CASPIAN SERVICES INC. SECURED NON-NEGOTIABLE PROMISSORY NOTE Due September 30, 2014 (this Note)

 

 

 Due September 30, 2014 (this “Note”)

 

FOR VALUE RECEIVED, the undersigned, CASPIAN SERVICES, INC. (the “Issuer”), a Nevada corporation, hereby promises to pay to the order of BAKHYTBEK BAISEITOV (the “Initial Holder”) or his permitted registered assigns, on the Maturity Date, (capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in Section 8 hereof, or if not defined in Section 8 hereof, shall have the meanings set forth in the Loan Consolidation and Restructuring Agreement between Caspian Services, Inc. and Bakhytbek Baiseitov dated July 31, 2011, as amended September 30, 2011) the principal sum of TEN MILLION EIGHT HUNDRED THOUSAND DOLLARS ($10,800,000) as provided herein.

 

1. Payment of Principal and Interest.  

 

 

 

 

3. Transfers.

 

 

 

4. Affirmative Covenants.  For so long as this Note remains outstanding and any portion of the principal hereof or any interest hereon remains unpaid:

 

(a) Information Rights.  The Issuer shall furnish the Holder in form satisfactory to the Holder:

 

 

 

 

(iii) as soon as available and in any event at least thirty (30) days prior to the beginning of each fiscal year commencing with the fiscal year beginning October 1, 2011, an annual operating and capital budget for the Issuer and its Subsidiaries;  and

 

 

 

 

 

 

 

(i) any Event of Default, or of the occurrence of any event which, with the passage of time and/or giving of notice, would constitute an Event of Default;

 

 

 

 

(f) Compliance with Laws, Permits and Agreements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(g) Board Members.  Increase the number of members on the Issuer’s Board of Directors to greater than seven  (7).

 

 

 

 

6. Events of Default.

 

 

 

 

(iii) the Issuer breaches or fails to perform or observe any of the covenants or obligations contained in Section 5 hereof;

 

 

 

 

then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Holder shall by written notice to the Issuer, take any or all of the following actions, without prejudice to the rights of the Holder to enforce its claims against the Issuer or any of its Subsidiaries (provided that, if an Event of Default specified in Section 6(a)(ii) hereof shall occur, the result which would occur upon the giving of written notice by the Holder as specified in clause (A) below shall occur automatically without the giving of any such notice): (A) declare the principal of and any accrued interest in respect of this Note be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Issuer; (B) direct the Issuer to pay (and the Issuer agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 6(a)(ii) hereof, it will pay) to the Holder such additional amount of cash or cash equivalents, to be held as security by the Issuer, as is equal to the aggregate principal and accrued interest then outstanding under this Note; and (C) enforce all of the Liens and security interests created pursuant to the Transaction Documents.

 

 

 

 

7. Miscellaneous.  (a) Governing Law.

 

 

 

if to the Issuer, to:

 

CASPIAN SERVICES INC.

257 East 200 South, Suite 490

Salt Lake City, Utah 84111

Attention: Alexey Kotov, President

Facsimile:   ###-###-####

if to the Initial Holder, to:

Bakhytbek Baiseitov

291/21 Dostyk Avenue

050020 Almaty,

Kazakhstan

Facsimile:   +7 727 387 08 24

 

Any Person may change the address to which notice to it, or copies thereof, shall be addressed, by giving notice thereof to the other Person in conformity with this Section 7(b).

 

 

 

8. Definitions.  For the purposes of this Note, the following terms shall have the following meanings:

 

 

 

“Business Day” shall mean any day except a Saturday, a Sunday or a day on which banks located in Salt Lake City, Utah shall be authorized or required by Law to close.

 

“Capitalized Lease Obligations” shall mean, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as Indebtedness in accordance with such principles.

 

 “Closing Date” shall have the meaning assigned to that term in the Loan Consolidation and Restructuring Agreement.

 

“Common Stock” shall mean the Issuer’s common shares, $0.001 par value.

 

 

“Company Stock” shall mean the Common Stock and all other authorized capital stock of the Issuer, including all classes and series of common, preferred, voting and nonvoting capital stock.

 

“Contingent Obligation” shall mean, as to any Person, any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

 

 “Dividend” shall mean, with respect to any Person, the declaration or payment by such Person of a dividend, distribution or return of any equity capital to its stockholders, partners or members or authorization or making of any other distribution, payment or delivery of property (other than common equity interests of such Person) or cash to its stockholders, partners or members in their capacity as such, or redemption, retirement, purchase or other acquisition, directly or indirectly, for a consideration of any shares of any class of its capital stock or any other equity interests outstanding on or after the date of this Note (or any options or warrants issued by such Person with respect to its capital stock or other equity interests), or the setting aside of any funds for any of the foregoing purposes, or permitting any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock or any other equity interests of such Person outstanding on or after the date of this Note (or any options or warrants issued by such Person with respect to its capital stock or other equity interests).  Without limiting the foregoing, “Dividends” with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes.

 

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Event of Default” shall have the meaning assigned to such term in Section 6(a) hereof.

 

“GAAP” shall mean generally accepted accounting principles in the United States, consistently applied.

 

 

“Governmental or Regulatory Authority” shall mean any government, instrumentality, subdivision, court, administration, agency, commission, official or other authority or entity exercising executive, legislative, judicial, arbitral, regulatory or administrative functions of, or pertaining to, government, regulation or compliance, of any country, state, province, city, prefect, municipality, locality or any other government or political subdivision thereof and any Person owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

 

“Hedging Agreement” shall mean any agreement in respect of any interest rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions entered into by a Person.

 

 “Holder” shall have the meaning assigned to such term in Section 3(a) hereof.

 

“Indebtedness” of any Person shall mean (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any Property owned by such first Person, whether or not such Indebtedness has been assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations of such Person under Hedging Agreements and (viii) all Contingent Obligations of such Person; provided that Indebtedness shall not include trade payables arising in the ordinary course of business so long as such trade payables are payable within 90 days of the date the respective goods are delivered or the respective services are rendered and are not overdue.

 

 “Initial Holder” shall have the meaning assigned to such term in the first paragraph of this Note.

 

 “Interest Payment Date” shall have the meaning assigned to such term in Section 1(b) hereof.

 

“Issuance Date” shall mean September 30, 2011 (The 30th Day of September, Year Two Thousand and Eleven)

 

“Issuer” shall have the meaning assigned to such term in the first paragraph of this Note.

 

 “Law” shall mean any statute, law, treaty, code, ordinance, rule or regulation of any Governmental or Regulatory Authority.

 

 

“Lien” shall mean, with respect to any Property of any Person, any mortgage, lien, deed of trust, hypothecation, fiduciary transfer of title, assignment by way of security, lien, pledge, charge, lease, sale and lease-back arrangement, easement, servitude, trust arrangement, or security interest or encumbrance of any kind in respect of such Property, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any Property of any kind (and a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement relating to such Property).

 

“Loan Consolidation and Restructuring Agreement” shall mean the Loan Consolidation and Restructuring Agreement between Caspian Services, Inc. and Bakhytbek Baiseitov dated July 31, 2011, as amended September 30, 2011.

 

“Material Adverse Effect” shall mean any materially adverse change in or effect on the operations or results of operations, business, properties, assets, liabilities (contingent or otherwise), financial condition or prospects of the Issuer or any of its Subsidiaries, taken as a whole, or the ability of the Issuer to perform its obligations hereunder.

 

“Maturity Date” shall have the meaning set forth in Section 1(a).

 

 “Note” shall have the meaning assigned to that term in the heading.

 

 “Order” shall mean any judgment, order, injunction, decree, writ, permit or license of any Governmental or Regulatory Authority or any arbitrator.

 

“Permitted Liens” shall mean (i) any Liens created by this Note; (ii) EBRD Indebtedness; (iii) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; and (iv) Liens in respect of Property of the Issuer or any of its Subsidiaries imposed by Law, which were incurred in the ordinary course of business and do not secure Indebtedness, such as carriers’, warehousemen’s, materialmen’s and mechanics’ liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Issuer’s or such Subsidiary’s Property or materially impair the use thereof in the operation of the business of the Issuer or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to any such Lien.

 

 “Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, limited liability partnership, institution, entity, party, or Governmental or Regulatory Authority.

 

“Property” shall mean any property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, and any right or interest therein.

 

“Register” shall have the meaning assigned to such term in Section 3(a) hereof.

 

 

“SEC” shall mean the United States Securities and Exchange Commission or any successor thereto.

 

“Securities Act” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Stock” shall mean the Issuer’s $.001 par value common shares.

 

 “Stock Equivalent” shall mean (i) any rights, options, or warrants to purchase shares of Company Stock, and (ii) any indebtedness or Company Stock that is, or may become, convertible into, exercisable, exchangeable or carrying rights to subscribe for, shares of other Company Stock.

 

“Subsidiary” shall mean, with respect to any Person, (i) any corporation more than fifty percent (50%) of any class or classes of the stock of which having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is owned by such Person directly or indirectly through one or more Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through one or more Subsidiaries of such Person has more than a fifty percent (50%) equity interest.

 

“Transaction Documents” means the Note (as defined by the Loan Consolidation and Restructuring Agreement), Loan Consolidation and Restructuring Agreement, Security Agreements, Registration Rights Agreement and all other documents executed and delivered in connection herewith or therewith, including, without limitation, all schedules, annexes, exhibits, amendments, modifications and supplements thereto.

 

 

 

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THIS NOTE AND THE SECURITIES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.

 

 

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed as of the date of issuance set forth above.

 

 

 

	CASPIAN SERVICES INC.
	By: /s/ Alexey Kotov
	Name: Alexey Kotov
	Title: President

 

 

Accepted and agreed as of

the date first written above:

 

BAKHYTBEK BAISEITOV

 

By:/s/ Bakhytbek Baiseitov