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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 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:
- --------------------------------------------------------------------------------
(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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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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(3) Filing party:
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(4) Date filed:
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CATUITY INC.
LEVEL 4 BALLARAT HOUSE 2711 E. JEFFERSON AVE.
68-72 WENTWORTH AVE. DETROIT, MICHIGAN 48207
SURRY HILLS NSW 2010 AUSTRALIA
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 2001
We will hold the Annual Meeting of Stockholders of Catuity, Inc. at the AAP
Theatrette, AAP Centre, 259 George Street, Sydney, NSW 2000 Australia on
Thursday, May 24, 2001 at 9:30 a.m. (Wednesday, May 23, 2001 at 7:30 p.m.
Eastern Daylight Time in the United States) for the following purposes:
1. To elect six members of the board of directors to serve until the
next Annual Meeting and until their successors have been elected and
qualified;
2. To approve the Catuity Inc. 2000 Director Stock Option Plan;
3. To approve an amendment to the Catuity Inc. Stock Option Plan
increasing the pool of available shares from 750,000 shares to 950,000
shares; and
4. To act upon such other matters as may properly come before the
meeting or any adjournments or postponements thereof.
We have described the items of business more fully in the Proxy Statement
accompanying this Notice. The record date for determining those stockholders who
will be entitled to notice of, and to vote at, the Annual Meeting and at any
adjournment is April 6, 2001. 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.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy promptly in the accompanying reply
envelope. Please refer to the enclosed voting form for instructions. You may
revoke your proxy at any time prior to the Annual Meeting. If you decide to
attend the Annual Meeting and wish to change your proxy vote, you may do so
automatically by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John H. Lowry
John H. Lowry III
Secretary
Detroit, Michigan
April 23, 2001
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TABLE OF CONTENTS
PAGE
----
VOTING RIGHTS AND SOLICITATION.............................. 1
Voting.................................................... 1
Proxies................................................... 1
Solicitation of Proxies................................... 1
PROPOSALS NO. 1-6 ELECTION OF DIRECTORS..................... 2
General................................................... 2
Business Experience of Directors.......................... 2
Board Committees and Meetings............................. 3
Director Compensation..................................... 4
Recommendation of the Board of Directors.................. 4
PROPOSAL NO. 7 -- APPROVAL OF CATUITY INC. 2000 DIRECTOR
STOCK OPTION PLAN......................................... 4
General................................................... 4
Shares Authorized......................................... 4
Eligible Directors........................................ 4
Stock Options............................................. 4
Exercise of Options....................................... 4
Rights as a Shareholder................................... 5
Amendment................................................. 5
U.S. Income Tax Consequences Relating to the Director
Plan................................................... 5
Grant of Options.......................................... 5
Withholding of Tax........................................ 5
Recommendation of the Board of Directors.................. 6
PROPOSAL NO. 8 -- APPROVAL OF AMENDMENT TO CATUITY INC.
STOCK OPTION PLAN......................................... 6
General................................................... 6
Shares Authorized......................................... 6
Employee Plan Administration.............................. 6
Employee Plan Participants................................ 6
Stock Options............................................. 7
Incentive Stock Options................................... 7
Vesting of Options........................................ 7
Exercise of Options....................................... 7
Rights as a Shareholder................................... 8
Amendment................................................. 8
New Employee Plan Benefits................................ 8
U.S. Income Tax Consequences Relating to Employee Plan.... 8
Option Awards............................................. 9
Limitation on Compensation Deductions..................... 9
Withholding of Tax........................................ 10
Recommendation of the Board of Directors.................. 10
OWNERSHIP OF SECURITIES..................................... 10
Compliance with SEC Reporting Requirements................ 11
EXECUTIVE COMPENSATION AND RELATED INFORMATION.............. 12
Compensation Committee Report............................. 12
Compensation Philosophy and Objectives.................... 12
Compensation Components and Process....................... 12
Compensation Committee Interlocks and Insider
Participation.......................................... 13
Summary of Cash and Certain Other Compensation............ 14
Stock Options.............................................
Option Exercises and Holdings.............................
Employment Contracts, Termination of Employment, and
Change in Control Agreements........................... 16
Certain Relationships and Related Transactions............ 17
STOCK PERFORMANCE GRAPH..................................... 18
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS..... 19
STOCKHOLDER PROPOSALS FOR 2002 PROXY STATEMENT.............. 19
FORM 10-K................................................... 19
OTHER MATTERS............................................... 20
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
We are furnishing these proxy materials for the solicitation of proxies by
the Catuity Inc. Board of Directors for our Annual Meeting of the Stockholders
to be held on Thursday, May 24, 2001 at 9:30 a.m. at the AAP Theatrette, AAP
Centre, 259 George Street, Sydney, NSW 2000 Australia (Wednesday, May 23, 2001
at 7:30 p.m. United States Eastern Daylight Time) and at any adjournments or
postponements. We first mailed these proxy materials on or about April 23, 2001
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 April 6, 2001, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 7,869,619 shares
of Common Stock outstanding. Each stockholder of record on April 6, 2001 is
entitled to one vote for each share of Common Stock held on that date. A
majority of the outstanding shares of Common Stock must be present or
represented at the Annual Meeting in order to have a quorum. Abstentions and
broker non-votes are counted as present for the purpose of determining the
presence of a quorum for the transaction of business. In the election of
directors, the six candidates receiving the highest number of affirmative votes
will be elected. Proposal 7 and Proposal 8 each requires the approval of the
affirmative vote of a majority of our outstanding voting shares present or
represented and entitled to vote at the Annual Meeting together with the
affirmative vote of a majority of the required quorum. Abstentions and broker
non-votes can have the effect of preventing approval of a proposal where the
number of affirmative votes, though a majority of the votes cast, does not
constitute a majority of the required quorum. The inspector of election
appointed for the Annual Meeting will tabulate all votes. The inspector will
separately tabulate affirmative and negative votes, abstentions, and broker
non-votes.
PROXIES
Whether or not you are able to attend the Annual Meeting, we urge you to
vote your proxy. Catuity's Board of Directors is soliciting your proxy, and the
Board will vote your proxy as you direct on your proxy when properly completed.
If you sign and return your proxy but do not specify any voting directions, your
proxy will be voted FOR the nominees of the Board of Directors (proposals 1-6),
FOR proposals 7 and 8, and in the discretion of the proxy holders as to other
matters that may properly come before the Annual Meeting. You may revoke or
change your proxy at any time before the Annual Meeting. To do this, send a
written notice of revocation or another signed proxy with a later date to
Catuity's Secretary at our principal executive offices 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,
and we have retained Proxy Services Inc. to assist us in this endeavor. We
anticipate that we will pay $500, plus reasonable out of pocket expenses, for
these services. The original solicitation of proxies by mail may be supplemented
by a solicitation by telephone,
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telegram, or other means by our directors, officers, or employees. We will not
pay any additional compensation to these individuals for these services. Except
as described above, we do not presently intend to solicit proxies other than by
mail or via the Internet.
PROPOSALS NO. 1-6
ELECTION OF DIRECTORS
GENERAL
The names of our nominees for director and their positions and offices with
Catuity are set forth in the table below. The proxy holders intend to vote all
proxies received by them in the accompanying form for the nominees listed below
unless otherwise instructed. If any nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who your board may designate to fill the vacancy. As of the date of this
Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a director. The six nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected directors to serve until the next Annual Meeting and
until their successors have been elected and qualified. Stockholders may not
cumulate votes in the election of directors.
NAME AGE POSITION(S)
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David L. Mac.Smith................... 50 Director and Chairman(2)
Michael V. Howe...................... 52 Director, President and Chief Executive Officer(2)
Alexander S. Dawson.................. 57 Director(1),(2)
Duncan P.F. Mount.................... 53 Director(1)
Alan L. Gilman....................... 57 Director(1),(2)
Robert C. Robins..................... 59 Director
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(1) Member, Audit Committee
(2) Member, Compensation Committee
BUSINESS EXPERIENCE OF DIRECTORS
David L. Mac.Smith is our founder and currently our Chairman of the board.
He has been the Chief Executive Officer and Managing Director of CAT, our wholly
owned subsidiary, since November 1992. In December 1999, he became our President
and CEO pending the appointment of a new President and CEO. In January 2000, he
resigned as our President and CEO and became our Chairman. Prior to November
1992, he was the founder and, from 1982 to 1991, CEO of Technology Investment
Management Limited, a funds management company with specific focus on technology
related businesses. He has a Bachelor of Law degree from the Australian National
University.
Michael V. Howe has served as our President and Chief Executive Officer
since January 2000. From December 1995 through December 1999, he was the
Director of Marketing Communications for United Airlines, responsible for the
United Mileage Plus loyalty rewards program and the United partnership program.
Prior to joining United Airlines, he served as the Chief Executive Officer of
Young and Rubicam Advertising in Detroit, Michigan from October 1990 to November
1995. He has a Bachelor of Business Administration from John Carroll University
and a Master of Business Administration from Michigan State University.
Alexander S. Dawson is currently one of our non-employee Directors. He
served as the Chairman of 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
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to March 1996. He has a Bachelor of Commerce degree from the University of New
South Wales and a Master of Business Administration from Columbia University.
Duncan P.F. Mount is currently one of our non-employee Directors. He served
as a non-employee Director of CAT, our wholly owned subsidiary, from March 1999
to December 1999. From October 1996 to September 1999, he was the Asian adviser
to CEF.TAL Investment Management Limited, a Hong Kong based joint venture
between the Canadian Imperial Bank of Commerce, Cheung Kong Holdings Limited and
TAL Investment Counsel. He spent 17 years in Hong Kong as the Managing Director
of Gartmore Investment Management Limited, from May 1980 to October 1988, and as
managing director of CEF Investment Management Limited from May 1988 to October
1996, entities which are fund management and investment companies. From October
1996 to December 1998, he was Managing Director of CEF.TAL Australia Limited. He
holds a Bachelor and Master of Arts degree in Economics and Law (Hons) from
Cambridge University.
Alan L. Gilman joined the Board of Directors on July 1, 2000 following his
retirement from Arthur Andersen LLP. For 22 years prior to retirement, Mr.
Gilman was a partner with Arthur Andersen LLP and specialized in the retail
industry. Most recently he managed the Arthur Andersen Competency Center,
specializing in retail consulting. From September 1992 to August 1999, he served
as the managing partner of Senn-Delaney, a unit of Arthur Andersen specializing
in the retail industry. In addition to his role with Senn-Delaney, he held
worldwide leadership responsibility for Arthur Andersen's retail industry and
consumer products activities. Prior to September 1992, he was an Audit Partner
focusing primarily on retail, distribution and advertising. Mr. Gilman is also
serving as the chairman of the Audit and Compensation Committees of the Board.
Robert C. Robins joined the Board of Directors on October 9, 2000 following
his retirement from Visa USA. He is currently an Executive Vice President of
Business Development with National Processing Corporation. Mr. Robins was
Executive Vice President of Visa USA in charge of the bankcard association's
division that markets Visa products and services to merchants across the United
States. Prior to that he spent seven years in various sales and marketing
management positions with American Cyanamid Company. He also was with Alba Inc.
and the Nestle Corporation in both field sales and corporate management
positions.
BOARD COMMITTEES AND MEETINGS
During the year that ended on December 31, 2000, the Board of Directors
held nine meetings. All of the directors attended or participated in more than
75% of the aggregate of (i) the total number of 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.
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. Executive officers are appointed by,
and serve at the discretion of, our Board of Directors.
The board has two standing Committees: the Audit Committee and the
Compensation Committee.
The Audit Committee, among other things, makes a recommendation to the
Board of Directors concerning the engagement of independent auditors and
monitors the results of our operating and internal controls as reported by
management and the independent auditors. This Committee currently consists of
Messrs. Gilman, Mount and Dawson, and held two meetings during the last year.
Effective February 26, 2001, the Board of Directors established a
Compensation Committee. The Compensation Committee is responsible for
establishing the compensation levels of the Company's executive officers.
Members of the Committee who are also 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. Mac. Smith, Howe, Gilman and Dawson with Mr. Gilman serving as
Chairman.
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DIRECTOR COMPENSATION
Effective October 1, 2000, non-employee directors receive a $10,000 annual
retainer fee, paid in quarterly payments of $2,500 following each calendar
quarter, for serving on the Board. In addition, each director receives a $1,000
fee for each meeting attended during the year. Under the Director Stock Option
Plan that is proposed for approval by the shareholders (Proposal 7 below), upon
the date a person first becomes a member of the Board, the director is to
automatically receive a stock option to acquire 10,000 Catuity shares. In
addition, on the last business day of September of every year, each director
then in office will receive a stock option to acquire 5,000 Catuity shares. The
exercise price per share of any option is the fair market value on the date of
grant.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the election of the nominees
listed above.
PROPOSAL NO. 7
APPROVAL OF 2000 DIRECTOR STOCK OPTION PLAN
GENERAL
The seventh matter to be considered at the Annual Meeting will be the
approval of the 2000 Director Stock Option Plan (the "director plan").
Our Board of Directors adopted the non-employee director plan as of October
1, 2000, subject to stockholder approval. The purpose of the director plan is to
attract and retain the services of experienced and knowledgeable non-employee
directors and to provide an additional incentive for the non-employee directors
to continue to work for the best interests of Catuity and our shareholders.
Employee directors are not eligible for option awards under the director plan.
The following is a summary of the material features of the director plan,
and is qualified in its entirety by reference to the director plan.
SHARES AUTHORIZED
The director plan permits us to grant non-qualified stock options to
acquire an aggregate of up to 100,000 shares of common stock. The shares may be
newly issued or repurchased on the open market. If any option granted under the
director plan is surrendered, terminates or expires before having been fully
exercised, then all shares formerly subject to that option shall become
available for any option subsequently granted in accordance with the director
plan. The number of shares authorized is subject to adjustment to reflect
certain recapitalizations, reorganizations, mergers or consolidations.
ELIGIBLE DIRECTORS
Only the non-employee members of the Catuity Board of Directors are
eligible for options. Directors who are employees of Catuity are not eligible
for options under the director plan.
STOCK OPTIONS
Under the director plan, upon the date a person first becomes a member of
the Board, the director automatically receives a non-qualified stock option to
acquire 10,000 shares. In addition, on the last business day of September of
every year, each director then in office will receive a non-qualified stock
option to acquire 5,000 shares. The exercise price per share of any option is
the fair market value on the date of grant.
EXERCISE OF OPTIONS
Options vest and are exercisable immediately on grant.
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A director's right to exercise any option granted under the director plan
terminates at whichever of the following times first occurs: (i) eight years
from the date of grant; (ii) three months after he or she ceases to be a
director, except if the director retires from the Board when he or she reaches
60 years of age or dies; and (iii) if a director dies, one year from the date of
death. If a director dies within the 90 day period following the date he or she
ceases to be a director, then the beneficiary may, until one year after the
director's death, exercise the option to the extent it would have been
exercisable if the director had exercised the option immediately prior to his or
her death.
A director must pay the purchase price of shares purchased upon the
exercise of an option in full and in cash at the time of exercise. However, the
Board may (but is not obligated to unless this is provided in the particular
option agreement) permit the director to make payment by delivery to us of such
other consideration as is permitted by the Board. Payment may also be made by
delivering a copy of irrevocable instructions to a broker to deliver promptly an
amount sufficient to pay the purchase price and, if required, the amount of any
tax withholding liability for which the director is liable.
RIGHTS AS A SHAREHOLDER
Until a director exercises his or her award and actually receives the
shares, he or she has no rights as a Catuity shareholder pursuant to any shares
of common stock that underlie the option.
AMENDMENT
We may amend the director plan at any time. However, an amendment cannot
modify the terms of an existing option unless the recipient agrees to the
change.
U.S. INCOME TAX CONSEQUENCES RELATING TO THE DIRECTOR PLAN
The following discussion of certain U.S. income tax considerations is a
summary for general purposes only. Because Catuity is a U.S. Corporation, based
in the U.S., we have restricted our tax discussion to United States tax law
considerations.
The director plan is not qualified under Section 401(a) of the Internal
Revenue Code and is not subject to the Employee Retirement Income Security Act
of 1974.
GRANT OF OPTIONS
Ordinarily, the grant of an option will have no income tax consequences for
either the director or us. When a director exercises an option, he or she will
recognize ordinary income and we will be entitled to a deduction in an amount
equal to the excess of the fair market value of the common stock purchased over
the purchase price. We are required to withhold tax from the director's income
in that transaction. The director's tax "basis" of the common stock received
upon exercise will equal the sum of the exercise price plus the amount included
in the director's income. If the director pays the purchase price with shares of
common stock, he or she will not recognize additional gain or loss by reason of
that exchange, and the tax basis for an equal number of shares of the common
stock received will be equal to the tax basis for the shares exchanged. Any
additional shares received will have a basis equal to the amount of ordinary
income includible with respect to such purchase. The subsequent sale or exchange
of the common stock would generally give rise to capital gain or loss.
WITHHOLDING OF TAX
Generally, we will be obligated to withhold, or secure payment in lieu of
withholding, taxes the director may owe resulting from the exercise of an
option. That amount will depend on many factors existing at the time the
director exercises an option, particularly IRS regulations then in effect. If
the director is paying the exercise price with shares of common stock, he or she
may elect to have us withhold shares of the common stock sufficient to meet
those requirements. Unless otherwise provided by the
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administrator, with respect to directors, we will withhold shares sufficient to
meet withholding requirements.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR approval of the 2000 Director
Stock Option Plan.
PROPOSAL NO. 8
APPROVAL OF AMENDMENT TO STOCK OPTION PLAN
GENERAL
The eighth matter to be considered at the Annual Meeting will be the
approval of an amendment to the Catuity Inc. Stock Option Plan (the "employee
plan") to increase the number of shares for which options and other awards may
be granted from 750,000 shares to 950,000 shares.
The Board of Directors adopted the employee plan in December 1999 and the
stockholders approved it on March 16, 2000. The employee plan shall terminate on
the earlier of (i) the tenth anniversary of its effective date, (ii) the
issuance of all of the shares authorized under the employee plan, or (ii) the
termination of the employee plan by the Board of Directors. The maximum period
during which an option may be exercised under the employee plan is 10 years from
the date of grant, except in the case of an ISO granted to a 10% stockholder, in
which case the maximum period is five years from the date of grant.
The purposes of the employee plan are to attract and retain employees of
high ability and to motivate them to advance Catuity's and our stockholders'
interests.
As of March 27, 2001, there were 694,500 options outstanding under the
employee plan. On that date, the Board approved an amendment increasing the
number of available shares from 750,000 to 950,000 in order to ensure that a
sufficient number of shares would be available for grants to meet the overall
goals and objectives of the employee plan for the next few years.
SHARES AUTHORIZED
A maximum of 750,000 (as amended, 950,000) of the aggregate number of
shares of common stock outstanding may be issued under the employee plan to all
participants in the aggregate. The shares issued may be newly issued or
repurchased by us on the open market. If any award granted under the employee
plan is surrendered to us, terminates or expires before having been fully
exercised, or an award of stock appreciation rights is exercised for cash, then
all shares formerly subject to that award shall become available for any award
subsequently granted in accordance with the employee plan. The number of shares
authorized under the employee plan will be adjusted to reflect certain
recapitalizations, reorganizations, mergers or consolidations.
EMPLOYEE PLAN ADMINISTRATION
The employee plan is administered by the Board of Directors or by a
committee consisting of two or more members of the Board and is known as the
administrator. The administrator has full power and authority to prescribe,
amend and rescind rules and procedures governing administration of the employee
plan and to make all other determinations necessary or advisable for its
administration and interpretation.
EMPLOYEE PLAN PARTICIPANTS
The administrator may grant awards under the employee plan to Catuity's
and/or any of its subsidiaries' officers, employees, and persons who are
independent contractors, consultants or advisers of Catuity and/or its
subsidiaries at the time of the grant.
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STOCK OPTIONS
The administrator may grant options entitling the participant to purchase
shares of common stock from us in such quantity, at such price, and on such
terms and subject to such vesting periods, termination dates and other
conditions as may be established by the administrator on or prior to the date
such option is granted. Although the employee plan specifies certain "default"
provisions for option grants, the employee plan specifically authorizes the
administrator to vary from these default provisions, as it deems advisable for
individual grants. Notwithstanding the foregoing, the exercise price for all
options must be no less than 85% of the fair market value of the common stock on
the date of grant, except and unless you are a 10% stockholder, in which case
the option price will not be less than 110% of such fair market value.
The options shall contain such other terms and conditions as are deemed
necessary to prevent limitation of our compensation deduction in connection with
the exercise of the option. (See "U.S. INCOME TAX CONSEQUENCES RELATING TO THE
EMPLOYEE PLAN," below.)
INCENTIVE STOCK OPTIONS
The administrator shall determine the price at which a share may be
purchased upon exercise of any option, except in the case of an option that has
been designated as an incentive stock option under Section 422 of the Internal
Revenue Code. No person may be granted incentive stock options under the
employee plan in any year entitling such person to purchase a number of shares
greater than the maximum number permitted by Section 422 of the Internal Revenue
Code as in effect on the date of grant. If a recipient is a 10% stockholder, the
term of an incentive stock option shall not exceed five years from the date of
grant, and the purchase price of an incentive stock option shall be greater than
the per share market value of the common stock on the date of grant. If the
recipient is not a 10% stockholder, the term of an incentive stock option shall
not exceed ten years from the date of grant and the purchase price shall be
equal or greater than the per share market value of the common stock on the date
of grant.
VESTING OF OPTIONS
Unless otherwise provided in the option agreement, options granted under
the employee plan will initially be deemed an entirely unvested option and will
vest upon the passage of time or the occurrence of events. Options will vest
according to the following schedule:
(a) twenty percent (20%) will become a vested option as of the first
anniversary of the vesting start date specified in the option agreement
(which may be earlier but not later than the grant date);
(b) ten percent (10%) of the option will become a vested option on the
last day of each six-month period thereafter, such that the option will
become a fully vested option as of the fifth anniversary of the vesting
start date.
Vesting will continue provided the recipient is not terminated prior to
each vesting date and provided that the recipient is not on a leave of absence
from Catuity Inc. or its subsidiaries.
EXERCISE OF OPTIONS
Unless extended by the administrator or as otherwise provided in the award
agreement, the recipient's right to exercise any award granted under the
employee plan shall terminate at a time determined by the administrator, but
shall not terminate less than: (i) six months after termination for death or
disability; or (ii) 30 days after termination for any other reason, except in
the event of a Termination for Cause, as defined under the employee plan; or
(iii) in the event of Termination for Cause, the option will terminate
immediately upon termination. The administrator has the right to permit the
recipient to exercise any award prior to the time such award would otherwise be
exercisable under the terms of the agreement granting the award. Similarly, the
administrator has the right to permit the recipient to exercise any award
granted under the employee plan (except for an incentive stock option) more than
six months after the recipient's employment terminates or after the award's
expiration date.
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The recipient must pay the purchase price of shares purchased upon the
exercise of the award in full and in cash at the time of exercise. However, the
administrator may (but is not obligated to unless this is provided in the award
agreement) permit payment to be made by delivery to us of such other
consideration as is permitted by the administrator. Payment may also be made by
delivering a copy of irrevocable instructions to a broker to deliver promptly to
the us the amount of sale or loan proceeds sufficient to pay the purchase price
and, if required, the amount of any tax withholding liability for which the
recipient is liable.
Unless provided otherwise in your award agreement, if you die while an
employee, the right to exercise all unexpired installments of your awards shall
be transferable by will or the laws of descent and distribution.
Unless provided otherwise in the award agreement, upon the occurrence of a
change of control event, the recipient shall have the right to exercise in full
any award (excluding awards that have expired, terminated or been exercised),
whether or not exercisable immediately prior to the change of control event. A
change of control event means a business combination in which less than 50% of
the outstanding voting securities of the successor entity immediately following
the closing of the business combination are beneficially held by those persons
and entities in the same proportion as such persons and entities beneficially
held the voting securities of Catuity immediately prior to such transaction. The
term "business combination" means a transaction or series of transactions
consummated within any period of 90 days resulting in (A) the sale of all or
substantially all of Catuity's assets, (B) a merger or consolidation or other
reorganization of which Catuity or a subsidiary is a merging party, or (C) the
sale or other change of beneficial ownership of at least 33 1/3% of Catuity's
outstanding voting securities.
RIGHTS AS A SHAREHOLDER
Until the recipient exercises an award and actually receives shares, the
recipient has no rights as a Catuity shareholder pursuant to any shares of
common stock that underlie the award.
AMENDMENT
The Board may amend, suspend or discontinue the employee plan at any time.
However, the Board may not, without stockholder approval, materially increase
(except when the increase relates to a adjustments upon changes in the stock,
such as stock splits) the maximum aggregate number of option shares in the
option pool, materially increase the benefits accruing to eligible participants
or materially modify the category or, or eligibility requirements for persons
who are eligible participants. Except where a change of control exits, no action
may alter any option previously granted under the employee plan without the
recipient's consent, nor may the number of option shares in the option pool be
reduced to a number that is less than the aggregate number of option shares that
may be issued pursuant to the exercise of all outstanding and unexpired options
granted under the employee plan and that have been issued and are outstanding
pursuant to the exercise of options granted under the employee plan.
NEW EMPLOYEE PLAN BENEFITS
The grant of awards under the employee plan is subject to the discretion of
the administrator. Accordingly, we cannot currently determine the number of
shares of common stock that may be subject to awards under the employee plan in
the future.
U.S. INCOME TAX CONSEQUENCES RELATING TO THE EMPLOYEE PLAN
The following discussion of certain U.S. income tax considerations with
respect to employee awards is a summary for general purposes only.
The employee plan is not qualified under Section 401(a) of the Internal
Revenue Code and is not subject to the Employee Retirement Income Security Act
of 1974.
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OPTION AWARDS
Certain of the income tax consequences of the grant of an option award
depend upon whether the option qualifies as an incentive stock option.
NONQUALIFIED OPTIONS AND PERFORMANCE BASED OPTIONS. The grant of a
nonqualified stock option or a performance-based option will have no income tax
consequences for either the recipient or us (unless the option is freely
transferable and has a readily ascertainable market value). Upon the exercise of
a nonqualified stock option or a performance-based option, the recipient will
recognize ordinary income and we will be entitled to a deduction in an amount
equal to the excess of the fair market value of the common stock purchased over
the exercise price. We are required to withhold tax from the recipient's income
in that transaction. The basis of the common stock received upon exercise will
equal the sum of the exercise price plus the amount included in income by the
participant. If the recipient pays the exercise price of a nonqualified stock
option or a performance based option with shares of common stock, no additional
gain or loss will be recognized by reason of that exchange, and the basis for an
equal number of shares of the common stock received will be equal to the basis
for the shares exchanged therefore. Any additional shares that the recipient
receives will have a basis equal to the amount of ordinary income includible
with respect to such purchase. The subsequent sale or exchange of the common
stock would generally give rise to capital gain or loss.
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option will have
no income tax consequences for either the recipient or us. Subject to the
discussion below, there will be no regular income tax liability upon incentive
stock option exercise; however, upon the exercise of an incentive stock option,
the excess of the fair market value of the shares purchased over the exercise
price will be an item of tax preference of the recipient's for purposes of the
application of the alternative minimum tax. If payment of the purchase price of
an incentive stock option consists of shares of common stock, the recipient's
basis for an equal number of shares of the common stock received will be equal
to your basis for the shares exchanged therefore. Any additional shares the
recipient receives will have a basis of zero.
If the common stock acquired pursuant to an incentive stock option is sold,
exchanged (except in certain tax-free exchanges) or otherwise disposed of (even
if pursuant to the exercise of another incentive stock option) within either one
year of the exercise of such incentive stock option or two years of the granting
of such incentive stock option, the recipient will recognize ordinary income at
that time and we will be entitled to a deduction at that time in an amount equal
to the excess of the fair market value of such common stock at the time of
exercise over the purchase price. The recipient will also recognize capital gain
or loss to the extent the amount realized from a sale or exchange differs from
the fair market value of such common stock at the time of exercise.
If the recipient sells or exchanges common stock acquired pursuant to an
incentive stock option after one year after the exercise of such incentive stock
option and two years after the granting of such incentive stock option, the
recipient will recognize long-term capital gain or loss measured by the
difference between the amount realized on such sale or exchange and the purchase
price, and we will not be entitled to any deduction.
LIMITATION ON COMPENSATION DEDUCTIONS
In general, we will be entitled to a compensation deduction equal to the
income the recipient recognized with respect to a nonqualified option,
performance based option, stock appreciation right or restricted share right at
the time of recognition. But, the Internal Revenue Code will limit the deduction
that a publicly held corporation, such as us, may take for compensation paid to
"covered employees" to $1 million. Generally, the Chief Executive Officer of a
company and its four highest compensated officers (excluding the Chief Executive
Officer) will be considered to be covered employees. However, this rule limiting
the deduction does not apply to performance-based compensation. In general,
compensation resulting from the exercise of a stock option is treated as
performance-based compensation provided that the option price was equal to or in
excess of the fair market value of stock underlying the option at the time of
the grant of the option and provided that certain other requirements are met. We
grant
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performance-based options with the intention to meet these rules so that the
compensation resulting from the exercise of performance-based options will be
treated as performance-based compensation. In addition, income resulting from
the exercise of nonqualified options and stock appreciation rights, where the
exercise price is equal to or in excess of the fair market value of the stock
underlying the award at the time of the grant, may also be treated as
performance-based compensation. Income resulting from restricted share rights
will probably not be treated as performance-based compensation and so the
deduction limitation described above may become applicable.
WITHHOLDING OF TAX
We are entitled to withhold, or secure payment from the recipient in lieu
of withholding, the amount of any tax required by law to be withheld or paid by
us with respect to any amount payable or shares issuable under the option. At
the recipient's election, with respect to the exercise of a nonqualified option,
performance based option or a stock appreciation right where shares of common
stock are to be delivered to the recipient; we may also withhold shares of the
common stock sufficient to meet those requirements. Unless otherwise provided by
the administrator, with respect to officers, we will withhold shares sufficient
to meet withholding requirements.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the employee plan.
OWNERSHIP OF SECURITIES
The following tables set forth certain information regarding beneficial
ownership of our capital stock as of April 1, 2001 by:
- each person who is known by us to beneficially own more than five percent
of our common stock;
- our Chief Executive Officer and the other named executive officers
included in the Compensation Tables below;
- each of our directors; and
- all of our directors and executive officers as a group.
NUMBER OF SHARES OF PERCENTAGE OF SHARES
COMMON STOCK OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
------------------------------------ --------------------- ---------------------
Lance D. O'Connor(3).................................... 754,432 9.6
6-8 Kangaroo Point Road
Kangaroo Point, NSW 2224
Australia
Alexander S. Dawson(4).................................. 185,000 2.3
52 St Marks Road
Randwick, NSW 2031
Australia
David L. Mac. Smith..................................... 351,417 4.4
58 View Street
Woollahra, NSW 2025
Australia
Michael V. Howe......................................... 135,100 1.7
62 Hampton Road
Grosse Point Shores, MI 48230
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NUMBER OF SHARES OF PERCENTAGE OF SHARES
COMMON STOCK OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
------------------------------------ --------------------- ---------------------
Duncan P.F. Mount(4).................................... 210,000 2.7
9 Ithica Road
Elizabeth Bay, NSW 2011
Australia
John M. Weihen.......................................... 32,630 *
17 Bayswater Road
Lindfield, NSW 2070
Australia
Alan L. Gilman(4)....................................... 10,500 *
4720 Morris Lake Circle
West Bloomfield, MI 48323
Robert C. Robins(4)..................................... 10,000 *
901 Glenway
Hillsborough, CA 94010
Jonathan R.E. Adams..................................... 17,500 *
10 Willows Lane
Walingford, Pennsylvania 19806
All directors and executive officers as a group (11
persons).............................................. 1,869,413 22.4
- -------------------------
(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 April 1, 2001 are deemed
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 13-d3 (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 April 1,
2001. An asterisk indicates beneficial ownership of less than 1% of the
common stock outstanding.
(3) Includes 55,000 shares held by Jenolan Pty Limited, of which Mr. O'Connor is
a shareholder and director. Mr. O'Connor disclaims that he is the beneficial
owner of such shares for purposes of section 13(d) or any other purpose.
(4) Includes 10,000 option shares that are subject to shareholder approval of
Proposal 7 as described in this proxy statement.
COMPLIANCE WITH SEC REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in their ownership to the
Securities and Exchange Commission ("SEC"). The SEC has established specific due
dates, and Catuity is required to disclose in this Proxy Statement any failure
to file by those dates. Based upon (I) the copies of Section 16(a) reports that
we received from such persons for their 2000 fiscal year transactions and (ii)
the written representations received from one or more of such persons that no
annual Form 5 reports were required to be filed for them for the 2000 fiscal
year, we believe that there has been compliance with
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all Section 16(a) filing requirements applicable to such officers, directors,
and ten-percent beneficial owners for such fiscal year, except that the
following individuals failed to file timely reports for such fiscal year:
David L. Mac.Smith, Lance D. O'Connor, Duncan P.F. Mount, Alexander S.
Dawson, John M. Weihen, Benjamin A. Gorton, Alan L. Gilman, Michael V. Howe,
John H. Lowry, Robert Kosnik, Jonathan R.E. Adams, and Carl H. Fisher did not
file Form 3 within the 10 days allowed following the Company's shares becoming
registered with the Securities and Exchange Commission. All Form 3's were
subsequently filed in 2000.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT
During 2000, the Board of Directors was responsible for the oversight and
approval of executive officer compensation. The Compensation Committee (the
"Committee") of the Board of Directors was constituted in early 2001, and
therefore took no actions in 2000. This report describes the compensation-
related activities of the Board as a whole taken during 2000. The current
Committee sets the compensation of the Chairman and the Chief Executive Officer,
reviews the design, administration and effectiveness of compensation programs
for other key executives, and approves stock option grants for all executive
officers. The Committee, serving under a charter adopted by the Board of
Directors, is composed of both management and outside directors.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Committee believes that the compensation programs for
the executive officers should be designed to attract, motivate and retain
talented executives responsible for the success of the Company, should be
determined within a competitive framework and be based on the achievement of
designated financial targets, individual contribution, customer satisfaction and
financial performance relative to that of the Company's competitors. Within this
overall philosophy, the Committee's objectives are to:
- Offer a total compensation program that takes into consideration the
compensation practices of peer companies (the "Peer Companies") and other
selected companies in the market that the Company competes for executive
talent.
- Provide annual variable incentive awards that take into account the
Company's overall financial performance in terms of designated corporate
objectives and the relative performance of the Peer Companies as well as
individual contributions and a measure of customer satisfaction.
- Align the financial interests of executive officers with those of
stockholders by providing significant equity-based, long-term incentives.
COMPENSATION COMPONENTS AND PROCESS
The three major components of the Company's executive officer compensation
are: (i) base salary, (ii) variable incentive awards, and (iii) long-term,
equity-based incentive awards.
During 2000, the Board determined the compensation levels for the executive
officers based on information obtained regarding the compensation levels of such
positions in the market for similar sized companies and compensation survey
information available from independent studies.
Base Salary. The base salary of each executive officer is determined at
levels considered appropriate for comparable positions at Peer Companies. The
Company's objective is to target base salary levels near the 50th percentile of
compensation practices at Peer Companies.
Variable Incentive Awards. The Company has no formal program for providing
a portion of the annual compensation of each executive officer in variable
incentive pay. Performance based bonuses may
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be awarded, at the discretion of the Board, when an executive officer's
performance, as measured against specific performance objectives, is
particularly meritorious.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's
long-term, equity-based incentive awards is to align the interests of the
executive officers with shareholders and to provide each executive officer with
a significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. During 2000, the Board determined the size
of long-term, equity-based incentives according to each executive's position
within the Company and sets a level it considers appropriate to create a
meaningful opportunity for stock ownership. In addition, the Board took into
consideration an individual's recent performance, his or her potential for
future responsibility and promotion, comparable awards made to individuals in
similar positions at Peer Companies, and the number of vested options held by
each individual at the time of the new grant. The relevant weight given to each
of these factors varies among individuals at the Board's discretion.
During 2000, the Board approved option grants to Messrs. Howe and Adams
under the Company's 1999 Stock Option Plan. Each grant allows the officer to
acquire shares of the Company's Common Stock at a fixed price per share (85% of
the market price on the grant date for Mr. Howe, the market price on the date of
grant for Mr. Adams) over a specified period of time. Options granted to this
group of individuals vest in periodic installments over a 5-year period,
contingent on the executive officers continued employment with the Company.
Accordingly, the option grants will provide a return only if the officer remains
with the Company and only if the market price appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Howe was established by
the Board in December 1999 for the period January 4, 2000 to December 31, 2000.
The Board's decision was based on primarily on the salary levels paid to chief
executive officers of Peer Companies and published data on compensation levels
of chief executive officers of similarly sized companies and set to approximate
the 50th percentile of this surveyed data in order to have a substantial portion
of his total compensation, in the form of stock option grants, tied to the
Company's performance and stock price appreciation.
SUBMITTED BY THE BOARD OF DIRECTORS
David L. Mac.Smith -- Chairman
Michael V. Howe
Alan L. Gilman
Alexander S. Dawson
Duncan P.F. Mount
Robert C. Robins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors for the
2001 fiscal year are:
Alan L. Gilman -- Chairman
David L. Mac.Smith
Michael V. Howe
Alexander S. Dawson
Two of the members are executive officers, and the other two members are
not otherwise officers or employees of the Catuity.
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.
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SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
EXECUTIVE COMPENSATION
The following tables provide certain summary information concerning
compensation and stock options for our Chief Executive Officer and all other
executive officers that earned more than $100,000 (salary and bonus) for all
services rendered in all capacities to Catuity during the year ended December
31, 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
----------------------------------- LONG-TERM COMPENSATION
OTHER ANNUAL AWARDS
COMPENSATION ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)
- --------------------------- ---- --------- -------- ------------ ----------
Michael V. Howe..................... 2000 240,000 60,000 -0- 315,000 options
President and CEO
David L. Mac.Smith(3)............... 2000 156,263 -0- 4,450(2) -0-
Chairman 1999 172,640 -0- 4,425
1998 163,275 -0- 25,041
John M. Weihen(3)................... 2000 116,560 -0- 4,425 -0-
Vice President -- Finance and 1999 129,100 -0- 4,425
Administration 1998 125,800 -0- 4,311
Jonathan R.E. Adams................. 2000 125,000 -0- -0- 50,000 options
Vice President -- Implementation 1999 48,077 -0-
and Technical Services
- -------------------------
(1) Includes Australian Superannuation Guarantee Levy, a compulsory payment that
funds retirement benefits.
(2) Also includes payout of unused vacation.
(3) Salary amounts have been have been translated from Australian dollars at the
average exchange rate for each year. The exchange rates were .5828, .6455,
and .6290 for the years 2000, 1999, and 1998 respectively.
OPTION GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE PRICE
UNDERLYING OPTIONS EMPLOYEES IN PER SHARE EXPIRATION
NAME AND PRINCIPAL POSITION GRANTED FISCAL YEAR ($/SH) DATE
- --------------------------- -------------------- ------------------ -------------- ----------
Michael V. Howe...................... 315,000 46.67% $9.50 12-31-08
President and CEO
David L. Mac.Smith................... -0- -- -- --
Chairman
John M. Weihen....................... -0- -- -- --
Vice President -- Finance and
Administration
Jonathan R.E. Adams.................. 50,000 7.41% $6.18 12-31-08
Vice President -- Implementation and
Technical Services
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AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS AT FY-END OPTIONS AT FY-END(1)
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- --------------- ----------- ------------------------- -------------------------
Michael V. Howe............ -0- -0- 123,000/192,000 $0/$0
President and CEO
David L. Mac. Smith........ 50,000 $113,525 100,000/50,000 $0/$0
Chairman
John M. Weihen............. -0- -0- 35,000/0 $138,950/$0
Vice President -- Finance
and Administration
Jonathan R.E. Adams........ -0- -0- 7,500/53,500 $10,750/$4,795
Vice President --
Implementation and
Technical Services
- -------------------------
(1) Based on the closing price per share of common stock on the Nasdaq small cap
market on the last day of 2000, less the option exercise price payable per
share.
(2) Based upon the market price of the purchased shares on the exercise date
less the option exercise price paid for such shares.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
AGREEMENTS
Michael V. Howe. We entered into a five-year employment agreement with our
President and Chief Executive Officer, Michael Howe, effective January 4, 2000.
Under the agreement, Mr. Howe is entitled to receive a base salary of $240,000,
which is subject to annual review for possible increase by the Board in
conjunction with performance. Mr. Howe is also entitled to receive a
performance-based bonus, which will be determined by the Board each year as part
of the budget review. For the first year, the bonus is fixed at $60,000 to be
paid in four equal installments on March 31; June 30; September 30 and December
31, 2000.
Mr. Howe received options to purchase up to 315,000 shares of common stock,
at an exercise price of $9.50, which will vest 75,000 on commencement of
employment and 12,000 at the end of each calendar quarter through the quarter
ending December 31, 2004 contingent upon his continued employment at the quarter
end. All options expire on the earlier of December 31, 2008 or the date six
months after cessation of employment.
If the agreement is terminated by us without cause, Mr. Howe is entitled to
one year's written notice. We have the right to pay one year's base salary to
effect immediate termination. Mr. Howe may voluntarily terminate the agreement
at any time provided we are given 6 months' advance written notice.
David L. Mac.Smith. We entered into a three-year employment agreement with
our Chairman, David L. Mac.Smith, effective June 1, 1999. Under the agreement,
Mr. Mac.Smith is entitled to receive a base salary of $268,126AUS, subject to
annual review for possible increase based on consideration of cost of living,
level of responsibility, competitive remuneration, performance and increases
awarded to our other employees. Mr. Mac.Smith is also entitled to payment by us
of certain required Australian withholding amounts. During the term of his
employment agreement and for various periods thereafter, Mr. Mac.Smith will have
the right to purchase up to 200,000 shares of common stock. The agreement may be
terminated by Mr. Mac.Smith by giving six months' notice in writing. If a person
or party gives notice of its intention to acquire, or acquires, more than 30% of
the issued capital of the Company or any parent of the Company, all unvested
shares and options will vest and Mr. Mac.Smith may terminate the agreement at
any time within a period of six months following such event by giving three
months' notice. We may terminate the agreement for cause or, if Mr. Mac.Smith
becomes unable to perform his duties, or agreement has not been reached prior to
June 1, 2001 on continued employment after the term. On termination of the
agreement by either party for any reason, we shall pay Mr. Mac.Smith the then
prevailing basic salary package for 12 months from the effective date of
termination, payable monthly in arrears in equal installments secured by a bank
guarantee or such other installments and security as may be mutually agreed. If
the agreement is terminated by us, Mr. Mac.Smith must resign as a Director.
Under Mr. Mac.Smith's previous employment contract, entered into on May 1,
1995, he was entitled to the equivalent of 10% of any shares issued until the
time we became listed on the ASX. A loan from us was made available to acquire
these shares. At December 31, 2000, this non-interest bearing loan to Mr.
Mac.Smith amounted to $757,773. Our recourse for repayment of the loan is
limited to dividends and share sale proceeds. Mr. Mac.Smith may transfer shares
subject to the loan to members of his family or entities controlled by one or
more members of his family without any obligation to repay the loan. However,
the sale or any transfer or any disposal of the shares to any other person will
trigger repayment of the loan applicable to such shares.
John Weihen. We entered into an employment agreement with the Vice
President -- Finance and Administration, Mr. J. Weihen, effective November 1,
1996. The employment agreement was extended through June 30, 2001. Under the
agreement, Mr. Weihen is entitled to receive annual remuneration of $200,000AUS,
subject to annual CPI increases. During the term of his employment and for
various periods thereafter, Mr. Weihen will have the right to purchase 35,000
shares of common stock as detailed above at $6.18 and $1.95 per share. If the
agreement is terminated by us without cause, Mr. Weihen is entitled to a minimum
of 9 months written notice. Mr. Weihen may terminate the agreement for
significant and serious personal or family reasons upon 4 months written notice.
Mr. Weihen and the Company have agreed that Mr. Weihen will leave the Company at
the end of his current contract. This
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was mutually agreed to very early in 2000 due to the expected relocation of the
Finance and Administration functions to the United States that occurred in mid
2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1999 we entered into a three year Service Contract with Mr.
Lance O'Connor, who was a director of CAT at that time, to provide assistance
and management of our advisors in the United States. The services related to
establishment of the U.S. office, general management of our affairs in the
United States, development of administration and financial reporting systems,
preparation of budgets and accounting reporting procedures and capital markets.
On March 1, 2000, the arrangement with Mr. O'Connor was terminated as a result
of our decision to establish our principal U.S. office in Detroit, rather than
San Francisco (where Mr. O'Connor is located) and completion of certain
projects. Under the contract, Mr. O'Connor received an annual service fee
(including Australian fringe benefits tax) of $20,000 plus an annual
accommodation allowance of $40,000 and an accountable expense allowance of
$40,000.
In January 1999 we entered into a share placement agreement with BNP
Equities (Australia) Limited, (BNP) to place 300,000 shares at $2.71 per share
to institutional clients of BNP, raising $813,333. One of the sub-underwriters
in the placement was Boom Australia Pty Limited, which subscribed for 25,000
shares or 8.33% of the shares placed. Boom Australia Limited is an investment
company of which Mr. Mount is a Director. At that time Mr. Mount was not a
Director of Catuity or CAT. On March 19, 1999, Mr. Mount became a Director of
CAT and in December 1999 became a Director of Catuity. On March 26, 1999, we
entered into an agreement with BNP to underwrite the exercise of up to 941,088
options due to expire June 30, 1999 and exercisable at $4.84 each and the
placement of 150,000 shares at $4.84 per share to clients of BNP, $726,188. Boom
Australia Limited subscribed for 100,000 shares, or 66.67% of the shares placed
and received a sub-underwriting fee for sub-underwriting the exercise of the
options. In September 1999, CAT requested approval from The Supreme Court of New
South Wales, Australia, to hold shareholder and option holder meetings to
consider, and if thought fit approve arrangements to restructure CAT's share
capital. Under the restructure shareholders and option holders in CAT would
exchange their securities and entitlements (following a reverse stock split of 1
for 10) for an equal number of securities and entitlements in a newly formed
Delaware company (NovaTec Inc, which subsequently changed its name to Catuity
Inc.). The restructure was approved at Court-ordered meetings of shareholders
and option holders and implemented in November 1999. Implementation of the
restructure has resulted in Catuity Inc. acquiring all CAT shares for an
equivalent number of shares in Catuity. All employees holding options in CAT
received an equivalent number of options, with the same terms and conditions, in
Catuity. Non-employee options were restructured differently, but with the
resulting effect that they were placed in the same position as all other option
holders. Mr. O'Connor and Mr. Dawson, two directors of CAT, were part of the
non-employee option holder arrangements under share option and put and call
share deeds.
On June 30, 2000, Chip Application Technologies Limited (CAT), a wholly
owned subsidiary of the Company, entered into an Option Assignment Agreement
with BNP Paribas Equities (Australia) Limited (BNP) whereby CAT transferred all
its rights, title and interests under the Loan Repayment and Option Agreement as
amended (the "Agreement") it had entered into with Health Group Australia
Limited (HGA) and Industrial Superannuation Administration Services Limited
(ISAS) dated May 4, 1999 for the right to acquire 309,150 and 23,437 shares held
respectively by HGA and ISAS in the Company. The agreement provided the Company
the right to purchase its shares owned by HGA and ISAS at $4.92 per share prior
to July 19, 2000. Also on June 30, 2000 CAT signed a Mandate Letter with BNP for
disposal of the shares at $8.11 per share.
The transactions were completed on July 14, 2000. In accordance with the
Agreements and Mandate Letter, BNP paid CAT $1,059,672 after deducting $134,867
of fees resulting in $924,805 of net proceeds from the transaction. As a
condition of the option being exercised, CAT repaid the outstanding loans due
HGA of $777,530 plus $127,446 for early repayment.
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STOCK PERFORMANCE GRAPH
The graph depicted below shows the Company's stock price as an index
assuming $100 invested on May 24, 2000 (the date on which Catuity's shares
became registered under Section 12 of the Exchange Act), along with the
composite prices of companies listed on Nasdaq and Catuity's SIC Code Index.
COMPARISON OF CUMULATIVE TOTAL RETURN -- MAY 24, 2000 TO DECEMBER 31, 2000
[PERFORMANCE GRAPH]
- --------------------------------------------------------------------------------------------
COMPANY/INDEX 5/24/2000 12/29/2000
- --------------------------------------------------------------------------------------------
Catuity Inc. 100.00 105.76
- --------------------------------------------------------------------------------------------
SIC Code Index 100.00 66.66
- --------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 72.57
- --------------------------------------------------------------------------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report and the Company Stock
Performance Graph will not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by reference into any
future filings made by the Company under those statutes.
18
22
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, Ernst
& Young LLP, are responsible for expressing an opinion on the conformity of
Catuity's audited financial statements to generally accepted accounting
principles.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited
financial statements with Catuity's management.
2. 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).
3. The Audit Committee has received the written disclosures and the
letter from the independent accountants required by Independence Standards
Board Standard No. 1 (Independence Standards Board Standards No. 1,
Independence Discussions with Audit Committees) and has discussed with the
independent accountants the independent accountants' independence.
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of
Directors, and the Board has approved, that the audited financial
statements be included in Catuity's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, for filing with the Securities and
Exchange Commission. Each of the members of the Audit Committee is
independent as defined under the listing standards of the Nasdaq. The
undersigned members of the Audit Committee have submitted this Report to
the Board of Directors:
Alan L. Gilman, Chairman
Alexander S. Dawson
Duncan P.F. Mount
STOCKHOLDER PROPOSALS FOR 2002 PROXY STATEMENT
Stockholder proposals that are intended to be presented at the Company's
Annual Meeting of Stockholders to be held in 2002 must be received by the
Company no later than December 21, 2001 in order to be included in the proxy
statement and related proxy materials. Please send any such proposals to Catuity
Inc., 2711 E. Jefferson Ave, Detroit, Michigan 48207, Attn: Investor Relations.
In addition, the proxy solicited by the Board of Directors for the 2002
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless the Company is
provided with notice of such proposal no later than February 23, 2002.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2000, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES, AND LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO CATUITY INC., 2711 E. JEFFERSON AVE, DETROIT,
MICHIGAN 48207, ATTN: INVESTOR RELATIONS.
19
23
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: April 23, 2001
20
24
AUSTRALIAN PROXY FORM
CATUITY INC
Level 4 Ballarat House 68 - 72 Wentworth Avenue Surry Hills NSW 2010 Australia All Correspondence to:
2711 E. Jefferson Avenue Detroit Michigan 48207 USA COMPUTERSHARE REGISTRY SERVICES
PTY LIMITED
GPO BOX 7045
SYDNEY NSW 1115
REGISTERED NAME AND ADDRESS SECURITY HOLDER REFERENCE NUMBER (SRN) OR
HOLDER IDENTIFICATION NUMBER (HIN)
NUMBER OF COMMON STOCK/OR CDI'S HELD
PROXY FORM AND CDI VOTING INSTRUCTION FORM ("Form")
ANNUAL GENERAL MEETING OF STOCKHOLDERS - May 24, 2001
This Form constitutes either Voting Instructions to CHESS Depository Nominees Pty Ltd ("CDN") or a Proxy Form, depending on
whether you are a CHESS Depository Interest ("CDI") Holder or a Registered Stockholder. Please refer to the INSTRUCTION SHEET on
the reverse side prior to completing the Form. THE CATUITY BOARD OF DIRECTORS IS SOLICITING THIS PROXY FORM.
I/We being a holder of CHESS Depository Interests or a Registered Stockholder of the above named Company hereby:
(i) (if a CDI Holder) direct to CDN to vote the shares underlying my holding; or
(ii) (if a Registered Stockholder) appoint:
PLEASE PRINT NAME
or failing the person so named or, if no person is named, the Chairman of the Meeting to vote in accordance with the following
directions or, if no directions have been given, as the proxy or the Chairman sees fit at the Annual Meeting in respect of the
resolutions outlined below, as follows:
[CDN WILL VOTE AS DIRECTED. IF NO DIRECTIONS ARE GIVEN BY A CDI HOLDER, CDN WILL
VOTE FOR RESOLUTIONS 1-6.]
Mark an 'X' in the appropriate box
RESOLUTIONS FOR AGAINST ABSTAIN
1. MR D L MACSMITH BE ELECTED A DIRECTOR [ ] [ ] [ ]
2. MR A S DAWSON BE ELECTED A DIRECTOR [ ] [ ] [ ]
3. MR D P F MOUNT BE ELECTED A DIRECTOR [ ] [ ] [ ]
4. MR M V HOWE BE ELECTED A DIRECTOR [ ] [ ] [ ]
5. MR A L GILMAN BE ELECTED A DIRECTOR [ ] [ ] [ ]
6. MR R C ROBINS BE ELECTED A DIRECTOR [ ] [ ] [ ]
7. THE CATUITY INC. 2000 DIRECTOR STOCK OPTION PLAN BE APPROVED [ ] [ ] [ ]
8. THE CATUITY INC. STOCK OPTION PLAN BE AMENDED, PER THE
PROXY STATEMENT [ ] [ ] [ ]
APPOINTMENT OF A SECOND PROXY [REGISTERED STOCKHOLDERS ONLY] If you are a Registered Stockholder and wish to split your voting
direction, state here the percentage of your voting rights applicable to this Form:
IF THE UNDERSIGNED IS A HOLDER OF CHESS DEPOSITORY INTERESTS, THE UNDERSIGNED HEREBY AUTHORISES CDN TO APPOINT SUCH PROXIES OR
THEIR SUBSTITUTES TO VOTE IN THEIR DISCRETION ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
SIGNATURE OF CDI HOLDER/REGISTERED STOCKHOLDER
INDIVIDUAL OF FIRST HOLDER HOLDER 2 HOLDER 3
- ------------------------------------ ----------------------------------- ------------------------------------------
- ------------------------------------ ----------------------------------- ------------------------------------------
DIRECTOR DIRECTOR/COMPANY SECRETARY SOLE DIRECTOR & SOLE COMPANY SECRETARY
- ------------------------------------ ----------------------------------- ------------------------------------------
- ------------------------------------ ----------------------------------- ------------------------------------------
DATE CONTACT NAME TELEPHONE NUMBER
25
PROXY FORM AND CDI VOTING INSTRUCTION FORM ("Form")
INSTRUCTION SHEET
LODGEMENT OF PROXY
The form must be returned to Computershare Investor Services Pty Limited, Level
2, 60 Carrington Street, Sydney NSW 2000 by MAY 20, 2001. For assistance please
contact Computershare Investor Services Pty Limited on (02) 8234 5222.
THIS FORM MAY BE USED BY CHESS DEPOSITORY INTEREST HOLDERS AND REGISTERED
STOCKHOLDERS
CHESS DEPOSITORY INTEREST HOLDERS
Some Catuity Inc members are not Registered Stockholders pursuant to the
Securities Clearing House Business Rules; their interest in Catuity Inc is held
on their behalf by CHESS Depository Nominees Pty Ltd ("CDN"). Each Catuity Inc
CHESS Depository Interest ("CDI") is equivalent to one share of Catuity Inc, so
each CDI that is owned as at APRIL 6, 2001 entitles the CDI Holder to one vote.
If you are a CDI Holder, the Form shows the number of CDIs that you own. If you
are a Registered Stockholder (see below), the Form shows the number of shares
registered in your name.
A CDI HOLDER MAY NOT VOTE DIRECTLY AT A COMPANY MEETING, AND SO MUST DIRECT CDN
TO VOTE ON THEIR BEHALF. IF YOU ARE A CDI HOLDER, YOU CAN DIRECT YOUR VOTE BY
COMPLETING, SIGNING AND RETURNING THE FORM. THE FORM GIVES YOUR VOTING
INSTRUCTIONS TO CHESS DEPOSITORY NOMINEES PTY LTD, WHICH WILL VOTE THE
UNDERLYING SHARES ON YOUR BEHALF.
CDI Holders wishing to attend the meeting may do so but those wishing to attend
AND vote personally at the stockholder meeting must convert their CHESS
Depository Interests into shares prior to the meeting. If you are a CDI Holder,
you cannot insert the name of a proxy; CDN will vote or cause its proxy to vote
as directed.
REGISTERED STOCKHOLDER
If you are a Registered Stockholder, you may use the Form to appoint a proxy.
Stockholders cannot appoint themselves as proxy. THE CHAIRMAN OF THE MEETING
WILL ACT AS YOUR PROXY IF YOU DO NOT APPOINT SOMEONE. You can vote your shares
by proxy even if you plan to attend the meeting.
REGISTERED STOCKHOLDERS MAY SPLIT VOTING DIRECTIONS
If you are a Registered Stockholder, you may, if you wish, split your voting
direction by inserting the number of shares you wish to vote in the box marked
"APPOINTMENT OF A SECOND PROXY". It is not appropriate to appoint a second proxy
with a percentage of your voting rights unless you intend to complete your proxy
instructions by inserting a mark in a box against the agenda items. If you wish
to split your voting directions, please obtain a second Form by telephoning (02)
8234 5222. Both Forms should be completed with the nominated percentage of your
voting rights on each Form AND the nominated proxies. Please return the Forms
together.
A direction or vote is invalid if a mark is made in more than one box for each
resolution. A vote will be invalid if a Registered Stockholder splits his/her
voting directions and the total percentage of voting rights applicable to the
combined Forms (for the first and second proxy) exceeds 100%.
Each CDI Holder or Registered Stockholder must sign the Form. If your CDIs or
shares are held in joint names, all holders must sign in the boxes. If you are
signing as an Attorney, then the Power of Attorney must have been noted by the
Catuity Inc Australian Registry or a certified copy of it must accompany this
Form.
Only duly authorised officer/s can sign on behalf of a company. Please sign in
the boxes provided which state the office held by the signatory, ie Director and
Director, or Company Secretary and Director, or the Sole Director & Sole Company
Secretary.