Exhibit 10.5
Date: November 15, 2004
To: Aegis Assessments, Inc.
From: Cogent Capital Corp.
SUBJECT: EQUITY SWAP TRANSACTION
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The purpose of this communication is to set forth the terms and conditions
of the Swap transaction entered into on the Trade Date referred to below (the
"Swap Transaction"), between Cogent Capital Corp., a Utah corporation ("Cogent"
or "we") and Aegis Assessments, Inc., a Delaware corporation ("Aegis
Assessments" or "you"). This communication constitutes a "Confirmation" as
referred to in the ISDA Master Agreement specified below.
This Confirmation incorporates the definitions and provisions contained in
the 2002 ISDA Equity Derivatives Definitions as published by the International
Swaps and Derivatives Association, Inc. (the "Equity Definitions"). In the event
of any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation will supplement, form a part of, and be subject to the
ISDA Master Agreement dated as of November 15, 2004 between Aegis Assessments
and Cogent (the "Master Agreement"). All provisions contained in, or
incorporated by reference to, the Master Agreement shall govern this
Confirmation except as expressly modified below. In the event of any
inconsistency between the provisions of that Master Agreement and this
Confirmation, this Confirmation shall prevail for the purpose of this Swap
Transaction. In addition, this Confirmation shall itself evidence a complete and
binding agreement between you and us as to the terms and conditions of the Swap
Transaction to which this Confirmation relates.
Cogent and Aegis Assessments each represents that entering into the Swap
Transaction is authorized and does not violate any laws of its jurisdiction of
organization or residence or the terms of any agreement to which it is a party.
Cogent and Aegis Assessments each represents that (i) it is not relying on the
other party in connection with its decision to enter into this Swap Transaction,
and neither party is acting as an advisor or fiduciary of the other party in
connection with this Swap Transaction regardless of whether the other party
provides it with market information or its views; (ii) it understands the risks
of the Swap Transaction and any legal, regulatory, tax, accounting and economic
consequences resulting therefrom; and (iii) it has determined based upon its own
judgment and upon any advice received from its own professional advisors as it
has deemed necessary to consult that entering into the Swap Transaction is
appropriate for such party in light of its financial capabilities and
objectives.
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2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
General Terms:
Trade Date: November 15, 2004
Effective Date: November 15, 2004
Termination Date: The earlier of: (i) April 29, 2008 and (ii) the
30th day after the Calculation Agent has
determined that the Resale Condition (as defined
below) has been satisfied with respect
to all 4,000,000 of the Equity Shares (as defined
below) or, if such day is not an Exchange
Business Day, the first Exchange Business Day
thereafter; provided that, if the
Equity Option (as defined below) is exercised,
then the Termination Date shall be the Expiration
Date of the Equity Option.
Shares: Aegis Assessments, Inc. common shares ("AEGIS
ASSESSMENTS") CUSIP number ___________
Exchange: The primary exchange on which the shares are
traded
Related Exchange(s): The primary exchange on which listed options or
futures on the Shares are traded.
Knock-in Event: Applicable. The "Knock-in Event" shall occur at
the time that the disbursements contemplated by
Section 2 of the Escrow Agreement (as defined in
the Schedule to the Master Agreement) have been
completed, but only if such disbursements are
completed on or before the Knock-in
Determination Day.
Knock-in Determination Day: November 30, 2004
Knock-out Event: Applicable. The "Knock-out Event" shall occur if
the equity option evidenced by the Confirmation,
dated November 15, 2004, between Aegis
Assessments and Cogent (the "Equity Option") is
exercised by Aegis Assessments.
Knock-out Price: The "Knock-Out Price" shall equal the Final
Price as of the Termination Date (which shall be
the Expiration Date of the Equity Option) and
shall be determined in the manner provided below
(including the use of Averaging as specified
below).
Knock-out Reference Security: Aegis Assessments, Inc. common shares
("AEGIS ASSESSMENTS")
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Knock-out Determination Day(s): October 10, 2006
Knock-out Valuation Time: The closing time on the Exchange
Equity Amounts payable by Cogent
Equity Amount Payer: Cogent
Equity Amount Receiver: Counterparty
Equity Amount: An amount determined by the
Calculation Agent as
of the Valuation Time on the
Valuation Date equal to the
product of the Equity Notional
Amount as of the day and the
Rate of Return, provided that, if
the Equity Amount is a negative
number, then the Equity Amount
Receiver will pay (in addition to
any other amounts payable by the
Equity Amount Receiver) to the
Equity Amount Payer the absolute
value of the Equity Amount on the
Termination Date.
Number of Shares: 3,200,000 (subject to reduction as
provided below)
Equity Notional Amount: Number of Shares multiplied by the
Initial Price
Equity Notional Reset: Inapplicable
Type of Return: Price Return
Initial Price: $1.5625 per Share
Final Price: For any Valuation Date, the average
of the Relevant Prices
for the Averaging Dates relating to
that Valuation Date.
Valuation Time: The closing time on the Exchange
Valuation Date: The Termination Date
Averaging Dates: For any Valuation Date, the ten
trading days up to and
including that Valuation Date
Averaging Date Disruption: Modified Postponement
Relevant Price: For each Averaging Date, the average
of the bid and ask
price per Share as determined by the
Calculation Agent at
the Valuation Time on that Averaging
Date.
Floating Amounts payable by Counterparty:
Floating Amount Payer: Counterparty
Notional Amount: The Equity Notional Amount
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Payment Dates: Each monthly anniversary of the
Trade Date prior to the
Termination Date, and the
Termination Date
Floating Rate Option: USD-LIBOR-BBA-2yr
Spread: 0.2%
Floating Rate Day Count Fraction: Actual/360
Reset Dates: Valuation Dates
Initial Exchange Amount payable by Counterparty:
Counterparty Initial $50,000
Exchange Amount:
Counterparty Initial
Exchange Date: November 30, 2004 or completion of Knock-In
Event whichever is earlier.
Other Terms:
Adjustment of
Number of Shares: If no Knock-out Event has occurred and the
Equity Option has expired, and this
Transaction has not been otherwise
terminated, the Number of Shares shall be
reduced as follows:
(i) If on the day occurring 27 months after the Trade Date,
the Resale Condition (as defined below) is then
satisfied with respect to not less than 1,333,333 of
the Equity Shares (as defined below), the Number of
Shares shall be reduced to 2,666,667 shares on the
first Exchange Business Day thereafter, or, in the
alternative,
(ii) If on the day occurring 30 months after the Trade Date,
the Resale Condition is then satisfied with respect to
not less than 1,866,667 Equity Shares, the Number of
Shares shall be reduced to 2,133,333 shares on the
first Exchange Business Day thereafter,
(iii) If on the day occurring 33 months after the Trade
Date, the Resale Condition is then satisfied with
respect to not less than 2,400,000 Equity Shares, the
Number of Shares shall be reduced to 1,600,000 shares
on the first Exchange Business Day thereafter,
(iv) If on the day occurring 36 months after the Trade Date,
the Resale Condition is then satisfied with respect to
not less than 2,933,333 Equity Shares, the Number of
Shares shall be reduced to 1,066,667 shares on the
first Exchange Business Day thereafter, and
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(v) If on the day occurring 39 months after the Trade Date,
the Resale Condition is then satisfied with respect to
not less than 3,466,667 Equity Shares, the Number of
Shares shall be reduced to 533,333 shares on the first
Exchange Business Day thereafter.
The "Resale Condition" shall be deemed satisfied as of any
day with respect to the number of Equity Shares that,
as of such day, are then subject to an effective resale
registration statement under the Securities Act of
1933, as amended, with the holders of such shares being
named therein as selling shareholders or fully eligible
for resale under paragraph (k) of Rule 144 adopted
under the Securities Act of 1933.
"Equity Shares" mean the shares originally purchased under
the Subscription Agreements dated November 15, 2004
(the "Equity Shares") between Aegis Assessments and the
investors named therein.
Settlement Terms:
Cash Settlement: Applicable
Settlement Currency: USD
Cash Settlement Payment Date: USD Currency Business Days after the
relevant Valuation Date
Settlement Method Election: Not Applicable
Default Settlement Method: Cash Settlement
Adjustments:
Method of Adjustment: Calculation Agent Adjustment
Extraordinary Events:
Consequences of Merger Events:
Share-for-Share: Calculation Agent Adjustment
Share-for-Other: Calculation Agent Adjustment
Share-for-Combined: Calculation Agent Adjustment
Determining Party: Cogent
Tender Offer: Applicable
Consequences of Tender Offers:
Share-for-Share: Calculation Agent Adjustment
Share-for-Other: Calculation Agent Adjustment
Share-for-Combined: Component Adjustment
Determining Party: Cogent
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Composition of Combined Consideration: Applicable
Nationalization, Insolvency or Delisting: Negotiated Close-out
Determining Party: Cogent
Additional Disruption Events:
Change in Law: Applicable
Failure to Deliver: Applicable
Insolvency Filing: Applicable
Determining Party: Cogent
Non-Reliance: Applicable
Agreements and Acknowledgments
Regarding Hedging Activities: Not Applicable
Additional Acknowledgments: Applicable
4. Credit Support Annex:
For purposes of Paragraph 13 of the Credit Support Annex to the Master
Agreement, the "Independent Amount" for this Transaction shall equal the Equity
Notional Amount.
5. Additional Termination Events:
The parties agree that, for purposes of the Master Agreement, an
"Additional Termination Event" shall occur if the Resale Condition has not been
satisfied with respect to all 4,000,000 of the Equity Shares by no later than
April 10, 2008; and for purposes of that Additional Termination Event, Aegis
Assessments shall be the sole Affected Party.
6. Calculation Agent: Cogent
7. Account Details:
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Account for payments to Cogent: To be provided.
Account for payments to Aegis Assessments: To be provided.
8. Relationship between the parties:
(a) Except as expressly provided herein, each party acknowledges that in
connection with entering into this Transaction, it has not entered
into any agreements, arrangements or understandings with the other
party or any related entity of such party in relation to timing or
manner of any acquisition or disposal of any Shares, the voting rights
attaching to any Shares or the management of the Issuer.
9. Governing Law: the laws of the State of New York (without reference to choice
of law doctrine).
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us by facsimile at (801) 576-0583.
Yours sincerely,
Cogent Capital Corp.
By: /s/Gregory L. Kofford
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Gregory L. Kofford
President
Confirmed as of the date first above written:
Aegis Assessments, Inc.
By: /s/Eric D. Johnson
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Eric D. Johnson
CEO
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