10-KT

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

x TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from April 1, 2006 to December 31, 2006

Commission File Number: 1-11008

Catalina Marketing Corporation

(Exact name of registrant as specified in its charter)

Delaware	33-0499007
(State or other Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

200 Carillon Parkway, St. Petersburg, FL	33716-2325
(Address of principal executive offices)	(Zip Code)

(727) 579-5000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x    Accelerated Filer  ¨    Non-accelerated Filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of September 30, 2006, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant (based on the last sales price on that date of $27.50 as reported by the New York Stock Exchange, Inc.) was $990,958,430. The number of shares of registrant’s common stock, par value $0.01 per share, outstanding as of February 22, 2007, was 46,506,907

Documents Incorporated by Reference

Certain portions of registrant’s Definitive Proxy Statement for 2007 are incorporated by reference in Parts II and III of this report.

TABL E OF CONTENTS

FORM 10-K

		Page No.
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	13
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	14
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Consolidated Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A.	Controls and Procedures	64
Item 9B.	Other Information	64
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	64
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions and Director Independence	64
Item 14.	Principal Accounting Fees and Services	64
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	64

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P ART I

INTRODUCTORY NOTE

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this Annual Report on Form 10-K references herein to “Catalina Marketing,” the “Company,” “we,” “us” or “our” refer to Catalina Marketing Corporation and its subsidiaries unless the context specifically states or implies otherwise. Words such as “today,” “current” or “currently,” or phrases such as “as of the date hereof” or “as of the date of this report,” refer to the date we are filing this Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”).

Certain information included in this Annual Report on Form 10-K, including Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by the use of words such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of our future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We cannot provide assurance that any future results, performance or achievements will be achieved.

Factors that may cause such differences include, but are not limited to, the changing market for promotional activities, especially as it relates to policies and programs of consumer packaged goods (“CPG”) and pharmaceutical products manufacturers, marketers and retailers; general business and economic conditions; acquisitions and investments; risks associated with our growth and finances; government and regulatory policies affecting us and our clients; potential adverse federal, state or local legislation or regulation or adverse determinations subjecting us to additional taxes; the pricing and availability of alternative forms of advertising; our ability to execute on our various business plans and to test, expand and install our networks in new markets and retail channels; the pace of installation of our networks including as it relates to the installation of color printers and our other networks in existing and future retail channels, the acceptance by our manufacturer clients and retailers of color printers and related new and additional terms and conditions, the success of new services and businesses and the pace of their implementation, risks associated with reliance on the performance and financial condition of manufacturers, marketers and retailers; technological developments; changes in the competitive and regulatory environments in which we and our clients operate including, without limitation, shifts in consumer purchase patterns and habits such as the channels through which consumers purchase certain types of products; seasonal variations; actual promotional activities and programs with our clients; the success of new services and businesses and the pace of their implementation; our ability to maintain favorable client relationships; our ability to avoid or mitigate material adverse judgments against, or other adverse results affecting, us in the existing shareholder and derivative litigation described in Item 3 — “Legal Proceedings,” or any additional regulatory action, litigation or other proceeding that may be commenced; our ability to maintain effective disclosure controls and procedures and internal control structure; our ability to attract, motivate and/or retain key employees. For a further discussion of certain of these risks, uncertainties and other factors, see Item 1A — “Risk Factors.”

We undertake no obligation to make public indication of changes in, update or revise any of our forward-looking statements, whether as a result of new information, future events or otherwise.

Item 1. Bus iness

In August 2006, our Board of Directors approved a change in our fiscal year end from March 31st to December 31st. In conjunction with the change in our fiscal year-end, we eliminated the three-month reporting lag previously used for reporting the results of Catalina Marketing International (“CMI”). As of December 31, 2006, all of our consolidated subsidiaries had the same balance sheet date. The reported results of operations for the nine-months ended December 31, 2006 include the results of CMI for the period January 1, 2006 through September 30, 2006. The results of operations for CMI for the three-months ended December 31, 2006 are included as an adjustment to retained earnings and are not reflected in the consolidated income statement. Beginning January 1, 2007, all subsidiaries will have the same fiscal reporting period. The change in our fiscal year end better aligns our reported operating periods with the fiscal year of the majority of our CPG manufacturer and pharmaceutical manufacturer clients, while the elimination of the reporting lag for CMI allows us to report the results of our foreign subsidiaries in a more timely manner.

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General

Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries, provide behavior-based communications, developed and distributed for CPG manufacturers, pharmaceutical manufacturers and marketers and retailers. Our primary business was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, we offer behavior-based, targeted-marketing services and programs globally through a variety of distribution channels. These marketing solutions, including discount coupons, loyalty marketing programs, patient education newsletters, in-store instant-win games and other consumer communications, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction will “trigger” a communication to print, manufacturers and retailers can deliver customized communications to only the consumers they wish to reach. We track actual purchase behavior and target consumers at the retail checkout counter and prescription medication users at the pharmacy checkout counters, primarily through the use of Universal Product Code-based scanner technology and National Drug Code information, to deliver customized communications to retail and pharmaceutical consumers.

As of December 31, 2006, we employed approximately 1,200 people in offices throughout the United States, Europe and Japan.

Business Segment Information

We are organized and managed by segments, which include the following operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”) and Catalina Marketing International (“CMI”).

As of December 31, 2006, the Catalina Marketing Network^®, which supports CMS, was installed in over 22,000 retail stores in the United States, primarily supermarkets and retail drug stores, and reached approximately 251 million shoppers weekly. As of the same date, the Health Resource Network, which supports CHR, was installed in over 13,200 pharmacy outlets. CMI’s networks were installed in approximately 8,000 retail locations, primarily supermarkets and hypermarkets in Europe and Japan, and reached approximately 88 million shoppers weekly.

For a summary of the financial results of our reportable segments see Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 18 – Segment and Geographic Disclosures”.

Catalina Marketing Services

CMS services domestic retailers and consumer product manufacturers. Using the Catalina Marketing Network^®, this operating segment specializes in behavior-based marketing communications. The primary service line of CMS is the in-store delivery of communications at the checkout counter of a retailer. We link our proprietary software, computers, central databases and printers with a retailer’s point-of-sale controller and scanning equipment. The network prints customized communications at the point-of-sale triggered based on product Universal Product Codes, historical purchase behavior or other scanned information. The printed communications are handed to consumers by the cashier at the end of the shopping transaction.

CMS generates revenues primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. Our clients contract with CMS to deliver printed communications at the point-of-sale and typically pay us a fee for each communication delivered. In general, CMS recognizes revenue at the time a communication is delivered at the checkout counter of the retail store. The amount of revenue recognized is based on the total number of communications delivered multiplied by a per-print fee. We generally bill our clients a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted communications for a specified category, or categories, within a four-week period referred to as a “cycle.” CMS divides the calendar year into thirteen cycles. The delivery of communications is based upon particular triggering transactions that are registered at the point-of-sale (i.e., the checkout counter of a retail store). The majority of our contracts cover multiple cycles.

The two primary programs of CMS are Checkout Coupon^® and Checkout Direct^®. Through our Checkout Coupon^® service, we deliver marketing communications to consumers at checkout, based on the products included in their current shopping basket. Through our Checkout Direct^® service, we deliver marketing communications to consumers at the checkout counter using historical purchase behavior, which is collected using “frequent shopper” or similar identification methods. In addition to Checkout Coupon^® and Checkout Direct^®, CMS offers Catalina Category Marketing (“CCM”), a behavior-based marketing program designed to drive more efficient volume for the manufacturer and increases loyalty to the retailer while providing increased value to the consumer. The typical four-week window for a CCM program provides a focal point for trade merchandising collaboration between the manufacturer and retailer. CCM enables consumers who purchase promoted products to receive incentives redeemable toward any purchase during their next shopping trip.

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The services provided to retailers by CMS include in-store promotional prints and analytical services that enable retailers to focus on changing consumer shopping patterns with targeted communications, motivate consumers to visit a retailer more frequently, increase the size of purchase transactions, purchase specific products and develop retailer loyalty. We typically enter into agreements with retail chains to install our network in the retail stores of the chain for an initial specified term. In general, we pay retailer fees to, and exchange services with, the retailer based on the number of manufacturer sponsored communications printed. Because of the concentration of ownership in the retail grocery industry, we are dependent on a limited number of retailers that supply the primary points of distribution for the communications of our manufacturer clients. Approximately 57% of the printed in-store communications provided by CMS for our clients during the nine months ended December 31, 2006 were generated from within the stores belonging to five retail chains. If any of these retail chains were to decide to not renew their contract with us to provide our services, or if they materially reduce the number of point-of-sale locations included on our network, a material reduction in our revenues could result if we were unable to replace these locations or the number of transactions processed by these locations.

CMS is in the process of installing approximately 140,000 color inkjet printers, which will be supplied by Epson America, Inc. (“Epson”), in retailers within the Catalina Marketing Network^®. The installation of the new color printers and associated software is expected to be complete in the summer of 2007. When the color printer installation is complete, we estimate that color communications will account for approximately 85% of CMS distribution.

We own the equipment installed in each retail store, including a printer at each checkout lane linked by a computer on the retailer’s premises to the retailer’s point-of-sale controller and scanning equipment. We operate two data processing facilities in the United States that employ various technologies to transmit instructions to computers installed in retail stores and retrieve program data. All of the equipment and supplies, including computers, printers, paper and ink used in a retail installation are purchased by us from outside sources. The store equipment and supplies used by our network generally are managed, installed and maintained by our corporate support staff. We outsource certain aspects of the installation and maintenance of our network in retail locations to third- party contractors. We currently use a limited number of primary vendors for equipment and supplies, including one supplier for ink. With the exception of the new color printers which are supplied solely by Epson, we believe that alternate sources of supply for such materials are available without material interruption to our business.

CMS had a single client that accounted for approximately 14.9% of revenues generated by CMS for the nine months ended December 31, 2006. That client also accounted for 17.6% and 18.9% of revenues generated by CMS for the twelve months ended March 31, 2006 and 2005, respectively. We believe that if we lost that client it could have a material adverse effect on CMS as well as on the Company taken as a whole.

Catalina Health Resource

CHR provides services that assist pharmaceutical and CPG manufacturers, as well as retail pharmacies, in providing consumers with condition-specific health information and direct-to-patient communications. CHR’s programs and services enable our clients to inform, acquire and retain patients by providing educational information about their treatment along with the benefits of compliance, and by encouraging dialogue between patients and their healthcare professionals while preserving patient privacy.

CHR’s primary service offerings employ an in-store, prescription information-based technology to provide targeted, direct-to-patient communications on behalf of our pharmaceutical manufacturer and CPG clients. These communication services include messages and educational information delivered to healthcare patients at pharmacies participating in the Health Resource Network. Our Health Resource Network utilizes a proprietary software system that gives our clients the opportunity to effectively communicate with patients and assists patients in making more informed healthcare decisions.

CHR primarily generates revenues by printing messages for pharmaceutical and CPG manufacturers via PATIENTLink^™. Distribution of PATIENTLink^™ is generated by proprietary technology that can target the consumer based on a variety or combination of factors, including demographic data such as age and gender information, transactional data, primarily the National Drug Codes found on all prescription drugs, and de-identified patient prescription history and information. CHR does not receive or retain personally identifiable data or trigger distribution of PATIENTLink^™ based on a consumer’s name, address or other personally identifiable information. When a prescription is processed via the Health Resource Network, a customized PATIENTLink^™print with prescription information, therapeutically relevant editorial content and product information is printed in the pharmacy and given to the consumer by their pharmacist along with that consumer’s medication. Approximately 25% of PATIENTLink^™prints are sponsored by pharmaceutical or CPG manufacturers and generate revenues for CHR.

CHR enters into agreements with retail pharmacy chains to install the Health Resource Network in pharmacies within the chain. Upon installation, the retailer generally agrees to use the Health Resource Network in its pharmacy for a minimum period of time. CHR pays retailer fees to, and exchanges services with, the retail pharmacy based primarily on the number of PATIENTLink^™ prints.

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Approximately 89% of the newsletters printed during the nine months ended December 31, 2006, were generated from stores belonging to three retail pharmacy chains. If any of these retail pharmacy chains did not renew their contract with us, or if they were to materially reduce the number of pharmacy locations participating in our network, a material reduction in CHR’s revenues could result if we were unable to either replace these pharmacy locations or the number of transactions processed by the retail pharmacy chain.

CHR operates the Health Resource Network through a data processing facility that communicates via various technologies with the computer systems of retail pharmacies or computers installed in the pharmacies to send programming instructions and retrieve program data. The Health Resource Network primarily uses software installed on a retail pharmacy’s point-of-sale system which eliminates the need for a separate CHR-operated, on-premises computer in each location. In certain installations CHR’s network and/or printer is connected to the retail pharmacy’s point-of-sale controller by an on-premise computer. In the majority of circumstances, the equipment is owned by the retail pharmacy. All of the equipment owned by us is generic and purchased from third-party vendors. Typically, pharmacies are contractually obligated to provide supplies, including toner and paper. We believe that alternate sources of equipment and supplies can be secured without significant interruption to CHR’s business.

CHR’s client base varies from year to year and as such a client may be significant in one year and not in another. CHR’s top five clients accounted for 58.0%, 58.1% and 51.8% of its revenues in the nine and twelve month periods ended December 31, 2006, March 31, 2006 and March 31, 2005, respectively.

Catalina Marketing International

The Catalina Marketing Network^® operates internationally in a manner similar to the domestic CMS business. CMI offers a full range of targeted marketing solutions to many of the top CPG manufacturers and maintains relationships with major supermarket, hypermarket and other retailers. In addition, in certain European markets, we work with clients using a business model we refer to as “retail centric” in that we derive revenue from the retailers for managing loyalty programs and in-store promotions.

As of December 31, 2006, we provided in-store electronic targeted marketing services for manufacturers and retailers in France, Italy, the United Kingdom, Germany, Japan, Belgium and the Netherlands. The network was installed in almost 8,000 retail locations in Europe and Japan and reached approximately 88 million consumers each week.

CMI had a single client that accounted for approximately 14.3% of revenues generated by this segment for the nine months ended December 31, 2006. These corresponding amounts were 13.0% and 19.8% of total CMI revenues for the twelve months March 31, 2006 and 2005, respectively. Additionally, CMI had a second client that accounted for approximately 12.8% of revenues generated by this segment for the nine months ended December 31, 2006. The amounts for this client were under 10.0% for the previous two fiscal years.

As previously disclosed, we were notified in the quarter ended September 30, 2006 by two of CMI’s retail clients that they did not intend to renew their contracts effective December 31, 2006 and March 31, 2007. For additional discussion related to these two clients, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

In the nine months ended December 31, 2006, CMI revenues accounted for approximately 20.0% of our consolidated revenues. Our international operations are subject to the normal risks of foreign operations, including: changes in local business and economic conditions, political uncertainties, adapting to different regulatory requirements and interest rate movements. Certain of these risks have affected our business in the past and may also have a material adverse effect on our business, results of operations and financial condition in the future. In addition, CMI sales are billed in foreign currencies and are subject to currency exchange fluctuations as are intercompany royalties, management fees and financing activities. Changes in the value of the U.S. dollar compared with foreign currencies may have an impact on our revenues and margins. We cannot predict the direction or magnitude of currency fluctuations. In general, we purchase goods and services in local currencies. In Japan, we borrow locally to meet our financing requirements, which provides certain natural and economic hedges, but otherwise have not engaged in currency hedge transactions.

Discontinued Operations

In November 2003, we announced our intent to divest our outdoor billboard business in Japan, Direct Marketing Services and Catalina Marketing Research Solutions, which we refer to herein as Japan Billboard, DMS, and CMRS, respectively. These entities, which were deemed not to be strategically aligned with our core businesses, were subsequently sold in fiscal 2005. For a complete discussion of the operating results of our discontinued operations, see Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19 — Discontinued Operations”.

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Competition

We compete for CPG and pharmaceutical manufacturer advertising, marketing and consumer promotion budgets with a wide range of alternative media, including television, radio, print and direct mail advertising, as well as several alternative in-store and point-of-sale programs. Our business segments compete with various traditional coupon delivery methods including free-standing inserts, newspapers, direct mail, magazines and in- or on-product packaging, as well as other in-store marketing companies and retail solution providers that use a variety of coupon, promotion or other advertising delivery methods. We could experience increased competition from changes and advances in technology. Furthermore, as sales of certain grocery products, particularly in certain specialized consumer product categories, shift from traditional grocery retailers to mass merchandisers and value-chains and other retail channels, our ability to reach shoppers through our existing retail network of traditional grocery stores and pharmacies may be impacted in certain consumer product categories.

We compete for advertising and promotional spending based on the efficiencies afforded by a unique kind of targeting based on consumer shopping behavior, called behavior-based marketing. Our method of behavior-based marketing requires an efficient network of retail point-of-sale systems, proprietary software and database systems that target individual consumers based on shopping behavior exhibited at the point-of-sale. Our competitive advantages in behavior-based marketing are achieved through the number of shoppers reached through our networks, the number of household IDs and associated purchase histories available in our database and our ability to deliver consumer insights and influence consumer buying behavior.

Research and Development

Our research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing Network^® and Health Resource Network, market research, software development and system upgrades. For the nine months ended December 31, 2006, expenditures for research and development were $0.4 million. These amounts were $0.9 million and $2.0 million for the twelve months ended March 31, 2006 and 2005, respectively.

Intellectual Property

We currently hold, and have applications pending for, numerous United States and foreign patents relating to our products and services including patents related to the delivery of targeted communications as well as improvements and additional inventions related to our current and contemplated businesses, programs and services. In addition, we regard certain computer software as proprietary and subject to copyright protection. We also hold, and have pending, numerous service marks and trademarks related to our entities, businesses, products and services that have associated goodwill in the relevant marketplace. We believe that certain intellectual property owned or licensed by us gives us a competitive advantage in certain geographic regions in which we operate. While we continue to pursue protection for intellectual property rights that we have developed, certain of our patents have and will expire and there is no guarantee that we will be able to secure additional patent rights. The expiration of a patent or loss of patent protection resulting from a legal challenge may result in significant competition from third parties with respect to the covered product or service in a short period of time. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the relevant country. Although we believe that our intellectual property provides us with a competitive advantage, we believe that we are not dependent upon a single patent, or a specific series of patents, the loss of which would have a material adverse effect on our business. In appropriate situations, we seek to vigorously protect our proprietary intellectual property rights.

Government Regulations

Our operations are subject to regulation in the United States and in other countries in which we do business. We are subject to federal, state and foreign laws governing privacy and the use of consumer information collected by us. In the United States, various federal agencies including the Federal Trade Commission, the Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau and various state agencies have promulgated regulations that restrict the advertising of tobacco, dairy and alcohol beverage products. These regulations vary from state to state and can restrict a manufacturer and/or a retailer’s ability to issue coupons or print other messages and incentives for tobacco, dairy and alcohol beverage products. Other federal, state and foreign laws also restrict the content and sponsorship of regulated product coupons and messages.

CHR operates in a highly regulated business environment. In the United States, the Food and Drug Administration of the Department of Health and Human Services (“HHS”) regulates the form and content of prescription drug promotions, such as the messaging distributed in PATIENTLink™. In addition, federal privacy regulations, administered by the Office of Civil Rights of HHS, affect the ability of CHR and its retail pharmacy partners to use patient-specific pharmacy information to provide customized

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PATIENTLink™ prints. Some states have adopted, or are considering adopting, state medical privacy requirements that could be interpreted more stringently than federal medical privacy requirements. Federal antikickback requirements, administered by the HHS Office of the Inspector General, could be interpreted as restricting drug manufacturer-sponsored programs such as PATIENTLink™. State antikickback and consumer protection statutes could also be interpreted to impose similar restrictions.

In all jurisdictions in which CMI operates, we are also subject to the laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the United States and may limit our ability to convert foreign currency cash flows into U.S. dollars. Furthermore, in foreign jurisdictions we are subject to laws and regulations which govern the type or design of programs that we can run on our network or the content of communications and the management of data captured by our networks.

Available Information

We are subject to the information requirements of the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Our website address is www.catalinamarketing.com. We make available, free of charge, on or through our website, our annual, quarterly and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information posted on our website is not part of this Annual Report on Form 10-K or any other report filed with the SEC in satisfaction of the requirements of the Exchange Act.

Item 1A. Ri sk Factors

Risk Factors Relating to Our Business

Increased competition could reduce the demand for our services, which could have a material adverse effect on our business, financial condition, results of operations and business prospects.

Competition in the promotions and marketing services business is intense and includes many competitors. We compete for CPG and pharmaceutical manufacturer advertising, education and awareness, and consumer promotion budgets with a wide range of media including television, radio, print and direct mail advertising, as well as several alternative in-store and point-of-sale programs and new technologies. While we believe we provide unique, cost-effective targeted marketing services, there are many parameters on which a CPG manufacturer, pharmaceutical manufacturer or retailer may base its decision to allocate advertising or promotional expenditures, and there can be no assurance that our services will continue to compete effectively against other formats or that CPG and pharmaceutical manufacturers and retailers will continue to use our marketing services. We also expect our competitors to continue to improve the performance of their current products or services, to reduce sales prices of their existing products and services and to introduce new products, services or technologies that may offer greater performance and improved pricing. In addition, changes and advances in technology or product offering from competitors and other solutions providers may enable merchants and retail companies to implement or install their own proprietary point-of-sale systems or provide other solutions for the distribution of communications.

A shift in consumer purchasing trends for certain categories of products from traditional retail supermarkets may cause a decrease in the utilization of our services.

Significant retailers including mass marketers and value chains have not installed our networks and/or do not use us for their marketing services for the distribution of point-of-sale communications. Many retailers utilize our competitors and other solutions for such services and some conduct such services in-house or otherwise allocate their marketing dollars to other media outlets and marketing strategies. Mass marketers and value chains have significantly increased their presence in the grocery business and retail industry over the last several years. Many mass marketers and value chains, including Wal-Mart, have not installed our network or are not our clients. As mass marketers and value chains, such as Wal-Mart, increase their presence in the grocery business, the percentage of retail grocery purchases that occur in stores where our networks are installed may decrease. The impact of the increased presence of mass marketers and value chains is particularly pronounced in certain product categories. If consumers continue to shift to alternative shopping channels, like club stores, mass merchandisers and value chains, the ability and effectiveness of the Catalina Marketing Network^® to reach retail shoppers, particularly in certain product categories, may decline. Any such change in shopping behavior could have a material adverse effect on our results of operations or financial condition.

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Our business is dependent on the promotional spending of our manufacturer and retail partners, which may be effected by seasonal, economic, regulatory and other factors over which we have no control.

In general, we expect our revenues to be greater during periods of increased promotional activity by manufacturers. As a result, the pattern of promotion distribution can be irregular and may change from period to period depending on various factors, including the economy, competition, the timing of new product introductions and the timing of manufacturers’ promotion planning and implementation. In addition, this pattern may be affected by seasonal factors such as holiday-related promotions and annual budgeting processes affecting when our clients use promotional and consumer-related expenditure budgets. With respect to CHR, spending by our pharmaceutical manufacturer clients may be impacted by a variety of factors over which we have no control including the rate of introduction of new drugs to the market, the timing of drugs coming off patent protection and other factors which limit the sale, distribution or application of certain pharmaceutical products. These factors, as well as the overall changes in the number of contracts we have with retailer and manufacturer clients, the timing of changes of the installed store base and access to revenue producing transactions, may impact our revenues and profits in any particular period.

Our success depends on our relationships with retailers and pharmacies that provide access to consumers in their retail locations and we rely on data provided from retailers and pharmacies to trigger and report on the delivery of our services.

We depend on retail stores and pharmacies to provide access to transactions with consumers and allow us to install the Catalina Marketing Network^® and Health Resource Network on their premises. We believe that our relationships with our current retail and pharmacy clients are strong; however, in the past, some retailers and pharmacies have required us to remove our network from their stores or negotiate significantly different or less advantageous terms in order for us to maintain networks in their stores. Should any of our significant retailers or pharmacy chains reduce in size, cease to exist, not renew our agreements, require us to remove our network equipment or negotiate terms with us which are less advantageous than our current agreements, the ability and effectiveness of the Catalina Marketing Network^® or Health Resource Network to reach retail shoppers and access transactions could be reduced and/or the profitability of our operations could be reduced.

Consolidations between our current retail and pharmacy network partners and companies that do not utilize our networks may decrease the installation base of our networks and reduce the utilization of our services or increase our operating costs. Internationally, certain value chains and mass marketers continue to make acquisitions in the retail industry. Further significant acquisitions and consolidations could have a material impact on our ability to maintain and expand our international operations.

In addition, we rely on data provided by our retailers and pharmacies to trigger and report on the delivery of our services on behalf of our manufacturer clients as well as provide a database to target transactions based on purchase history. Any change, interruption or inaccuracy of the data provided by our retailers and pharmacies could adversely impact the services we offer to our clients as well as the data we utilize to report on transactions.

We may not succeed in our effort to develop new services or enter new retail channels and achieve future growth.

A key element of our growth strategy is the development and sale of new products, services and technologies and entry into new retail channels. To retain and attract manufacturers, retailers and pharmacies, we believe that we must continue to introduce additional successful services; the development and deployment of which may require significant expenditures. While new products, services and technologies are currently under development, there can be no assurance that we will be able to successfully develop and market them to our clients and retailers. In addition, while we have dedicated significant resources to expanding our CMS business into new retail channels beyond our foundation in the grocery channel, including installations in drug stores and mass merchandisers and pilot tests in convenience stores, there is no guaranty that we will be able to successfully operate in these retail channels, or that we will achieve revenue growth from these channels. Our inability or failure to enter new retail channels, devise new marketing services or to complete the development or implementation of particular services for use on a large scale, or the failure of such services to achieve market acceptance, could adversely affect our ability to achieve a significant part of our growth strategy. The absence of such growth could have a material adverse effect on our business, results of operations and financial condition.

Our enhanced and expanded service offerings, including the deployment of color printers, have and will continue to require significant capital expenditures.

We have announced that we are currently working on the deployment of color ink jet printers in our existing retail grocery network in place of certain of our existing thermal black-and-white printers, and that we have and continue to pursue agreements to install our networks in new retail channels, including retail drug stores and mass merchandisers. In addition, we have and continue to pursue other opportunities in new and existing retail channels to deploy color printers. These efforts have and may continue to require significant capital expenditures. In addition, these efforts differ to some degree from our historical business and, as a result, carry additional risks.

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The deployment of color ink jet printers in our existing retail network will require substantial expenditures to acquire and install such printers and, in some instances, will replace existing thermal black-and-white printers that may not have reached the end of their useful lives, which we plan to redeploy elsewhere. Color printers will require new and additional efforts and potential costs to be expended by our retailers, including the use and management of additional consumables, such as ink and non-thermal paper, changes in software, network and bandwidth requirements, hardware and wiring and other logistical steps not required by our current network of thermal black-and-white printers. While we are working with Epson and other vendors to try to simplify the use, servicing and supply of such printers and the required consumables, we cannot provide assurance that difficulties will not be encountered in installing, using and servicing such printers and the consumables. In addition, while we believe the design of the printers and consumables will operate effectively and efficiently when fully deployed and operated in the field, due to the fact that the printers are highly customized and have not been tested for an extended period of operation, there can be no assurance that the ongoing manufacture and delivery of the printers and consumables will move forward as currently planned, that the printers and consumables will operate in accordance with specifications, that we will experience operating reliability consistent with our current thermal black-and-white printers or that we will not experience a significant number of failures resulting from design, manufacture, operation or other causes. Furthermore, while we expect color printing to enhance the effectiveness of our clients’ marketing efforts or increase the redemption rates of incentives printed on our network over an extended period of time, a long term track record verifying such goal has not yet been established. Hence, the deployment of color printers will involve the use of a substantial amount of capital and other expenditures with a risk that difficulties will be encountered in installing and operating them and that they may not gain the acceptance we desire from retailers and our manufacturer clients. Such outcome could have a material adverse effect on our results of operations and financial condition.

The deployment and expansion of our existing networks in new retail channels and markets that we have not historically served, including the retail drug store market, will require a significant amount of capital and other expenditures. Manufacturer clients using our services for new retail channels may differ, to some extent, from our historical client base due to the nature and quantity of items carried in these retail channels. While we expect the deployment of our network in new retail channels to enhance the effectiveness of our clients’ marketing efforts, a track record verifying such goal has not yet been established. As a result, the deployment of our network in new retail channels will involve the use of a substantial amount of capital and other expenditures with a risk that it may not gain the acceptance we desire from our clients. Such result could have a material adverse effect on our results of operations and financial condition.

Significant anticipated new initiatives, including the deployment of color printers, will impact our resources and management.

We have announced that we are currently working on several significant initiatives including the deployment of color printers in our CMS grocery network, pursuit of new retail channels both domestically and internationally and further international expansion. As a result of these initiatives, subject to the timing and success of these initiatives, we will experience an increased demand on our resources and management.

We are subject to risks which can disrupt our operations, cause loss of data center capacity or interruption of telecommunication links that could adversely affect our business.

Our ability to protect our data centers against damage from fire, power loss, telecommunications failure, hurricanes or other disasters is critical to our future. We believe we have taken reasonable precautions to protect our data centers and telecommunication links from events that could interrupt our operations. Any damage to our data centers or any failure of our telecommunications links that causes interruptions in our operations could materially adversely affect our ability to meet our clients’ requirements, which could result in a material adverse effect on our results of operations and financial condition.

We are subject to risks associated with the selection, availability and cost of insurance.

We have recently observed rapidly changing conditions in certain areas of the traditional commercial insurance markets, in particular related to property and business interruption insurance for hazards related to severe storms, hurricanes and flooding. Such conditions have and may continue to result in higher premium costs, higher policy deductibles, lower coverage limits and may also result in certain policy exclusions. As a result of the conditions in the insurance markets and the cost and/or availability of insurance, we retain some portion or all of our insurable risks with respect to these hazards. Any unforeseen or catastrophic losses in excess of insured limits or risks and hazards for which we do not carry insurance may have a material adverse affect on our results of operations or financial condition.

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A breach of our network security could result in liability to us and deter customers from using our services.

Our networks may be vulnerable to unauthorized access, computer viruses and other disruptive problems. Any of the foregoing problems could result in liability to us, decrease the confidence of our manufacturer and retail client base and deter customers from using our services. Unauthorized access could jeopardize the security of confidential information related to our Company stored in our computer systems. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service, cause us to incur significant costs to remedy the problem and divert management’s attention. We can provide no assurance that the security measures we have implemented will not be circumvented or that any failure of these measures will not have a material adverse effect on our ability to obtain and retain customers. Any of these factors could have a material adverse effect on our business.

Failure to defend our intellectual property rights may harm our competitive position, and litigation to protect our intellectual property rights could be costly.

We hold United States and foreign patents on various aspects of our business including the process of promotion and communication distribution, and have applied for additional patents. In addition, we regard certain computer software and each service application as proprietary and attempt to protect them through copyright and trade secret laws and internal non-disclosure agreements and similar safeguards. In addition, we are working to expand into certain foreign markets where we do not currently hold patent protection or where we have limited patent coverage which may subject us to increased competition in these markets. As a result of the foregoing, certain aspects of our services may not be adequately protected from infringement or copying. Further, there can be no assurance that our patents or trademarks would be upheld if challenged or that competitors might not develop similar or superior processes or services outside the protection of any patents issued to us.

Third parties may infringe or misappropriate our patents or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. The actions we take to protect our patents and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot provide assurance that we will be able to prevent infringement of our intellectual property rights or misappropriation of our proprietary information. In addition, litigation is time-consuming and expensive to defend and could result in the diversion of our time and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims.

Intellectual property litigation against us could be costly and could result in the loss of significant rights.

We expect that, as we continue to expand our service offerings and the number of competitors in targeted marketing grows, we may be increasingly subject to intellectual property infringement, unfair competition and related claims against us. Third parties may also seek to invalidate certain of our patents. In addition, competitors and third parties may, in the future, name our clients as defendants in lawsuits, which may cause these clients to terminate their relationships with us. Our efforts to defend these actions may not be successful. Our failure to prevail in this type of litigation could result in our paying monetary damages (which could be tripled if the infringement is found to have been willful); an injunction requiring us to stop offering our services in their current form; our having to redesign our technology and business methods, which could be costly and time-consuming, even where a redesign is feasible; or our having to pay fees to license intellectual property rights, which may result in unanticipated or higher operating costs. Any third-party claims, with or without merit, could be time consuming, result in costly litigation and damages, cause us to reduce or alter our services, delay or prevent service enhancements or require us to enter into royalty or licensing agreements.

Legislation relating to consumer privacy and changes in government regulations or the interpretation of such regulations could affect our ability to deliver targeted communications and collect data that we use in providing our marketing services, which could negatively affect our ability to satisfy our clients’ needs.

The enactment of legislation related to consumer privacy issues could have a material adverse impact on our marketing services. Any such legislation could place restrictions upon the collection and use of information that is currently legally available or the manner in which we collect, manage and store this data or could materially increase our cost of managing or collecting some data. Legislation or industry regulation could also prohibit us from collecting or disseminating certain types of data, coupons, promotions, messages or newsletters, which could adversely affect our ability to meet our clients’ requirements.

With respect to CHR’s Health Resource Network, our ability to provide consumers with condition-specific health information and direct-to-patient communications may be adversely affected by concerns over heath regulatory guidelines, interpretation by the Food and Drug Administration of regulations related to the promotion of pharmaceutical products and laws, regulations and publicity regarding a patient’s right to privacy. Regulatory changes in some jurisdictions have increased manufacturer and retailer sensitivity and selectiveness as to what types of messages they will distribute in these jurisdictions. In addition, changes in the laws and regulations or manner of enforcement of such laws and regulations could negatively impact our business and cause us to change our

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services or systems. While we are currently working with our manufacturer and retailer clients to find an adequate solution to these concerns, there is no guarantee that we will be able to continue to distribute prints for these clients or that there will not be additional changes in the laws and regulations in these and other jurisdictions that will further impact our operations.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors or fraud, or in informing management of all material information in a timely manner.

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations, misstatements due to error or fraud may occur and may not be detected.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U. S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial position and results of operations.

The consolidated and condensed consolidated financial statements included in the periodic reports we file with the SEC are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.

Changes to financial accounting standards may affect our reported results of operations.

A change in accounting standards could have a significant effect on our reported results and may affect our previously reported transactions. New pronouncements and varying interpretations of existing pronouncements have occurred and may occur in the future. Changes to existing accounting rules or the application of existing U. S. GAAP may adversely affect our reported financial results, which could result in a decrease in the value of our stock price.

Risks Related to Shareholder Lawsuits

The Company and certain of our current and former directors and former officers are defendants in several stockholder class action and derivative lawsuits.

The Company, and certain current and former directors and former officers of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were consolidated in the United States District Court for the Middle District of Florida. The complaints seek unspecified compensatory damages and other relief. In addition, certain current and former directors and former officers of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from us, and disgorgement under the Sarbanes-Oxley Act of 2002.

In October 2006, the Company entered into a memorandum of understanding to settle the pending consolidated shareholder class action lawsuit for $8.5 million, $8.2 million of which was funded by our insurance carriers. Subsequently, in December 2006, the District Court granted preliminary approval to the settlement. In addition, we have agreed in principle to settle the derivative litigation actions and are currently working towards documenting the settlement. While the terms of the settlement in the stockholder class action contained in the memorandum of understanding and stipulation filed with the court and the agreement, in principle, to

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settle the derivative actions are on terms that do not adversely affect the Company and involve no admission of liability by the Company or any of the current and former directors and former officers named in the lawsuit, the settlements are not final and are subject to various conditions including court approval and other customary conditions.

To the extent that we do not settle these lawsuits, we intend to vigorously defend against the consolidated shareholder class action lawsuit and the two shareholder derivative actions. Furthermore, to the extent we do not settle these lawsuits, we cannot currently predict the impact or resolution of these litigations or reasonably estimate a range of possible loss, which could be material, and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition. In addition, securities lawsuits may result in substantial costs, divert management’s attention and other resources, and have a material and adverse effect on our financial condition and the results of our operations in the future.

Risks Related to The Company’s Receipt of Unsolicited Acquisition Proposal

The Company has received an unsolicited proposal to be acquired by merger.

On February 22, 2007, we announced that the Company had received an unsolicited proposal from ValueAct Capital Master Fund, L.P. (“ValueAct”) to acquire by merger 100% of the outstanding equity interests of the Company that ValueAct does not already own for $32.00 per share in cash. The receipt of ValueAct’s unsolicited proposal followed the Company’s prior announcement that the previously formed special committee of the Board of Directors had determined not to proceed with any of the interested parties that had submitted offers to acquire the Company. The Company has advised ValueAct that its proposal is under consideration by the Company’s Board of Directors in consultation with its advisors. The Company’s Board of Directors, in turn, has appointed a special committee to consider the appropriate response to the proposal from ValueAct. There can be no assurance that the consideration of the proposal from ValueAct or other proposals by the special committee of the Board of Directors will result in a binding agreement to acquire the Company or that the occurrence of any event, change or other circumstances will not result in the withdrawal or alteration of the proposal from ValueAct or any other interested party. In addition, to the extent the Company elects to negotiate or enter into any transaction, there can be no assurance that the negotiations will result in a definitive agreement or that any transaction contemplated by such agreement, if entered into, will close due to a variety of potential factors. Furthermore, the activities described above may divert management’s attention and increase the demand on the Company’s resources or otherwise have a negative effect on the Company’s business.

If the special committee of the Board of Directors determines not to enter into negotiations or enter into a transaction with ValueAct or another interested party, the share price of our common stock and future business and operations could be significantly negatively affected.

If the special committee of the Board of Directors determines not to enter into negotiations or enter into a transaction with ValueAct or another interested party or, to the extent the Company enters into an agreement and the transaction does not close for any reason, the share price of our common stock and future business and operations could be significantly negatively affected and may be subject to material risks, including, but not limited to the risk that the share price of our common stock may change to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed or may be completed at a particular price. In addition, our costs related to the consideration and potential negotiation and closing of a transaction, such as legal, accounting and the fees of our financial and other advisors, must be paid even if a transaction is not consummated. The foregoing could have a material adverse impact on our business, operations and financial results.

Item 1B. Unresolved Staff Comments.

None

Item 2 . Properties

Our headquarters is located in St. Petersburg, FL. This 143,000 square foot facility houses our principal administrative, marketing, information technology and product development offices.

As of December 31, 2006, we leased sales and support offices throughout the United States, consisting of approximately 186,000 square feet in aggregate, and offices for our foreign operations in five countries. We believe that the headquarters facility and the existing sales and support offices are adequate to meet our current requirements and that suitable additional space will be available as needed to accommodate growth of our operations and sales and support office requirements for the foreseeable future.

Item 3. Legal Proceedings

Securities Actions and Derivative Actions

We, and certain current and former directors and former officers of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 thereunder. The actions were originally brought on behalf of those who purchased our common stock between January 17, 2002 and August 25, 2003, inclusive. The complaints contain various allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning our business and operations with the result of artificially inflating our share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In October 2006, the Company entered into a memorandum of understanding to settle the pending consolidated shareholder class action lawsuit for

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$8.5 million, $8.2 million of which was funded by our insurance carriers. Subsequently, in December 2006, the District Court granted preliminary approval to the settlement. While the terms of the settlement contained in the memorandum of understanding and stipulation filed with the court are on terms that do not adversely affect the Company and involve no admission of liability by the Company or any of the current and former directors and former officers named in the lawsuit, the settlement is not final as it is subject to various conditions including court approval and other customary conditions.

Certain current and former directors and former officers of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions captioned The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, pending in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 pending in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from us, and disgorgement under the Sarbanes-Oxley Act of 2002. We have agreed in principle to settle the derivative litigation actions and are currently working towards documenting the settlement. The settlement is not final and, when executed, will be subject to various conditions including court approval and other customary conditions.

In the event we are unable to settle the consolidated class action and derivative actions, we intend to continue to vigorously defend against these lawsuits. Furthermore, to the extent we do not settle these lawsuits pursuant to the terms of the pending settlements, we cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

Item 4. Sub mission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended December 31, 2006 or through the date of the filing of this Annual Report on Form 10-K.

PA RT II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. Our common stock, par value $0.01 per share (“common stock”), is traded on the New York Stock Exchange (“NYSE”) under the symbol “POS”. The following table sets forth, for each quarter of the last two fiscal years, the high and low closing prices as reported by the NYSE for the common stock, and dividends declared per share of common stock, for the quarters ended as follows:

	High		Low		Dividends Declared per share of Common stock
Fiscal Year Ended March 31, 2006:
June 30, 2005	$	26.33	$	22.85	$	—
September 30, 2005		26.97		22.52		0.30
December 31, 2005		27.54		22.36		—
March 31, 2006		26.28		21.71		—
Nine Months Ended December 31, 2006:
June 30, 2006	$	29.77	$	22.52	$	—
September 30, 2006		29.49		26.73		0.30
December 31, 2006		29.11		24.23		—

Holders. As of February 22, 2007, there were approximately 760 registered holders of our common stock.

Dividends. During the nine months ended December 31, 2006 and the twelve months ended March 31, 2006, we paid an annual dividend of $0.30 per share. We expect to pay similar dividends in the future. However, the payment and rate of dividends on our common stock are subject to several factors including operating results, availability of cash and our financial requirements.

Securities Authorized for Issuance Under Equity Compensation Plans. The information required by Item 5 will be contained in our definitive Proxy Statement for the Annual Meeting of Stockholders under the caption Equity Compensation Plan Information and is incorporated herein by reference. The definitive Proxy Statement will be filed with the SEC no later than 120 days after December 31, 2006.

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The following table sets forth information relating to our purchase of our equity securities during the nine months ended December 31, 2006:

Period (Month of)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
					(in thousands)
Nine Months Ended December 31, 2006
April 2006	—		NA	—	$	41,507
May 2006	—		NA	—	$	41,507
June 2006	—		NA	—	$	41,507
July 2006	—		NA	—	$	141,507
August 2006	60,500	$	28.35	60,500	$	139,792
September 2006	227,251	$	27.61	227,251	$	133,517
October 2006	249,193	$	28.13	249,193	$	126,507
November 2006	—		NA	—	$	126,507
December 2006	—		NA	—	$	126,507

⁽¹⁾ On July 24, 2006, our Board of Directors authorized an additional $100 million of funds to be available for the repurchase of our common stock. This authorization was in addition to the $100 million our Board of Directors authorized in August 2005. We intend to use cash flows from operations and funds available under our amended credit facility to finance the remaining authorized repurchases of our common stock. Factors governing the future repurchase of our common stock include consideration of the market price of our common stock at the time of the contemplated repurchase.

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Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth below should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 — “Consolidated Financial Statements and Supplementary Data”. The following selected consolidated financial data for each fiscal period presented is derived from our audited Consolidated Financial Statements. Previously reported amounts for fiscal years ended March 31, 2003 through March 31, 2005 have been adjusted to reflect the reclassification of the results of certain discontinued operations that were sold during the fiscal year ended March 31, 2005.

	As of and for the Nine Months Ended December 31, 2006		As of and for the Fiscal Years Ended March 31,
			2006		2005			2004			2003
	(In thousands, except per share amounts)
Statement of operations data:
Revenues	$	340,874	$	417,746	$	410,062		$	408,632		$	383,849
Income from continuing operations		42,799		71,616		68,596			60,397			51,564
Income (loss) from discontinued operations (1)		—		—		(3,144	)		(78,900	)		3,534
Cumulative effect of accounting change, net-of-tax(2)		—		—		—			(770	)		—
Net income (loss) (3)		42,799		71,616		65,452			(19,273	)		55,098
Diluted income (loss) per common share:
From continuing operations	$	0.92	$	1.46	$	1.31		$	1.15		$	0.94
From discontinued operations (1)		—		—		(0.06	)		(1.50	)		0.06
Cumulative effect of accounting change, net-of-tax(2)		—		—		—			(0.02	)		—
Net income (loss)	$	0.92	$	1.46	$	1.25		$	(0.37	)	$	1.00
Diluted weighted average common shares outstanding		46,633		48,925		52,356			52,324			54,885
Balance sheet data:
Cash and cash equivalents	$	62,882	$	28,117	$	116,191		$	72,704		$	1,715
Total assets		468,492		337,095		392,738			386,809			422,421
Long-term debt		127,710		61,803		34,324			29,908			49,926
Total stockholders’ equity		184,171		143,157		196,374			184,662			215,995
Cash dividend declared per common share	$	0.30	$	0.30	$	0.30		$	—		$	—
Other data:
Installed retail store base at end of period – CMS		22,072		21,048		17,609			17,604			17,498
Installed pharmacy base at end of period – CHR		13,206		12,780		12,423			11,929			17,827
Installed retail store base at end of period – CMI		7,994		7,316		5,907			5,545			4,069
Capital expenditures	$	97,491	$	60,254	$	22,527		$	26,427		$	42,555
Payments for repurchases of common stock	$	15,000	$	114,317	$	44,174		$	13,307		$	71,973

⁽¹⁾ See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19” regarding discontinued operations.

⁽²⁾ Upon the adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”) in fiscal year 2004, we recognized a net increase in property and equipment of $0.7 million and an asset retirement obligation of $2.1 million. This resulted in a non-cash charge of $0.8 million, net of an income tax benefit of $0.6 million, which is reported as a cumulative effect of an accounting change for the fiscal year ended March 31, 2004. The effect of the adoption of SFAS No. 143 was associated with Japan Billboard’s contractual obligation to remove certain billboards. The remaining asset retirement obligation of $1.2 million was eliminated in fiscal year 2005 in conjunction with the sale of Japan Billboard.

⁽³⁾ Net income for the nine months ended December 31, 2006 was reduced by $8.0 million of share-based compensation expense related to the adoption of SFAS 123R in April 2006. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 10” regarding SFAS 123R.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The nine months ended December 31, 2006 was a successful period for Catalina Marketing Corporation in all reporting segments. CMS revenue increased by 13.8% over the same period in the prior year substantially as a result of our channel expansion and category penetration efforts as well as revenues associated with the roll out of our color printer initiative. CHR revenues increased 14.5% compared to the same nine month period of the prior year driven primarily by a favorable shift in program mix which resulted in a higher average price per message. Finally, CMI experienced revenue growth of 29.0% over the same period in the prior year due to growth in manufacturer and retailer revenue.

During the nine months ended December 31, 2006, CMS grew the installation base of the Catalina Marketing Network^® to include over 22,000 stores and achieved strong manufacturer renewals. Additionally, as of December 31, 2006, we had completed the installation of over 95,000 color printers, representing over 65% of the planned grocery store installations across our domestic network. We will continue to make investments in our channel expansion, new product development, and color printing initiatives, which we believe will provide long-term revenue and income growth. The expansion of the Catalina Marketing Network^® into retail drug stores provides us the opportunity to more effectively market our services to new and existing CPG manufacturer clients, such as manufacturers of health and beauty products, personal care products, and over-the-counter medications.

CHR continued to show significant growth in profitability as well as revenues. Net income increased 29.6% in the nine months ended December 31, 2006 compared to the same period in the prior year. CHR’s business model continued to exhibit strong operating leverage, as evidenced by operating income growth greater than the corresponding growth in revenues. We continue to explore opportunities with new prescription drug and pharmaceutical companies, and will consider expanding the CHR network into new retail drug chains when those opportunities are consistent with our business model and provide the ability to maintain solid operating leverage.

CMI increased its retailer base and was installed in almost 8,000 stores across seven countries as of December 31, 2006. Net income increased 75.8% over the prior nine month period as a result of both manufacturer and retailer revenue increases. As previously disclosed, we were notified by two of CMI’s retail customers in the quarter ended September 30, 2006 that they did not intend to renew their contracts effective December 31, 2006 and March 31, 2007. On a combined basis, the retailer and manufacturer revenue generated by these two clients accounted for approximately 29% of CMI’s revenue for the nine months ended December 31, 2006. During 2007, we expect to partially recover the manufacturer revenue associated with these two clients through the growth of the Catalina Marketing Network and other initiatives.

Results of Operations

Nine Months Ended December 31, 2006 Compared with the Nine Months Ended December 31, 2005

In August 2006, the Board of Directors approved a change in our fiscal year end from March 31st to December 31st. In conjunction with the change in year-end, we eliminated the three-month reporting lag previously used for reporting the results of CMI. As of December 31, 2006, all of our consolidated subsidiaries had the same balance sheet date. Beginning January 1, 2007 all subsidiaries will have the same fiscal reporting period. We believe the change in year-end better aligns our reported operating periods with the fiscal year of the majority of our CPG manufacturer and pharmaceutical manufacturer clients, while the elimination of the reporting lag for CMI allows us to report the results of our foreign subsidiaries in a more timely manner. As a result of these changes, the following discussion compares our results of operations for the nine months ended December 31, 2006 (the transition period) to our results of operations for the nine months ended December 31, 2005.

In the consolidated financial statements for the nine months ended December 31, 2006, the results for CMI are not shown in our income statement for the three month period ended December 31, 2006, and are reflected only as an addition to retained earnings in the consolidated statements of stockholders’ equity and comprehensive income.

Throughout this discussion, data for all periods except as of and for the nine months ended December 31, 2005, are derived from our audited consolidated financial statements, which appear in Item 8 – “Consolidated financial Statements and Supplementary Data” of this annual report on form 10-K. All data as of and for the nine months ended December 31, 2005, are derived from our unaudited consolidated financial information, which is presented in Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 22 – Change in Fiscal Year End and Elimination of Reporting Lag for Foreign Subsidiaries”.

We adopted the provisions of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, (“SFAS 123R”) on

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April 1, 2006 for our domestic operations and on January 1, 2006 for CMI. The adoption of SFAS 123R resulted in a pretax expense for stock-based compensation of $10.8 million in the nine months ended December 31, 2006 for which there was no corresponding expense in the prior year.

Due to the diversity of our business operations, we do not rely on any single or series of overriding metrics to measure or manage the performance of our businesses in the aggregate. While we do not use overriding metrics, we do monitor certain metrics specific or unique to the nature of each business segment’s operations. For example, we analyze and manage the performance of CMS and CMI based on a series of metrics including, but not limited to, store installation base and shopper reach. We analyze the performance of CHR using similar metrics such as pharmacy installation base and revenue producing communications as a percent of total communications; however, due to numerous factors, including the complexity and limited predictability of product mix at CHR, store/pharmacy installation base and revenue producing communications as a percent of total communications can not be viewed as reliable indicators of our performance in the aggregate. Please refer to “Segment Reporting-Continuing Operations” for a discussion of the metrics used by management to evaluate each of its segments.

The following tables include the revenues, income (loss) from operations, and net income (loss) for each of our reportable segments for the nine months ended December 31, 2006 and 2005. The results of operations of CMI are included for the nine months ended September 30th, as the results for the three months ended December 31, 2006 were recorded directly to retained earnings in conjunction with the elimination of the reporting lag.

	Nine Months Ended
	December 31, 2006			December 31, 2005			Dollar Change			Percentage Change
Revenues
CMS	$	200,546		$	176,279		$	24,267		13.8	%
CHR		71,565			62,500			9,065		14.5
CMI		68,426			53,045			15,381		29.0
Corporate		3,717			2,633			1,084		41.2
Eliminations		(3,380	)		(2,624	)		(756	)	(28.8	)
Total Revenues	$	340,874		$	291,833		$	49,041		16.8	%
	Nine Months Ended
	December 31, 2006			December 31, 2005			Dollar Change			Percentage Change
Income (Loss) from Operations
CMS	$	73,065		$	75,783		$	(2,718	)	(3.6	)%
CHR		23,722			18,309			5,413		29.6
CMI		18,617			12,917			5,700		44.1
Corporate		(44,100	)		(29,778	)		(14,322	)	(48.1	)
Total Income from Operations	$	71,304		$	77,231		$	(5,927	)	(7.7	)%
	Nine Months Ended
	December 31, 2006			December 31, 2005			Dollar Change			Percentage Change
Net Income (Loss)
CMS	$	43,653		$	45,090		$	(1,437	)	(3.2	)%
CHR		14,114			10,894			3,220		29.6
CMI		8,804			5,008			3,796		75.8
Corporate		(23,772	)		(13,388	)		(10,384	)	(77.6	)
Net Income	$	42,799		$	47,604		$	(4,805	)	(10.1	)%

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Segment Results

Catalina Marketing Services

CMS generates revenues primarily by providing in-store communications on behalf of its manufacturer and retailer clients via the Catalina Marketing Network^®. The amount of revenue recognized is generally based on the total communications delivered multiplied by a per-print fee. The delivery of communications is based upon particular triggering transactions that occur at the point-of-sale (i.e., the checkout counter of a retail store). The success of CMS depends upon, among other factors, the store installation base, the number of transactions accessed by the Catalina Marketing Network^®, the number of communications printed, and the ability to attract and retain CPG manufacturers to use the targeted communication capabilities offered by our network.

The following table presents the number of stores in which the Catalina Marketing Network^® was installed, the average weekly number of shoppers reached, and the number of communications printed as of and for the nine months ended December 31, 2006 and 2005:

	December 31,
	2006	2005
Retailer stores installed	22,072	17,788
Average weekly shoppers reached (in millions)	251	223
Number of communications printed (in millions)	2,441	2,164

Revenues at CMS increased by $24.3 million to $200.5 million in the nine months ended December 31, 2006 from $176.3 million in the nine months ended December 31, 2005 due primarily to increases in revenue from CPG manufacturer and retailer clients of $20.4 million and $3.6 million, respectively. The 12.3% increase in manufacturer revenue was attributable primarily to a 9.9% increase in the volume of communications printed as well as a 2.4% increase in the revenue per print. The increased retailer revenue was the result of increased spending by several major clients.

As part of the color printer initiative, we have implemented a standard price increase of $0.02 for each manufacturer communication that is printed on our new color printers. We currently expect that approximately 75% to 85% of all communications printed in 2007 will be printed in color, resulting in a corresponding increase in the average price that we generate for each manufacturer communication.

Direct operating expenses increased by $14.0 million in the nine months ended December 31, 2006 compared with the same period in the prior year. The increase was partially attributable to $2.5 million in one time costs associated with the installation of color printers. We also recognized ink expense for the first time during the nine-months ended December 31, 2006 due to the installation and use of color printers. We expect ink expense to continue to increase as more clients move to color printing. There was no corresponding expense during the prior year period as during that time we only used black and white thermal printers. Additionally, the increased revenue resulted in increased commission expense and retailer fees. Finally, we incurred an expense of approximately $0.8 million due to the impairment of two office leases.

SG&A expenses increased $10.1 million for the nine month period ended December 31, 2006 as compared with the same period in the prior year including $2.5 million associated with stock-based compensation expense. The remaining $7.6 million increase was driven primarily by increases in sales force and analytic personnel and related expenses to support our channel expansion and color printer initiatives. Additionally, incentive compensation increased due to the improved sales performance during the current year period.

Depreciation and amortization expense increased by $2.8 million primarily due to the increased capital spending associated with the installation of the Catalina Marketing Network^® in Walgreens and K-Mart Corporation (“K-Mart”), as well as the roll out of our color printer initiative. We expect increased depreciation and amortization expense in future periods as we continue the installation of color printers.

Net income for CMS decreased by $1.4 million, or 3.2%, due to the factors described above.

Catalina Health Resource

CHR’s primary service offerings use in-store, prescription-based technology to provide targeted, direct-to-patient communications on behalf of its clients. These communication services include the delivery of messages and educational information to healthcare patients at retail pharmacies participating in the Health Resource Network. CHR primarily generates revenues by printing messages for pharmaceutical and CPG manufacturers.

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Management analyzes the performance of CHR through a review of the pharmacy installation base and revenue producing communications as a percent of total communications. These metrics provide a framework for evaluating current performance, as well as acting as a measure of the reach of the network, which is important in attracting additional pharmaceutical and CPG manufacturers to utilize the services of CHR.

The following table presents the pharmacy installation base and the percent of revenue producing patient communications as of and for the nine months ended December 31, 2006 and 2005:

	December 31,
	2006		2005
Pharmacies installed	13,206		12,621
% of revenue producing communications	25	%	25	%

Revenues for CHR increased by $9.1 million, or 14.5%, for the nine months ended December 31, 2006, compared with the nine months ended December 31, 2005. The increase is primarily the result of the growth of the network, while maintaining the percent of revenue producing communications and a favorable shift in program mix which resulted in an increase in the average price per revenue-producing communications.

Direct operating expenses increased $2.8 million for the nine months ended December 31, 2006 as compared with the same period in the prior year and included $0.1 million of stock-based compensation expense. The remaining increase was principally due to higher retailer fees as well as slightly higher commission expense in the current year period.

SG&A expenses increased $0.8 million in the nine months ended December 31, 2006 as compared with the same period in the prior year. Excluding stock-based compensation expense of $0.8 million, SG&A expenses were relatively unchanged from the prior year.

Net income for CHR increased by $3.2 million, or 29.6%, due to the factors described above.

Catalina Marketing International

CMI provides services for clients that operate in France, Italy, the United Kingdom, Germany, Japan, Belgium and the Netherlands, in a similar manner to the services provided by the domestic CMS business.

The following table presents CMI’s retail installation base and the average weekly shoppers reached as of and for the nine months ended December 31, 2006 and 2005:

	December 31,
	2006	2005
Retail stores installed	7,994	6,962
Average weekly shoppers reached (in millions)	88	84

Revenues, as reported, for CMI increased by $15.4 million, or 29.0%, for the nine months ended December 31, 2006, compared with the nine months ended December 31, 2005. The increase was attributable to growth in revenue from retailers and manufacturers of $11.4 million and $4.0 million, respectively. The increases were primarily in France, which benefited from revenues associated with the expansion of the network and increased penetration of existing clients.

Direct operating expenses increased $3.1 million for the nine months ended December 31, 2006 as compared with the same period in the prior year and included $0.3 million of stock-based compensation expense. The increase was primarily due to the growth of the business and the increased volume of communications printed in the current year period.

SG&A expenses increased $5.9 million for the nine months ended December 31, 2006 as compared with the same period in the prior year including $1.2 million of stock-based compensation expense. The remaining $4.7 million increase was due primarily to an increase in sales and analytics personnel to support business growth opportunities, as well as an expanded senior management team and higher facilities cost.

Net income, as reported, for CMI increased $3.8 million to $8.8 million for the nine months ended December 31, 2006 as compared with the same period in the prior year. The increase was due primarily to the factors described above as well as foreign exchange transaction gains in the current year versus losses in the prior year.

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Corporate

Expenses for our corporate group (“Corporate”) include costs for retail store support, information technology, corporate accounting, client services, new business development, marketing, human resources, procurement, and executive management. These costs are included in direct operating costs, SG&A expenses, and depreciation and amortization expense in the accompanying Consolidated Statements of Operations included in Item 8 — “Consolidated Financial Statements and Supplementary Data” for the nine months ended December 31, 2006 and the fiscal years ended March 31, 2006 and 2005. For purposes of segment reporting, these Corporate costs are allocated to the CMS and CHR business segments using methods considered reasonable by management and which provide management with a measure of utilization of corporate services by the respective business segments. Costs that can be directly attributed to the business segments are allocated to that business segment. Costs that are indirectly attributed to the business segments are allocated proportionately based on the business segment’s revenues, number of printed communications, square feet of space used, headcount, or other relevant statistics, depending on the type of cost. For example, the cost to maintain our corporate headquarters is allocated to the domestic business segments based on the estimated square footage each business unit occupies; paper and store maintenance costs are allocated to the domestic business segments based upon the number of printed communications; and data communications costs are allocated based upon revenues. Of the total Corporate operating expenses, 61.5% were allocated to the operating segments during the nine months ended December 31, 2006. These amounts were 63.2% and 63.8% for the twelve month periods ended March 31, 2006 and 2005, respectively.

For the nine months ended December 31, 2006 the Corporate loss from operations increased $14.3 million as compared with the nine months ended December 31, 2005, including $5.8 million associated with the implementation of SFAS 123R and $1.5 million of severance expense. The remaining increase was driven primarily by increased executive administrative expense which was partially offset by increased intercompany royalty revenue and non-affiliated licensing revenues. Net loss for Corporate increased by $10.4 million for the period ended December 31, 2006 compared with the period ended December 31, 2005 primarily due to the factors affecting loss from operations, increased interest expense associated with our higher debt level and a higher consolidated effective tax rate driven by the implementation of SFAS 123R in the current year.

As previously disclosed, we have recently been investigating the potential sale of the company as a result of an unsolicited expression of interest in the acquisition of the Company, as well as an additional unsolicited offer from ValueAct to acquire by merger 100% of the remaining outstanding shares of the Company that ValueAct does not already own. In the first quarter of 2007, Corporate will be negatively impacted by the one time costs associated with the investigation into the potential sale of the Company.

Foreign Currency Translation and Its Effect on Revenues

Our consolidated revenues for the nine months ended December 31, 2006 were $340.9 million, which included $68.4 million from our foreign operations. The local currencies of the countries in which we maintain foreign operations are the euro, British pound sterling and Japanese yen. These currencies were relatively stable in aggregate against the United States dollar during the nine months ended December 31, 2006. Revenue growth assuming a constant currency rate was 30.9% versus the prior year period, while the reported revenues of our foreign operations, which take into account the effect of changes in foreign currency exchange rates, grew by 29.0% compared to the prior year period.

Results of CMI for the three months ended December 31, 2006

In conjunction with the change in fiscal year end, we eliminated the three-month reporting lag previously used by CMI. Reported income for the nine-month transition year included the results of CMI for the nine-months ended September 30, 2006. Results of CMI for the three months ended December 31, 2006, which represent the reporting lag, were not reflected in the reported income and were only recorded as an addition to retained earnings.

Revenues for CMI for the three months ended December 31, 2006 were $24.2 million and income from operations was $2.5 million. Net income was $.07 million and included $0.6 million of stock-based compensation net of taxes. See Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 22 – Change in Fiscal Year End and Elimination of Reporting Lag for Foreign Subsidiaries” for additional discussion of CMI’s quarter ended December 31, 2006.

Year Ended March 31, 2006 Compared with the Year Ended March 31, 2005

The following tables include the revenues and income (loss) from operations for each of our reportable segments included in continuing operations for the fiscal years ended March 31, 2006 and 2005. Net income (loss) is presented for the same periods for our reportable segments and discontinued operations. Discontinued operations include the operating results of Japan Billboard, DMS and CMRS through the date each entity was divested. The accounts of CMI are included for the twelve months ended December 31, which was their fiscal year end.

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	Year Ended
	March 31, 2006			March 31, 2005			Dollar Change			Percentage Change
Revenues
CMS	$	254,393		$	269,612		$	(15,219	)	(5.6	)%
CHR		89,527			76,167			13,360		17.5
CMI		73,817			64,116			9,701		15.1
Corporate		3,667			3,613			54		1.5
Eliminations		(3,658	)		(3,446	)		(212	)	(6.2	)
Total Revenues	$	417,746		$	410,062		$	7,684		1.9	%
	Year Ended
	March 31, 2006			March 31, 2005			Dollar Change			Percentage Change
Income (Loss) from Operations
CMS	$	113,802		$	124,283		$	(10,481	)	(8.4	)%
CHR		27,609			15,729			11,880		75.5
CMI		16,588			15,503			1,085		7.0
Corporate		(43,812	)		(46,713	)		2,901		6.2
Total Income from Operations	$	114,187		$	108,802		$	5,385		4.9	%
	Year Ended
	March 31, 2006			March 31, 2005			Dollar Change			Percentage Change
Net Income (Loss)
CMS	$	67,712		$	73,879		$	(6,167	)	(8.3	)%
CHR		16,427			9,356			7,071		75.6
CMI		6,896			7,395			(499	)	(6.7	)
Corporate		(19,419	)		(22,034	)		2,615		11.9
Net Income from Continuing Operations	$	71,616		$	68,596		$	3,020		4.4
Discontinued Operation		—			(3,144	)		3,144		NM
Net Income	$	71,616		$	65,452		$	6,164		9.4	%

NM - Not Meaningful

Segment Reporting – Continuing Operations

Catalina Marketing Services

Revenues at CMS declined by $15.2 million to $254.4 million in fiscal year 2006 from $269.6 million in fiscal year 2005 due to declines in revenue from CPG manufacturer and retailer clients of $12.7 million and $2.5 million, respectively. The decrease in manufacturer revenue was attributable primarily to a 7.2% decrease in the volume of communications printed, principally due to a general reduction in spending by our CPG clients during the second and third quarters of the fiscal year, as well as the discontinuance of specific product lines by certain of our CPG clients. The reduction in the volume of printed communications was partially offset by a 2.3% increase in the average price per communication printed, a function of a favorable shift in mix to higher-priced services. The decline in retailer revenue was primarily attributable to transitional sales in the first quarter of fiscal year 2005 related to the loyalty card business, which was sold on March 31, 2004.

Direct operating expenses declined by $0.5 million primarily due to declines in paper expense and costs associated with the loyalty card business of $2.0 million and $2.2 million, respectively. The decrease in paper expense was principally attributable to an unfavorable adjustment to paper expense in the prior year of $1.2 million combined with fewer communications printed and lower contractual cost for paper in the current year. Partially offsetting these decreases, retailer fees increased $3.8 million in the current year, a result of changes in certain retailer contracts. The majority of these contracts were renegotiated in fiscal year 2005 and resulted in increased retailer fees on a per print basis.

SG&A expenses increased $1.3 million for fiscal 2006 as compared with fiscal 2005. The increase was driven primarily by increases in sales force personnel and consulting expenses due primarily to our increased focus on new business development opportunities and channel expansion.

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Depreciation and amortization expense declined by $5.5 million primarily due to the reduction in capital spending over the previous two years which resulted in lower depreciation and amortization expense as compared with the prior fiscal year. With the installation of the Catalina Marketing Network^® in Walgreens and K-Mart Corporation (“K-Mart”), as well as the investment in the color printer initiative, we have increased, and will continue to increase, our level of capital expenditures, which will result in increased depreciation and amortization expense in future periods.

Net income for CMS decreased by $6.2 million, or 8.3%, due to the factors affecting operating results described above.

Catalina Health Resource

Revenues for CHR increased by $13.4 million for the fiscal year ended March 31, 2006, compared with the fiscal year ended March 31, 2005. The increase was attributable to a 29.4% increase in the number of revenue-producing communications, which was primarily attributable to certain client programs that triggered a high volume of revenue-producing communications during the current fiscal year. These programs, which generated lower revenue per communication, contributed to an overall shift in program mix that resulted in a 7.7% decline in the average price per revenue-producing communication. Because the increase in revenue producing communications in the current year was the result of certain specific client programs, this increase is not indicative of expected future growth rates in the volume of revenue producing communications.

Direct operating expenses were relatively unchanged from the prior year at $43.5 million. Within direct operating expenses, retailer fees increased by $1.1 million, a result of increased volume of communications printed, but were offset by declines in bad debt expense and sales commissions. Commission expense decreased due to current year changes in individual performance measures. As a percentage of revenue, direct operating expenses declined from 57.0% for fiscal year 2005 to 48.5% for fiscal year 2006, exhibiting the operating leverage within this segment.

SG&A expenses increased by $2.7 million for the fiscal year ended March 31, 2006 as compared with fiscal year ended March 31, 2005. This increase was primarily due to increased marketing expense, a result of our focus on growing the CHR business and the PATIENTLink^TM brand, and higher personnel and incentive compensation cost, due to the current year financial performance.

Depreciation and amortization expense decreased by $1.3 million for the fiscal year, a result of current equipment, primarily printers installed in pharmacies, reaching the end of its depreciable life and not requiring replacement. As this equipment primarily became fully depreciated during fiscal 2005, we do not expect this trend to continue.

For the fiscal year ended March 31, 2006, net income for CHR increased by $7.1 million, or 75.6%. The increase was due to those factors described above.

Catalina Marketing International

Revenues, as reported, for CMI increased by $9.7 million for the fiscal year ended March 31, 2006, compared with the fiscal year ended March 31, 2005. The increase was primarily attributable to increased manufacturer and retailer revenue of $2.6 million and $7.5 million, respectively. Manufacturer revenue increased principally due to growth in Italy. Retailer revenue was up primarily due to operations in France, which increased due to the completion of the installation of the network in two significant retailers.

Direct operating expense, as reported, increased $2.7 million for fiscal year 2006 as compared with fiscal year 2005. The increase was due primarily to the growth of the business and costs associated with the increased volume of communications printed in the current year.

SG&A expenses, as reported, increased $5.3 million for fiscal year 2006. The increase was due primarily to the addition of sales force personnel, facility expenses, primarily in France, increased information technology expense, and compensation costs associated with the strengthening of the management team for CMI.

Depreciation expense, as reported, increased $0.6 million due to the acquisition of additional store equipment resulting from continued store growth in the current fiscal year.

Net income, as reported, for CMI decreased $0.5 million to $6.9 million for the fiscal year ended March 31, 2006 as compared with the fiscal year ended March 31, 2005. The decrease was primarily due to increased foreign exchange transaction losses due to the unfavorable movement in exchange rates during the current year partially offset by the factors described above.

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Corporate

For the fiscal year ended March 31, 2006 the Corporate loss from operations decreased $2.9 million as compared with the fiscal year ended March 31, 2005. The decrease was driven primarily by lower consulting and legal fees of $3.4 million and $2.2 million, respectively, combined with a decline in incentive compensation of approximately $1.0 million. These decreases were partially offset by the reversal into income of a $4.4 million sales tax accrual in fiscal 2005. Net loss for Corporate decreased by $2.6 million for the year ended March 31, 2006 compared with the year ended March 31, 2005 primarily due to the factors affecting loss from operations combined with an increase in royalty income from CMI and a lower consolidated effective tax rate.

Segment Results – Discontinued Operations

As noted above and in previous filings, in November 2003, we announced our intent to divest DMS, Japan Billboard and CMRS because they were deemed not to be strategically aligned with our current core businesses. There was no activity associated with DMS, Japan Billboard and CMRS in the period ended December 31, 2006. These businesses accounted for 5.1% of our total revenues and generated an aggregate net loss of $4.2 million for the fiscal year ended March 31, 2005. Partially offsetting the net loss from discontinued operations, we incurred a $1.1 million gain on the disposition of those operations. See further discussion in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 19”.

Liquidity and Capital Resources

Our primary sources of liquidity have been cash flows generated from operations and a credit agreement with a syndicate of commercial banks that provides for borrowings in both U.S. dollars and Japanese yen. Our primary liquidity requirements will be driven by our color printer initiative, working capital and the repayment of debt. Our sources of liquidity may also be used for cash dividends and repurchases of our common stock. We plan to continue to invest in new business development, sales and marketing, our Catalina Marketing Network^® and other support technology, employee development and retention and enhanced systems of reporting and controls.

Cash flows from operations combined with borrowings on our credit facilities in the period ended December 31, 2006 and through the current date have been sufficient to meet our liquidity needs and should be sufficient to meet our projected cash requirements for at least the next twelve months. Cash on hand as of December 31, 2006 was $62.9 million, of which approximately $54.6 million was held by our subsidiaries in Europe.

Our long-term debt outstanding as of December 31, 2006 was $127.7 million. See Capital Requirements – Contractual Obligations for a discussion of our contractual commitments, which include our bank indebtedness as well as contractual obligations related to our operations.

We believe that our policy regarding the availability of sufficient amounts of cash gives us the opportunity to invest in our business as we believe is necessary for items including our color printer initiative, research and development, creation and expansion of markets, share repurchases, acquisitions, investments, legal risks and challenges to our business model. In addition, we believe our existing cash and cash equivalents, combined with cash generated from operations and available borrowings under our credit facility, should be sufficient to fund our operating activities as well as other opportunities for the short term and over our forecasted long-range plan of three years. If during that period, or thereafter, we are not successful in generating sufficient cash flows from operations, raising additional capital when required or being able to borrow in sufficient amounts, our business could suffer.

Cash Flow Analysis

Nine Months Ended December 31, 2006 Compared with the Nine Months Ended December 31, 2005

Net cash provided by operating activities increased $5.3 million to $67.3 million for the nine months ended December 31, 2006 from $62.0 million for the nine months ended December 31, 2005. The increase in net cash provided by operating activities, was primarily due to higher net income adjusted for non-cash impacting items of $9.4 million. Partially offsetting this increase, changes in operating assets and liabilities resulted in a use of cash of $4.1 million. The increase in net income for non-cash impacting items was the result of lower net income of $4.8 million which was more than offset by adjustments for non-cash impacting items including stock-based compensation of $10.8 million and depreciation and amortization of $3.3 million. Cash used by increased accounts receivable of $31.7 million was offset by an increase in cash provided by changes in accrued expenses of $28.2 million.

Net cash used in investing activities increased $54.2 million to $97.2 million for the nine months ended December 31, 2006 compared with $43.0 million for the nine months ended December 31, 2005. Capital expenditures increased $58.0 million to $97.5

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million and were consistent with anticipated increases associated with the roll out of color printers and the installation of Catalina Marketing Network^® in Walgreens and K-Mart. This was offset slightly by expenditures of $3.5 million for the purchase of the remaining common stock of CHR in nine months ended December 31, 2005.

Net cash provided by financing activities was $42.1 million for the nine months ended December 31, 2006 compared with net cash used in financing activities of $100.6 million in the nine months ended December 31, 2005. The $142.7 increase is primarily the result of increases in net borrowing of $77.8 million, lower repurchases of common stock of $60.2 million and higher proceeds from issuance of common stock of $3.9 million. The increased borrowing was related to the capital expenditures associated with the color printer rollout.

Cash and cash equivalents was $62.9 million as of December 31, 2006 versus $32.6 million as of December 31, 2005 and included amounts associated with the elimination of the reporting lag of our foreign subsidiaries.

Fiscal Year Ended March 31, 2006 Compared with the Fiscal Year Ended March 31, 2005

Net cash provided by operating activities decreased $16.3 million to $101.7 million for the fiscal year ended March 31, 2006 from $118.0 million for the fiscal year ended March 31, 2005. The decrease in net cash provided by operating activities, was primarily due to higher net income more than offset by adjustments for non-cash impacting items including depreciation and amortization, impairment charges and deferred income taxes. Net income adjusted for non-cash impacting items decreased $12.6 million to $106.9 million in fiscal 2006 from $119.5 million in fiscal 2005. Net income increased $6.2 million in fiscal 2006, but was offset by reductions in depreciation and amortization of $7.7 million, impairment charges of $4.9 million and deferred income tax activity of $5.7 million. The lower depreciation in fiscal 2006 was associated with an increase in fully depreciated assets. The $4.9 million reduction attributed to impairment charges was the result of 2005 impairments with no corresponding activity in fiscal 2006. Cash used by changes in operating assets and liabilities increased by $3.7 million in fiscal 2006 versus fiscal 2005. The increased use of cash was associated with changes in accounts receivable, prepaid and other assets and taxes payable which were partially offset by changes in accounts payable, other accrued expenses and deferred revenues.

Net cash used in investing activities increased $46.2 million to $63.8 million for fiscal year 2006 compared with $17.6 million for fiscal year 2005. Capital expenditures increased $37.8 million to $60.3 for fiscal year and was consistent with anticipated increases associated with the installation of the Catalina Marketing Network^® in Walgreens. Additional expenditures of $3.5 million for the purchase of the remaining common stock of CHR in fiscal 2006 and $5.4 of proceeds from the sale of DMS in fiscal 2005 added to the year over year increase.

Net cash used in financing activities increased $65.6 million to $124.0 million for fiscal year 2006 compared with $58.4 million used in financing activities for fiscal year 2005. Cash used for the repurchase of common stock increased $70.1 million in fiscal 2006 to $114.3 million versus $44.2 million in fiscal 2005. In fiscal 2006 we paid dividends of $14.5 million versus $15.7 million in fiscal 2005. The decrease was attributable to a lower number of shares outstanding in the current year. Our total debt decreased by $2.7 million from $64.6 million in fiscal 2005 to $61.9 million in fiscal 2006 due to slight increases in borrowings offset by foreign currency translation.

Cash and cash equivalents decreased by $88.1 million to $28.1 million for the year ended March 31, 2006.

Other Sources of Liquidity

In addition to our cash flows generated from operations, bank borrowings provide an additional source of liquidity. For a discussion of our amended credit facilities, see Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 8”.

Capital Requirements

Contractual Obligations. We have contractual obligations associated with ongoing business and financing activities, which will result in cash payments in future periods. Some of these obligations, such as long-term debt and related interest payments, are reflected in our Consolidated Financial Statements. In addition, we have entered into long-term contracts to acquire goods or services in the future which are not currently reflected in our Consolidated Financial Statements and will be reflected in future periods as the goods are received or services are rendered. A summary of our contractual cash obligations and commitments at December 31, 2006 follows (in thousands):

			Payments Due by Period
	Total		2007		2008 - 2009		2010 - 2011		After 2011
Long term debt (1)	$	154,982	$	5,669	$	11,337	$	137,976	$	—
Postretirement medical benefit costs		1,216		105		230		248		633
Operating leases		18,013		5,277		9,121		3,104		511
Purchase obligations for in-store equipment		33,767		867		24,900		8,000		—
Miscellaneous contracts		1,427		219		592		616		—
Total	$	209,405	$	12,137	$	46,180	$	149,944	$	1,144

⁽¹⁾ Long-term debt includes principal and interest due under the Amended Credit Facility.

25

Purchase Obligations. We have a purchase commitment to Epson for the purchase of color printers by our CMS and CMI business segments. The commitment provides for the purchase of printers over a period of approximately six years for a minimum of $88.2 million. As of December 31, 2006, we have purchased over 95,000 printers and plan to complete the initial installation of our color printer initiative in the summer of 2007.

Capital Expenditures. Our primary capital expenditures have been for the purchase of color printers associated with our Epson agreement and channel expansion. Total store equipment and third-party store installation costs for the Catalina Marketing Network^® range from $3,000 to $19,000 per store, depending primarily on the number of lanes in each store. Capital expenditures were $97.5 million for the nine months ended December 31, 2006 compared with $60.3 million for twelve months ended March 31, 2006. We expect that our cash flow from operations combined with borrowings under our existing revolving credit facility will be sufficient to finance these capital investments.

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between us and the former joint venture partners in our Japanese operations (the “Restructuring Agreement”), we have a contingent obligation to pay these former joint venture partners a final deferred earnout payment based on the future operating results of Japan. For further discussion of the contingent earnout payment refer to Item 8 - “Consolidated Financial Statements and Supplementary Data – Note 9 – Commitments and Contingencies”.

Stock Repurchases. On July 24, 2006, our Board of Directors authorized an additional $100 million of funds to be available for the repurchase of our common stock. This authorization increased the remaining balance under the $100 million the Board of Directors authorized in August 2005. We repurchased 0.5 million shares of our common stock during the nine months ended December 31, 2006 for a total of $15.0 million. During the twelve months ended March 31, 2006 and 2005, we repurchased 4.8 million and 1.7 million shares of our common stock for $114.3 million and $44.2 million respectively.

As of December 31, 2006, there was $126.5 million remaining under the July 24, 2006 authorization to repurchase shares. Factors governing the future repurchase of our common stock will include consideration of the market price of the common stock at the time of the contemplated repurchase. This authorization will expire when the total dollar amount authorized by our Board of Directors has been expended.

Critical Accounting Estimates

We have identified certain financial areas that require estimates and judgments such that, if these estimates and judgments were to change, results of operations could materially differ. Management makes these estimates and judgments in the normal course of business as required pursuant to U.S. GAAP. The impact and any associated risks related to these estimates on our results of operations are discussed throughout Management’s Discussion and Analysis and Results of Operations where such changes in estimates affected our reported financial results. A detailed discussion of the related accounting policies, and other significant accounting policies, can be found in Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 2.”

Impairment Testing of Goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, we are required to test goodwill for impairment annually. Changes in management’s judgments and estimates could affect our analysis of the impairment of goodwill. To test goodwill for impairment, we are required to estimate the fair value of each of our reporting units. Since quoted market prices in an active market are not available for our reporting units, we use other valuation techniques. We have developed a model to estimate the fair value of the reporting units, primarily incorporating a discounted cash flow valuation technique. This model incorporates our estimates of future cash flows, allocations of certain assets and cash flows among reporting units, future growth rates

26

and management’s judgment regarding the applicable discount rates to use to discount those estimated cash flows. We estimate a corporate-wide weighted average cost of capital to use as the discount rate. Changes to these judgments and estimates could result in a significantly different estimate of the fair value of the reporting units which could result in an impairment of goodwill. Goodwill assigned to the operating segments of CMS, CHR and CMI is not highly sensitive to changes in assumptions due to the fact that the estimated fair value of the reporting units in these operating segments significantly exceeds the amount of goodwill attributed to the reporting units. We believe a sensitivity analysis was not warranted in this situation, because even a significant fluctuation in the discount rate would not have a material impact to the financial statements.

Impairment Testing of Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we review our long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When testing for impairment, we are required to estimate the specific cash inflows and outflows expected to be generated from the long-lived asset during its remaining useful life. Changes to management’s judgments and estimates used in determining the timing of testing, the specific net cash flows related to the asset, the asset’s remaining useful life or the projected amount of future net cash flows could materially affect the outcome of the impairment analysis. In addition, if the undiscounted cash flows are less than the asset’s net book value, then management must determine the fair market value of the asset. Generally, quoted market prices in active markets are not available for our significant long-lived assets. As such, management generally uses a discounted cash flow technique to determine the fair value. Management’s assumptions regarding the discount rate used to apply to the forecasted future net cash flows can also materially affect the outcome of the impairment analysis. During the nine months ended December 31, 2006, there were no long-lived asset groups for which we identified a triggering event requiring impairment testing.

Stock-based compensation expense. In accordance with the provisions of SFAS 123R, we began recognizing stock-based compensation expense in our consolidated financial statements on April 1, 2006 for our domestic operations. We value our options and SARs using the Black-Scholes pricing model. Option pricing models require the input of subjective assumptions, including the expected life of the option or SAR and the price volatility of the underlying stock. These estimates are based largely on historical data and have not changed significantly in the past three years. Additionally, we have begun to issue restricted stock in place of options for certain employees. There are fewer estimates and assumptions associated with restricted stock as the compensation expense is based on the actual price of the stock versus a value derived from a pricing model. For all types of awards, judgment is still required in estimating the number of stock awards that are expected to vest as a result of forfeitures by employees prior to the satisfaction of time-based vesting schedules. If actual results or future changes in forfeiture rate estimates differ significantly from our current estimates, stock-based compensation could change accordingly. A 10% increase or decrease in the current forfeiture rate estimates would not have a material impact on our results of operations. For further discussion of our stock-based compensation as well as changes in historical assumptions, refer to Item 8 – “Consolidated Financial Statements and Supplementary Data – Note 2 – Stock-Based Compensation”.

Tax Assets and Liabilities. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and, if necessary, establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning strategies. If we are unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we may be required to increase our valuation allowance against our deferred tax assets resulting in an increase in our effective tax rate and an adverse impact on operating results.

Despite our belief that our positions regarding tax contingencies are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance or some partial adjustment reached through negotiations or litigation. Significant judgment is required in evaluating our tax contingencies. Our contingencies are adjusted in light of changing facts and circumstances, such as the progress of our tax audits as well as evolving case law. Our income statement includes the impact of contingency provisions and changes to our contingencies that we consider appropriate. Unfavorable settlement of any particular issue may require use of our cash. Favorable resolution would be recognized in the income statement at the time of resolution. We have incorporated historical experience and the previously mentioned factors into the determination of each of these estimates. While we believe that our judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may materially affect our future financial results.

Legal Contingencies. The assessment of legal contingencies involves the use of critical estimates, assumptions and judgments, including our ability to reasonably estimate a range of probable loss. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on our consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. With respect to liabilities related to certain lawsuits and legal actions where we do not have a history of loss or where there is limited available data and uncertainty regarding numerous variables used to determine the potential liability, it may be difficult for us to estimate the potential liability or range of probable loss. While we believe that our judgments and interpretations regarding our legal contingencies are appropriate, significant differences in actual experience may materially affect our future financial results.

27

Recent Accounting Pronouncements

See Item 8 – Note 2 – “Summary of Significant Accounting Policies – Accounting Standards Not Yet Adopted” for a discussion of recent accounting pronouncements.

Special Note Regarding Forward-Looking Statements

Certain information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of words, such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of our future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risk factors should be considered in connection with any written or oral forward-looking statement that we or any person acting on our behalf may issue in this document or otherwise, now or in the future. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. We cannot assure you that any future results, performance or achievements will be achieved. For a discussion of certain of these risks, uncertainties and other factors, see Part I — “Special Note Regarding Forward-Looking Statements” and Item 1A – “Risk Factors.” Further, certain information contained in this document is a reflection of our intention as of the date of this filing and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions based upon any changes in such factors, in our assumptions or otherwise.

Item 7 A. Quantitative and Qualitative Disclosures About Market Risk

Our principal market risks are interest rates on various debt instruments and foreign exchange rates in our international operations.

Interest Rates

We centrally manage our domestic debt and consider investment opportunities and risks, tax consequences and overall financing strategies. This domestic debt consists of a recently amended line of credit with interest rates based on the Prime Rate, the Eurodollar Rate or the Federal Funds Rate. International debt relates to our Japan subsidiary and is used to fund purchases of equipment and for ongoing operations. A 100 basis point change in interest rates, based on the average outstanding indebtedness for the nine month period ended December 31, 2006, would have resulted in a corresponding change in interest expense of approximately $0.9 million.

Foreign Operations

Our operations outside of the United States expose us to movements in currency exchange rates, which can be volatile at times. The economic impact of currency exchange rate movements is complex because such changes are often linked to variances in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause us to change our financing and operating strategies.

The aggregate foreign currency exchange transaction effects included in determining consolidated results of operations include a $0.4 million gain in our consolidated net income for the nine months ended December 31, 2006, a loss of $1.4 million in our consolidated net income in twelve months ended March 31, 2006 and a $1.1 million gain in the twelve months ended March 31, 2005. We have not utilized derivative financial instruments to reduce the effect of fluctuating foreign currencies. We estimate that, based upon our net income over the previous two years in local currency, a 10% change in foreign currency exchange rates would not have resulted in a material impact to net income in either of those years. We believe that this quantitative measure has inherent limitations because it does not take into account the impact of macroeconomic factors or changes in either results of operations or our financing and operating strategies.

Our revenues from continuing foreign operations represented approximately 20.0% of our total revenues from continuing operations in the nine months ended December 31, 2006 and 17.7% and 15.6% in the twelve months ended March 31, 2006 and 2005 respectively. For a discussion on the effect of changes in foreign currency exchange rates on our revenues for the period ended December 31, 2006, see in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Foreign Currency Translation and Its Effect on Revenues.”

28

Item 8. Consolida ted Financial Statements and Supplementary Data

INDEX TO FINANCIAL INFORMATION

	Page
Management’s Report on Internal Control Over Financial Reporting	29
Report of Independent Registered Certified Public Accounting Firm	30
Consolidated Statements of Operations, Nine Months ended December 31, 2006 and Fiscal Years Ended March 31, 2006 and 2005	31
Consolidated Balance Sheets at December 31, 2006 and March 31, 2006	32
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Nine Months ended December 31, 2006 and Fiscal Years Ended March 31, 2006 and 2005	33
Consolidated Statements of Cash Flows, Nine Months ended December 31, 2006 and Fiscal Years Ended March 31, 2006 and 2005	34
Notes to the Consolidated Financial Statements	35

MANAGEMENT’S REP ORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment and those criteria, management concluded that we maintained effective internal control over financial reporting as of December 31, 2006.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in its report which appears herein.

29

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Catalina Marketing Corporation:

We have completed integrated audits of Catalina Marketing Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Catalina Marketing Corporation and its subsidiaries at December 31, 2006 and March 31, 2006, and the results of their operations and their cash flows for the nine months ended December 31, 2006 and each of the two years in the period ended March 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, the Company has changed its methods of accounting for share-based compensation and retirement assets and obligations.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control- Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Tampa, Florida

February 28, 2007

30

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine Months Ended December 31,			Fiscal Years Ended March 31,
	2006			2006			2005
	(In thousands except per share data)
Revenues	$	340,874		$	417,746		$	410,062
Costs and expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below)		116,392			135,475			129,449
Selling, general and administrative expenses		123,189			132,098			129,365
Depreciation and amortization		29,989			35,986			42,446
Total costs and expenses		269,570			303,559			301,260
Income from operations		71,304			114,187			108,802
Interest (expense)		(2,817	)		(1,006	)		(1,490	)
Other income, net		1,389			495			2,940
Income from continuing operations before income taxes		69,876			113,676			110,252
Provision for income taxes		27,077			42,060			41,656
Income from continuing operations		42,799			71,616			68,596
Discontinued operations:
Loss from discontinued operations		—			—			(4,272	)
Gain on dispositions of discontinued operations, net		—			—			1,128
Loss from discontinued operations		—			—			(3,144	)
Net income	$	42,799		$	71,616		$	65,452
Earnings per share – basic:
Income per common share from continuing operations	$	0.93		$	1.47		$	1.31
Loss per common share from discontinued operations		—			—			(0.06	)
Net income per common share	$	0.93		$	1.47		$	1.25
Weighted average common shares outstanding		46,189			48,629			52,167
Earnings per share – diluted:
Income per common share from continuing operations	$	0.92		$	1.46		$	1.31
Loss per common share from discontinued operations		—			—			(0.06	)
Net income per common share	$	0.92		$	1.46		$	1.25
Weighted average common shares outstanding		46,633			48,925			52,356

See accompanying Notes to the Consolidated Financial Statements.

31

CATALINA MARKETING CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31, 2006			March 31, 2006
ASSETS	(In thousands except share data)
Current Assets:
Cash and cash equivalents	$	62,882		$	28,117
Accounts receivable, net		81,586			63,092
Insurance recovery receivable		8,200			—
Inventory		5,615			4,579
Deferred tax asset		9,367			6,386
Prepaid expenses and other current assets		10,950			10,978
Total current assets		178,600			113,152
Property and equipment:
Store equipment		322,106			248,621
Furniture and office equipment		57,652			55,469
Building		22,296			22,296
Building and other improvements		9,160			8,983
Software		43,826			36,655
Land		4,110			4,110
		459,150			376,134
Less - accumulated depreciation and amortization		(263,824	)		(247,633	)
Property and equipment, net		195,326			128,501
Patents, net		8,717			9,977
Goodwill		83,992			83,992
Other assets		1,857			1,473
Total assets	$	468,492		$	337,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	24,967		$	29,245
Income taxes payable		9,720			4,988
Accrued litigation settlement		8,200			—
Accrued expenses		67,874			58,421
Deferred revenue		36,678			28,989
Current portion of long-term debt		—			53
Total current liabilities		147,439			121,696
Long-term deferred tax liability		5,605			6,817
Long-term debt		127,710			61,803
Other long-term liabilities		3,567			3,622
Total liabilities		284,321			193,938
Commitments and contingencies
Stockholders’ Equity:
Preferred stock; $0.01 par value; 5,000,000 authorized shares; none issued and outstanding		—			—
Common stock; $0.01 par value; 150,000,000 authorized shares and 46,463,762 and 46,138,208 shares issued and outstanding at December 31, 2006 and March 31, 2006, respectively		464			461
Additional paid-in capital		11,535			14
Accumulated other comprehensive income		5,610			509
Retained earnings		166,562			142,173
Total stockholders’ equity		184,171			143,157
Total liabilities and stockholders’ equity	$	468,492		$	337,095

See accompanying Notes to the Consolidated Financial Statements.

32

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

	Comprehensive Income		Number of Shares		Par Value of Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income / (Loss)			Retained Earnings			Total Stockholders’ Equity
	(In thousands)
BALANCE AT MARCH 31, 2004			52,134		$	521		$	2,485		$	(312	)	$	181,968		$	184,662
Issuance of common stock			230			2			4,682			—			—			4,684
Increase in investment in subsidiary, net of tax			—			—			238			—			—			238
Tax benefit from exercise of non-qualified stock options and disqualified dispositions			—			—			258			—			—			258
Repurchase, retirement and cancellation of common stock			(1,652	)		(16	)		(8,023	)		—			(36,135	)		(44,174	)
Deferred compensation plan common stock unit and Directors’ common stock grants			49			1			343			—			—			344
Dividends on common stock			—			—			17			—			(15,670	)		(15,653	)
Net income	$	65,452	—			—			—			—			65,452			65,452
Foreign currency translation adjustment		563	—			—			—			563			—			563
Comprehensive income	$	66,015
BALANCE AT MARCH 31, 2005			50,761		$	508		$	—		$	251		$	195,615		$	196,374
Issuance of common stock			139			1			2,771			—			—			2,772
Tax benefit from exercise of non-qualified stock options and disqualified dispositions			—			—			345			—			—			345
Repurchase, retirement and cancellation of common stock			(4,780	)		(48	)		(3,689	)		—			(110,580	)		(114,317	)
Deferred compensation plan common stock unit and Directors’ common stock grants			18			—			560			—			—			560
Dividends			—			—			27			—			(14,478	)		(14,451	)
Net income	$	71,616	—			—			—			—			71,616			71,616
Foreign currency translation adjustment		258	—			—			—			258			—			258
Comprehensive income	$	71,874
BALANCE AT MARCH 31, 2006			46,138		$	461		$	14		$	509		$	142,173		$	143,157
Issuance of common stock			852			8			6,116			—			—			6,124
Tax benefit from exercise of non-qualified stock options and disqualified dispositions			—			—			362			—			—			362
Repurchase, retirement and cancellation of common stock			(537	)		(6	)		(7,088	)		—			(7,906	)		(15,000	)
Deferred compensation plan common stock unit and Directors’ common stock grants			11			1			565			—			—			566
Stock based compensation			—			—			11,535			—			—			11,535
Effect of change in foreign subsidiaries’ reporting lag			—			—			—			—			3,410			3,410
Dividends			—			—			31			—			(13,914	)		(13,883	)
Net income	$	42,799	—			—			—			—			42,799			42,799
Actuarial gain associated with post retirement benefits		61	—			—			—			61			—			61
Foreign currency translation adjustment		5,040	—			—			—			5,040			—			5,040
Comprehensive income	$	47,900
BALANCE AT DECEMBER 31, 2006			46,464		$	464		$	11,535		$	5,610		$	166,562		$	184,171

See accompanying Notes to the Consolidated Financial Statements.

33

CATALINA MARKETING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended December 31,			Fiscal Years Ended March 31,
	2006			2006			2005
				(In thousands)
Cash Flows from Operating Activities:
Net income	$	42,799		$	71,616		$	65,452
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,989			35,986			43,689
Provision for (recoveries of) doubtful accounts		180			181			(297	)
Amortization of deferred financing fees		102			144			276
Impairment charges		—			—			4,907
Stock-based compensation expense		10,761			—			—
Loss on sale of equipment and businesses		844			1,275			1,994
Deferred income taxes		(3,523	)		(3,303	)		2,394
Other non-cash operating activities		132			995			1,058
Changes in operating assets and liabilities:
Receivables		(35,186	)		(7,158	)		(4,101	)
Inventory, prepaid expenses and other assets		(2,166	)		(1,560	)		3,786
Accounts payable		(6,081	)		8,747			6,226
Taxes payable		4,741			(1,765	)		4,602
Accrued liabilities		12,305			(5,075	)		(7,375	)
Deferred revenue		12,401			1,591			(4,620	)
Net cash provided by operating activities		67,298			101,674			117,991
Cash Flows from Investing Activities:
Capital expenditures		(97,491	)		(60,254	)		(22,527	)
Proceeds from sale of property, equipment and businesses		—			—			5,850
Business acquisition payments		—			(3,497	)		(914	)
Other		279			—			—
Net cash used in investing activities		(97,212	)		(63,751	)		(17,591	)
Cash Flows from Financing Activities:
Proceeds from the Corporate Facility		138,000			75,000			30,000
Payments on the Corporate Facility		(76,000	)		(76,000	)		—
Payments on VIE indebtedness		—			—			(29,565	)
Proceeds from Japan borrowings		2,593			3,273			33,831
Payments on Japan borrowings		(54	)		(278	)		(37,042	)
Repurchase of Company common stock		(15,000	)		(114,317	)		(44,174	)
Excess tax benefit on exercise of stock options		362			—			—
Proceeds from issuance of common and subsidiary stock		6,155			2,772			4,922
Cash dividends paid		(13,883	)		(14,451	)		(15,653	)
Financing fees paid		—			—			(714	)
Net cash provided by (used in) financing activities		42,173			(124,001	)		(58,395	)
Effect of exchange rate changes on cash and cash equivalents		1,451			(1,996	)		1,482
Net change in cash and cash equivalents before elimination of reporting lag		13,710			(88,074	)		43,487
Effect of change in foreign subsidiaries’ reporting lag:
Net cash provided by operating activities		19,969			—			—
Net cash used in investing activities		(1,842	)		—			—
Net cash provided by financing activities		1,699			—			—
Effect of exchange rate changes on cash and cash equivalents		1,229			—			—
Net change in cash and cash equivalents due to elimination of reporting lag		21,055			—			—
Cash and cash equivalents at beginning of year		28,117			116,191			72,704
Cash and cash equivalents at end of year	$	62,882		$	28,117		$	116,191
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for
Interest	$	2,707		$	774		$	1,827
Income taxes	$	27,193		$	46,780		$	31,666

See accompanying Notes to the Consolidated Financial Statements

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CATALINA MARKETING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of the Business and Basis for Presentation

Description of the Business. Catalina Marketing Corporation, a Delaware corporation, and its subsidiaries (the “Company”), provide behavior-based communications, developed and distributed for CPG manufacturers, pharmaceutical manufacturers and marketers and retailers. Our primary business was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, we offer behavior-based, targeted-marketing services and programs globally through a variety of distribution channels. These marketing solutions, including discount coupons, loyalty marketing programs, pharmacist and patient education newsletters, in-store instant-win games and other consumer communications, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction will “trigger” a communication to print, manufacturers and retailers can deliver customized communications to only the consumers they wish to reach. We track actual purchase behavior and use Universal Product Code-based scanner technology to target consumers at the retail checkout counter and National Drug Code information to trigger delivery of customized communications to consumers during pharmacy prescription checkout transactions.

We are organized and managed by segments which include the following operations: Catalina Marketing Services (“CMS”), Catalina Health Resource (“CHR”) and Catalina Marketing International (“CMI”).

In November 2003, we announced our intent to divest Japan Billboard, Direct Marketing Services (“DMS”) and Catalina Marketing Research Solutions (“CMRS”) which were deemed not to be strategically aligned with our current core businesses. Japan Billboard operated a billboard and outdoor media business in Japan. DMS provided targeted direct mail programs designed to market to consumers in their homes. CMRS provided a range of traditional marketing research services. These three business units were sold during fiscal year 2005. Their results of operations are shown as discontinued operations in the Consolidated Statements of Operations. For further information regarding our discontinued operations see Note 19.

CMS services domestic retailers and consumer product manufacturers, primarily within the CPG industry. Using the Catalina Marketing Network^®, this operating segment specializes in behavior-based marketing communications that are delivered at the point-of-sale. The primary service line of CMS is the in-store delivery of communications at the checkout lane of a retailer. CMS links its proprietary software, computers, central databases and printers with a retailer’s point-of-sale controllers and scanners. The network prints customized communications at the point-of-sale based on product Universal Product Codes or other scanned information. The printed communications are handed to consumers by the cashier at the end of the shopping transaction.

CHR services allow pharmaceutical and CPG manufacturers, as well as retail pharmacies, to provide consumers with condition-specific health information and direct-to-patient communications. CHR’s primary service offerings use an in-store, prescription-based targeting technology to provide targeted, direct-to-patient communications on behalf of our clients. These communication services include messages and educational information provided to healthcare patients at the pharmacy throughout the Health Resource Network. The Health Resource Network is a proprietary software system with built-in targeted response capabilities. Communications are primarily delivered to consumers based on a variety or combination of factors including demographic data such as age and gender information, transactional data, the National Drug Codes found on all prescription drugs and de-identified prescription history and information. CHR clients are able to use these communications to provide information on a wide variety of products such as over-the-counter medicines, prescription medications and other healthcare remedies and merchandise.

CMI operations include in-store electronic targeted marketing services for consumers in France, Italy, the United Kingdom, Germany, Japan, Belgium and the Netherlands. The Catalina Marketing Network^® operates internationally in a similar manner as the domestic CMS business in offering a full range of targeted marketing solutions to many of the top CPG manufacturers and maintains relationships with major supermarket, hypermarket and other retailers. In addition, in certain European markets, we work with clients using a business model we refer to as “retail centric” in that we derive revenue from the retailers for managing loyalty programs and in-store promotions.

Basis of Presentation. These Consolidated Financial Statements were prepared in conformity with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Actual results could differ from those estimates. Estimates and assumptions which, in the opinion of management, were significant to the underlying amounts included in the consolidated financial statements and for which it would be reasonably possible that future events or information could change those estimates include impairment of goodwill, impairment of long-lived assets, accounting for stock-based compensation, the realization of deferred income tax assets and the resolution of tax and legal contingencies.

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The Consolidated Financial Statements include our accounts, as well as the accounts of our wholly-owned subsidiaries. All intercompany transactions were eliminated in consolidation. We changed our fiscal year end from March 31st to December 31st, effective December 31, 2006. In conjunction with the change in year-end, we eliminated the three-month reporting lag previously used for reporting the results of Catalina Marketing International (“CMI”). As of December 31, 2006, all of our consolidated subsidiaries had the same balance sheet date. Beginning January 1, 2007, all subsidiaries will have the same fiscal reporting period. The change in year-end better aligns our reported operating periods with the fiscal year of the majority of our CPG manufacturer and pharmaceutical manufacturer clients, while the elimination of the reporting lag for CMI allows us to report the results of our foreign subsidiaries in a more timely manner.

The results of operations from our divested business units and the related net gain on disposition were reflected in the accompanying statement of operations as discontinued operations.

Note 2. Summary of Significant Accounting Policies

Revenue Recognition and Deferred Revenue. We deliver targeted marketing services through various channels. The following revenue recognition policies are followed for our significant revenue-generating segments:

Catalina Marketing Services and Catalina Marketing International

Our CMS and CMI segments generate revenue primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network^®. The amount of revenue recognized is generally based on the total communications delivered multiplied by a per-print fee. Delivered communications include targeted promotions, messages and sweepstakes. We generally bill clients a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted communications or messages for a specified category, or categories, within a specified period of time referred to as a “cycle.” The delivery is based upon particular triggering transactions that are registered at the point-of-sale (i.e., the checkout counter of a retail store). The majority of CMS contracts cover multiple cycles. The client is given the exclusive right to have communications delivered for a particular product category during the applicable cycle.

We have concluded that recognizing revenue as the communications are delivered is a systematic and rational method that represents the pattern over which the revenue is earned and our obligations to clients are fulfilled. Furthermore, we believe that the exclusivity feature is not a separate deliverable apart from the delivery of the targeted communication. Therefore, we recognize in-store electronic marketing service revenue as the communications are delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are reflected as deferred revenue and subsequently recognized when (1) the communications are delivered or (2) in full in the eighteenth month after the end of the last cycle if the minimum number of communications have not been delivered by the end of the last cycle specified in the contract. Occasionally, if the minimum number of program communications is not delivered within the applicable cycles, the remaining allotment of communications may be transferred to future cycles in order to permit the client to reach the contracted minimums.

In certain fixed-fee program arrangements where a fixed number of targeted communications are not required, revenue is deferred and recognized ratably over the particular cycle or cycles, regardless of the number of incentives delivered.

We engage in certain barter transactions with some of our retail clients, exchanging primarily in-store, electronic marketing delivery services (“retail communications”) for access to the retail client’s shoppers at the checkout. Access to the retail client occurs when a manufacturer communication is delivered. The barter transactions do not result in revenue recognition because the fair value of the consideration received and the value of the retail marketing services delivered are not determinable within the criteria established under U.S. GAAP. The retailers can defer the delivery of our retail communications up to eighteen months after the initial exchange of consumer access. However, we estimate and accrue the projected costs to be expended for the delivery of the retail communications when access to the retail shopper is provided.

Catalina Health Resource

CHR generates revenues by providing targeted direct-to-patient communications, referred to as PATIENTLink™, in retail pharmacies via the Health Resource Network. PATIENTLink™ includes prescription information, therapeutically relevant editorial content and product information. We generally bill clients a fee in advance of the delivery of a fixed number of customized prints or “messages” within specified time periods, typically 6 to 12 months. Delivery is triggered by transactions that are registered at the retail pharmacy’s point-of-sale. For particular triggers, the client is given the exclusive right to have its messages delivered based upon a particular product category trigger during the applicable time period.

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We have concluded that recognizing revenue as a PATIENTLink™ print is delivered is a systematic and rational method that represents the pattern over which the revenue is earned and obligations to clients are fulfilled. Furthermore, we believe that the exclusivity feature is not a separate deliverable apart from the delivery of the customized print. CHR recognizes revenue when the print is delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are deferred and recognized as revenue when delivery occurs or in full in the twelfth month after the end of the last cycle specified in the contract. Occasionally, if the minimum number of customized newsletters is not printed, the remaining allotment of messages may be refunded, extended or transferred to future periods in order to permit the client to reach the contracted print minimums.

In certain fixed-fee program arrangements where a fixed number of messages is not required, revenue is recognized ratably over the particular period of the related contract, regardless of the number of customized prints delivered.

Research and Development. Our research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing Network^®, Health Resource Network, market research, software development, and system upgrades. For the nine months ended December 31, 2006, and the twelve months ended March 31, 2006 and 2005, expenditures for research and development, which are included in selling, general and administrative expenses, were $0.4 million, $0.9 million and $2.0 million, respectively. These expenditures include internal and external labor primarily for the development of our software and networks.

Advertising Costs. Advertising costs are expensed as incurred and amounted to $0.9 million for the nine months ended December 31, 2006, $1.6 million and $0.6 million in the twelve months ended, March 31, 2006 and 2005, respectively.

Foreign Currency Translation. Balance sheet accounts are translated at exchange rates in effect at the end of the foreign subsidiaries’ fiscal year and income statement accounts are translated at weighted average exchange rates for the year. Translation adjustments are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss).

Foreign Currency Transactions. Net realized and unrealized gains and losses from foreign currency transactions are included in Other income, net in our Consolidated Statements of Operations, and were a $0.4 million gain in the nine months ended December 31, 2006, a $1.4 million loss and a $1.1 million gain for the twelve months ended March 31, 2006 and 2005, respectively.

Net Income Per Common Share. For purposes of calculating the basic and diluted earnings per share, no adjustments have been made to the reported amounts of net income. The following is a reconciliation of the denominator of basic and diluted earnings per share (“EPS”) computations shown on the face of the accompanying Consolidated Financial Statements (in thousands):

	Nine Months Ended December 31,	Fiscal Years Ended March 31,
	2006	2006	2005
Basic weighted average common shares outstanding	46,189	48,629	52,167
Dilutive effect of options, SARs and restricted stock	444	296	189
Diluted weighted average common shares outstanding	46,633	48,925	52,356

We repurchased 0.5 million, 4.8 million and 1.7 million shares of our common stock during the nine and twelve month periods ended December 31, 2006 and March 31, 2006 and 2005, respectively.

The following outstanding options were not included in the computation of diluted EPS because their effect would have been anti-dilutive (in thousands except price per share data):

	Nine Months Ended December 31,		Fiscal Years Ended March 31,
	2006		2006		2005
Outstanding options		5,712		4,102		5,113
Range of prices	$	20.20 -$36.82	$	26.31 -$36.82	$	26.31 -$36.82

In accordance with the contingently issuable shares provision of Statement of Financial Accounting Standard No. 128, Earnings

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per Share, (“SFAS 128”), 369,981 shares of performance-based restricted stock were not included in the calculation of earnings per share for the nine months ended December 31, 2006 because the necessary conditions for vesting have not been satisfied.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash and short-term investments. The short-term investments can be immediately converted to cash and are recorded at fair value. Of the total amount of cash and cash equivalents as of December 31, 2006 and March 31, 2006, $54.6 million and $24.2 million, respectively, was held by our subsidiaries in Europe.

Accounts Receivable. Accounts receivable are recorded on a gross basis less the allowance for doubtful accounts. We estimate the allowance for doubtful accounts based on existing economic factors, known information about the financial condition of our clients and the amount and age of the accounts. The accounts are generally written off after all collection attempts have been exhausted. We record a provision for estimated doubtful accounts as part of direct operating expenses. The following is a detail of the activity in our allowance for doubtful accounts for the years indicated (in thousands):

	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
				2006			2005
Allowance for Doubtful Accounts
Beginning balance	$	1,795		$	2,443		$	3,674
Increase (decrease) in provision		180			181			(297	)
Account write-offs, net of recoveries		(195	)		(829	)		(934	)
Ending balance	$	1,780		$	1,795		$	2,443

Inventory. Inventory consists primarily of paper used for printing communications and is located at clients’ locations, primarily in supermarkets and retailers’ warehouses. We record paper usage primarily based on actual print length at the time the communication is delivered and use the first-in, first-out method of costing. The paper inventory balance is adjusted periodically based on our physical inventory observation. Inventory is stated at the lower of cost or market.

Property and Equipment. Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets, as follows: store equipment — color printers — seven years, thermal printers — five years; furniture and office equipment — five to ten years; building — thirty-nine and one-half years; building and other improvements — generally seven to ten years, but not to exceed the lease period; and purchased software — amortized over the length of the software agreement, not to exceed five years. Prior to the sale of our Japan Billboard business, billboards were depreciated using the straight-line method over an estimated useful life of eight years. Third-party installation costs for store equipment, net of amounts reimbursed by the retailer, are capitalized and amortized using the straight-line method over the estimated useful lives of the related store equipment. Maintenance and repair costs are expensed as incurred.

Capitalized Software Development Costs. Costs for software developed for internal use are capitalized in accordance with AICPA Statement of Position 98-1 (“SOP 98-1”), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and are amortized over five years. Computer software is internally developed to meet our internal requirements, and no substantive plan exists or is being developed to externally market internally developed software. Computer software costs that are incurred by us in the preliminary project stage are expensed as incurred. Certain other costs that meet the criteria of SOP 98-1 are capitalized. These costs include external direct costs of materials, external services consumed in developing internal-use computer software, and specifically identifiable payroll and payroll-related costs for employees who are directly associated with the development of internal-use computer software. Training costs and data conversion costs are expensed as incurred.

Goodwill. Goodwill represents the excess of the purchase price paid over the fair value of the tangible and identifiable intangible assets, net of the fair value of liabilities assumed in a business combination. Goodwill is subject to impairment tests to be performed at least annually, and more frequently if events and circumstances indicate that impairment is likely. Impairment is indicated when the implied fair market value is less than the carrying value of the reporting unit. Asset values determined to be impaired are expensed in the period when impairment is determined. To determine fair market value, we use a discounted cash flow approach, using the same assumptions as those used to develop our three-year, long-range plan, updated as necessary based on our internally-generated monthly forecasts. We incorporate a terminal value cash flow based upon an estimated future growth rate. See additional discussion in Note 3.

Patents, Net. The amount capitalized as patents includes only those patents acquired from others. Patents are amortized over their estimated useful lives which range from five to twenty years, using the straight-line method.

Impairment Testing of Long-Lived Assets. We review for the impairment of long-lived assets whenever events or changes in

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circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the carrying value of the long-lived assets will not be recoverable, as determined based on the expected undiscounted future cash flows of the long-lived assets, our carrying value of the long-lived assets is reduced by the amount by which the carrying value exceeds fair value. We use a discounted cash flow approach to determine fair value. Cash flows utilized in these analyses include the same assumptions as those used in our three-year, long-range plan, updated as necessary based on our internally-generated monthly forecasts. See additional discussion in Note 5.

Stock Based Compensation. Effective April 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment, (“SFAS 123R”) for share-based compensation plans. We previously accounted for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations and disclosure requirements established by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure.

Under APB 25, no compensation expense was recorded in earnings for our stock options and awards granted under our employee stock purchase plan. The pro forma effects on net income and earnings per share for stock options and employee stock purchase plan awards were disclosed in a note to the financial statements. We adopted SFAS 123R using the “modified prospective application” method. Under this transition method, compensation cost recognized in the current fiscal year results of operations includes expense for share-based awards granted prior to, but not yet vested, as of April 1, 2006. This expense is based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123. The cost for all share-based awards granted subsequent to April 1, 2006, represents the grant-date fair value that was estimated in accordance with the provisions of SFAS 123R. The results for prior periods have not been restated.

Fair Value of Financial Instruments. At December 31, 2006 and March 31, 2006, the carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these financial instruments. The carrying value of our short-term borrowings and long-term debt approximate fair value and are based on current interest rate and credit spread assumptions.

Concentration of Risk. Financial instruments, which potentially subject us to concentration of credit risk, consist principally of trade accounts receivable. Our revenue and related trade receivables are derived primarily from the sale of in-store electronic marketing and direct-to-patient communications. Accounts receivable are due primarily from companies located throughout the United States, Europe and Japan. Credit is extended based on an evaluation of the client’s financial condition and, generally, collateral is not required. At December 31, 2006, approximately 24.4% of Accounts receivable, net related to three clients. These three clients accounted for approximately 20.2% of consolidated revenue for the nine months ended December 31, 2006.

We rely on retail stores and pharmacies to provide access to their premises and consumers for the Catalina Marketing Network^® and Health Resource Network to be successful. We believe the impact to the networks with respect to a loss of a single retail chain or pharmacy chain may be limited due to the diversity of participation. However, approximately 57% of the delivered in-store communications provided by CMS for its clients during the nine months ended December 31, 2006, were generated from within the stores belonging to five CMS retail chains. Also, over 89% of the communications we delivered on behalf of our pharmaceutical clients during the nine months ended December 31, 2006 were generated from within the pharmacies belonging to three CHR retail pharmacy chains. If any of these five retail chains or three pharmacy chains were to decide not to renew their contract with us, or if they reduce the number of locations where our systems are installed, a material reduction in revenues could result if these point-of-sale locations, or the transactions accessed at these locations, were not replaced.

As previously disclosed, we were notified by two of CMI’s retail clients that they did not intend to renew their contracts. On a combined basis, the retailer and manufacturer revenue generated by these two customers accounted for approximately 29% of CMI’s revenue for the nine months ended December 31, 2006. During 2007, we expect to partially recover the manufacturer revenue associated with these two clients through the growth of the Catalina Marketing Network and other initiatives.

Accounting Standards Adopted in the Period ended December 31, 2006

SFAS No. 123R. We adopted the provisions of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, (“SFAS 123R”) on April 1, 2006 for our domestic operations and on January 1, 2006 for our international subsidiaries. The adoption of SFAS 123R resulted in a pretax expense for stock-based compensation of $10.8 million in the nine months ended December 31, 2006 for which there was no corresponding expense in the prior year. For a complete discussion of the impact associated with the adoption of SFAS 123R, see Item 8 – “Consolidated financial Statements and Supplementary Data – Note 10 – Stock Based Compensation”.

SFAS No. 158. In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This standard requires an employer to

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recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur as a component of comprehensive income. The standard also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The requirement to recognize the funded status of a defined benefit postretirement plan is effective for the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for the fiscal years ending after December 15, 2008. The adoption of these provisions did not have any material impact on our results of operations or financial position.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The SEC staff believes registrants must quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for the first annual period ending after November 15, 2006 with early application encouraged. The adoption of this provision did not have any material impact on our results of operations or financial position.

Accounting Standards Not Yet Adopted

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation process, based on the technical merits of the position. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently reviewing this new standard to determine its effects, if any, on our results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This standard establishes a standard definition for fair value, establishes a framework under generally accepted accounting principles for measuring fair value and expands disclosure requirements for fair value measurements. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently reviewing this new standard to determine its effects, if any, on our results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. This Statement does not establish requirements for recognizing and measuring dividend income, interest income, or interest expense. We are currently reviewing this new standard to determine its effects, if any, on our results of operations or financial position.

Note 3. Acquisitions, Dispositions and Goodwill

We have historically made acquisitions based on various factors including client relationships, service offerings, competitive position, reputation, experience and specialized know-how. Our acquisition strategy was to build upon the capabilities of our various strategic business platforms through the expansion of service capabilities. In executing our acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand our existing client relationships. Due to the nature of our business, the companies we acquired frequently had minimal tangible net assets or identifiable intangible assets. The acquisition price was frequently determined by the future projected revenue and cash flow of the entity being acquired. Accordingly, a substantial portion of the purchase price was allocated to goodwill. On at least an annual basis, we perform an impairment test to assess whether the fair value of goodwill has been impaired.

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The following tables present the changes in the carrying amount of goodwill during nine months ended December 31, 2006 and the fiscal years ended March 31, 2006 and March 31, 2005 (in thousands):

	Nine Months Ended December 31, 2006
	CMS		CHR		CMI		DMS			CMRS			Total Consolidated
Beginning Balance	$	20,210	$	39,629	$	24,153	$	—		$	—		$	83,992
Goodwill acquired		—		—		—		—			—			—
Ending Balance	$	20,210	$	39,629	$	24,153	$	—		$	—		$	83,992
	Fiscal Year Ended March 31, 2006
	CMS		CHR		CMI		DMS			CMRS			Total Consolidated
Beginning Balance	$	20,210	$	36,132	$	24,153	$	—		$	—		$	80,495
Goodwill acquired		—		3,497		—		—			—			3,497
Ending Balance	$	20,210	$	39,629	$	24,153	$	—		$	—		$	83,992
	Fiscal Year Ended March 31, 2005
	CMS		CHR		CMI		DMS			CMRS			Total Consolidated
Beginning Balance	$	20,210	$	36,132	$	24,153	$	1,609			2639		$	84,743
Goodwill acquired		—		—		—		(1,609	)		(2,639	)		(4,248	)
Ending Balance	$	20,210	$	36,132	$	24,153	$	—		$	—		$	80,495

Activity for the Nine Months Ended December 31, 2006

During the nine months ended December 31, 2006 we did not enter into any transactions that resulted in the acquisition of additional goodwill. Further, we did not incur any goodwill impairments based on our annual impairment testing as the estimated fair value of the applicable reporting units significantly exceeded the amount of goodwill attributed to those reporting units.

Activity for the Fiscal Year Ended March 31, 2006

On September 15, 2004, we notified holders of common stock and options to purchase common stock of CHR that we were tendering an offer to purchase the shares of CHR not held by us. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by us were tendered by March 31, 2005. Generally, CHR stockholders that owned their shares for a period of at least six months and one day prior to the day the shares were purchased by us were eligible to tender their shares under this offer. We paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005. In accordance with the purchase method of accounting, the $3.5 million was allocated to goodwill.

Activity for the Fiscal Year Ended March 31, 2005

We tested the goodwill at CMRS for impairment during fiscal year 2005 due to a decline in CMRS’ forecasted cash flows. Based upon this testing, we determined that an impairment of goodwill had occurred and recorded an impairment charge of $2.6 million within discontinued operations, thereby eliminating the goodwill attributable to this business unit.

Goodwill related to DMS of $1.6 million was also eliminated during fiscal year 2005 due to a decline in DMS’ forecasted cash flows. We did not expect to recover this goodwill. However, subsequent to the write-off of goodwill within discontinued operations, we sold the business for an amount in excess of the net book value of the remaining net assets, resulting in a gain on the sale.

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Note 4. Patents

The gross and accumulated amortization balances relating to patents were as follows (in thousands):

	Weighted Avg. Useful Life As of December 31, 2006 (In years)	As of December 31, 2006			As of March 31, 2006
Purchased Patents	5.37	$	23,744		$	23,679
Accumulated amortization			(15,027	)		(13,702	)
Patents, net		$	8,717		$	9,977

Estimated five year amortization of patents was as follows as of December 31, 2006 (in thousands):

Year	Estimated Amortization
2007	$	1,699
2008		1,641
2009		1,630
2010		1,629
2011		1,247

We recognized amortization expense of $1.3 million for the nine months ended December 31, 2006 and $1.8 million and $1.9 million for the twelve months ended March 31, 2006 and 2005, respectively, which is included on the Consolidated Statements of Operations within Depreciation and Amortization.

Note 5. Impairment Charges

There were no impairment charges during the nine months ended December 31, 2006 or during the fiscal year ended March 31, 2006. In fiscal year 2005, we recorded impairment charges of $0.4 million and $0.3 million at CMRS and Corporate, respectively, because the estimated fair value of certain depreciable assets exceeded their carrying value. The impairment charge related to those assets of CMRS was included in Income (loss) from discontinued operations. The impairment charge related to those assets of Corporate was included in selling, general and administrative expenses.

The following table summarizes the impairment charges related to goodwill (as described in note 3) and other long-lived assets that we recorded during the fiscal year ended March 31, 2005 (in thousands):

Impairments for the Fiscal Year Ended March 31, 2005:

DMS	$	1,609
CMRS		3,010
Japan Billboard		—
Total for discontinued operations	$	4,619
Corporate		288
	$	4,907

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Note 6. Detail of Accrued Expenses

Accrued expenses included (in thousands):

	As of December 31, 2006		As of March 31, 2006
Payroll related	$	29,907	$	23,375
Accrued retailer fees		9,229		9,811
Deferred compensation plans		4,740		5,096
Sales commissions		8,498		9,882
Accrued operating expenses		4,490		2,693
Business taxes		7,799		4,199
Other		3,211		3,365
Total accrued expenses	$	67,874	$	58,421

Note 7. Income Taxes

The components of income before income taxes and the income tax provision consisted of the following (in thousands):

	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
				2006			2005
Income before income taxes:
Domestic	$	49,607		$	97,374		$	93,335
Foreign		20,269			16,302			16,917
	$	69,876		$	113,676		$	110,252
Income tax provision
Current taxes:
Federal	$	21,484		$	36,186		$	34,437
State		2,152			3,791			5,255
Foreign		7,633			5,282			5,790
		31,269			45,259			45,482
Deferred taxes:
Federal		(3,118	)		(2,960	)		(3,442	)
State		(356	)		(338	)		(377	)
Foreign		(718	)		99			(7	)
		(4,192	)		(3,199	)		(3,826	)
Provision for income taxes	$	27,077		$	42,060		$	41,656

The reconciliation of the provision for income taxes based on the U.S. federal statutory income tax rate to our provision for income taxes was as follows (in thousands):

	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
				2006			2005
Expected federal statutory taxes at 35%	$	24,456		$	39,786		$	38,588
State and foreign income taxes, net of federal benefit		1,037			2,180			3,022
Tax expense (benefit) of foreign branches		954			1,005			(3,991	)
Increase (decrease) in valuation allowance		(1,017	)		(1,327	)		3,798
Non deductible SFAS 123R expense		1,247			—			—
Other		400			416			239
Provision for income taxes	$	27,077		$	42,060		$	41,656

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Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period.

Temporary differences for financial statement and income tax purposes result primarily from charges to operations for financial statement reporting purposes which are not currently tax deductible and from revenues deferred for financial statement reporting purposes which are currently taxable. The components of the deferred tax asset and liability were as follows (in thousands):

	December 31, 2006			March 31, 2006
Deferred Tax Assets:
Payroll related items	$	3,982		$	1,273
Deferred revenue		2,528			2,205
Provision for doubtful accounts		516			581
Accrued expenses		2,342			2,328
Net operating loss carryforwards		14,004			14,872
Capital loss carryforward		990			990
Investments in unconsolidated equity securities		11,375			11,464
Other		1,389			22
		37,126			33,735
Valuation allowance		(28,772	)		(29,789	)
Net deferred tax assets	$	8,354		$	3,946
Deferred Tax Liabilities:
Depreciation and amortization		(4,592	)		(4,377	)
Net deferred tax assets (liabilities)	$	3,762		$	(431	)
	December 31, 2006			March 31, 2006
Net deferred tax assets (liabilities) consisted of:
Deferred tax asset current	$	9,367		$	6,386
Long-term deferred tax liability		(5,605	)		(6,817	)
Net deferred tax assets (liabilities)	$	3,762		$	(431	)

We periodically review the need for a valuation allowance against deferred tax assets and recognize these deferred

tax assets to the extent that realization is more likely than not. Based upon a review of earnings history and trends, forecasted earnings and the relevant expiration of carryforwards, we believe that the valuation allowances provided are appropriate. The valuation allowance decreased by $1.0 million during the nine months ended December 31, 2006 and decreased $1.3 million during the twelve months ended March 31, 2006. The decrease in the valuation allowance for both periods was primarily due to a decrease in foreign tax assets and utilization of a portion of the capital loss carryforward.

As of December 31, 2006, we had cumulative aggregate foreign taxable NOL carryforwards of $37.0 million. Approximately $11.9 million of the foreign NOLs can be carried forward indefinitely, while the remaining $25.1 million expire between 2007 and 2012. Foreign pre-tax losses represented by NOLs of approximately $33.1 million have already been deducted in the consolidated U.S. Corporation income tax return.

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We do not provide for deferred taxes on certain unremitted foreign earnings, as we believe that earnings of our foreign subsidiaries have been and will be indefinitely reinvested in foreign operations and, therefore, the recording of deferred tax liabilities for unremitted foreign earnings is not required. As of December 31, 2006, the cumulative unremitted foreign earnings of our foreign subsidiaries are $44.6 million. It is impractical to determine the amount of unrecognized deferred taxes with respect to these earnings; however, a foreign tax credit may be available to partially reduce U.S. income taxes in the event of a distribution.

Note 8. Short-Term Borrowings and Long-Term Debt

Our short-term borrowings and long-term debt consisted of the following (in thousands):

	As of December 31, 2006		As of March 31, 2006
Credit Facility, interest from 1.000% to 5.825%, as of December 31, 2006 and from 0.715% to 5.419%, as of March 31, 2006	$	127,710	$	61,803
Long-term installment debt in Japan, interest from 4.65% to 5.68% as of March 31, 2006 matured in August 2006 (payable in yen)		—		53
Total debt obligations		127,710		61,856
Less current portion of long-term debt		—		(53	)
Long-term debt	$	127,710	$	61,803

Maturities of long-term debt were as follows as of December 31, 2006 (in thousands):

	Amount
2007	$	—
2008		—
2009		—
2010		—
2011		127,710
2012 and after		—
Total long-term debt	$	127,710

Revolving Credit Facility

On October 24, 2006, we amended and restated our August 2004 Credit Facility into a five-year, $175.0 million multi-currency revolving credit facility (“Credit Facility”) with J. P. Morgan Securities Inc. as the sole lead arranger and JP Morgan Chase, National Association serving as the administrative agent. Under certain conditions, we may increase the revolving credit line up to $275.0 million. The facility is unsecured and may be used for general corporate purposes including share repurchases, capital expenditures and dividend payments.

The Credit Facility also provides, within the maximum commitment, up to the U.S. dollar equivalent of $50.0 million in available borrowings in Japanese yen by Catalina Marketing Japan K.K., $25.0 million for U.S. dollar-only commercial and standby letters of credit, and a maximum U.S. dollar-only “Swing Line” (i.e., an overnight facility), as that term is defined in the agreement, of $10.0 million.

The interest rate on advances under the Credit Facility is based on (a) the greater of the Prime Rate or the Federal Funds Effective Rate plus one-half percent or, (b) the Eurocurrency Base Rate, as those terms are defined in the Credit Facility. A percentage margin, ranging from 0.45% to 1.125% and determined based upon our Leverage Ratio, as that ratio is defined in the Credit Facility, is added to the Eurocurrency Base Rate.

We will pay a quarterly commitment fee ranging from 0.09% to 0.225% of the unused portion of the Credit Facility and determined based upon our Leverage Ratio, as that ratio is defined in the Credit Facility. Usual and customary fees are payable for letters of credit that are issued under the agreement. We may, at our option, reduce the maximum commitment amount of the Credit Facility and generally may prepay any amounts outstanding without penalty. The Credit Facility is unsecured, with a negative pledge on all material assets, and is guaranteed by all of our material U.S. subsidiaries.

We provide customary, ongoing representations, warranties and covenants, and are subject to quarterly financial covenant compliance. These representations, warranties and covenants include timely submission of financial statements, compliance with

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income tax, pension and other laws, limitations on liens and incurrence of debt, investments, mergers, consolidations and sales of assets, and limitations on transactions with affiliates. Financial compliance covenants include Interest Expense Coverage and Leverage Ratios, as those terms are defined in the agreement. Events of default under the Credit Facility include, but are not limited to, failure to make payments of principal, interest or fees within a cure period, violation of covenants, or a change in control of the Company, as those terms or events of default are defined in the Credit Facility agreement.

Note 9. Commitments and Contingencies

Lease Commitments. We lease certain office space and equipment under noncancellable operating leases that expire at various dates through fiscal year 2012. Rental expense under operating leases was $4.6 million in the nine months ended December 31, 2006 and $4.5 million and $5.8 million in the twelve months ended March 31, 2006 and 2005 respectively. Future minimum operating lease commitments as of December 31, 2006, were as follows (in thousands):

Fiscal Year Ended December 31,	Amount
2007	$	5,277
2008		4,776
2009		4,345
2010		2,070
2011		1,034
Thereafter		511
Total minimum lease payments	$	18,013

Contingent Earnout Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between us and the former joint venture partners in our Japanese operations (the “Restructuring Agreement”), we have a contingent obligation to pay these former joint venture partners a final deferred earnout payment based on the future operating results of Japan. The Restructuring Agreement stipulates a potential earnout payment based on a predetermined formula calculated using financial results during a consecutive four quarter period ending between June 30, 2006 and June 30, 2007. The determination of the applicable four quarter period is contingent upon Japan achieving financial results on certain financial measurements as specified in the Restructuring Agreement. Based on our current estimates, we do not expect the earnout payment to be material; however, due to the fact that the earnout payment is measured based on the actual future financial results of Japan, a change in the results of operations or financial condition of Japan could cause the earnout payment to vary significantly.

Purchase Commitments. We have a purchase commitment to Epson America, Inc. for the purchase of color printers for use by our CMS and CMI business segments. The commitment provides for the purchase of printers over a period of approximately six years for a minimum of $88.2 million.

Our annual obligation for purchases of color printers as of December 31, 2006, was as follows (dollars in thousands):

Fiscal Year Ended December 31,	Amount
2007	$	867
2008		12,900
2009		12,000
2010		8,000
2011		—
Total	$	33,767

Tax Contingency. Despite our belief that our income tax return positions are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by taxing authorities. We are party to various claims and matters of litigation and tax assessments incidental to the normal course of our business. We record contingencies for these potential losses once they are deemed probable and estimable. We believe that the final resolution of these tax matters will not have a material adverse effect on our financial position, results of operations or cash flows.

Other Legal Matters. In addition, we are involved in claims and litigation arising out of our business, including claims and litigation brought against us, and litigation initiated by us to protect our intellectual property. We record accruals for potential losses arising from these claims and litigation once they are deemed probable and estimable.

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We, and certain current and former directors and former officers of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended and Rule 10b-5 thereunder. The actions were originally brought on behalf of those who purchased our common stock between January 17, 2002 and August 25, 2003, inclusive. The complaints contain various allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning our business and operations with the result of artificially inflating our share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In October 2006, the Company entered into a memorandum of understanding to settle the pending consolidated shareholder class action lawsuit for $8.5 million, $8.2 million of which was funded by our insurance carriers and is reflected in our consolidated balance sheet as “Insurance Recovery Receivable”. The Company funded the remaining $300,000 of the settlement. Subsequently, in December 2006, the District Court granted preliminary approval to the settlement. While the terms of the settlement contained in the memorandum of understanding and stipulation filed with the court are on terms that do not adversely affect the Company and involve no admission of liability by the Company or any of the current and former directors and former officers named in the lawsuit, the settlement is not final as it is subject to various conditions including court approval and other customary conditions. In the event we are unable to settle the consolidated class action, we intend to continue to vigorously defend against these lawsuits. Furthermore, to the extent we are unable to settle these lawsuits pursuant to the terms of the pending settlement, we cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material. The resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition and results of operations.

Certain current and former directors and former officers of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions captioned The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, pending in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 pending in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from us, and disgorgement under the Sarbanes-Oxley Act of 2002. We have agreed in principle to settle the derivative litigation actions and are currently working towards documenting the settlement. The settlement is not final and, when executed, will be subject to various conditions including court approval and other customary conditions. To the extent we are unable to settle these lawsuits pursuant to the terms of the pending settlement, we cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material. The resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

Note 10. Stock Based Compensation

We calculate the fair value of options and stock appreciation rights (“SARs”) using the Black-Scholes pricing model and calculate the fair value of restricted stock based on the fair value of the stock on the date of grant. We use the straight-line attribution method which recognizes the compensation expense equally over the service period of the award. We estimate the impact of forfeitures that may occur prior to vesting and consider the amount of such forfeitures in the expense recognized over the requisite service period. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes is now recognized as a financing activity in the statement of cash flows rather than as an operating activity as previously required.

We make certain assumptions when valuing options and SARs including the expected life which is based on historical data as well as expected future behavior. During the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and March 31, 2005, we used the following weighted average assumptions in our fair value calculations for those grants issued in the respective years:

	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,
			2006		2005
Volatility	40.6	%	42.9	%	45.1	%
Risk-free rate (based on date of grant)	4.9	%	4.3	%	3.6	%
Expected dividend yield (1)	1.3	%	1.2	%	1.3	%
Expected life	5 years		5 years		5 years

(1) The expected dividend yield is determined as of the date of the grant. The dividend yield component of the option pricing model for the grants was based on management’s expectation of future dividends to be paid over the life of the option.

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The per share weighted average fair values of options and SARs granted, including those shares issued under the employee stock purchase plan, in the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and March 31, 2005 were $8.75, $9.51 and $9.56, respectively.

Had compensation expense for these plans been recognized in accordance with SFAS No. 123, our net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share data):

	Fiscal Years Ended March 31,
	2006			2005
Net income:
As reported	$	71,616		$	65,452
Add stock-based employee compensation expense included in reported net income, net of tax		300			238
Deduct total stock based employee compensation expense determined under fair value based method for all awards net of tax (1)		(6,635	)		(6,696	)
Pro forma net income	$	65,281		$	58,994
Basic earnings per common share:
As reported	$	1.47		$	1.25
Pro forma	$	1.34		$	1.13
Diluted earnings per common share:
As reported	$	1.46		$	1.25
Pro forma	$	1.34		$	1.13
(1)      Includes the following amounts for the purchase discount offered under the Company’s employee stock purchase plan	$	281		$	26

For the year ended March 31, 2006, we reduced pro forma stock compensation expense by $19.3 million, net of income taxes, due to the reversal of expense related to forfeited options and changes to the estimated number of shares expected to vest for certain performance-based options. Conversely, our pro forma stock compensation expense for fiscal 2006 was increased by approximately $8.2 million, net of income taxes, due to the accelerated vesting of certain options. Effective February 23, 2006, our Board of Directors approved the acceleration of vesting of all unvested options held by certain employees and having an exercise price of $26.31 or greater. Options with respect to 836,618 shares of our common stock were subject to the acceleration.

For the year ended March 31, 2005, we reduced pro forma stock compensation expense by $5.6 million, net of income taxes, due to the reversal of expense related to forfeited options and changes to the estimated number of shares expected to vest for certain performance-based options. Conversely, our pro forma stock compensation expense for fiscal 2005 was increased by approximately $4.6 million, net of income taxes, due to the accelerated vesting of certain options. Effective March 31, 2005, our Board of Directors approved the acceleration of vesting of all unvested options held by employees to purchase our common stock and having an exercise price of $33.46 or greater. Options with respect to 316,220 shares of our common stock were subject to the acceleration.

With regard to the acceleration of options in years ended March 31, 2006 and 2005, those options that were accelerated had exercise prices in excess of the market value of our common stock on the date of the approval of the acceleration. The Board of Directors determined that the acceleration would serve the best interests of the shareholders by reducing our future compensation expense. As a result of the accelerated vesting of these options, we expect to avoid total compensation expense of approximately $12.8 million, net of income taxes, that we would otherwise have to recognize as an expense under SFAS No. 123 (Revised 2004), “Share-Based Payment,” (“SFAS No. 123R”), which we adopted effective April 1, 2006.

Equity Award Plans

We administer the following plans that were approved by our Board of Directors and stockholders: the 1989 Stock Option Plan (the “1989 Plan”), which expired on April 26, 1999 and was replaced with the Amended and Restated 1999 Stock Award Plan (the

48

“1999 Plan,” previously known as the 1999 Stock Option Plan); a stock grant plan, the Catalina Marketing Corporation 1992 Director Stock Grant Plan (the “1992 Grant Plan”), which expired on October 27, 2002 and was replaced with the Catalina Marketing Corporation 2002 Director Stock Grant Plan (the “2002 Grant Plan”); and an employee stock purchase plan, the 2004 Employee Payroll Deduction Stock Purchase Plan (the “2004 Purchase Plan”), which replaced the Catalina Marketing Corporation Employee Payroll Deduction Stock Purchase Plan that expired on April 19, 2004.

In accordance with these stock based compensation plans, directors, officers and other eligible individuals receive SARs, restricted stock and other stock unit awards. Under the provisions of the 2004 Purchase Plan, participants are allowed to purchase shares at 85% of the lower of the market price on the first or last day of an offering period.

We have historically granted stock options to eligible employees on a discretionary basis. Beginning in April 2006, we began issuing restricted stock and SARs instead of stock options. We may continue to award stock options to a limited number of employees when appropriate.

1989 Stock Option Plan. Pursuant to the 1989 Plan, 17,250,000 shares of our common stock were reserved for issuance upon the exercise of options granted under the 1989 Plan. Through December 31, 2006, options to purchase an aggregate of 12,405,774 shares were granted, net of cancellations, of which options to purchase 146,752 shares were outstanding as of December 31, 2006.

The 1989 Plan provided for grants of Incentive Stock Options (“ISOs”) to employees (including employee directors). Options granted under the 1989 Plan generally became exercisable at a rate of 25% per year (20% per year for initial grants to new employees), commencing one year after the date of grant and generally had granted options to up to ten years. Certain options under the 1989 Plan, which were granted to certain of our executives, and which, vested after eight years but had an accelerated vesting schedule if we reach specified earnings per share targets, have all been cancelled. The exercise price of all ISOs granted under the 1989 Plan was required to be at least equal to the fair market value of the shares on the date of grant.

1999 Stock Award Plan. Pursuant to the 1999 Plan, 12,900,000 shares of our common stock are reserved for issuance. The 1999 Plan provides for the grant of stock options, SARs, restricted stock and other stock unit awards. Options and SARs granted under the 1999 Plan generally vest over four years. Restricted stock generally vest over three or four years and may be service based or performance based and usually vest in their entirety upon completion of the service or performance requirements. All awards expire ten years after grant date. As of December 31, 2006, 8,199,046 options / SARs and 571,804 restricted stock, net of cancellations have been issued. Under the 1999 Plan, 4,130,799 shares remained available for future grants.

Aggregate Stock Option Activity. As of December 31, 2006, options to purchase an aggregate of 13,040,073 shares had been exercised, including options to purchase 60,000 shares granted outside of any plan; options to purchase an aggregate of 7,624,747 shares were outstanding; and 4,130,799 shares remained available for future grants under the 1999 Plan. Of the options outstanding as of December 31, 2006, and March 31, 2006 and 2005, options to purchase 4,465,793, 4,152,727 and 2,707,717 shares, respectively, were immediately exercisable, with weighted average exercise prices of $28.20, $28.61, and $30.32, respectively. The following table summarizes options and SARs activity from April 1, 2004 through December 31, 2006:

	Number of Shares		Weighted Average Exercise Prices
Options outstanding as of March 31, 2004	4,573,340		$	30.44
Option activity:
Granted	3,961,903			24.03
Exercised	(224,312	)		20.38
Canceled or expired	(1,218,190	)		28.36
Options outstanding as of March 31, 2005	7,092,741			27.50
Option activity:
Granted	2,143,769			24.28
Exercised	(107,240	)		19.05
Canceled or expired	(1,571,414	)		28.63
Options outstanding as of March 31, 2006	7,557,856			26.48
Option / SARs activity:
Granted	733,276			22.97
Exercised	(243,898	)		24.01
Canceled or expired	(422,487	)		26.06
Options / SARs outstanding as of December 31, 2006	7,624,747		$	26.25
Options / SARs available for future issuance as of December 31, 2006	4,130,799

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Information on stock options / SARs was as follows:

Options / SARs Outstanding					Options / SARs Exercisable
Range of Exercise Prices	Outstanding as of December 31, 2006	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Exercisable as of December 31, 2006	Weighted Average Exercise Price
$16.00-$25.00	3,813,524	8.2	$	22.38	1,188,930	$	21.60
$25.01-$33.00	3,111,343	6.1	$	28.79	2,576,983	$	29.11
$33.01-$44.00	699,880	4.1	$	36.06	699,880	$	36.06
	7,624,747				4,465,793

The aggregate intrinsic value of options / SARs outstanding as of December 31, 2006 and March 31, 2006 was $20,246 and $4,704, respectively. These amounts were $7,526 and $2,365 for options / SARs exercisable as of December 31, 2006 and March 31, 2006, respectively. Of the unvested outstanding options and SARs, we expect 2.8 million to vest with a weighted average exercise price of $23.46, a weighted average remaining contractual life of 8.4 years and an intrinsic value of $12.7 million. The weighted average remaining contractual life of exercisable options / SARs was 5.9 years.

The following table summarizes restricted stock activity from April 1, 2006 through December 31, 2006:

	Shares		Weighted Average Grant Date Fair Value
Nonvested balance at March 31, 2006	12,491		$	24.02
Granted	634,977			23.00
Vested	(6,245	)		24.02
Dividend	5,942			22.95
Forfeited / Cancelled	(61,018	)		22.85
Nonvested balance at December 31, 2006	586,147		$	23.03

1992 Director Stock Grant Plan. The 1992 Grant Plan provides for grants of common stock to non-employee members of the Board of Directors. A total of 300,000 shares of our common stock were authorized for issuance under the 1992 Grant Plan. As of

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December 31, 2006, 137,930 shares had been granted, net of cancellations. Stock granted under the 1992 Grant Plan vests ratably in annual installments over each director’s remaining term. The 1992 Grant Plan expired on October 27, 2002; therefore, no shares are available for future grants under the 1992 Grant Plan.

2002 Director Stock Grant Plan. The 2002 Grant Plan, which replaced the 1992 Grant Plan, provides for grants of common stock to non-employee members of the Board of Directors. A total of 250,000 shares of our common stock were authorized for issuance under the 2002 Grant Plan. As of December 31, 2006, 57,886 have been granted from the 2002 Grant Plan leaving 192,114 shares available for future grants under the 2002 Grant Plan. Stock granted under the 2002 Grant Plan vests ratably in annual installments over each director’s remaining term.

Employee Stock Purchase Plan. Pursuant to the 2004 Purchase Plan, 1,300,000 shares of our common stock were reserved for issuance. During the nine months ended December 31, 2006, we issued 38,102 shares with a weighted average fair market values of $26.34. During the twelve months ended March 31, 2006 and 2005, we issued 34,776 and 5,150 shares with a weighted average fair market values of $25.38 and $29.63, respectively. Shares available for future grant total 1,221,972 as of December 31, 2006.

Under the 2004 Purchase Plan, employees may purchase our common stock at 85% of the lower of the market price on the first or last day of an offering period. The maximum each employee may purchase in an offering period is $12,500 in market value of our common stock. We will typically have two, six-month offering periods each year. The 2004 Purchase Plan qualifies under Section 423 of the Internal Revenue Code of 1986.

The effect of adoption of SFAS 123R on our financial results for the nine months ended December 31, 2006 was as follows (in thousands, except per share data):

	Nine Months Ended December 31, 2006
Decrease in income from operations before income taxes	$	10,761
Tax benefit		2,786
Decrease in net income		7,975
Excess tax benefit reclassed to financing from operating activities		362
Decrease in basic and diluted earnings per share	$	0.17

The weighted average grant date fair value of options and SARs granted during the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and 2005, was $8.75, $9.51 and $9.56, respectively. In the nine months ended December 31, 2006 and twelve months ended March 31, 2006, 634,977 and 12,491 shares of restricted stock were granted with a weighted-average grant-date fair value of $23.00 and $24.02, respectively. There were no restricted stock grants in the twelve months ended March 31, 2005. The total intrinsic value of options exercised during the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and 2005 was $1,115,575, $700,476 and $1,262,997 respectively. We received cash from options exercised and shares purchased of $6.1 million for the nine months ended December 31, 2006 and $2.9 million and $4.7 million for the twelve months ended March 31, 2006 and 2005, respectively. We expect to satisfy all future share based awards with registered shares available to be issued.

As of December 31, 2006, there was $32.1 million of unrecognized compensation expense related to unvested awards that is expected to be recognized over a weighted average period of 1.7 years. The total fair value of awards vested was $6.3 million during the nine months ended December 31, 2006 and $21.6 million and $22.3 million during twelve months ended March 31, 2006 and 2005, respectively.

Note 11. Stockholder Protection Plan

We have adopted a Stockholder Protection Plan (the “Protection Plan”). To implement this Protection Plan, we declared a dividend of one Preferred Share Purchase Right on each outstanding share of our common stock. The dividend distribution was payable to stockholders of record on May 12, 1997. The rights will be exercisable for fractions of a share of our Series X Junior Participating Preferred Stock only if a person or group acquires 15% or more of our common stock or announces or commences a tender offer for 15% or more of the common stock, except for certain instances defined in the Protection Plan.

Note 12. Employee Benefit Plans

We maintain a 401(k) Savings Plan, which provides benefits for substantially all of our employees who meet minimum age and length-of-service requirements. Amounts charged to expense for this plan totaled $1.3 million in the nine months ended December 31, 2006 and $1.0 and $1.1 million in the twelve month periods ended March 31, 2006 and 2005, respectively.

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We maintain a non-qualified deferred compensation plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is designed to permit certain of our employees and directors to defer a portion of their compensation. The Deferred Compensation Plan allows participants to elect deferral of certain types of compensation, including directors fees, stock grants under the 1992 and 2002 Grant Plans and shares issuable upon the exercise of stock options, into stock units in the Deferred Compensation Plan, each of which represents a share of our common stock, and creates the Catalina Marketing Corporation Deferred Compensation Trust (the “Trust”). Amounts deposited in stock unit accounts are distributed in the form of shares of our common stock upon a payment event. Through the Trust, investment options such as mutual funds and money market funds are available to participants.

We followed the accounting guidance in EITF Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” As such, the accounts of the rabbi trust have been included in our Consolidated Financial Statements. The investment in assets other than our stock units and the related liability in the Deferred Compensation Plan were included in Prepaid Expenses and Other Current Assets and Accrued Expenses in our Consolidated Balance Sheets, respectively. We determined that all of our Deferred Compensation Plan investments currently held in mutual funds and money market funds are trading securities and as such are reported at fair value. Realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, recognized in net income during the nine months ended December 31, 2006 was $0.1 million. This amount was $0.7 and $0.3 million during the twelve month periods ended March 31, 2006 and 2005, respectively. Participants’ elections to invest in our stock units are irrevocable. These stock units were initially recorded at fair value in the Statement of Stockholders’ Equity and were not subsequently marked to market.

Note 13. Subsidiary Stock Option Plan

CHR administered the Health Resource Publishing Company 1995 Stock Option Plan (the “1995 Plan”), which was approved by the Board of Directors and stockholders of CHR. The 1995 Plan expired on March 31, 2005.

Pursuant to the 1995 Plan, 1,250,000 shares of CHR’s common stock were reserved for issuance upon the exercise of options granted under the 1995 Plan. As of December 31, 2006, options to purchase an aggregate of 1,057,860 shares had been granted, net of cancellations, all of which have been exercised. No options were outstanding as of December 31, 2006. In 2005, options to purchase 500 shares were immediately exercisable, at weighted average exercise prices of $6.53 per share.

The 1995 Plan provided for grants of ISOs to employees (including employee directors) and non-qualified options to non-employee directors. Options granted under the 1995 Plan generally became exercisable at a rate of 25% per year or 20% per year for initial grants to new employees, commencing one year after the date of grant. Generally, options had terms of up to six years. Certain options under the 1995 Plan vested at a rate of 33% per year for the first two years and then vested 33% after six months, commencing one year after the date of grant. The exercise price of all ISOs granted under the 1995 Plan were at least equal to the fair market value of the shares on the date of grant.

Stock option activity for the twelve months ended March 31, 2006 and 2005 was as follows. There was no activity for the nine months ended December 31, 2006. See Note 14 for information about the tender offer to purchase CHR shares.

	Number of Shares		Weighted Average Exercise Prices
Options outstanding as of March 31, 2004	63,264		8.35
Option activity:
Granted	—		—
Exercised	(43,187	)	6.53
Canceled or expired	(19,577	)	12.40
Options outstanding as of March 31, 2005	500		6.53
Option activity:
Granted
Exercised
Canceled or expired	(500	)	6.53
Options outstanding as of March 31, 2006	—		—

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Note 14. Subsidiary Stock Issuances

We account for gains and losses on the issuances of our subsidiaries’ stock as changes to paid-in capital. Our subsidiary, CHR, issued stock to employees and non-employee directors during the fiscal years ended March 31, 2005 and 2004.

On September 15, 2004, we notified holders of common stock and options to purchase common stock of CHR that we were tendering an offer to purchase the shares of CHR not held by us. The tender offer period began on January 3, 2005 and closed on March 31, 2005. All remaining outstanding shares of CHR not held by us were tendered by March 31, 2005. Generally, CHR stockholders that owned their shares for a period of at least six months and one day prior to the day the shares were purchased by us were eligible to tender their shares under this offer. We paid $12.50 per share for 279,786 shares tendered by CHR shareholders, or $3.5 million, on April 8, 2005.

Information on CHR stock issuances, shares repurchased by the company and the resulting change in our ownership of this subsidiary is included in the following table. There was no activity for the nine-months ended December 31, 2006. (Amounts in thousands, except per share and percentage data.)

	Fiscal Years Ended March 31,
	2006			2005
Beginning ownership percentage		95.4	%		96.0	%
Number of shares issued		—			43
Average price per share on new share issues	$	—		$	6.53
Total cash proceeds received from share issues	$	—		$	238
Number of subsidiary shares purchased by the Company		280			—
Total amount paid by the Company for the share purchases	$	3,497		$	—
Ending ownership percentage		100.0	%		95.4	%

Note 15. Share Repurchase Authorization and Share Repurchases

In July 2006, our Board of Directors authorized an additional $100 million of funds to be available for the repurchase of our common stock. This authorization increased the $100 million the Board of Directors authorized in August 2005. We repurchased 0.5 million shares of our common stock during the nine months ended December 31, 2006 for a total of $15.0 million. During the twelve months ended March 31, 2006 and 2005, we repurchased 4.8 million and 1.7 million shares of our common stock for $114.3 million and $44.2 million respectively.

As of December 31, 2006, there was $126.5 million remaining under the July 24, 2006 authorization to repurchase shares. This authorization will expire when the total dollar amount authorized by our Board of Directors has been expended.

Note 16. Cash Dividend

On August 14, 2006 we announced that the Board of Directors declared an annual cash dividend of $0.30 per share to common stockholders of record as of August 31, 2006, which was paid to such stockholders on September 15, 2006, and totaled approximately $13.9 million. In the prior year we also declared an annual cash dividend of $0.30 per share which was paid in October and totaled approximately $14.5 million.

Note 17. Other Postretirement Benefits

In fiscal year 2002, we implemented a plan to provide healthcare benefits to certain eligible retirees and active employees and their eligible dependents. The plan contains no assets, and we do not anticipate making contributions to the plan, other than for current benefit payments. Benefits are funded from our assets on a current basis. Plan benefits are subject to co-payments, deductibles and other limits as defined. The funding of the cost of healthcare benefits is at the discretion of management. A detail of the net periodic expense was as follows (in thousands):

	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,
			2006		2005
Service cost	$	—	$	—	$	—
Interest cost		87		139		124
Amortization of unrecognized prior service costs		—		—		—
Recognized actuarial (gain) or loss		—		9		—
	$	87	$	148	$	124

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The following table represented our accumulated postretirement benefit obligation and funded status as of December 31, 2006 and March 31, 2006. The amounts as of December 31, 2006 reflect the adoption of SFAS 158:

	As of December 31, 2006			As of March 31, 2006
	(in thousands)
Change in accumulated postretirement benefit obligation:
Beginning of year accumulated postretirement benefit obligation	$	2,052		$	2,458
Service cost		—			—
Interest cost		87			139
Participant Contributions		5			2
Actuarial (gain) loss		(27	)		(458	)
Benefits paid		(76	)		(89	)
End of year accumulated postretirement benefit obligation	$	2,041		$	2,052
Change in fair value of plan assets	$	—		$	—
Net amount recognized:
Obligation in excess of plan assets	$	2,041		$	2,052
Unrecognized prior service cost		—			—
Unrecognized actuarial net loss		—			34
Accrued benefit cost	$	2,041		$	2,086

The impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was a $0.2 million reduction of the accumulated postretirement benefit obligation for the period ended December 31, 2006.

We use a December 31 measurement date. For the nine months ended December 31, 2006, a weighted average discount rate of 5.85% and annual rate of increase in the per capita cost of healthcare benefits of 12.0% was assumed. The per capita cost of healthcare benefits rate was assumed to decrease gradually to 6.0% for the year ending December 31, 2015 and remain at that level thereafter. For the year ended March 31, 2006, a weighted average discount rate of 5.75% and an annual rate of increase in the per capita cost of healthcare benefits of 12.0% was assumed, and the per capita cost of healthcare benefits rate was assumed to decrease gradually to 6.0% for the fiscal year ending March 31, 2015 and remain at that level thereafter. For the year ended March 31, 2005, a weighted average discount rate of 5.75% and an annual rate of increase in the per capital cost of healthcare benefits of 12.0% was assumed, and the per capita cost of healthcare benefits rate was assumed to decrease gradually to 6.0% for the fiscal year ending March 31, 2018 and remain at that level thereafter.

Assumed healthcare cost trend rates may have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects (in thousands):

	1% Increase		1% Decrease
Effect on service and interest cost for the nine months ended December 31, 2006	$	13	$	(10	)
Effect on accumulated postretirement benefit obligation at December 31, 2006	$	302	$	(246	)

The gross benefits expected to be paid and gross subsidies expected to be received in each of the next five fiscal years and the aggregate amounts for the five years thereafter as of December 31, 2006, were as follows (in thousands):

Year	Benefit		Subsidy
2007	$	105	$	2
2008		113		3
2009		117		4
2010		119		5
2011		129		6
2012-2016		633		50

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Note 18. Segment and Geographic Disclosures

Description of Segments. See the discussion of our segments in Note 1. Summarized information related to the reportable segments for Catalina Marketing Corporation is shown below. These segments were reported in a manner consistent with the way management evaluates the businesses.

Segment	Business Activity
Catalina Marketing Services	Provides point-of-sale, printed communications to consumers for CPG manufacturers and retailers.
Catalina Health Resource	Provides point-of-sale, direct-to-patient communications for pharmaceutical and CPG manufacturers and retailers.
Catalina Marketing International	Provides services similar to Catalina Marketing Services in France, Italy, United Kingdom, Germany, Japan, Belgium, and the Netherlands.
Corporate	Provides executive and administrative oversight and centralized functions such as information technology, accounting, client services and store systems support.
Discontinued operations	Includes Japan Billboard, DMS and CMRS.

Basis for Presentation. In general, results of the operating segments were reported based on U.S. GAAP and the accounting policies were consistent with those described in Note 2. Certain costs generated by the Corporate group (“Corporate”) were allocated to the operating segments as discussed below. Furthermore, all of the significant domestic property and equipment was recorded by Corporate, but the associated depreciation and amortization was allocated to the domestic operating segments.

Allocation of Corporate Group Operating Expenses. Our Corporate group’s operating expenses include costs for retail store support, information technology, corporate accounting, client services, marketing, human resources, procurement, and new business development and executive management. These costs are included in direct operating expenses, selling, general and administrative costs and depreciation and amortization expense in the accompanying Consolidated Statements of Operations for the nine months ended December 31, 2006 and twelve months ended March 31, 2006 and 2005, respectively. For purposes of segment reporting, these Corporate costs are allocated to the CMS and CHR business segments using methods considered reasonable by management and which provide management with a realistic measure of utilization of Corporate services by the respective business segments. Costs that can be directly attributed to the business unit are allocated to that business unit. Costs that are indirectly attributed to the business units are allocated proportionately based on the business unit’s revenues, number of printed communications, square feet of space used, headcount or other relevant statistics, depending on the type of cost. For example, the cost to maintain our corporate headquarters is allocated to the domestic business segments based on the estimated square footage each business unit occupies; paper and store maintenance costs are allocated to the domestic business segments based upon the number of printed communications; data communications costs are allocated based upon revenues. Of the total Corporate group operating expenses, 61.5% was allocated to operating segments during the nine months ended December 31, 2006. These amounts were 63.2% and 63.8% for the twelve month periods ended March 31, 2006 and 2005, respectively. Because general corporate overhead cannot be allocated to discontinued operations, Corporate expenses previously allocated to the segments now classified as discontinued operations were re-allocated to Corporate.

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Segment Financial Data. A disaggregation of our consolidated data for the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and 2005 is presented in the following tables (in thousands).

	Revenue from External Customers						Intersegment Revenues
	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,				Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
			2006		2005					2006			2005
CMS	$	200,546	$	254,393	$	269,608	$	—		$	—		$	4
CHR		71,565		89,527		76,167		—			—			—
CMI		68,426		73,817		64,116		—			—			—
	$	340,537	$	417,737	$	409,891	$	—		$	—		$	4
Reconciliation of segments to consolidated amount
Corporate		337		9		171		3,380			3,658			3,442
Eliminations		—		—		—		(3,380	)		(3,658	)		(3,446	)
	$	340,874	$	417,746	$	410,062	$	—		$	—		$	—

Revenues from a single client represented approximately 9.7% of consolidated revenues for the nine months ended December 31, 2006. These amounts were approximately 11.8% and 13.7% for the twelve months ended March 31, 2006 and 2005, respectively. Revenues from this client were included in CMS and CMI.

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	Interest Expense (1)
	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
Segments				2006			2005
CMS	$	—		$	—		$	—
CHR		—			—			—
CMI		2,555			3,033			3,067
Corporate		2,614			769			917
Eliminations		(2,352	)		(2,796	)		(2,494	)
	$	2,817		$	1,006		$	1,490
(1)      Interest income is not significant at any of the Company’s reportable segments.
	Income Taxes Provision (Benefit)
	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
Segments				2006			2005
CMS	$	29,438		$	46,090		$	50,288
CHR		9,607			11,182			6,368
CMI		5,246			2,558			3,725
Corporate		(17,214	)		(17,770	)		(18,725	)
	$	27,077		$	42,060		$	41,656
	Net Income
	Nine Months Ended December 31, 2006			Fiscal Years Ended March 31,
Segments				2006			2005
CMS	$	43,653		$	67,712		$	73,879
CHR		14,114			16,427			9,356
CMI		8,804			6,896			7,395
Corporate		(23,772	)		(19,419	)		(22,034	)
Income from continuing operations	$	42,799		$	71,616		$	68,596
Discontinued operations		—			—			(3,144	)
	$	42,799		$	71,616		$	65,452
	Total Assets
	December 31, 2006			March 31,
Segments				2006			2005
CMS	$	78,185		$	1,415,866		$	1,243,719
CHR		89,869			67,241			55,651
CMI		158,852			121,685			116,483
Reconciliation of segments to consolidated amount:
Eliminations		(164,438	)		(1,537,843	)		(1,351,484	)
Corporate		306,024			270,146			327,965
Total assets-continuing operations	$	468,492		$	337,095		$	392,334
Total assets-discontinued operations		—			—			404
	$	468,492		$	337,095		$	392,738

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	Capital Expenditures
	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,
Segments			2006		2005
CMS	$	714	$	120	$	52
CHR		684		467		1,133
CMI		4,223		8,641		7,175
Corporate		91,870		51,026		13,914
Discontinued operations		—		—		253
	$	97,491	$	60,254	$	22,527
	Depreciation and Amortization
	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,
Segments			2006		2005
CMS	$	18,473	$	21,322	$	26,836
CHR		1,851		2,410		3,676
CMI		6,408		7,652		7,042
Corporate		3,257		4,602		4,892
	$	29,989	$	35,986	$	42,446

Capital expenditures for the domestic segments are generally made by Corporate. Depreciation expense is allocated to the domestic segments from Corporate.

Information about Geographic Areas

	Nine Months Ended December 31, 2006		Fiscal Years Ended March 31,
			2006		2005
Revenues
United States	$	272,448	$	343,929	$	345,946
France		52,419		51,330		44,289
Other International		16,007		22,487		19,827
Total	$	340,874	$	417,746	$	410,062
	December 31, 2006		March 31,
			2006		2005
Long-Lived Assets
United States	$	173,088	$	104,714	$	77,066
France		10,621		12,776		13,709
Other International		11,617		11,011		12,561
Total	$	195,326	$	128,501	$	103,336

Note 19. Discontinued Operations

In November 2003, we announced our intent to divest Japan Billboard, DMS and CMRS, which were deemed not to be strategically aligned with our current core businesses. These businesses were sold during fiscal year 2005. As such, their results of operations have been reflected as discontinued operations in the accompanying Consolidated Financial Statements.

On August 31, 2004, we sold the stock of Japan Billboard for 100 Japanese yen to an employee who was acting as the local General Manager of Japan Billboard until the date of the sale. The transaction was effective as of July 31, 2004. The loss on the disposition of Japan Billboard of $0.5 million includes a gain of $0.5 million relating to the recognition of foreign currency translation effects previously recorded in the cumulative translation adjustment in the balance sheet.

Discontinued operations information related to Japan Billboard was as follows (in thousands):

	Fiscal Year Ended March 31, 2005
Revenues	$	6,653
Operating loss	$	(181	)
Loss before income tax expense		(233	)
Income tax expense		—
Loss from operations		(233	)
Loss on disposition of Japan Billboard, before income tax benefit		(508	)
Income tax benefit		—
Loss on disposition of Japan Billboard		(508	)
Loss from Japan Billboard discontinued operations	$	(741	)

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On September 17, 2004, we sold DMS and received cash proceeds of $5.5 million. Discontinued operations information related to DMS was as follows (in thousands):

	Fiscal Year Ended March 31, 2005
Revenues	$	10,313
Operating loss	$	(1,372	)
Loss before income tax expense		(1,372	)
Income tax expense		89
Loss from operations		(1,461	)
Gain on disposition of DMS, before income tax benefit		3,291
Income tax benefit		—
Gain on disposition of DMS		3,291
Income from DMS discontinued operations	$	1,830

We sold CMRS on November 29, 2004. Certain assets and liabilities of this business were not transferred to the buyer, including a lease obligation for CMRS’ main office facility in Kentucky. We vacated this office facility during the fourth quarter of fiscal year 2005.

Discontinued operations information related to CMRS was as follows (in thousands):

	Fiscal Year Ended March 31, 2005
Revenues	$	5,120
Operating loss	$	(4,125	)
Loss before income tax expense		(4,125	)
Income tax benefit		(1,547	)
Loss from operations		(2,578	)
Loss on disposition of CMRS, before income tax benefit		(2,646	)
Income tax benefit		(991	)
Loss on disposition of CMRS		(1,655	)
Loss from CMRS discontinued operations	$	(4,233	)

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Combined discontinued operations information for Japan Billboard, DMS and CMRS was as follows (in thousands):

	Fiscal Year Ended March 31, 2005
Revenues	$	22,086
Operating income loss	$	(5,678	)
Loss from discontinued operations before income tax benefit		(5,730	)
Income tax benefit		(1,458	)
Loss from operations		(4,272	)
Gain on disposition of discontinued operations, net, before income tax benefit		137
Income tax benefit		(991	)
Gain on disposition of discontinued operations		1,128
Loss from discontinued operations	$	(3,144	)

Note 20. Unaudited Quarterly Results

The following table presents certain unaudited quarterly results for 2006 and 2005 as reported (in thousands, except per share amounts):

	Three Months Ended
	December 31,				September 30,				June 30,				March 31,
	2006 (1)		2005 (2)		2006 (1)		2005 (2)		2006 (1)		2005 (2)		2006 (2)		2005
Revenues	$	123,127	$	97,223	$	112,580	$	102,756	$	105,167	$	91,854	$	125,913	$	111,969
Direct operating expenses		44,373		33,643		37,532		32,318		34,487		30,685		38,829		37,446
Selling, general and administrative		44,619		31,853		40,625		29,622		37,945		29,801		40,822		40,660
Depreciation and amortization		11,891		8,453		9,292		8,722		8,806		9,505		9,306		10,086
Income from operations		22,244		23,274		25,131		32,094		23,929		21,863		36,956		23,777
Income from continuing operations		13,567		14,193		15,234		19,748		13,998		13,663		24,012		15,977
Income (loss) from discontinued operations		—		—		—		—		—		—		—		(701	)
Net income (3)		13,567		14,193		15,234		19,748		13,998		13,663		24,012		15,276
Earnings per share – diluted:
Income per common share from continuing operations	$	0.29	$	0.29	$	0.33	$	0.40	$	0.30	$	0.27	$	0.51	$	0.30
Income (loss) per share from discontinued operations		—		—		—		—		—		—		—		(0.01	)
Net income per share		0.29		0.29		0.33		0.40		0.30		0.27		0.51		0.29
Diluted weighted average common shares outstanding		46,399		48,428		46,865		48,996		46,617		50,865		47,429		52,180

⁽¹⁾ These quarters are included in results for the nine months ended December 31, 2006.

⁽²⁾ These quarters are included in results for the fiscal year ended March 31, 2006.

⁽³⁾ Net income for the nine months ended December 31, 2006 was reduced by $8.0 million of share-based compensation expense related to the adoption of SFAS 123R in April 2006. See Item 8 — “Consolidated Financial Statements and Supplementary Data — Note 10” regarding SFAS 123R.

Note 21. Related-Party Transactions

In the nine months ended December 31, 2006 and the twelve months ended March 31, 2006 and 2005, we made or committed to make donations totaling $0.8 million, $0.4 million and $0.8 million, respectively, to the Catalina Marketing Charitable Foundation (“Foundation”), a not-for-profit charitable organization. The board of directors of the Foundation is comprised of certain of members of our management.

During the fiscal year ended March 31, 2005 we made lease payments of $0.4 million to a lessor for the use of an office building. The lessor was an affiliate of the former president of CMRS, who resigned during 2003. The lease for this office building was terminated in fiscal year 2005, prior to its contractual expiration date in 2009. We paid $1.0 million in fiscal year 2005 for the early termination of the lease.

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Note 22. Change in Fiscal Year End and Elimination of Reporting Lag for Foreign Subsidiaries

We changed our fiscal year end from March 31st to December 31st, effective December 31, 2006. In conjunction with the change in year-end, we eliminated the three-month reporting lag previously used for reporting the results of Catalina Marketing International (“CMI”). As of December 31, 2006, all of our consolidated subsidiaries had the same balance sheet date. Beginning January 1, 2007, all subsidiaries will have the same fiscal reporting period. The change in year-end better aligns our reported operating periods with the fiscal year of the majority of our CPG manufacturer and pharmaceutical manufacturer clients, while the elimination of the reporting lag for CMI allows us to report the results of our foreign subsidiaries in a more timely manner.

The consolidated statements of operations, cash flows, and changes in shareholders’ equity reflect results for the nine-month transition period ended December 31, 2006 and the fiscal years ended March 31, 2006 and 2005. The consolidated balance sheets reflect the financial position of the Company at December 31, 2006, and March 31, 2006. In conjunction with the elimination of the reporting lag, we adjusted certain intercompany balances, which had previously been reported on the three-month lag, resulting in an addition to retained earnings. Net income of CMI for the three-month period ended December 31, 2006 is also reflected as an addition to retained earnings in the consolidated statement of changes in stockholders’ equity and comprehensive income. Finally, the net change in cash and cash equivalents of our foreign subsidiaries for this three-month period is reported on a separate line in the consolidated statement of cash flows.

Comparative Nine-Month Financial Information

The consolidated statement of operations and cash flows are provided below with comparative information for the nine months ended December 31, 2006 and 2005. The financial information provided for the nine months ended December 31, 2005 is unaudited since it represented an interim period of fiscal year 2006. Both periods reflect financial results before the elimination of the CMI reporting lag. The unaudited financial information for the nine-month period ended December 31, 2005, include all normal recurring adjustments necessary for a fair statement of the results for that period.

Catalina Marketing Corporation

Consolidated Statements of Operations

(In thousands except per share data)

	Nine Months Ended December 31,
	2006			2005
				(unaudited)
Revenues	$	340,874		$	291,833
Costs and expenses:
Direct operating expenses (exclusive of depreciation and amortization shown below)		116,392			96,646
Selling, general and administrative expenses		123,189			91,276
Depreciation and amortization		29,989			26,680
Total costs and expenses		269,570			214,602
Income from operations		71,304			77,231
Interest (expense)		(2,817	)		(655	)
Other income, net		1,389			204
Income before income taxes		69,876			76,780
Provision for income taxes		27,077			29,176
Net Income	$	42,799		$	47,604
Earnings per share:
Basic		0.93			0.97
Diluted		0.92			0.96
Weighted average common shares outstanding:
Basic		46,189			49,088
Diluted		46,633			49,419

61

Catalina Marketing Corporation

Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended December 31,
	2006			2005
				(unaudited)
Cash Flows from Operating Activities:
Net income	$	42,799		$	47,604
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		29,989			26,680
Provision for doubtful accounts		180			73
Amortization of deferred financing fees		102			106
Stock-based compensation expense		10,761			—
Loss on sale of equipment		844			1,072
Deferred income taxes		(3,523	)		(3,973	)
Other non-cash operating activities		132			881
Changes in operating assets and liabilities:
Accounts receivable		(35,186	)		(3,493	)
Inventory, prepaid expenses and other assets		(2,166	)		(1,448	)
Accounts payable		(6,081	)		3,515
Taxes payable		4,741			(2,351	)
Accrued liabilities		12,305			(15,905	)
Deferred revenue		12,401			9,264
Net cash provided by operating activities		67,298			62,025
Cash Flows from Investing Activities:
Capital expenditures		(97,491	)		(39,496	)
Business acquisition payments		—			(3,497	)
Other		279			—
Net cash used in investing activities		(97,212	)		(42,993	)
Cash Flows from Financing Activities:
Proceeds from the Corporate Facility		138,000			17,000
Payments on the Corporate Facility		(76,000	)		(30,000	)
Proceeds from Japan borrowings		2,593			—
Payments on Japan borrowings		(54	)		(245	)
Repurchase of Company common stock		(15,000	)		(75,178	)
Excess tax benefit on exercise of stock options		362			—
Proceeds from issuance of common and subsidiary stock		6,155			2,255
Cash dividends paid		(13,883	)		(14,451	)
Net cash provided by (used in) financing activities		42,173			(100,619	)
Effect of exchange rate changes on cash and cash equivalents		1,451			(2,048	)
Net change in cash and cash equivalents		13,710			(83,635	)
Effect of change in reporting lag of subsidiaries		21,055			—
Cash and cash equivalents at end prior period		28,117			116,191
Cash and cash equivalents at end of year	$	62,882		$	32,556

62

Results of Foreign Subsidiaries for the Three Months Ended December 31, 2006

Net income of CMI for the three months ended December 31, 2006 was $0.7 million and is reflected as an addition to retained earnings in the consolidated statement of changes in shareholders’ equity and comprehensive income. The components of this net income, which includes all intercompany expenses necessary to reflect the operations of CMI on a stand-alone basis, are as follows:

Catalina Marketing International

Consolidated Condensed Statements of Operations

(In thousands)

	Three Months Ended December 31, 2006
Revenues	$	24,202
Costs and expenses (1)		21,748
Income from operations		2,454
Other income (expense)		(837	)
Income before income taxes		1,617
Provision for income taxes		944
Net Income	$	673

(1) Includes $2,737 in intercompany expenses.

Consolidated retained earnings includes the net income of CMI for the three months ended December 31, 2006, as well as the elimination of intercompany expenses between CMI and our domestic business. The following table provides the summary of all adjustments to retained earnings as a result of the elimination of the three month reporting lag.

Adjustments to Retained Earnings at December 31, 2006

Net Income for CMI for the Three Months Ended December 31, 2006	$	673
Elimination of Intercompany Expenses		2,737
Total Adjustment to Retained Earnings at December 31, 2006	$	3,410

Note 23. Subsequent Events

On February 20, 2007, we received an unsolicited proposal from ValueAct Capital Master Fund, L.P. (“ValueAct”) to acquire by merger 100% of the outstanding equity interests of the company that ValueAct does not already own for $32.00 per share in cash. The receipt of ValueAct’s unsolicited proposal followed the Company’s prior announcement that the previously formed special committee of the Board of Directors had determined not to proceed with any of the interested parties that had submitted offers to acquire the Company. The Company has advised ValueAct that its proposal is under consideration by the Company’s Board of Directors in consultation with its advisors. The Company’s Board of Directors, in turn, has appointed a special committee to consider the appropriate response to the proposal from ValueAct.

Ite m 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

63

Item 9A. Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2006. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2006, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting. During our most recent fiscal quarter, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s report on internal control over financial reporting and attestation of public accounting firm. The report of management on the effectiveness of our internal control over financial reporting and the associated attestation report of our independent registered certified public accounting firm are set forth in Item 8 – “Consolidated Financial Statements and Supplementary Data”.

Item 9B . Other Information

Not applicable.

P ART III

Items 10,  11, 12, 13 and 14. Directors, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management; Certain Relationships and Related Transactions and Director Independence; Principal Accounting Fees and Services.

The information called for by Items 10, 11, 12, 13 and 14 will be contained in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders under the captions Compensation of Executive Officers and Non–Employee Directors, Compensation Committee Interlocks and Insider Participation, Report of the Compensation Committee, Share Ownership of Certain Beneficial Owners and Management, Nomination and Election of Directors, and Audit Compensation Information and is incorporated herein by reference. The definitive Proxy Statement will be filed with the SEC within 120 days of the period ended December 31, 2006.

PART IV

Item 15. Exhi bit, Financial Statement Schedules.

(a)(1). Financial Statements. The following is a list of the Consolidated Financial Statements included in Item 8 of this Form 10-K.

	Page
Management’s Report on Internal Control Over Financial Reporting	29
Report of Independent Registered Certified Public Accounting Firm	30
Consolidated Statements of Operations, Fiscal Years ended December 31, 2006, March 31, 2006 and 2005	31
Consolidated Balance Sheets at December 31, 2006 and March 31, 2006	32
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), Fiscal Years ended December 31, 2006, March 31, 2006 and 2005	33
Consolidated Statements of Cash Flows, Fiscal Years ended December 31, 2006, March 31, 2006 and 2005	34
Notes to the Consolidated Financial Statements	35

64

(a)(2). Financial Statement Schedules (EDGAR only). All other schedules are omitted because they are not applicable or not required or because the required information is included in the Consolidated Financial Statements or Notes thereto.

(a)(3). Index to Exhibits.

Exhibit No.	Description of Document
*3.1	Restated Certificate of Incorporation.
**3.1.1	Certificate of Amendment of Certificate of Incorporation, a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 1997.
**3.1.2	Certificate of Designation, Preferences and Rights setting forth the terms of the Company’s Series X Junior Participating Preferred Stock, par value $.01 per share, a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 1997.
**3.2	Amended and Restated Bylaws, as amended October 25, 2002, November 3, 2003, November 21, 2003, December 31, 2004 and May 17, 2006.
**10.1	Third Amended and Restated 1989 Stock Option Plan, a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 1999.
**10.2	1992 Director Stock Grant Plan, as amended on July 23, 1996, a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 1997.
**10.3	Amended and Restated 2002 Director Stock Grant Plan, as amended effective July 1, 2005.
**10.4	2004 Employee Payroll Deduction Stock Purchase Plan, a copy of which is attached as an exhibit to Form S-8 filed on December 2, 2004.
**10.5	Stockholder Protection Agreement dated May 8, 1997, between the Company and ChaseMellon Shareholder Services, LLC, as rights agent, a copy of which is attached as an exhibit to the Company’s Current Report on Form 8-K filed on May 8, 1997.
10.6	Catalina Marketing Corporation Amended and Restated 1999 Stock Award Plan, approved on August 10, 2006.
**10.7	Catalina Marketing Corporation Deferred Compensation Plan, as amended and restated (November 18, 2004), a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 2005.
**10.8	Catalina Marketing Corporation Deferred Compensation Plan, Exhibit B, 2005 Sub-Plan Applicable to Compensation Deferred or Vested After December 31, 2004), a copy of which is attached as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 2005.
**10.9	Form of Severance Agreement, a copy of which is attached to the Company’s current Report on Form 8-K filed October 11, 2006.
**10.14	Credit Facility Agreement with Bank One dated August 27, 2004 and included as an exhibit to Form 10-Q for the quarter ended September 30, 2004 filed on November 9, 2004.
**10.15	Agreement for System Supply and Services dated August 29, 2005 by and between Catalina Marketing Corporation and Epson America, Inc. and included as an exhibit to Form 10-Q for the quarter ended September 30, 2005.
**10.16	Amended and Restated Credit Agreement dated October 24, 2006 and included as an exhibit to Form 10-Q for the quarter ended September 30, 2006 filed on November 8, 2006.
***10.17	Severance Agreement, dated as of October 1, 2006, between Catalina Marketing Corporation and L. Dick Buell.
***10.18	Severance Agreement, dated as of October 1, 2006, between Catalina Marketing Corporation and Tom Buehlmann.
***10.19	Service Agreement, dated as of October 1, 2006, between Catalina Marketing UK Limited and Tom Buehlmann.
10.20	Change of Control Agreement, dated as of October 1, 2006, between Catalina Marketing Corporation and Tom Buehlmann.
10.21	Change of Control Agreement, dated as of October 1, 2006, between Catalina Marketing Corporation and L. Dick Buell.
10.22	Employment Agreement, dated as of October 1, 2006, between Catalina Marketing Corporation and L. Dick Buell.
**10.23	Form of Change of Control Agreement, a copy of which is attached to the Company’s Current Report on Form 8-K filed October 11, 2006.
21	List of subsidiaries of Company.
23	Consent of independent registered certified public accounting firm.
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the Company’s Registration Statement on Form S-1 Registration No. 33-45732, originally filed with the Securities and Exchange Commission on February 14, 1992, and declared effective (as amended) on March 26, 1992.

** Previously filed as indicated.

*** Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

65

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 28, 2007.

	CATALINA MARKETING CORPORATION (Registrant)
By:	/s/ Rick P. Frier
	Rick P. Frier
	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/ FREDERICK W. BEINECKE	Director and Chairman of the Board	February 28, 2007
Frederick W. Beinecke
/s/ L. DICK BUELL	Director and Chief Executive Officer	February 28, 2007
L. Dick Buell
/s/ EUGENE P. BEARD	Director	February 28, 2007
Eugene P. Beard
/s/ EDWARD S. DUNN, JR.	Director	February 28, 2007
Edward S. (Ned) Dunn
/s/ EVELYN V. FOLLIT	Director	February 28, 2007
Evelyn V. Follit
/s/ PETER T. TATTLE	Director	February 28, 2007
Peter T. Tattle
/s/ ROBERT G. TOBIN	Director	February 28, 2007
Robert G. Tobin
/s/ JEFFREY W. UBBEN	Director	February 28, 2007
Jeffrey W. Ubben
/s/ RICK P. FRIER	Executive Vice President and Chief Financial Officer	February 28, 2007
Rick P. Frier

66

EX-10.6

EXHIBIT 10.6

CATALINA MARKETING CORPORATION

AMENDED AND RESTATED 1999 STOCK AWARD PLAN

1. PURPOSE.

The Plan is intended to provide incentives to key Employees, directors and consultants of the Corporation and its Subsidiaries, to encourage proprietary interest in the Corporation, and to attract new Employees, directors and consultants with outstanding qualifications through providing select current and prospective key Employees, directors and consultants of the Corporation and its Subsidiaries with the opportunity to acquire Shares.

2. DEFINITIONS.

Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates otherwise.

(a) “Act” shall mean the Securities Act of 1933, as amended.

(b) “Administrator” shall mean the Board or the Committee, whichever shall be administering the Plan from time to time in the discretion of the Board, as described in Section 4 of the Plan.

(c) “Award” shall mean any award made pursuant to this Plan, including Options, Share Appreciation Rights, Restricted Shares, RSUs, and Performance Units.

(d) “Award Agreement” shall mean any written document setting forth the terms and conditions of an Award, as prescribed by the Administrator.

(e) “Board” shall mean the Board of Directors of the Corporation.

(f) “Cause” in respect of a Participant shall mean dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, conviction or confession of a crime punishable by law (except misdemeanor violations), or engaging in practices contrary to stock “insider trading” policies of the Corporation, by such Participant, in each case as determined by the Administrator, with such determination to be conclusive and binding on such affected Participant and all other persons.

(g) “Change of Control” shall mean the occurrence of any of the following: (i) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act, except that such individual or entity shall be deemed to have beneficial ownership of all shares that any such individual or entity has the right to acquire without the happening or failure to happen of a material condition or contingency, other than the passage of time) of more than 50% of the aggregate outstanding voting power of capital stock of the Corporation in respect of the general power to elect directors; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with individuals elected to

the Board with the approval of at least 66 2/3% of the directors of the Corporation then still in office who were either directors at the beginning of such period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; and (iii) (A) the Corporation consolidates with or merges into another entity or sells all or substantially all of its assets to any individual or entity, or (B) any corporation consolidates with or merges into the Corporation, which in either event (A) or (B) is pursuant to a transaction in which the holders of the Corporation’s voting capital stock in respect of the general power to elect directors immediately prior to such transaction do not own, immediately following such transaction, at least a majority of the voting capital stock in respect of the general power to elect directors of the surviving corporation or the person or entity which owns the assets so sold.

(h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(i) “Committee” shall mean the committee appointed by the Board in accordance with Section 4 of the Plan.

(j) “Common Stock” shall mean the Common Stock, par value $.01 per share, of the Corporation.

(k) “Corporation” shall mean Catalina Marketing Corporation, a Delaware corporation, or any successor hereunder.

(l) “Disability” shall mean the condition of a Participant who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. The determination of whether a Participant is disabled shall be made in the Administrator’s sole discretion.

(m) “Employee” shall mean an individual who is employed (within the meaning of Section 3401 of the Code and the regulations thereunder) by the Corporation or a Subsidiary.

(n) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(o) “Exercise Price” shall mean the price per Share of Common Stock, determined by the Administrator, at which an Option or Share Appreciation Right may be exercised.

(p) “Fair Market Value” shall mean the value of one (1) Share of Common Stock, determined as follows, without regard to any restriction other than a restriction which, by its terms, will never lapse:

(1) If the Shares are traded on a nationally recognized exchange or the National Market System (the “NMS”) of the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”), the closing price as reported for composite transactions on the date of valuation or, if no sales occurred on that date, then the average of the highest bid and lowest ask prices on such exchange or the NMS at the end of the day on such date;

(2) If the Shares are not traded on an exchange or the NMS but are otherwise traded over-the-counter, the average of the highest bid and lowest asked prices quoted in the NASDAQ system as of the close of business on the date of valuation, or, if on such day such security is not quoted in the NASDAQ system, the average of the representative bid and asked prices on such date in the domestic over-the-counter market as reported by the National Quotation Bureau, Inc., or any similar successor organization; and

(3) If neither (1) nor (2) applies, the fair market value as determined by the Administrator in good faith. Such determination shall be conclusive and binding on all persons.

(q) “Good Reason” in respect of a Participant shall mean the occurrence of any of the following events or conditions following a Change of Control:

(1) A change in the Participant’s status, title, position or responsibilities (including reporting responsibilities) that represents a substantial reduction of the status, title, position or responsibilities in respect of the Corporation’s business as in effect immediately prior thereto; the assignment to the Participant of substantial duties or responsibilities that are inconsistent with such status, title, position or responsibilities; or any removal of the Participant from or failure to reappoint or reelect the Participant to any of such positions, except in connection with the termination of the Participant’s service for Cause, for Disability or as a result of his or her death, or by the Participant other than for Good Reason;

(2) A reduction in the Participant’s annual base salary;

(3) The Corporation’s requiring the Participant (without the Participant’s consent) to be based at any place outside a 35-mile radius of his or her place of employment immediately prior to a Change of Control, except for reasonably required travel on the Corporation’s business that is not materially greater than such travel requirements prior to such Change of Control;

(4) The Corporation’s failure to (i) continue in effect any material compensation or benefit plan (or a reasonable replacement therefor) in which the Participant was participating immediately prior to a Change of Control, including, but not limited to the Plan, or (ii) provide the Participant with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to a Change of Control (or as in effect following the Change of Control, if greater); or

(5) Any material breach by the Corporation of any provision of the Plan.

(r) “Incentive Stock Option” shall mean an option described in Section 422(b) of the Code.

(s) “Non-Employee Director” shall have the meaning assigned to this phrase in Rule 16b-3 of the Securities and Exchange Commission adopted under the Exchange Act.

(t) “Nonstatutory Stock Option” shall mean an option not described in Section 422(b) or 423(b) of the Code.

(u) “Option” shall mean any stock option granted pursuant to the Plan.

(v) “Option Profit” shall mean the amount (not less than zero) by which the Fair Market Value of a share of Common Stock subject to a Nonstatutory Stock Option on the date of a Participant’s exercise of a Nonstatutory Stock Option exceeds the exercise price of such Nonstatutory Stock Option.

(w) “Participant” shall mean any person who receives an Award pursuant to Sections 5(a), 8(a), 9(a) or 9(b) hereof.

(x) “Performance Units” shall mean Awards granted pursuant to Section 9(a) or 9(b) hereof.

(y) “Plan” shall mean this Catalina Marketing Corporation Amended and Restated 1999 Stock Award Plan, as it may be amended from time to time.

(z) “Purchase Price” shall mean the Exercise Price times the number of Shares with respect to which an Option is exercised.

(aa) “Restricted Shares” shall mean Shares awarded pursuant to Section 8 of this Plan.

(bb) “RSUs” shall mean units granted pursuant to Section 8 of this Plan.

(cc) “Retirement” shall mean the voluntary cessation of employment by an Employee at such time as may be specified in the then current personnel policies of the Corporation, in the sole discretion of the Administrator or, in lieu thereof, upon the attainment of age sixty-five (65) and the completion of not less than twenty (20) years of service with the Corporation or a Subsidiary.

(dd) “Share” shall mean one (1) share of Common Stock, adjusted in accordance with Section 11 of the Plan (if applicable).

(ee) “Share Appreciation Right” or “SAR” means Awards granted pursuant to Section 10 of the Plan.

(ff) “Subsidiary” shall mean any subsidiary corporation as defined in Section 424(f) of the Code, and shall include any entity as to which the Corporation directly or indirectly owns more than a forty percent (40%) interest.

3. EFFECTIVE DATE.

The Plan was adopted by the Board effective April 29, 1999, and received the approval of the Corporation’s stockholders on July 20, 1999. The Board subsequently amended the Plan on April 26, 2001, April 25, 2002 and July 22, 2004, subject to stockholder approval that such amendments received on July 26, 2001, July 25, 2002 and August 19, 2004, respectively. The Board approved a restatement of the Plan, which incorporated certain amendments, effective April 14, 2006, and the Board approved further amendments to the Plan on June 22, 2006, subject to stockholder approval, which was received on August 10, 2006.

4. ADMINISTRATION.

The Plan shall be administered, in the discretion of the Board from time to time, by the Board or by the Committee. The Committee shall be appointed by the Board and shall consist of not less than three (3) members of the Board. The Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall appoint one of the members of the Committee as Chairman. The Administrator shall hold meetings at such times and places as it may determine. Acts of a majority of the Administrator at which a quorum is present, or acts reduced to or approved in writing by a unanimous consent of the members of the Administrator, shall be the valid acts of the Administrator.

The Administrator shall from time to time at its discretion select the Participants who are to be granted Awards, determine the form of Award Agreements, determine the number of Shares to be subject to Awards to be granted to each Participant, designate an Award of Options as Incentive Stock Options or Nonstatutory Stock Options and determine to what extent the Award shall be transferable. The interpretation and construction by the Administrator of any provisions of the Plan or of any Award granted thereunder shall be final. No member of the Administrator shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted thereunder.

So long as the Common Stock is registered under Section 12 of the Exchange Act, then notwithstanding the first or second sentences of the immediately preceding paragraph, selection of officers and directors for participation and decisions concerning the timing, pricing and amount of an Award shall be made solely by the Board, or by the Committee, each of the members of which shall be a Non-Employee Director. If the Committee grants an Award to a person subject to Code Section 162(m), each member of the Committee shall be an “outside director” within the meaning of that section.

5. PARTICIPATION.

(a) Eligibility.

The Participants shall be such Employees (who may be officers, whether or not they are directors) and directors of or consultants to the Corporation or a Subsidiary (whether or not they are Employees) as the Administrator may select subject to the terms and conditions of Section 5(b) below; provided that directors or consultants who are not also Employees shall not be eligible to receive Incentive Stock Options.

(b) Ten-Percent Stockholders.

A Participant who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any of its Subsidiaries shall not be eligible to receive an Incentive Stock Option unless (i) the Exercise Price of the Shares subject to such Option is at least one hundred ten percent (110%) of the Fair Market Value of such Shares on the date of grant and (ii) in the case of an Incentive Stock Option, such Option by its terms is not exercisable after the expiration of five (5) years from the date of grant.

(c) Stock Ownership.

For purposes of Section 5(b) above, in determining stock ownership, a Participant shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters (by whole or half blood), spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for

its shareholders, partners or beneficiaries. Stock with respect to which such Participant holds an Option or any other option if (as of the time the Option or such other option is granted) the terms of such Option or other option provide that it will not be treated as an Incentive Stock Option, shall not be counted.

(d) Outstanding Stock

For purposes of Section 5(b) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the Option to the Participant . “Outstanding stock” shall not include shares authorized for issuance under outstanding Options held by the Participant or by any other person.

6. STOCK.

The stock subject to Awards granted under the Plan shall be Shares of the Corporation’s authorized but unissued or reacquired Common Stock. The aggregate number of Shares as to which Awards may be granted shall not exceed twelve million nine hundred thousand (12,900,000) (reflecting adjustment for the three-for-one stock split that occurred in 2000 and the amendments increasing the number of Shares available for issuance under the Plan in 2001, 2002 and 2006). The number of Shares subject to Awards outstanding at any time shall not exceed the number of Shares remaining available for issuance under the Plan. In the event that any outstanding Award for any reason expires or is forfeited or terminated, or Shares are reacquired by the Corporation pursuant to the terms of an Award Agreement, the Shares allocable to the Award or the Shares so reacquired may again be made subject to an Award. In addition, shares of Common Stock that the Company retains from otherwise delivering pursuant to an Award either (i) as payment of the exercise price of an Award (such as in the case of an Option or an SAR), or (ii) in order to satisfy withholding or employment taxes due upon the grant, exercise, vesting or distribution of an Award, shall again be available for additional Awards. Notwithstanding anything herein to the contrary, during the term of the Plan no Person shall receive Awards under the Plan relating to in excess of 1,800,000 Shares (reflecting adjustment for the three-for-one stock split that occurred in 2000). The limitations established by this Section 6 shall be subject to adjustment in the manner provided in Section 11 hereof upon the occurrence of an event specified therein.

7. TERMS AND CONDITIONS OF OPTIONS.

(a) Award Agreements.

Options shall be evidenced by written Award Agreements in such form as the Administrator shall from time to time determine. Such agreements need not be identical but shall comply with and be subject to the terms and conditions set forth below. No Option shall be effective until the applicable Award Agreement is executed by both parties thereto.

(b) Participant’s Undertaking.

Each Participant shall agree to remain in the employ or service of the Corporation or a Subsidiary and to render services for a period as shall be determined by the Administrator, from the date of the granting of the Option, but such agreement shall not impose upon the Corporation or its Subsidiaries any obligation to retain the Participant in their employ or service for any period.

(c) Number of Shares.

Each Option shall state the number of Shares to which it pertains and shall provide for the adjustment thereof in accordance with the provisions of Section 12 hereof.

(d) Exercise Price.

Each Option shall state the Exercise Price. The Exercise Price shall not be less than the Fair Market Value on the date of grant and, in the case of an Incentive Stock Option granted to a Participant described in Section 5(b) hereof, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.

(e) Medium and Time of Payment.

The Purchase Price shall be payable in full in United States dollars upon the exercise of the Option; provided, however, that if the applicable Award Agreement so provides, or the Administrator, in its sole discretion otherwise approves therefor, the Purchase Price may be paid by the surrender of Shares in good form for transfer, owned by the person exercising the Option for at least six months (subject to the Administrator’s discretion to waive this six-month requirement) and having a Fair Market Value on the date of exercise equal to the Purchase Price, or in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equals the Purchase Price.

Payment of any tax withholding requirements may be made, in the discretion of the Administrator, (i) in cash, (ii) by delivery of Shares registered in the name of the Participant, or by the Corporation not issuing such number of Shares subject to the Option, having a Fair Market Value at the time of exercise equal to the amount to be withheld or (iii) any combination of (i) and (ii) above. If the Corporation is required to register under Section 207.3 of Regulation G of the Board of Governors of the Federal Reserve System (Title 12 Code of Federal Regulations Part 207), then so long as such registration is in effect, the credit extended by the Corporation to a Participant for the purpose of paying the Purchase Price shall conform to the requirements of such Regulation G.

Upon a duly made deferral election by a Participant eligible to participate under the Corporation’s Deferred Compensation Plan, Shares otherwise issuable to the Participant upon the exercise of a Nonstatutory Stock Option and payment of the Purchase Price by the surrender of Shares (or by the payment of cash if an Award Agreement so provides or if the Administrator exercises its discretion to accept cash) in accordance with the first paragraph of this Section 7(e), will not be delivered to the Participant. In lieu of delivery of such Shares, the Common Stock Account (as defined in the Corporation’s Deferred Compensation Plan) of the Participant maintained pursuant to the Corporation’s Deferred Compensation Plan shall be credited with a number of stock units having a value, calculated pursuant to such plan, equal to the Option Profit associated with the exercised Nonstatutory Stock Option. Such deferral of Option Profit under the Corporation’s Deferred Compensation Plan is available to Participants only if the Shares surrendered in payment of the Purchase Price upon the exercise of a Nonstatutory Stock Option have been held by the Participant for at least six months (or by the payment of cash if an Award Agreement so provides or if the Administrator exercises its discretion to accept cash).

(f) Term of Options.

Each Option shall state the time or times when all or part thereof becomes exercisable. No Option shall be exercisable after the expiration of ten (10) years (or less, in the discretion of the Administrator) from the date it was granted, and no Incentive Stock Option granted to a Participant described in Section 5(b) hereof shall be exercisable after the expiration of five (5) years (or less, in the discretion of the Administrator) from the date it was granted.

(g) Cessation of Service (Except by Death, Disability or Retirement).

Except as otherwise provided in this Section 7, an Option may only be exercised by Participants who have remained continuously in service as an Employee, director or consultant with the

Corporation or any Subsidiary since the date of grant of the Option. If a Participant ceases to be an Employee, director or consultant for any reason other than his or her death, Disability or Retirement, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within three (3) months (or such shorter period as the Administrator may determine) after cessation of service, but, except as otherwise provided in the applicable Award Agreement, only to the extent that, at the date of cessation of service, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised. The foregoing notwithstanding, an Award Agreement may, in the sole discretion of the Administrator, but need not, provide that the Option shall cease to be exercisable on the date of such cessation of service if such cessation arises by reason of termination for Cause or if the Participant following cessation becomes an employee, director or consultant of a person or entity that the Administrator, in its sole discretion, determines is in direct competition with the Corporation or a Subsidiary.

For purposes of this Section 7(g) the service relationship shall be treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Administrator). The foregoing notwithstanding, service shall not be deemed to continue beyond the last day of the third (3rd) month after the Participant ceased active service, unless the Participant’s reemployment rights are guaranteed by statute or by contract.

(h) Death of Participant.

If a Participant dies while a Participant, or after ceasing to be a Participant but during the period in which he or she could have exercised the Option under this Section 7, and has not fully exercised the Option, then the Option may be exercised in full, subject to the restrictions referred to in Section 7(f) above, at any time within twelve (12) months (or such shorter period as the Administrator may determine) after the Participant’s death by the executor or administrator of his or her estate or by any person or persons who have acquired the Option directly from the Participant by bequest or inheritance, but, except as otherwise provided in the applicable option agreement, only to the extent that, at the date or death, the Participant’s right to exercise such Option had accrued and had not been forfeited pursuant to the terms of the applicable Award Agreement and had not previously been exercised.

(i) Disability of Participant.

If a Participant ceases to be an Employee, director or consultant by reason of Disability, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within twelve (12) months (or such shorter period as the Administrator may determine) after such cessation of service, but, except as provided in the applicable Award Agreement, only to the extent that, at the date of such cessation of service, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable Award Agreement and had not previously been exercised.

(j) Retirement of Participant.

If a Participant ceases to be an Employee by reason of Retirement, such Participant shall have the right, subject to the restrictions referred to in Section 7(f) above, to exercise the Option at any time within three (3) months (or such longer or shorter period as the Administrator may determine) after cessation of employment, but only to the extent that, at the date of cessation of employment, the Participant’s right to exercise such Option had accrued pursuant to the terms of the applicable option agreement and had not previously been exercised.

(k) Limitation on Incentive Stock Options

If the aggregate Fair Market Value (determined as of the date an Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year under this Plan and all other plans maintained by the Corporation, its parent or its Subsidiaries, exceeds $100,000, the Option shall be treated as a Nonstatutory Stock Option with respect to the stock having an aggregate Fair Market Value exceeding $100,000.

(l) Other Provisions.

The Award Agreements authorized under the Plan may contain such other provisions not inconsistent with the terms of the Plan (including, without limitation, restrictions upon the exercise of the Option or the transfer of Shares of stock following exercise of the Option) as the Administrator shall deem advisable.

8. RESTRICTED SHARE AND RSU AWARDS

(a) Grants.

The Administrator shall have the discretion to grant Restricted Shares to Participants, as well as to grant units (“RSUs”) relating to Shares that are distributed in unrestricted form after they have been earned (i.e., when the criteria for earning such shares have been achieved). As promptly as practicable after a determination is made that an Award of Restricted Shares or RSUs is to be made, the Administrator shall notify the Participant in writing of the grant of the Award, the number of Shares covered by the Award, the terms upon which the Shares subject to the Award may be earned. The date on which the Administrator so notifies the Participant shall be considered the date of grant of the Restricted Shares or RSUs. The Administrator shall maintain records as to all grants of Restricted Shares and RSUs under the Plan.

(b) Earning Shares.

Each Award Agreement for Restricted Shares or RSUs shall state the time or times, and the conditions or circumstances under which, all or part of the Restricted Shares, or Shares subject to RSUs, shall be earned and become nonforfeitable by a Participant.

(c) Accrual of Dividends.

Unless otherwise provided in an Award Agreement, effective as of the record date for the payment thereof or, in lieu of such record date, effective on the date of payment, the Administrator shall credit to the Participant’s Restricted Share or RSU account under the Plan a number of Restricted Shares or RSUs having a Fair Market Value, on that date, equal to the sum of any cash and stock dividends paid on Restricted Shares held in (or Shares subject to RSUs credited to) the Participant’s account on such date. The Administrator shall hold each Participant’s Restricted Shares and Shares subject to RSUs until distribution is required pursuant to subsection (d) hereof.

(d) Distribution Of Restricted Shares; Settlement of RSUs.

(1) Timing of Distributions; General Rule. Except as otherwise expressly stated in this Plan, the Administrator shall settle any Restricted Shares and any RSUs, including any attributable to accumulated cash or stock dividends thereon to the Participant or his or her beneficiary, as the case may be, as soon as practicable after they have been earned (i.e., when the criteria for earning such shares have been achieved). No fractional shares shall be distributed.

(2) Form of Distribution. The Administrator shall distribute all Shares, together with any Shares representing dividends, in the form of Common Stock. One Share shall be given for each Restricted Share or RSU earned.

(e) Deferral Elections.

Upon a duly made deferral election by a Participant eligible to participate under the Corporation’s Deferred Compensation Plan, Shares otherwise issuable to the Participant upon the vesting of a Restricted Share Award or RSU hereunder (or Performance Unit Award pursuant to Section 9 hereof) will not be delivered to the Participant. In lieu of delivery of such Shares, the Common Stock Account (as defined in the Corporation’s Deferred Compensation Plan) of the Participant maintained pursuant to the Corporation’s Deferred Compensation Plan shall be credited with a number of stock units having a value, calculated pursuant to such plan, equal to the Fair Market Value of the Restricted Shares or RSUs (or Performance Units) associated with the Participant’s deferral election.

9. PERFORMANCE UNITS

(a) Performance Units. A Performance Unit is an Award denominated in cash, the amount of which may be based on the achievement of specific goals with respect to Corporation, Subsidiary or individual performance over a specified period of time. The maximum amount of such compensation that may be paid to any one Participant with respect to any one Performance Period (hereinafter defined) shall be $3,400,000. Performance Units may be settled in Shares (based on their Fair Market Value at the time of settlement, unless an Award Agreement provides otherwise) or cash or both, and may be awarded by the Administrator to Employees, directors or consultants to the Corporation or its Subsidiaries.

(b) Performance Compensation Awards.

(1) The Administrator may, at the time of grant of a Performance Unit or Restricted Share Award, designate such Award as a “Performance Compensation Award” in order that such Award constitutes qualified performance-based compensation under Code Section 162(m), in which event the Administrator shall have the power to grant such Awards upon terms and conditions that qualify such awards as “qualified performance-based compensation” within the meaning of Code Section 162(m). With respect to each such Performance Compensation Award, the Administrator shall establish, in writing, a Performance Period, Performance Measure(s) (hereinafter defined), and Performance Formula(s) (hereinafter defined). Once established for a Performance Period, such items shall not be amended or otherwise modified to the extent such amendment or modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m).

(2) A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Measure(s) for such Award are achieved and the Performance Formula as applied against such Performance Measure(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period. As soon as practicable after the close of each Performance Period, the Administrator shall review and certify in writing whether, and to what extent, the Performance Measure(s) for the Performance Period have been achieved and, if so, determine and certify in writing the amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance. The maximum Performance Compensation Award for any one Participant for any one Performance Period shall be 130,000 performance Restricted Shares (or RSUs) or $3,400,000.

(c) Definitions.

(1) “Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Administrator for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained or to be attained with respect to one or more Performance Measure(s). Performance Formulas may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

(2) “Performance Measure” means one or more of the following selected by the Administrator to measure Corporation, Subsidiary and/or business unit performance for a Performance Period, whether in absolute or relative terms (including, without limitation, terms relative to a peer group or index): basic or diluted earnings per share; sales or revenue; earnings before interest and taxes (in total or on a per share basis); net income; returns on equity, assets, capital, revenue or similar measure; economic value added; working capital; total shareholder return; and product development, product market share, research, licensing, litigation, human resources, information services, mergers, acquisitions, sales of assets or subsidiaries. Each such measure shall be to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by the Corporation (or such other standard applied by the Administrator) and, if so determined by the Administrator, and in the case of a Performance Compensation Award, to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.

(3) “Performance Period” means one or more periods of time (of not less than one fiscal year of the Corporation), as the Administrator may designate, over which the attainment of one or more Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in respect of an Award.

10. SHARE APPRECIATION RIGHTS (SARs)

(a) Grants. The Administrator may in its discretion grant Share Appreciation Rights to any Eligible Person, in any of the following forms:

(1) SARs related to Options. The Administrator may grant SARs either concurrently with the grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend to all or a portion of the Shares covered by the related Option. An SAR shall entitle the Participant who holds the related Option, upon exercise of the SAR and surrender of the related Option, or portion thereof, to the extent the SAR and related Option each were previously unexercised, to receive payment of an amount determined pursuant to Section 10(e) below. Any SAR granted in connection with an ISO will contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder.

(2) SARs Independent of Options. The Administrator may grant SARs which are independent of any Option subject to such conditions that may be based on the achievement of specific goals with respect to the Corporation, a Subsidiary or individual performance over a specified period of time as the Administrator may in its discretion determine, which conditions will be set forth in the applicable Award Agreement.

(3) Limited SARs. The Administrator may grant SARs exercisable only upon or in respect of a Change in Control or any other specified event, including those that are performance-based, and such limited SARs may relate to or operate in tandem or combination with or substitution for Options or other SARs, or on a stand-alone basis, and may be payable in cash or Shares based on the spread between the exercise price of the SAR, and (A) a price based upon or equal to the Fair Market Value of the Shares during a specified period, at a specified time within a specified period before, after or including the date of such event, or (B) a price related to consideration payable to Company’s stockholders generally in connection with the event.

(b) Exercise Price. The per Share exercise price of an SAR shall be determined in the sole discretion of the Administrator, shall be set forth in the applicable Award Agreement, and shall be no less than 100% of the Fair Market Value of one Share. The exercise price of an SAR related to an Option shall be the same as the exercise price of the related Option. The exercise price of an SAR shall be subject to the special rules on pricing contained in Sections 5(b) and 7(d) hereof.

(c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR related to an Option will be exercisable at such time or times, and to the extent, that the related Option will be exercisable; provided that the Award Agreement shall not, without the approval of the stockholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. An SAR may not have a term exceeding ten years from its Grant Date. An SAR granted independently of any other Award will be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of the stockholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. Whether an SAR is related to an Option or is granted independently, the SAR may only be exercised when the Fair Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.

(d) Effect on Available Shares. To the extent than an SAR is exercised, only the actual number of delivered shares (if any) will be charged against the maximum number of shares that may be delivered pursuant to Awards under this Plan. The number of shares subject to the SAR and any related Option of the Participant will, however, be reduced by the number of underlying shares as to which the exercise relates, unless the Award Agreement otherwise provides.

(e) Payment. Upon exercise of an SAR related to an Option and the attendant surrender of an exercisable portion of any related Award, the Participant will be entitled to receive payment of an amount determined by multiplying –

(1) the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the exercise price per Share of the SAR, by

(2) the number of Shares with respect to which the SAR has been exercised.

Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the amount payable to the Participant to a percentage, specified in the Award Agreement but not exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence, and (ii) shall be subject to any payment or other restrictions that the Administrator may at any time impose in its discretion, including restrictions intended to conform the SARs with Section 409A of the Code.

(f) Form and Terms of Payment. Subject to Applicable Law, the Administrator may, in its sole discretion, settle the amount determined under Section 10(e) above solely in cash, solely in Shares (valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and partly in

Shares. In any event, cash shall be paid in lieu of fractional Shares. Absent a contrary determination by the Administrator, all SARs shall be settled in Shares as soon as practicable after exercise. Notwithstanding the foregoing, the Administrator may, in an Award Agreement, determine the maximum amount of cash or Shares or combination thereof that may be delivered upon exercise of an SAR.

(g) Termination of Employment or Consulting Relationship. The Administrator shall establish and set forth in the applicable Award Agreement the terms and conditions on which an SAR shall remain exercisable, if at all, following termination of a Participant’s Continuous Service. The provisions of Section 7(g) above shall apply to the extent an Award Agreement does not specify the terms and conditions upon which an SAR shall terminate when there is a termination of a Participant’s Continuous Service.

11. TERM OF PLAN.

Awards may be granted pursuant to the Plan until the expiration of the Plan on April 29, 2009.

12. RECAPITALIZATIONS; CHANGE OF CONTROL.

(a) Adjustments in Respect of Recapitalizations.

The number of Shares covered by the Plan as provided in Section 6 hereof, the number of Shares covered by each outstanding Award and the Exercise Price of Options shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or a stock split or the payment of a stock dividend (but only of Common Stock) or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation.

If the Corporation shall merge with another corporation and the Corporation is the surviving corporation in such merger and under the terms of such merger the shares of Common Stock outstanding immediately prior to the merger remain outstanding and unchanged, each outstanding Award shall continue to apply to the Shares subject thereto and shall also pertain and apply to any additional securities and other property, if any, to which a holder of the number of Shares subject to the Award would have been entitled as a result of the merger. If the Corporation sells all, or substantially all, of its assets, or the Corporation merges (other than a merger of the type described in the immediately preceding sentence) or consolidates with another corporation, this Plan and each Award shall terminate; provided that in such event (i) each Participant to whom no replacement Award has been tendered by the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation) in accordance with all of the terms of clause (ii) or (iii) immediately below, shall receive immediately before the effective date of such sale, merger or consolidation, unrestricted Shares equal to the number of Restricted Shares (or Shares subject to RSUs) and the value of any Performance Units to which the Participant is then entitled (regardless of any vesting condition), and shall have the right, for a period of at least thirty days, until five days before the effective date of such sale, merger or consolidation, to exercise, in whole or in part (in the discretion of the Participant), any unexpired Option or Options or SARS issued to him or her, without regard to the installment or vesting provisions of any Award Agreement, or (ii) in its sole and absolute discretion, the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation) may, but shall not be obligated to, (I) tender to all Participants with then Restricted Shares or RSUs, an award of restricted shares (or RSUs, as the case may be) of the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation), tender to all Participants with then Performance Units, an award of performance units of the surviving or acquiring corporation (or the parent corporation of the surviving or acquiring corporation), and tender to Participants with outstanding Options or SARS under the Plan an option or options to purchase shares of the surviving or acquiring corporation (or of the parent corporation of the surviving or acquiring corporation), in which each new award or awards

contain such terms and provisions as shall be required substantially to preserve the rights and benefits of all Awards then held by such Participants or, (II) permit Participants to receive unrestricted Shares with respect to any Restricted Shares or Shares subject to RSUs (regardless of any vesting condition) immediately before the effective date of the transaction, permit Participants to receive cash with respect to value of any Performance Units (regardless of any vesting condition) immediately before the effective date of the transaction, honor deferral elections that Participants make pursuant to Section 8(e), and grant the choice to all Participants with then outstanding Options or SARS of (A) exercising the Options or SAR in full as described in clause (i) above or (B) receiving a replacement Option as set forth in clause (ii)(I). A dissolution or liquidation of the Corporation, other than a dissolution or liquidation immediately following a sale of all or substantially all of the assets of the Corporation, which shall be governed by the immediately preceding sentence, shall cause each Award to terminate. In the event a Participant receives any unrestricted Shares in satisfaction of Restricted Shares or RSUs, any payment in satisfaction of Performance Units, or exercises any unexpired Option or Options or SAR prior to the effectiveness of a sale of all or substantially all of the Corporation’s assets or a merger or consolidation of the Corporation with another corporation in accordance with clause (i) of this Section 12, such receipt of unrestricted Shares, such payment, or exercise of any Option or Options or SAR shall be subject to the consummation of such sale, merger or consolidation. If such sale, merger or consolidation is not consummated, any otherwise unearned Restricted Shares or Shares subject to RSUs shall be deemed not to have been distributed to the Participant, any payment made to satisfy Performance Units shall be returned to the Corporation, and any otherwise unexpired Option or Options or SAR shall be deemed to have not been exercised, and the Participant and the Corporation shall take all steps necessary to achieve this effect including, without limitation, the Participant delivering to the Corporation the stock certificate representing the Shares issued with respect to Restricted Shares or RSUs, the return to the Corporation of any payments made to the Participant, or upon the exercise of the Option or SAR, endorsed in favor of the Corporation, and the Corporation returning to the Participant the consideration representing the Exercise Price paid by the Participant upon the exercise of the Option or SAR.

To the extent that the foregoing adjustments relate to securities of the Corporation, such adjustments shall be made by the Administrator, whose determination shall be conclusive and binding on all persons.

Except as expressly provided in this Section 12, the Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option or the number or type of Shares subject to an Award of Restricted Shares or RSUs.

The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

(b) Acceleration under Certain Circumstances Following a Change of Control.

Notwithstanding any other provision of the Plan to the contrary and except as otherwise expressly provided in the applicable Award Agreement, the restrictions relating to any Restricted Shares or Shares subject to RSUs, the vesting of any Performance Units, the vesting or similar installment provisions relating to the exercisability of any Option or SAR, and the restrictions, vesting or installment provisions relating to any replacement award tendered to a Participant pursuant to or as a result of, or relating to, a transaction described in the second paragraph of Section 12(a) hereof shall be waived or accelerated, as the

case may be, and the Participant shall receive unrestricted Shares with respect to any Restricted Shares or RSUs, a payment with respect to the value of any Performance Units, or a similar replacement award, and shall have the right, for a period of at least thirty days, to exercise such an Option or SAR or replacement option in the event the Participant’s employment with or services for the Corporation should terminate within two years following a Change of Control, unless such employment or services are terminated by the Corporation for Cause or by the Participant voluntarily without Good Reason, or such employment or services are terminated due to the death or Disability of the Participant. Notwithstanding the foregoing, no Incentive Stock Option shall become exercisable pursuant to the foregoing without the Participant’s consent, if the result would be to cause such option not to be treated as an Incentive Stock Option.

13. RIGHTS AS A STOCKHOLDER; NONTRANSFERABILITY.

(a) A Participant or a transferee of an Award shall have no rights as a stockholder with respect to any Shares covered by such Award until the date of the issuance of a stock certificate to such Participant or transferee for such Shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8(c) or Section 11 hereof.

(b) Awards are nontransferable except as provided in this paragraph and as the Administrator may otherwise provide. Awards may be transferred by will or by the laws of descent and distribution. Unless otherwise provided in an Award Agreement, a Participant may give an Award that is not an Incentive Stock Option to an immediate family member, to a partnership or trust solely benefiting the Participant or immediate family members, or to an inter vivos trust or testamentary trust from which the Award (or the Award proceeds) will be transferred after the Participant’s death. An immediate family member is a Participant’s natural or adopted child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law. A transfer shall not relieve a Participant from his or her obligations under this Plan or the applicable Award Agreement with respect to the transferred Award or Award proceeds.

14. AGREEMENT BY PARTICIPANT REGARDING WITHHOLDING TAXES

(a) No later than the date of exercise of any Option, the distribution of Shares to a Participant pursuant to a Restricted Share Award, or the payment of any Performance Units, the Participant shall pay to the Corporation or make arrangements satisfactory to the Administrator regarding payment of any federal, state or local taxes of any kind required by law to be withheld, and may satisfy minimum withholding consequences through the surrender of shares subject to the Award; and

(b) The Corporation shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to an Award.

15. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance.

No Shares shall be issued pursuant to any Award unless and until the Corporation has determined that:

1. it and the Participant have taken all actions required to register the offer and sale of the Shares under the Act, or to perfect an exemption from the registration requirements thereof;

2. any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and

3. any other applicable provision of state or Federal law has been satisfied.

(b) Restrictions on Transfer; Representations of Participant; Legends.

Regardless of whether the offering and sale of Shares under the Plan has been registered under the Act or has been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state or any other law. In the event that the sale of Shares under the Plan is not registered under the Act but an exemption is available which requires an investment representation or other representation, each Participant shall be required to represent that any Shares being acquired by the Participant are being acquired for investment, and not with a view to the sale or distribution thereof, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired under the Plan pursuant to an unregistered transaction shall bear the following restrictive legend (or similar legend in the discretion of the Administrator) and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.”

Any determination by the Corporation and its counsel in connection with any of the matters set forth in this Section 13 shall be conclusive and binding on all persons.

(c) Registration or Qualification of Securities.

The Corporation may, but shall not be obligated to, register or qualify the sale of Shares under the Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the sale of Shares under the Plan to comply with any law.

(d) Exchange of Certificates.

If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares sold under the Plan is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

(e) Other Jurisdictions.

To facilitate the making of any grant of an Award under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals or who are employed

by the Corporation or any Subsidiary outside of the United States of America as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. The Corporation may adopt rules and procedures relating to the operation and administration of this Plan to accommodate the specific requirements of local laws and procedures of particular countries. Without limiting the foregoing, the Corporation is specifically authorized to adopt rules and procedures regarding the conversion of local currency, taxes, withholding procedures and handling of stock certificates which vary with the customs and requirements of particular countries. The Corporation may adopt sub-plans and establish escrow accounts and trusts as may be appropriate or applicable to particular locations and countries.

16. AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.

The Board may from time to time, with respect to any Shares at the time not subject to Awards, suspend or discontinue the Plan or revise or amend it in any respect whatsoever, except that, without the approval of the Corporation’s stockholders, no such revision or amendment shall:

(a) Increase the number of Shares which may be issued under the Plan;

(b) Change the designation in Section 5 hereof with respect to the classes of persons eligible to receive Options; or

(c) Modify the Plan such that it fails to meet the requirements of Rule 16b-3 of the Securities and Exchange Commission for the exemption of the acquisition, cancellation, expiration or surrender of Options from the operation of Section 16(b) of the Exchange Act.

Within the limitations of the Plan, the Administrator may modify any Award, accelerate the vesting of any Restricted Share Award or the rate at which an Option or SAR may be exercised, or extend or renew outstanding Options. The foregoing notwithstanding, no modification of an Award shall, without the consent of the Participant, alter or impair any rights or obligations under any Award previously granted.

17. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option will be used for general corporate purposes.

18. APPROVAL OF STOCKHOLDERS.

The adoption by the Board on June 22, 2006 of the increase by 3 million in the number of Shares as to which Awards may be granted under this Plan is subject to approval by the affirmative vote of the holders of a majority of the outstanding shares present and entitled to vote at the first annual meeting of stockholders of the Corporation following the adoption of such increase.

19. EXECUTION.

To record the adoption of this amendment and restatement of the Plan by the Board as of June 22, 2006, the Corporation has caused its authorized officers to affix the corporate name and seal hereto.

CATALINA MARKETING CORPORATION
By:	/s/ L. Dick Buell
	L. Dick Buell, Chief Executive Officer
By:	/s/ Barry A. Brooks
	Barry A. Brooks, Secretary

[Seal]

EX-10.17

EXHIBIT 10.17

SEVERANCE AGREEMENT

This SEVERANCE AGREEMENT (“Agreement”) is made on October 1, 2006 (the “Effective Date”), between Catalina Marketing Corporation (“Catalina”) and L. Dick Buell (“you”). When this Agreement refers to your employment with or obligations to Catalina, that reference means not only Catalina but also its subsidiaries, affiliates, predecessors and successors (the “Group”).

WHEREAS, you are Catalina’s Chief Executive Officer;

WHEREAS, Catalina recognizes your contributions to the company, encourages your continued excellent performance for Catalina and its subsidiaries, and wishes to give you the opportunity to obtain severance if your employment terminates under the conditions described below; and

WHEREAS, for the same reasons, Catalina is providing you with additional benefits under a Change of Control Agreement with you on this same date (the “Change of Control Agreement”);

NOW THEREFORE, in consideration of the attached mutual agreements and the Change of Control Agreement, we agree as follows:

1. Term of this Agreement. This Agreement begins on the Effective Date and ends on October 1, 2011, unless your employment with Catalina terminates earlier under Section 3.

2. At Will Employment. Because you are an “at will” employee with Catalina, either you or Catalina may end your employment at any time and for any reason with or without notice. This Agreement does not change your status as an “at will” employee or affect your right or Catalina’s right to terminate your employment with or without cause, reason or notice.

3. Severance

(a) Rights and Duties. If Catalina terminates your employment, you are entitled to the amounts and benefits shown in the applicable box of the following table, subject to the balance of this Section 3. You and Catalina will then have no further obligations to each other, except those provided by the Company’s by-laws and insurance policies, your obligations under Section 4, your obligations under the Employee Confidentiality Agreement dated April 5, 2004 you signed, our agreements regarding arbitration of disputes under Section 6, or as otherwise explained in any written agreement you later sign with Catalina, such as a general release in the form attached as Exhibit A (the “General Release Agreement”), and by law. Catalina will not reduce your severance benefits by any other compensation you earn from another activity during the Severance period so long as you do not violate any of the provisions of Section 4.

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IF YOU RESIGN OR IF CATALINA TERMINATES YOU FOR CAUSE	Catalina will pay or provide you, when due, (1) any unpaid base salary, expense reimbursements, and vacation days earned before termination of employment, (2) any earned and unpaid balance of any bonus for the fiscal year before the one in which the termination occurred, and (3) other unpaid vested amounts or benefits under Catalina compensation, incentive and benefit plans. Except as described in Section 16, those payments will be made in accordance with Catalina’s customary payment practices.
IF CATALINA TERMINATES YOU OTHER THAN FOR CAUSE, DISABILITY OR DEATH	Catalina will pay you all the benefits in the top box above AND, in exchange for and when you sign the General Release Agreement, Catalina will pay an amount equal to a prorated bonus at the “cut in” level (that is, currently, 50% of the target bonus) for the portion of the fiscal year prior to the effective date of your termination (the “Prorated Cut-In Bonus”) and Catalina will continue to pay you your base salary for 78 weeks after the effective date of your termination (the “Severance Period”). Also, in the event that Catalina achieves or exceeds the targets established for the purposes of the payment of target bonus for the bonus program relating to the fiscal year during which the termination of your employment becomes effective, Catalina will pay you an additional amount equal to the difference between a prorated amount of 100% of your target bonus for such year (for the portion of the fiscal year prior to the effective date of your termination) and your Cut-In Bonus. Such additional amount will be paid within 15 business days following determination by the Compensation Committee of the Board (defined below) to the effect that Catalina has achieved or exceeded such targets. In addition, Catalina will pay the premiums for you to continue your group health insurance coverage (as provided to employees generally from time to time) under COBRA, at active employee contribution rates, during the Severance Period (or until you earlier obtain comparable coverage under another plan). You agree that Catalina has given you a copy of its current policy. Catalina will also provide senior executive level career transition assistance at its expense for a period of 12 months, beginning on any date that you select within 3 months following the effective date of your termination, by an outplacement firm of your choice and acceptable to Catalina. If you accept new employment before such 12 months are up, Catalina will no longer pay for any outplacement services.
IF YOU DIE OR BECOME DISABLED	Catalina will pay you all the benefits in the top box above AND, in addition, Catalina will pay a prorated bonus at target for the fiscal year during which termination occurred.

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(b) Termination for Cause. Catalina may terminate your employment for Cause at any time if you engage in any of the “Cause” activities below. However, if, in Catalina’s reasonable judgment, your misconduct can be cured, Catalina will give you written notice so that you will have an opportunity to cure the misconduct. If you do not do so within ten (10) business days, then you may be terminated for Cause.

You can be terminated for “Cause” if you:

(i) engage in willful, intentional, reckless, or grossly negligent misconduct the purpose or effect of which is to materially and adversely affect any member of the Group;

(ii) falsify any work, personnel or company records;

(iii) knowingly and without authorization take company funds or property or make unauthorized charges against any of the Group’s accounts;

(iv) repeatedly refuse to perform your duties;

(v) materially breach any of your obligations under this Agreement, the Change of Control Agreement or Catalina’s Code of Business Conduct & Ethics except because of a physical or mental illness, injury or condition;

(vi) are convicted of, or you enter a plea of guilty or no contest to, a felony involving moral turpitude or materially violate any federal or state securities law;

(vii) repeatedly and excessively use of alcohol or illegal drugs after Catalina’s Board of Directors (the “Board”) has warned you that your employment would be terminated if you continued such use; or

(viii) engage in any other willful, intentional, reckless or grossly negligent misconduct or gross insubordination which impacts your ability to effectively perform your duties or harms the Group in a material way.

In considering whether to terminate you for Cause, the Board, or a person or committee designated by the Board, may exercise its discretion to conduct factual investigations and to interview you or other individuals that it determines to be appropriate under the circumstances.

(c) Termination for Disability. Except as prohibited by law, Catalina may terminate your employment as a result of Disability, or may transfer you to inactive employment

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status, which has the same effect. “Disability” means a physical or mental illness, injury or condition that prevents you from performing any or all of the essential functions of your job duties for at least 90 consecutive calendar days, or for a least 120 calendar days, whether or not consecutive, in any 365 calendar day period, as determined by a licensed physician reasonably satisfactory to Catalina and you. The Board’s determination that you have a Disability will be final and binding for purposes of determining our respective rights and obligations under this Agreement.

(d) Discharge Other Than for Cause or Disability. As explained in Section 2, Catalina may terminate your employment at any time for any reason, and without advance notice. If Catalina terminates you without Cause, you will receive the special benefits provided for in “If Catalina Terminates You Other Than For Cause, Disability or Death” only when you sign a General Release Agreement (Exhibit A) and the release becomes effective.

(e) Death. If you die while employed under this Agreement, Catalina will make the payments as provided in “If You Die or Become Disabled” in Section 3(a).

(f) Disputes Under this Section. The Board’s determination that Catalina had “Cause” for your termination is final and binding. Except as expressly provided elsewhere in this Agreement, all other disputes under the Agreement, including disputes relating to this Section 3, will be resolved by arbitration under Section 6.

(g) No Reduction in Base Compensation. Catalina will not reduce your base salary without your approval. If Catalina breaks this promise, you may resign with good reason and will receive the same severance benefits as if you were discharged other than for Cause.

4. Your Covenants

(a) Confidential Information. During your employment, you will have access to confidential information (whether or not identified as confidential, and whether or not in writing) of or relating to Catalina or other member of the Group (and its or their businesses and products) which may be useful to, or have commercial or economic value to, Catalina or other members of the Group (“Confidential Information”). Confidential Information includes, but is not limited to, such things as trade secrets, know-how, negative know-how, formulas, compilations, programs, devices, methods, techniques, customer lists, pricing schedules, budgets, forecasts, financial information, processes, discoveries and inventions (including, without limitation, inventions and all data and information relating thereto), marketing information, financial information, business plans and strategies, information regarding manufacturer and retail customers and suppliers, and any other data or information which may be useful to, or have actual or potential commercial or economic value to, Catalina or other members of the Group. Confidential Information includes information in all media including information that is communicated orally, in writing or electronically, or that is stored electronically. Confidential Information does not include any information which Catalina has deliberately and publicly disclosed without restriction, or which third parties have developed independently without breaching any obligations to Catalina.

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(b) Promise Not to Disclose. You agree that, during and after your employment with Catalina, all Confidential Information is the sole property of Catalina and other members of the Group, and you will not disclose any Confidential Information to any other person or use any Confidential Information for any purpose, and will otherwise keep all Confidential Information in the strictest confidence, except only as necessary in performing your duties as an employee of Catalina or pursuant to legal process. If you become aware that you are or may be required to disclose any Confidential Information by legal process (for example, a subpoena to testify or produce documents), you agree to give immediate notice to Catalina of the request for disclosure and to cooperate with Catalina to contest the disclosure (if so elected by Catalina) and, if possible, obtain confidential treatment for any Confidential Information which is disclosed.

(c) Third Party Information. Catalina has obligations of confidentiality and restrictions on the use of confidential information it receives from others (“Third Party Information”). Therefore, you agree that, while you work for Catalina, and thereafter, except as required for your duties for Catalina, you will not disclose any Third Party Information to anyone or use any Third Party Information for any purpose, and will keep all Third Party Information in the strictest confidence and treat Third Party Information as Confidential Information.

(d) Promise Not to Solicit. Your position exposes you to Confidential Information regarding customers, clients and other business associates of Catalina and enables you to learn how best to serve them and to form, develop, and maintain business relationships with Catalina employees, consultants, customers and vendors, and to develop and maintain customer goodwill. You agree that all the Confidential Information, relationships and goodwill are the property of Catalina. You further agree that, while employed with Catalina and for eighteen (18) months after your employment ends for any reason (together, the “Restricted Period”) you (i) will not contact, encourage or solicit any employee or consultant of Catalina who was an employee or consultant on or before the termination of your employment to leave Catalina or to perform services for any other person, entity or company (however, in the case of a consulting firm engaged by Catalina which does not provide to Catalina the services of one or more individuals on substantially a full time or exclusive basis, such restriction shall be only to the extent its services would be in connection with any products or services that compete with products or services offered by Catalina); and (ii) will not contact, solicit or have any communications with any client of Catalina or any retailer with whom you dealt during the last eighteen (18) months of your employment with Catalina, in connection with any products or services that compete with products or services offered by Catalina.

(e) Promise Not to Engage in Certain Activities. You agree that during the Restricted Period, you will not, without the prior written consent of Catalina, accept any employment; provide any services, advice or information; assist or engage in any activity (as an employee, consultant or in any other capacity, whether paid or unpaid) with; or own any part of or become involved in a joint venture with, any entity or individual in the business, directly or indirectly, for profit or not, which engages in an activity which is in competition with Catalina or any member of the Group. For the purposes hereof, competition shall be determined by referring to the nature of the Group’s business or prospective business as specified in Catalina’s most current SEC filings and employee distributed press releases (collectively, “Competing Businesses”). The parties agree that, based on the foregoing but subject to the balance of this

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paragraph, Competing Businesses are limited to those described in Schedule 1 hereto as amended from time to time as herein provided. The Board of Directors of Catalina, no more frequently than every 24 months, may make a good faith determination that additional entities constitute Competing Businesses. Catalina promptly shall notify you of any such determination and the identity of such additional entities. Thirty (30) days thereafter, unless you notify Catalina of your objection, such entities shall be added to Schedule 1. If you object to the addition of any entity to Schedule 1, this Agreement and the Change of Control Agreement shall terminate upon the date of your notice to Catalina except that your covenants under this Section 4 shall survive (as they existed prior to the addition of such entity), together with any other provisions of this Agreement necessary to interpret or enforce this Section 4. Because Catalina’s services and customer base are nationwide in scope and are being expanded outside the United States, this paragraph’s restrictions apply to any state of the United States and any other country throughout the world in which Catalina is doing, or has active plans to do, business on the date of termination. To assure compliance with this provision during the Restricted Period, you agree to inform the Chief Executive Officer of Catalina at least two weeks before you begin any business affiliation, employment or consulting engagement with any entity listed or described on Schedule 1 as amended from time to time.

(f) Promise Not to Disparage. You agree that, during the Restricted Period, you will not take any action or make any written or oral statements which are intended to, or in effect, criticize, denigrate or disparage the goodwill, business, services or reputation of Catalina or any Group member, or any of their stockholders, officers, directors, affiliates or advisors. When your employment ends for any reason, Catalina will tell its officers and directors not to make any false statements about you.

(g) Certain Obligations Upon Termination of Employment. When your employment ends for any reason, you agree to immediately deliver to Catalina all documents, including, but not limited to, data, drawings, customer lists, pricing schedules, budgets, forecasts, financial information, manuals, letters, notes, reports, and copies, computer or other security passwords, and other materials that came into your possession through your association with Catalina.

(h) Acknowledgement Regarding Covenants. You agree that your promises and agreements in this Section 4 are reasonable and necessary to protect Catalina’s interests and are reasonably limited in time, scope and area. Given your position and the information you now have and will have regarding Catalina, and the business relationships and goodwill which you will be responsible for developing on behalf of Catalina, you agree that Catalina will be greatly damaged if you violate these promises and agreements. If you do breach this Section 4, you agree that Catalina will be entitled (in addition to any other remedy it may have) to (i) a decree or order for specific performance of the promise or covenant. and (ii) an injunction restraining the violation or threatened violation of the promise or covenant. In addition (and without affecting any of Catalina’s other remedies), since any violation of Section 4 will be contrary to Catalina’s interests and by your violation you will no longer be acting in accordance with the long term interests of Catalina, if you do breach Section 4 you agree to give up any future payments or benefits you otherwise may have under this Agreement and also to reimburse Catalina for all payments or benefits provided to you under this Agreement (other than those constituting earned wages under applicable law).

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5. Options and Other Equity Programs. This Agreement does not change or affect your rights or obligations under any stock option or other equity program in which you participate during your employment. Your rights and obligations under any stock option, stock grant or other equity program continue to be governed only by the terms of those options, grants or programs. This Agreement, however, will be construed in unison with the Change of Control Agreement as stated in that agreement.

6. Arbitration of Disputes. Except as stated in Section 3(f), and except for Catalina’s right to seek relief in court under Section 4, and except as prohibited by law, all disputes between Catalina and you will be resolved by arbitration under the Arbitration Agreement attached as Exhibit B. This Section 6 remains in effect after the termination of this Agreement forever.

7. Notice. Any written notice required to be given by one party to the other party hereunder is effective if mailed by certified or registered mail:

To Catalina:	Catalina Marketing Corporation
	200 Carillon Parkway
	St. Petersburg, Florida 33716
	Attn: Chief Executive Officer
To you:	Your address in Catalina’s payroll records or another address as may be stated in a notice given to Catalina with reference to this Section 7.

8. Amendment. This Agreement may be modified, waived, or discharged only (a) by a court of competent jurisdiction or a duly constituted arbitration panel, and then only as set forth in Section 12 to the smallest extent necessary to make any particular provision legally enforceable, or (b) by a written document approved by the Board on behalf of Catalina and signed by Catalina’s Chief Executive Officer and you. A waiver of any condition or provision of this Agreement in a given instance does not constitute a waiver of that condition or provision at any other time.

9. Interpretation; Exclusive Forum. The laws of the state of Florida govern the validity, interpretation, construction and performance of this Agreement (except for any laws that require the use of another jurisdiction’s laws). Any litigation, arbitration or similar proceeding with respect to this Agreement may be brought only within Florida. Both parties to this Agreement consent to Florida’s jurisdiction and agree that venue anywhere in Florida is proper.

10. Successors.

(a) Assumption Required. In addition to obligations imposed by law on a successor to Catalina, during the term of this Agreement, Catalina will require any successor to all or substantially all of its business or assets, including any Change in Control (as defined in the Change of Control Agreement) to expressly assume and agree to perform this Agreement in the same way and to the same extent that Catalina was required to perform.

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(b) Heirs and Assigns. Although you may not assign this Agreement, it will apply to the benefit of, and be enforceable by, you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative or administrator of your estate.

11. Taxes. Catalina will withhold taxes from payments it makes to you pursuant to this Agreement as required by applicable law.

12. Validity. The invalidity or unenforceability of any part of this Agreement will not affect the validity or enforceability of any other part of this Agreement. If any provision of this Agreement is held to be unenforceable because of the geographical area covered, its duration or its scope, you agree that the court or arbitration tribunal making the determination may reduce or limit the geographical area, duration and/or scope, and the restriction will be enforceable in its reduced form. You and Catalina hereby request that any court or tribunal interpret each part of this Agreement in an enforceable manner and, if and to the extent required for enforceability, to so reduce the geographical area, duration and/or scope.

13. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be considered an original and all of which together are the same Agreement.

14. Entire Agreement. All oral or written agreements or representations, express or implied, about the subject matter of this Agreement are set forth or referenced in this Agreement.

15. Headings. Headings contained in this Agreement are for our convenience only and do not limit this Agreement or affect its interpretation.

16. Tax Liabilities and Code Section 409A. You are solely responsible for the payment of any tax liability (including any taxes and penalties that may arise under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)) that may result from any payments or benefits that you receive under this Agreement. These payments or benefits may be reduced by any applicable employment or withholding taxes. In addition, Catalina will suspend payment of any cash amounts you are entitled to receive under Section 3 during the six-months following termination of your employment (the “409A Suspension Period”), unless Catalina reasonably determines that paying the amounts in accordance with Section 3 will not result in your liability for additional tax under Section 409A. As soon as reasonably practical after the end of the 409A Suspension Period, you will receive a lump sum payment in cash for an amount equal to any cash payments that Catalina doesn’t make during the 409A Suspension Period. After that, you will receive any remaining payments under Section 3 in accordance with its terms (as if there had not been any suspension of payments).

[Remainder of page intentionally left blank.

Next page is signature page]

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Effective Date.

CATALINA MARKETING CORPORATION

FREDERICK W. BEINECKE

Chairman of the Board

L. DICK BUELL

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SCHEDULE 1

LIST OF SECTION 4(E) COMPANIES

October 1, 2006

[****]

**** Material omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act of 1934. Material filed separately with the Securities and Exchange Commission.

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EXHIBIT A

SEPARATION AGREEMENT AND GENERAL RELEASE

This SEPARATION AGREEMENT AND GENERAL RELEASE (“Release”) is made on             ,     , 2006 between Catalina Marketing Corporation (“Catalina”) and [                    ] (“you”):

WHEREAS, You and Catalina signed a Severance Agreement dated October 1, 2006 (the “Severance Agreement”);

NOW THEREFORE, in consideration of the mutual Agreements set forth in this agreement, the parties agree as follows:

1. Employment Termination

You agree that your employment with Catalina has ended or will end on [date].

2. Claims Released by you

In consideration for the benefits in this Agreement, you irrevocably and unconditionally releases and discharge Catalina and its current and former parent companies, affiliates, subsidiaries, divisions, successors and assigns, and all of their current and former employees, officers, directors, owners, stockholders, representatives, administrators, fiduciaries, agents, insurers, employee benefit programs (and the trustees, administrators, fiduciaries and insurers of the programs) (collectively, the “Released Parties”) from any and all claims or demands you may have against the Released Parties. This includes claims arising out of your employment with, and separation from, Catalina other than claims (i) for your rights to indemnification under the Company’s bylaws or indemnification agreements in effect on the date hereof, (ii) for coverage under Catalina’s insurance provisions or policies providing for directors’ and officers’ liability coverage, (iii) for unpaid amounts you are due under the Severance Agreement, (iv) seeking enforcement of this Release, and (v) vested awards or benefits under the Company’s employee benefit plans and programs.

You agree to release any rights or claims you may have based on federal, state or local law, rule, statute or regulation, or the common law, and specifically includes, but isn’t limited to, claims under the following laws: Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act; the Employee Retirement Income Security Act of 1974; the Family and Medical Leave Act of 1996; the Florida Civil Rights Act; and any other federal, state or local law, rule, statute or regulation. This release covers both claims that you know about and those you may not know about at this time.

You agree that you will never file any lawsuit or complaint based on the claims purportedly released in this Release. You promise never to seek any damages, remedies, or other relief for you personally (any right to which you hereby waive) by filing or prosecuting a charge with any administrative agency with respect to any claim purportedly released by this Release.

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3. Release of ADEA Claims.

In exchange for the benefits provided to you under this Release, you agree that the release of claims under Section 2, above includes a release of claims under the Age Discrimination in Employment Act of 1967 (the “ADEA”). You irrevocably and unconditionally forever release and discharge Catalina and the Released Parties from any and all actual or potential, known or unknown claims that you presently may have under the ADEA.

4. Claims released by Catalina

In consideration for your commitments set forth in the Severance Agreement and in this Release, Catalina irrevocably and unconditionally releases and discharges you and your heirs, executors, personal representatives and successors and assigns, from any and all claims, including attorneys’ fees, complaints, liabilities, obligations, damages, actions of any nature, known or unknown, suspected or unsuspected, that it ever had or now has relating in any way to your employment relationship or the termination of your employment relationship with Catalina other than claims arising from any act or omission by you which constitutes gross negligence, willful misconduct or fraud. For purposes of this Section 4, “willful” means that your act or failure to act was taken or omitted not in good faith and without reasonable belief that his action or omission was in the best interests of Catalina.

5. Non-admission of Liability

This Release is not an admission of guilt or wrongdoing by you or any of the Released Parties.

6. Confidentiality

You agree to keep the fact and terms of this Release in strict confidence. You agree not to disclose this document, its contents or subject matter to any person other than your immediate family, attorney, accountant or income tax preparer, or otherwise as required by law. Catalina and the Released Parties agree to keep the fact the terms of this Release in strict confidence except to the extent required by law or to enforce its terms.

7. Consideration of Release

You acknowledge that, before signing this Release, you were given at least 21 calendar days to consider it. You waive any right you might have to additional time beyond this 21 day period within which to consider this Release. You acknowledge that: (a) you used that time to consider this Release before signing it; (b) you carefully read this Release; (c) you fully understand what this Release means; (d) you are entering into it voluntarily; (e) you are receiving valuable consideration in exchange for signing this Release that you would not otherwise be entitled to receive; and (f) Catalina, in writing, encouraged you to discuss this Release with your attorney (at your own expense) before signing it, and that you did so to the extent you thought appropriate.

You may revoke your release of ADEA claims within seven (7) days after you signs this Release, in which case, this Agreement will be null and void. As a result, you won’t

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be entitled to any of the benefits set forth in this agreement and will only receive those benefits you would have received if Catalina had discharged you “for cause” under the terms of the Severance Agreement.

8. Miscellaneous

This Release with Sections 3, 4, 5, 6 and 16 of the Severance Agreement, and the Mutual Agreement to Arbitrate Claims attached as Exhibit B to the Severance Agreement, are the entire Agreement between you and Catalina pertaining to the subject matter of this Release. This Release may not be modified or canceled in any manner except by a writing signed by both you and an authorized Catalina official. You acknowledge that Catalina has made no representations or promises to you concerning this subject matter other than those in this Release. If any provision in this Release is found to be unenforceable, all other provisions will remain fully enforceable. It isn’t necessary that Catalina sign this Release for it to become binding on both Executive and Catalina. This Release binds your heirs, administrators, representatives, executors, successors, and assigns, and will serve to the benefit of the Released Parties and their heirs, administrators, representatives, executors, successors, and assigns. This Release is governed by the statutes and common law of the State of Florida (except for any that require the use of another jurisdiction’s laws). Section headings in this Agreement are included for convenience of reference only and are not a part of this Agreement for any other purpose.

	CATALINA MARKETING CORPORATION
Date:
	Name:
	Title:
Date:
	[you]

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EXHIBIT B

MUTUAL AGREEMENT TO ARBITRATE CLAIMS

[Insert name] (“you”) recognize that Catalina Marketing Corporation (“Catalina”) and you may have differences during or following your employment with Catalina, and relating to your employment. You understand and agree that by signing this Agreement to Arbitrate Claims (“Agreement”), you anticipate gaining the benefits of a confidential, impartial dispute-resolution procedure.

Except as provided in this Agreement, the Federal Arbitration Act governs the interpretation, enforcement and all proceedings pursuant to this Agreement. To the extent that the Federal Arbitration Act either is inapplicable, or held not to require arbitration of a particular claim or claims, Florida law pertaining to agreements to arbitrate applies.

You understand that any reference in this Agreement to Catalina will be a reference also to all of its subsidiary and affiliated entities, all benefit plans, the benefit plans’ sponsors, fiduciaries, administrators, and affiliates, and all successors and assigns of any of them.

1. Claims Covered by the Agreement

You and Catalina mutually consent to the resolution by arbitration of all claims, past, present or future, which arise, directly or indirectly, out of your employment (or its termination) and, the Severance Agreement dated [insert date] and Change of Control Agreement dated [insert date] except as stated in those agreements, and any claim that Catalina may have against you or that you may have against Catalina and its parent companies, affiliates, subsidiaries, divisions, successors and assigns, and each of their current and former employees, officers, directors, owners, stockholders, representatives, administrators, fiduciaries or agents in their capacity as such or otherwise (“claims”). The claims covered by this Agreement include, but aren’t limited to, claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, or medical condition, handicap or disability); and claims for violation of any federal, state, or other governmental law, statute, regulation or ordinance, except claims excluded elsewhere in this Agreement.

Except as otherwise provided in this Agreement, both you and Catalina agree that neither of you will initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination to the EEOC or similar fair employment practices agency, or an administrative charge within the jurisdiction of the National Labor Relations Board or U.S. Department of Labor), in any way related to any claim covered by this Agreement. If Catalina or you prevails on a motion to compel arbitration following the initiation of any lawsuit or administrative action concerning any claim covered by this Agreement, that party will be entitled to an award of reasonable attorney’s fees acquired in the action.

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2. Claims Not Covered by the Agreement

This Agreement doesn’t cover claims for workers’ compensation or unemployment compensation benefits; or any claim as to which final and binding arbitration can’t be required as a matter of law.

Claims, either by Catalina or by you, seeking injunctive or other equitable relief for alleged violations of intellectual property rights and non-disclosure, non-competition, and non-solicitation covenants, per Section 4 of the Severance Agreement also aren’t covered by this Agreement (although all other aspects of these claims, including any claims for damages, are covered by this Agreement). Similarly, claims either by Catalina or by you for breach of any post-employment separation agreement, including, but not limited to, the Release Agreement, aren’t covered by this Agreement.

3. Required Notice of All Claims and Statute of Limitations

Catalina and you agree that the aggrieved party must give written notice of any claim to the other party. This notice must be given no later than the applicable statute of limitations as may be prescribed by law.

Written notice to Catalina, or its officers, directors, employees or agents, will be sent to Catalina Marketing Corporation, 200 Carillon Parkway, St. Petersburg, Florida 33716, Attn: Chief Executive Officer. You will be given written notice at the last address recorded in your personnel file.

The written notice must identify and describe the nature of all claims asserted and the facts upon which the claims are based. The notice must be sent to the other party by certified or registered mail, return receipt requested.

4. Representation

Any party may be represented by an attorney or other representative selected by the party.

5. Discovery

Each party has the right to take the deposition of three (3) individuals and any expert witness designated by another party. Each party also has the right to make requests for production of documents to any party. The subpoena right specified below applies to discovery pursuant to this Section. Additional discovery may be had where the arbitrator selected pursuant to this Agreement so orders, upon an appropriate showing of justification.

6. Designation of Witnesses

At least 30 days before the arbitration, the parties must exchange lists of witnesses, including any expert, and copies of all exhibits intended to be used at the arbitration.

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7. Subpoenas

Each party will have the right to subpoena witnesses and documents for the arbitration.

8. Arbitration Procedures

The arbitration will be held under the auspices of the American Arbitration Association (“AAA”) in the City of St. Petersburg, Florida.

Catalina and you agree that, except as provided in this Agreement, the arbitration will be in accordance with the AAA’s National Rules for Resolution of Employment Disputes (or other then-current employment arbitration procedures). The arbitrator will be either a retired judge, or an attorney licensed to practice law in Florida and will have demonstrated experience and expertise in executive compensation matters (the “Arbitrator”).

The Arbitrator will be selected as follows. The sponsoring organization will give each party a list of 11 arbitrators drawn from its panel of employment dispute arbitrators. Each party may eliminate all names on the list it deems unacceptable. If only one common name remains on the lists of all parties, that individual will be designated as the Arbitrator. If more than one common name remains on the lists of all parties, the parties will eliminate names alternately from the list of common names until only one remains. The party who did not initiate the claim will eliminate first. If no common name exists on the lists of all parties, the sponsoring organization will furnish an additional list and the process will be repeated. If no arbitrator has been selected after two lists have been distributed, then the parties will eliminate alternately from a third list, with the party initiating the claim eliminating first, until only one name remains. That person will be designated as the Arbitrator.

The Arbitrator will apply the substantive law (and the law of remedies, if applicable) of the state in which the claim arose, or federal law, or both, as applicable to the claim(s) asserted. If the parties’ dispute concerns a contract in which the parties have included a choice of law provision, the Arbitrator will apply the law as designated by the parties. The Arbitrator is without jurisdiction to apply any different substantive law, or law of remedies. The Arbitrator, and not any federal, state, or local court or agency, has exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including but not limited to any claim that all or any part of this Agreement is void or voidable. The arbitration will be final and binding upon the parties, except as provided in this Agreement.

The Arbitrator has jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator has the authority to hear and adjudicate a motion to dismiss and/or a motion for summary judgment by any party and will apply the standards governing the motions under the Federal Rules of Civil Procedure.

Either party may obtain a court reporter to provide a stenographic record of proceedings.

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Either party, upon request at the close of hearing, will be allowed to file a post-hearing brief. The time for filing the brief will be set by the Arbitrator.

The Arbitrator will render a written, reasoned award and opinion in the form setting forth the Arbitrator’s findings and conclusions.

9. Arbitration Fees and Costs

Catalina will be responsible for paying any filing fee and the fees and costs of the Arbitrator and the arbitration; provided, however, that if you are the party initiating the claim, you are responsible for contributing an amount equal to the filing fee to initiate a claim in the court of general jurisdiction in Florida. Each party will pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim that affords the prevailing party attorneys’ fees, or if there is a written Agreement providing for fees, the Arbitrator may award reasonable fees to the prevailing party, under the standards for fee shifting provided by law.

10. Judicial Review

Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement or to enforce an arbitration award.

11. Interstate Commerce

You understand and agree that Catalina is engaged in transactions involving interstate commerce and that the Federal Arbitration Act applies to this Agreement.

12. Requirements for Modification or Revocation

This Agreement to arbitrate will survive the termination of your employment. It can only be revoked or modified by a writing signed by the parties that specifically states an intent to revoke or modify this Agreement.

13. Sole and Entire Agreement

This is the complete Agreement of the parties on the subject of arbitration of disputes. This Agreement supersedes any prior or contemporaneous oral or written understandings on the subject. No party is relying on any representations, oral or written, on the subject of the effect, enforceability or meaning of this Agreement, except as specifically set forth in this Agreement.

14. Severability

If any provisions of this Agreement are adjudged to be void or otherwise unenforceable, in whole or in part, this adjudication won’t affect the validity of the remainder of the Agreement, as the parties hereto intend to create a binding Agreement to arbitrate regardless of the unenforceability of any particular term or terms.

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15. Consideration

The promises by Catalina and by you to arbitrate differences, rather than litigate them before courts or other bodies, provide consideration for each other.

16. Voluntary Agreement

YOU ACKNOWLEDGE THAT YOU HAVE CAREFULLY READ THIS AGREEMENT, THAT YOU UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN CATALINA AND YOU RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT YOU HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY CATALINA OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF.

YOU UNDERSTAND THAT BY SIGNING THIS AGREEMENT YOU ARE GIVING UP YOUR RIGHT TO A JURY TRIAL.

YOU FURTHER ACKNOWLEDGE THAT YOU HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH YOUR PRIVATE LEGAL COUNSEL AND HAVE TAKEN THAT OPPORTUNITY TO THE EXTENT YOU WISH TO DO SO.

	CATALINA MARKETING CORPORATION
Date:
	Name:
	Title:
Date:
	[YOU]

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EX-10.18

Exhibit 10.18

SEVERANCE AGREEMENT

This SEVERANCE AGREEMENT (“Agreement”) is made as of October 1, 2006 (the “Effective Date”), between Catalina Marketing Corporation (“Catalina”) and Tom Buehlmann (“you”). When this Agreement refers to your obligations to Catalina, that reference means not only Catalina but also its subsidiaries, affiliates, predecessors and successors (the “Group”).

WHEREAS, you are Catalina’s Executive Vice President ;

WHEREAS, Catalina recognizes your contributions to the company, encourages your continued excellent performance for Catalina and its subsidiaries, and wishes to give you the opportunity to obtain severance if your employment terminates under the conditions described below; and

WHEREAS, for the same reasons, Catalina is providing you with additional benefits under a Change of Control Agreement with you on this same date (the “Change of Control Agreement”);

NOW THEREFORE, in consideration of the attached mutual agreements and the Change of Control Agreement, we agree as follows:

1. Term of this Agreement. This Agreement begins on the Effective Date and ends on October 1, 2011, unless your employment with Catalina terminates earlier under Section 3.

2. At Will Employment. Because you are an “at will” employee with Catalina, either you or Catalina may end your employment at any time and for any reason with or without notice. This Agreement does not change your status as an “at will” employee or affect your right or Catalina’s right to terminate your employment with or without cause, reason or notice.

3. Severance

(a) Rights and Duties. If Catalina terminates your employment, you are entitled to the amounts and benefits shown in the applicable box of the following table, subject to the balance of this Section 3. Save for the provisions of the Change of Control Agreement, this section 3 shall supersede any other agreements between you and Catalina Marketing Corporation regarding any notice, severance, benefits or payments in the event of termination, including those contained in that certain employment letter between you and Catalina Marketing Corporation dated October 1, 2002. You and Catalina will then have no further obligations to each other, except those provided by the Company’s by-laws and insurance policies, your obligations under Section 4, your obligations under the Employee Confidentiality Agreement dated October 1, 2002 you signed, our agreements regarding arbitration of disputes under Section 6, or as otherwise explained in any written agreement you later sign with Catalina, such as a general release in the form attached as Exhibit A (the “General Release Agreement”), and by law. Catalina will not reduce your severance benefits by any other compensation you earn from another activity during the Severance period so long as you do not violate any of the provisions of Section 4.

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IF YOU RESIGN OR IF CATALINA TERMINATES YOU FOR CAUSE	Catalina will pay or provide you, when due, (1) any unpaid base salary, expense reimbursements, and vacation days earned before termination of employment, (2) any earned and unpaid balance of any bonus for the fiscal year before the one in which the termination occurred, and (3) other unpaid vested amounts or benefits under Catalina compensation, incentive and benefit plans. Except as described in Section 16, those payments will be made in accordance with Catalina’s customary payment practices.
IF CATALINA TERMINATES YOU OTHER THAN FOR CAUSE, DISABILITY OR DEATH	Catalina will pay you all the benefits in the top box above AND, in exchange for and when you sign the General Release Agreement, Catalina will pay an amount equal to a prorated bonus at the “cut in” level (that is, currently, 50% of the target bonus) for the portion of the fiscal year prior to the effective date of your termination (the “Prorated Cut-In Bonus”) and Catalina will continue to pay you your base salary for 52 weeks after the effective date of your termination (the “Severance Period”). Also, in the event that Catalina achieves or exceeds the targets established for the purposes of the payment of target bonus for the bonus program relating to the fiscal year during which the termination of your employment becomes effective, Catalina will pay you an additional amount equal to the difference between a prorated amount of 100% of your target bonus for such year (for the portion of the fiscal year prior to the effective date of your termination) and your Cut-In Bonus. Such additional amount will be paid within 15 business days following determination by the Compensation Committee of the Board (defined below) to the effect that Catalina has achieved or exceeded such targets. In addition, Catalina will pay the premiums for you to continue your group health insurance coverage (as provided to employees generally from time to time) under COBRA, at active employee contribution rates, during the Severance Period (or until you earlier obtain comparable coverage under another plan). You agree that Catalina has given you a copy of its current policy. Catalina will also provide senior executive level career transition assistance at its expense for a period of 12 months, beginning on any date that you select within 3 months following the effective date of your termination, by an outplacement firm of your choice and acceptable to Catalina. If you accept new employment before such 12 months are up, Catalina will no longer pay for any outplacement services.
IF YOU DIE OR BECOME DISABLED	Catalina will pay you all the benefits in the top box above AND, in addition, Catalina will pay a prorated bonus at target for the fiscal year during which termination occurred.

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(b) Termination for Cause. Catalina may terminate your employment for Cause at any time if you engage in any of the “Cause” activities below. However, if, in Catalina’s reasonable judgment, your misconduct can be cured, Catalina will give you written notice so that you will have an opportunity to cure the misconduct. If you do not do so within ten (10) business days, then you may be terminated for Cause.

You can be terminated for “Cause” if you:

(i) engage in willful, intentional, reckless, or grossly negligent misconduct the purpose or effect of which is to materially and adversely affect any member of the Group;

(ii) falsify any work, personnel or company records;

(iii) knowingly and without authorization take company funds or property or make unauthorized charges against any of the Group’s accounts;

(iv) repeatedly refuse to perform your duties;

(v) materially breach any of your obligations under this Agreement, the Change of Control Agreement or Catalina’s Code of Business Conduct & Ethics or the Service Agreement dated October 1, 2006 between you and Catalina Marketing UK Limited except because of a physical or mental illness, injury or condition;

(vi) are convicted of, or you enter a plea of guilty or no contest to, a felony involving moral turpitude or materially violate any federal or state securities law;

(vii) repeatedly and excessively use of alcohol or illegal drugs after Catalina’s Board of Directors (the “Board”) has warned you that your employment would be terminated if you continued such use; or

(viii) engage in any other willful, intentional, reckless or grossly negligent misconduct or gross insubordination which impacts your ability to effectively perform your duties or harms the Group in a material way.

In considering whether to terminate you for Cause, the Board, or a person or committee designated by the Board, may exercise its discretion to conduct factual investigations and to interview you or other individuals that it determines to be appropriate under the circumstances.

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(c) Termination for Disability. Except as prohibited by law, Catalina may terminate your employment as a result of Disability, or may transfer you to inactive employment status, which has the same effect. “Disability” means a physical or mental illness, injury or condition that prevents you from performing any or all of the essential functions of your job duties for at least 90 consecutive calendar days, or for a least 120 calendar days, whether or not consecutive, in any 365 calendar day period, as determined by a licensed physician reasonably satisfactory to Catalina and you. The Board’s determination that you have a Disability will be final and binding for purposes of determining our respective rights and obligations under this Agreement.

(d) Discharge Other Than for Cause or Disability. As explained in Section 2, Catalina may terminate your employment at any time for any reason, and without advance notice. If Catalina terminates you without Cause, you will receive the special benefits provided for in “If Catalina Terminates You Other Than For Cause, Disability or Death” only when you sign a General Release Agreement (Exhibit A) and the release becomes effective.

(e) Death. If you die while employed under this Agreement, Catalina will make the payments as provided in “If You Die or Become Disabled” in Section 3(a).

(f) Disputes Under this Section. The Board’s determination that Catalina had “Cause” for your termination is final and binding. Except as expressly provided elsewhere in this Agreement, all other disputes under the Agreement, including disputes relating to this Section 3, will be resolved by arbitration under Section 6.

(g) No Reduction in Base Compensation. Catalina will not reduce your base salary without your approval. If Catalina breaks this promise, you may resign with good reason and will receive the same severance benefits as if you were discharged other than for Cause.

4. Your Covenants

(a) Confidential Information. During your employment, you will have access to confidential information (whether or not identified as confidential, and whether or not in writing) of or relating to Catalina or other member of the Group (and its or their businesses and products) which may be useful to, or have commercial or economic value to, Catalina or other members of the Group (“Confidential Information”). Confidential Information includes, but is not limited to, such things as trade secrets, know-how, negative know-how, formulas, compilations, programs, devices, methods, techniques, customer lists, pricing schedules, budgets, forecasts, financial information, processes, discoveries and inventions (including, without limitation, inventions and all data and information relating thereto), marketing information, financial information, business plans and strategies, information regarding manufacturer and retail customers and suppliers, and any other data or information which may be useful to, or have actual or potential commercial or economic value to, Catalina or other members of the Group. Confidential Information includes information in all media including information that is communicated orally, in writing or electronically, or that is stored electronically. Confidential

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Information does not include any information which Catalina has deliberately and publicly disclosed without restriction, or which third parties have developed independently without breaching any obligations to Catalina.

(b) Promise Not to Disclose. You agree that, during and after your employment with Catalina, all Confidential Information is the sole property of Catalina and other members of the Group, and you will not disclose any Confidential Information to any other person or use any Confidential Information for any purpose, and will otherwise keep all Confidential Information in the strictest confidence, except only as necessary in performing your duties as an employee of Catalina or pursuant to legal process. If you become aware that you are or may be required to disclose any Confidential Information by legal process (for example, a subpoena to testify or produce documents), you agree to give immediate notice to Catalina of the request for disclosure and to cooperate with Catalina to contest the disclosure (if so elected by Catalina) and, if possible, obtain confidential treatment for any Confidential Information which is disclosed.

(c) Third Party Information. Catalina has obligations of confidentiality and restrictions on the use of confidential information it receives from others (“Third Party Information”). Therefore, you agree that, while you work for Catalina, and thereafter, except as required for your duties for Catalina, you will not disclose any Third Party Information to anyone or use any Third Party Information for any purpose, and will keep all Third Party Information in the strictest confidence and treat Third Party Information as Confidential Information.

(d) Promise Not to Solicit. Your position exposes you to Confidential Information regarding customers, clients and other business associates of Catalina and enables you to learn how best to serve them and to form, develop, and maintain business relationships with Catalina employees, consultants, customers and vendors, and to develop and maintain customer goodwill. You agree that all the Confidential Information, relationships and goodwill are the property of Catalina. You further agree that, while employed with Catalina and for twelve (12) months after your employment ends for any reason (together, the “Restricted Period”) you (i) will not contact, encourage or solicit any employee or consultant of Catalina who was an employee or consultant on or before the termination of your employment to leave Catalina or to perform services for any other person, entity or company (however, in the case of a consulting firm engaged by Catalina which does not provide to Catalina the services of one or more individuals on substantially a full time or exclusive basis, such restriction shall be only to the extent its services would be in connection with any products or services that compete with products or services offered by Catalina); and (ii) will not contact, solicit or have any communications with any client of Catalina or any retailer with whom you dealt during the last eighteen (18) months of your employment with Catalina, in connection with any products or services that compete with products or services offered by Catalina.

(e) Promise Not to Engage in Certain Activities. You agree that during the Restricted Period, you will not, without the prior written consent of Catalina, accept any employment; provide any services, advice or information; assist or engage in any activity (as an employee, consultant or in any other capacity, whether paid or unpaid) with; or own any part of or become involved in a joint venture with, any entity or individual in the business, directly or indirectly, for profit or not, which engages in an activity which is in

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competition with Catalina or any member of the Group. For the purposes hereof, competition shall be determined by referring to the nature of the Group’s business or prospective business as specified in Catalina’s most current SEC filings and employee distributed press releases (collectively, “Competing Businesses”). The parties agree that, based on the foregoing but subject to the balance of this paragraph, Competing Businesses are limited to those described in Schedule 1 hereto as amended from time to time as herein provided. The Board of Directors of Catalina, no more frequently than every 24 months, may make a good faith determination that additional entities constitute Competing Businesses. Catalina promptly shall notify you of any such determination and the identity of such additional entities. Thirty (30) days thereafter, unless you notify Catalina of your objection, such entities shall be added to Schedule 1. If you object to the addition of any entity to Schedule 1, this Agreement and the Change of Control Agreement shall terminate upon the date of your notice to Catalina except that your covenants under this Section 4 shall survive (as they existed prior to the addition of such entity), together with any other provisions of this Agreement necessary to interpret or enforce this Section 4. Because Catalina’s services and customer base are nationwide in scope, this paragraph’s restrictions apply to any state of the United States, or has active plans to do, business on the date of termination. To assure compliance with this provision during the Restricted Period, you agree to inform the Chief Executive Officer of Catalina at least two weeks before you begin any business affiliation, employment or consulting engagement with any entity listed or described on Schedule 1 as amended from time to time.

(f) Promise Not to Disparage. You agree that, during the Restricted Period, you will not take any action or make any written or oral statements which are intended to, or in effect, criticize, denigrate or disparage the goodwill, business, services or reputation of Catalina or any Group member, or any of their stockholders, officers, directors, affiliates or advisors. When your employment ends for any reason, Catalina will tell its officers and directors not to make any false statements about you.

(g) Certain Obligations Upon Termination of Employment. When your employment ends for any reason, you agree to immediately deliver to Catalina all documents, including, but not limited to, data, drawings, customer lists, pricing schedules, budgets, forecasts, financial information, manuals, letters, notes, reports, and copies, computer or other security passwords, and other materials that came into your possession through your association with Catalina.

(h) Acknowledgement Regarding Covenants. You agree that your promises and agreements in this Section 4 are reasonable and necessary to protect Catalina’s interests and are reasonably limited in time, scope and area. Given your position and the information you now have and will have regarding Catalina, and the business relationships and goodwill which you will be responsible for developing on behalf of Catalina, you agree that Catalina will be greatly damaged if you violate these promises and agreements. If you do breach this Section 4, you agree that Catalina will be entitled (in addition to any other remedy it may have) to (i) a decree or order for specific performance of the promise or covenant. and (ii) an injunction restraining the violation or threatened violation of the promise or covenant. In addition (and without affecting any of Catalina’s other remedies), since any violation of Section 4 will be contrary to Catalina’s interests and by your violation you will no longer be acting in accordance with the long term

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interests of Catalina, if you do breach Section 4 you agree to give up any future payments or benefits you otherwise may have under this Agreement and also to reimburse Catalina for all payments or benefits provided to you under this Agreement (other than those constituting earned wages under applicable law).

5. Options and Other Equity Programs. This Agreement does not change or affect your rights or obligations under any stock option or other equity program in which you participate during your employment. Your rights and obligations under any stock option, stock grant or other equity program continue to be governed only by the terms of those options, grants or programs. This Agreement, however, will be construed in unison with the Change of Control Agreement as stated in that agreement.

6. Arbitration of Disputes. Except as stated in Section 3(f), and except for Catalina’s right to seek relief in court under Section 4, and except as prohibited by law, all disputes between Catalina and you will be resolved by arbitration under the Arbitration Agreement attached as Exhibit B. This Section 6 remains in effect after the termination of this Agreement forever.

7. Notice. Any written notice required to be given by one party to the other party hereunder is effective if mailed by certified or registered mail:

To Catalina:	Catalina Marketing Corporation
	200 Carillon Parkway
	St. Petersburg, Florida 33716
	Attn: Chief Executive Officer

To you: Your address in Catalina’s payroll records or another address as may be stated in a notice given to Catalina with reference to this Section 7.

8. Amendment. This Agreement may be modified, waived, or discharged only (a) by a court of competent jurisdiction or a duly constituted arbitration panel, and then only as set forth in Section 12 to the smallest extent necessary to make any particular provision legally enforceable, or (b) by a written document approved by the Board on behalf of Catalina and signed by Catalina’s Chief Executive Officer and you. A waiver of any condition or provision of this Agreement in a given instance does not constitute a waiver of that condition or provision at any other time.

9. Interpretation; Exclusive Forum. The laws of the state of Florida govern the validity, interpretation, construction and performance of this Agreement (except for any laws that require the use of another jurisdiction’s laws). Any litigation, arbitration or similar proceeding with respect to this Agreement may be brought only within Florida. Both parties to this Agreement consent to Florida’s jurisdiction and agree that venue anywhere in Florida is proper.

10. Successors.

(a) Assumption Required. In addition to obligations imposed by law on a successor to Catalina, during the term of this Agreement, Catalina will require any successor to all or substantially all of its business or assets, including any Change in Control (as

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defined in the Change of Control Agreement) to expressly assume and agree to perform this Agreement in the same way and to the same extent that Catalina was required to perform.

(b) Heirs and Assigns. Although you may not assign this Agreement, it will apply to the benefit of, and be enforceable by, you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative or administrator of your estate.

11. Taxes. Catalina will withhold taxes from payments it makes to you pursuant to this Agreement as required by applicable law.

12. Validity. The invalidity or unenforceability of any part of this Agreement will not affect the validity or enforceability of any other part of this Agreement. If any provision of this Agreement is held to be unenforceable because of the geographical area covered, its duration or its scope, you agree that the court or arbitration tribunal making the determination may reduce or limit the geographical area, duration and/or scope, and the restriction will be enforceable in its reduced form. You and Catalina hereby request that any court or tribunal interpret each part of this Agreement in an enforceable manner and, if and to the extent required for enforceability, to so reduce the geographical area, duration and/or scope.

13. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be considered an original and all of which together are the same Agreement.

14. Entire Agreement. All oral or written agreements or representations, express or implied, about the subject matter of this Agreement are set forth or referenced in this Agreement.

15. Headings. Headings contained in this Agreement are for our convenience only and do not limit this Agreement or affect its interpretation.

16. Tax Liabilities and Code Section 409A. You are solely responsible for the payment of any tax liability (including any taxes and penalties that may arise under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)) that may result from any payments or benefits that you receive under this Agreement. These payments or benefits may be reduced by any applicable employment or withholding taxes. In addition, Catalina will suspend payment of any cash amounts you are entitled to receive under Section 3 during the six-months following termination of your employment (the “409A Suspension Period”), unless Catalina reasonably determines that paying the amounts in accordance with Section 3 will not result in your liability for additional tax under Section 409A. As soon as reasonably practical after the end of the 409A Suspension Period, you will receive a lump sum payment in cash for an amount equal to any cash payments that Catalina doesn’t make during the 409A Suspension Period. After that, you will receive any remaining payments under Section 3 in accordance with its terms (as if there had not been any suspension of payments).

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Effective Date.

CATALINA MARKETING CORPORATION

/s/ FREDERICK W. BEINECKE

FREDERICK W. BEINECKE

Chairman of the Board

/s/ TOM BUEHLMANN

TOM BUEHLMANN

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SCHEDULE 1

LIST OF SECTION 4(E) COMPANIES

October 1, 2006

[****]

**** Material omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act of 1934. Material filed separately with the Securities and Exchange Commission.

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EXHIBIT A

SEPARATION AGREEMENT AND GENERAL RELEASE

This SEPARATION AGREEMENT AND GENERAL RELEASE (“Release”) is made on             ,     , 2006 between Catalina Marketing Corporation (“Catalina”) and Tom Buehlmann (“you”):

WHEREAS, You and Catalina signed a Severance Agreement dated October 1, 2006 (the “Severance Agreement”);

NOW THEREFORE, in consideration of the mutual Agreements set forth in this agreement, the parties agree as follows:

1. Employment Termination

You agree that your employment with Catalina has ended or will end on [date].

2. Claims Released by you

In consideration for the benefits in this Agreement, you irrevocably and unconditionally releases and discharge Catalina and its current and former parent companies, affiliates, subsidiaries, divisions, successors and assigns, and all of their current and former employees, officers, directors, owners, stockholders, representatives, administrators, fiduciaries, agents, insurers, employee benefit programs (and the trustees, administrators, fiduciaries and insurers of the programs) (collectively, the “Released Parties”) from any and all claims or demands you may have against the Released Parties. This includes claims arising out of your employment with, and separation from, Catalina other than claims (i) for your rights to indemnification under the Company’s bylaws or indemnification agreements in effect on the date hereof, (ii) for coverage under Catalina’s insurance provisions or policies providing for directors’ and officers’ liability coverage, (iii) for unpaid amounts you are due under the Severance Agreement, (iv) seeking enforcement of this Release, and (v) vested awards or benefits under the Company’s employee benefit plans and programs.

You agree to release any rights or claims you may have based on federal, state or local law, rule, statute or regulation, or the common law, and specifically includes, but isn’t limited to, claims under the following laws: Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act; the Employee Retirement Income Security Act of 1974; the Family and Medical Leave Act of 1996; the Florida Civil Rights Act; and any other federal, state or local law, rule, statute or regulation. This release covers both claims that you know about and those you may not know about at this time.

You agree that you will never file any lawsuit or complaint based on the claims purportedly released in this Release. You promise never to seek any damages, remedies, or other relief for you personally (any right to which you hereby waive) by filing or prosecuting a charge with any administrative agency with respect to any claim purportedly released by this Release.

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3. Release of ADEA Claims.

In exchange for the benefits provided to you under this Release, you agree that the release of claims under Section 2, above includes a release of claims under the Age Discrimination in Employment Act of 1967 (the “ADEA”). You irrevocably and unconditionally forever release and discharge Catalina and the Released Parties from any and all actual or potential, known or unknown claims that you presently may have under the ADEA.

4. Claims released by Catalina

In consideration for your commitments set forth in the Severance Agreement and in this Release, Catalina irrevocably and unconditionally releases and discharges you and your heirs, executors, personal representatives and successors and assigns, from any and all claims, including attorneys’ fees, complaints, liabilities, obligations, damages, actions of any nature, known or unknown, suspected or unsuspected, that it ever had or now has relating in any way to your employment relationship or the termination of your employment relationship with Catalina other than claims arising from any act or omission by you which constitutes gross negligence, willful misconduct or fraud. For purposes of this Section 4, “willful” means that your act or failure to act was taken or omitted not in good faith and without reasonable belief that his action or omission was in the best interests of Catalina.

5. Non-admission of Liability

This Release is not an admission of guilt or wrongdoing by you or any of the Released Parties.

6. Confidentiality

You agree to keep the fact and terms of this Release in strict confidence. You agree not to disclose this document, its contents or subject matter to any person other than your immediate family, attorney, accountant or income tax preparer, or otherwise as required by law. Catalina and the Released Parties agree to keep the fact the terms of this Release in strict confidence except to the extent required by law or to enforce its terms.

7. Consideration of Release

You acknowledge that, before signing this Release, you were given at least 21 calendar days to consider it. You waive any right you might have to additional time beyond this 21 day period within which to consider this Release. You acknowledge that: (a) you used that time to consider this Release before signing it; (b) you carefully read this Release; (c) you fully understand what this Release means; (d) you are entering into it voluntarily; (e) you are receiving valuable consideration in exchange for signing this Release that you would not otherwise be entitled to receive; and (f) Catalina, in writing, encouraged you to discuss this Release with your attorney (at your own expense) before signing it, and that you did so to the extent you thought appropriate.

You may revoke your release of ADEA claims within seven (7) days after you signs this Release, in which case, this Agreement will be null and void. As a result, you won’t be entitled to any of the benefits set forth in this agreement and will only

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receive those benefits you would have received if Catalina had discharged you “for cause” under the terms of the Severance Agreement.

8. Miscellaneous

This Release with Sections 3, 4, 5, 6 and 16 of the Severance Agreement, and the Mutual Agreement to Arbitrate Claims attached as Exhibit B to the Severance Agreement, are the entire Agreement between you and Catalina pertaining to the subject matter of this Release. This Release may not be modified or canceled in any manner except by a writing signed by both you and an authorized Catalina official. You acknowledge that Catalina has made no representations or promises to you concerning this subject matter other than those in this Release. If any provision in this Release is found to be unenforceable, all other provisions will remain fully enforceable. It isn’t necessary that Catalina sign this Release for it to become binding on both Executive and Catalina. This Release binds your heirs, administrators, representatives, executors, successors, and assigns, and will serve to the benefit of the Released Parties and their heirs, administrators, representatives, executors, successors, and assigns. This Release is governed by the statutes and common law of the State of Florida (except for any that require the use of another jurisdiction’s laws). Section headings in this Agreement are included for convenience of reference only and are not a part of this Agreement for any other purpose.

	CATALINA MARKETING CORPORATION
Date:
	Name:
	Title:
Date:	/s/ Tom Buehlmann
	Tom Buehlmann

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EXHIBIT B

MUTUAL AGREEMENT TO ARBITRATE CLAIMS

Tom Buehlmann (“you”) recognize that Catalina Marketing Corporation (“Catalina”) and you may have differences during or following your employment with Catalina, and relating to your employment. You understand and agree that by signing this Agreement to Arbitrate Claims (“Agreement”), you anticipate gaining the benefits of a confidential, impartial dispute-resolution procedure.

Except as provided in this Agreement, the Federal Arbitration Act governs the interpretation, enforcement and all proceedings pursuant to this Agreement. To the extent that the Federal Arbitration Act either is inapplicable, or held not to require arbitration of a particular claim or claims, Florida law pertaining to agreements to arbitrate applies.

You understand that any reference in this Agreement to Catalina will be a reference also to all of its subsidiary and affiliated entities, all benefit plans, the benefit plans’ sponsors, fiduciaries, administrators, and affiliates, and all successors and assigns of any of them.

1. Claims Covered by the Agreement

You and Catalina mutually consent to the resolution by arbitration of all claims, past, present or future, which arise, directly or indirectly, out of your employment (or its termination) and, the Severance Agreement dated October 1, 2006 and Change of Control Agreement dated October 1, 2006 except as stated in those agreements, and any claim that Catalina may have against you or that you may have against Catalina and its parent companies, affiliates, subsidiaries, divisions, successors and assigns, and each of their current and former employees, officers, directors, owners, stockholders, representatives, administrators, fiduciaries or agents in their capacity as such or otherwise (“claims”). The claims covered by this Agreement include, but aren’t limited to, claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, or medical condition, handicap or disability); and claims for violation of any federal, state, or other governmental law, statute, regulation or ordinance, except claims excluded elsewhere in this Agreement.

Except as otherwise provided in this Agreement, both you and Catalina agree that neither of you will initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination to the EEOC or similar fair employment practices agency, or an administrative charge within the jurisdiction of the National Labor Relations Board or U.S. Department of Labor), in any way related to any claim covered by this Agreement. If Catalina or you prevails on a motion to compel arbitration following the initiation of any lawsuit or administrative action concerning any claim covered by this Agreement, that party will be entitled to an award of reasonable attorney’s fees acquired in the action.

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2. Claims Not Covered by the Agreement

This Agreement doesn’t cover claims for workers’ compensation or unemployment compensation benefits; or any claim as to which final and binding arbitration can’t be required as a matter of law.

Claims, either by Catalina or by you, seeking injunctive or other equitable relief for alleged violations of intellectual property rights and non-disclosure, non-competition, and non-solicitation covenants, per Section 4 of the Severance Agreement also aren’t covered by this Agreement (although all other aspects of these claims, including any claims for damages, are covered by this Agreement). Similarly, claims either by Catalina or by you for breach of any post-employment separation agreement, including, but not limited to, the Release Agreement, aren’t covered by this Agreement.

3. Required Notice of All Claims and Statute of Limitations

Catalina and you agree that the aggrieved party must give written notice of any claim to the other party. This notice must be given no later than the applicable statute of limitations as may be prescribed by law.

Written notice to Catalina, or its officers, directors, employees or agents, will be sent to Catalina Marketing Corporation, 200 Carillon Parkway, St. Petersburg, Florida 33716, Attn: Chief Executive Officer. You will be given written notice at the last address recorded in your personnel file.

The written notice must identify and describe the nature of all claims asserted and the facts upon which the claims are based. The notice must be sent to the other party by certified or registered mail, return receipt requested.

4. Representation

Any party may be represented by an attorney or other representative selected by the party.

5. Discovery

Each party has the right to take the deposition of three (3) individuals and any expert witness designated by another party. Each party also has the right to make requests for production of documents to any party. The subpoena right specified below applies to discovery pursuant to this Section. Additional discovery may be had where the arbitrator selected pursuant to this Agreement so orders, upon an appropriate showing of justification.

6. Designation of Witnesses

At least 30 days before the arbitration, the parties must exchange lists of witnesses, including any expert, and copies of all exhibits intended to be used at the arbitration.

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7. Subpoenas

Each party will have the right to subpoena witnesses and documents for the arbitration.

8. Arbitration Procedures

The arbitration will be held under the auspices of the American Arbitration Association (“AAA”) in the City of St. Petersburg, Florida.

Catalina and you agree that, except as provided in this Agreement, the arbitration will be in accordance with the AAA’s National Rules for Resolution of Employment Disputes (or other then-current employment arbitration procedures). The arbitrator will be either a retired judge, or an attorney licensed to practice law in Florida and will have demonstrated experience and expertise in executive compensation matters (the “Arbitrator”).

The Arbitrator will be selected as follows. The sponsoring organization will give each party a list of 11 arbitrators drawn from its panel of employment dispute arbitrators. Each party may eliminate all names on the list it deems unacceptable. If only one common name remains on the lists of all parties, that individual will be designated as the Arbitrator. If more than one common name remains on the lists of all parties, the parties will eliminate names alternately from the list of common names until only one remains. The party who did not initiate the claim will eliminate first. If no common name exists on the lists of all parties, the sponsoring organization will furnish an additional list and the process will be repeated. If no arbitrator has been selected after two lists have been distributed, then the parties will eliminate alternately from a third list, with the party initiating the claim eliminating first, until only one name remains. That person will be designated as the Arbitrator.

The Arbitrator will apply the substantive law (and the law of remedies, if applicable) of the state in which the claim arose, or federal law, or both, as applicable to the claim(s) asserted. If the parties’ dispute concerns a contract in which the parties have included a choice of law provision, the Arbitrator will apply the law as designated by the parties. The Arbitrator is without jurisdiction to apply any different substantive law, or law of remedies. The Arbitrator, and not any federal, state, or local court or agency, has exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including but not limited to any claim that all or any part of this Agreement is void or voidable. The arbitration will be final and binding upon the parties, except as provided in this Agreement.

The Arbitrator has jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator has the authority to hear and adjudicate a motion to dismiss and/or a motion for summary judgment by any party and will apply the standards governing the motions under the Federal Rules of Civil Procedure.

Either party may obtain a court reporter to provide a stenographic record of proceedings.

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Either party, upon request at the close of hearing, will be allowed to file a post-hearing brief. The time for filing the brief will be set by the Arbitrator.

The Arbitrator will render a written, reasoned award and opinion in the form setting forth the Arbitrator’s findings and conclusions.

9. Arbitration Fees and Costs

Catalina will be responsible for paying any filing fee and the fees and costs of the Arbitrator and the arbitration; provided, however, that if you are the party initiating the claim, you are responsible for contributing an amount equal to the filing fee to initiate a claim in the court of general jurisdiction in Florida. Each party will pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim that affords the prevailing party attorneys’ fees, or if there is a written Agreement providing for fees, the Arbitrator may award reasonable fees to the prevailing party, under the standards for fee shifting provided by law.

10. Judicial Review

Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement or to enforce an arbitration award.

11. Interstate Commerce

You understand and agree that Catalina is engaged in transactions involving interstate commerce and that the Federal Arbitration Act applies to this Agreement.

12. Requirements for Modification or Revocation

This Agreement to arbitrate will survive the termination of your employment. It can only be revoked or modified by a writing signed by the parties that specifically states an intent to revoke or modify this Agreement.

13. Sole and Entire Agreement

This is the complete Agreement of the parties on the subject of arbitration of disputes. This Agreement supersedes any prior or contemporaneous oral or written understandings on the subject. No party is relying on any representations, oral or written, on the subject of the effect, enforceability or meaning of this Agreement, except as specifically set forth in this Agreement.

14. Severability

If any provisions of this Agreement are adjudged to be void or otherwise unenforceable, in whole or in part, this adjudication won’t affect the validity of the remainder of the Agreement, as the parties hereto intend to create a binding Agreement to arbitrate regardless of the unenforceability of any particular term or terms.

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15. Consideration

The promises by Catalina and by you to arbitrate differences, rather than litigate them before courts or other bodies, provide consideration for each other.

16. Voluntary Agreement

YOU ACKNOWLEDGE THAT YOU HAVE CAREFULLY READ THIS AGREEMENT, THAT YOU UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN CATALINA AND YOU RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT YOU HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY CATALINA OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF.

YOU UNDERSTAND THAT BY SIGNING THIS AGREEMENT YOU ARE GIVING UP YOUR RIGHT TO A JURY TRIAL.

YOU FURTHER ACKNOWLEDGE THAT YOU HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH YOUR PRIVATE LEGAL COUNSEL AND HAVE TAKEN THAT OPPORTUNITY TO THE EXTENT YOU WISH TO DO SO.

	CATALINA MARKETING CORPORATION
Date:
	Name:
	Title:
Date:	/s/ Tom Buehlmann
	Tom Buehlmann

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EX-10.19

EXHIBIT 10.19

DATED OCTOBER 1, 2006

CATALINA MARKETING UK LIMITED        (1)

and

TOM BUEHLMANN        (2)

SERVICE AGREEMENT

Paul, Hastings, Janofsky & Walker (Europe) LLP

Registered Foreign Lawyers and Solicitors

88 Wood Street

London

EC2V 7AJ

Tel: 020 7710 2000

Fax: 020 7796 2233

Ref: RW/44328.00013

TABLE OF CONTENTS

		Page
1.	DEFINITIONS AND INTERPRETATION	1
2.	COMMENCEMENT	5
3.	CAPACITY	5
4.	DUTIES	6
5.	HOURS	6
6.	REMUNERATION	6
7.	BUSINESS EXPENSES	7
8.	PENSION	7
9.	OTHER BENEFITS	8
10.	HOLIDAYS	8
11.	RELEASE AND PRECEDENCE	9
12.	INCAPACITY	9
13.	CONFIDENTIALITY	10
14.	INTELLECTUAL PROPERTY	10
15.	POST-EMPLOYMENT RESTRICTIONS	11
16.	TERMINATION OF EMPLOYMENT	13
17.	EFFECT OF TERMINATION	16
18.	PRESCRIBED INFORMATION	16
19.	PERSONAL INFORMATION	17
20.	DEDUCTIONS	17
21.	E-MAIL AND INTERNET POLICY	17
22.	NOTICES	17
23.	PREVIOUS CONTRACTS AND WARRANTIES	18
24.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999	18
25.	MISCELLANEOUS	18
	SCHEDULE I - LIST OF SECTION 14 COMPANIES	21

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DATE OF AGREEMENT October 1, 2006

PARTIES

(1) CATALINA MARKETING UK LIMITED (Company Number 2567566) whose registered office is at Hampden House, Monument Business Park, Chalgrove, Oxford, OX44 7RW (the "Company")

(2) TOM BUEHLMANN of 27 Cornwall Gardens, London, SW7 4AW (the "Executive")

WHEREAS the Company shall employ the Executive and the Executive shall serve the Company on the following terms and subject to the following conditions (the “Agreement”),

IT IS AGREED as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 In this Agreement and the Schedules the following expressions shall, unless otherwise expressly stated, have the following respective meanings:

"Appointment Letter"	the letter of appointment dated October 1, 2002 between the Executive and Catalina Marketing Corporation as amended;
“Board”	means the board of directors of the Company;
“Business Day”	means a day (other than a Saturday or Sunday) on which banks are open for business in London;
“Change of Control Agreement”	means the Change of Control Agreement entered into between Executive and Catalina Marketing Corporation dated October 1, 2006;
“Confidential Information”	means any trade secret or other information which is confidential or commercially sensitive and which is not in the public domain relating or belonging to the Company and/or any Group Company including, but not limited to, information relating to the business methods, corporate plans, management systems, finances, new business opportunities, pricing arrangements, trade agreements, cross purchase agreements, vendor agreements, capacity transactions, client directed trading agreements, vendor linking agreements, surety agreements, insured transactions, escrow/lock box agreements and other trading agreements, techniques trade credit usage, profits, costs of

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	media trades/investments, pricing and sales records, terms of business, marketing or sales of any products or services, secret formulae, processes, inventions, designs, applications, training presentations, promotional brochures, component lists, know- how, discoveries, technical specifications and other technical information relating to the creation, production or supply of future products or services of the Company and/or any Group Company, lists or details of clients or customers, potential clients or customers or suppliers or the arrangements made with any client, customer or supplier and any information in respect of which any Group Company owes an obligation of confidentiality to any third party.
“Disability”	shall have the meaning set forth in Section 16.4 under this Agreement
“Employment”	means the employment of the Executive under this Agreement.
“ERA”	means the Employment Rights Act 1996, as amended.
“Group”	means the Company and its subsidiaries as well as Catalina Marketing Corporation and its subsidiaries or affiliates and any associated company (which expression shall mean any other company of which the Company or Catalina Marketing Corporation or any subsidiary of the Company or Catalina Marketing Corporation beneficially holds not less than 20% of the equity share capital).
“Immediate Relatives”	shall include husband, wife, common law spouse, children, brothers, sisters, cousins, aunts, uncles, parents, grandparents, and the aforesaid relatives by marriage;
“Incapacity”	means mental or physical sickness or injury;
“Invention”	means any invention, improvement, idea, secret, modification, process, application, formula, know-how, design, model, prototype, sketch, drawing, plan or other work or material or technical information of any nature, discovered, created or developed by the Executive during the term of this Agreement;

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“Key Person”	means any person who was an employee, agent, director, consultant or independent contractor employed, appointed or engaged by the Company or any Relevant Group Company at Vice President level or above at any time within the Relevant Period and with whom the Executive had personal dealings, who by reason of such employment, appointment or engagement and in particular his seniority and expertise or knowledge of Confidential Information or knowledge of or influence over the clients, customers or suppliers of the Company or any company in the Group is likely to be able to benefit a person or business in or proposing to be in competition with the Company or any Relevant Group Company;
“Restricted Customer”	means any person, firm, company or organisation who or which at any time during any part of the Relevant Period is or was: (a)    negotiating with the Company or a Relevant Group Company for the sale or supply of Restricted Products or Services; or (b)    a client or customer of the Company or any Relevant Group Company for the sale or supply of Restricted Products or Services; or (c)    in the habit of dealing with the Company or any Relevant Group Company for the sale or supply of Restricted Products or Services; and in each case with whom or which the Executive was directly concerned or connected or of whom or which the Executive had personal knowledge during the Relevant Period in the course of the Employment;
“Relevant Date”	means the earlier to occur of (i) the date on which the Employment terminates, and (ii) the date on which the Executive ceases to work for the Company or carry out his normal duties;
“Relevant Group Company”	means any Group Company (other than the Company) for which the Executive has performed services during the Employment with

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	the Company or for which the Executive has had responsibility at any time during the Relevant Period and shall specifically include Catalina Marketing Corporation;
“Relevant Period”	means the period of 12 months immediately before the Relevant Date;
“Restricted Products or Services”	means the products or services that compete with the services provided or actively planned by any Relevant Group Company during the Relevant Period and with which the Executive was directly concerned or of which he had direct personal knowledge during the Relevant Period;
“Restricted Supplier”	means and person, firm or company who is or was a supplier of the Company or any Relevant Group Company for sale or supply of Restricted Products or Services or in the habit of dealing with the Company or any Group Company for the sale or supply of Restricted Products or Services under an arrangement or contract between the Restricted Supplier and the Company or any Relevant Group Company with whom or which the Executive had direct dealings.
"Restricted Territory"	means any place in the U.K. or otherwise outside of the United States where, at the Relevant Date, the Company or any Relevant Group Company is doing business.
"TUPE"	means the Transfer of Undertakings (Protection of Employment) Regulations 2006.
"WTR"	means the Working Time Regulations 1998.

1.2 In this Agreement:

1.2.1 references to persons include a firm, body corporate, organization, incorporated association of persons, or other entity and references to a company include any body corporate;

1.2.2 references to a statutory provision shall be deemed to refer to such statute as amended or re-enacted;

1.2.3 headings are included for ease of reference only and shall not affect the interpretation of this Agreement;

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1.2.4 no modification, variation or amendment to this Agreement shall be effective unless such modification, variation or amendment is in writing and has been signed by or on behalf of the parties.

2. COMMENCEMENT

2.1 This Agreement supersedes any and all previous agreements or arrangements (whether made orally or in writing) relating to the employment of the Executive by the Company including the Statement of Particulars of Employment dated October 1, 2002 and entered into between the Company and Executive. The parties acknowledge that Executive and Catalina Marketing Corporation have entered into a Change of Control Agreement that shall apply where specifically referenced in this Agreement. The Employment commenced on October 1, 2006 (the “Commencement Date”) and subject to Section 16 below, shall continue thereafter until terminated by the Company by providing six months' written notice to the Executive. Executive shall be entitled to terminate the Employment under this Agreement by prior written notice of one month given to the Company; provided, however, that in the case Executive’s termination of the Employment under the terms of the Change of Control Agreement, the notice provision under the Change of Control Agreement shall apply.

2.2 The Executive’s period of continuous employment with the Company began on 1 October 2002.

3. CAPACITY

3.1 The Executive shall be employed as President of Catalina Marketing International, reporting to the CEO of Catalina Marketing Corporation. The Executive's duties shall include overall management of all European business operations and endeavours, including responsibility for financial performance, growth and operations. The Executive accepts that the Company may, from time to time, at its discretion, require the Executive to perform other or additional duties or tasks commensurate with his title and status, but not within the scope of his normal duties, and the Executive agrees to perform those duties or undertake those tasks. The Executive shall also have the role of Executive Vice President of Catalina Marketing Corporation, and the terms and conditions relating to this position are included in a separate letter agreement between Executive and Catalina Marketing Corporation.

3.2 The Executive shall perform his duties at the Company’s office, and/or such other place of business as the Company reasonably requires within Greater London. The Executive may also be required to travel on business within the UK and abroad during the course of the Employment on a temporary basis, generally of not more than two weeks' duration.

3.3 The Executive represents and warrants that by virtue of entering into this Agreement he will not be in breach of any express or implied terms of any contract with, or of any other obligation to, any third party binding upon him.

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4. DUTIES

4.1 The Executive shall carry out his duties in a proper, loyal and efficient manner and use his best endeavours to promote the interests and reputation of the Company and the Group Companies, and shall do nothing which could be construed as harmful to the Company.

4.2 The Executive may be required in pursuance of his duties to perform services not only for the Company but also for any Group Company and, without further remuneration (except as otherwise agreed), to accept any such office or position in any Group Company which is consistent with his position with the Company, as the Board or the Company may from time to time reasonably require. The Company may at its sole discretion assign the Executive’s employment to any Group Company on the same terms and conditions as set out herein.

4.3 The Executive shall observe and comply with all rules, regulations, policies and procedures adopted by the Company or any Group Company with respect to the conduct and operation of the Company or any Group Company.

4.4 The Executive shall not without the prior written consent of the Company engage or be concerned or interested (directly or indirectly) in any other business, trade, profession or occupation during the Employment, provided that nothing in this Agreement shall prevent the Executive from holding up to 1% of any class of issued shares of any company listed on a recognised investment exchange.

4.5 The Executive confirms that he has disclosed fully to the Company all circumstances in respect of which there is, or there might be, a conflict of interest between the Company or any Group Company, and the Executive or his Immediate Relatives, and he agrees to disclose fully to the Company any such circumstances which may arise during the Employment.

5. HOURS

5.1 Normal Company office hours are 9.30 a.m. to 5.00 p.m., but the Executive is required to devote such time to his work as is necessary for the proper performance of his duties under this Agreement. The Executive shall devote his full time and attention to carrying out his duties under this Agreement and the Executive shall not without the prior consent of the Company such consent not to be unreasonably withheld, whether directly or indirectly, undertake any other duties, of a paid nature, during the Employment.

5.2 The Executive hereby acknowledges and agrees that, by virtue of his position and responsibilities as a managing executive, he is exempt from the provisions of the WTR with the exception of those concerning annual leave.

6. REMUNERATION

6.1 The Company shall pay to the Executive during the continuance of the Employment a basic salary at the rate of 133,800 GBP per annum (the “Salary”).

6.2 The Salary shall accrue from day to day and shall be payable in equal monthly instalments in arrears on or about the 25th day of each month. The Salary shall be inclusive of any other fees or remuneration payable to the Executive by reason of his holding of any office in the Company and any Group Company.

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6.3 The Salary shall be reviewed by the Company annually without any undertaking by the Company that the Executive’s salary shall be automatically increased.

6.4 The Executive will be eligible to receive a target annual bonus (the “Bonus”) of 65% of the Salary, based on targets and performance measures that shall be set forth in the bonus plan established by Catalina Marketing Corporation’s Compensation Committee and in effect from time to time. Any targets, measures of financial performance or measures of individual performance and their achievement that shall pertain to any such Bonus shall be determined by the Compensation Committee in its sole discretion. The Bonus will be paid after the fiscal year end of the company for which the Bonus is calculated, as referenced in the bonus plan. If Executive resigns from his employment prior to completion of the fiscal year, he shall be entitled to be paid a pro rated bonus based on the portion of the applicable fiscal year worked by the Executive. If the Executive's employment is terminated by the Company, his bonus entitlement will be as described in Section 16 below.

7. BUSINESS EXPENSES

The Executive shall be reimbursed all out-of-pocket expenses properly and necessarily incurred in the performance of the duties of the Employment provided that the Executive shall provide the Company with such receipts and other evidence of actual payment of such expenses as the Company may reasonably require subject to the Company’s rules and policies relating to expenses.

8. PENSION

8.1 During the term of the Employment, the Company will make monthly contributions to such personal pension scheme as may be nominated by the Executive for such purpose (“the Pension Scheme”) at the rate of 6.5 % of the Salary, provided that the Executive shall make a contribution to the Pension Scheme of 3.5 % of the Salary.

8.2 There is not in force a contracting out certificate (issued in accordance with Chapter 1 of Part III of the Pension Schemes Act 1993) stating that the Employment is contracted out employment.

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9. OTHER BENEFITS

9.1 The Company will provide Executive a cash allowance of 10,000 GBP per annum for the use of a car in the performance of his duties under this Agreement (the “Car Allowance”). The Car Allowance shall be inclusive of all costs of road tax, insurance premiums and running expenses including fuel, oil, maintenance and repairs.

9.2 Executive, provided he is living outside of the U.S., shall receive a cost of living allowance of 20% of the Salary described in Section 6.1 above, which shall be paid on the regular Salary payment dates set forth above.

9.3 The Executive is entitled to membership of the following schemes (each referred to below as an “Insurance Scheme”): (1) the Company’s private healthcare scheme for the benefit of Executive, his wife and all dependent children; and (2) the Company’s Long Term Disability (“LTD”) Income Scheme.

9.4 Membership of each Insurance Scheme under Section 9.3 shall be subject to the Executive being accepted by the relevant provider. If the Executive is not accepted by any provider of any Insurance Scheme, for whatever reason, or benefits under the relevant Insurance Scheme(s) are withheld, then the Company has no obligation to make any compensatory payment in lieu.

9.5 The provision of any Insurance Scheme does not in any way prevent the Company from lawfully terminating this Agreement in accordance with its provisions even if to do so would deprive the Executive of membership of or cover under any such scheme. The Company reserves the right to terminate such Insurance Scheme(s) and/or substitute other scheme(s) for the Insurance Schemes, or to amend the scale of benefits of such Insurance Scheme(s).

10. HOLIDAYS

10.1 The Company's holiday year runs from 1 January to 31 December (the “Holiday Year”).

10.2 The Executive is entitled, in respect of both his U.S. employment with Catalina Marketing Corp and in respect of this Employment, to take 37 days' paid holiday/vacation in each Holiday Year in aggregate ("Holiday Leave"). Holiday Leave includes a maximum of 12 days' customary public holidays in the U.K. and the U.S.. The Executive shall give reasonable notice of proposed holiday dates and such holiday dates must be agreed by the Company. Any unused holiday exceeding the Executive's annual entitlement may be carried over into the following year, provided it is taken before 31 March.

10.3 In the event the Executive leaves the Employment during a Holiday Year the holiday entitlement in respect of that Holiday Year shall be 25/12 days for each complete month of service in that Holiday Year. Upon termination of the Employment the Executive shall:

10.3.1 be entitled to pay in lieu of any unused holiday entitlement unless the Employment is terminated by the Company for gross misconduct; or

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10.3.2 be required to pay to the Company Salary received for holiday taken in excess of the Executive’s accrued company holiday entitlement. Any sums so due may be deducted from any money owing to the Executive.

10.4 The Company reserves the right to require the Executive to take any unused holiday entitlement during the Executive’s notice period, even if booked to be taken after the end of the notice period.

11. RELEASE AND PRECEDENCE

It is currently anticipated that the Executive will work about 70% of his time within the United Kingdom (158 days). Provided he performs his duties under the Agreement during this period (not including holidays) (or such different number of working days as determined by the Company) in any period of 12 months (or such other period as may be agreed from time to time) he will be released from such duties for the purpose of carrying out his duties outside the United Kingdom and Europe in the course of his separate employment with Catalina Marketing Corporation. In the event of any inconsistency between the requirements or demands of this Employment and those of the Executive's employment with Catalina Marketing Corporation, the terms of this Agreement will take precedence. The Company and the Executive agree to review the time worked within the United Kingdom on an annual basis to determine whether this arrangement requires to be altered.

12. INCAPACITY

12.1 If the Executive shall at any time by reason of Incapacity be unable to perform his duties under this Agreement, subject to the Executive accounting to the Company for all sickness and other national insurance benefit which the Executive may receive and compliance with the requirements of section 12.2, the Executive shall continue to receive Salary and other remuneration payable under this Agreement in respect of the period of Incapacity (such payment being deemed inclusive of any statutory sick pay to which the Executive may be entitled) during any such period of Incapacity aggregating up to and including thirteen weeks in any period of 12 consecutive calendar months (the “Remunerated Period”). Thereafter payment (if any) will be made in accordance with the LTD Scheme, should Executive elect to participate.

12.2 If the Executive is absent from work by reason of Incapacity and his absence has not previously been authorised by the Company, the Executive shall inform the Company of the fact of his absence and the full reasons for it by 9.00 a.m. on each working day of absence, until he shall have provided the Company with a medical certificate. If the Executive is absent from work due to Incapacity which continues for more than seven days (including weekends), he will provide to the Company a medical certificate by the eighth day of Incapacity. Thereafter, further medical certificates will be provided to cover any continuing period of absence. Immediately following any period of absence the Executive shall complete a self certificate form stating the dates and the reason for the absence, including details of Incapacity on non-working days, as required for calculation of Statutory Sick Pay.

12.3 Any outstanding or prospective entitlement to Salary or other remuneration during a period of Incapacity shall not prevent the Company from exercising its right to terminate the Employment in accordance with clauses 2 and 16 of this Agreement or otherwise and the Company shall not be liable for any such loss.

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12.4 The Executive’s entitlement to the payment of the Company’s pension contributions, participation in any incentive or bonus scheme, the provision of any company car or car allowance shall be at the discretion of the Board during any period of Incapacity beyond the Remunerated Period.

12.5 The Executive agrees that, upon the reasonable request of the Company, he will consent to a medical examination and shall share the results of such medical examination with the Company.

13. CONFIDENTIALITY

13.1 The Executive acknowledges that the Company and each Group Company possesses a valuable body of Confidential Information and that the Company will give him access to Confidential Information in order that he may carry out his duties under this Agreement.

13.2 Without prejudice to the Executive’s duties implied by law, the Executive shall not, directly or indirectly, during the Employment or after it has ceased (except only to the extent reasonably required in the proper performance of his duties or with the prior written consent of the Company) divulge to any person or otherwise make use of (and shall use his best endeavours to prevent the publication or disclosure of) any Confidential Information.

13.3 The restrictions in clause 13.2 shall not apply to any part of such Confidential Information which:

13.3.1 comes into the public domain otherwise than by reason of an unauthorised disclosure; or

13.3.2 is disclosed to the Executive on a non-confidential basis by a third party who has not received it directly or indirectly from the Company or any Group Company and who is not bound by a duty of confidentiality; or

13.3.3 must be disclosed by any applicable law, to the extent of such required disclosure provided that the Executive, if permitted by applicable law, shall notify the Company prior to such disclosure.

14. INTELLECTUAL PROPERTY

14.1 It is acknowledged that the duties of the Executive under the Employment include at all times the development of products and services and considering in what manner and by what methods or devices the products and services of the Company (or any Group Company) may be improved in the best interests of the Company or any Group Company.

14.2 If the Executive makes, or if the Executive participates in making, any Invention, any design (whether registerable or not), or any work in which copyright and/or database right subsists and which relates to or is useful or might reasonably be expected to be

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useful to the Company or otherwise relevant to the business of the Company or of any Group Company, the Executive shall forthwith communicate written particulars thereof to the Company; and

14.2.1 any such Invention disclosed under this clause 14.2 shall belong to and vest in the Company. For the avoidance of doubt the Executive acknowledges that any such Invention shall be deemed made by the Executive in the course of the Employment under the terms of Section 39(1) Patents Act 1977 provided that nothing contained herein shall limit or restrict any rights of the Executive under the Patents Act 1977, in respect of any such Invention; and

14.2.2 for the avoidance of doubt, any such design right, registered design, copyright or database shall be deemed created in the course of the Employment and any of the same, together with all copyright existing in any works created by the Executive in the Employment, shall vest in the Company absolutely under the terms of the Copyright, Designs and Patents Act 1988.

14.3 The Executive hereby irrevocably appoints the Company to be the Executive’s attorney in his name and on his behalf to sign or execute any document or do anything and generally to use the Executive’s name for the purpose of giving to the Company the full benefit of the provisions of this clause 14 and in favour of any third party a certificate in writing signed by any director or the secretary of the Company that any document or act falls within the authority conferred by this Section shall be conclusive evidence that that is the case.

14.4 The provisions of this clause 14 shall survive termination of the Employment insofar as they relate to Inventions, information, designs and copyright works in which copyright and/or database right subsists and which were created before the Relevant Date.

15. POST-EMPLOYMENT RESTRICTIONS

15.1 The Executive undertakes that he shall not without the prior written consent of the Company directly or indirectly and whether alone or in conjunction with or on behalf of another person and whether as principal, shareholder, director, employee, agent, consultant, partner or otherwise:

15.1.1 within the Restricted Territory for a period of 8 months from the Relevant Date be engaged, concerned or interested in, or provide technical, commercial or professional advice to, any other Competitive Business provided that this restriction does not apply to prevent the Executive from holding shares or other securities in any company which is quoted, listed or otherwise dealt in on a recognized investment exchange or other securities market and which confer not more than 5% of the votes which could be cast at a general meeting of such company; and to ensure compliance with this provision, Executive agrees to inform the CEO of Catalina Marketing Corporation at least two weeks before he begins any business affiliation, employment or consulting engagement with one of the Competitive Businesses.

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15.1.2 for the purpose of this Agreement, “Competitive Businesses” shall be determined by referring to the nature of the Group Company’s business or prospective business as specified in Catalina Marketing Corporation’s most current U.S. Securities and Exchange Commission filings and employee distributed press releases (collectively, “Competing Businesses”). The parties agree that, based on the foregoing but subject to the balance of this paragraph, Competing Businesses are limited to those described in Schedule 1 hereto as amended from time to time as herein provided. The Board of Directors of Catalina Marketing Corporation, no more frequently than every 24 months, may make a good faith determination that additional entities constitute Competing Businesses. Catalina Marketing Corporation promptly shall notify Executive of any such determination and the identity of such additional entities. Thirty (30) days thereafter, unless Executive notifies Catalina Marketing Corporation of his objection, such entities shall be added to Schedule 1. If Executive objects to the addition of any entity to Schedule 1, the Change of Control Agreement and the provisions of Section 16.3 related to payments in the event of dismissal shall terminate upon the date of Executive’s notice to Catalina except that the covenants under this Section 15 shall survive (as they existed prior to the addition of such entity), together with any other provisions of this Agreement necessary to interpret or enforce this Section 15.

15.1.3 for a period of 8 months from the Relevant Date so as to compete with the Company or any Relevant Group Company canvass, solicit or approach or cause to be canvassed, solicited or approached any Restricted Customer for the sale or supply of Relevant Products or Services or endeavour to do so;

15.1.4 for a period of 8 months from the Relevant Date so as to compete with the Company or any Relevant Group Company deal or contract with any Restricted Customer in relation to the sale or supply of any Relevant Products or Services, or endeavour to do so;

15.1.5 for a period of 8 months from the Relevant Date solicit, induce or entice away from the Company or any Relevant Group Company or, in connection with any business in or proposing to be in competition with the Company or any Relevant Group Company, employ, engage or appoint or in any way cause to be employed, engaged or appointed a Key Person whether or not such person would commit any breach of his or her contract of employment or engagement by leaving the service of the Company or any Relevant Group Company (however, in the case of a consulting firm engaged by a Relevant Group Company which does not provide to a Relevant Group Company the services of one or more individuals on substantially a full time or exclusive basis, such restriction shall be only to the extent its services would be in connection with any products or services that compete with products or services offered by a Relevant Group Company);

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15.1.6 for a period of 8 months from the Relevant Date interfere with the supply of goods or services to the Company or any Relevant Group Company from any Restricted Supplier;

15.1.7 for a period of 8 months from the Relevant Date, take any action or make any written or oral statements which are intended to, or in effect, criticize, denigrate or disparage the goodwill, business, services or reputation of the Company or any Group Company, or any of their stockholders, officers, directors, affiliates or advisors.

15.1.8 use in connection with any business any name which includes the name of any Group Company or any imitation of it.

15.2 For the purposes of this clause 15 the Company has entered into this Agreement as agent for and trustee of all Relevant Group Companies and all Group companies respectively. The Executive agrees that, if required to do so by the Company, he will enter into covenants in the same terms as those set out in this clause 15 directly with all or any of such Group companies. If the Executive fails, within 7 days of receiving such a request from the Company, to sign the necessary documents to give effect to the foregoing, the Company shall be entitled, and is hereby irrevocably and unconditionally authorised by the Executive, to execute all such documents as are required to give effect to this clause 15, on his behalf.

15.3 If the Executive applies for or is offered a new employment, appointment or engagement, before entering into any related contract he will bring the terms of this clause 15 to the attention of a third party proposing directly or indirectly to employ, appoint or engage him. Executive shall also inform the Chief Executive Officer of Catalina Marketing Corporation at least two weeks before he begins any business affiliation, employment or consulting engagement with anyone that competes with the services provided or actively planned by the Company or any Relevant Group Company.

15.4 Whilst the restrictions in this clause 15 are regarded by the parties as fair and reasonable, it is hereby declared that each of the restrictions in this clause 15 is intended to be separate and severable. If any restriction is held to be unreasonably wide but would be valid if part of the wording (including in particular but without limitation the defined expressions referred to above) were deleted, such restriction will apply with so much of the wording deleted as may be necessary to make it valid.

16. TERMINATION OF EMPLOYMENT

16.1 The Company may summarily terminate the Employment without notice or payment in lieu of notice (but without prejudice to any other remedy or remedies which it may have against the Executive) if the Executive:

16.1.1 becomes bankrupt, applies for or has made against him a receiving order under Section 286 Insolvency Act 1986, or has any order made against him to reach a voluntary arrangement as defined by Section 253 of that Act;

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16.1.2 fails or neglects efficiently and diligently to carry out his duties hereunder or shall be guilty of any material or persistent breach of any of the terms of this Agreement, the Change of Control Agreement, or Catalina’s Code of Business Conduct & Ethics;

16.1.3 shall be guilty of dishonesty, serious misconduct or other conduct calculated or likely, in the opinion of the Company, to affect prejudicially the interests of the Company or any Group Company;

16.1.4 ceases for whatever reason to be a director of the Company or any Group Company (without the Board’s written consent);

16.1.5 shall be convicted of a criminal offence; or

16.1.6 shall be or become of unsound mind.

16.2 In the event the Company terminates Executive’s employment for the reasons set forth in Section 16.1, Executive shall only receive when due:

16.2.1 any unpaid Salary, expense reimbursements, and vacation days earned before termination of employment,

16.2.2 any earned and unpaid balance of any Bonus for the fiscal year before the one in which the termination occurred, and

16.2.3 other unpaid vested amounts or benefits under the Company’s compensation, incentive and benefit plans.

16.3 If the Company terminates Executive’s employment under this Agreement prior to October 1, 2011 for any reason other than those specified in Section 16.1 above, the Company shall provide Executive the following Severance Benefits in exchange for Executive’s execution of a Compromise Agreement in a form acceptable to the Company, but substantially similar to that attached as Exhibit A:

16.3.1 payment of Executive’s Salary over the period of 52 weeks less the notice provided to Executive under Section 2.1 following the date of termination (the “Severance Period”), which shall be paid in accordance with the Company’s customary pay practices and shall not be reduced by compensation Executive earns from another activity during the Severance Period;

16.3.2 payment of an amount equal to a prorated bonus at the “cut in” level (that is, currently, 50% of the target bonus) for the portion of the fiscal year prior to the effective date of Executive’s termination (the “Prorated Cut-In Bonus”); provided, however, that in the event that the Catalina Marketing International business units or Catalina Marketing Corporation achieve or exceed the targets established for the purposes of the payment of target bonus for the bonus program relating to the fiscal year during which the termination of Executive’s employment becomes effective, Executive will receive an additional amount equal to the difference between a prorated

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amount of 100% of Executive’s target bonus for such year (for the portion of the fiscal year prior to the effective date of Executive’s termination) and Executive’s Cut-In Bonus. Such additional amount will be paid within 15 business days following determination by the Compensation Committee of the Board (defined below) to the effect that Catalina has achieved or exceeded such targets;

16.3.3 during the Severance Period, the reimbursement of premiums for private health insurance cover up to the amount the Company would pay for participation in the group insurance scheme or, if Executive elects to participate in the Company’s group health insurance scheme, the premiums for Executive to continue his group health insurance coverage during the Severance Period provided continued coverage is allowed under the rules of the applicable scheme (or until Executive earlier obtains comparable coverage under another plan); and

16.3.4 senior executive level career transition assistance at the Company’s expense for 12 months, which would begin not later than three (3) months after the date of termination, by an outplacement firm of Executive’s choice and acceptable to the Company or until Executive accepts new employment, whichever is sooner.

16.3.5 The Severance Benefits in 16.3.1, 16.3.3 and 16.3.4 will cease immediately if Executive breaches the obligations of Sections 13, 14 and 15 of this Agreement.

16.3.6 If Executive’s employment terminates under circumstances that trigger the obligations under the Change of Control Agreement, the payments in this Section 16.3 shall not apply.

16.4 The Company may terminate Executive’s employment as a result of Disability, or may transfer Executive to inactive employment status, which has the same effect. “Disability” means Incapacity that prevents Executive from performing any or all of the essential functions of Executive’s job duties for at least 90 consecutive calendar days, or for a least 120 calendar days, whether or not consecutive, in any 365 calendar day period, as determined by a licensed physician reasonably satisfactory to the Company and Executive. The Board’s determination that Executive has a Disability will be final and binding for purposes of determining the parties respective rights and obligations under this Agreement. In the event of the termination of Executive’s employment due to death while employed by the Company or Disability, the Company shall pay (1) any unpaid base salary, expense reimbursements, and vacation days earned before termination of employment, (2) any earned and unpaid balance of any bonus for the fiscal year before the one in which the termination occurred, (3) other unpaid vested amounts or benefits under the Company’s compensation, incentive and benefit plans, and (4) a prorated bonus at target for the fiscal year during which termination occurred. In the event of termination of Executive’s employment under this Section 16.4, Executive shall not be entitled to the payments under Section 16.3.

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16.5 The normal retirement age for men and women employees of the Company is 65. The Employment shall terminate automatically at the end of the month in which the Executive reaches the age of sixty-five. In the event of termination of Executive’s employment under this Section 16.4 it shall not be considered a dismissal by the Company and Executive shall not be entitled to the payments under Section 16.3.

16.6 The Company reserves the right at any time in its absolute discretion to make a payment or payments (which may, at the Company’s absolute discretion, be paid in instalments) of Salary in lieu of all or any part of the Executive’s entitlement to notice.

17. EFFECT OF TERMINATION

17.1 On serving or receiving notice of termination or upon summary termination of the Employment for any reason the Executive shall at the request of the Company without prejudice to any claim for damages or other remedy which either party might have against the other:

17.1.1 immediately resign from all offices and appointments held by him in or on behalf of the Company and/or any Group Company, including Catalina Marketing Corporation;

17.1.2 immediately deliver up to the Company all Confidential Information and other property belonging to the Company and/or any Group Company which may be in the Executive’s possession and/or under the Executive’s control, including his mobile phone, security pass and laptop and the Executive shall not without the written consent of the Board retain any copies of any Confidential Information; and

17.1.3 not attend at work and/or not perform all or any of his duties of employment during all or part of the notice period (“Garden Leave”). Since he will remain employed by the Company during any period of Garden Leave, the Executive will continue to receive his Salary and any other contractual benefits, and to be bound by all the express and implied duties of the Employment.

17.2 The Executive shall, if so required by the Company, confirm in writing his compliance with his obligations under clause 17.1.3 above.

18. PRESCRIBED INFORMATION

18.1 The following information is given to supplement the information given in this Agreement in order to comply with the requirements of Part 1 of the ERA:

18.1.1 If the Executive shall have a grievance relating to the Employment or is dissatisfied with any disciplinary decision relating to him he may apply in writing or in person to Jan Barr, Senior Vice President of Human Resources.

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18.1.2 There are no specific written disciplinary rules and procedures applicable to the Executive.

18.1.3 There are no collective agreements that directly affect the terms and conditions of the Employment.

19. PERSONAL INFORMATION

19.1 The Executive acknowledges that the Company will hold certain personal information about him including name, address, remuneration, benefits, insurance, work record, health and sickness records, holiday records and that this information may include information relating to the Executive’s health and next of kin. The Executive understands that the Company will use this information for salary administration, health administration, health insurance/benefits, performance and disciplinary records, equal opportunities monitoring, any other Company benefit administration, and personnel administration and management purposes as required for the purposes of complying with its obligations under employment law.

19.2 The Executive further understands that the information may be made available as necessary for these purposes to third parties, including other Group Companies, such as Catalina Marketing Corporation, which may be located outside the European Economic Area. By entering into this Agreement the Executive confirms that he agrees to the collection and use of personal information in accordance with the terms of this clause 19.

20. DEDUCTIONS

For the purposes of the ERA, the Executive authorises the Company at any time during the continuance of this Agreement and in any event on termination howsoever arising, to deduct from his remuneration (which for this purpose includes salary, pay in lieu of notice, commission, bonus, holiday pay and sick pay) all debts owed by the Executive to the Company or any Group Company, including but without limitation the balance outstanding of any loans (and interest where appropriate) advanced by the Company to the Executive, the cost of repairing any damage or loss to the Company's property caused by the Executive and any loss suffered by the Company as a result of any neglect or breach of duty by the Executive.

21. E-MAIL AND INTERNET POLICY

The Company's e-mail and internet policy is set out in the Company's Staff Handbook and forms part of the Employment.

22. NOTICES

Any notice shall be duly served under this Agreement if in the case of the Company it is handed to a director of the Company or sent by first class post to the Company at its registered office for the time being and if in the case of the Executive it is handed to him personally or sent by first class post to him at his address specified in this Agreement or such other address as he may notify to the Company. A notice sent by first class post shall be deemed served on the second Business Day following the day of posting.

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23. PREVIOUS CONTRACTS AND WARRANTIES

This Agreement is in substitution for any previous contract of employment, including the Statement of Particulars of Employment dated October 1, 2002 and entered into between the Company and Executive, or other discussions or arrangements relating to the Employment with the Company and which are deemed to have been terminated by mutual consent as from the date of this Agreement. Notwithstanding the foregoing, the Change of Control Agreement shall apply where specifically referenced in this Agreement.

24. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

Clause 9 of this Agreement does confer rights on your spouse or dependants and any third party under the Contracts (Rights of Third Parties) Act 1999. Save as expressly stated, no other rights are conferred to your spouse or to any other third party.

25. MISCELLANEOUS

25.1 This Agreement, with the exception of the Change of Control Agreement which shall apply where referenced within this Agreement, contains the entire understanding between the parties concerning the duties of the Executive and the Employment. This Agreement shall be governed by English law and the parties submit to the exclusive jurisdiction of the English courts.

25.2 The Executive may not, without the prior written consent of the Company, accept any gift and/or favour of whatever kind from any existing or prospective client or other business contact of the Company.

25.3 The various provisions and sub-provisions of this Agreement to this Agreement are severable and if any provision or sub-provision is held to be unenforceable by any court of competent jurisdiction then such unenforceability shall not affect the enforceability of the remaining provisions or sub-provisions in this Agreement.

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IN WITNESS whereof the parties have executed this instrument as a deed on the date stated at the beginning of this document.

SIGNED and DELIVERED for and on	)
behalf
of Catalina Marketing UK Limited by	)
	)
		Director
		Director/Secretary

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SIGNED AS A DEED and DELIVERED

by Tom Buehlmann in the presence of:

Witness name

Occupation

Address

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SCHEDULE 1

LIST OF SECTION 14 COMPANIES

October 1, 2006

[****]

**** Material omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act of 1934. Material filed separately with the Securities and Exchange Commission.

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EX-10.20

EXHIBIT 10.20

CHANGE OF CONTROL AGREEMENT

This Agreement between Tom Buehlmann (“you”) and Catalina Marketing Corporation (the “Company”), made as of October 1, 2006, promises you severance benefits if, following a Change in Control, you are terminated without Cause or resign for Good Reason as set forth in this Agreement. Capitalized terms are defined in the last section of this Agreement.

1. Purpose

The Company considers a sound and vital management team to be essential. Management personnel who become concerned about the possibility that the Company may undergo a Change in Control may resign or become distracted. Accordingly, the Board has determined that appropriate steps should be taken to minimize the distraction you may suffer from the possibility of a Change in Control. One step is to enter into this Agreement with you.

2. Your Agreement

If one or more Potential Changes in Control occur during the Term of this Agreement, you agree not to resign for at least six full calendar months after a Potential Change in Control occurs, except as follows: (a) you may resign if you are given Good Reason to do so; and (b) you may resign because of retirement when or after you achieve age 65 or because you become unable to work due to Disability.

3. Events That Trigger Severance Benefits

(a) Termination After a Change in Control

You will receive Severance Benefits under this Agreement if, within two years after a Change in Control has occurred (so long as the Change in Control occurs during the Term of this Agreement), the Company or Catalina Marketing UK Limited terminates your employment without Cause or you resign for Good Reason.

(b) Termination After a Potential Change in Control

You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement and after a Potential Change in Control has occurred but before a Change in Control actually occurs, the Company or Catalina Marketing UK Limited terminates your employment without Cause or you resign for Good Reason.

(c) Successor Fails to Assume This Agreement

You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement, a successor to the Company does not assume this Agreement, as provided in Section 12(a).

4. Events That Do Not Trigger Severance Benefits

You will not be entitled to Severance Benefits if your employment ends because the Company or Catalina Marketing UK Limited terminates you for Cause or on account of Disability or because you resign without Good Reason, retire or die. Except as provided in Section 3(c), you are not entitled to Severance Benefits while you remain protected by this Agreement and remain employed by the Company, its affiliates or their successors.

5. Termination Procedures

If the Company or Catalina Marketing UK Limited terminate your employment within two years after a Change in Control occurring during the Term of this Agreement, you will receive 30 days advance written notice of your termination, or such notice that may otherwise be required by applicable law. Advance notice is not required if you are terminated for Cause. In any case, the notice will indicate why you are being terminated and will explain in reasonable detail the facts and circumstances surrounding your termination. If your employment is terminated for Cause, your notice of termination will include a copy of a resolution duly adopted by the affirmative vote of at least a majority of the entire membership of the Board (at a meeting of the Board called and held for the purpose of considering your termination (after reasonable notice to you and an opportunity for you and your counsel to be heard before the Board)). This resolution will state that, in the good faith opinion of the Board, Cause for your termination exists and specify the basis for that opinion in detail. If your employment is terminated without the notice required by this Section, your termination will not be effective.

6. Severance Benefits

(a) In General

If you become entitled to Severance Benefits under this Agreement, you will receive all of the Severance Benefits described in this Section as well as any unpaid base salary, expense reimbursements and vacation days earned before your termination date and any earned but unpaid bonus for the fiscal year before the year of termination. Any unpaid vested amounts or benefits under the Company’s compensation incentive and benefits plans will be paid in accordance with the terms of those plans.

(b) Lump-Sum Payment in Lieu of Future Compensation

In lieu of any further cash compensation for periods after your employment ends and in lieu of any other severance or other similar compensation the Company’s policies entitle you to, you will be paid a cash lump sum equal to 2.5 times your Annual Compensation in effect when your employment ends or, if higher, the highest Annual Compensation in effect immediately before the Change in Control, Potential Change in Control, or Good Reason event for which you terminate employment. The lump sum payment under this paragraph will be inclusive of, and satisfy any obligation for, payment due for any applicable period of notice in excess of 30 days.

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(c) Incentive Compensation

The Company will pay you a cash lump sum equal to the sum of any unpaid incentive compensation (that is not otherwise paid to you) that you are due under any bonus or commission plan for measuring periods completed before you became entitled to Severance Benefits under this Agreement.

(d) Deferred Compensation; Stock Benefits

The Severance Benefits and other terms set forth on this Agreement will not affect your rights under any deferred compensation, savings, retirement, “401(k),” stock purchase, stock grants, stock option or other employee benefit or compensation plan, all of which will be governed by the their own terms. You are reminded that the Company’s stock option plans contain provisions which are effective in connection with a Change in Control.

(e) Group Insurance Benefit Continuation

During the period that begins when you become entitled to Severance Benefits under this Agreement and ends on the last day of the 30^th calendar month afterwards, the Company shall reimburse you for the premiums for the health and long term disability insurance benefits (or substantially similar benefits) you and your spouse and dependents for which it previously reimbursed you immediately before you became entitled to Severance Benefits under this Agreement (or immediately before a benefit reduction that constitutes Good Reason, if you terminate employment for that Good Reason). These benefits will be treated as satisfying the Company’s COBRA obligations. After benefit continuation under this subsection ends, you and your spouse and dependents will be entitled to any remaining COBRA rights, if applicable.

(f) Senior Executive Level Career Transition Assistance

The Company will pay for twelve months senior executive level career transition assistance, beginning on any date that you select within 3 months following the effective date of your termination, by an outplacement firm selected by you and acceptable to the Company. If you accept a new position, the Company’s obligation to make continuing payments under this provision ends.

7. Time for Payment

Except as described in Section 20, you will be paid your cash Severance Benefits within five days after you become entitled to Severance Benefits under this Agreement (e.g., within five days following your termination of employment). If the amount you are due cannot be finally determined within that period, you will receive the minimum amount to which you are clearly entitled, as estimated in good faith by the Company. The Company will pay the balance you are due (together with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as the amount can be determined. The Company will not pay this amount later than 30 days after you terminate employment. If your estimated payment exceeds the amount you are due, the excess will be a loan to you, which you must repay to the Company within five business days after you receive demand by the Company (together with interest at the rate provided in Code Section 1274(b)(2)(B)).

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8. Payment Explanation

When payments are made to you, the Company will provide you with a written statement explaining how your payments were calculated and the basis for the calculations. This statement will include any opinions or other advice the Company has received from auditors or consultants as to the calculation of your benefits.

9. Relation to Other Severance Programs

Your Severance Benefits under this Agreement are in lieu of any severance or similar benefits that are payable to you under any other employment agreement or other arrangement with the Company or its affiliates, including the Service Agreement, or in accordance with the Company’s published or unpublished policies. If these other benefits are paid to you, those amounts will be applied to reduce the amount due under this Agreement. This Agreement is the entire agreement between you and the Company and its affiliates with respect to the benefits.

10. Golden Parachute

Your total payments and benefits under this Agreement may exceed the relevant limitations under the “golden parachute” provisions of Code Section 280G. However, nothing in this Agreement will cause the Company to be required to pay to you any amount in excess of the Severance Benefits provided for in this Agreement.

11. Effect of Reemployment

Except as described in the provisions of paragraph 9 of this Agreement, your Severance Benefits under this Agreement won’t be reduced by any other compensation you earn or could have earned from another source.

12. Successors

(a) Assumption Required

In addition to obligations imposed by law on a successor to the Company, during the Term of this Agreement the Company will require any successor to the Company, including any Change in Control (whether by sale of assets or securities, or merger transaction, or otherwise) in writing to take on and agree to perform this Agreement just as the Company was required to perform. If the Company fails to obtain the assumption and agreement before the effective date of a succession, you will be entitled to Severance Benefits as if your employment were terminated without Cause on the effective date of that succession.

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(b) Heirs and Assigns

This Agreement will serve to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative or administrator of your estate.

13. Amendments

This Agreement may be modified only by a written agreement signed by you and an authorized officer of the Company.

14. Governing Law

This Agreement creates a “top hat” employee benefit plan subject to the Employee Retirement Income Security Act of 1974, and it will be interpreted, administered, and enforced in accordance with that law; the Company is the “plan administrator.” To the extent that state law is applicable, the statutes and common law of the State of Florida (excluding its choice of laws provisions) will apply.

15. Claims

(a) When Required; Attorneys’ Fees

You do not need to present a formal claim to receive benefits payable under this Agreement. However, if you believe that your rights under this Agreement are being violated, you must file a formal claim with the Company in accordance with the procedures set forth in this Section. If the claim cannot be resolved under these administrative procedures, the Company will pay your reasonable attorneys’ fees and related costs in enforcing your rights under this Agreement if you ultimately prevail.

(b) Initial Claim

Your claim must be presented to the Company in writing. Within 70 days after receiving the claim, a claims official appointed by the Company will consider your claim and issue his or her determination thereon in writing. The claims official may extend the determination period for up to an additional 90 days by giving you written notice. With your consent, the initial claim determination period can be extended further. If you can establish that the claims official failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.

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(c) Claim Decision

If your claim is granted, the benefits or relief you are seeking will be provided. If your claim is wholly or partially denied, the claims official will, within 70 days (or a longer period, as described above), provide you with written notice of the denial, setting forth, in a manner calculated to be understood by you: (i) the specific reason or reasons for the denial; (ii) specific references to the provisions on which the denial is based; (iii) a description of any additional material or information necessary for you to perfect your claim, together with an explanation of why the material or information is necessary; and (iv) an explanation of the procedures for appealing denied claims. If you establish that the claims official has failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.

(d) Appeal of Denied Claims

You may appeal the claims official’s denial of your claim in writing to an appeals official designated by the Company (which may be a person, committee, or other entity) for a full and fair appeal. You must appeal a denied claim within 60 days after your receipt of written notice denying your claim, or within 60 days after the written notice was due, if the written notice was not sent. In connection with the appeals proceeding, you (or your duly authorized representative) may review pertinent documents and may submit issues and comments in writing. You may only present evidence and theories during the appeal that you presented during the initial claims stage, except for information the claims official requested you to provide to perfect the claim. You will irrevocably waive any theories you do not in good faith pursue through the appeal stage, such as by failing to file a timely appeal request.

(e) Appeal Decision

The decision by the appeals official will be made within 60 days after your appeal request, unless special circumstances require an extension of time, in which case the decision will be rendered as soon as possible, but not later than 120 days after your appeal request, unless you agree to a greater extension of that deadline. The appeal decision will be in writing, set forth in a manner calculated to be understood by you; it will include specific reasons for the decision, as well as specific references to the pertinent provisions of this Agreement on which the decision is based. If you do not receive the appeal decision by the date it is due, you may consider your appeal to have been denied.

(f) Procedures

The Company will adopt procedures by which initial claims and appeals will be considered and resolved; different procedures may be established for different types of claims. All procedures will be designed to afford you full and fair consideration of your claim. You may not challenge a decision of the Company hereunder in court or in any other administrative proceeding unless and until the claim and appeal procedures described in this Section 15 have been complied with and exhausted.

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16. Validity

The invalidity or unenforceability of any part of this Agreement does not affect the validity or enforceability of any other part of this Agreement.

17. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

18. Giving Notice

(a) To the Company

All communications from you to the Company relating to this Agreement must be sent to the Company to its principal business office in St. Petersburg, Florida, in writing, by registered or certified mail, or delivered personally, or as the Company may otherwise notify you in writing.

(b) To You

All communications from the Company to you relating to this Agreement must be sent to you in writing, by registered or certified mail, or delivered personally, addressed as indicated at the end of this Agreement, or as you may otherwise notify the Company in writing.

19. Definitions

(a) Agreement

“Agreement” means this contract, as amended.

(b) Annual Compensation

“Annual Compensation” means your Base Salary plus which ever is greater: (i) the average bonus and commissions paid to you in the three fiscal years before the year in which the Change in Control took place (or, if less than three, in the number of years you were employed by the Company prior to the year the Change in Control took place); or (ii) the bonus and commissions paid to you in the fiscal year during which the Change in Control took place (including pursuant to Section 6(c)) or, if greater, any later year.

(c) Base Salary

“Base Salary” shall include both the base salary provided in the Service Agreement and the base salary paid to you by Catalina Marketing Corporation at the time of termination or resignation under this Agreement.

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(d) Beneficial Owner

“Beneficial Owner” has the meaning set forth in Rule 13d-3 under the Exchange Act.

(e) Board

“Board” means the Board of Directors of the Company.

(f) Cause

“Cause” shall have the same meaning as in Section 3(b) of the Severance Agreement or any other reason under applicable law for which your employment may be terminated upon summary notice.

(g) Change in Control

“Change in Control” means the occurrence of any of the following: (i) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) of the Exchange Act) of Beneficial Ownership (except that an individual or entity will be deemed to be the Beneficial Owner of all shares that the individual or entity has the right to acquire without the happening or failure to happen of a material condition or contingency, other than the passage of time) of more than 50% of the total outstanding voting power of capital stock of the Company in respect of the general power to elect directors; (ii) during any two consecutive years, individuals who at the beginning of the period constituted the Board (together with individuals elected to the Board with the approval of at least 66 2/3% of the directors of the Company then still in office who were either directors at the beginning of the period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; and (iii) (A) the Company consolidates with or merges into another entity or sells all or substantially all of its assets to any individual or entity, or (B) any corporation consolidates with or merges into the Company, which in either event (A) or (B) is pursuant to a transaction in which the holders of the Company’s voting capital stock in respect of the general power to elect directors immediately prior to the transaction do not own, immediately following such transaction, at least a majority of the voting capital stock in respect of the general power to elect directors of the surviving corporation or the person or entity which owns the assets so sold.

(h) Code

“Code” means the Internal Revenue Code of 1986, as amended.

(i) Company

“Company” means Catalina Marketing Corporation and any successor to its business or assets that (by operation of law, or otherwise) assumes and agrees to perform this Agreement. However, for purposes of determining whether a Change in Control has occurred in connection with such a succession, the successor will not be considered to be the Company.

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(j) Disability

“Disability” has the same meaning as in Section 3(c) of the Severance Agreement.

(k) Exchange Act

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(l) Good Reason

“Good Reason” means the occurrence of any of the following without your express written consent:

(1) A change in your status, title, position or responsibilities (including reporting responsibilities) that is a large reduction of the status, title, position or responsibilities before the change; the assignment to you of many duties or responsibilities that are inconsistent with such status, title, position or responsibilities; or your removal from or failure to reappoint or reelect you to any of such positions, except in connection with the termination of your employment for Cause, for Disability or as a result of your death, or by you other than for Good Reason;

(2) The Company reducing your annual Base Salary;

(3) The Company requiring you to be based at any place outside a 35-mile radius of your place of employment immediately before a Change in Control, except for reasonably required travel on company business that isn’t materially greater than those travel requirements before the Change in Control; or

(4) The Company’s failure to (i) continue in effect any material compensation or benefit plan (or a reasonable replacement therefore) in which you were participating immediately before a Change in Control or (ii) provide you with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately before a Change in Control (or in effect after the Change in Control, if greater).

However, an event that is or would be Good Reason ceases to be Good Reason if: (a) you do not resign within 45 days after the event or you first learn of the event; or (b) the Company reverses the action or cures the default that constitutes Good Reason before you terminate employment; or (c) you were a primary instigator of the Good Reason event and the circumstances make it inappropriate for you to receive benefits under this Agreement (e.g., you agree temporarily to relinquish your position on the occurrence of a merger transaction you negotiate). If you have Good Reason to resign, you may do so even if you are on a leave of absence due to physical or mental illness or any other reason.

(m) Person

“Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) of that Act, and includes a “group,” as defined in Rule 13d-5 promulgated thereunder. However, a Person does not include: (i) the Company or any of

9

its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(n) Potential Change in Control

“Potential Change in Control” means that any of the following has occurred during the term of this Agreement and no event terminating the following has occurred:

(1) Agreement Signed. The Company enters into an agreement that will result in a Change in Control.

(2) Notice of Intent to Seek Change in Control. The Company or any Person publicly announces an intention to take or to consider taking actions that will result in a Change in Control.

(3) Board Declaration. With respect to this Agreement, the Board adopts a resolution declaring that a Potential Change in Control has occurred.

(o) Severance Agreement

“Severance Agreement” means the Severance Agreement dated October 1, 2006 between you and the Company.

(p) Service Agreement

“Service Agreement” means the Service Agreement dated October 1, 2006 between you and Catalina Marketing UK Limited.

(q) Severance Benefits

“Severance Benefits” means your benefits under Section 6 of this Agreement.

(r) Term of this Agreement

“Term of this Agreement” means the period that commences on the date of this Agreement and ends on October 1, 2011.

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20. Tax Liabilities and Code Section 409A.

You are solely responsible for the payment of any tax liability (including any taxes and penalties that may arise under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) that may result from any payments or benefits that you receive pursuant to this Agreement. In addition, any such payments or benefits may be reduced by any applicable employment or withholding taxes. In addition, the Company will suspend paying you any cash amounts that you are entitled to receive pursuant to Section 6 during the six-month period following termination of your employment (the “409A Suspension Period”), unless the Company reasonably determines that paying such amounts in accordance with Section 3 won’t result in your liability for additional tax under Section 409A of the Code (“Section 409A”). As soon as reasonably practical after the end of the 409A Suspension Period, you will receive a lump sum payment in cash for an amount equal to any cash payments that the Company does not make during the 409A Suspension Period due to the provisions of Section 409A.

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

	CATALINA MARKETING CORPORATION
Date:
	FREDERICK W. BEINECKE
	Chairman of the Board
Date:
	TOM BUEHLMANN

Company notices to you will be addressed as follows (or in any other manner you notify the Company to use):

[Insert name and address]

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EX-10.21

EXHIBIT 10.21

CHANGE OF CONTROL AGREEMENT

This Agreement between L. Dick Buell (“you”) and Catalina Marketing Corporation (the “Company”), made on October 1, 2006, promises you severance benefits if, following a Change in Control, you are terminated without Cause or resign for Good Reason as set forth in this Agreement. Capitalized terms are defined in the last section of this Agreement.

1. Purpose

The Company considers a sound and vital management team to be essential. Management personnel who become concerned about the possibility that the Company may undergo a Change in Control may resign or become distracted. Accordingly, the Board has determined that appropriate steps should be taken to minimize the distraction you may suffer from the possibility of a Change in Control. One step is to enter into this Agreement with you.

2. Your Agreement

If one or more Potential Changes in Control occur during the Term of this Agreement, you agree not to resign for at least six full calendar months after a Potential Change in Control occurs, except as follows: (a) you may resign if you are given Good Reason to do so; and (b) you may resign because of retirement when or after you achieve age 65 or because you become unable to work due to Disability.

3. Events That Trigger Severance Benefits

(a) Termination After a Change in Control

You will receive Severance Benefits under this Agreement if, within two years after a Change in Control has occurred (so long as the Change in Control occurs during the Term of this Agreement), the Company terminates your employment without Cause or you resign for Good Reason.

(b) Termination After a Potential Change in Control

You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement and after a Potential Change in Control has occurred but before a Change in Control actually occurs, the Company terminates your employment without Cause or you resign for Good Reason.

(c) Successor Fails to Assume This Agreement

You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement, a successor to the Company does not assume this Agreement, as provided in Section 12(a).

4. Events That Do Not Trigger Severance Benefits

You will not be entitled to Severance Benefits if your employment ends because the Company terminates you for Cause or on account of Disability or because you resign without Good Reason, retire or die. Except as provided in Section 3(c), you are not entitled to Severance Benefits while you remain protected by this Agreement and remain employed by the Company, its affiliates or their successors.

5. Termination Procedures

If the Company terminates you within two years after a Change in Control occurring during the Term of this Agreement, the Company will provide you with 30 days’ advance written notice of your termination. Advance notice is not required if the Company terminates you for Cause. In any case, the notice will indicate why you are being terminated and will explain in reasonable detail the facts and circumstances surrounding your termination. If the Company terminates you for Cause, your notice of termination will include a copy of a resolution duly adopted by the affirmative vote of at least a majority of the entire membership of the Board (at a meeting of the Board called and held for the purpose of considering your termination (after reasonable notice to you and an opportunity for you and your counsel to be heard before the Board)). This resolution will state that, in the good faith opinion of the Board, Cause for your termination exists and specify the basis for that opinion in detail. If the Company terminates you without the notice required by this Section, your termination will not be effective.

6. Severance Benefits

(a) In General

If you become entitled to Severance Benefits under this Agreement, you will receive all of the Severance Benefits described in this Section as well as any unpaid base salary, expense reimbursements and vacation days earned before your termination date and any earned but unpaid bonus for the fiscal year before the year of termination. Any unpaid vested amounts or benefits under the Company’s compensation incentive and benefits plans will be paid in accordance with the terms of those plans.

(b) Lump-Sum Payment in Lieu of Future Compensation

In lieu of any further cash compensation for periods after your employment ends and in lieu of any other severance or other similar compensation the Company’s policies entitle you to, you will be paid a cash lump sum equal to 2.99 times your Annual Compensation in effect when your employment ends or, if higher, the highest Annual Compensation in effect immediately before the Change in Control, Potential Change in Control, or Good Reason event for which you terminate employment.

(c) Incentive Compensation

The Company will pay you a cash lump sum equal to the sum of any unpaid incentive compensation (that is not otherwise paid to you) that you are due under any bonus or commission plan for measuring periods completed before you became entitled to Severance Benefits under this Agreement.

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(d) Deferred Compensation; Stock Benefits

The Severance Benefits and other terms set forth on this Agreement will not affect your rights under any deferred compensation, savings, retirement, “401(k),” stock purchase, stock grants, stock option or other employee benefit or compensation plan, all of which will be governed by the their own terms. You are reminded that the Company’s stock option plans contain provisions which are effective in connection with a Change in Control.

(e) Group Insurance Benefit Continuation

During the period that begins when you become entitled to Severance Benefits under this Agreement and ends on the last day of the 30^th calendar month afterwards, the Company will provide the life, disability, accident and health insurance benefits (or substantially similar benefits) it was providing to you and your spouse and dependents immediately before you became entitled to Severance Benefits under this Agreement (or immediately before a benefit reduction that constitutes Good Reason, if you terminate employment for that Good Reason). These benefits, which will be at active employee contribution rates, will be treated as satisfying the Company’s COBRA obligations. After benefit continuation under this subsection ends, you and your spouse and dependents will be entitled to any remaining COBRA rights.

(f) Senior Executive Level Career Transition Assistance

The Company will pay for twelve months senior executive level career transition assistance, beginning on any date that you select within 3 months following the effective date of your termination, by an outplacement firm selected by you and acceptable to the Company. If you accept a new position, the Company’s obligation to make continuing payments under this provision ends.

7. Time for Payment

Except as described in Section 20, you will be paid your cash Severance Benefits within five days after you become entitled to Severance Benefits under this Agreement (e.g., within five days following your termination of employment). If the amount you are due cannot be finally determined within that period, you will receive the minimum amount to which you are clearly entitled, as estimated in good faith by the Company. The Company will pay the balance you are due (together with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as the amount can be determined. The Company will not pay this amount later than 30 days after you terminate employment. If your estimated payment exceeds the amount you are due, the excess will be a loan to you, which you must repay to the Company within five business days after you receive demand by the Company (together with interest at the rate provided in Code Section 1274(b)(2)(B)).

8. Payment Explanation

When payments are made to you, the Company will provide you with a written statement explaining how your payments were calculated and the basis for the calculations. This statement will include any opinions or other advice the Company has received from auditors or consultants as to the calculation of your benefits.

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9. Relation to Other Severance Programs

Your Severance Benefits under this Agreement are in lieu of any severance or similar benefits that are payable to you under any other employment agreement or other arrangement with the Company, or in accordance with the Company’s published or unpublished policies. If these other benefits are paid to you, those amounts will be applied to reduce the amount due under this Agreement. This Agreement is the entire agreement between you and the Company and its affiliates with respect to the benefits.

10. Golden Parachute

Your total payments and benefits under this Agreement may exceed the relevant limitations under the “golden parachute” provisions of Code Section 280G. However, nothing in this Agreement will cause the Company to be required to pay to you any amount in excess of the Severance Benefits provided for in this Agreement.

11. Effect of Reemployment

Except as described in the provisions of paragraph 9 of this Agreement, your Severance Benefits under this Agreement won’t be reduced by any other compensation you earn or could have earned from another source.

12. Successors

(a) Assumption Required

In addition to obligations imposed by law on a successor to the Company, during the Term of this Agreement the Company will require any successor to the Company, including any Change in Control (whether by sale of assets or securities, or merger transaction, or otherwise) in writing to take on and agree to perform this Agreement just as the Company was required to perform. If the Company fails to obtain the assumption and agreement before the effective date of a succession, you will be entitled to Severance Benefits as if you were terminated by the Company without Cause on the effective date of that succession.

(b) Heirs and Assigns

This Agreement will serve to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative or administrator of your estate.

13. Amendments

This Agreement may be modified only by a written agreement signed by you and an authorized officer of the Company.

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14. Governing Law

This Agreement creates a “top hat” employee benefit plan subject to the Employee Retirement Income Security Act of 1974, and it will be interpreted, administered, and enforced in accordance with that law; the Company is the “plan administrator.” To the extent that state law is applicable, the statutes and common law of the State of Florida (excluding its choice of laws provisions) will apply.

15. Claims

(a) When Required; Attorneys’ Fees

You do not need to present a formal claim to receive benefits payable under this Agreement. However, if you believe that your rights under this Agreement are being violated, you must file a formal claim with the Company in accordance with the procedures set forth in this Section. If the claim cannot be resolved under these administrative procedures, the Company will pay your reasonable attorneys’ fees and related costs in enforcing your rights under this Agreement if you ultimately prevail.

(b) Initial Claim

Your claim must be presented to the Company in writing. Within 70 days after receiving the claim, a claims official appointed by the Company will consider your claim and issue his or her determination thereon in writing. The claims official may extend the determination period for up to an additional 90 days by giving you written notice. With your consent, the initial claim determination period can be extended further. If you can establish that the claims official failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.

(c) Claim Decision

If your claim is granted, the benefits or relief you are seeking will be provided. If your claim is wholly or partially denied, the claims official will, within 70 days (or a longer period, as described above), provide you with written notice of the denial, setting forth, in a manner calculated to be understood by you: (i) the specific reason or reasons for the denial; (ii) specific references to the provisions on which the denial is based; (iii) a description of any additional material or information necessary for you to perfect your claim, together with an explanation of why the material or information is necessary; and (iv) an explanation of the procedures for appealing denied claims. If you establish that the claims official has failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official.

(d) Appeal of Denied Claims

You may appeal the claims official’s denial of your claim in writing to an appeals official designated by the Company (which may be a person, committee, or other entity) for a full and fair appeal. You must appeal a denied claim within 60 days after your receipt of written notice denying your claim, or within 60 days after the written notice was due, if the written

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notice was not sent. In connection with the appeals proceeding, you (or your duly authorized representative) may review pertinent documents and may submit issues and comments in writing. You may only present evidence and theories during the appeal that you presented during the initial claims stage, except for information the claims official requested you to provide to perfect the claim. You will irrevocably waive any theories you do not in good faith pursue through the appeal stage, such as by failing to file a timely appeal request.

(e) Appeal Decision

The decision by the appeals official will be made within 60 days after your appeal request, unless special circumstances require an extension of time, in which case the decision will be rendered as soon as possible, but not later than 120 days after your appeal request, unless you agree to a greater extension of that deadline. The appeal decision will be in writing, set forth in a manner calculated to be understood by you; it will include specific reasons for the decision, as well as specific references to the pertinent provisions of this Agreement on which the decision is based. If you do not receive the appeal decision by the date it is due, you may consider your appeal to have been denied.

(f) Procedures

The Company will adopt procedures by which initial claims and appeals will be considered and resolved; different procedures may be established for different types of claims. All procedures will be designed to afford you full and fair consideration of your claim. You may not challenge a decision of the Company hereunder in court or in any other administrative proceeding unless and until the claim and appeal procedures described in this Section 15 have been complied with and exhausted.

16. Validity

The invalidity or unenforceability of any part of this Agreement does not affect the validity or enforceability of any other part of this Agreement.

17. Counterparts

This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

18. Giving Notice

(a) To the Company

All communications from you to the Company relating to this Agreement must be sent to the Company to its principal business office in St. Petersburg, Florida, in writing, by registered or certified mail, or delivered personally, or as the Company may otherwise notify you in writing.

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(b) To You

All communications from the Company to you relating to this Agreement must be sent to you in writing, by registered or certified mail, or delivered personally, addressed as indicated at the end of this Agreement, or as you may otherwise notify the Company in writing.

19. Definitions

(a) Agreement

“Agreement” means this contract, as amended.

(b) Annual Compensation

“Annual Compensation” means your base salary plus which ever is greater: (i) the average bonus and commissions paid to you in the three fiscal years before the year in which the Change in Control took place (or, if less than three, in the number of years you were employed by the Company prior to the year the Change in Control took place); or (ii) the bonus and commissions paid to you in the fiscal year during which the Change in Control took place (including pursuant to Section 6(c)) or, if greater, any later year.

(c) Beneficial Owner

“Beneficial Owner” has the meaning set forth in Rule 13d-3 under the Exchange Act.

(d) Board

“Board” means the Board of Directors of the Company.

(e) Cause

“Cause” has the same meaning as in Section 3(b) of the Severance Agreement.

(f) Change in Control

“Change in Control” means the occurrence of any of the following: (i) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) of the Exchange Act) of Beneficial Ownership (except that an individual or entity will be deemed to be the Beneficial Owner of all shares that the individual or entity has the right to acquire without the happening or failure to happen of a material condition or contingency, other than the passage of time) of more than 50% of the total outstanding voting power of capital stock of the Company in respect of the general power to elect directors; (ii) during any two consecutive years, individuals who at the beginning of the period constituted the Board (together with individuals elected to the Board with the approval of at least 66 2/3% of the directors of the Company then still in office who were either directors at the beginning of the period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; and (iii) (A) the Company consolidates with or merges into another entity or sells all or substantially all of its assets to any individual or entity, or (B) any corporation consolidates with or merges into the Company, which in either event (A) or (B) is pursuant to a transaction in which the

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holders of the Company’s voting capital stock in respect of the general power to elect directors immediately prior to the transaction do not own, immediately following such transaction, at least a majority of the voting capital stock in respect of the general power to elect directors of the surviving corporation or the person or entity which owns the assets so sold.

(g) Code

“Code” means the Internal Revenue Code of 1986, as amended.

(h) Company

“Company” means Catalina Marketing Corporation and any successor to its business or assets that (by operation of law, or otherwise) assumes and agrees to perform this Agreement. However, for purposes of determining whether a Change in Control has occurred in connection with such a succession, the successor will not be considered to be the Company.

(i) Disability

“Disability” has the same meaning as in Section 3(c) of the Severance Agreement.

(j) Exchange Act

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(k) Good Reason

“Good Reason” means the occurrence of any of the following without your express written consent:

(1) A change in your status, title, position or responsibilities (including reporting responsibilities) that is a large reduction of the status, title, position or responsibilities before the change; the assignment to you of many duties or responsibilities that are inconsistent with such status, title, position or responsibilities; or your removal from or failure to reappoint or reelect you to any of such positions, except in connection with the termination of your employment for Cause, for Disability or as a result of your death, or by you other than for Good Reason;

(2) The Company reducing your annual base salary;

(3) The Company requiring you to be based at any place outside a 35-mile radius of your place of employment immediately before a Change in Control, except for reasonably required travel on the Company’s business that isn’t materially greater than those travel requirements before the Change in Control; or

(4) The Company’s failure to (i) continue in effect any material compensation or benefit plan (or a reasonable replacement therefore) in which you were participating immediately before a Change in Control or (ii) provide you with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately before a Change in Control (or in effect after the Change in Control, if greater).

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However, an event that is or would be Good Reason ceases to be Good Reason if: (a) you do not resign within 45 days after the event or you first learn of the event; or (b) the Company reverses the action or cures the default that constitutes Good Reason before you terminate employment; or (c) you were a primary instigator of the Good Reason event and the circumstances make it inappropriate for you to receive benefits under this Agreement (e.g., you agree temporarily to relinquish your position on the occurrence of a merger transaction you negotiate). If you have Good Reason to resign, you may do so even if you are on a leave of absence due to physical or mental illness or any other reason.

(l) Person

“Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) of that Act, and includes a “group,” as defined in Rule 13d-5 promulgated thereunder. However, a Person does not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(m) Potential Change in Control

“Potential Change in Control” means that any of the following has occurred during the term of this Agreement and no event terminating the following has occurred:

(1) Agreement Signed. The Company enters into an agreement that will result in a Change in Control.

(2) Notice of Intent to Seek Change in Control. The Company or any Person publicly announces an intention to take or to consider taking actions that will result in a Change in Control.

(3) Board Declaration. With respect to this Agreement, the Board adopts a resolution declaring that a Potential Change in Control has occurred.

(n) Severance Agreement

“Severance Agreement” means the Severance Agreement dated October 1, 2006, between you and the Company.

(o) Severance Benefits

“Severance Benefits” means your benefits under Section 6 of this Agreement.

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(p) Term of this Agreement

“Term of this Agreement” means the period that commences on the date of this Agreement and ends on October 1, 2011.

20. Tax Liabilities and Code Section 409A.

You are solely responsible for the payment of any tax liability (including any taxes and penalties that may arise under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) that may result from any payments or benefits that you receive pursuant to this Agreement. In addition, any such payments or benefits may be reduced by any applicable employment or withholding taxes. In addition, the Company will suspend paying you any cash amounts that you are entitled to receive pursuant to Section 6 during the six-month period following termination of your employment (the “409A Suspension Period”), unless the Company reasonably determines that paying such amounts in accordance with Section 3 won’t result in your liability for additional tax under Section 409A of the Code (“Section 409A”). As soon as reasonably practical after the end of the 409A Suspension Period, you will receive a lump sum payment in cash for an amount equal to any cash payments that the Company does not make during the 409A Suspension Period due to the provisions of Section 409A.

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Next page is signature page]

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

	CATALINA MARKETING CORPORATION
Date: October 1, 2006
	FREDERICK W. BEINECKE
	Chairman of the Board
Date: October 1, 2006
	L. DICK BUELL

Company notices to you will be addressed as follows (or in any other manner you notify the Company to use):

L. Dick Buell

5218 Bayshore Blvd. #3

Tampa, FL 33611

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EX-10.22

Exhibit 10.22

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of October 1, 2006, between CATALINA MARKETING CORPORATION, a Delaware corporation (the “Company”), and L. DICK BUELL (“Executive”).

WHEREAS, Executive serves as the Chief Executive Officer of the Company;

WHEREAS, the Company recognizes Executive’s contributions to the Company, encourages his continued excellent performance for the Company and its subsidiaries, and wishes to enter into an employment agreement with Executive on the terms and conditions provided herein; and

WHEREAS, for the same reasons, the Company has determined to provide Executive with severance if his employment terminates under the conditions described in that certain Severance Agreement of even date (the “Severance Agreement”) and to obtain alternative benefits under that certain Change of Control Agreement of even date (the “Change of Control Agreement”); and

WHEREAS, also for the same reasons, the Company has determined to enter into this Agreement with Executive to provide, among other things, for severance benefits as described and set forth in the Severance Agreement, in the case of certain circumstances in addition to those set out in the Severance Agreement.

NOW THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Employment; Term of Agreement.

(a) Upon the terms and conditions set forth in this Agreement, the Company shall employ Executive, and Executive hereby accepts employment with the Company, pursuant to the terms and conditions of this Agreement. Executive’s employment will be based in St. Petersburg, Florida, except for required travel on behalf of the Company.

(b) The term of this Agreement shall be the period beginning on the date hereof and ending on September 30, 2011; provided that those provisions herein set forth which are intended to survive such period shall be effective following such date and until they terminate pursuant to their own terms. The period during which Executive is employed under this Agreement is sometimes referred to herein as the “Employment Period.”

2. Position and Duties.

(a) Position; Responsibilities. During the Employment Period, subject to the power and authority of the Board of Directors of the Company (the “Board”) to expand or limit such duties, responsibilities, functions and authority and to overrule actions of officers of the Company, Executive shall serve as the Chief Executive Officer of the Company and shall have the normal duties, responsibilities, functions and authority of a Chief Executive Officer, including, without limitation, serving without further compensation as an officer

and/or a director of one or more of the Company’s Affiliates if so elected or appointed, with the understanding that upon the termination of the Employment Period, for any or no reason, Executive shall immediately resign as an officer and/or director or manager of all such Affiliates of the Company.

(b) Reporting; Performance of Duties. Executive shall report to the Board and devote his best efforts and his full business time and attention to the business and affairs of the Company and its Affiliates. Executive shall perform his duties, responsibilities and functions hereunder to the best of his abilities in a diligent, trustworthy, professional and efficient manner and shall comply with the Company’s and its Affiliates’ policies and procedures in all material respects. In performing his duties and exercising his authority under the Agreement, Executive shall support and implement the business and strategic plans approved from time to time by the Board and shall support and cooperate with the Company’s and its Affiliates’ efforts to expand their businesses and operate profitably and in conformity with the business and strategic plans approved by the Board, including, without limitation, the Company’s Code of Business Conduct and Ethics. So long as Executive is employed by the Company, Executive shall not, without the prior written consent of the Board, perform other services for compensation. Participation on the board of directors of a for-profit business requires approval by the Nominating and Corporate Governance Committee of the Board. However, Executive’s current participation on the board of directors of Prestige Brands Holdings, Inc. previously has been approved.

(c) Executive will continue to serve as a member of the Board during his tenure as the Chief Executive Officer, and Executive agrees to tender his resignation as a member of the Board at such time as he ceases to be the Chief Executive Officer for any reason.

3. Compensation and Benefits.

(a) Base Salary. Executive’s initial annualized base salary during the Employment Period shall be $675,000.00 (“Base Salary”). The Base Salary shall be increased annually in an amount equal to the greater of three and one half per cent (3.5%) or the increase in the Consumer Price Index in the prior year (the “Minimum Annual Increase”). The Board or the Compensation Committee of the Board (the “Compensation Committee”) shall review Executive’s Base Salary on an annual basis and may, at its discretion, adjust Executive’s Base Salary upward in an amount greater than the Minimum Annual Increase, effective on July 1 of each year. The Base Salary shall not be decreased as long as Executive continues to serve as Chief Executive Officer. The Base Salary shall be payable by the Company in regular installments in accordance with the Company’s general payroll practices (as in effect from time to time).

(b) Business Expenses. During the Employment Period, the Company shall reimburse Executive for all reasonable travel, entertainment and other business expenses incurred by him in the course of performing his duties and responsibilities under this Agreement, to the extent consistent with the Company’s policies and procedures in effect from time to time established by the Board or a Committee thereof, or the Chairman of the Board.

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(c) Annual Bonus. In addition to the Base Salary, Executive shall continue to be eligible to participate in an annual bonus program (“Annual Bonus”) consistent with prior periods, or as may be in effect from time to time (subject to the parameters herein described), and any bonus award shall be governed by the terms of the bonus program in effect from time to time. Payout of any earned bonus will take place within sixty (60) days of the conclusion of the annual fiscal period. Executive’s bonus range shall be from zero to one hundred and fifty percent (150%) of Base Salary, with a bonus target of one hundred percent (100%) of Base Salary. The amount of money available for payout against this bonus target will be earned on the basis of the Company’s performance against established fiscal year business and financial objectives and targets. The actual award may be adjusted based on Executive’s individual performance in providing leadership to obtain those objectives as determined by the Board. The business objectives for each fiscal year will be established and determined by the Board or the Compensation Committee after consultation with Executive, and communicated to Executive prior to the end of the preceding fiscal period but in no event later than thirty (30) days after the commencement of such fiscal year.

(d) Stock Options, Restricted Stock, and Incentive Plans. Executive shall be eligible to participate in such stock option, restricted stock, stock appreciation rights and other incentive plans generally available to senior executive employees of the Company at levels consistent with the “Total Rewards Program” in the judgment of the Compensation Committee and the Board.

(e) Benefits. In addition to (but without duplication of) the Base Salary and any bonuses payable to Executive pursuant to this Section 3, during the Employment Period Executive shall be entitled to participate in all of the Company’s employee benefit programs (as in effect from time to time) for which senior executive employees of the Company are generally eligible, and Executive shall be entitled to twenty (20) days of paid vacation each calendar year in accordance with the Company’s policies, which if not taken during any year may be carried forward to any subsequent calendar year up to a maximum accrual of thirty (30) days. In addition, the Company shall reimburse Executive for the following actual incurred costs: (i) financial planning and/or tax preparation expenses up to $5,000.00 annually; (ii) costs, not reimbursed by health insurance, for annual physical examinations; and (iii) the reasonable cost of one country club membership (i.e., monthly dues and Company business-related expenses). Also, Executive shall be entitled to participate in the Company’s Post-Retirement Health Care Benefits program on the same basis as the retired founders of the Company.

(f) Liability Insurance. During the Employment Period and for a continuous period of six (6) years thereafter, the Company shall maintain directors’ and officers’ liability insurance covering Executive in such amount as currently in effect, increased as necessary so that insurance coverage is similar to that for publicly-traded companies of comparable size and international scope of operations, to the extent such insurance coverage is reasonably commercially available.

(g) Legal Proceedings. Upon a reasonable showing by Executive that his interests or defenses in connection with such investigation, litigation, arbitration, enforcement or regulatory action or proceeding are different than those of the Company, Executive shall have the right to select and engage, at the Company’s expense, his own counsel for legal representation in connection

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with any investigation, litigation, arbitration, enforcement or regulatory action or other proceeding brought by the Securities and Exchange Commission, any self-regulatory organization or any other state, federal or foreign securities regulatory or law enforcement commission, agency or other governmental or quasi-governmental authority.

(h) Taxes. The Company shall withhold taxes from payments set forth herein as it determines to be required by applicable law.

4. Termination.

(a) Termination. The Company and Executive agree that, from the Company’s perspective, Executive is an “at-will” employee, subject only to the contractual rights upon termination set forth herein, in the Severance Agreement and in the Change of Control Agreement, and that the Employment Period (i) shall terminate automatically and immediately upon Executive’s death, (ii) may be terminated by the Company (through action by the Board) at any time, whether for Cause or not for Cause, by giving Executive written notice of the termination, and (iii) may be terminated by Executive at any time, with or without Good Reason, by giving the Company written notice at least ninety (90) days in advance of his termination date; provided that upon receipt of notice of termination from Executive, the Company may, in its sole discretion, request that Executive cease his employment activities prior to the termination date specified in accordance with this Section 4(a), and Executive shall comply with such request, with the mutual understanding that such request will not change the termination date specified in accordance with this Section 4(a) or affect the characterization of the termination of Executive’s employment.

(b) Resignation for Good Reason. The Severance Agreement provides for the payments and benefits to be received by Executive and other terms and conditions applicable following the termination of the Employment Period under various circumstances and, except as herein expressly set forth, the terms of the Severance Agreement shall apply upon the termination of the Employment Period and such terms are herein incorporated by this reference. Notwithstanding the Severance Agreement, if the Employment Period is terminated as a result of Executive’s resignation with Good Reason, then Executive or Executive’s estate, as applicable, shall be entitled to receive the payments and other benefits provided for in Section 3(a) of the Severance Agreement under the caption “If Catalina Terminates You Other Than for Cause, Disability or Death,” subject to the conditions therein stated (including without limitation the delivery by Executive of the form of General Release Agreement referenced in the Severance Agreement).

(c) No Other Benefits. Except as otherwise expressly provided in this Agreement, the Severance Agreement or the Change of Control Agreement, Executive shall not be entitled to any other salary, bonuses, employee benefits or compensation from the Company after the termination of the Employment Period and all of Executive’s rights to salary, bonuses, employee benefits and other compensation hereunder which would have accrued or become payable after the termination of the Employment Period (other than vested retirement benefits accrued on or prior to the termination of the Employment Period or other amounts owing hereunder as of the date of such termination that have not yet been paid) shall cease upon such termination, other than those expressly required under applicable law (such as COBRA).

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5. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” means any corporation or other entity, controlling, controlled by or under common control with the Company.

“Cause,” with respect to Executive, has the meaning given to it in the Severance Agreement.

“Good Reason” shall mean if Executive resigns from employment with the Company and its Subsidiaries prior to the end of the Employment Period as a result of one or more of the following reasons, unless Executive otherwise consents in writing: (i) the Company requires Executive to relocate his primary residence, (ii) the Company reduces the amount of the Base Salary from time to time in effect or fails to provide the Minimum Annual Increase provided in Section 3(a); (iii) the Board of Directors fails to establish Annual Bonus programs consistent with past practice; (iv) the Company substantially reduces Executive’s responsibilities materially inconsistent with his position as CEO, removes him as CEO or as a member of the Board of Directors, or Executive is not elected to the Board of Directors following expiration of Executive’s term as a director; (v) the Company fails to pay to Executive the Base Salary as in effect from time to time or any Annual Bonus when due in accordance with this Agreement and such failure has not been remedied by the Company within fifteen (15) days after delivery of written notice thereof to the Company; (vi) if Executive determines in good faith that he can no longer effectively make executive management decisions because he no longer has the support of a majority of the Directors, after he has taken reasonable steps to address differences with such Directors; (vii) Executive is diagnosed with a disease or illness that is substantially likely to result in such Executive’s death; (viii) any member of Executive’s immediate family is diagnosed with a disease or illness that is substantially likely to result in such person’s death; or (ix) any member of Executive’s immediate family becomes permanently disabled; provided that in each case written notice of Executive’s resignation for Good Reason must be delivered to the Company within thirty (30) days after Executive obtains actual knowledge of the occurrence of any such event in order for Executive’s resignation with Good Reason to be effective hereunder; provided further that Executive shall not have the right to resign for Good Reason if, at such time, circumstances exist which give the Company the right to terminate Executive for Cause; and provided further that it shall not constitute “Good Reason” pursuant to clause (vii), (viii) or (ix) of this definition if (a) Executive becomes employed by, a consultant to or provides services to any other Person, or (b) Executive does not devote substantially all of his business time and attention to the care of such ill or disabled person (if not himself).

“Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock partnership, trust (including any beneficiary thereof), unincorporated organization, or government or any agency or political subdivision thereof.

6. Notices. Any notice provided for in this Agreement shall be in writing and either personally delivered, sent by reputable overnight courier service or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

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To Executive:	L. Dick Buell
To the Company:	CATALINA MARKETING CORPORATION
	200 Carillon Parkway
	St. Petersburg, Florida 33716
	Attention: Chairman of the Board

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered, sent or mailed.

7. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any action in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

8. Complete Agreement. This Agreement, the Severance Agreement and the Change in Control Agreement embody the complete agreement and understanding among the parties with respect to, and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to, the subject matter hereof in any way (including, without limitation, any letter of intent, any employment or similar agreement between Executive and the Company. To the extent that any provision hereof is inconsistent with the Severance Agreement, the terms of this Agreement shall take priority. If Executive becomes eligible for benefits under the Change of Control Agreement, the Change of Control Agreement will take priority over the terms hereof, and any payments or benefits paid or made available hereunder as a result of termination of the Employment Period shall be credited against amounts due and benefits to be provided under the Change of Control Agreement.

9. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.

10. Counterparts. This Agreement may be executed in separate counterparts (including by means of facsimile), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

11. Successors and Assigns; Third Party Beneficiaries. This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder; provided that this Agreement may be transferred by the Company (or any successor thereto) to its Affiliates without such consent. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company (and such benefits shall be assignable to a successor without Executive’s consent), including without limitation any Persons acquiring directly or indirectly all or

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substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the “Company” for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company other than to any of its Affiliates. This Agreement will inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, heirs and legatees, but otherwise will not otherwise be assignable, transferable or delegable by Executive; provided that the obligations of Executive under this Agreement shall not be assignable, transferable or delegable by Executive.

12. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Florida, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida.

13. Submission to Jurisdiction. Each of the parties hereto irrevocably submits (for itself and in respect of its property) to the jurisdiction of any state or federal court sitting in Tampa, Florida, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. Any party may make service on any other party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 6 above. Nothing in this Section 13, however, shall affect the right of any party to serve legal process in any other manner permitted by law or at equity.

14. Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company (as approved by the Board) and Executive, and no course of conduct or course of dealing or failure or delay by any party hereto in enforcing or exercising any of the provisions of this Agreement (including, without limitation, the Company’s right to terminate the Employment Period for Cause or, except as otherwise stated herein, Executive’s right to terminate the Employment Period for Good Reason) shall affect the validity, binding effect or enforceability of this Agreement or be deemed to be an implied waiver of any provision of this Agreement.

15. Insurance. The Company may, at its discretion, apply for and procure in its own name and for its own benefit life and/or disability insurance on Executive in any amount or amounts considered advisable. Executive agrees to cooperate in any medical or other examination, supply any information and execute and deliver any applications or other instruments in writing as may be reasonably necessary to obtain and constitute such insurance. Executive hereby represents that he has no reason to believe that his life is not insurable at rates now prevailing for healthy men of his age.

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16. Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.

17. Executive’s Cooperation. During the Employment Period and thereafter, Executive shall cooperate with the Company or any Affiliate in any internal investigation or administrative, regulatory or judicial proceeding as reasonably requested by the Company or any Affiliate (including, without limitation, Executive being available upon reasonable notice for interviews and factual investigations, appearing at the Company’s or any Affiliate’s request to give testimony without requiring service of a subpoena or other legal process, volunteering to the Company and any Affiliate all pertinent information and turning over to them all relevant documents which are or may come into Executive’s possession, all at times and on schedules that are reasonably consistent with Executive’s other permitted activities and commitments). In the event the Company or any Affiliate requires Executive’s cooperation in accordance with this Section 17, the Company shall pay Executive a reasonable per diem as determined by the Board, unless Executive is receiving severance benefits under the terms hereof or under the Employment Agreement, and reimburse Executive for reasonable expenses incurred in connection therewith (including lodging and meals, upon submission of receipts).

18. Tax Liabilities and Code Section 409A. Executive is solely responsible for the payment of any tax liability (including any taxes and penalties that may arise under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”)) that may result from any payments or benefits that Executive receives under this Agreement. These payments or benefits may be reduced by any applicable employment or withholding taxes. In addition, the Company will suspend payment of any cash amounts Executive is entitled to receive under Section 3 of the Severance Agreement or Section 3 hereof during the six-months following termination of the Employment Period (the “409A Suspension Period”), unless the Company reasonably determines that paying the amounts in accordance with such Sections will not result in Executive’s liability for additional tax under Section 409A. As soon as reasonably practical after the end of the 409A Suspension Period, Executive will receive a lump sum payment in cash for an amount equal to any cash payments that the Company doesn’t make during the 409A Suspension Period. After that, Executive will receive any remaining payments under Section 4 in accordance with its terms (as if there had not been any suspension of payments).

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

CATALINA MARKETING CORPORATION
By:	/s/ FREDERICK W. BEINECKE
	FREDERICK W. BEINECKE
	Chairman of the Board
	/s/ L. DICK BUELL
	L. DICK BUELL

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EX-21

Exhibit 21

CATALINA MARKETING CORPORATION

SUBSIDIARIES OF REGISTRANT

Catalina Health Resource, LLC

a Delaware corporation

Catalina Marketing Worldwide, Inc.,

a Delaware corporation

Catalina Marketing France, S.A.S.,

a French corporation

Catalina Marketing U.K., LTD.,

a United Kingdom corporation

Catalina Marketing Italia s.r.l.,

an Italian corporation

Catalina Marketing Procurement, LLC

a Delaware limited liability corporation

Catalina-Pacific Media, LLC,

a Delaware limited liability corporation

CMJ Investments, LLC,

a Delaware limited liability corporation

Catalina Marketing Japan KK,

a Japanese corporation

Catalina Marketing Deutschland GmbH,

a German corporation

Catalina Marketing C.V.

a Netherlands limited partnership

Catalina Marketing International B.V.

a Netherlands private limited liability company

Catalina Marketing Research Solutions, Inc.

a Delaware corporation

Compuscan Marketing, Inc.,

a Pennsylvania corporation

Catalina Marketing Loyalty Holdings, Inc.,

a Delaware corporation

Dynamic Controls, Inc.,

a Delaware corporation

Catalina Marketing Direct Marketing Services, Inc.

a California corporation

Catalina Electronic Clearing Services, Inc.,

a Delaware corporation

Supermarkets Online Holdings, Inc.,

a Delaware corporation

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-82456, 33-46793, 333-07525, 333-86905, 333-103631, 333-103632, and 333-120940) of Catalina Marketing Corporation of our report dated February 28, 2007 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Tampa, Florida

February 28, 2007

EX-31.1

Exhibit 31.1

Certification Pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, L. Dick Buell, certify that:

1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007
By:	/s/ L. Dick Buell
	Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

Certification Pursuant to

Exchange Act Rules 13a-14(a) and 15d-14(a),

As Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Rick P. Frier, certify that:

1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007
By:	/s/ Rick P. Frier
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L. Dick Buell, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ L. Dick Buell

L. Dick Buell

Chief Executive Officer and Director (Principal Executive Officer)

February 28, 2007

EX-32.2

Exhibit 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Catalina Marketing Corporation (the “Company”) for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rick P. Frier, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Rick P. Frier

Rick P. Frier

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

February 28, 2007