the second anniversary of the first amendment. Mr. Racine
was also awarded 100,000 shares of restricted stock, subject to stockholder
approval. The restricted shares will vest on the following schedule: (i) 33,334
restricted shares will vest when the 30 day average closing price of our common
stock on the NASDAQ exceeds $15.00; (ii) 33,333 restricted shares will vest when
the 30 day average closing price of our common stock on the NASDAQ exceeds
$20.625; and (iii) 33,333 restricted shares will vest when the 20 day average
closing price of our common stock on the NASDAQ exceeds $26.25. The restricted
shares will vest immediately upon a change of control where Mr. Racine loses his
position as long as the consideration paid to Catuity stockholders in such
transaction is greater than $10.00 per share. Any unvested restricted shares are
forfeited if Mr. Racine voluntarily resigns or if his employment is terminated
for cause. Mr. Racine is eligible for a restricted stock bonus equal to 50% of
his base salary if Catuity achieves positive earnings, before deductions for
interest, taxes, depreciation and amortization ("EBITDA") for 2006, including
the effect of the bonus. The restricted stock awarded as bonus compensation will
vest one year from the date of grant. In the event stockholders do not approve
the stock options and restricted stock awarded to Mr. Racine, upon the
occurrence of what would have been the vesting of the award, he is entitled to
receive cash payments equal to the value of the options or restricted stock as
determined by an independent valuation firm. The payment may be made over time
if Catuity is not cash flow positive for the nine month period preceding the
payout or if the Board determines that an immediate payment would impair the
Catuity's cash position.
John H. Lowry, III. We entered into a five-year employment agreement
with our Chief Financial Officer, John H. Lowry, III on April 18, 2000, as
amended effective January 1, 2003, April 25, 2005 and September 28, 2005. The
September 28, 2005 amendment extends the term of Mr. Lowry's agreement to July
1, 2007. Under the terms of the September 28, 2005 amendment, Mr. Lowry's base
salary was increased to $170,000 effective January 1, 2005 and he was awarded a
cash bonus of $25,000 for his performance in 2005. In addition, he was granted
options to purchase 10,000 shares of our common stock and was awarded 20,000
shares of restricted stock. The options were granted at the lower of the closing
price on NASDAQ on the date of grant or the 30 day average closing price of
Catuity's shares prior to the date of grant. One half of the options expire on
September 28, 2006 and the remaining half on September 28, 2007. One third of
the restricted shares will vest when the Company's 30 day average closing price
on NASDAQ exceeds $15.00, $20.625, and $26.25 respectively. Any unvested option
shares or restricted shares are forfeited if Mr. Lowry voluntarily resigns or if
his employment is terminated for cause. The restricted shares will vest
immediately upon a change of control where Mr. Lowry loses his position so long
as the consideration to Catuity stockholders exceeds $10.00 per share. Mr. Lowry
is eligible for a restricted stock bonus equal to 25% of his base salary if
Catuity achieves positive EBITDA for 2006, including the effect of the bonus.
The restricted shares awarded as bonus compensation will vest one year from the
date of grant. During 2005, Mr. Lowry was eligible to exchange his existing
8,333 vested option shares for 8,333 new options under a special option exchange
approved by the Board for all employees that held options awarded prior to June
30, 2004. The exercise price of the replacement options was $7.50 which was
$3.50 above the closing price of Catuity common stock on NASDAQ on the date of
grant. The options vested on December 29, 2005. See "Report of the Compensation
Committee."
In the event Mr. Lowry voluntarily resigns, retires, or his employment
with Catuity is terminated all vested options he holds as of the termination
date will expire six (6) months following the date of termination. If his
employment terminates due his death or incapacity 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
14
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.
Chris Leach. On September 1, 2005 Catuity entered into a services
agreement with MIA Pty. Ltd. ("MIA") and Chris Leach requiring Mr. Leach to
provide executive management services to Catuity. Mr. Leach is an officer and
director of MIA and is authorized to approve and execute contracts on its
behalf. Mr. Leach, under contract with MIA, served as the Chief Executive
Officer of Loyalty Magic Pty. Ltd. prior to its acquisition by Catuity on
September 1, 2005. The contracted services with Catuity commenced on September
1, 2005 and continue until December 31, 2007. The services consist of general
executive management including the management of all Australian sales and
research and development efforts along with Catuity's existing and future
Australian operations.
Under the terms of the agreement, Mr. Leach's base salary is $195,000
AUD (approximately $146,000 USD) plus a lump sum payment to MIA that is equal to
the cost of customary benefits to be paid in twelve (12) equal monthly
installments. Mr. Leach will receive a cash-based incentive equal to 2.5% of
EBITDA in a calendar year when Loyalty Magic Pty. Ltd., reaches 100% of its
performance targets on an annual basis. Any payment under this incentive shall
be subject to the following provisions: (1) the incentive will be calculated and
paid based on the audited financial statements for each calendar year; (2) the
incentive will be calculated and paid after the cost of all equity and cash
incentives are imputed; (3) incentives will be calculated after inclusion of all
overhead allocations from Catuity; and (4) all results will be subject to U.S.
GAAP.
In addition, Mr. Leach was awarded options to purchase 15,000 shares of
our common stock. The options vest on the following schedule: (1) 5,000 vested
on September 1, 2005 with an exercise price equal to 25% above the 30-day
average closing price on NASDAQ preceding the grant ($16.99 USD); (2) 5,000
vested on January 1, 2006 with an exercise price equal to 35% above the 30-day
average closing price on NASDAQ preceding the date of the grant ($18.35 USD);
and (3) 5,000 will vest on January 1, 2007 with the exercise price equal to 35%
above the 30-day average closing price on NASDAQ preceding the date of the grant
($18.35 USD.) Mr. Leach was also provided with an opportunity to earn 20,000
restricted stock shares as follows: (1) 5,000 shares to be granted on January
30, 2006 if Mr. Leach meets 100% of the revenue and EBITDA goals for the second
half of 2005, which did not occur; (2) 7,000 shares to be granted on January 30,
2007 for meeting 100% of the revenue and EBITDA goals for 2006; and (3) 8,000
shares to be granted on January 30, 2008 for meeting 100% of the revenue and
EBITDA goals for 2007.
REPORT OF THE COMPENSATION COMMITTEE
On June 20, 2005 the Board of Directors awarded options to the six
employees that had been granted options prior to June 30, 2004 under Catuity's
Employee Stock Option Plan in exchange for out of the money options that had
been awarded prior to June 30, 2004. Our Chief Financial Officer, John H. Lowry,
III, was one of the employees eligible for this award.
As part of the award, on June 20, 2005, we granted Mr. Lowry an option
to purchase 8,333 shares of our common stock (the "New Options"). The exercise
price of the New Options was the higher of: (1) the closing price of Catuity's
common stock on NASDAQ on June 20, 2005, the date of grant; (2) the weighted
average closing price of Catuity's common stock for the 20 trading days prior to
grant date on NASDAQ or (3) $7.50 USD. Since the closing price of our common
stock on NASDAQ on June 20, 2005 was $4.00 USD, and the 20 day weighted average
closing price of our common stock prior to grant date was $4.18 USD, the
exercise price of the New Options was $7.50 USD. The New Options vested on
December 29, 2005 and expire on the earlier of June 20, 2010 or 60 calendar days
following the date Mr. Lowry's employment with Catuity terminates.
As a condition to receiving the New Options, Mr. Lowry surrendered, for
exchange, the option to purchase 6,666 shares of our common stock granted to him
on May 1, 2000 (the "May Option") and the option to purchase 1,667 shares of our
common stock granted to him on December 22, 2003 (the "December Option"). The
May Option, which vested at the rate of 333 shares per quarter beginning on
March 31, 2001 and ending on December 31, 2002, had an exercise price of $115.20
USD per share and expired on December 31, 2008. The December Option vested on
the grant date, had an exercise price of $75.60 USD per share and expired on
December 31, 2008. Mr. Lowry surrendered the May Option and the December Option
on December 27, 2005.
15
The New Options were intended to replace significantly out of the money
options and were granted to Mr. Lowry to reward him for his significant
contributions to our effort to implement our new strategy and to allow Mr. Lowry
to better share in Catuity's success.
Submitted by the Compensation Committee
Clifford W. Chapman, Jr., Chairman
Alexander S. Dawson
Donald C. Campion
CERTAIN TRANSACTIONS
On August 31, 2003 the employment of Catuity's former executive
chairman, Mr. David Mac Smith was terminated. At the time of his termination,
Mr. Mac Smith was in possession of shares of Catuity stock subject to loans
Catuity made to Mr. Mac Smith to enable him to acquire the shares. The loans
were made pursuant to a 1995 Executive Share Plan Agreement (the "Plan") and Mr.
Mac Smith's employment agreement. Under the terms of the Plan, Catuity 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 Catuity
advised Mr. Mac Smith that it was exercising its right to buy-back all of his
shares subject to loans from Catuity. In April 2005, Catuity 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 Catuity loans. In October, 2005 Catuity
completed the buyback of the loan shares. The fair value of the shares subject
to the loans were substantially below the loan share prices, therefore the
buyback was completed with no cash paid to Mr. Mac Smith and the loans were
forgiven by Catuity.
In connection with the acquisition of Loyalty Magic Pty. Ltd., which
closed on September 1, 2005 Chris Leach, as a stockholder of Loyalty Magic Pty.
Ltd., received 38,409 shares of our common stock and $152,217 AUD (approximately
$114,163 USD).
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
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, BDO Seidman 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:
o The Audit Committee has reviewed and discussed the audited
financial statements with Catuity's management.
o 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).
o The Audit Committee has received the written disclosures and
the independence letter from BDO Seidman LLP required by
Independence Standards Board Standards No. 1 - Independence
Discussions with Audit Committees - and has discussed
independence with BDO Seidman LLP.
16
o 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-KSB for the
fiscal year ended December 31, 2005, for filing with the
Securities and Exchange Commission. The undersigned members of
the Audit Committee have submitted this Report to the Board of
Directors:
Donald C. Campion, Chairman
Alexander S. Dawson
Geoffrey C. Wild
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act, as amended, requires
Catuity's directors, executive officers and beneficial owners of greater than
10% of a registered class of Catuity's equity securities (the "Reporting
Persons") to file reports of ownership and changes in ownership of such equity
securities with the SEC. Officers, directors, and greater than 10% stockholders
are required by SEC regulations to furnish Catuity 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 Catuity during or
with respect to Catuity's fiscal year ended December 31, 2005, Catuity believes
that during such fiscal year, (with the exceptions noted below, all applicable
Section 16(a) filing requirements were met by the Reporting Persons. The
following Reporting Persons were each late in filing a Form 3 report: Geoffrey
C. Wild and Chris Leach. John H. Lowry, III was late in filing one Form 4
Report.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables provide certain information regarding beneficial
ownership of our capital stock as of February 28, 2006 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, 2005;
(iii) each of our Directors; and (iv) all of our Directors and executive
officers as a group.
AMOUNT AND NATURE OF COMMON STOCK
BENEFICIALLY OWNED PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (INCLUDING RESTRICTED STOCK) (1) OWNED (2)
- ------------------------------------ --------------------------------- ---------
A&B Venture Fund 251,467 Direct 11.9%
Level 13, 18 Bulletin Place
Sydney, NSW 2000
Alfred H. (John) Racine, III 1,998 Direct
11 Altamont Circle, #51 90,414 Vested Options
Charlottesville, VA 22902 ------
92,412 4.2%
Geoffrey C. Wild 3,491 Direct
Level 5, 132 Arthur Street 2,500 Vested Options
North Sydney, NSW 2060 ------
5,991 *
Alexander S. Dawson 23,005 Direct
38 Macleay Street 5,000 Vested Options
Potts Point, NSW 2011 ------
28,005 1.3%
John H. Lowry, III 20,422 Direct
21972 Heatheridge 8,333 Vested Options
Northville, MI 48167 ------
28,755 1.4%
Donald C. Campion 3,005 Direct
3747 Loch Bend Dr. 2,500 Vested Options
Commerce, MI 48382 ------
5,505 *
17
AMOUNT AND NATURE OF COMMON STOCK
BENEFICIALLY OWNED PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER (INCLUDING RESTRICTED STOCK) (1) OWNED (2)
- ------------------------------------ --------------------------------- ---------
Clifford W. Chapman, Jr. 14,568 Direct
10 Warren Ave. 3,167 Vested Options
Spring Lake, NJ 07762 ------
17,735 *
All directors and executive officers as a 66,489 Direct
group (6 persons) 111,914 Vested Options
-------
178,403 8.4%
- ----------
(1) Beneficial ownership is determined in accordance with the SEC rules and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to options, warrants or other rights to
purchase common shares which are currently exercisable or are exercisable
within 60 days after March 31, 2006 are deemed vested and outstanding for
purposes of computing the percentage ownership of any 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. Restricted stock held by
the beneficial owner is included in the direct holdings in the above table.
(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 Exchange Act) by
virtue of such securities being subject to rights to acquire beneficial
ownership within 60 days after March 31, 2006. An asterisk indicates
beneficial ownership of less than 1% of the common stock outstanding.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accounting firm of BDO Seidman LLP audited
Catuity's annual consolidated financial statements for fiscal year 2005.
Representatives from BDO Seidman LLP are expected to be present, via telephone,
at the Annual Meeting of Stockholders 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 Catuity's
annual consolidated financial statements for the fiscal year ended December 31,
2005, including the review of the consolidated financial statements included in
Catuity's quarterly reports on Form 10-QSB were $120,000 USD. The aggregate fees
billed by BDO Seidman LLP for the audit of Catuity's annual consolidated
financial statements for the fiscal year ended December 31, 2004, including the
review of the consolidated financial statements included in Catuity's third
quarter report on Form 10-QSB were $63,000 USD. The aggregate fees billed by
Ernst & Young LLP for the review of Catuity's consolidated financial statements
included in the Company's Form 10-Q for the first and second quarters of 2004
were $19,000 USD. 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
BDO Seidman LLP did not bill any additional fees associated with the
annual audit during the fiscal year ended December 31, 2005. For the fiscal year
ended December 31, 2005, fees billed to the Company for audit related services
rendered by Ernst & Young LLP were $3,428 USD. For the fiscal year ended
December 31, 2004, there were no fees billed to the Company for audit related
services rendered by Ernst & Young LLP.
18
TAX FEES
The aggregate fees billed to Catuity for the preparation of its tax
returns by BDO Seidman, LLP for the fiscal year ended December 31, 2004 was
$5,500 USD. No fees were billed to Catuity by BDO Seidman LLP for the
preparation of its tax returns for the fiscal year ended December 31, 2005. The
aggregate fees billed to Catuity for the preparation of Australian tax returns
by Ernst & Young, in the fiscal year ended December 31, 2004 was $16,000 USD.
ALL OTHER FEES
For the fiscal year ended December 31, 2005, the aggregate fees for
other services billed to Catuity by BDO Seidman LLP were $73,175 USD for
consulting services and assistance with the Loyalty Magic Pty. Ltd.'s
acquisition. In addition, McInnes, Graham & Gibbs billed Catuity $14,472 USD for
the audit of Loyalty Magic Pty. Ltd.'s financial statements. There were no fees
billed to Catuity for any other services rendered by Ernst & Young for the
fiscal year ended December 31, 2005.
The Audit Committee has a policy that requires that any service
provided by the independent auditor to Catuity, in excess of $10,000, including
audit services, audit-related services, tax services and other services, be
pre-approved by the Audit Committee. The Audit Committee approved such audit and
non-audit related services provided to Catuity by BDO Seidman LLP during the
2005 fiscal year.
STOCKHOLDER PROPOSALS FOR 2007 PROXY STATEMENT
Stockholder proposals that are intended to be presented at Catuity's
Annual Meeting of Stockholders to be held in 2007 must be received by Catuity no
later than February 1, 2007 in order to be included in the proxy statement and
related proxy materials. Catuity's Bylaws do not place any particular time
limits or procedural requirements on a stockholder 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., 37650 Professional
Center Drive, Suite 145A, Livonia, Michigan 48154, Attn: Investor Relations.
In addition, the proxy solicited by the Board of Directors for the 2007
Annual Meeting of Stockholders will confer discretionary authority to vote on
any Stockholder proposal presented at that meeting, unless Catuity is provided
with notice of such proposal no later than February 22, 2007.
FORM 10-KSB
CATUITY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
CATUITY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
2005, AS AMENDED, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO CATUITY INC., 37650 PROFESSIONAL CENTER
DRIVE, SUITE 145A, LIVONIA, MICHIGAN 48154 ATTN: INVESTOR RELATIONS.
OTHER MATTERS
The Board knows of no other matters to be presented for Stockholder
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: March 31, 2006
19
+
(BAR CODE)
(CATUITY LOGO) MMMMMMMMMMMM
(BAR CODE) 000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3 000000000.000 ext
ADD 4
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ADD 6 C 1234567890 J N T
!123456564525! (BAR CODE)
[ ] Mark this box with an X if you have
made changes to your name or address
details above.
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ANNUAL MEETING PROXY CARD
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A ELECTION OF DIRECTORS
The Board of Directors recommends a vote FOR the listed nominees.
<Table>
<Caption>
FOR WITHHOLD
1 - Alexander S. Dawson [ ] [ ]
2 - Alfred H. (John) Racine III [ ] [ ]
3 - Geoffrey C. Wild [ ] [ ]
4 - Donald C. Campion [ ] [ ]
5 - Clifford W. Chapman, Jr. [ ] [ ]
</Table>
B ISSUES
The Board of Directors recommends a vote FOR the following proposals.
<Table>
FOR AGAINST ABSTAIN
6. To approve the grant of options to acquire 50,000
shares of common stock and the grant of 100,000 shares [ ] [ ] [ ]
of restricted stock to Mr. Alfred H. (John) Racine III
in accordance with Australian Stock Exchange Limited
Listing Rule 10.14
FOR AGAINST ABSTAIN
7. To approve the issue of up to 400,000 shares
of common stock pursuant to Australian Stock [ ] [ ] [ ]
Exchange Limited Listing Rule 7.1
</Table>
C 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.
<Table>
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
- -------------------------------------------------- -------------------------------------------------- --------------------------
/ /
- -------------------------------------------------- -------------------------------------------------- --------------------------
</Table>
001CD40001 00JQ1D 1 U P X 008363 +
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PROXY - CATUITY, INC.
- --------------------------------------------------------------------------------
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 11, 2006
(MAY 12, 2006 IN AUSTRALIA) IN NEW YORK CITY, NEW YORK.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby constitutes and appoints Alexander S. Dawson 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 American Conference Center, 780 Third Ave; New York
City, New York 10017 on Thursday May 11, 2006 at 4:30 p.m. Eastern Daylight Time
(Friday May 12, 2006 at 6:30 a.m. Australian Standard Time), and at any
adjournment thereof, upon matters set forth in the Proxy Statement and, in his
judgement and discretion, upon such other business as may properly come before
the meeting.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
(To be signed on reverse side.)