Exhibit 2.2A
LICENSE AGREEMENT
THIS AGREEMENT, made as of this 7th day of March, 2006, by and between
Horizon Investment Services, LLC ("Horizon"), an Indiana limited liability
company, and ▇▇▇ ▇▇▇▇▇▇ Funds Inc. ("▇▇▇ ▇▇▇▇▇▇"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Horizon has developed each investment strategy set forth in
Exhibit A attached hereto (each an "Enhanced Sector Strategy");
WHEREAS, all proprietary rights to each Enhanced Sector Strategy and the
name "Horizon Investment Services" (collectively, the "Property") are owned by
Horizon;
WHEREAS, ▇▇▇ ▇▇▇▇▇▇ sponsors, underwrites and distributes a wide array of
unit investment trusts ("UITs");
WHEREAS, ▇▇▇ ▇▇▇▇▇▇ 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 one or more of the Enhanced Sector Strategies (the "Trusts");
WHEREAS, ▇▇▇ ▇▇▇▇▇▇, 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇
▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ and the
Trusts pursuant to this Agreement.
(d) ▇▇▇ ▇▇▇▇▇▇, 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 ▇▇▇ ▇▇▇▇▇▇ or the Trusts any ownership right to,
or equity interest in, any of the Property.
2. Fees. For the license granted herein, ▇▇▇ ▇▇▇▇▇▇, 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) ▇▇▇ ▇▇▇▇▇▇ 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 an
Enhanced Sector 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 ▇▇▇
▇▇▇▇▇▇ to act as sponsor, depositor, adviser, promoter, underwriter or
distributor of such a unit investment trust and ▇▇▇ ▇▇▇▇▇▇ 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
▇▇▇ ▇▇▇▇▇▇ and Horizon, and that the services performed hereunder by Horizon
shall be as an independent contractor and not as an employee or agent of ▇▇▇
▇▇▇▇▇▇. Horizon shall have no authority whatsoever to bind ▇▇▇ ▇▇▇▇▇▇ on any
agreement or obligation and Horizon agrees that it shall not hold itself out as
an employee or agent of ▇▇▇ ▇▇▇▇▇▇.
7. Termination. (a) Horizon may terminate this Agreement immediately upon a
material breach of any representation, warranty or covenant of ▇▇▇ ▇▇▇▇▇▇ that
is not remedied within ten (10) business days after written notice.
(b) ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇'▇ 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 ▇▇▇
▇▇▇▇▇▇.
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 ▇▇▇ ▇▇▇▇▇▇ of its obligations hereunder, or the failure of ▇▇▇
▇▇▇▇▇▇, or any of ▇▇▇ ▇▇▇▇▇▇'▇ affiliates, as applicable, to comply with any
law, rule or regulation relating to the Trusts, Horizon, as applicable, shall
promptly notify ▇▇▇ ▇▇▇▇▇▇, and ▇▇▇ ▇▇▇▇▇▇ shall defend such claim at ▇▇▇
▇▇▇▇▇▇'▇ expense and under ▇▇▇ ▇▇▇▇▇▇'▇ control. ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇
▇▇▇▇▇▇, any of the Trusts, or any of ▇▇▇ ▇▇▇▇▇▇'▇ 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, ▇▇▇ ▇▇▇▇▇▇, the Trusts, or ▇▇▇ ▇▇▇▇▇▇'▇ 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 ▇▇▇
▇▇▇▇▇▇, the Trusts, and ▇▇▇ ▇▇▇▇▇▇'▇ 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.
▇▇▇ ▇▇▇▇▇▇, the Trusts, or ▇▇▇ ▇▇▇▇▇▇'▇ 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 ▇▇▇ ▇▇▇▇▇▇, the Trusts, nor any of ▇▇▇
▇▇▇▇▇▇'▇ 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 ▇▇▇ ▇▇▇▇▇▇, the Trusts, or ▇▇▇
▇▇▇▇▇▇'▇ 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
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
If to ▇▇▇ ▇▇▇▇▇▇:
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With copy to :
▇▇▇ ▇▇▇▇▇▇ Investments Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
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.
▇▇▇ ▇▇▇▇▇▇ FUNDS INC.
By
Name___________________________________
Title__________________________________
HORIZON INVESTMENT SERVICES, LLC
By
Name___________________________________
Title__________________________________
EXHIBIT A
ENHANCED SECTOR STRATEGIES
"Enhanced Sector Strategy" means 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, all as defined below:
"Basic Materials Strategy" means:
Beginning with the stocks in the Dow ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇ ▇▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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 ▇▇▇▇▇ 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.
EXHIBIT B
LICENSE FEES
LICENSE FEES FOR TRUSTS THAT INVEST ONLY IN ENHANCED SECTOR STRATEGIES
In connection with a Trust that initially invests all of its assets in
securities selected in accordance with one or more of the Enhanced Sector
Strategies, ▇▇▇ ▇▇▇▇▇▇ shall pay license fees in accordance with the following:
During each Year (defined below) of the Term, ▇▇▇ ▇▇▇▇▇▇ 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, ▇▇▇ ▇▇▇▇▇▇ 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 one or
more of the Enhanced Sector Strategies (a "Multi-Strategy Trust"), ▇▇▇ ▇▇▇▇▇▇
shall pay license fees in accordance with the following:
During each Year (defined below) of the Term, ▇▇▇ ▇▇▇▇▇▇ 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, ▇▇▇ ▇▇▇▇▇▇ 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 Enhanced Sector 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.
"Enhanced Sector Strategy Ratio" means the portion of the initial assets in a
Multi-Strategy Trust invested in accordance with one or more of the Enhanced
Sector Strategies 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.
