EMPLOYMENT AGREEMENT BETWEEN
CATUITY INC. AND ALFRED H. (JOHN) RACINE

This Employment Agreement is made and entered into as of October 31, 2007
between Catuity Inc. (the “Company”), a Delaware corporation, and Alfred H.
(John) Racine (the “Executive”).

1. Employment. Company hereby employs Executive, and Executive hereby accepts
employment with Company, on the terms and conditions hereinafter set forth.

2. Term. The term of this Agreement will commence on November 1, 2007 (the
“Commencement Date”) and end on March 31, 2008 and will automatically renew for
one more six-month term if the company has not completed a material transaction
or earlier terminated as hereinafter set forth. This agreement shall have a
final expiration date of October 31, 2008, unless extended by act of the board
of Catuity.

3. Duties and Responsibilities. Executive shall serve with the duties of
President, CEO and Director (or in such other position as may be mutually agreed
upon by Executive and the Board) and shall have such responsibilities, duties
and authority as may be assigned to him by the Board.

4. Service on Board of Directors. The Executive shall serve on the Board of
Directors of the Company and any of its subsidiaries, affiliates or divisions,
and as an officer of any subsidiary, affiliate or division, if elected. When
this Agreement terminates, Executive will, if requested by the Board of Company,
tender his resignation from any and all such Board positions.

5. Outside Activities. During the term of this Agreement, Executive is free to
advise, volunteer or otherwise provide compensated services to other companies
or organizations so long as such activities do not materially interfere with the
completion of his duties and responsibilities. This work may include work for
shareholders and lenders to the Company.

6. Place of Employment. Executive shall have him office, and perform him duties,
within 75 miles of the center of Charlottesville, Virginia and he shall not be
required to move from the metropolitan Charlottesville, Virginia area; provided
that, he shall from time to time be required to travel when necessary in
carrying out Company’s business. Executive acknowledges that travel will be
required to dispatch his normal duties.

7. Reimbursement of Expenses and Furnishing of Services to Executive. During the
term of this Agreement, Executive shall be entitled to, including but without
limitation, an office at the company’s corporate headquarters, as well as
reimbursement, upon proper accounting, of reasonable expenses and disbursements
incurred by him in the course of his duties). All expense reimbursements will be
subject to compliance with IRS regulations so as to be deductible as ordinary
and necessary business expenses, and to compliance with Company’s normal
policies and practices.
 

--------------------------------------------------------------------------------

8. Base Salary Compensation. During the term of Executive’s employment, he shall
be paid a minimum base salary of One Hundred Thousand Dollars ($100,000) per
year. The Board shall review Executive’s salary at least annually, and may
increase Executive’s salary from time to time in their discretion, and if so
increased, such salary shall not be decreased thereafter during the term of this
Agreement. The Executive has held his current position since joining the Company
on in September 2004. With this contract, the Executive has accepted a reduced
compensation package. The Company confirms that, in addition to its ongoing
obligations under this contract, the Executive is owed Sixty-Seven Thousand Five
Hundred and Twenty-Five Dollars ($67,525.00) in unpaid compensation.

9. Other Benefits. The Company will make timely reimbursement to the Executive
for 100% of the cost of private health insurance.
 
10. Non Disparagement of Executive. Company shall not disparage Executive’s
reputation or good name during or after the term of this Agreement.
 
11. Termination.
 
(a) Executive may voluntarily terminate his employment hereunder at any time, on
30 days’ notice with or without cause.
 
(b) Company may terminate this Agreement and the employment of Executive at any
time, with or without “Cause” (as defined below), on 30 days’ notice.

(c) Either Company or Executive may terminate this Agreement after the
“Disability” (as defined below) of Executive, on 30 days’ notice.

(d) This Agreement will terminate on Executive’s death.
 
12. Termination Definitions. 

(a) “Cause” means (i) the Executive’s commission of acts or omissions
constituting active and deliberate dishonesty as determined by the Board of
Directors, (ii) Executive’s actual receipt of an improper benefit or profit in
money, property or services, or (iii) if the Executive continuously fails to
perform his duties under this Agreement in any material manner after receipt of
notice of such failure from the Company specifying how he has so failed to
perform. The Company may at its option terminate this Agreement for Cause by
giving written notice of termination to the Executive without prejudice to any
other remedy to which the Company may be entitled at law, in equity, or under
this Agreement. The notice of termination required by this Section shall specify
the ground for the termination and shall be supported by a statement of all
relevant facts. In the event of termination of this Agreement for Cause, the
Executive shall be entitled to no further compensation or other benefits under
this Agreement, except as to that portion of any unpaid salary and other
benefits accrued and earned by him hereunder up to and including the effective
date of such termination.
 

--------------------------------------------------------------------------------

(b)  For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred:

(i) if any person or group of persons acting together (other than (a) the
Company or any person (I) who as of the date hereof was a director or officer of
the Company, or (II) whose shares of Common Stock of the Company are treated as
"beneficially owned" by any such director or officer, or (b) any institutional
investor (filing reports under Section 13(g) rather than 13(d) of the Securities
Exchange Act of 1934, as amended, including any employee benefit plan or
employee benefit trust sponsored by the Company)), becomes a beneficial owner,
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of either the then-outstanding Common Stock of the Company or the
combined voting power of the Company's then-outstanding voting securities (other
than as a result of an acquisition of securities directly from the Company);

(ii) if the Company sells all or substantially all of the Company's assets to
any person (other than a wholly--owned subsidiary of the Company formed for the
purpose of changing the Company's corporate domicile);

(iii) if the Company merges or consolidates with another person as a result of
which the shareholders of the Company immediately prior to such merger or
consolidation would beneficially own (directly or indirectly), immediately after
such merger or consolidation, securities of the surviving entity representing
less than fifty percent (50%) of the then outstanding voting securities of the
surviving entity; or

(iv) if the new directors appointed to the Board during any twelve-month period
constitute a majority of the members of the Board, unless (I) the directors who
were in office for at least twelve (12) months prior to such twelve-month period
(the "Incumbent Directors") plus (II) the new directors who were recommended or
appointed by a majority of the Incumbent Directors constitutes a majority of the
members of the Board.

(v) For purposes of this paragraph a “person” includes an individual, a
partnership, a corporation, an association, an unincorporated organization, a
trust or any other entity.

(d) “Disability” means the inability of Executive due to accident or illness to
perform the essential functions of his job despite reasonable accommodations by
Company, where such inability is reasonably expected to last longer than 90
days. If Executive is covered by a long-term disability insurance policy, then
“Disability” shall mean the long term disability of Executive (or comparable
term) as defined in the applicable long-term disability insurance policy.

13. Compensation After Termination. 
 
(a) If there has been a Change in Control prior to the termination date,
Executive’s compensation shall be as follows:

(i) Company shall pay Executive an amount equal to salary at his then-current
rate for the greater of 12 months or the balance of the term of this Agreement.
 

--------------------------------------------------------------------------------

(b) If this Agreement is terminated due to Executive’s death or Disability,
Executive’s compensation shall be as follows:

(i) Company shall pay Executive an amount equal to 12 months’ salary at his
then-current salary rate.

(c) If Company terminates this Agreement with Cause, Executive’s compensation
shall be as follows:

(i) Company shall pay Executive only for cash compensation earned up to the date
of termination.

(d) If this Agreement ends at the normal expiration of a term, then:

(i) Company shall pay Executive only for cash compensation earned up to the date
of termination.

(e) Notwithstanding anything to the contrary contained herein, in the event it
shall be determined that any compensation payment or distribution by the Company
to or for the benefit of the Executive would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
“Code”), the Change in Control severance payment will be reduced to the extent
necessary so that no excise tax will be imposed, but only if to do so would
result in the Executive retaining a larger amount, on an after-tax basis, taking
into account the excise and income taxes imposed on all payments made to the
Executive hereunder.

14. Indemnification. In addition to any indemnification provided by the By-Laws
of Company or otherwise, Company shall indemnify and provide reasonable advances
for expenses to Executive, to the fullest extent permitted by the laws of the
State of Delaware, if Executive is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Executive is or was an officer,
director or employee of Company or any subsidiary or affiliate thereof, in which
capacity Executive is or was serving at Company’s request, against expenses,
judgments, fines and amounts paid in settlement incurred by him in connection
with such action, suit or proceeding. Company shall exercise its reasonable
commercial efforts to maintain directors’ and officers’ insurance coverage as
well as all other appropriate malpractice and professional liability coverage on
behalf of Executive during the term of this Agreement at Company’s expense, in a
manner and coverage substantially similar to the D&O insurance currently in
effect. Subject to requirements of any applicable insurance coverage, Executive
shall have the absolute right to engage counsel reasonably acceptable to Company
and at legal rates deemed reasonably acceptable to Company, for the
above-referenced actions. Executive shall give prompt notice to Company of any
claims made against him for which he will seek indemnification.
 

--------------------------------------------------------------------------------

15. Amendment or Modification Waiver. No provision of this Agreement may be
amended, modified or waived, unless such amendment, modification or waiver shall
be authorized by the Board or any authorized committee of the Board, and shall
be agreed to in writing, signed by Executive and by an officer of Company
thereunto duly authorized. Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a subsequent breach of such condition or
provision or a waiver of a similar or dissimilar provision or condition at the
same or any prior or subsequent time.

16. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent provided by law.

17. Successors. This Agreement shall be binding upon any successor of Company
and such successor shall be deemed substituted for Company under the terms of
this Agreement; but any such substitution shall not relieve Company of any of
its obligations hereunder. As used in this Agreement, the term “successor” shall
include any person, firm, corporation or like business entity which at any time,
whether by merger, purchase or otherwise, acquires all or substantially all of
the assets or business of Company. This Agreement may not be otherwise assigned
by Company without Executive’s written consent.

18. Confidential Information. Executive agrees not to disclose, either while in
Company’s employ or at any time thereafter, to any person not employed by
Company or not engaged to render services to Company any confidential agreement
obtained by him while in the employ of Company, including, without limitation,
any of Company’s inventions, processes, methods of distribution, customers or
trade secrets; provided, however, that this provision shall not preclude
Executive from use or disclosure of information known generally to the public or
of information not considered confidential by persons engaged in the business
conducted by Company or from disclosure required by law or court order.

19. Withholding. Anything to the contrary notwithstanding, all payments required
to be made by Company hereunder to Executive or his estate or beneficiary shall
be subject to the withholding of such amounts, if any, relating to tax and other
payroll deductions as Company may reasonably determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts, Company may accept other provisions to the end that it has sufficient
funds to pay all taxes required by law to be withheld in respect to any of such
payments.
 

--------------------------------------------------------------------------------

20. Notices. For the purpose of this Agreement, notices, demands or other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or (unless other specified) mailed by United
States Certified Mail, return receipt requested, postage prepaid, addressed as
follows:

to Executive: Alfred H. (John) Racine
622 Wilder Drive
Charlottesville, VA 22901

to Company: Catuity Inc.
2340 Commonwealth Drive, Suite C
Charlottesville, VA 22901

or to such other address as any party may have furnished to the other in writing
in accordance therewith, except that notices of change of address shall be
effective only upon receipt.

21. Construction With Delaware Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Delaware.

22. Entire Agreement of Parties. This Agreement contains the entire agreement of
the parties and no party shall be liable and bound except as provided herein,
but this instrument does not replace, rescind or abrogate any other agreement or
plan between the parties which may now be or may hereinafter become effective.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
 

        CATUITY INC.  
   
   
  By:    

--------------------------------------------------------------------------------

Clifford W. Chapman, Jr.,   Director and Chairman, Compensation Committee

 

        “Company”  
   
   
             

--------------------------------------------------------------------------------

Alfred H. (John) Racine   “Executive”

--------------------------------------------------------------------------------