I agree with Attorney Ross. Get a lawyer. The catalog is trying to screw you. If your facts are right they are infringers and you have a potentially sizable claim against them. And, do it NOW, and don't you tell them anything or say anything to them until you have seen the attorney. Yes, this is well worth the $300/hr.
So far, this is free to you. Until you pay a fee, I am not your lawyer and you are not my client, so you take any free advice at your sole risk. I am licensed in IL, MO, TX and am a Reg. Pat. Atty. so advice in any other jurisdiction is general advice and should be confirmed with an attorney licensed in that jurisdiction.
You need to immediately retain copyright litigation counsel to enforce your rights. While it is possible that this can be resolved by negotiation, your position would be significantly enhanced if you were represented by counsel who could threaten litigation. the "catalog" company seems to have infringed your copyrights by preparing a derivative work based on your original work.. Their offer to pay royalties is too little--too late. They should have obtained your permission before engaging in this conduct. Assuming that you timely and properly registered your work with the copyright office, you may have a claim for statutory damages for willful infringement of up to $150,000, and you would be entitled to collect attorneys fees if you prevail. Given the significant potential value of this claim, you would be well-served by retaining counsel to represent you. And in a matter like this, $300 per hour is a bargain----many experienced IP lawyers charge far higher hourly rates. If handled correctly, this infringer should be required to pay damages together with your attorneys fees---your investment in counsel will likely pay off in the long run.
You wrote it, you are the author. You did not sell/grant/assign ownership, then you are the owner. They use it, then they are infringing. Consult a copyright attorney to send them a cease a desist letter, then you can negotiate. Do not write the C&D letter yourself.
I am neither your attorney, nor my answers or comments in AVVO.com create an attorney-client relationship with you. You may accept or disregard my free advice in AVVO.com at your own risk. I am a Patent Attorney, admitted to the USPTO and to the Florida Bar.