THE CUSTOMER VALUE INDEX:

Customer Engagement, Social Media and the New

Paradigm in Long-Term Value Creation

THE PORTER GROUP, LLC

261 MADISON AVENUE, 10TH FLOOR

NEW YORK, NY 10016

646-561-1657

Starting from Peter Drucker’s 1973 insight that “the only valid purpose of a firm is to create a customer,” firms are now facing a marketplace of intense global competition where the Internet has shifted power from seller to buyer. The re-sult is that the true bottom line of today’s corporations is whether it is delighting its customers by providing a continu-ous stream of additional value and delivering it sooner.

From an article on Forbes.com June 28, 2012 from Peter Denning: ex-director of knowledge management at the World Bank, author of 6 business management books and consultant to companies world wide.

T H E P O R T E R G R O U P , L L CCAPITALISM . . . TRANSFORMED

The Porter Group / Brady Cap ital Research / wRat ings

Executive Summary:

Introduction:Often we hear Wall Street analysts talk about "fundamental" analysis. Unlike the way in which that term has been defined in the past, in today’s markets it has become synonymous with company-level financial analysis. This process by its very nature is a "downstream" view, or lagging indica-tor of a company’s ability to create future cash flow. Our analysis looks at something much more...fundamental if you will - a company’s ability to create authentic, engaging, long-term and emotional relationships with customers - and management's consistent ability to do so in an eco-nomically profitable manner.  We believe this is an “upstream” cue or leading indicator of sustain-able cash flow creation.  Managing the customer portfolio has always been a fundamental compo-nent of any company’s ability to create future cash flow. Now, as Roger Martin, Dean of the Rot-man School of Management at the University of Toronto points out in his 2010 HBR article, The Age of Customer Capitalism1, we are experiencing a dramatic shift of power in the marketplace from seller to buyer. Social media is accelerating this shift. As companies recognize this and look for ways to continually build and deepen the customer relationship, social media is also supercharg-ing the efforts of the most customer-centric organizations. Allowing the best to get even better. This added transparency also creates an important listening post investors can use to peer into the conversations and uncover those companies that excel at creating authentic customer engagement.

The Customer Value Index℠ (CVI) is based on the notion that companies best positioned to outper-form in today’s turbulent markets are those that create exceptional value for customers by operating with a sense of authenticity, transparency, empathy and societal purpose. They are developing “So-cial Capital”, creating strong emotional, less transactional relationships with customers. This emo-tional bond is the key driver of customer loyalty, which in turn is the key driver for increasing the annuity value of their relationship with customers.

We believe those companies best able to exploit this reality will see an explosion of, and an in-creased connection between, social capital, competitive performance and stock price performance. Social media-fueled customer engagement is changing the underlying risk and growth profiles of companies and accelerating the value creation and erosion process. As a result, investors need to start looking beyond traditional quantitative analytical and valuation metrics and include more qualitative cues to a company’s ability to create future cash flow.

The Blue Ocean of Alpha: Intangible AssetsAccording to the most recent study by the merchant bank Ocean Tomo, intangible assets accounted for 80% of the value of the S&P 500 in 2010. Yet most investment analysis is focused on the 20% of company value represented in financial statements. All companies have an ecosystem of intangi-ble assets that helps to explain this increasing gap between book value and market value:

• Those companies with the most highly engaged employees are known to consistently outperform their less engaged peers in shareholder return2;

• Companies rated as highly innovative have been shown to outperform the S&P 500 index by in excess of 40% over time3;

• Companies adept at managing all their intangible assets have posted significant returns in excess of the broad markets over long periods4.

However in the realm of intangible assets we believe customer relationships are king. It is rela-tively indisputable that for most businesses, future cash flow is entirely dependent on having cus-

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tomers who will continue to buy your products, and the company’s ability to service those custom-ers in an economically profitable manner. While most investment managers wage a bloody fight for alpha in the red waters of physical and financial assets, the Customer Value Index℠ allows inves-tors to access a relatively unchartered approach to assessing the most important intangible asset - engaged, loyal and economically profitable customers - helping to uncover this powerful upstream predictor of sustainable cash-flow creation, long-term value and investment alpha. The Investment Thesis:Our investment thesis rests upon the essential ideas:

1. The unassailable importance of the customer’s perception of value when interacting with com-panies and brands.

2. The notion that social media has the ability to accelerate the value creation process for customer-centric companies and,

3. The consistency with which management at these companies engage customers while achieving healthy levels of economic profit.

Companies that excel in these three areas are able to lower their risk profile and to employ their core customer engagement capability as a growth catalyst in terms of expanding existing revenue, uncovering new sources of revenue and launching new concepts and new geographic markets. From a DCF (Discounted Cash Flow) perspective, as a result of better risk management and oppor-tunity identification, the simultaneous decrease in a company’s assumed discount rate and increase in its expected growth rate could lead to a positive multiplier effect and expansion in its value.

Customer Value Assessment Methodology℠The CVI 200℠ is a hybrid quant / fundamental strategy. We perform a quantitative, algorithm-based analysis of the strength of customer relationships enhanced with a statistical analysis of customer interactions.  Much like the sabermetrics movement in baseball, the statistics we quantify about customer value, social capital and how these translate into potential future cash flow have always been available; until now no one has bothered to track them or build an analytical system to do so, we have.  Our process allows us to objectively convert customer data into meaningful analytics on whether a company is becoming more competitive or less competitive. We blend this with an his-toric examination of the management teams ability to deliver economic -  as opposed to accounting profitability - to select a basket of stocks that have measurable characteristics, historically indicative of companies that consistently outperform their competitors.

The Customer Value Assessment Methodology℠ identifies the leading customer engagement com-panies through the following three-tier process:

1. Competitive Strength and Social Strength Screening Competitive Strength is our measure of how well a company is meeting their customers’ ex-

pectations in combination with a history of generating economic profit. Social Strength high-lights the companies with the greatest potential to build “social capital” through authentic customer engagement. Using a patented customer research methodology, we are able to iden-tify companies with the highest levels of competitive strength by measuring customer expec-tations and experiences regarding a series of functional (12) and emotional (5) needs, and how those needs are being met by the companies in our universe at the point of sale. Through a proprietary back-tested algorithm we’ve identified the subset of 9 of the 17 customer needs most closely correlated with social strength. For the CVI 200℠ we start with the 2,000 plus companies with a market capitalization of over $1 billion that trade on the NASDAQ, NYSE

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and Toronto Stock Exchange. Through analysis of the perceived value as experienced by our customer and executive panel base of more than 200,000 respondents in 40 countries, this investable universe is narrowed down to 435 companies that are generating above average Competitive and Social Strength.

2. Social Attributes Assessment℠ Our proprietary Social Attributes Assessment℠ acts as a listening post to measure the quality

with which companies are using social media to enhance customer relationships, organizational culture and community connections. It is based on a Likert Scale of 30 social “attributes” that seek to measure the organization’s levels of authenticity, engagement and transparency. Using a weighted average of these three primary social attributes the investable universe is screened down to 263 companies with an above average (50%) Social Attributes score.

3. Ranking by Social Capital Score℠ In order to select the CVI 200℠, we combine the Strength analysis with the Social Attributes

Assessment to arrive at our proprietary Social Capital Score℠ . This ranks the final list of companies based on how well they are generating economic profit through customer engage-ment and a business built on broader social purpose.

Summary:

The Customer Value Index℠ is a researched-based analysis bringing together a portfolio of compa-nies whose risk profile and growth potential are positively impacted by the following characteris-tics: • Strong customer moat barriers helping to deliver competitive advantage.• Authentic use of social media enhancing engagement and further strengthening customer rela-

tionships.• A broad sense of societal purpose.• Long-term history of exceptional ROIC and economic profitability.

On a back-dated basis, the CVI 200℠ outperformed the S&P 500 Index since the beginning of 2007, generating a 10.7% annualized rate of return (compared to -0.7% for the S&P 500). Please note that historical performance is not indicative of future performance. Since live calcula-tion of the Index began on November 15, 2012, the CVI 200 is up 11.2% versus 8.6% for the S&P 500, an outperformance of 260 basis points over the two-month period.

Representative Indices:

The Customer Value Index 200℠ is a rules-based, equal-weighted Index that is calculated on a daily basis by Structured Solutions, AG, a leading global index provider based in Frankfurt, Ger-many. To be included in the Index, a company must trade on a U.S. or Canadian exchange and have a market capitalization of at least $1 billion. Relative to the S&P 500, the Index is over-weight small-to-mid cap growth-oriented companies operating in the consumer and infor-mation technology sectors. The Index is rebalanced on a monthly basis and includes leading

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companies such as Starbucks (SBUX-NASDAQ), Chipotle Mexican Grill (CMG-NYSE), and Whole Foods Market (WFM-NASDAQ).

Investors can discover more about the CVI 200 at the Index’s website, www.cvi200.com

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Customer Value Index 200 Portfolio Metrics

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Market Cap Breakdown1 Market Cap Comparison to S&P 5001

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1: Source: Bloomberg as of 11/26/2012

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Customer Value Index 200 Portfolio Metrics (cont.):

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Stock Style Diversification Top 10 Holdings (by market cap)1

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1: Source: Bloomberg as of 11/26/2012

The CVI Team:The CVI Methodology has been developed in a joint venture between The Porter Group, LLC, Brady Capital Research and wRatings Corp.

Jeff Cherry: CEO and Managing Partner, The Porter Group, LLC:As a CEO, hedge fund manager, designer, entrepreneur, educator, mentor and consultant Mr. Cherry has a diverse and unique career spanning more than 25 years of executive leadership. During his time as an executive and business consultant Jeff has developed significant expertise in a broad range of operational disciplines and industries including: technology, design and con-struction, finance, hospitality and professional services.

As a thought leader in the areas of stakeholder management and the emerging discipline of Conscious Capitalism®, Jeff had the honor of consulting with authors David Wolfe and Raj Sisodia on their 2007 book Firms of Endearment, How World Class Com-panies Profit from Passion and Purpose. Jeff later expanded on the concepts of Conscious Capitalism® to form Concinnity Advi-sors, a registered investment advisory firm focused on identifying and investing in companies operating from a more holistic, long-term value mindset. Prior to forming Concinnity Advisors Jeff was the co-head of research for Multi-stakeholder invest-ment strategies for a multi-billion dollar hedge fund based in Stamford, CT. Prior to that Jeff spent 20 years as founder and CEO of Lloyd Lamont Design, Inc. a multi-faceted management, architecture and technology consulting firm, which was named one of the fastest growing privately held companies by Inc. Magazine in 1997..

Jeff is currently a member of the Society of Human Resources Management, ANSI Investor Metrics Workgroup and has just fin-ished writing a chapter on how institutional investors can help bring about changes in corporate behavior for a book on catalyzing Conscious Capitalism® to be compiled and edited by the authors of Firms of Endearment.

Gary A. Williams: CEO, wRatings Corp:Gary is a pioneer in the area of customer research. For more than 20 years, he has served as an advisor to investors, CEO’s and senior executives around the world. A recognized authority and speaker on competitive strength, he has been honored for his strategic insights and uncanny ability to interpret data.

In 1998, Gary co-founded Miller-Williams Inc., a research firm dedicated to measuring market movements based on customer behavior. He built the patented strategic profiling research method through extensive field studies and academic interviews with authorities in behavioral psychology and statistics. In 2004, he extended the research system to correlate customer pricing power with financial metrics that identify whether a company has built a competitive advantage.

Through this system, Gary and his research team study competitive strength of market-leading companies across all sectors of the global economy. They build comprehensive market models based on customer expectations, and are then able to measure how well companies are meeting those expectations. Using insights from this extensive database of successful strategies, he provides advisory services to many public equity investment managers and business leaders.

In May 2002, his research was featured as the cover article of Harvard Business Review, Change The Way You Persuade. Gary’s first book, The 5 Paths to Persuasion (Warner Business Books 2004), has been translated into seven languages and was voted by Fast Company readers as book of the month in July 2004. His upcoming book, Moat Makers™, details how companies today – and hundreds of years ago – built superior levels of economic profits by focusing on nine sources of competitive advantage.

Barbara Gray, CFA: Founder, Brady Capital Research (BCR):Barbara’s career in financial services spans more than 18 years. She is an Equity Analyst who achieved All-Star Analyst ranking in the Brendan Wood international survey of equity analysts for four consecutive years. She was noted for the quality of her ideas, top number of written reports, and level of personal service.

Barbara founded BCR, a qualitative-oriented investment research platform, to pursue her Social Capital investment thesis and focus on companies with a greater purpose. She has a passion for developing new ways for investors to look at and value compa-nies. Barbara’s years of sell-side equity research experience span a wide variety of sectors (consumer, industrial, natural re-sources). She started her career at Equity Research Associates in Vancouver, B.C. and has worked on the Oil and Gas team at HSBC and the North American Auto team at Deutsche Bank Securities in NY.

Recently Barbara has been developing analytical models focused on uncovering how social media is changing the nature of com-panies’ relationships with stakeholders. As customers, employees, suppliers and communities interact with companies and each other, the resulting “social capital” being created (or destroyed) is having a profound impact on the underlying risk and growth profiles of companies in every industry.

Barbara earned her CFA (Chartered Financial Analyst) designation in 1997.

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Notes:An investor cannot invest directly in an index. Returns reflect past performance of the Index and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Index returns do not represent Fund returns. The Index does not charge management fees or bro-kerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.

General:“S&P Index Annual Returns” means the total returns for the S&P 500 Index“S&P 500 Index” means the Standard and Poor’s 500 Composite IndexThe CVI 200℠ metrics and returns were calculated based on those companies selected by The Porter Group, LLC, Brady Capital Research and wRatings using the Customer Value Assessment Methodology℠ with initial selections being made as of June 29, 2012

End Notes:

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1Roger Martin. “The Age of Customer Capitalism” The Harvard Business Review,, January - February 2010

2 According to a 2009 study by the integrated human resources firm Kenexa the companies with the highest levels of employee engagement had five times the total shareholder returns over five years than the least engaged companies (American Express Open Forum, March 2012)

3 A study by the USC Marshall Center for Global Innovation along with Imperial College London found that between 2004 and 2008, portfolios comprised of the most innovative companies substantially outperform the S&P. Posting a cumulative return 46% above the S&P in concurrent years. (Eisingerich, Andreas (2010, April 14). Index of Innovative Companies: Predicting Stock Market Performance. SciTopics. Retrieved June 27, 2012, from http://www.scitopics.com/Index_of_Innovative_Companies_Predicting_Stock_Market_Performance.html)

4 Companies ranking in the top 10% of 2843 tracked in the Steel City Re, Intangible Asset Management Index (IAMI) returned 19% to shareholders in a 28–month period ending February 2008. Those in the bottom 25% lost 29%. The median return for the broad market, excluding dividends was –4%. The intangible asset man-agement index defines intangible assets as comprising business processes, patents, trademarks, reputation for ethics and integrity, quality, safety, sustainability, secu-rity, and resilience.