Document:

LIQUIDATION
      AGREEMENT

    

    THIS
      AGREEMENT (“Agreement”) is entered into as of August 23,
      2007 by
      and among Catuity Inc., a Delaware corporation (the “Company”), the undersigned
      subsidiaries of the Company (each a “Subsidiary”
      and
      collectively and together with the Company the “Subsidiaries”),
      Gottbetter Capital Master, Ltd., a Cayman Islands company (“Gottbetter”)
      and
      Bridgepointe Master Fund Ltd., a Cayman Islands Exempted Company (“Bridgepointe,”
      collectively with Gottbetter, the “Holders”).

    

    WHEREAS,
      the Company entered into a Securities Purchase Agreement with Gottbetter and
      Bridgepointe (the “Securities
      Purchase Agreement”)
      dated
      as of November 21, 2006 and in connection therewith issued Senior Secured
      Convertible Notes to each of Gottbetter and Bridgepointe dated November 22,
      2006; and

    

    WHEREAS,
      pursuant to the Securities Purchase Agreement, the Company issued a Secured
      Promissory Note to Gottbetter in the original principal amount of $1,111,112
      and
      issued a Secured Promissory Note to Bridgepointe in the original principal
      amount of $688,888
      (each an
“Original
      Note”
      and
      collectively the “Original
      Notes”);

    

    WHEREAS,
      in furtherance of the Securities Purchase Agreement, the Grantors entered into
      a
      Security Agreement (the “Security
      Agreement”)
      with
      Gottbetter dated as of November 21, 2006; and

    

    WHEREAS,
      the Company issued new Secured Promissory Notes to Gottbetter and Bridgepointe
      dated as of July 5, 2007, each in the amount of $75,000 (each a “New
      Note”
      and
      collectively the “New
      Notes,”
      and
      together with the Original Notes, collectively referred to as the “Notes”);
      and

    

    WHEREAS,
      in furtherance of the purchase of the New Notes, the Holders each entered into
      a
      Joinder Agreement for Securities Agreement (the “Joinder
      Agreement”)
      with
      the Company dated as of July 5, 2007; and

     

    WHEREAS,
      the Holders and the Company desire that certain of the property which
      constitutes Collateral (as defined in the Securities Purchase Agreement) be
      sold
      pursuant to this Agreement and that the proceeds be distributed in accordance
      with the requirements hereof in order to satisfy debt held by the
      Holders.

    

    NOW
      THEREFORE, in consideration of the foregoing and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereby agree as follows:

     

    1.         
      Default.
      The
      Company agrees and acknowledges that an Event of Default (as defined in the
      Securities Purchase Agreement) has occurred pursuant to Section 4(a)(a)(v)
      and
      (xii) of the Original Notes, by virtue of the Company’s failure to pay the
      interest due to each of the Holders, respectively, on July1, 2007 and August
      1,
      2007. The
      Holders hereby require the Company to redeem, and the Company agrees to redeem,
      all of the outstanding amount of the Holders’ Notes. The parties are hereby
      deemed to have delivered to the Company a written "Event of Default Redemption
      Notice" pursuant to Section 4(b) of the Original Notes.  

     

    2.         
      Private
      Sale of Collateral.
      The
      Holders will conduct a private sale of the Collateral, including but not limited
      to the assets listed on Schedule
      1
      hereto
      (the “Core
      Assets”),
      in
      accordance with Section 9-610 of the Uniform Commercial Code (“UCC”)(a
      “Private
      Sale”)
      and the
      Company agrees (a) not to object to such private sale, (b) to waive further
      notice of the disposition, and (c) to use commercially reasonable Efforts to
      cooperate in such process. For purposes hereof, the “Core
      Assets”
      shall
      include the Loyalty Magic Stock and the IP (as each is defined below). For
      purposes hereof:

     

    
      
         

         

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Loyalty
      Magic Stock” shall
      mean all of the shares of Loyalty Magic, Inc. that are owned by the Company,
      which shares are pledged to the Holders as collateral for the Notes;

     

    “IP”
      shall
      mean the Company’s patents and other intellectual property identified on
Schedule
      1
      hereto;
      and

     

     (a)
      Private
      Sale of Loyalty Magic Stock.
      The
      Holders will use their best endeavors to conduct a Private Sale of the Loyalty
      Magic Stock (the “First
      Private Sale”)
      by not
      later than September 15, 2007 (the “First
      Private Sale Deadline”)
      and to
      distribute the proceeds of such sale in accordance with this agreement by the
      earlier of (i) the date that is 15 days following the Private Sale, or (ii)
      September 30, 2007 (the “First
      Proceeds Distribution Deadline”).
      In the
      event that the Holders are unable to consummate a Private Sale of the Loyalty
      Magic Stock by the First Private Sale Deadline and unless a letter of intent
      (a
“Bona
      Fide LOI”)
      has
      been entered into with a bona fide purchaser or prospective purchaser of the
      Loyalty Magic Stock (a “Bona
      Fide Prospective Purchaser”)
      and
      that bona fide purchaser or prospective purchaser has not materially breached
      the terms of the letter of intent as of the date of the First Proceeds
      Distribution Deadline, the Company hereby stipulates to the entry of a judgment,
      in favor of the Holders, in a court of competent jurisdiction, in an amount
      equal to the unpaid amount of the Aggregate Notes Redemption Amount (as defined
      below) and to the entry of a Writ of Execution in such court under which the
      Holders could levy and sell the Loyalty Magic Stock to satisfy the judgment.
      In
      the event that the Holders have been unable to consummate a Private Sale of
      the
      Loyalty Magic Stock by the First Proceeds Distribution Deadline and a letter
      of
      intent has been entered into with a bona fide purchaser or prospective purchaser
      of the Loyalty Magic Stock and that bona fide purchaser or prospective purchaser
      has not materially breached the terms of that letter of intent as at the date
      of
      the First Proceeds Distribution Deadline, then the Holders must provide the
      bona
      fide purchaser or prospective purchaser with a reasonable opportunity to
      complete the purchase of the Loyalty Magic Stock in accordance with the terms
      of
      the letter of intent and any subsequent formal purchase agreement in respect
      of
      the sale and purchase of the Loyalty Magic Stock, and the Company will refrain
      from stipulating to the entry of a judgment, in favor of the Holders, and
      refrain from entering a Writ of Execution in any court under which the Holders
      could levy and sell the Loyalty Magic Stock to satisfy any such judgment, until
      the bona fide purchaser or prospective purchaser has completed the purchase
      of
      the Loyalty Magic Stock in accordance with the terms of the letter of intent
      and
      any subsequent formal purchase agreement in respect of the sale and purchase
      of
      the Loyalty Magic Stock, provided that the Company will not so refrain beyond
      November 1, 2007, if such purchase and sale has not been completed by such
      date.
      Notwithstanding the above, the Holders shall not conduct the First Private
      Sale,
      and this Agreement shall become null and void ab initio, if the Holders shall
      not have received and countersigned an executed a letter of intent from a bona
      fide purchaser of the Loyalty Magic Stock by not later than September 1, 2007
      to
      sell the Loyalty Magic Stock to such purchaser for at least AUS.
      $4,200,000.
      The
      Holders shall not sell the Loyalty Magic Common Stock for less than AUS
      $4,200,000 without the Company’s written approval. 

     

    
      
         

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (b)
      Private Sale of IP.
      In the
      event that the proceeds of the First Private Sale are insufficient to pay off
      all amounts off the Notes (for the Aggregate Notes Redemption Amount, as defined
      below), the Holders agree to will use their best endeavors to conduct a Private
      Sale of the IP (the “Second
      Private Sale”)
      as soon
      as possible by not later than November 1, 2007 (the “Second
      Private Sale Deadline”)
      and to
      distribute the proceeds of such sale in accordance with this agreement by the
      earlier of (i) the date that is 15 days following the Private Sale, or (ii)
      November 15, 2007 (the “Second
      Proceeds Distribution Deadline”).
      In the
      event that the Holders are unable to conduct the Second Private Sale by the
      Second Private Sale Deadline, the Company hereby stipulates to the entry of
      a
      judgment, in favor of the Holders, in a court of competent jurisdiction, in
      an
      amount equal to the unpaid amount of the Aggregate Notes Redemption Amount
      (as
      defined below) and to the entry of a Writ of Execution in such court under
      which
      the Holders could levy and sell the IP to satisfy the judgment. The Holders
      shall not sell the IP for less than U.S.
      $250,000
      without
      the Company’s written approval. 

     

    3.          Disposition
      of Collateral In Accordance With UCC Requirements.
      The
      Holders agree to conduct its disposition of the collateral in accordance with
      the requirements of the UCC. 

     

    4.         
      Forbearance
      of Legal Proceedings.
      The
      Holders agree to forebear from bringing legal action to enforce the Notes from
      the date hereof until October 1, 2007 or, if a Bona Fide LOI has been entered
      into with a Bona Fide Prospective Purchaser by October 1, 2007, then the Holders
      agree to forebear from bringing legal action to enforce the Notes from the
      date
      hereof until such time as the a Bona Fide Prospective Purchaser (if any) has
      completed the purchase of the Loyalty Magic Stock in accordance with the terms
      of the letter of intent and any subsequent formal purchase agreement in respect
      of the sale and purchase of the Loyalty Magic Stock, but the Holders will not
      so
      forebear beyond November 1, 2007, if such purchase and sale has not been
      completed by such date(collectively, the “Forbearance
      Period”).
      

     

    5.         
      Distribution
      Amounts.
      The
      proceeds of each Private Sale, which shall include any option fee received
      from
      a prospective purchaser, shall be used: (i) first, to pay reasonable legal
      and
      other costs associated with the disposition, then (ii) to redeem the Original
      Notes for the Original Note Redemption Amount (as defined below) and (iii)
      last
      to redeem the New Notes for the New Note Redemption Amount (as defined
      below)(collectively, the “Distribution
      Schedule”).
      Any
      proceeds in excess of the foregoing shall be paid to the Company.

     

    6.         
      Note
      Redemption Amounts.
      The
      Company and the Holders each agree that the Holders shall use the proceeds
      of
      each of the Private Sales (through the Escrow Agent) to redeem the Original
      Notes in an Event of Default Redemption pursuant to Section 4 of the Original
      Notes and acknowledge that the “Redemption
      Premium”
      (as
      defined in the Original Notes) shall be deemed to equal 125% for the Event
      of
      Default Redemption. The parties agree that the Event of Default Redemption
      Price
      for the Original Notes shall equal the amounts set forth below, plus any
      additional interest which accrues after September 30, 2007 (the “Original
      Notes Redemption Amount”).

     

     

    
      	
              Holder

               

            	
              Event
                of Default Redemption Price

               

            
	
              BridgePointe

               

            	
              U.S.$884,072.93
                

               

            
	
              Gottbetter

               

            	
              U.S.$1,425,927.07

               

            

    

     

    
      
         

         

        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    The
      Company and the Holders each agree and acknowledge that the New Notes shall
      be
      redeemed hereunder for the redemption amounts set forth below, plus any
      additional interest which accrues after September 30, 2007 (the “New
      Notes Redemption Amount”).

     

    
      	
              Holder

               

            	
              Event
                of Default Redemption Price

               

            
	
              BridgePointe

               

            	
              U.S.
                $77,272.58

               

            
	
              Gottbetter

               

            	
              U.S.
                $77,272.58

               

            

    

     

    The
      Original Notes Redemption Amount and the New Notes Redemption Amount are
      collectively referred to herein as the “Aggregate
      Notes Redemption Amount.”

     

    6.         
      Deposit
      of Sales Proceeds into Escrow.
      As a
      part of the terms of each Private Sale, the Holders shall cause the purchaser(s)
      at each Private Sale to deposit the purchase price for the assets being sold
      (the “Sales
      Proceeds”)
      directly into the Escrow Account (as defined below) for distribution by the
      Escrow Agent and accounting in accordance with the UCC. This
      includes:

    

    (a)
      Upon
      closing of the First Private Sale, the gross proceeds from the sale of assets
      will be deposited in a trust account (the “First
      Escrow Account”)
      with
      Arnold Bloch Liebler, a law firm located in Sydney Australia (the “First
      Escrow Agent”).
      The
      Holders, the Company and the Escrow Agent shall enter into an escrow agreement,
      in a customary and mutually agreeable form reflecting the requirements of this
      Agreement (the “First
      Escrow Agreement”),
      whereby the Company instructs the First Escrow Agent to receive the proceeds
      of
      the First Private Sale and to distribute the proceeds of such Private Sale
      pursuant to the Distribution Schedule by the deadline specified in this
      Agreement.

    

    (b)
      Upon
      closing of the Second Private Sale, the gross proceeds from the sale of assets
      will be deposited in a trust account (the “Second
      Escrow Account,” together
      with the First Escrow Account, each referred to as an“Escrow
      Account”)
      with a
      mutually acceptable, nationally known securities law firm located in the United
      States (the “Second
      Escrow Agent,” together
      with the First Escrow Agent each referred to as an“Escrow
      Agent”).
      The
      Holders, the Company and the Second Escrow Agent shall enter into an escrow
      agreement in a customary and mutually agreeable form reflecting the requirements
      of this Agreement (the “Second
      Escrow Agreement”),
      whereby the Company instructs the Second Escrow Agent to receive the proceeds
      of
      the Second Private Sale and to distribute the proceeds of the Second Private
      Sale pursuant to the Distribution Schedule by the deadline specified in this
      Agreement.

    

    (c)
      Upon
      confirmation of the receipt by the Escrow Agent of Sales Proceeds in an amount
      equal to at least the unpaid portion of the Aggregate Notes Redemption Amount,
      the Holders of the Original Notes and the New Notes shall each provide a written
      notification of release (the “Releases”) to the Escrow Agent of such Holder’s
      lien on the company’s assets (conditioned upon payment of such amounts to the
      Holders pursuant to the Distribution Schedule), so that such assets may be
      released to the purchaser. Further, the Holders will, in writing, direct the
      Escrow Agent to immediately distribute the funds according to the Distribution
      Schedule and to immediately deliver the Releases to the
      Company.

    
      
         

         

        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (d)
      All
      surpluses from the sale of assets, after all distributions required under the
      Distribution Schedule, will be returned to the Company immediately upon
      satisfaction of the obligations set forth in this Agreement.

    

    7.         
      Termination.
      Provided that the Holders have complied with their obligations under Section
      2(a) of this Agreement, the Holders, and
      either of them, may terminate this Agreement if either (i) any Private Sale
      is
      not completed by the applicable Private Sale Deadline, or (ii) the Company
      fails
      to complete, or cause the Escrow Agent to complete, the distribution of proceeds
      by in accordance with the Distribution Schedule by the applicable Proceeds
      Distribution Deadline. 

    

    8.         
      Notices.
      All
      notices, requests, demands and other communications required or permitted to
      be
      given hereunder shall be given to Bridgepointe and Gottbetter at their
      respective addresses provided in the Schedule of Note Buyers under the
      Securities Purchase Agreement.

     

    9.         
      Governing
      Law.
      Pursuant to Section 10(f) of the Security Agreement, this Agreement shall be
      construed, and the rights and liabilities of the parties hereto determined,
      in
      accordance with the internal laws of the State of New York.

     

    10.        Captions,
      Definitions.
      The
      captions to this Agreement are for convenience of reference only and in no
      way
      define, limit or describe the scope or intent of this Agreement or any part
      hereof, nor in any way affect this Agreement or any part hereof. Capitalized
      terms not defined herein shall have the meanings given to them in the Security
      Agreement.

     

    11.       
      Counterparts.
      This
      Agreement may be executed in several counterparts, which together shall
      constitute a single document. 

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      date
      first set forth above.

     

    
      	CATUITY
              INC.	LOYALTY MAGIC PTY
              LIMITED
	 	 	 	 
	By:	 	By:	 
	 	
              
 Name:
	 	
              

              Name: 
	 	Title: 	 	Title:
	 	 	 	 
	CHIP APPLICATION
              TECHNOLOGIES PTY LIMITED	CIT CARDS AUSTRALIA
              PTY
              LIMITED
	 	 	 	 
	By:	 	By:	 
	 	
              

              Name: 	 	
              

              Name: 
	 	Title:
              	 	Title:
              
	 	 	 	 

    

     

     

    
      
         

         

        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    ACCEPTED AND AGREED TO:

     

    
      	Gottbetter Capital
              Master,
              Ltd.	 
	 	 	 	 
	By:	 	 	 
	 	
              
 Name:
	 	 
	 	Title: 	 	 
	 	 	 	 
	Bridgepointe Master
              Fund
              Ltd.	 
	 	 	 	 
	By:	 	 	 
	 	
              

              Name: 	 	 
	 	Title:
              	 	 
	 	 	 	 

    

     

    
      
         

         

        
        

      

      
        623
      August
      2007

    

    John
      Racine

    President
      & CEO

    Catuity
      Inc.

    300
      Preston Blvd.

    Suite
      302

    Charlottesville,
      VA 22901

    USA

     

    RE:
      Letter
      of Intent to Acquire Loyalty Magic 

     

    Dear
      John,

     

    
      	
              1

            	
              Acquisition
                and Service Agreement

            

    

    

    This
      Letter of Intent records the intention of Wishlist Holdings Ltd (“Wishlist
      Holdings”)
      in
      relation to the proposed acquisition by Wishlist Holdings of all of the shares
      on issue in Loyalty Magic Pty Ltd (“Loyalty
      Magic”)
      (“Acquisition”).
      Loyalty Magic is a wholly owned subsidiary of Catuity Inc. 

    

    The
      parties acknowledge that at the time this Letter of Intent is signed, a
      Liquidation Agreement between Catuity Inc., Loyalty Magic, Chip Application
      Technologies Pty Limited, CIT Cards Australia Pty Limited, Gottbetter Capital
      Master, Ltd. and Bridgepointe Master Fund Ltd. (“Liquidation
      Agreement”)
      will
      have been entered into or will be about to be entered into. Pursuant to this
      Liquidation Agreement, Gottbetter Capital Master, Ltd. and Bridgepointe Master
      Fund Ltd. (collectively, “Bond
      Holders”)
      will be
      required to use their best endeavours to sell all of the issued shares in
      Loyalty Magic and this Liquidation Agreement will provide the Bond Holders
      with
      the ability to sell all of the issued shares in Loyalty Magic.

    

    If,
      however, the Liquidation Agreement is not entered into, the parties acknowledge
      and agree that Catuity Inc. will remain entitled to sell all of the issued
      shares in Loyalty Magic.

     

    
      	
              2

            	
              Structure
                of Acquisition

            

    

     

    
      	 	
              (a)

            	
              Subject
                to certain conditions precedent and the terms and conditions of this
                Letter of Intent, Wishlist Holdings agrees to acquire and each of
                the Bond
                Holders agree to sell all of the shares on issue in Loyalty
                Magic.

            

    

     

    
      	 	
              (b)

            	
              This
                Letter of Intent records the basic terms of the agreement of the
                parties
                in relation to the Acquisition. The parties agree to execute a definitive
                written purchase agreement in relation to the Acquisition (“Purchase
                Agreement”)
                in accordance with the terms of this Letter of Intent.
                

            

    

     

    
      	 	
              (c)

            	
              Prior
                to the execution of a Purchase Agreement, which will supersede this
                Letter
                of Intent, Catuity Inc., Loyalty Magic and each of the Bond Holders
                agree
                to permit Wishlist Holdings to undertake due diligence in respect
                of
                Loyalty Magic on an exclusive
                basis.

            

    

    
      
        

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    
      	
              3

            	
              Purchase
                Price

            

    

     

    
      	 	
              (a)

            	
              During
                the course of Wishlist Holdings’ due diligence investigations, the
                forecast earnings of Loyalty Magic before interest, tax, depreciation
                and
                amortisation (“EBITDA”) in respect of the full financial year ending 30
                June 2008 (“FY08”)
                will be determined in accordance with Australian generally accepted
                accounting principles. 

            

    

     

    
      	 	
              (b)

            	
              The
                determination of EBITDA for the purposes of this Letter of Intent
                including without limitation the calculation of the purchase price
                of the
                Acquisition (“Purchase
                Price”)
                will be made in good faith by Wishlist Holdings and its auditors,
                after
                taking into account the view of Catuity Inc. and/or Loyalty Magic
                and
                after due consideration and analysis of Loyalty Magic’s client contracts
                in existence, new client commitments as reflected in the “pipeline” and
                supported by past evidence of signings and existing letters of intent
                from
                clients.

            

    

     

    
      	 	
              (c)

            	
              Subject
                to the satisfaction or waiver of each of the conditions precedent
                set out
                in paragraph 4 of this Letter of Intent, the terms of paragraph 3(d)
                and
                the adjustment in paragraph 3(e), Wishlist Holdings will offer to
                pay as
                the Purchase Price:

            

    

     

    
      	 	
              (i)

            	
              if
                the forecast EBITDA of Loyalty Magic in respect of FY08 is greater
                than or
                equal to AUD$847,400 (ie. 95% of AUD$892,000), the sum of AUD$4,500,000
                less the Option Fee on the completion of the Acquisition (“Completion”);
                

            

    

     

    
      	 	
              (ii)

            	
              if
                the forecast EBITDA of Loyalty Magic in respect of FY08 is greater
                than or
                equal to AUD$650,000 and less than AUD$847,400, the sum of AUD$4,200,000
                less the Option Fee on Completion.

            

    

     

    
      	 	
              (d)

            	
              It
                is currently contemplated that the Purchase Price will be paid in
                cash to
                the party which is entitled to sell all of the issued shares in Loyalty
                Magic (being the Bond Holders or Catuity Inc.) and that, on Completion,
                Wishlist Holdings will pay to the party which is entitled to sell
                all of
                the issued shares in Loyalty Magic (being the Bond Holders or Catuity
                Inc.) the amount set out in paragraph 3(c)(i) or 3(c)(ii) (whichever
                is
                applicable).

            

    

     

    
      	 	
              (e)

            	
              At
                the close of the transaction, Loyalty Magic will have a minimum of
                AUD
                $140,000 in net working capital at Completion. Net working capital
                is
                defined as current assets less current liabilities. The Purchase
                Price
                will be adjusted for any difference between the amount of net working
                capital determined in accordance with this paragraph 3(e), and the
                actual
                amount of Loyalty Magic’s net working capital at Completion, and only if
                the actual amount of net working capital is lower than AUD
                $140,000.

            

    

     

    
      	
              4

            	
              Conditions
                Precedent of Offer and
                Agreement

            

    

     

    
      	 	
              (a)

            	
              Wishlist
                Holdings’ offer and agreement to acquire all of the shares on issue in
                Loyalty Magic is conditional upon:

            

    

     

    
      	 	
              (i)

            	
              Wishlist
                Holdings completing legal, commercial, technical and product audit
                and
                financial due diligence investigations in relation to Loyalty Magic
                and
                the business operated by Loyalty Magic (or any of its subsidiaries
                or
                affiliates) as is set out on Loyalty Magic’s website at www.loyalty-magic.com
                (“Business”)
                to the satisfaction of Wishlist Holdings and its advisers.
                

            

    

    
      
         

        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

     

    
      	 	
              (ii)

            	
              Catuity
                Inc., Loyalty Magic, each of the Bond Holders and their respective
                directors, employees, representatives and advisers providing reasonable
                co-operation to Wishlist Holdings in relation to its due diligence
                investigations and providing Wishlist Holdings and its directors,
                employees, representatives and advisers with access to information
                in
                relation to Loyalty Magic and reasonable access to senior management
                of
                Loyalty Magic. 

            

    

     

    
      	 	
              (iii)

            	
              There
                being employment contracts in place between Loyalty Magic and each
                employee of Loyalty Magic that Wishlist Holdings determines is essential
                to the continued success of the Business, which are on terms reasonably
                acceptable to Wishlist Holdings, it being acknowledged that on Completion
                Loyalty Magic will assume responsibility for Graham McStay’s employment
                contract and all of his accrued entitlements, save and except that
                the
                notice period applicable in respect of that contract in the event
                of its
                termination will be amended to correspond with the notice periods
                which
                currently apply in the event of the termination of the employment
                contracts of Wishlist Holdings’ executives.

            

    

     

    
      	 	
              (iv)

            	
              Wishlist
                Holdings receiving from the key customers of Loyalty Magic (being
                Amcal,
                API, EFS and others including without limitation potential prospective
                clients of the Business at Wishlist Holdings’ request) confirmation that
                they do not intend to terminate their contracts with Loyalty Magic
                or
                alter their intention to enter into contracts with Loyalty Magic
                merely
                because Wishlist Holdings is to make the Acquisition and will operate
                the
                Business post-Completion through face to face meetings which Wishlist
                Holdings intends to have with those key customers (such meetings
                only to
                be held in the presence of a representative of Loyalty
                Magic).

            

    

     

    
      	 	
              (v)

            	
              None
                of Catuity Inc, Loyalty Magic, any of the Bond Holders or any of
                their
                respective directors, employees or advisers providing any other party
                with
                any information concerning the Business or allowing any other party
                to
                conduct any form of due diligence in respect of the Business during
                the
                exclusivity period referred to in paragraph 9 of this Letter of
                Intent.

            

    

     

    
      	 	
              (vi)

            	
              Loyalty
                Magic’s forecast EBITDA for FY08 being greater than or equal to
                AUD$650,000.

            

    

     

    
      	
              5

            	
              Purchase
                Agreement

            

    

     

    
      	 	
              (a)

            	
              The
                parties agree to negotiate in good faith to enter into the Purchase
                Agreement, which will supersede this Letter of Intent. The Purchase
                Agreement will include the following principal terms and such other
                terms
                as the parties and their legal advisers consider appropriate to a
                transaction of the kind envisaged by this Letter of
                Intent:

            

    

     

    
      	 	
              (i)

            	
              Between
                the date of the Purchase Agreement and
                Completion:

            

    

     

    
      	 	
              (A)

            	
              the
                Business must be conducted in the usual
                course;

            

    

    
      
         

        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

     

    
      	 	
              (B)

            	
              none
                of Catuity Inc., Loyalty Magic or any of the Bond Holders must take
                any
                action which interferes with or impedes or otherwise adversely affects
                the
                ordinary conduct of the Business; and

            

    

     

    
      	 	
              (C)

            	
              any
                material transactions or actions taken in relation to the Business
                must be
                approved by Wishlist Holdings. 

            

    

     

    
      	 	
              (ii)

            	
              Completion
                will be conditional on the conditions precedent set out in paragraphs
                4(a)(i) to 4(a)(iv) inclusive of this Letter of
                Intent.

            

    

     

    
      	 	
              (b)

            	
              The
                parties acknowledge that any foreclosure undertaken by the Bond Holders
                in
                respect of Catuity Inc. prior to Completion will not affect Completion
                as:
                

            

    

     

    
      	 	
              (i)

            	
              Catuity
                Inc. and each of the Bond Holders agree to the sale of all of the
                shares
                on issue in Loyalty Magic, subject to certain conditions precedent
                and the
                terms and conditions of this Letter of Intent; and
                

            

    

     

    
      	 	
              (ii)

            	
              the
                security held by the Bond Holders over the Loyalty Magic shares will
                be
                released at Completion.

            

    

     

    
      	
              6

            	
              Notification
                of Material Adverse Changes

            

    

     

    Catuity
      Inc., Loyalty Magic and the Bond Holders must promptly notify Wishlist Holdings
      about any circumstance reasonably likely to:

     

    
      	 	
              (a)

            	
              materially
                adversely change the financial position, operations, profitability
                or
                prospects of the Business or the value of the assets of Loyalty Magic;
                or

            

    

     

    
      	 	
              (b)

            	
              require
                substantial capital expenditure,

            

    

     

    and
      upon
      receipt of such notice, Wishlist Holdings may immediately terminate this Letter
      of Intent or the Purchase Agreement (as the case may be) by written notice
      to
      Catuity Inc., Loyalty Magic and the Bond Holders and in such circumstances,
      Wishlist Holdings will be entitled to the Option Fee. If Wishlist Holdings
      does
      not elect to terminate this Letter of Intent or the Purchase Agreement (as
      the
      case may be) then an appropriate adjustment will be made to the Purchase Price
      as agreed between the parties or, failing agreement, as determined by an
      independent accountant, whose determination will be final and binding upon
      the
      parties.

     

    
      	
              7

            	
              Co-operation

            

    

     

    The
      parties will use their best endeavours to observe the following
      timeframe:

     

    
      	 	
              (a)

            	
              execution
                of the Purchase Agreement to occur before 15 September 2007;
                and

            

    

     

    
      	 	
              (b)

            	
              Completion
                to occur before 30 September 2007.

            

    

     

    Wishlist
      Holdings agrees to use its best endeavours to observe the above timeframe
      provided that Catuity Inc., Loyalty Magic and each of the Bond Holders cooperate
      with Wishlist Holdings and provide Wishlist Holdings with such reasonable
      information, documents, and access to information, as Wishlist Holdings may
      deem
      desirable in order to conduct “due diligence” reviews in normal commercial scope
      and means.

     

    
      
         

        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

     

    
      	
              8

            	
              Fees
                and Expenses 

            

    

     

    Except
      as
      specified in this Letter of Intent, each party will be responsible for its
      own
      expenses and those of its agents, auditors, attorneys and consultants incurred
      in connection with this letter and the Acquisition. Each party shall hold the
      other harmless from any claims of brokers, finders, agents, advisers and
      consultants.

     

    
      	
              9

            	
              Exclusivity
                and Wishlist Holdings’
Option

            

    

     

    
      	 	
              (a)

            	
              In
                due consideration of the value of an exclusive purchase opportunity,
                Wishlist Holdings agrees to pay the sum of AUD$250,000 (“Option
                Fee”)
                to acquire an option to undertake the Acquisition (“Option”).
                The Option may be exercised by Wishlist Holdings in writing at any
                time
                but no later than 30 September 2007 (“Option
                Expiration Date”).
                If Wishlist Holdings exercises the Option, the parties commit to
                undertaking the Acquisition on the terms of this Letter of Intent.
                The
                Option Fee is payable within 5 business days of Wishlist Holdings
                receiving this Letter of Intent signed by Catuity Inc., Loyalty Magic
                and
                each of the Bond Holders to Loyalty Magic’s solicitor, Arnold Bloch
                Leibler of Melbourne (“Stakeholder”)
                for the Stakeholder to hold in trust.

            

    

     

    
      	 	
              (b)

            	
              In
                granting the Option and receiving the Option Fee, Catuity Inc., Loyalty
                Magic, each of the Bond Holders and their respective directors, officers
                and advisers agree to negotiate exclusively with Wishlist Holdings,
                and
                not to enter into any discussions, arrangements, agreements or any
                contracts with any other party, in relation to the Business or the
                Acquisition or the sale of any of Loyalty Magic’s assets (other than sales
                of inventory in the ordinary course of business), from the date of
                this
                Letter of Intent until the date on which the Purchase Agreement is
                executed or the Option Expiration Date, whichever is earlier. Save
                to the
                extent that legal obligations to their shareholders or creditors
                require
                otherwise, prior to this date, none of Catuity Inc., Loyalty Magic
                or any
                of the Bond Holders will directly or indirectly, through any director,
                employee or representative or otherwise, solicit or entertain offers
                from,
                negotiate with or in any manner encourage, discuss, accept, or consider
                any proposal of any other person relating to the acquisition of the
                Business or assets of Loyalty Magic or the shares in Loyalty Magic
                in
                whole or in part, whether directly or indirectly, through purchase,
                merger, consolidation, or otherwise (other than sales of inventory
                in the
                ordinary course of business). Catuity Inc., Loyalty Magic and each
                of the
                Bond Holders each undertake to immediately notify Wishlist Holdings
                of any
                contact between Catuity Inc. or Loyalty Magic or any of the Bond
                Holders
                or any of their respective directors, employees or representatives
                and any
                other person regarding any such offer or proposal or any related
                inquiry
                and upon receipt of such notice, Wishlist Holdings may immediately
                terminate this Letter of Intent.

            

    

     

    
      	 	
              (c)

            	
              Subject
                to paragraph 6, the party which is entitled to sell all of the issued
                shares in Loyalty Magic (being the Bond Holders or Catuity Inc.)
                will be
                entitled to the Option Fee if: 

            

    

     

    
      
         

        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

     

    
      	 	
              (i)

            	
              Completion
                occurs; or 

            

    

     

    
      	 	
              (ii)

            	
              Completion
                does not occur and: 

            

    

     

    
      	 	
              (A)

            	
              Loyalty
                Magic’s forecast EBITDA in respect of FY08 is greater than or equal to
                AUD$650,000; and 

            

    

     

    
      	 	
              (B)

            	
              none
                of Catuity Inc., Loyalty Magic or any of the Bond Holders are in
                breach of
                the terms of this Letter of Intent or the Purchase Agreement (as
                the case
                may be) in a material respect; and

            

    

     

    
      	 	
              (C)

            	
              none
                of Catuity Inc., Loyalty Magic or any of the Bond Holders or any
                of their
                respective directors, employees or representatives have, directly
                or
                indirectly, engaged in any of the activities referred to in paragraph
                9(b). 

            

    

     

    
      	 	
              (d)

            	
              Subject
                to paragraph 6, Wishlist Holdings will be entitled to the Option
                Fee if
                Completion does not occur and:

            

    

     

    
      	 	
              (i)

            	
              Loyalty
                Magic’s forecast EBITDA in respect of FY08 is less than AUD$650,000;
                or

            

    

     

    
      	 	
              (ii)

            	
              Catuity
                Inc., Loyalty Magic or any of the Bond Holders are in breach of the
                terms
                of this Letter of Intent or the Purchase Agreement (as the case may
                be) in
                a material respect; or

            

    

     

    
      	 	
              (iii)

            	
              Catuity
                Inc. and/or Loyalty Magic and/or any of the Bond Holders and/or any
                of
                their respective directors, employees or representatives directly
                or
                indirectly engage in any of the activities referred to in paragraph
                9(b)
                and their respective legal obligations to their shareholders or creditors
                require either or both of them to do
                so.

            

    

     

    
      	
              10

            	
              Confidentiality
                and public announcements

            

    

     

    
      	 	
              (a)

            	
              The
                content of this Letter of Intent and the fact that Wishlist Holdings
                is
                interested in the Acquisition are confidential and will remain
                confidential until expressly agreed otherwise by the parties. None
                of
                Wishlist Holdings, Catuity Inc. Loyalty Magic, any of the Bond Holders
                or
                any of their respective directors, agents, employees or representatives
                shall make any disclosure or announcement concerning the content
                of this
                Letter of Intent or the existence of the proposed transaction, its
                terms,
                the proposals contained herein, or the terms of any definitive agreements,
                without the prior written consent of the other party or as required
                by law
                (including the rules of the SEC or any relevant stock market exchange
                in
                the U.S. or Australia), and such information shall only be disclosed
                to
                third parties (including employees) on a “need-to-know” basis.
                

            

    

     

    
      	 	
              (b)

            	
              The
                parties agree that the provisions of this paragraph shall remain
                in effect
                for two years following the termination of this Letter of Intent
                should
                the anticipated transaction not be completed.

            

    

    
      
         

        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

     

    
      	
              11

            	
              Present
                Intent 

            

    

     

    This
      Letter of Intent is intended to constitute legal relations between the parties
      and to be formally binding upon the parties. 

     

    
      	
              12

            	
              No
                other statements. 

            

    

     

    The
      parties agree that as of this date there are no oral or written representations,
      agreements or understandings concerning the subject matter of this Letter of
      Intent or the Acquisition contemplated herein.

     

    Please
      return a copy of this Letter of Intent countersigned by an authorized
      representative of each of Catuity Inc., Loyalty Magic, Gottbetter Capital
      Master, Ltd. and Bridgepointe Master Fund Ltd. indicating Catuity
      Inc.’s, Loyalty
      Magic’s, Gottbetter Capital Master, Ltd.’s and Bridgepointe Master Fund Ltd.’s
      confirmation of their interest in the terms set forth herein and agreement
      to
      the provisions hereof. 

     

    The
      parties may execute separate copies of this letter, but both shall be deemed
      the
      same document. The
      offer contained in this Letter of Intent shall remain open until 24 August
      2007.
      If not
      signed by an authorized officer or representative of each of Catuity Inc.,
      Loyalty Magic, Gottbetter Capital Master, Ltd. and Bridgepointe Master Fund
      Ltd.
      and returned by such date, then it will expire without further
      action.

     

    We
      look
      forward to proceeding in an effort to finalize a definitive agreement that
      is
      mutually acceptable, both in structure and price.

     

    Best
      regards,

     

    

      
        	
                Adrian
                  Finlayson

              	
                Huy
                  Truong

                 

              
	
                CEO

                 

              	
                Chairman

                 

              

      

    

    Wishlist
      Holdings Ltd  

     

    ACKNOWLEDGED
      AND AGREED THIS

    day
      of
      August 2007:

     

    

    
      	CATUITY
              INC.	 
	 	 	 
	
              By:
                

            	 	 
	 	 	 
	 	 	 
	 	
               

            	 
	 	
              Name
                of Authorised Director

            	 

    

    

      
        
           

          
          

        

        
          7

          
            

          

        

        
          
          

        

      

    
      	LOYALTY
              MAGIC PTY LTD	 
	 	 	 
	
              By:
                

            	 	 
	 	 	 
	 	 	 
	 	
               

            	 
	 	
              Name
                of Authorised Director

            	 

    

     

    
      	GOTTBETTER
              CAPITAL MASTER, LTD.	 
	 	 	 
	
              By:
                

            	 	 
	 	 	 
	 	 	 
	 	
               

            	 
	 	
              Name
                of Authorised Director

            	 

    

     

    
      
        	
                BRIDGEPOINTE
                  MASTER FUND LTD.

              	 
	 	 	 
	
                By:
                  

              	 	 
	 	 	 
	 	 	 
	 	
                 

              	 
	 	
                Name
                  of Authorised Director

              	 

      

      
        
           

          
          

        

        
          8

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