ex4_28.htm


    
      

    

    Exhibit
      4.28

    


    As
      of
      August 21, 2006

    


    Mr.
      Neil
      T. Reithinger

    Chief
      Executive Officer

    14950
      North 83rd Place

    Suite1

    Scottsdale,
      AZ 85260

    


    


    Dear
      Neil:

    


    This
      letter agreement (the “Agreement”) confirms our understanding that Northeast
      Securities, Inc., a New York corporation (“NESC”), has been engaged as exclusive
      placement agent for Baywood International, Inc. (the “Company”), including its
      successors and permitted assigns, in connection with two separate private
      offerings and sales of securities of the Company, in each case as further set
      forth in Section 1 below.  If appropriate in connection with
      performing its services for the Company hereunder, NESC may utilize the services
      of one or more of its affiliates, in which case references herein to NESC shall
      include such affiliates.

    


    1.            
      The Offering.  We currently anticipate raising approximately
      (a) $250,000 through an offering and sale of 10% convertible senior notes (the
      “Bridge Notes”) and warrants (the “Bridge Warrants”) to purchase shares of
      common stock of the Company at an exercise price of $.035 per share (the “Bridge
      Offering”) and (b) $8.5 million in a “PIPE” financing of units consisting of
      shares of preferred stock of the Company (the “Preferred Stock”) and warrants
      (the “PIPE Warrants”) to purchase a certain number of shares of common stock of
      the Company (the “PIPE Offering” and, together with the Bridge Offering, the
“Offerings”). The Bridge Notes, the Bridge Warrants, the Preferred Stock and the
      PIPE Warrants are collectively referred to herein as the
“Securities”.  The actual terms of each of the Offerings will depend
      on market conditions, and in each case will be subject to negotiation between
      the Company and NESC and prospective investors. Although we cannot guarantee
      you
      that we will be able to raise new capital, we will conduct the Offerings on
      a
      best efforts basis. In turn, during the term of our engagement, you agree not
      to
      use any other investment banking firm to raise capital (including without
      limitation debt (except for bank debt) or convertible debt).


    


    The
      Company acknowledges and agrees
      that nothing contained in this Agreement shall constitute a commitment by NESC
      to underwrite, place or purchase any securities, although NESC reserves the
      exclusive right to do so during the term of this Agreement.  NESC
      acknowledges and agrees that nothing contained in this Agreement shall
      constitute a commitment by the Company to accept any NESC Investor’s (as defined
      in section 2(a) below) offer to purchase any Securities in the
      Offerings.

    


    2.            
      Compensation. NESC’s compensation for services rendered under and
      pursuant to this Agreement will be the following:

    


    
      	
               

            	
              (a)

            	
              If
                during the term of this Agreement or within the twelve full months
                following the termination of this Agreement, (i) the Company consummates
                one or more Offerings with or through NESC, any affiliate of NESC,
                any
                investor contacted by NESC during the term of this Agreement or any
                affiliate of any such investor, and which investor  actually
                invests in either Offering (an “NESC Investor”), or (ii) (A) the Company
                accepts a written commitment for an investment from an NESC Investor
                (the
                acceptance by the Company of a commitment letter, term sheet, letter
                of
                intent (or any similar document) or securities purchase agreement
                shall be
                deemed to be receipt and acceptance of such written commitment) and
                (B) at
                any time thereafter such Offering by such NESC Investor is consummated,
                the Company, subject to the rules and regulations of the National
                Association of Securities Dealers and its affiliates and successors,
                will
                pay NESC upon the closing date(s)
                thereof:

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
              (i)

            	
              In
                cash, (A) with respect to the the Bridge Offering, ten percent (10%)
                of
                the gross proceeds received by the Company from such Bridge Offering
                and
                (b), with respect to the PIPE Offering, nine percent (9%) of the
                gross
                proceeds received by the Company from such PIPE Offering;
                and

            


    

    


    
      	
               

            	
              (ii)

            	
              With
                respect to the PIPE Offering only, warrants (the “NESC Warrants”)
                exercisable at a price equal to the per-share price paid by investors
                in  PIPE Offering in an amount equal to nine percent (9%) of the
                aggregate number of shares of common stock of the Company sold (or
                into
                which Securities sold in each Offering may be converted) to all investors
                in the each Offering.  The NESC Warrants will provide for
                cashless or “net” exercise at all times.  The terms and
                conditions of the NESC Warrants shall be the same as the Bridge Warrants
                and the PIPE Warrants, as the case may be, issued to such investors,
                except for the “net” exercise referenced above.  The shares of
                common stock of the Company issuable upon exercise of the NESC Warrants
                will be entitled to the same registration rights as those granted
                to the
                investors in connection with each Offering.  To that end, you
                agree that NESC will be afforded the indemnification protections
                granted
                to the investors in the Offerings as part of the agreement governing
                the
                registration of the Securities, as a third party beneficiary to such
                provisions.

            


    

    


    3.            
      Expenses: The Company shall bear all of its legal, accounting, printing
      and other expenses in connection with the Offering and any offering and sale
      of
      any Securities.  It is understood that NESC will not be responsible
      for any fees, expenses or commissions payable to any other advisors,
      underwriters or agents (if any) utilized or retained by the Company or any
      offerees of the Securities.  In addition to any fees payable by the
      Company to NESC hereunder, the Company shall, whether or not an Offering shall
      be consummated, and regardless of whether any Securities are offered or sold,
      reimburse NESC for the fees and disbursements of NESC’s reasonable, accountable
      out-of-pocket expenses incurred in connection with, or arising out of, NESC’s
      activities under or contemplated by this engagement; provided, however,
      that NESC agrees that all such expenses shall not exceed (a) $15,000 with
      respect to the Bridge Offering and (b) $50,000 with respect to the PIPE
      Offering, in each case without the prior written approval of the
      Company.  Such reimbursements shall be made promptly upon submission
      by NESC of statements for such expenses.

    


    
      
        
        

      

      
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    4.            
      Reliance on Company Information:  The Company recognizes and
      confirms that, in advising the Company, in assisting in the preparation of
      any
      memorandum and in completing its engagement hereunder, NESC will be using and
      relying on non-public and publicly available information and on data, material
      and other information furnished to NESC by the Company and other parties on
      behalf or at the direction of the Company.  The Company agrees that in
      performing under this engagement NESC may assume and rely upon the accuracy
      and
      completeness of, and is not assuming any responsibility for independent
      verification of, such non-public and publicly available information and the
      other information so furnished.

    


    5.           
       Offering Material; Agreements:

    


    
      	
               

            	
              (a)

            	
              You
                hereby authorize NESC to transmit to the prospective purchasers of
                the
                securities a private placement memorandum prepared by the Company
                with
                such exhibits and supplements as may from time to time be required
                or
                appropriate or, alternatively, copies of the Company’s most recent filings
                with the Securities and Exchange Commission, together with summary
                materials prepared by the Company, if we deem them appropriate (as
                the
                case may be, the “Memorandum”).  The Company represents and
                warrants that the Memorandum (i) will be prepared by the management
                of the
                Company and reviewed and approved by its Board of Directors; and
                (ii) will
                not contain any untrue statement of a material fact or omit to state
                a
                material fact required to be stated therein or necessary to make
                the
                statements therein or previously made, in light of the circumstances
                under
                which they were made, not misleading.  The Company will advise
                NESC immediately of the occurrence of any event or any other change
                known
                to the Company which results in the Memorandum containing an untrue
                statement of a material fact or omitting to state a material fact
                required
                to be stated therein or necessary to make the statements therein
                or
                previously made, in light of the circumstances under which they were
                made,
                not misleading.

            


    

    


    
      	
               

            	
              (b)

            	
              You
                agree that with respect to each Offering you will enter into a
                subscription agreement, a registration rights agreement (collectively
                with
                respect to each Offering, the “Registration Rights Agreement”) and
                other customary agreements with respect to comparable private placements,
                and will cause Company counsel to supply an opinion letter on the
                PIPE
                Offering in form and substance reasonably acceptable to, and addressed
                to,
                NESC and the investors in the PIPE
                Offering.

            


    

    


    
      	
               

            	
              (c)

            	
              You
                further agree that we may rely upon, and are a third party beneficiary
                of,
                the representations and warranties, and applicable covenants, set
                forth in
                any agreements with investors in the
                Offerings.

            


    

    


    
      	
               

            	
              (d)

            	
              In
                conjunction with the filing of the resale registration statement
                for
                investors in the Offerings pursuant to the applicable Registration
                Rights
                Agreement with respect to each Offering, the Company will file with
                the
                NASD, via the COBRA desk filing system, for approval of underwriting
                compensation under Section 2710 of the rules and regulations of the
                NASD,
                use its best reasonable efforts to obtain from the NASD a standard
                clearance letter, and coordinate with the placement agent on filings
                it
                will be required to make upon sales under the registration
                statement.

            


    

     

    
      
        
        

      

      
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    6.            
      Information.  The Company will provide to NESC such information
      regarding the business and financial condition of the Company and its affiliates
      as NESC may reasonably request and as is reasonably required by NESC in order
      to
      perform its obligations hereunder, including, without limitation, such
      information as NESC may request in order to satisfy itself as to the accuracy
      of
      the Company’s representations and warranties set forth herein.  All
      information supplied by the Company that is identified in writing as non-public
      will be kept confidential by NESC except as the Company may agree or otherwise
      in accordance with non-disclosure agreement(s).

    


    7.            
      Termination:  NESC’s engagement under this Agreement may be
      terminated at any time by either NESC or the Company, with or without cause,
      effective upon 10 days prior written notice thereof to the other party;
provided, however, that termination of NESC’s engagement hereunder shall
      not affect (a) the Company’s obligation to pay fees to the extent, in the
      amounts and at the times provided for in paragraph 2 hereof, and the Company’s
      obligation to reimburse NESC’s expenses accruing prior to such termination to
      the extent provided for in Section 3 of this Agreement and (b) any of the terms
      or provisions of the Standard Form of Indemnification Agreement set forth as
      Exhibit A hereto.

    


    8.            
      Independent Contractor; Advice:  NESC has been retained under
      this Agreement as an independent contractor with duties owed solely to the
      Company.  The advice (written or oral) rendered by NESC pursuant to
      this Agreement is intended solely for the benefit of and use of the Board of
      Directors and senior management of the Company in considering the matters to
      which this Agreement relates, and the Company agrees that such advice may not
      be
      relied upon by any other person, used for any other purpose or reproduced,
      disseminated, quoted or referred to at any time, in any manner or for any
      purpose, nor shall any public reference to NESC be made by the Company or its
      representatives, without the prior written consent of NESC, which consent shall
      not be reasonably withheld or delayed.

    


    9.            Advertisements:  The
      Company agrees that NESC shall have the right to place advertisements in
      financial and other newspapers and journals at its own expense describing its
      services to the Company hereunder, provided that NESC will submit a copy of
      any
      such advertisement to the Company for its approval, and such approval shall
      not
      be unreasonably withheld or delayed.

    


    10.           Governing
      Law:  This Agreement and all controversies arising from or
      relating to performance under this Agreement shall be governed by and construed
      in accordance with the laws of the State of New York, without giving effect
      to
      such state’s rules concerning conflicts of laws.  ANY RIGHT TO TRIAL
      BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT OR
      CONDUCT IN CONNECTION WITH THE ENGAGEMENT IS HEREBY WAIVED.

    


    11.           Miscellaneous:  This
      Agreement may be executed in counterparts, each of which together shall be
      considered a single document.  This Agreement shall be binding upon
      NESC and the Company and their respective successors and assigns, provided,
      however, that this Agreement shall not be assignable by either party without
      the
      prior written consent of the other.  This Agreement is not intended to
      confer any rights upon any shareholder, owner, or partner of the Company, or
      any
      other person not a party hereto other than the indemnified persons entitled
      to
      indemnification hereunder.  This Agreement, and all exhibits hereto,
      represent the entire agreement of the parties and may not be amended or waived
      except by a writing signed by both parties.

     

    
      
        
        

      

      
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    12.           Indemnification:  The
      Company agrees to indemnify NESC and its controlling persons, representatives
      and agents in accordance with the indemnification provisions set forth in
Exhibit A, which is incorporated herein by this
      reference.  This provision will apply regardless of whether the
      proposed offering is consummated.

    


    


    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
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    We
      are
      pleased to accept this engagement and look forward to working with the
      Company.  Please confirm that the foregoing is in accordance with your
      understanding by signing and returning to us the enclosed duplicate of this
      letter, which shall thereupon constitute a binding agreement among the Company
      and NESC.

    


    
      	 	
              Very
                truly yours, 

            	 
	 	 	 	 
	 	
              NORTHEAST
                SECURITIES, INC. 

            	 
	 	 	 	 
	 	 	 	 
	 	
              By:

            	
              /s/
                O. Lee Tawes

            	 
	 	 	
              Name:
                O. Lee Tawes 

            
	 	 	
              Title:
                Executive Vice President 

            


    

    


    


    AGREED

    


    BAYWOOD
      INTERNATIONAL, INC.

    


    


    
      	
              By:

            	
              /s/
                Neil T. Reithinger

            	 	 
	 	
              Name:
                Neil T. Reithinger 

            	 
	 	
              Title:
                Chief Executive Officer 

            	 


    

     

    
      
        
        

      

      
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    EXHIBIT
      A

    


    STANDARD
      FORM OF INDEMNIFICATION AGREEMENT

    


    


    INDEMNIFICATION
      AND CONTRIBUTION

    


    The
      Company agrees to indemnify and hold harmless NESC and its affiliates (as
      defined in Rule 405 under the Securities Act of 1933, as amended) and their
      respective directors, officers, employees, agents and controlling persons (NESC
      and each such person being an “Indemnified Party”) from and against all losses,
      claims, damages and liabilities (or actions, including shareholder actions,
      in
      respect thereof), joint or several, to which such Indemnified Party may become
      subject under any applicable federal or state law, or otherwise, which are
      related to or result from the performance by NESC of the services contemplated
      by or the engagement of NESC pursuant to the letter agreement between NESC
      and
      the Company dated as of August 21, 2006 (the “Agreement”; capitalized terms used
      in this Exhibit A that are not defined herein have the meanings ascribed to
      such
      terms in the Agreement) and will promptly reimburse any Indemnified Party for
      all reasonable expenses (including reasonable counsel fees and expenses) as
      they
      are incurred in connection with the investigation of, preparation for or defense
      arising from any threatened or pending claim, whether or not such Indemnified
      Party is a party and whether or not such claim, action or proceeding is
      initiated or brought by the Company.  The Company will not be liable
      to any Indemnified Party under the foregoing indemnification and reimbursement
      provisions, (i) for any settlement by an Indemnified Party effected without
      its
      prior written consent (not to be unreasonably withheld), (ii) to the extent
      that
      any loss, claim, damage or liability is found in a final, non-appealable
      judgment by a court of competent jurisdiction to have resulted primarily from
      an
      Indemnified Party’s willful misconduct or bad faith or (iii) to the extent that
      any loss, claim, damage or liability is found in a final, non-appealable
      judgment by a court of competent jurisdiction to have resulted primarily from
      any material misstatement or omission based upon written information provided
      by
      any Indemnified Party for inclusion in the memorandum.  The Company
      also agrees that no Indemnified Party shall have any liability (whether direct
      or indirect, in contract or tort or otherwise) to the Company or its security
      holders or creditors related to or arising out of the engagement of NESC
      pursuant to, or the performance by NESC of the services contemplated by, this
      Agreement except to the extent that any loss, claim, damage or liability is
      found in a final, non-appealable judgment by a court of competent jurisdiction
      to have resulted primarily as a result of any of the events described in clauses
      (i), (ii) or (iii) above..

    


    Promptly
      after receipt by an Indemnified Party of notice of any intention or threat
      to
      commence an action, suit or proceeding or notice of the commencement of any
      action, suit or proceeding, such Indemnified Party will, if a claim in respect
      thereof is to be made against the Company pursuant hereto, promptly notify
      the
      Company in writing of the same.  In case any such action is brought
      against any Indemnified Party and such Indemnified Party notifies the Company
      of
      the commencement thereof, the Company may elect to assume the defense thereof,
      with counsel reasonably satisfactory to such Indemnified Party, and an
      Indemnified Party may employ counsel to participate in the defense of any such
      action provided, that the employment of such counsel shall be at the Indemnified
      Party’s own expense, unless (i) the employment of such counsel has been
      authorized in writing by the Company, (ii) the Indemnified Party has reasonably
      concluded (based upon advice of counsel to the Indemnified Party) that there
      may
      be legal defenses available to it or other Indemnified Parties that are
      different from or in addition to those available to the Company, or that a
      conflict or potential conflict exists (based upon advice of counsel to the
      Indemnified Party) between the Indemnified Party and the Company that makes
      it
      impossible or inadvisable for counsel to the Indemnifying Party to conduct
      the
      defense of both the Company and the Indemnified Party (in which case the Company
      will not have the right to direct the defense of such action on behalf of the
      Indemnified Party), or (iii) the Company has not in fact employed counsel
      reasonably satisfactory to the Indemnified Party to assume the defense of such
      action within a reasonable time after receiving notice of the action, suit
      or
      proceeding, in each of which cases the reasonable fees, disbursements and other
      charges of such counsel will be at the expense of the Company; provided,
      further, that in no event shall the Company be required to pay fees and expenses
      for more than one firm of attorneys representing Indemnified
      Parties.  Any failure or delay by an Indemnified Party to give the
      notice referred to in this paragraph shall not affect such Indemnified Party’s
      right to be indemnified hereunder, except to the extent that such failure or
      delay causes actual harm to the Company, or prejudices its ability to defend
      such action, suit or proceeding on behalf of such Indemnified
      Party.


    
      
        
        

      

      
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    If
      the
      indemnification provided for in this Agreement is for any reason held
      unenforceable by an Indemnified Party, the Company agrees to contribute to
      the
      losses, claims, damages and liabilities for which such indemnification is held
      unenforceable (i) in such proportion as is appropriate to reflect the relative
      benefits to the Company, on the one hand, and NESC on the other hand, of the
      Offering as contemplated whether or not the Offering  is consummated
      or, (ii) if (but only if) the allocation provided for in clause (i) is for
      any
      reason unenforceable, in such proportion as is appropriate to reflect not only
      the relative benefits referred to in clause (i) but also the relative fault
      of
      the Company, on the one hand and NESC, on the other hand, as well as any other
      relevant equitable considerations.  The Company agrees that for the
      purposes of this paragraph the relative benefits to the Company and NESC of
      the
      Offering as contemplated shall be deemed to be in the same proportion that
      the
      total value received or contemplated to be received by the Company or its
      shareholders, as the case may be, as a result of or in connection with the
      Offering bear to the fees paid or to be paid to NESC under this
      Agreement.  Notwithstanding the foregoing, the Company expressly
      agrees that NESC shall not be required to contribute any amount in excess of
      the
      amount by which fees paid NESC hereunder (excluding reimbursable expenses),
      exceeds the amount of any damages which NESC has otherwise been required to
      pay.

    


    Each
      party agrees that without the other’s prior written consent, which shall not be
      unreasonably withheld, it will not settle, compromise or consent to the entry
      of
      any judgment in any pending or threatened claim, action or proceeding in respect
      of which indemnification could be sought under the indemnification provisions
      of
      this Agreement (in which NESC or any other Indemnified Party is an actual or
      potential party to such claim, action or proceeding), unless such settlement,
      compromise or consent includes an unconditional release of each Indemnified
      Party from all liability arising out of such claim, action or
      proceeding.

    


    In
      the
      event that an Indemnified Party is requested or required to appear as a witness
      in any action brought by or on behalf of or against the Company in which such
      Indemnified Party is not named as a defendant, the Company agrees to promptly
      reimburse NESC on a monthly basis for all expenses incurred by it in connection
      with such Indemnified Party’s appearing and preparing to appear as such a
      witness, including, without limitation, the reasonable fees and disbursements
      of
      its legal counsel.


    
      
        
        

      

      
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    If
      multiple claims are brought with respect to at least one of which
      indemnification is permitted under applicable law and provided for under this
      Agreement, the Company agrees that any judgment or arbitrate award shall be
      conclusively deemed to be based on claims as to which indemnification is
      permitted and provided for, except to the extent the judgment or arbitrate
      award
      expressly states that it, or any portion thereof, is based solely on a claim
      as
      to which indemnification is not available.

     

     

    9