Document:

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Exhibit 10.2

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS WARRANT OR SUCH SECURITIES, AS APPLICABLE, MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS.

 

BAYWOOD INTERNATIONAL, INC.

Warrants for the Purchase

of

Shares of Common Stock, Par Value $0.001 Per Share

No.  _____

THIS CERTIFIES that, for consideration, the receipt and sufficiency of which are hereby acknowledged, and other value received, _______________________ (the “Holder”) is entitled to subscribe for, and purchase from, BAYWOOD INTERNATIONAL, INC., a Nevada corporation (the “Company”), upon the terms and conditions set forth herein, at any time or from time to time on or after September 5, 2008 (the “Initial Exercise Date”) until 5:00 P.M. New York City local time on the fifth anniversary of the Initial Exercise Date (the “Exercise Period”), up to an aggregate of ______________ shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company.  This Warrant is initially exercisable at a price of $0.85 per share, subject to adjustment as described in this Warrant.  The term “Exercise Price” shall mean, depending on the context, the initial exercise price (as set forth above) or the adjusted exercise price per share. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined herein. The Company may, in its sole discretion, reduce the then current Exercise Price to any amount or extend the Exercise Period, at any time. Such modifications to the Exercise Price or Exercise Period may be temporary or permanent. 

As used herein, the term “this Warrant” shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part.  Each share of Common Stock issuable upon the exercise hereof shall be hereinafter referred to as a “Warrant Share”.  Terms not otherwise defined in this Warrant shall have the same meaning as those given to them in the 12% Subordinated Note, 

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dated the date hereof, issued in connection with this Warrant by the Company in favor of the Holder..

1.

(a)

Subject to the terms of this Warrant, this Warrant may be exercised at any time in whole and from time to time in part, at the option of the Holder, on or after the Initial Exercise Date and on or prior to the end of the Exercise Period.  The Company may not call or redeem any portion of this Warrant without the prior written consent of the Holder.  This Warrant shall initially be exercisable in whole or in part for that number of fully paid, validly issued, duly authorized and nonassessable shares of Common Stock as indicated on the first page of this Warrant, for an exercise price per share equal to the Exercise Price (subject to Section 1(c)), by delivery to the Company at its office at 14950 North 83rd Street, Suite 1, Scottsdale, Arizona 85260, or at such other place as is designated in writing by the Company, of (the date on which a Holder delivers (i), (ii) and (iii), a “Date of Exercise”):

(i)

a completed Election to Purchase, in the form set forth in Exhibit A, executed by the Holder exercising all or part of the purchase rights represented by this Warrant;

(ii)

this Warrant; and 

(iii)

subject to Section 1(c) below, payment of an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise in the form of, at the Holder’s option, (A) a certified or bank cashier’s check payable to the Company, or (B) a wire transfer of funds to an account designated by the Company. 

(b)

As used herein:

(i)

“Fair Market Value” shall mean, if the Common Stock is publicly traded, the closing sale price on such date or, if there are no trades on such date, the mean between the closing bid and asked prices on that date, as reported by the principal exchange or market on which the Common Stock is traded (or, if not so reported, as reported by the National Daily Quotation Bureau, Inc. or another customary financial reporting service.

(c)

Cashless Exercise.  If (i) at any time after six months following the date of the issuance of this Warrant; and (ii) there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive, without the payment by the Holder of any additional consideration, a certificate for the number of Warrant Shares equal to the number as is computed using the following formula: 

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X = Y (A-B)

   A 

where 

X =

the number of Warrant Shares to be issued to the Holder pursuant to this Warrant.

Y =

the number of Warrant Shares covered by this Warrant with respect to which the cashless exercise election is made pursuant to this Section 1(c).

A =

the Fair Market Value (as defined above) of one Warrant Share on the Date of Exercise. 

B =

the Exercise Price in effect at the time the cashless exercise election is made pursuant to this Section 1(c). 

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.

(d)

Mechanics of Exercise. 

i.

Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be delivered by physical delivery to the address specified by the Holder in the Election to Purchase (in Exhibit A) within three Trading Days from the delivery to the Company of the Election to Purchase, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above, subject to Section 1(c) (“Warrant Share Delivery Date”); provided, however, if the Company is a participant in the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system, such shares shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the DWAC system and there is an effective Registration Statement permitting the resale of the Warrant Shares by the Holder.  This Warrant shall be deemed to have been exercised on the date of the Election to Purchase and the Exercise Price (subject to Section 1(c)) is received by the Company.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 1(d)(vi) prior to the issuance of such shares, have been paid.  

ii.

Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase 

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the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iii.

Rescission Rights.  If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to Section 1(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

iv.

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise on or before the third Trading Day following the Warrant Share Delivery Date, and if after such Warrant Share Delivery Date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.  

v.

No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

vi.

Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other 

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incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by an Assignment Form in a form reasonably acceptable to the Company duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

vii.

Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

2.

Upon each exercise of the Holder’s rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the transfer books of the Company shall then be closed or certificates representing the Warrant Shares with respect to which this Warrant was exercised shall not then have been actually delivered to the Holder. 

3.

Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the “Warrant Register”) as they are issued.  This Warrant shall be transferable on the books of the Company only upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer.  In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his, her, or its authority shall be produced.  Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto.  This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, 

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together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Notwithstanding the foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Securities Act, and the rules and regulations thereunder.

4.

The Company shall pay all federal and state taxes (other than taxes on income of the Holder), documentary taxes, stamp taxes, if any, and other governmental charges that may be imposed upon the issuance or delivery of this Warrant or upon the issuance or delivery of Warrant Shares upon the exercise of this Warrant, provided, however, that the Company shall not be required to pay any taxes payable in connection with any transfer involved in the issuance or delivery of any Warrants or Warrant Shares in a name other than that of the Holder in respect of which such Warrant Shares are issued.  

5.

(a)  The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue), without any personal liability attaching to the ownership thereof and will not be issued in violation of any preemptive or similar rights of stockholders.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

(b)

The transfer agent for the Common Stock and every subsequent transfer agent for any of the Company’s securities issuable upon the exercise of this Warrant shall be irrevocably authorized and directed at all times to reserve such number of authorized securities as shall be required for such purpose.  The Company shall supply such transfer agent with duly executed certificates representing the Common Stock or other securities for such purposes.

(c)

The Company shall not by any action including, without limitation, amending its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant; but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount 

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payable therefor upon such exercise immediately prior to such increase in par value, and (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. 

6.

The Company will make all filings under Federal and state securities laws, that are required in connection with the issuance and delivery of this Warrant, the exercise of this Warrant, and the issuance and delivery of the Warrant Shares issued upon exercise of this Warrant.

7.

The Exercise Price for the Warrants in effect from time to time shall be subject to adjustment as follows: 

(a)

If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(b)

If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company into another Person such that the other Person is the survivor or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which all holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate 

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Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such Warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(b) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

(c)

If the Company or any Subsidiary, at any time shall sell or grant any option to purchase or sell or grant any right to re-price, or otherwise dispose of or issue, any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then current Exercise Price (if the holder of the Common Stock or Common Stock Equivalent so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights issued in connection with such issuance, be entitled to receive shares of Common Stock at a price less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price) (such lower price, the “New Exercise Price” and such issuances, individually and collectively, a “Dilutive Issuance”), then the Exercise Price shall be reduced to equal the New Exercise Price.  Such adjustment to the Exercise Price shall be made upon each occurrence of a Dilutive Issuance (at the time of issuance).  The Company shall notify the Holder in writing as soon as practical following the issuance of any Common Stock or Common Stock Equivalent subject to this section, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms.  Notwithstanding the foregoing, no adjustment to the Exercise Price shall be made under this Section in respect of an Exempt Issuance.  “Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by the Board of Directors of the Company or a majority of the members of a committee, the majority of which are non-employee directors, established for such purpose, among others; (ii) securities upon the exercise or exchange of or conversion of Common Stock Equivalents issued and outstanding on the date of this Warrant, provided, however, that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities; (iii) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, (A) itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds or (B) a natural person that is a control person of such operating company if the sole purpose of such issuance is to effect an acquisition of the operating company, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (iv) securities issuable 

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in accordance with existing obligations of the Company to Company or Subsidiary employees, officers, directors or agents and (v) securities issued to commercial banks in connection with the Company obtaining bank financing.    

(d)

As used in this Section 7, “Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.

  (e)

The Company shall not amend its Articles of Incorporation (as amended from time to time), its By-laws or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms of this Warrant to be observed or performed by the Company, including without limitation this Section 7, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment as provided herein.

(f)

Upon the occurrence of each adjustment or readjustment of the Exercise Price pursuant to this Section 7, the Company at its expense shall, as promptly as reasonably practicable but in any event not later than 15 Business Days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property for which this Warrant shall be exercisable and the Exercise Price) and showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, as promptly as reasonably practicable after the written request at any time of the Holder (but in any event not later than 15 Business Days thereafter), furnish or cause to be furnished to the Holder a certificate setting forth the Exercise Price then in effect.

(g)

If (i) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (ii) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (iii) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (iv) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (v) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be delivered to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the 

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Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

(h)

All calculations under this Section 7 shall be made to the nearest cent. 

(i)

No adjustment in the Exercise Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subsection (i)) would require an increase or decrease of at least one percent in such price; provided, however, that any adjustments which by reason of this subsection (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  

8.

Unless registered pursuant to an effective registration statement under the Securities Act, the Warrant Shares issued on exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates representing the Warrant Shares shall bear the following legend:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS. 

9.  

The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate, without charge, of like date, tenor and denomination, in lieu of such Warrant or stock certificate.

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10.  

(a)

The Holder shall not have, solely on account of its status as a holder of a Warrant, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant.

(b)

No provision hereof, in the absence of affirmative action by the Holder to receive Warrant Shares, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company.

11.  

All notices that are required or permitted hereunder shall be in writing and shall be sufficient if personally delivered, sent by facsimile, or sent by registered or certified mail or Federal Express or other nationally recognized overnight delivery service.  Any notices shall be deemed given upon the earlier of the date when received at, the day when delivered via facsimile or the third day after the date when sent by registered or certified mail or the day after the date when sent by Federal Express to, the address set forth below, unless such address is changed by notice to the other party hereto:

if to the Company:

Baywood International, Inc.

14950 North 83rd Place, Suite 1

Scottsdale, Arizona 85260

Attention:  Chief Executive Officer

Facsimile: (480) 483-2168

   

if to the Holder:  As set forth in the Warrant Register of the Company.

The Company or the Holder by notice to the other party may designate additional or different addresses as shall be furnished in writing by such party.  

12.

The provisions of this Warrant may not be amended, modified or changed except by an instrument in writing signed by each of the Company and the Holder.

13.

All the covenants and provisions of this Warrant by or for the benefit of the Company or the Holder shall be binding upon and shall inure to the benefit of their respective permitted successors and assigns hereunder.

14.

The Company shall not merge or consolidate with or into any other entity unless the entity resulting from such merger or consolidation (if not the Company) shall expressly assume, by supplemental agreement satisfactory in form to the Holder and executed and delivered to the Holder, the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company.

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15.

 The validity, interpretation and performance of this Warrant shall be governed by the laws of the State of New York, as applied to contracts made and performed within such State, without regard to principles of conflicts of law.  The Company irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York, in each case sitting in the Borough of Manhattan, City of New York, for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant.  The Company irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Company irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  

16.

The provisions hereof have been and are made solely for the benefit of the Company and the Holder, and their respective successors and assigns, and no other person shall acquire or have any right hereunder or by virtue hereof.

17.

The headings in this Warrant are for convenience only and shall not limit or otherwise affect the meaning hereof.

18.

If any term, provision, covenant or restriction of this Warrant is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, illegal, void or unenforceable.

19.

This Warrant is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Warrant supersedes all prior agreements and understandings between the parties with respect to such subject matter.  Notwithstanding the foregoing, the Holder shall be entitled to the benefits of certain registration rights as set forth in the Side Letter Agreement, dated as of August 29, 2008, by and among the Company and the investors signatory thereto (including, without limitation, the Holder).

 

20.

In any action or proceeding brought to enforce any provision of this Warrant, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys’ fees in addition to any other available remedy.

- 12 -

21.

The Company agrees to take such further action and to deliver or cause to be delivered to each other after the date hereof such additional agreements or instruments as any of them may reasonably request for the purpose of carrying out this Warrant and the agreements and transactions contemplated hereby and thereby.

22.

 Each party hereto acknowledges and agrees that irreparable harm, for which there may be no adequate remedy at law and for which the ascertainment of damages would be difficult, would occur in the event any of the provisions of this Warrant were not performed in accordance with its specific terms or were otherwise breached.  Each party hereto accordingly agrees that each other party hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Warrant, or any agreement contemplated hereunder, and to enforce specifically the terms and provisions hereof or thereof in any court of the United States or any state thereof having jurisdiction, in each instance without being required to post bond or other security and in addition to, and without having to prove the inadequacy of, other remedies at law.

23.

Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate. 

 [signature page follows]

- 13 -

Dated as of:  September 5, 2008

                  

			
	         

	BAYWOOD INTERNATIONAL, INC.

	 
	 
	  

	 
	 
	 

	 
	By:  

	 

	 
	Name:

Title:

	Neil Reithinger

President and Chief Executive Officer

 [Seal]

______________________

Secretary

- 14 -

EXHIBIT A

ELECTION TO PURCHASE

The undersigned hereby irrevocably elects to exercise Warrants represented by this Warrant and to purchase the shares of Common Stock or other securities issuable upon the exercise of said Warrants, and requests that certificates for such shares be issued and delivered as follows:

PORTION OF WARRANT BEING EXERCISED:   (check applicable box or fill in number of Warrant Shares):

			
	 
	Entire Warrant  ☐

	 

	 
	 
	 

	 
	____________ Warrant Shares

	 

	 
	 
	 

	ISSUE TO:

	 
	 

	 
	(Name)

	 

	 
	 
	 

	 
	 
	 

	 
	(Address, Including Zip Code)

	 

	 
	 
	 

	 
	 
	 

	 
	(Social Security or Tax Identification Number)

	 

	 
	 
	 

	DELIVER TO:

	 
	 

	 
	(Name)

	 

	 
	 
	 

	 
	 
	 

	 
	(Address, Including Zip Code)

	 

In payment of the purchase price with respect to this Warrant exercised, the undersigned hereby either (A) tenders payment of $__________by (i) certified or bank cashiers check payable to the order of the Company  ̈; or (ii) a wire transfer of such funds to an account designated by the Company  ̈ (check applicable box) or (B) hereby provides notice to the Company that the undersigned is exercising this Warrant pursuant to the Cashless Exercise set forth in Section 1(c) of the Warrant.  If the number of Warrant Shares hereby exercised is fewer than all the Warrant Shares represented by this Warrant, the undersigned requests that a new Warrant representing the number of full Warrant Shares not exercised to be issued and delivered as set forth below:

							
	Name of Holder or Assignee:

	 
	 

	 
	(Please Print)

	 

	 
	 
	 

	Address:

	 
	 

	 
	 
	 

	 
	 
	 

	 
	 
	 

	Signature:

	 
	DATED:

	 
	,    20___

	 
	 
	 

	 
	 
	 

 (Signature must conform in all respects to name of holder as specified on the fact of this Warrant)

			
	Signature Guaranteed:CONFIDENTIAL BC COMMENTS

Exhibit 10.3

 

September 5, 2008

 

[Investor Name and Address]

Subject:                Side Letter Agreement to the 12% Subordinated Notes (the “Notes”) and Common Stock Purchase Warrants (the “Warrants”) issued September 5, 2008, by Baywood International, Inc. to the investors (each an “Investor” and together, the “Investors”) who purchased “Units”, each Unit comprised of $100,000 principal amount of the Notes and 117,647 Warrants (the “Offering”).

 

Dear Investor:

This Side Letter Agreement (this “Agreement”) entered into on September 5, 2008, by and between Baywood International, Inc., a Nevada corporation (the “Company”), and the Investors who purchased Units described above, will serve to set forth the terms and conditions of the Offering. Capitalized terms used herein which are not otherwise defined shall have the same meaning as those given to them in the Notes and Warrants. 

A.

Closing.  Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company, the Units representing such Investor’s investment amount (the “Closing”).  The Closing shall occur at such time as the money from the Offering is released by JP Morgan Chase Bank, National Association (the “Escrow Agent”), to the Company in accordance with the Escrow Agreement, dated as of the date hereof, by and between the Company, Northeast Securities, Inc. and the Escrow Agent.  The Closing must occur on or prior to September 30, 2008.

B.

Closing Deliveries.  i)  At the Closing, the Company shall deliver or cause to be delivered to each Investor the following:

(a)

a Note, registered in the name of such Investor, in each such Investor’s investment amount;

(b)

a Warrant, registered in the name of such Investor, pursuant to which such Investor shall have the right to acquire the number of shares as set forth in the Warrant issued to that Investor;

(c)

the legal opinion of counsel to the Company, in agreed form, addressed to the Investors;

(d)

the Guaranty, dated as of the date of the Closing, executed by O. Lee Tawes III; and

(e)

the Put Agreement, dated as of the date of the Closing, executed by O. Lee Tawes, III and the Company (the “Put Agreement”).

(ii)

At the Closing, each Investor shall deliver or cause to be delivered to the Company and O. Lee Tawes, III, the Put Agreement, duly executed by such Investor.

(iii)

Within one Business Day following the date of this Agreement, each Investor shall cause to be delivered to the Escrow Agent, its investment amount, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose in accordance with the terms of the Escrow Agreement.

C.

Representations and Warranties of the Company.  Any references to “Subsidiaries” in this Section C refer only to wholly-owned Subsidiaries of the Company.  The Company hereby makes the following representations and warranties to each Investor:

(i)

Subsidiaries.  The Company has no wholly-owned direct or indirect Subsidiaries other than as specified in the SEC Reports.  The Company owns, directly or indirectly, all of the capital stock of each wholly-owned Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of each wholly-owned Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

(ii)

Organization and Qualification.  The Company and each wholly-owned Subsidiary are duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  The Company and each Subsidiary are duly qualified to conduct its respective businesses and are in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary.

(iii)

Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Note, the Warrant and this Agreement (collectively, the “Transaction Documents”) and otherwise to carry out its obligations thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(iv)

No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. 

(v)

Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing with the Securities and Exchange Commission (the “Commission”) of one or more Registration Statements (as defined below) in accordance with the requirements of this Agreement, (ii) filings required by state securities laws, and (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

(vi)

Issuance of the Securities.  The Notes and Warrants (the “Securities”) have been duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens, charges, encumbrances, security interests, rights of first refusal or other restrictions of any kind.  The Company has reserved from its duly authorized capital stock the shares of Common Stock issuable pursuant to the Notes and the Warrants in order to issue the Conversion Shares and the Warrant Shares.

(vii)

SEC Reports; Financial Statements.  The Company has filed all reports required to be filed by it under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports) (the foregoing materials being collectively referred to herein as the “SEC Reports”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(viii)

Certain Registration Matters. Assuming the accuracy of the Investors’ representations and warranties set forth below, no registration under the Securities Act is required for the offer and sale of the Notes and Warrants and the offer of the Conversion Shares and Warrant Shares by the Company to the Investors under the Transaction Documents.  The Company is eligible to register its Common Stock for resale by the Investors under Form S-1 promulgated under the Securities Act.  

D.

Representations and Warranties of the Investors.  Each Investor hereby, for itself and for no other Investor, represents and warrants to the Company as follows:

(i)

Organization; Authority.  Such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Investor of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Investor is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Investor.  This Agreement has been duly executed by such Investor, and when delivered by such Investor in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Investor, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(ii)

Investment Intent.  Such Investor is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws.  Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time.  Such Investor is acquiring the Securities hereunder in the ordinary course of its business. Such Investor does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(iii)

Investor Status.  At the time such Investor was offered the Securities, it was, and at the date hereof it is, and on each date on which it converts Notes and exercises Warrants it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act.  Such Investor is not a registered broker-dealer under Section 15 of the Exchange Act.

(iv)

General Solicitation.  Such Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(v)

Access to Information.  Such Investor acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.  Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and completeness of the SEC Reports and the Company’s representations and warranties contained in the Transaction Documents.

The Company acknowledges and agrees that no Investor has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth herein.

E.

Agreements of the Parties.

(i)

Legends.

Certificates evidencing Conversion Shares and Warrant Shares shall not contain any legend: (a) following a sale or transfer of such Conversion Shares or Warrant Shares pursuant to an effective registration statement (including a Registration Statement), or (ii) following a sale or transfer of such Conversion Shares or Warrant Shares pursuant to Rule 144 (assuming the transferee is not an affiliate of the Company), or (iii) while such Conversion Shares or Warrant Shares are eligible for sale without volume limitations pursuant to Rule 144.  “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

(ii)

Furnishing of Information.  As long as any Investor owns the Securities but, in any event for no more than five years following the date of this Agreement, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  As long as any Investor owns Securities, but, in any event for no more than five years following the date of this Agreement, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Investors and make publicly available in accordance with Rule 144 such information as is required for the Investors to sell the Conversion Shares and Warrant Shares under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell the Conversion Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

(iii)

Subsequent Registrations.  Other than pursuant to this Agreement, prior to the first to occur of (a) the effective date of a registration statement resulting in all Registrable Securities (as defined below) being registered for resale pursuant to one or more effective registration statement(s) or (b) such time as all Registrable Securities may be sold by the Investors without volume restrictions pursuant to Rule 144, the Company may not file any registration statement (other than on Form S-8)  with the Commission with respect to any securities of the Company.

(iv)

Securities Laws Disclosure; Publicity.  Within four Trading Days following the consummation of the Offering (the “Closing Date”), the Company shall issue a press release disclosing the transactions contemplated hereby and the Closing.  Within four Trading Days following the execution of this Agreement the Company will file a press release and a Current Report on Form 8-K disclosing the material terms of the Transaction Documents (and attach as exhibits thereto the Transaction Documents), and within four Trading Days following the Closing Date, the Company will file an additional Current Report on Form 8-K to disclose the Closing.  The Company, in its discretion, can combine any such Form 8-Ks.  In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Investor, or include the name of any Investor in any filing with the Commission (other than a registration statement and any exhibits to filings made in respect of this transaction in accordance with periodic filing requirements under the Exchange Act) or any regulatory agency or Trading Market, without the prior written consent of such Investor, except to the extent such disclosure is required by law or Trading Market regulations.

(v)

Indemnification of Investors.  The Company will indemnify and hold the Investors and their directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party may suffer or incur as a result of or relating to (i) any misrepresentation, breach or inaccuracy of any representation, warranty, covenant or agreement made by the Company in any Transaction Document or (ii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement (or any additional registration statements), any prospectus contained therein, or any amendment or supplement thereto, or are caused by the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading.  In addition to the indemnity contained herein, the Company will reimburse each Investor Party for its reasonable legal and other expenses (including the cost of any investigation, preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred.  

(vi)

Listing of Securities.  As long as any Investor owns the Securities, the Company agrees, (i) if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application the Conversion Shares and Warrant Shares, and will take such other action as is necessary or desirable to cause the Conversion Shares and Warrant Shares to be listed on such other Trading Market as promptly as possible, and (ii) it will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.

F.

Registration. 

(i)

Within 90 calendar days following the Closing Date, the Company shall cause a registration statement on Form S-3 (or Form S-1 or such other Form appropriate for such purpose) (the “Registration Statement”) to be filed with the Commission under the Securities Act, for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act with respect to (i) the Company’s Common Stock issued or issuable upon conversion of the Notes (the “Conversion Shares”) and (ii) the Company’s Common Stock issued or issuable upon exercise of the Warrants (the “Warrant Shares”) in each case to be issued to or on behalf of the Investors on the Closing Date (together, the “Registrable Securities”).  The Company shall cause such Registration Statement to be declared effective by the Commission as soon as possible, but in any event, no later than 180 calendar days following the Closing Date, and shall use its reasonable best efforts to keep the Registration Statement continuously effective for the Effectiveness Period (as defined below).  By 5:00 p.m. (New York City time) on the Business Day 

immediately following the effective date of such Registration Statement (or any additional registration statement), the Company shall file with the Commission in accordance with Rule 424 under the Securities Act the final prospectus to be used in connection with sales pursuant to such Registration Statement (or any additional registration statement), whether or not such filing is technically required under such Rule.  For purposes of this Agreement, “registration statement” refers to any registration statement (including the Registration Statement) covering the Registrable Securities or listing the Investors as a “Selling Stockholder.”

(ii)

Notwithstanding anything to the contrary contained in this Agreement, if the staff of the Commission (the “Staff”), or the Commission, seeks to characterize any offering pursuant to a registration statement filed in accordance with this Agreement as constituting a primary offering of securities by or on behalf of the Company, or in any other manner, such that the Staff or the Commission does not permit such registration statement (including the Registration Statement) to become effective and used for resales in a continuous at the market offering pursuant to Rule 415 under the Securities Act by the Investors (or as otherwise may be acceptable to each Investor) without being named therein as “underwriters” (a “Resale Registration Statement”), and the Company has used its best efforts to contest such determination and in such regard uses its reasonable best efforts to cause the Commission to permit the affected Investors or their respective counsel to participate in Commission conversations on such issues with the Company and the Company timely conveys relevant information concerning such issues with the affected Investors and their respective counsel, then the Company shall have the right to reduce the number of Registrable Securities to be included in such registration statement by all Investors, to the extent that the Staff or the Commission shall permit such registration statement to become effective as a Resale Registration Statement.  In making such reduction, subject to the last sentence of this Section (F)(ii), the Company shall reduce the number of Registrable Securities (first as to any Conversion Shares and second as to any Warrant Shares) to be included by all Investors on a pro rata basis (based upon the number of Registrable Securities otherwise required to be included for each Investor), unless the inclusion of Registrable Securities by a particular Investor or a particular type of Investors is the cause of the refusal by the Staff or the Commission to allow such registration statement to become effective as a Resale Registration Statement, in which event the Registrable Securities held by such Investor or type of Investors shall be the only Registrable Securities subject to reduction (and if by a set of Investors on a pro rata basis with respect to such Investors or on such other basis as would result in the exclusion of the least number of shares by all such Investors).  In addition, if the Staff or the Commission requires any Investor seeking to sell under a Registration Statement filed pursuant to this Agreement to be identified as an “underwriter” in order to permit such Registration Statement to become effective, and such Investor does not consent to being so named as an underwriter in such Registration Statement, then, in each such case, the Company shall be entitled, following good faith discussions with the Staff and/or the Commission and the affected Investor, to reduce the total number of Registrable Securities to be registered on behalf of such Investor, until such time as the Staff or the Commission does not require such identification. Notwithstanding the foregoing, any reduction pursuant to this Section (F)(ii) shall first be applied pro-rata to (i) any securities not issued or issuable pursuant to the Notes or Warrants and (ii) any securities issued or issuable to any placement agent in connection with the Offering.

(iii)

In the event of any reduction in Registrable Securities to be included in a registration statement (including the Registration Statement) pursuant to this paragraph, an affected Investor shall have the right, solely following such time as the Company is able to effect the registration of any such Registrable Securities in accordance with any restrictions which were imposed on it by the Commission, upon delivery of a written request to the Company signed by such Investor, to require the Company to file an additional registration statement(s) on Form S-3 (or Form S-1 or such other Form appropriate for such purpose) with the Commission under the Securities Act for an offering to be made on a continuous basis pursuant to Rule 415 of the Securities Act within 90 calendar days after the Company’s receipt of any such request (the “Additional Filing Date”) for resale by such Investor, in a manner reasonably acceptable to such Investor, of any Registrable Securities which are not then covered by an existing and effective registration statement (including the Registration Statement) and the Company shall, following such request, use its reasonable best efforts to cause such additional registration statement(s) to be declared effective under the Securities Act as soon as possible but, in any event, no later than 60 calendar days following the applicable Additional Filing Date (the “Additional Outside Date”), and kept continuously effective for two years after the effective date of any such registration statement (in each such case, the “Additional Effectiveness Period”) (it being understood that the demand right under this sentence may be exercised by a Investor multiple times and with respect to limited amounts of Registrable Securities to the extent limitations are required in order to permit the resale thereof by such Investor pursuant to a Resale Registration Statement as contemplated above); and 

the Company shall otherwise use its reasonable best efforts to satisfy the registration rights set forth in this Agreement as promptly as practicable.  No Investor will be entitled to require the Company to file a registration statement during any time period that the Investor can sell its Registrable Securities pursuant to Rule 144 without volume restrictions, in each case as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Investors.

(iv)

The Company shall (i) prepare and file with the Commission such amendments, including post-effective amendments, to such Registration Statement (or any additional registration statement) and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement (or any additional registration statement) continuously effective as to the applicable Registrable Securities for its Effectiveness Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to the Registration Statement (or any additional registration statement) or any amendment thereto; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statement (and any additional registration statement) and the disposition of all Registrable Securities covered by the Registration Statement (and any additional registration statement).

(v)

The Company shall notify the Investor as promptly as reasonably possible with respect to the Registration Statement (and any additional registration statement) or any post-effective amendment thereto, when the same has become effective; (a) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement (and any additional registration statement) covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (b) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (c) of the occurrence of any event or passage of time that makes the financial statements included in the Registration Statement (and any additional registration statement) ineligible for inclusion therein or any statement made in the Registration Statement (and any additional registration statement) or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement (and any additional registration statement), Prospectus or other documents so that, in the case of the Registration Statement (and any additional registration statement) or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  Upon the occurrence of any event contemplated by clause (c), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statement (and any additional registration statement) or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement (and any additional registration statement) nor any Prospectus will contain an 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, in light of the circumstances under which they were made, not misleading.  

(vi)

The Company make available to the Investor, at the Company’s expense, such number of copies of the Registration Statement (and any additional registration statement) and each amendment and supplement thereto, preliminary prospectus, final prospectus and such other documents as the Investor may reasonably request in writing in order to facilitate the public offering of their shares of Common Stock.

(vii)

The Company shall promptly, at the Company’s expense, use its reasonable best efforts to register or qualify any shares of Common Stock covered by the Registration Statement (and any additional registration statement) under such state securities or blue sky laws of such jurisdictions as the Investor may reasonably request, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified.

(viii)

All registration-related fees and expenses incident to the performance of or compliance with this Agreement incurred by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a registration statement (including the Registration Statement).  

(ix)

The Company may include shares of Common Stock other than the Registrable Securities on a registration statement (including the Registration Statement) as long as the total number of shares of Common Stock (including the Registrable Securities) to be registered in the aggregate on such registration statement does not then exceed 33% of the Company’s public float (the Company shall provide written evidence thereof to the Investors). The Company may not include any other shares of Common Stock on a registration statement (including the Registration Statement) until all of the Registrable Securities have been so included or the Investor has agreed in writing to have its Registrable Securities excluded from such registration statement (including the Registration Statement).  

(x)

The Investor agrees to furnish to the Company a completed Questionnaire containing information reasonably necessary for the Company to prepare the Registration Statement (a “Selling Holder Questionnaire”).  Not less than four Trading Days prior to the filing of the Registration Statement (or any additional registration statement) or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to each Investor copies of the “Selling Stockholders” section of such document, the “Plan of Distribution” and any risk factor contained in such document that addresses specifically this transaction or the Selling Stockholders, as proposed to be filed which documents will be subject to the review of such Investor.  The Company shall not file the Registration Statement (and any additional registration statement), any Prospectus or any amendments or supplements thereto in which the “Selling Stockholder” section thereof materially differs from the disclosure received from the Investor in its Selling Holder Questionnaire (as amended or supplemented).  The Company may reasonably request updates to the Selling Holder Questionnaire and the Investor agrees to promptly respond to such request for an update.  The Company will not name the Investor as an “underwriter” in any registration statement without the Investor’s prior written consent.  

(xi)

If for any reason or for no reason whatsoever, either (a) the Registration Statement is not filed on or prior to 90 calendar days following the Closing Date or any additional registration statement is not filed on or prior to the Additional Filing Date, in each case covering the Registrable Securities required under this Agreement to be included therein (if the Company files a Registration Statement (or additional registration statement) without affording the Investors the opportunity to review and comment on the same as required herein, the Company shall not be deemed to have satisfied this clause (a)), or (b) a Registration Statement is not declared effective by the Commission within 180 calendar days of the Closing Date, or any additional registration statement is not declared effective by the Commission on or prior to the Additional Outside Date or if by the Business Day immediately following the date the Commission declares the Registration Statement or any additional registration statement effective, the Company shall not have filed a “final” prospectus for the Registration Statement (or any additional registration statement) with the Commission under Rule 424(b) in accordance with the terms hereof (whether or not such a prospectus is technically required by such Rule) or (c) after the effective date of a Registration Statement or any additional registration statement, without regard for the reason thereunder or efforts therefore, such Registration Statement (or additional registration statement) ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement or additional registration statement, or the Investors are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than an aggregate of 30 Trading Days (which need not be consecutive calendar days) during any 12-month period within the Effectiveness Period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (a) or (b) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 Trading Day-period is exceeded, being referred to as "Event Date")), then, in addition to any other rights the Investors may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Investor an amount in cash, as partial liquidated damages and not as a penalty, equal to 0.5% of the aggregate purchase price paid by such Investor for the Unit(s); provided that the aggregate payments pursuant to this Section to any Investor do not exceed 2.0% of the aggregate purchase price paid by such Investor for the Unit(s).  The parties agree that the Company shall not be liable for liquidated damages under this Agreement with respect to any Warrants or Warrant Shares.   No Investor will be entitled to liquidated damages during any time period that the Investor could have sold its Registrable Securities pursuant to Rule 144 without volume restrictions, in each case as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Investors.  The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event (except in the case of the first Event Date), and shall cease to accrue (unless earlier cured) upon the expiration of the Effectiveness Period. 

(xii)

The Company will use reasonable best efforts to cause the Registration Statement to become effective and to remain continuously effective until the earlier of (1) two years following the filing date of the Registration Statement; (2) such time as all of the Registrable Securities covered by the Registration Statement have been sold by the Investors; or (3) the date on which all of the Registrable Securities may be sold pursuant to Rule 144 without volume restrictions, in each case as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Investors (the “Effectiveness Period”).

G.

Miscellaneous.

(i)

Fees and Expenses.  Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents.  The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Securities.

(ii)

Entire Agreement.  The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

(iii)

Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) or via e-mail at the facsimile number or e-mail address specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or via e-mail at the facsimile number or e-mail address specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

If to the Company:

Baywood International, Inc.

Attn: Chief Executive Officer

14950 North 83rd Place, Suite 1

Scottsdale, Arizona 85260

Facsimile: 

With a copy to:

Trombly Business Law

Attn: Amy Trombly

Facsimile: (617) 243-0066

If to an Investor:

To the address set forth under such Investor’s name on the signature pages hereof;

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

(iv)

Amendments; Waivers; No Additional Consideration.  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and the Investors.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.  No consideration shall be offered or paid to any Investor to amend or consent to a waiver or modification of any provision of any Transaction Document unless the same consideration is also offered to all Investors who then hold Securities.  Without the written consent or the affirmative vote of each Investor affected thereby, an amendment or waiver under this Section may not waive or amend any 

Transaction Document the effect of which would be to permit the Company to (1) name any Investor as an underwriter in a Registration Statement (or any additional registration statement) without such Investor’s specific written consent thereto, or (2) not include any Registrable Securities of an Investor in a Registration Statement (or any additional registration statement) due to their refusal to be named as an underwriter therein.

(v)

Termination.  This Agreement may be terminated prior to Closing:

(a)

by written agreement of the Investors and the Company, a copy of which shall be provided to the Escrow Agent; and

(b)

by the Company or an Investor (as to itself but no other Investor) upon written notice to the other and to the Escrow Agent, if the Closing shall not have taken place by 6:30 p.m. Eastern Time on September 30, 2008; provided, that the right to terminate this Agreement under this Section shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time.

In the event of a termination pursuant to this Section, the Company shall promptly notify all non-terminating Investors. Upon a termination in accordance with this Section, the Company (other than any indemnification obligations) and the terminating Investor(s) shall not have any further obligation or liability (including as arising from such termination) to the other and no Investor will have any liability to any other Investor under the Transaction Documents as a result therefrom.

(vi)

Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

(vii)

Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors. Any Investor may assign any or all of its rights under this Agreement to any Person to whom such Investor assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Investors.”

(viii)

No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth herein (as to each Investor Party).

(ix)

Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably 

waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.  For purposes hereof, “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

(x)

Survival.  The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Securities.

(xi)

Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

(xii)

Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

(xiii)

Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Investor exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Investor may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

(xiv)

Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Investors and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

(xv)

Payment Set Aside.  To the extent that the Company makes a payment or payments to any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

(xvi)

Independent Nature of Investors’ Obligations and Rights.  The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document.  The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor.  Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions 

contemplated by the Transaction Documents.  Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents.  Each Investor shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

(xvii)

Limitation of Liability.  Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of an Investor arising directly or indirectly, under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of the assets of such Investor, and that no trustee, officer, other investment vehicle or any other Affiliate of such Investor or any investor, shareholder or holder of shares of beneficial interest of such a Investor shall be personally liable for any liabilities of such Investor.

[Remainder of this page intentionally left blank; signature page to follow]

Agreed and Accepted on September 5, 2008:

											
	Very truly yours,

	 

	Agreed to and Accepted by:

	Baywood International, Inc. 

	 

	Investor

	 

	 

	 

	 

	 

	 

	 

	 

	Name:  Neil Reithinger

	 

	Name: _________________________

	Chief Executive Officer

	 
	(Please print name below signature)

	 
	 
	 

	 
	 
	 

	 
	 
	INVESTMENT AMOUNT: $________________

	 
	 
	 

	 
	 
	ADDRESS FOR NOTICE

	 
	 
	 

	 
	 
	c/o:

	 

	 
	 
	 
	 

	 
	 
	Street:

	 

	 
	 
	 
	 

	 
	 
	City/State/Zip:

	 

	 
	 
	 
	 

	 
	 
	Attention:

	 

	 
	 
	 
	 

	 
	 
	Tel:

	 

	 
	 
	 
	 

	 
	 
	Fax:

	 

	 
	 
	 
	 

	 
	 
	E-mail:

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