LICENSE AGREEMENT
THIS AGREEMENT, made as of this 30th day of May, 2006, by and between Horizon
Investment Services, LLC ("Horizon"), an Indiana limited liability company, and
Xxx Xxxxxx Funds Inc. ("Xxx Xxxxxx"), a Delaware corporation.
WITNESSETH:
WHEREAS, Horizon has developed the investment strategy set forth in Exhibit A
attached hereto (the "MicroCap Strategy");
WHEREAS, all proprietary rights to the MicroCap Strategy and the name
"Horizon Investment Services" (collectively, the "Property") are owned by
Horizon;
WHEREAS, Xxx Xxxxxx sponsors, underwrites and distributes a wide array of
unit investment trusts ("UITs");
WHEREAS, Xxx Xxxxxx desires to establish one or more UITs that will each
initially invest all or a portion of its assets in securities selected in
accordance with the MicroCap Strategy (the "Trusts");
WHEREAS, Xxx Xxxxxx, on behalf of the Trusts, desires to license the Property
for use in connection with the Trusts; and
WHEREAS, Horizon is willing to license the Property to Xxx Xxxxxx and the
Trusts under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
conditions contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Grant of License. (a) Subject to the terms and conditions of this
Agreement, Horizon hereby grants to Xxx Xxxxxx and the Trusts an Exclusive (as
defined below) license to use and refer to the Property, with prior approval
from Horizon, in connection with the Trusts. The license granted herein shall
continue until the later to occur of the termination of this Agreement or the
termination date of the last existing Trust.
(b) Horizon covenants and agrees that no person or entity other than
Xxx Xxxxxx shall need to obtain any other license with respect to the Property
in connection with the initial sale of the Trusts or subsequent resales of the
Trusts in the secondary market.
(c) Horizon represents and warrants that it owns all proprietary rights
in and to the Property and has the right to license the same to Xxx Xxxxxx and
the Trusts pursuant to this Agreement.
(d) Xxx Xxxxxx, on behalf of the Trusts, acknowledges that Horizon has
represented and warranted that the Property is the exclusive property of Horizon
and that Horizon has and retains all proprietary rights thereto except to the
extent otherwise provided herein. Except as otherwise specifically provided
herein, Horizon reserves all rights to the Property, and this Agreement shall
not be construed to transfer to Xxx Xxxxxx or the Trusts any ownership right to,
or equity interest in, any of the Property.
2. Fees. For the license granted herein, Xxx Xxxxxx, on behalf of the
Trusts, agrees that the Trusts shall pay Horizon the license fees set forth in
Exhibit B hereto.
3. Term. Subject to Section 7, the term of this Agreement shall commence
and continue as described in this Section. The term of this Agreement shall
commence as of the date set forth above (the "Effective Date") and shall remain
in full force and effect until the fifth anniversary of the Effective Date,
unless this Agreement is terminated earlier as provided herein (such term being
referred to as the "Initial Term"). At the end of the Initial Term, this
Agreement shall automatically renew for successive one-year periods (each, a
"Renewal Term") unless a party terminates the Agreement by providing the other
parties a written notice to that effect ninety (90) days prior to the end of the
then-current term. The Initial Term and the Renewal Term are referred to herein
as the "Term".
4. Exclusivity and Right of First Refusal. (a) Horizon covenants and agrees
that the licenses granted herein shall be Exclusive (as defined below) during
the period from the Effective Date until the two year anniversary thereof (the
"Initial Exclusivity Period"). This period shall be extended for additional
one-year periods (each one-year period being an "Extended Exclusivity Period")
if at the end of the Initial Exclusivity Period and, subsequent thereto, at the
end of an Extended Exclusivity Period, either (i) the asset balance of all
outstanding Trusts equals or exceeds $250 million or (ii) Xxx Xxxxxx pays
Horizon an up front annual minimum license fee with respect to each Extended
Exclusivity Period equal to (A) $62,500 plus (B) $62,500 minus two and one-half
basis points (0.025%) of the asset balance of all outstanding Trusts.
"Exclusive" as used herein shall mean that neither Horizon nor anyone acting on
its behalf shall take any action to market or promote any UIT based on the
MicroCap Strategy other than the Trusts or shall permit the use of any of the
Property in connection with the creation, marketing or promotion of any UIT
other than the Trusts. Except as provided in Section 4(b), nothing contained
herein shall limit the right of Horizon to sponsor, create, market or promote
any investment company (as defined in Section 3(a)(1) of the Investment Company
Act of 1940, as amended, disregarding the provisions of Sections 3(b) and 3(c)
thereof), other than a UIT.
(b) Horizon covenants and agrees that, during the Term of this
Agreement, neither Horizon nor anyone acting on its behalf shall be associated
or involved with anyone in connection with the creation, administration,
management, marketing or sale of any unit investment trust within the United
States unless Horizon shall have first promptly delivered a bona fide written
offer to Xxx Xxxxxx to act as sponsor, depositor, adviser, promoter, underwriter
or distributor of such a unit investment trust and Xxx Xxxxxx shall have failed
to provide a written acceptance of such offer to Horizon within 15 days after
receipt of such offer.
5. Assignment. Neither of the parties hereto may assign its respective
rights and obligations under this Agreement without the prior written consent of
the other party.
6. Relationship of the Parties. The parties understand and agree that this
Agreement shall not be deemed to create any partnership or joint venture between
Xxx Xxxxxx and Horizon, and that the services performed hereunder by Horizon
shall be as an independent contractor and not as an employee or agent of Xxx
Xxxxxx. Horizon shall have no authority whatsoever to bind Xxx Xxxxxx on any
agreement or obligation and Horizon agrees that it shall not hold itself out as
an employee or agent of Xxx Xxxxxx.
7. Termination. (a) Horizon may terminate this Agreement immediately upon a
material breach of any representation, warranty or covenant of Xxx Xxxxxx that
is not remedied within ten (10) business days after written notice.
(b) Xxx Xxxxxx may terminate this Agreement immediately upon a material
breach of any representation, warranty or covenant of Horizon that is not
remedied within ten (10) business days after written notice thereof.
(c) Horizon and Xxx Xxxxxx may terminate this Agreement at any time
upon the execution by each party of a written agreement to that effect.
Any termination under Section 7(a) or (b) shall not limit any other
remedies for breach the non-breaching party may have at law or in equity.
Notwithstanding any provision of this Agreement to the contrary, termination of
this Agreement shall not constitute termination of any Trust.
8. Confidentiality. (a) The parties agree that certain material and
information which has or may come into the possession or knowledge of each party
in connection with this Agreement or the performance hereof (e.g., proprietary
business information (including, without limitation, the names and addresses or
other personal information of customers, distributors, information providers and
suppliers)), consists of confidential and proprietary data whose disclosure to
or use by third parties would be damaging. In addition, a party may reasonably
designate, by notice in writing delivered to the other party, other information
as being confidential or a trade secret.
(b) All such proprietary or confidential information of each party
hereto shall be kept secret by the other party to the degree it keeps secret its
own confidential or proprietary information. Such information belonging to any
party shall not be disclosed by another party to its employees, officers,
agents, service providers or affiliates, except on a need-to-know basis, but may
be disclosed by such other party to State, Federal, or other governmental
agencies, authorities or courts as required by law or regulation, or upon their
order or request provided prompt notice of such order or request is given by
such other party to the party to which such information belongs, if such notice
is legally permitted.
(c) No information that would otherwise be proprietary or confidential
for purposes of this Agreement pursuant to subsections (a) or (b) above shall be
subject to the restrictions on disclosure imposed by this Section in the event
and to the extent that (i) such information is in, or becomes part of, the
public domain otherwise than through the fault of a party to which such
information does not belong, (ii) such information was known to such party prior
to the execution of this Agreement, or (iii) such information was revealed to
such party by a third person, and which the receiving party reasonably believes
has been obtained by such third person not in violation of any existing
confidentiality or non-disclosure agreement.
(d) Each party acknowledges and agrees that a breach of this Section
would cause a permanent and irreparable damage for which money damages would be
an inadequate remedy. Therefore, each party shall be entitled to seek equitable
relief (including injunction and specific performance) in the event of any
breach of the provisions of this Section, in addition to all other remedies
available to such party at law or in equity.
(e) The covenants set forth in this Section shall survive the
termination of this Agreement.
9. Covenants. During the period of this Agreement and for as long as any of
the Trusts remains outstanding, each of the parties agree to:
(a) comply with all codes, regulations and laws applicable to the
performance of its obligations under this Agreement and obtain or have obtained
all necessary permits, licenses and other authorizations necessary for such
performance and maintain its business reputation and good standing;
(b) take such other actions as the other parties hereto may reasonably
request to more effectively carry out its obligations under this Agreement; and
(c) do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations, including, but not by way of limitation,
obtaining all consents, approvals, and authorizations, required of such party in
connection with the consummation of the transactions contemplated by this
Agreement. No party shall take any action that would be expected to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect.
In addition, Horizon may not refer to Xxx Xxxxxx or any affiliates in
any kind of communications, whether oral, written or electronic, or otherwise,
and whether in a Horizon piece or in response to questions of the media or
others, without Xxx Xxxxxx'x prior written consent, except that Horizon may
state that it licenses the Property to the Trusts and may describe the services
provided under this Agreement to the extent that such services are described in
any Registration Statement or other publicly available materials produced by Xxx
Xxxxxx.
10. Indemnification. (a) In the event any claim is brought by any third
party against Horizon that relates to, arises out of or is based upon the
performance by Xxx Xxxxxx of its obligations hereunder, or the failure of Xxx
Xxxxxx, or any of Xxx Xxxxxx'x affiliates, as applicable, to comply with any
law, rule or regulation relating to the Trusts, Horizon, as applicable, shall
promptly notify Xxx Xxxxxx, and Xxx Xxxxxx shall defend such claim at Xxx
Xxxxxx'x expense and under Xxx Xxxxxx'x control. Xxx Xxxxxx shall indemnify and
hold harmless Horizon against any judgment, liability, loss, cost or damage
(including litigation costs and reasonable attorneys' fees) arising from or
related to such claim whether or not such claim is successful. Horizon shall
have the right, at its expense, to participate in the defense of such claim
through counsel of their own choosing; provided, however, that Xxx Xxxxxx shall
not be required to pay any settlement amount that it has not approved in
advance. Notwithstanding the above, Horizon shall not be entitled to
indemnification hereunder to the extent that the judgment, liability, loss, cost
or damage arising from a claim for which indemnification is sought hereunder
results directly or indirectly from the gross negligence or willful misconduct
of Horizon.
(b) In the event any claim is brought by any third party against Xxx
Xxxxxx, any of the Trusts, or any of Xxx Xxxxxx'x affiliates that relates to,
arises out of or is based upon the performance by Horizon of its respective
obligations hereunder, or the failure of Horizon to comply with any law, rule or
regulation, Xxx Xxxxxx, the Trusts, or Xxx Xxxxxx'x affiliates, as the case may
be, shall promptly notify Horizon and Horizon shall defend such claim at its
expense and under its control. Horizon shall indemnify and hold harmless Xxx
Xxxxxx, the Trusts, and Xxx Xxxxxx'x affiliates against any judgment, liability,
loss, cost or damage (including litigation costs and reasonable attorneys' fees)
arising from or related to such claim, whether or not such claim is successful.
Xxx Xxxxxx, the Trusts, or Xxx Xxxxxx'x affiliates, as the case may be, shall
have the right, at their expense, to participate in the defense of such claim
through counsel of their own choosing; provided, however, Horizon shall not be
required to pay any settlement amount that it has not approved in advance.
Notwithstanding the above, neither Xxx Xxxxxx, the Trusts, nor any of Xxx
Xxxxxx'x affiliates shall be entitled to indemnification hereunder to the extent
that the judgment, liability, loss, cost or damage arising from a claim for
which indemnification is sought hereunder results directly or indirectly from
the gross negligence or willful misconduct of Xxx Xxxxxx, the Trusts, or Xxx
Xxxxxx'x affiliates.
(c) The indemnifications set forth in this Section shall survive the
termination of this Agreement for any cause whatsoever.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
12. Waiver of Breach. The failure of any party to require the performance
of any term of this Agreement or the waiver of any party of any breach hereunder
shall not prevent a subsequent enforcement of such term nor be deemed a waiver
of any subsequent breach.
13. Scope of Agreement. This document constitutes the entire Agreement of
the parties with respect to the subject matter hereof, supersedes all prior oral
or written agreements, and can be amended only by a writing executed by all of
the parties.
14. Notices. All notices from any party to the other pursuant to this
Agreement shall be in writing or by facsimile transmission and shall be sent to
the following addresses, or to such addresses as the parties hereto may be
notified in writing from time to time:
If to Horizon:
Horizon Investment Services, LLC
0000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxxx
If to Xxx Xxxxxx:
0 Xxxxxxxx Xxxxx
X.X. Xxx 0000
Xxxxxxxx Xxxxxxx, XX 00000-0000
Attn: Xxxxx Xxxxxxx
With copy to :
Xxx Xxxxxx Investments Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attn: Office of the General Counsel
Notices shall be deemed given upon receipt via certified mail,
overnight courier, or hand delivery.
15. Severability. In the event that any provision of this Agreement or
application hereof to any person or in any circumstances shall be determined to
be invalid, unlawful, or unenforceable to any extent, the remainder of this
Agreement, and the application of any provision to persons or circumstances
other than those as to which it is determined to be unlawful, invalid or
enforceable, shall not be affected thereby, and each remaining provision of this
Agreement shall continue to be valid and may be enforced to the fullest extent
permitted by law.
16. Conflicts. In the event that any provision in this Agreement conflicts
in any way with the trust agreement governing a particular Trust, the provisions
of the trust agreement in respect thereof shall control.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed by a duly authorized representative thereof as of the
date first above written.
XXX XXXXXX FUNDS INC.
By
Name_____________________________________________________
Title____________________________________________________
HORIZON INVESTMENT SERVICES, LLC
By
Name_____________________________________________________
Title____________________________________________________
EXHIBIT A
MICROCAP STRATEGY
"MicroCap Strategy" means:
Beginning with the stocks in the Dow Xxxxx Select MicroCap Index, the
strategy excludes the bottom 2% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx Select MicroCap
Index from highest to lowest based on the following strategy screens:
o EBITDA Margin - Earnings before interest, taxes, depreciation and
amortization divided by sales.
o 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.
o 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.
o Operating Income Change Last Quarter - The difference between
operating income in the latest quarter and the year-earlier quarter.
o 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.
o 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.
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 Select MicroCap Index. The strategy ranks the
remaining stocks by total score and selects the top 50 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.
EXHIBIT B
LICENSE FEES
LICENSE FEES FOR TRUSTS THAT INVEST ONLY IN MICROCAP STRATEGY
In connection with a Trust that initially invests all of its assets in
securities selected in accordance with the MicroCap Strategy, Xxx Xxxxxx shall
pay license fees in accordance with the following:
During each Year (defined below) of the Term, Xxx Xxxxxx will provide
to Horizon a written report (each, a "Quarterly Report"), within 10 days after
the end of each Quarter (defined below), which sets forth (i) the asset balance
for the Trusts at such Quarter-end, and (ii) a calculation of the Rolling
Average Asset Balance (defined below) at such Quarter-end. Within 10 days after
the end of each Quarter during each Year of the Term, Xxx Xxxxxx will pay (each,
a "Quarterly Payment"), to Horizon, an amount equal to one-quarter of the Basis
Point Amount (defined below).
All amounts will be paid in cash or readily available funds and will be
non-refundable.
Definitions:
"Basis Point Amount" means, at any time during a Year, an amount equal
to ten (10) basis points (.10%) on the then 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.
"Rolling Average Asset Balance" means, at any Quarter-end during a
Year, the average assets in the Trusts in the aggregate for the month then ended
together with all previous months in such Year, calculated by adding the
month-end asset balances for the Trusts for such months and dividing the result
by the number of such months.
"Year" means a twelve-month period commencing on the Effective Date or
on any anniversary of the Effective Date.
LICENSE FEES FOR MULTI-STRATEGY TRUSTS
In connection with a Trust that initially invests a portion of its
assets (but not all of its assets) in securities selected in accordance with
MicroCap Strategy (a "Multi-Strategy Trust"), Xxx Xxxxxx shall pay license fees
in accordance with the following:
During each Year (defined below) of the Term, Xxx Xxxxxx will provide
to Horizon a written report (each, a "Multi-Strategy Trust Quarterly Report"),
within 10 days after the end of each Quarter (defined below), which sets forth
(i) the asset balance for the Multi-Strategy Trusts at such Quarter-end, and
(ii) a calculation of the Multi-Strategy Trust Rolling Average Asset Balance
(defined below) at such Quarter-end. Within 10 days after the end of each
Quarter during each Year of the Term, Xxx Xxxxxx will pay (each, a
"Multi-Strategy Trust Quarterly Payment"), to Horizon, an amount equal to
one-quarter of the Multi-Strategy Trust Basis Point Amount (defined below).
All amounts will be paid in cash or readily available funds and will be
non-refundable.
Definitions:
"Multi-Strategy Trust Basis Point Amount" means, at any time during a
Year, an amount equal to ten (10) basis points (.10%) on the then Multi-Strategy
Trust Rolling Average Asset Balance multiplied by the MicroCap Strategy Ratio.
"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.
"Multi-Strategy Trust Rolling Average Asset Balance" means, at any
Quarter-end during a Year, the average assets in the Multi-Strategy Trusts in
the aggregate for the month then ended together with all previous months in such
Year, calculated by adding the month-end asset balances for the Multi-Strategy
Trusts for such months and dividing the result by the number of such months.
"MicroCap Strategy Ratio" means the portion of the initial assets in a
Multi-Strategy Trust invested in accordance with the MicroCap Strategy as a
percentage of all assets in such Multi-Strategy Trust at the time of the
creation of such Multi-Strategy Trust.
"Year" means a twelve-month period commencing on the Effective Date or
on any anniversary of the Effective Date.
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" or
"Xxx Xxxxxx") (the "License Agreement"), as amended by Amendment No. 1 dated
December 1, 1999, Amendment No. 2 dated February 1, 2000, Amendment No. 3 dated
September 8, 2003 and Amendment No. 4 dated May 19, 2005, is made as of March 7,
2006 (the "Amendment No. 5 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 an "Additional Index Strategy") using the Dow Xxxxx U.S. Total Market
Indexes or the Dow Xxxxx Select MicroCap Index listed on Schedule B hereto (the
"Additional 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 Additional Index 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
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 Additional Index
Strategies to indicate that Dow Xxxxx is the source of the Additional Indexes
and as may otherwise be required by applicable laws, rules, regulations, court
orders or under the License Agreement.
2. Subject to the terms and conditions of the License Agreement, Dow Xxxxx
hereby grants to Licensee a further non-transferable non-exclusive license to
use the Dow Xxxxx Select MicroCap Index, and to use and refer to the service
marks "Dow JonesSM" and "Dow Xxxxx Select MicroCap IndexSM" (collectively, the
"Select MicroCap Marks"), in connection with the issuance, sale, marketing and
promotion of Products based on one or more an Additional Index Strategy and to
indicate that Dow Xxxxx is the source of the Dow Xxxxx Select MicroCap Index and
as may otherwise be required by applicable laws, rules, regulations, court
orders or under the License Agreement.
3. Index Data: (a) Dow Xxxxx shall use commercially reasonable efforts to
provide the Index Data (as defined in Schedule D hereto) to Licensee as set
forth therein. Licensee agrees that it shall use the Index Data for internal
purposes only (i.e., by Licensee's employees) solely in connection with the
license granted in Section 1 of this Amendment, except that Licensee may report
the values of Indexes in periodic reports to Licensee's customers so long as
such reports are not provided in connection with any information vending or
commercial publishing activity carried on by Licensee or any of its affiliates.
Except as otherwise expressly provided herein, Licensee shall not reproduce or
further transmit or distribute the Index Data for commercial purposes in any
type of format or by any means, including but not limited to the Internet,
Intranet or other type of network.
(b) CUSIP DATA. Licensee agrees and acknowledges that it has
been informed that the CUSIP Service, or any portion thereof that may be
included in the Index Data being provided to Licensee in connection herewith, is
and shall remain valuable intellectual property owned by, or licensed to, CUSIP
Service Bureau, Standard & Poor's ("CSB") and the American Bankers Association
("ABA"), and that no proprietary rights are being transferred to Licensee in
such materials or in any of the information contained therein under this
Agreement. Unless Licensee has a separate, written and effective agreement with
Standard & Poors for any CUSIP Service data included in the Index Data, Licensee
agrees that Licensee shall not publish or distribute in any medium the CUSIP
Service or any information contained therein, or any portion thereof that may be
included in the Index Data being provided to Licensee in connection herewith.
NEITHER CSB, ABA NOR ANY OF THEIR AFFILIATES MAKE ANY WARRANTIES, EXPRESS OR
IMPLIED, AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF ANY OF THE INFORMATION
CONTAINED IN THE CUSIP SERVICE OR THE CUSIP DATABASE, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE. IN NO EVENT SHALL THE CSB, ABA OR ANY OF THEIR AFFILIATES
PURSUANT TO ANY CAUSE OF ACTION HAVE ANY LIABILITY FOR ANY ERRORS OR OMISSIONS
IN THE CUSIP DATABASE NOR SHALL THEY BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT
OR INDIRECT, SPECIAL OR CONSEQUENTIAL RESULTING THEREFROM. Licensee acknowledges
that it may be required to obtain a license from CSB in connection with the
receipt of the CUSIP Service (or any portion thereof) in the Index Data.
Licensee shall be individually liable to CSB for any fees imposed by CSB in
connection with the receipt by Licensee of data from the CUSIP Service in
connection herewith.
(c) Dow Xxxxx will give Licensee reasonable prior written
notice of, and Licensee will be solely responsible to obtain and maintain, at
its own cost, all consents and licenses and make all filings necessary to
receive and/or use the Index Data, including consents of applicable Sources
(e.g., the London Stock Exchange with respect to SEDOL data) and shall certify
to Dow Xxxxx in writing receipt of the same upon Dow Xxxxx' request.
4. Except as otherwise expressly provided herein, all terms and conditions in
the License Agreement that apply to the Dow Xxxxx Industrial Average shall apply
equally to the Additional Indexes.
5. 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 and the Select MicroCap Marks.
6. 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 of the Additional Index Strategies.
7. Section 9(a) shall be amended to insert "or (iv) an Additional Index
Strategy" after "or (iii) a Strategy".
8. 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.
9. For the avoidance of doubt, (a) none of the Products authorized under the
License Agreement (as amended) may be listed for trading on an Organized
Securities Market. "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; and (b) the name of each of the Products shall be subject to
Dow Xxxxx'x prior written approval.
10. Except as expressly amended hereby, all provisions in the License
Agreement shall continue to remain in full force and effect.
11. 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
"Additional Index 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, Utilities Strategy and MicroCap 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.
"MicroCap Strategy" means:
Beginning with the stocks in the Dow Xxxxx Select MicroCap Index, the
strategy excludes the bottom 2% of stocks based on market capitalization. The
strategy then ranks each remaining company in the Dow Xxxxx Select MicroCap
Index from highest to lowest based on the following strategy screens:
o EBITDA Margin,
o Gross Margin,
o EPS Surprise Last Quarter,
o Operating Income Change Last Quarter.
o Total Return for the Past Six Months, and
o Price/Free Cash Flow Ratio,
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 Select MicroCap Index. The strategy ranks the
remaining stocks by total score and selects the top 50 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.
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.
EBITDA Margin - Earnings before interest, taxes, depreciation and amortization
("EBITDA") divided by sales.
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
THE ADDITIONAL INDEXES
1) 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
2) Dow Xxxxx Select MicroCap Index
SCHEDULE C
LICENSE FEES
I. Licensee shall pay license fees in accordance with the following with
respect to the Dow Xxxxx US Total Market Indexes:
1) Upon signing of this Amendment No. 5 and, during the Term, on each
anniversary of the Amendment No. 5 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 the Amendment No. 5 Effective Date or the anniversary
thereof, as the case may be (each, a "DJUSTMI Annual Minimum Payment").
2) 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 each of the Dow Xxxxx U.S.
Total Market Indexes (broken down by Index) 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.
Definitions:
"DJUSTMI Basis Point Amount" means, at any time during a Year, an amount equal
to two basis points (.0002) on the DJUSTMI Rolling Average Asset Balance.
"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).
"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.
"Year" means a twelve-month period commencing on the Amendment No. 5 Effective
Date or on any anniversary of the Amendment No. 5 Effective Date.
II. Licensee shall pay license fees in accordance with the following with
respect to the Dow Xxxxx Select MicroCap Index:
1) As of May 7, 2006 and, during the Term, on each anniversary of such date, the
Licensee will pay to Dow Xxxxx a flat annual minimum payment of $15,000 in
respect of the twelve-month period commencing on such date or the anniversary
thereof, as the case may be (each, a "DJ Select MicroCap Annual Minimum
Payment").
2) In addition, during each Year of the Term, the Licensee will provide to Dow
Xxxxx a written report (each, a "DJ Select MicroCap Quarterly Report"), within
10 days after the end of each Quarter, which sets forth (i) the asset balance
for each Product based on each of the Dow Xxxxx Select MicroCap Index at such
Quarter-end, and (ii) a calculation of the DJ Select MicroCap 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 " DJ Select MicroCap Quarterly Payment") to the Dow Xxxxx
affiliate designated by Dow Xxxxx an amount equal to one-quarter of the DJ
Select MicroCap 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 DJ Select MicroCap Annual Minimum Payment against the aggregate of
the DJ Select MicroCap Quarterly Payments for that year until such credit is
depleted. Licensee shall send the DJ Select MicroCap 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.
Definitions:
"DJ Select MicroCap Basis Point Amount" means, at any time during a Year, an
amount equal to five basis points (.0005) on the DJ Select MicroCap 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.
"DJ Select MicroCap Rolling Average Asset Balance" means, at any Quarter-end
during a Year, the average assets in the Products based on the Dow Xxxxx Select
MicroCap Index 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 May 7, 2006 or on any
anniversary of the such date.
III. 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.
SCHEDULE D
INDEX DATA
Subject to the terms and conditions of this License Agreement and payment of the
fees set forth on Schedule C to Amendment No. 5, 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) FTP 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 Additional
Indexes listed on Schedule B; (beta) Weightings of the Components; (beta)
Divisor of the Additional Indexes as of month-end (beta) Closing values of the
Additional Indexes as of month-end. (beta) Component market capitalization as of
month-end; (beta) Industry group classifications for the Components as of
month-end.
