EX-10.5 6 a4845871ex105.txt EXHIBIT 10.5 Exhibit 10.5 Date: November 15, 2004 To: Aegis Assessments, Inc. From: Cogent Capital Corp. SUBJECT: EQUITY SWAP TRANSACTION -------------------------------- 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. 1 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") 2 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 3 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 4 (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 5 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: 6 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 ---------------------- Gregory L. Kofford President Confirmed as of the date first above written: Aegis Assessments, Inc. By: /s/Eric D. Johnson ------------------ Eric D. Johnson CEO 7