Exhibit 2.2B
CONFIDENTIAL
AMENDMENT No. 5 TO LICENSE AGREEMENT
This Amendment to the License Agreement dated September 8, 1998 between Dow
Xxxxx & Company, Inc. ("Dow Xxxxx") and Xxx Xxxxxx Funds, Inc. (the "Licensee")
(the "License Agreement"), as amended by Amendment No. 1 dated December 1, 1999
and Amendment No. 2 dated February 1, 2000 and Amendment No. 3 dated September
8, 2003 and Amendment No. 4 dated May 19, 2005 is made as of March 7, 2006 (the
"Amendment Effective Date"), by and between Dow Xxxxx and the Licensee.
WHEREAS, the License Agreement grants a license to Licensee to use certain
proprietary Indexes and related Dow Xxxxx Marks in connection with the issuance,
trading, marketing and promotion of Products;
WHEREAS, in addition to the Products authorized for use under the License
Agreement, the Licensee also wishes to issue, sell, market and promote certain
Products based on one or more of the Strategies identified on Schedule A hereto
(each a "DJUSTMI Strategy") using the Dow Xxxxx U.S. Total Market Indexes listed
on Schedule B hereto (the "DJUSTMI Indexes"), and to use the related Dow Xxxxx
proprietary service marks associated with such indexes in connection therewith;
and
WHEREAS, the Licensee and Dow Xxxxx have agreed to amend the License
Agreement to permit Licensee's issuance, sale, marketing and promotion of
Products based on one or more DJUSTMI Strategies, and to use Dow Xxxxx'x
proprietary service marks in connection therewith on the terms provided herein
and in the License Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the License Agreement, it is agreed as
follows:
1. Subject to the terms and conditions of the License Agreement, Dow
Xxxxx hereby grants to Licensee a further non-transferable
non-exclusive license to (i) use the Dow Xxxxx U.S. Total Market
Indexes, and to use and refer to the service marks "Dow JonesSM" and
"Dow Xxxxx U.S. Total Market IndexesSM" (collectively, the "Dow Xxxxx
U.S. Total Market Index Marks"), in connection with the issuance,
sale, marketing and promotion of Products based on one or more DJUSTMI
Strategies to indicate that Dow Xxxxx is the source of the DJUSTMI
Indexes and as may otherwise be required by applicable laws, rules,
regulations, court orders or under the License Agreement and (ii) to
receive the Index Data as defined below in Schedule D attached hereto.
2. Except as otherwise expressly provided herein, all terms and
conditions in the License Agreement that apply to the Dow Xxxxx Marks
shall apply equally to the Dow Xxxxx U.S. Total Market Index Marks.
3. Except as otherwise expressly provided herein, all terms and
conditions of the License Agreement that apply to the Products shall
apply equally to the Products based on one or more DJUSTMI Strategies.
4. Section 9(a) shall be amended to insert "or (iii) a DJUSTMI Strategy"
after "or (ii) the Products".
5. In consideration for the license granted under this Amendment,
Licensee shall pay to Dow Xxxxx the license fees set forth on Schedule
C attached hereto.
6. Except as expressly amended hereby, all provisions in the License
Agreement shall continue to remain in full force and effect.
7. Except as otherwise specified herein, all capitalized terms used in
this Amendment shall have the meaning ascribed to them in the License
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to
the License Agreement to be executed as of the date first set forth above.
Dow Xxxxx & Company, Inc.
By: _________________________
Name: Xxxxxxx X. Xxxxxxxxxx
Title: President, Dow Xxxxx Indexes
Date:
XXX XXXXXX FUNDS INC.
By: __________________________
Name:
Title:
Date:
SCHEDULE A
"DJUSTMI Strategy" shall mean each of the Basic Materials Strategy,
Consumer Goods Strategy, Consumer Services Strategy, Energy Strategy, Financial
Strategy, Health Care Strategy, Industrials Strategy, Technology Strategy,
Telecommunications Strategy and Utilities Strategy as follows:
"Basic Materials Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Basic Materials
Index from highest to lowest based on the following strategy screens:
o Dividend Yield,
o Operating Margin,
o Price/Book Value Ratio,
o Price/Free Cash Flow Ratio,
o Price/Sales Ratio, and
o Price/Sales to Five-Year Average.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Basic Materials Index. The strategy ranks the
remaining stocks by total score and selects the top 20 stocks. If two stocks are
assigned the same total score, the stock with the higher score for Price/Book
Value Ratio is ranked higher.
"Consumer Goods Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Consumer Goods
Index from highest to lowest based on the following strategy screens:
o Dividend Yield to Five-Year Median,
o Long-Term Expected Profit Growth,
o One-Year Earnings Growth,
o Operating Income Change Last Quarter,
o Price/Cash Flow Ratio, and
o Total Return for the Past Six Months.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Consumer Goods Index. The strategy ranks the
remaining stocks by total score and selects the top 20 stocks. If two stocks are
assigned the same total score, the stock with the higher score for Long-Term
Expected Profit Growth is ranked higher.
"Consumer Services Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Consumer
Services Index from highest to lowest based on the following strategy screens:
o Cash Flow to Net Income,
o EPS Change Last Quarter,
o Long-Term Expected Profit Growth,
o Price/Earnings Ratio,
o Price/Sales to Five-Year Average, and
o Total Return for the Past Six Months.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Consumer Services Index. The strategy ranks the
remaining stocks by total score and selects the top 20 stocks. If two stocks are
assigned the same total score, the stock with the higher score for Long- Term
Expected Profit Growth is ranked higher.
"Energy Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Oil & Gas Index
from highest to lowest based on the following strategy screens:
o Enterprise Value to EBITDA,
o Five-Year Earnings Growth,
o Gross Margin Trend,
o Long-Term Expected Profit Growth,
o Price/Sales Value Ratio, and
o Price/Sales to Three-Year Average.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Oil & Gas Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks. If two stocks are assigned
the same total score, the stock with the higher score for Long-Term Expected
Profit Growth is ranked higher.
"Financials Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Financials
Index from highest to lowest based on the following strategy screens:
o Earnings Predictability,
o Long-Term Expected Profit Growth,
o Price/Earnings Ratio,
o Price/Book Value Ratio,
o Price/Sales Ratio, and
o Tangible Book One-Year Change.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Financials Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks, provided that the stock of
any affiliate of Xxx Xxxxxx will be excluded and replaced with the stock with
the next highest ranking. If two stocks are assigned the same total score, the
stock with the higher score for Tangible Book One-Year Change is ranked higher.
"Health Care Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Health Care
Index from highest to lowest based on the following strategy screens:
o Enterprise Value to EBITDA,
o Gross Margin,
o One-Year Net Income Growth,
o Price/Earnings Ratio,
o Price/Free Cash Flow Ratio, and
o Return on Equity.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Health Care Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks. If two stocks are assigned
the same total score, the stock with the higher score for Return on Equity is
ranked higher.
"Industrials Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Industrials
Index from highest to lowest based on the following strategy screens:
o EPS Revisions Current Quarter,
o EPS Surprise Last Quarter,
o Long-Term Expected Profit Growth,
o Price/Earnings Ratio,
o Price/Free Cash Flow Ratio and
o Total Return for the Past Six Months.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Industrials Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks. If two stocks are assigned
the same total score, the stock with the higher score for Price/Earnings Ratio
is ranked higher.
"Technology Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Technology
Index from highest to lowest based on the following strategy screens:
o Net Profit Margin,
o Price/Book Value Ratio,
o Price/Sales Ratio,
o Price/Sales to Five-Year Average,
o Tangible Book Five-Year Change, and
o Total Return for the Past Six Months.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Technology Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks. If two stocks are assigned
the same total score, the stock with the higher score for Total Return for the
Past Six Months is ranked higher.
"Telecommunications Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S.
Telecommunications Index from highest to lowest based on the following strategy
screens:
o Asset Turnover Trend,
o Dividend Yield,
o Enterprise Value to EBITDA,
o Price/Cash Flow Ratio,
o Three-Year Sales Growth, and
o Total Return for the Past Six Months.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Telecommunications Index. The strategy ranks the
remaining stocks by total score and selects the top 10 stocks. If two stocks are
assigned the same total score, the stock with the higher score for Enterprise
Value to EBITDA is ranked higher.
"Utilities Strategy" means:
Beginning with the stocks in the Dow Xxxxx U.S. Total Market Index, the
strategy excludes the bottom 1% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx U.S. Utilities Index
from highest to lowest based on the following strategy screens:
o EBIT Margin,
o Long-Term Expected Profit Growth,
o Price/Earnings Ratio,
o Price/Book Value Ratio versus Three-Year Average,
o Price/Cash Flow Ratio, and
o Price/Sales to Three-Year Average.
The strategy assigns each company a rank score for each of these categories
with the lowest score being 1 and the highest score being the total number of
stocks in the Dow Xxxxx U.S. Utilities Index. The strategy ranks the remaining
stocks by total score and selects the top 20 stocks. If two stocks are assigned
the same total score, the stock with the higher score for Price/Earnings Ratio
is ranked higher.
GLOSSARY OF ENHANCED SECTOR STRATEGY SCREENS
Asset Turnover Trend - The median asset turnover for the four most recent
quarters divided by the median asset turnover of the 12 most recent quarters.
Asset turnover is the sum of the four most recent quarters of sales divided by
the average of the four most recent quarters of assets.
Cash Flow to Net Income - Sum of the four most recent quarters of cash flow
divided by sum of the four most recent quarters of net income. Cash flow is
defined as income before extraordinary items plus depreciation and amortization.
Dividend Yield - The indicated annual dividend divided by the current stock
price.
Dividend Yield to Five-Year Median - Current dividend yield divided by the
median dividend yield over the past 60 months.
Earnings Predictability - A ratio that seeks to measure of the stability of
year-to-year earnings growth over the past 20 quarters. Calculated by dividing
the standard deviation of year-to-year changes in per-share earnings by the
average year-to-year change in per-share earnings.
EBIT Margin - Earnings before interest and taxes ("EBIT") divided by sales.
Enterprise Value to EBITDA - Enterprise value divided by earnings before
interest, taxes, depreciation, and amortization. Enterprise value equals stock
market capitalization plus sum of debt and preferred stock minus cash and cash
equivalents.
EPS Change Last Quarter - Year-to-year change in operating earnings per share.
Operating earnings exclude the effect of all nonrecurring items, including
cumulative effect of accounting changes, discontinued operations, extraordinary
items, special items, and one-time income tax expenses/benefits.
EPS Revisions Current Quarter - The net percentage of positive profit-estimate
revisions. First, the number of earnings estimates for the next fiscal quarter
that have been decreased from the prior month are subtracted from the number
that have been increased. Next, that result is divided by the total number of
earnings estimates for the quarter.
EPS Surprise Last Quarter - The difference between last quarter's actual
earnings per share and the average estimate, divided by the absolute value of
the actual earnings per share.
Five-Year Earnings Growth - The difference between operating earnings per share
in the most recent four quarters and operating earnings per share in the four
quarters five years earlier, expressed as a percentage.
Gross Margin - Net sales in most recent four quarters minus cost of goods sold
in most recent four quarters, with this total then divided by net sales.
Gross Margin Trend - The median gross margin over the past four quarters divided
by median gross margin over the past 12 quarters.
Long-Term Expected Profit Growth - The simple average of analysts' estimates for
five-year growth in earnings per share.
Net Profit Margin - Net income divided by sales.
One-Year Earnings Growth - The difference between operating earnings per share
in the most recent four quarters divided by operating earnings per share in the
four quarters one year earlier, expressed as a percentage.
One-Year Net Income Growth - The difference between net earnings per share in
the most recent four quarters and net earnings per share in the four quarters
one year earlier, expressed as a percentage. Net earnings exclude discontinued
operations and extraordinary items.
Operating Margin - Operating income before deprecation divided by sales,
calculated for most recent four quarters.
Operating Income Change Last Quarter - The difference between operating income
in the latest quarter and the year-earlier quarter.
Price/Earnings Ratio - Stock price divided by earnings per share from operations
over past four quarters.
Price/Book Value Ratio - Stock price divided by current book value per share.
Price/Book Value Ratio versus Three-Year Average - The current price/book value
ratio divided by the median of the price/book value ratio over the past 36
months.
Price/Cash Flow Ratio - Stock price divided by per-share cash flow over past
four quarters, with cash flow defined as net income plus depreciation and
amortization.
Price/Free Cash Flow Ratio - Stock price divided by per share free cash flow
over past four quarters. Free cash flow represents the net change in cash from
all items classified in the operating activities section on a statement of cash
flows, minus capital spending and cash dividends.
Price/Sales Ratio - Stock price divided by per-share sales over most recent four
quarters.
Price/Sales to Three-Year Average - Current price/sales ratio divided by median
price/sales ratio over past 36 months.
Price/Sales to Five-Year Average - Current price/sales ratio divided by median
price/sales ratio over past 60 months.
Return on Equity - Income before extraordinary items over most recent four
quarters divided by average for common equity over four most recent quarters
Tangible Book One-Year Change - The change in tangible shareholders equity per
share over the most recent year. Tangible shareholders equity equals
shareholders equity minus intangible assets, such as goodwill.
Tangible Book Five-Year Change - The change in tangible shareholders equity per
share over the past five years. Tangible shareholders equity equals shareholders
equity minus intangible assets, such as goodwill.
Three-Year Sales Growth - The difference between per share sales in the most
recent four quarters and per-share sales in the four quarters three years
earlier, expressed as a percentage.
Total Return for the Past Six Months - The percentage return on a stock over
most recent six months, reflecting dividends and change in stock price.
SCHEDULE B
Dow Xxxxx U.S. Total Market Indexes
Dow Xxxxx U.S. Basic Materials Index
Dow Xxxxx U.S. Consumer Goods Growth Index
Dow Xxxxx U.S. Consumer Services Index
Dow Xxxxx U.S. Financials Index
Dow Xxxxx U.S. Health Care Index
Dow Xxxxx U.S. Industrials Index
Dow Xxxxx U.S. Oil & Gas Index
Dow Xxxxx U.S. Telecommunications Index
Dow Xxxxx U.S. Technology Index
Dow Xxxxx U.S. Utilities Index
Dow Xxxxx U.S. Total Market Index
"Organized Securities Market" shall mean a U.S. national securities exchange, an
automated quotation or other electronic trading system, a foreign securities
exchange or any other domestic or foreign securities market determined by Dow
Xxxxx in its reasonable judgment to constitute an organized Securities Market.
The name of the Product shall be subject to Dow Xxxxx'x prior written consent.
SCHEDULE C
LICENSE FEES
Licensee shall pay license fees in accordance with the following:
Upon signing of this Amendment, and during the Term on each anniversary of the
Amendment Effective Date, the Licensee will pay to Dow Xxxxx a flat annual
minimum payment of $60,000 in respect of the twelve-month period commencing on
such anniversary date (each, a "DJUSTMI Annual Minimum Payment").
In addition, during each Year (defined below) of the Term, the Licensee will
provide to Dow Xxxxx a written report (each, a "DJUSTMI Quarterly Report"),
within 10 days after the end of each Quarter (as defined below), which sets
forth (i) the asset balance for each Product based on the Dow Xxxxx U.S. Total
Market Indexes at such Quarter-end, and (ii) a calculation of the DJUSTMI
Rolling Average Asset Balance (defined below) at such month-end.
Within 10 days after each Quarter-end during each Year of the Term, the Licensee
will pay (each, a "DJUSTMI Quarterly Payment") to the Dow Xxxxx affiliate
designated by Dow Xxxxx an amount equal to one-quarter of the DJUSTMI Basis
Point Amount (defined below); provided, however that, in each year of the Term,
Licensee shall be entitled to apply a credit in an amount equal to the DJUSTMI
Annual Minimum Payment against the aggregate of the DJUSTMI Quarterly Payments
for that year until such credit is depleted. Licensee shall send the DJUSTMI
Quarterly Report to Dow Xxxxx by fax/email and/or regular mail to (609)
000-0000/xxxx@xxx.xxxxxxxx.xxx/Xxx Xxxxx & Company, X.X. Xxx 000, Xxxxxxxxx, XX
00000 Attn: Xxxxxxx Xxxxxxxxxx, respectively.
All amounts will be paid in cash and will be non-refundable. All amounts are
stated in U.S. dollars (at the applicable exchange rate prevailing at the time
payment is due, as published in the Wall Street Journal. All amounts are stated
net of any withholding taxes (i.e., the amount stated is the amount to be
received by Dow Xxxxx after payment of any withholding taxes).
The terms hereof shall be deemed "Confidential Information" for purposes of
Section 7(b) of this Agreement.
Definitions:
"DJUSTMI Basis Point Amount" means, at any time during a Year, an amount equal
to two basis points (.0002) on the Rolling Average Asset Balance.
"Quarter" means, with respect to any Year, the three-month period commencing on
the first day of such Year, and each succeeding three-month period during such
Year.
"DJUSTMI Rolling Average Asset Balance" means, at any Quarter-end during a Year,
the average assets in the Products based on the Dow Xxxxx U.S. Total Market
Indexes in the aggregate for the Quarter then ended, calculated by adding the
month-end asset balances for such products for such months in the Quarter and
dividing the result by the number three (i.e., the number of months in the
Quarter).
"Year" means a twelve-month period commencing on the Amendment Effective Date or
on any anniversary of the Amendment Effective Date.
SCHEDULE D
INDEX DATA
Subject to the terms and conditions of this License Agreement and payment of the
fees set forth on Schedule B, throughout the term of the License Agreement, Dow
Xxxxx shall provide the following data (collectively, the "Index Data") to
Licensee via, at Dow Xxxxx'x option, (i) dial-up service, (ii) email delivery or
(iii) facsimile delivery:
As of End-of-Day Basis:
(beta) A list of component stocks (the "Components") for each of the Dow Xxxxx
Indexes listed on Schedule A (the "Indexes");
(beta) Weightings of the Components;
(beta) Divisor of the Indexes as of month-end
(beta) Closing values of the Indexes as of month-end.
(beta) Component market capitalization as of month-end;
(beta) Industry group classifications for the Components as of month-end.
