Document:

Exhibit 4.1

    
      

    

    NEITHER
      THIS NOTE NOR THE SECURITIES ISSUABLE UPON ANY CONVERSION 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 (AS DEFINED BELOW) RECEIVES AN OPINION OF COUNSEL TO THE
      HOLDER OF THIS NOTE OR SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
      SATISFACTORY TO THE COMPANY, THAT THIS NOTE 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.

    

    
      	
              No.
                _________

            	
              $______________

            

    

    

    Senior
      Convertible Note

    

    

    Baywood
      International, Inc., a Nevada corporation (the “Company”),
      for
      value received, hereby promises to pay to the order of ___________________
      or
      the subsequent registered holder of this Note pursuant to Section 7A hereof
      (the
“Payee”)
      on the
      date (the “Maturity
      Date”)
      which
      is the earliest to occur of (i) September 7, 2007; (ii) consummation of a Change
      of Control Transaction (as defined herein); and (iii) the earlier of (1) fifteen
      (15) days following the closing of a debt or equity financing or series of
      debt
      or equity financings in which the Company receives at least $7,000,000 of gross
      proceeds (a “Qualified
      Placement”)
      and
      (2) upon demand by the Payee at any time on or following the closing of a
      Qualified Placement, the principal sum of _____________________ Dollars
      ($______________) or such lesser principal amount as shall at such time be
      outstanding hereunder (the “Principal
      Amount”).
      

    

    “Change
      in Control Transaction”
means
      the occurrence of (i) an acquisition by any person, including any syndicate
      or
      group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange
      Act of 1934, of beneficial ownership, directly or indirectly, through purchase,
      merger or other acquisition transaction or series of purchases, mergers or
      other
      acquisition transactions of capital stock of the Company entitling that person
      to fifty percent (50%) or more of the total voting power of all capital stock
      of
      the Company or (ii) the consolidation or merger of the Company with or into
      any
      other person, any merger of another person into the Company, or any conveyance,
      transfer, sale, lease or other disposition of all or substantially all of the
      Company’s properties, business or assets, other than (in the case of this clause
      (ii) only) (1) any transaction (A) that does not result in any reclassification,
      conversion, exchange or cancellation of outstanding capital stock of the Company
      and (B) pursuant to which holders of the Company’s capital stock immediately
      prior to such transaction have the right to exercise, directly or indirectly,
      fifty percent (50%) or more of the total voting power of all ownership interests
      or capital stock of the continuing or surviving person immediately after such
      transaction; or (2) any merger solely for the purpose of changing the Company’s
      jurisdiction of formation and resulting in a reclassification, conversion or
      exchange of outstanding capital stock into ownership interests or capital stock
      of the surviving entity. 

    
      
        
        

      

      
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    Interest
      on this Note shall accrue on the Principal Amount outstanding from time to
      time
      at a rate per annum computed in accordance with Section 2 hereof and shall
      be
      payable on the Maturity Date or earlier upon conversion of this Note in
      accordance with the provisions of Section 5 hereof. 

    

    Each
      payment by the Company pursuant to this Note shall be made without set-off
      or
      counterclaim and shall be made in lawful currency of the United States of
      America and in immediately available funds. 

    

    The
      Company (i) waives presentment, demand, protest or notice of any kind in
      connection with this Note and (ii) agrees to pay to the Payee, on demand, all
      costs and expenses (including reasonable legal fees and expenses) incurred
      in
      connection with the enforcement and collection of this Note. 

    

    This
      Note
      is issued in connection with a private placement through Northeast Securities,
      Inc. of units consisting of notes (the “Notes”)
      and
      warrants to purchase shares of the Company’s common stock, par value $0.001 per
      share (the “Warrants”),
      pursuant to a Subscription Agreement between the Company, on one hand, and
      one
      or more investors, including the Payee, on the other hand (the “Subscription
      Agreement”).
      Notwithstanding any provision to the contrary contained herein, this Note is
      subject and entitled to those terms, conditions, covenants and agreements
      contained in the Subscription Agreement and the Registration Rights Agreement
      (as defined in the Subscription Agreement) that are expressly applicable to
      the
      Notes. Reference to the Subscription Agreement and the Registration Rights
      Agreement in no way shall impair the absolute and unconditional obligation
      of
      the Company to pay both principal hereof and interest hereon as provided
      herein.

    

    1.    Prepayment.
      The
      Principal Amount of this Note and accrued interest thereon may be prepaid by
      the
      Company in whole or in part at any time.

    

    2.    Computation
      of Interest.
      All
      computations of interest hereunder shall be made based on the actual number
      of
      days elapsed in a year of 365 days (including the first day but excluding the
      last day during which any such Principal Amount is outstanding).

    

    A.    Base
      Interest Rate.
      Subject
      to Sections 2B and 2C below, the outstanding Principal Amount shall bear
      interest at the rate of ten percent (10%) per annum.

    

    B.    Penalty
      Interest.
      In the
      event this Note is not repaid on the Maturity Date, the rate of interest
      applicable to the unpaid Principal Amount and any unpaid accrued interest
      thereon shall be adjusted to thirteen percent (13%) per annum from the Maturity
      Date until repayment in full; provided, that in no event shall the interest
      rate
      exceed the Maximum Rate provided in Section 2C below.

    
      
        
        

      

      
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    C.    Maximum
      Rate.
      In the
      event that it is determined that, under the laws relating to usury applicable
      to
      the Company or the indebtedness evidenced by this Note (“Applicable
      Usury Laws”),
      the
      interest charges and fees payable by the Company in connection herewith or
      in
      connection with any other document or instrument executed and delivered in
      connection herewith cause the effective interest rate applicable to the
      indebtedness evidenced by this Note to exceed the maximum rate allowed by law
      (the “Maximum
      Rate”),
      then
      such interest shall be recalculated for the period in question and any excess
      over the Maximum Rate paid with respect to such period shall be credited,
      without further agreement or notice, to the Principal Amount outstanding
      hereunder to reduce said balance by such amount with the same force and effect
      as though the Company had specifically designated such extra sums to be so
      applied to principal and the Payee had agreed to accept such extra payment(s)
      as
      a premium-free prepayment. All such deemed prepayments shall be applied to
      the
      principal balance payable at maturity. In no event shall any agreed-to or actual
      exaction as consideration for this Note exceed the limits imposed or provided
      by
      Applicable Usury Laws in the jurisdiction in which the Company is resident
      applicable to the use or detention of money or to forbearance in seeking its
      collection in the jurisdiction in which the Company is resident.

    

    3.    Covenants
      of Company.

    

    A.    Affirmative
      Covenants.
      The
      Company covenants and agrees that, so long as this Note shall be outstanding,
      it
      will perform the obligations set forth in this Section 3A:

    

    (i)    Taxes
      and Levies.
      The
      Company will promptly pay and discharge all material taxes, assessments, and
      governmental charges or levies imposed upon the Company or upon its income
      and
      profits, or upon any of its property, before the same shall become delinquent,
      as well as all material claims for labor, materials and supplies which, if
      unpaid, might become a lien or charge upon such properties or any part thereof;
      provided,
      however,
      that
      the Company shall not be required to pay and discharge any such tax, assessment,
      charge, levy or claim so long as the validity thereof shall be contested in
      good
      faith by appropriate proceedings and the Company shall set aside on its books
      adequate reserves in accordance with generally accepted accounting principles
      (“GAAP”)
      with
      respect to any such tax, assessment, charge, levy or claim so
      contested.

    

    (ii)    Maintenance
      of Existence.
      The
      Company will do or cause to be done all things reasonably necessary to preserve
      and keep in full force and effect its corporate existence, rights and franchises
      and comply with all laws applicable to the Company, except where the failure
      to
      comply would not have a material adverse effect on the Company or otherwise
      in
      connection with an acquisition of the Company.

    

    (iii)    Books
      and Records.
      The
      Company will at all times keep true and correct books, records and accounts
      reflecting all of its business affairs and transactions in accordance with
      GAAP.

    

    (iv)    Notice
      of Certain Events.
      The
      Company will give prompt written notice (with a description in reasonable
      detail) to the Payee of the occurrence of any Event of Default (as defined
      herein) or any event which, with the giving of notice or the lapse of time,
      would constitute an Event of Default.

    
      
        
        

      

      
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    (vi)    Use
      of
      Proceeds.
      The
      Company agrees to use the proceeds from the issuance of this Note for working
      capital purposes pending consummation of a Qualified Placement.

    

    B.    Negative
      Covenants.
      The
      Company covenants and agrees that, so long as this Note shall be outstanding,
      it
      will perform the obligations set forth in this Section 3B, except as consented
      to in writing by the Payee:

    

    (i)    Liquidation,
      Dissolution.
      The
      Company will not liquidate or dissolve or consolidate with, or merge into or
      with, any corporation or entity, except if the Company is the surviving
      corporation of such merger or consolidation and no Event of Default shall occur
      as a result thereof.

    

    (ii)    Proration
      of Payments.
      The
      Company shall not make or permit any payment or other recovery (whether
      voluntary, involuntary, by application of setoff or otherwise) on account of
      the
      Principal Amount or interest payable hereunder in excess of the Payee’s
pro
      rata
      share of
      payments then being made in respect of all Notes. 

    

    (iii)    Indebtedness.
      The
      Company will not create, incur, assume or suffer to exist, contingently or
      otherwise, any indebtedness for borrowed money that is either pari passu or
      senior in right of payment to the Notes, except indebtedness outstanding on
      the
      date hereof and up to $2,000,000 of additional indebtedness (“Permitted New
      Debt”).

    

    (iv)    Negative
      Pledge.
      The
      Company will not hereafter create, incur, assume or suffer to exist any
      mortgage, pledge, hypothecation, assignment, security interest, encumbrance,
      lien (statutory or other), preference, priority or other security agreement
      or
      preferential arrangement of any kind or nature whatsoever (including any
      conditional sale or other title retention agreement and any financing lease)
      (each, a “Lien”)
      upon
      any of its property, revenues or assets, whether now owned or hereafter
      acquired, except:

    

    (a)    Liens
      granted to secure indebtedness incurred to finance the acquisition (whether
      by
      purchase or capitalized lease) of tangible assets, but only on the assets
      acquired with the proceeds of such indebtedness;

    

    (b)    Liens
      for
      taxes, assessments or other governmental charges or levies not at the time
      delinquent or thereafter payable without penalty or being contested in good
      faith by appropriate proceedings and for which adequate reserves in accordance
      with GAAP shall have been set aside on its books;

    

    (c)    Liens
      of
      carriers, warehousemen, mechanics, materialmen and landlords incurred in the
      ordinary course of business for sums not overdue or being contested in good
      faith by appropriate proceedings and for which adequate reserves in accordance
      with GAAP shall have been set aside on its books;

    

    (d)    Liens
      (other than Liens arising under the Employee Retirement Income Security Act
      of
      1974, as amended, or Section 412(n) of the Internal Revenue Code of 1986, as
      amended) incurred in the ordinary course of business in connection with workers’
compensation, unemployment insurance or other forms of governmental insurance
      or
      benefits, or to secure performance of tenders, statutory obligations, leases
      and
      contracts (other than for borrowed money) entered into in the ordinary course
      of
      business or to secure obligations on surety or appeal bonds; 

    
      
        
        

      

      
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    (e)    judgment
      Liens in existence less than sixty (60) days after the entry thereof or with
      respect to which execution has been stayed; and 

    

    (f)    Liens
      granted to secure any Permitted New Debt.

    

    (v)    Dividends.
      The
      Company will not declare or pay any cash dividends or distributions on any
      of
      its outstanding capital stock.

    

    4.    Events
      of Default.

    

    A.    The
      term
“Event
      of Default”
shall
      mean any of the events set forth in this Section 4A:

    

    (i)    Non-Payment
      of Obligations.
      The
      Company shall default in the payment of the Principal Amount and accrued
      interest pursuant to Section 2 hereof when and as the same shall become due
      and
      payable, whether by acceleration or otherwise.

    

    (ii)    Non-Performance
      of Affirmative Covenants.
      The
      Company shall default in any material respect in the due observance or
      performance of any covenant set forth in Section 3A, which default shall
      continue uncured for twenty (20) business days.

    

    (iii)    Non-Performance
      of Negative Covenants.
      The
      Company shall default in any material respect in the due observance or
      performance of any covenant set forth in Section 3B.

    

    (iv)    Non-Performance
      of Other Obligations.
      The
      Company shall default in the due observance or performance of any other material
      covenant or agreement on the part of the Company to be observed or performed
      pursuant to the terms hereof, which default shall continue uncured for twenty
      (20) business days after such default has been discovered by the
      Company.

    

    (v)    Bankruptcy,
      Insolvency, etc.
      The
      Company shall:

    

    (a)    become
      insolvent or generally fail or be unable to pay, or admit in writing its
      inability to pay, its debts as they become due;

    

    (b)    apply
      for, consent to, or acquiesce in, the appointment of a trustee, receiver,
      sequestrator or other custodian for the Company or any of its property, or
      make
      a general assignment for the benefit of creditors;

    

    (c)    in
      the
      absence of such application, consent or acquiesce in, permit or suffer to exist
      the appointment of a trustee, receiver, sequestrator or other custodian for
      the
      Company or for any part of its property;

    
      
        
        

      

      
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    (d)    permit
      or
      suffer to exist the commencement of any bankruptcy, reorganization, debt
      arrangement or other case or proceeding under any bankruptcy or insolvency
      law,
      or any dissolution, winding up or liquidation proceeding, in respect of the
      Company and, if such case or proceeding is not commenced by the Company or
      converted to a voluntary case, such case or proceeding shall be consented to
      or
      acquiesced in by the Company or shall result in the entry of an order for relief
      or shall remain for sixty (60) days undismissed; or

    

    (e)    take
      any
      corporate or other action authorizing or in furtherance of, any of the
      foregoing.

    

    (vi)    Cross-Acceleration.
      Any
      indebtedness for borrowed money of the Company or any subsidiary in an aggregate
      principal amount exceeding $50,000 (a) shall be duly declared to be or shall
      become due and payable prior to the stated maturity thereof, or (b) shall not
      be
      paid as and when the same becomes due and payable, including any applicable
      grace period.

    

    B.    Action
      if Bankruptcy.
      If any
      Event of Default described in clauses (v)(a) through (e) of Section 4A shall
      occur, the outstanding Principal Amount of this Note and any accrued interest
      thereon pursuant to Section 2 hereof shall automatically be and become
      immediately due and payable, without notice or demand.

    

    C.    Action
      if Other Event of Default.
      If any
      Event of Default (other than any Event of Default described in clauses (v)(a)
      through (e) of Section 4A) shall occur for any reason, whether voluntary or
      involuntary, and be continuing, the Payee may, upon notice to the Company,
      declare all or any portion of the outstanding Principal Amount of this Note,
      together with accrued interest thereon pursuant to Section 2 hereof, to be
      due
      and payable, whereupon the full unpaid Principal Amount and such accrued
      interest shall be and become immediately due and payable, without further
      notice, demand, or presentment.

    

    D.    Remedies.
      In case
      any Event of Default shall occur and be continuing, the Payee may proceed to
      protect and enforce its rights by a proceeding seeking the specific performance
      of any covenant or agreement contained in this Note or in aid of the exercise
      of
      any power granted in this Note or may proceed to enforce the payment of this
      Note or to enforce any other legal or equitable rights as the Payee shall
      determine.

     

    5.    Conversion
      of Note. 

     

    A.    Optional
      Conversion into Qualified Placement.
      In
      the
      event that prior to repayment of this Note the Company completes a Qualified
      Placement, the Payee shall have the right to convert all or any portion of
      the
      outstanding Principal Amount and accrued interest thereon into investment in
      the
      securities sold in the Qualified Placement. This conversion right shall be
      exercisable by the Payee at any time from the completion of a Qualified
      Placement through the date that is fifteen (15) days following the completion
      of
      a Qualified Placement. The Payee’s investment in the Qualified Placement shall
      be on the same terms and conditions as the other investors in the Qualified
      Placement, and such price at which this Note shall be convertible is referred
      to
      herein as the “Conversion
      Price”.
      The
      shares or other securities to be issued upon conversion of the Notes pursuant
      to
      this Section 5A are herein referred to as the “Conversion
      Securities.”

    
      
        
        

      

      
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    B.    Adjustment
      of Conversion Price.
      If,
      at
      any time after the completion of a Qualified Placement and before any conversion
      of this Note pursuant to Section 5A, the Company takes any action, or any
      circumstances occur, that would require an adjustment of the exercise price
      of
      the Warrants, the Conversion Price in effect at the time of such action or
      occurrence shall be adjusted appropriately in a manner consistent with how
      adjustments are made to the exercise price of the Warrants in accordance with
      the terms of the Warrants. Such adjustment shall be made successively whenever
      any such action or circumstances shall occur.

    

    C.    Mechanics
      of Conversion.
      Before
      the Payee shall be entitled to convert this Note into Conversion Securities
      in
      accordance with Section 5A, the Payee shall surrender this Note at the office
      of
      the Company, and shall give written notice to the Company at its principal
      corporate office, of the election to convert the same and shall state therein
      the name or names in which the certificate or certificates for the Conversion
      Securities are to be issued. No holder of this Note shall be entitled upon
      conversion of this Note to have the Conversion Securities registered in the
      name
      of another person or entity without first complying with all applicable
      restrictions on the transfer of this Note. The Company shall, as soon as
      practicable thereafter, issue and deliver to the Payee, or to such other person
      or persons whom Payee states in its written notice of conversion a certificate
      or certificates for the number of Conversion Securities to which such holder
      shall be entitled as aforesaid. Such conversion shall be deemed to have been
      made immediately prior to the close of business on the date of such surrender
      of
      the Note to be converted, and the person or persons entitled to receive the
      Conversion Securities issuable upon such conversion shall be treated for all
      purposes as the record holder or holders of such securities as of such
      date.

    

    D.    Cash
      Payments.
      No
      fractional shares (or scrip representing fractional shares) of capital stock
      of
      the Company shall be issued upon conversion of this Note. In the event that
      the
      conversion of the Principal Amount of this Note and accrued interest thereon
      would result in the issuance of a fractional share, the Company shall pay a
      cash
      adjustment in lieu of such fractional share to the Payee based upon the
      Conversion Price. 

    

    E.    Stamp
      Taxes, etc.
      The
      Company shall pay all documentary, stamp or other transactional taxes
      attributable to the issuance or delivery of Conversion Securities upon
      conversion of this Note; provided,
      however, that the Company shall not be required to pay any taxes which may
      be
      payable in respect of any transfer involved in the issuance or delivery of
      any
      certificate for such securities in a name other than that of the Payee, and
      the
      Company shall not be required to issue or deliver any such certificate unless
      and until the person requesting the issuance thereof shall have paid to the
      Company the amount of such tax or shall have established to the Company’s
      satisfaction that such tax has been paid.

    

    F.    Validity
      of Stock.
      Any
      shares of capital stock of the Company that may be issued upon any conversion
      of
      this Note will, upon issuance by the Company in accordance with the terms of
      this Note, be validly issued, free from all taxes and liens with respect to
      the
      issuance thereof, free from all pre-emptive or similar rights and fully paid
      and
      non-assessable. 

    
      
        
        

      

      
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    G.    Reservation
      of Shares.
      The
      Company covenants and agrees that it will have authorized and reserved, solely
      for the purpose of such possible conversion, out of its authorized but unissued
      shares, a sufficient number of shares of securities sold in the Qualified
      Placement to provide for the exercise in full of the conversion rights contained
      in this Note.

    

    H.    Notice
      of Certain Transactions.
      In case
      at any time:

    

    (i)    the
      Company shall declare any dividend upon, or other distribution in respect of,
      any of its capital stock;

    

    (ii)    there
      shall be any capital reorganization or reclassification of the capital stock
      of
      the Company, or a sale of all or substantially all of the assets of the Company,
      or a consolidation or merger of the Company with another corporation, or any
      other Change of Control Transaction;

    

    (iii)    there
      shall be a Qualified Placement;

    

    (iv)    there
      shall be a voluntary or involuntary dissolution, liquidation or winding up
      of
      the Company; or

    

    (v)    the
      Conversion Price shall have been adjusted in accordance with the provisions
      of
      Section 5B;

    

    then,
      in
      any one or more of said cases, the Company shall cause to be mailed to the
      Payee
      at the earliest practicable time (and, in any event not less than ten (10)
      days
      before any record date or other date set for definitive action), written notice
      of the date on which the books of the Company shall close or a record shall
      be
      taken for such dividend or distribution rights or such reorganization,
      reclassification, sale, consolidation, merger or dissolution, liquidation or
      winding-up shall take place, as the case may be. Such notice shall also set
      forth such facts as shall indicate the effect of such action (to the extent
      such
      effect may be known at the date of such notice) on the Conversion Price and
      the
      kind and amount of the shares of stock and other securities and property
      deliverable upon the conversion of this Note. Such notice shall also specify
      the
      date as of which the holders of the capital stock of record shall participate
      in
      said dividend, distribution or subscription rights or shall be entitled to
      exchange their capital stock for securities or other property deliverable upon
      such reorganization, reclassification, sale, consolidation, merger or
      dissolution, liquidation or winding-up, as the case may be.

    

    Nothing
      herein shall be construed as the consent of the Payee to any action otherwise
      prohibited by the terms of this Note or as a waiver of any such
      prohibition.

    

    6.    Amendments,
      Waivers, Severability.

    

    A.    The
      provisions of this Note may not be amended, modified or changed except by an
      instrument in writing signed by the party against whom enforcement is
      sought.

    

    B.    No
      failure or delay on the part of the Payee in exercising any power or right
      under
      this Note shall operate as a waiver thereof, nor shall any single or partial
      exercise of any such power or right preclude any other or further exercise
      thereof or the exercise of any other power or right. No notice to or demand
      on
      the Company in any case shall entitle it to any notice or demand in similar
      or
      other circumstances. No waiver or approval by the Payee shall, except as may
      be
      otherwise stated in such waiver or approval, be applicable to subsequent
      transactions. No waiver or approval hereunder shall require any similar or
      dissimilar waiver or approval thereafter to be granted
      hereunder.

    
      
        
        

      

      
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    C.    To
      the
      extent that the Company makes a payment or payments to the Payee, and such
      payment or payments or any part thereof are subsequently for any reason
      invalidated, set aside and/or required to be repaid to a trustee, receiver
      or
      any other party under any bankruptcy law, state or federal law, common law
      or
      equitable cause, then to the extent of such recovery, the obligation or part
      thereof originally intended to be satisfied, and all rights and remedies
      therefor, 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.

    

    D.    After
      any
      waiver, amendment or supplement under this section becomes effective, the
      Company shall mail to the Payee a copy thereof.

    

    E.    If
      any
      provision of this Note or the application thereof to any person or circumstances
      shall be held invalid or unenforceable by any court or other governmental
      authority to any extent, the remainder of this Note and the application of
      such
      provisions to other persons or circumstances shall not affected thereby and
      shall remain enforceable.

    

    7.    Miscellaneous

    

    A.    Registered
      Holder.
      The
      Company may consider and treat the person in whose name this Note shall be
      registered as the absolute owner thereof for all purposes whatsoever (whether
      or
      not this Note shall be overdue) and the Company shall not be affected by any
      notice to the contrary. In case of transfer of this Note by operation of law,
      the transferee agrees to notify the Company of such transfer and of its address,
      and to submit appropriate evidence regarding such transfer so that this Note
      may
      be registered in the name of the transferee. This Note is transferable only
      on
      the books of the Company by the holder hereof, in person or by attorney, on
      the
      surrender hereof, duly endorsed. Communications sent to any registered owner
      shall be effective as against all Holders or transferees of the Note not
      registered at the time of sending the communication.

    

    B.    Governing
      Law.
      This
      Note shall be governed by and construed in accordance with 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 hereby waives any right to stay or dismiss on the basis of forum non conveniens
      any
      action or proceeding brought before the courts of the State of New York sitting
      in the City of New York or of United States of America for the Southern District
      of New York and hereby submits to the jurisdiction of such courts. 

    

    C.    Attorneys
      Fees.
      Notwithstanding any provision hereof to the contrary, if any dispute arises
      regarding this Note, the prevailing party shall, in addition to any other relief
      to which it is entitled, be entitled to an award of its reasonable attorneys’
fees and all of its other reasonable costs incurred in connection with such
      dispute.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    D.    Notices.
      Unless
      otherwise provided, all notices required or permitted under this Note shall
      be
      in writing and shall be deemed effectively given (i) upon personal delivery
      to
      the party to be notified, (ii) upon confirmed delivery by Federal Express or
      other nationally recognized courier service providing next-business-day
      delivery, or (iii) three business days after deposit with the United States
      Postal Service, by registered or certified mail, postage prepaid and addressed
      to the party to be notified, in each case at the address set forth below, or
      at
      such other address as such party may designate by written notice to the other
      party (provided that notice of change of address shall be effective upon receipt
      by the party to whom such notice is addressed).

     

    If
      sent
      to Payee, notices shall be sent to the address set forth in the Subscription
      Agreement.

    

    If
      sent
      to the Company, notices shall be sent to the following address:

    

    Baywood
      International, Inc.

    14950
      North 83rd
      Place

    Suite
      1

    Scottsdale,
      Arizona 85260

    Attention:
      Chief Executive Officer

    

    E.    Parties
      in Interest.
      All
      covenants, agreements and undertakings in this Note binding upon the Company
      or
      the Payee shall bind and inure to the benefit of the successors and permitted
      assigns of the Company and the Payee, respectively, whether so expressed or
      not.

    

    F.    Waiver
      of Jury Trial.
      THE
      PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
      ANY
      RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
      HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER
      DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY
      COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
      OR
      ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PAYEE’S PURCHASING THIS NOTE.

    

    IN
      WITNESS WHEREOF, the Company has caused this Note to be signed in its name
      by
      its duly authorized officer as of September 7, 2006.

    

    
      	 	
              BAYWOOD
                INTERNATIONAL, INC.

            
	 	 	 
	 	
              By   

            	
                     

            
	 	 	
              Name:
                

            
	 	 	
              Title:

            

    

     

     

    10Exhibit 4.2

    
      
        

      

    

    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 (AS DEFINED BELOW) RECEIVES AN OPINION OF COUNSEL TO THE
      HOLDER OF THIS WARRANT OR SUCH SECURITIES, 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 7, 2006 (the “Initial
      Exercise Date”)
      until
      5:00 P.M. New York City local time on the fifth (5th)
      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 $0.035 per
      share; provided, however, that upon the occurrence of any of the events
      specified in Section 7 hereof, the rights granted by this Warrant, including
      the
      exercise price and the number of shares of Common Stock to be received upon
      such
      exercise, shall be adjusted as therein specified. 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. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    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”.

    

    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. This
      Warrant shall initially be exercisable in whole or in part for that number
      of
      fully paid 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, 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:

    

    (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;

    

    (iii)    if
      this
      Warrant is not registered in the name of the initial registered Holder, an
      assignment in the form set forth in Exhibit B
      hereto
      evidencing the assignment of this Warrant to the current Holder;
      and

    

    (iv)    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”
of
      a
      security shall mean,
      on any
      given day, shall mean the average of the closing prices of such security’s sales
      on all securities exchanges on which such security may at the time be listed
      on
      such day, or, if there has been no sales on any such exchange on such day,
      the
      average of the highest bid and lowest asked prices on all such exchanges at
      the
      end of such day, or, if on such day such security is not so listed, the average
      of the representative bid and asked prices quoted on the over-the-counter
      bulletin board (the “OTCBB”)
      as of
      4:00 P.M., New York time, or, if on such day such security is not quoted on
      the
      OTCBB, the average of the highest bid and lowest asked prices on such day in
      the
      domestic over-the-counter market as reported by the PinkSheet, LLC, or any
      similar successor organization. If at any time such security is not listed
      on
      any securities exchange or quoted on the OTCBB or the over-the-counter market,
      the “Fair Market Value” shall be as determined by the Board of Directors of the
      Company in good faith, absent manifest error. 

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

    (c)          
      Net
      Issue Election.
      The
      Holder may elect to receive, without the payment by the Holder of any additional
      consideration, Warrant Shares equal to the value of this Warrant or any portion
      hereof, less the Exercise Price of the portion of this Warrant being exercised
      at such time, by the surrender of this Warrant or such portion thereof to the
      Company at the office of the Company, and upon such surrender the Company shall
      issue to the Holder such number of Warrant Shares as is computed using the
      following formula:

    

    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
      net
      issue election is made pursuant to this Section 1(c).

    

    A
      =   the
      Fair
      Market Value (as defined above) of one Warrant Share. 

    

    B
      =   the
      Exercise Price in effect at the time the net issue election is made pursuant
      to
      this Section 1(c).

    

    (d)          
      Upon
      the
      exercise of this Warrant, the Company shall issue and cause promptly to be
      delivered upon such exercise to, or upon the written order of, the Holder and
      in
      such name or names as the Holder may designate, a certificate or certificates
      for the number of full Warrant Shares to which such Holder shall be entitled,
      together with cash in lieu of any fraction of a Warrant Share otherwise issuable
      upon such exercise. Such certificate or certificates shall be deemed to have
      been issued, and any person so designated to be the person or persons entitled
      to receive the Warrant Shares issuable upon exercise of this Warrant shall
      be
      deemed to have become a holder of record of such Warrant Shares for all
      purposes, as of the close of business on the date of the surrender of this
      Warrant and full payment of the Exercise Price.

    

    (e)          
      If
      this
      Warrant is exercised in respect of less than all of the Warrant Shares
evidenced
      by this Warrant at any time prior to the end of the Exercise Period, a new
      Warrant evidencing the remaining
      Warrant Shares shall be issued to the Holder, or its nominee(s), without charge
      therefor.

    

    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 -

        
          

        

      

      
        
        

      

    

    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. 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 keep a copy of this Warrant on file with the
      transfer agent for the Common Stock and with every subsequent transfer agent
      for
      shares of the Company’s securities issuable upon the exercise of this Warrant.
      The Company shall supply such
      transfer agent with duly executed certificates representing the Common Stock
      or
      other securities
      for such purposes.

    
      
        
        

      

      
        -
          4 -

        
          

        

      

      
        
        

      

    

    (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 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
      (a)
      obtain and keep effective any and all permits, consents and approvals of Federal
      or state governmental
      agencies and authorities
      and 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,
      and (b) have the Warrant Shares, upon their issuance and eligibility for
      listing, listed on each securities exchange on which the Common Stock (or any
      other securities included in Warrant Shares) are then listed.

    

    7.    The
      Exercise Price for the Warrants in effect from time to time, and the number
      of
      Warrant Shares issuable upon exercise of the Warrants, shall be subject to
      adjustment as follows: 

    

    (a)    If
      the
Company,
      at any time while this Warrant is outstanding: (i) pays a stock dividend or
      otherwise make a distribution or distributions on shares of its Common Stock
      or
      any other equity or equity equivalent securities payable in shares of Common
      Stock (which, for avoidance of doubt, shall not include any shares of Common
      Stock issued by the Company pursuant to this Warrant), (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
      7(a)
      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 re-classification.

    
      
        
        

      

      
        -
          5 -

        
          

        

      

      
        
        

      

    

    (b)    If
      the
      Company, at any time while this Warrant is outstanding, shall distribute to
      all
      or substantially all holders of Common Stock (and not to the Holder) evidence
      of
      its indebtedness or assets (including cash and cash dividends) or rights or
      warrants to subscribe for or purchase any security other than the Common Stock
      (which shall be subject to Section 7(a)), then in each such case
      the
      Exercise Price shall be adjusted by
      multiplying the Exercise Price in effect immediately prior to the record date
      fixed for determination of stockholders entitled to receive such distribution
      by
      a fraction of which (i) the denominator shall be the Fair Market Value per
      share
      of Common Stock determined as of the record date mentioned above and (ii) the
      numerator shall be such Fair Market Value per share of Common Stock on such
      record date less
      the then
      per share fair market value at such record date of the portion of such evidence
      of indebtedness or assets (including cash and cash dividends) or rights or
      warrants to subscribe for or purchase any security other than the Common Stock
      so distributed applicable to one outstanding share of the Common Stock, which
      fair market value shall be reduced by the fair market value of consideration,
      if
      any, paid to the Company by holders of Common Stock in exchange for such
      evidence of indebtedness or assets or rights or warrants so distributed, in
      each
      case as such fair market value is determined by the Board of Directors of the
      Company in good faith. In either case, the adjustments shall be described in
      a
      statement provided to the Holder of the portion of evidences of indebtedness
      or
      assets (including cash and cash dividends) or rights or warrants to subscribe
      for or purchase any security other than the Common Stock so distributed or
      such
      subscription rights applicable to one share of Common Stock. Such adjustment
      shall be made whenever any such distribution is made and shall become effective
      immediately after the record date mentioned above.

    

    (c)    When
      any
      adjustment is required to be made in the Exercise Price pursuant to Section
      7(a)
      or Section 7(b), the number of Warrant Shares purchasable upon the exercise
      of
      this Warrant shall be changed to the number determined by dividing (i) an amount
      equal to product of the number of shares issuable upon the exercise of this
      Warrant immediately prior to such adjustment multiplied by the Exercise Price
      in
      effect immediately prior to such adjustment, by (ii) the Exercise Price in
      effect immediately after such adjustment.

    

    (d)    If,
      at
      any time while this Warrant is outstanding, the Company effects any Change
      of
      Control Transaction (as hereinafter defined), 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 exercise immediately prior to
      the
      occurrence of such Change of Control Transaction, upon exercise of this Warrant,
      the number of shares of Common Stock or other capital stock of the successor
      or
      acquiring corporation or of the Company, if it is the surviving corporation,
      and/or any additional consideration or alternate consideration (collectively,
      the “Alternate Consideration”) receivable upon or as a result of such
      reorganization, reclassification, merger, consolidation or disposition of assets
      by a holder of the number of shares of Common Stock for which this Warrant
      is
      exercisable immediately prior to such event. For purposes of any such exercise,
      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 Change of Control
      Transaction, and, to the extent that the Alternate Consideration is other than
      an all cash transaction, the Company shall apportion the Exercise Price among
      the Alternate 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 Change of Control Transaction, then the Holder shall, to the extent
      practical, be given the same choice as to the Alternate Consideration it
      receives upon any exercise of this Warrant following such Change of Control
      Transaction. To the extent necessary to effectuate the foregoing provisions,
      any
      successor to the Company or surviving entity in such Change of Control
      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
      Change of Control Transaction is effected shall include terms requiring any
      such
      successor or surviving entity to comply with the provisions of this Section
      7(d)
      and insuring that this Warrant (or any such replacement security) will be
      similarly adjusted upon any subsequent transaction substantially similar or
      analogous to a Change of Control Transaction. 

    
      
        
        

      

      
        -
          6 -

        
          

        

      

      
        
        

      

    

    (e)    (i)    If
      the
      Company or any subsidiary of the Company, as applicable, at any time shall
      offer, sell, grant any option to purchase or offer, sell or grant any right
      to
      re-price, or otherwise dispose of or issue, any Common Stock or Common Stock
      Equivalents (as defined below) entitling any Person to acquire shares of Common
      Stock, at an effective price per share less than the then Exercise Price (such
      issuances, individually and collectively, a “Dilutive
      Issuance”),
      as
      adjusted hereunder, then the Exercise Price shall be reduced in accordance
      with
      the following formula:

    

    X 
      =  ((A)(Y))
      + ((B)(Z))

         
         Y + Z

    

      

    

    
      	where:	X =	the new Exercise Price;

    

     

    
      	 	
              A
                =

            	
              the
                Exercise Price in effect immediately before the Dilutive
                Issuance;

            

    

    

    
      	 	
              Y
                =

            	
              the
                number of shares of Common Stock outstanding immediately before the
                Dilutive Issuance, including all shares of Common Stock issuable
                upon
                exercise, conversion or exchange of Common Stock Equivalents outstanding
                immediately before the Dilutive Issuance, whether or not then exercisable,
                convertible or exchangeable, but excluding any treasury
                shares;

            

    

    

    
      	 	
              B
                =

            	
              Base
                Share Price (as defined in Section 7(e)(ii), (iii) and (iv) below);
                For
                purposes hereof, Base Share Price shall be calculated and applied
                on a
                per-share basis; and

            

    

    

    
      	 	
              Z
                =
                

            	
              the
                number of shares of Common Stock issued or issuable upon conversion
                or
                exercise of Common Stock Equivalents issued in the Dilutive
                Issuance.

            

    

    

    Such
      adjustment to the Exercise Price shall be made upon each occurrence of a
      Dilutive Issuance. Notwithstanding the foregoing, no adjustment to the Exercise
      Price shall be made under this Section 7(e) in respect of an Exempt Issuance
      (as
      defined below). 

    
      
        
        

      

      
        -
          7 -

        
          

        

      

      
        
        

      

    

    (ii)    In
      the
      case of the issuance of Common Stock for cash, the Base Share Price shall be
      deemed to be the amount of cash paid therefor.

    

    (iii)    In
      the
      case of the issuance of the Common Stock for a consideration in whole or in
      part
      other than cash, the Base Share Price shall be deemed to be the sum of such
      cash
      and the fair value of such consideration as determined by the Board of Directors
      irrespective of any accounting treatment.

    

    (iv)    In
      the
      case of the issuance of Common Stock Equivalents, the following provisions
      shall
      apply for all purposes of this Section 7:

    

    (A)    The
      aggregate maximum number of shares of Common Stock deliverable upon conversion
      or exercise of, or in exchange for, any such Common Stock Equivalents shall
      be
      deemed to have been issued at the time such Common Stock Equivalents were issued
      and for a Base Share Price equal to the sum of (1) the consideration, if any,
      received by the Company for the Common Stock Equivalents (excluding any cash
      received on account of accrued interest or accrued dividends) and (2) the
      minimum additional consideration, if any, to be received by the Company (without
      taking into account potential anti-dilution adjustments) upon the conversion,
      exchange or exercise of such Common Stock Equivalents; provided
      that if
      the minimum amount of consideration payable to the Company upon the exercise
      or
      conversion of Common Stock Equivalents is reduced over time or on the occurrence
      or non-occurrence of specified events other than by reason of anti-dilution
      adjustments, the then Base Share Price shall be recalculated using the figure
      to
      which such minimum amount of consideration is reduced; provided
      further
      that if
      the minimum amount of consideration payable to the Company upon the exercise
      or
      conversion of such Common Stock Equivalents is subsequently increased, the
      then
      Base Share Price shall be again recalculated using the increased minimum amount
      of consideration payable to the Company upon the exercise or conversion of
      such
      Common Stock Equivalents.

    

    (B)    Upon
      the
      expiration or termination of any Common Stock Equivalents without exercise,
      conversion or exchange, the Exercise Price shall be adjusted to reflect the
      Exercise Price in effect prior to the issuance of such Common Stock
      Equivalents.

    

    (f)    As
      used
      in this Section 7, the following terms have the meanings set forth
      below:

    

    (i)    “Common
      Stock Equivalents”
means
      any securities of the Company or the subsidiaries of the Company which would
      entitle the holder thereof to acquire at any time Common Stock, 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.

    
      
        
        

      

      
        -
          8 -

        
          

        

      

      
        
        

      

    

    (ii)     “Exempt
      Issuance”
means
      the issuance (A) of 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; (B) of securities upon the exercise of or conversion
      of convertible securities, options or warrants 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 or conversion price
      of
      any such securities (other than by the antidilution provisions thereof, if
      any);
      (C) of securities issued to consultants or suppliers in exchange for products
      or
      services being provided to the Company; (D) of securities issued to Persons
      with
      whom the Company enters into acquisition, merger or strategic alliance
      transactions in connection with such transactions; and (E) of securities issued
      to commercial banks in connection with the Company obtaining bank financing.
      

    

    (iii)    “Change
      of Control Transaction”
means
      the occurrence of (A) an acquisition by any person, including any syndicate
      or
      group deemed to be a “person” under Section 13(d)(3) of the Securities Exchange
      Act of 1934, of beneficial ownership, directly or indirectly, through purchase,
      merger or other acquisition transaction or series of purchases, mergers or
      other
      acquisition transactions of capital stock of the Company entitling that person
      to fifty percent (50%) or more of the total voting power of all capital stock
      of
      the Company or (B) the consolidation or merger of the Company with or into
      any
      other person, any merger of another person into the Company, or any conveyance,
      transfer, sale, lease or other disposition of all or substantially all of the
      Company’s properties, business or assets, other than (in the case of this clause
      (B) only) (1) any transaction (x) that does not result in any reclassification,
      conversion, exchange or cancellation of outstanding capital stock of the Company
      and (y) pursuant to which holders of the Company’s capital stock immediately
      prior to such transaction have the right to exercise, directly or indirectly,
      fifty percent (50%) or more of the total voting power of all ownership interests
      or capital stock of the continuing or surviving person immediately after such
      transaction, or (2) any merger solely for the purpose of changing the Company’s
      jurisdiction of formation and resulting in a reclassification, conversion or
      exchange of outstanding capital stock into ownership interests or capital stock
      of the surviving entity. 

    

    (iv)    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

    

    (g)    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 Investor against
      dilution or other impairment as provided herein.

    
      
        
        

      

      
        -
          9 -

        
          

        

      

      
        
        

      

    

    (h)    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 fifteen (15) 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 fifteen
      (15)
      days thereafter), furnish or cause to be furnished to the Holder a certificate
      setting forth (i) the Exercise Price then in effect and (ii) the
      number and class or series of Warrant Shares and the amount, if any, of other
      securities, cash or property which then would be received upon the exercise
      of
      this Warrant.

    

    (i)    All
      calculations under this Section 7 shall be made to the nearest cent or the
      nearest 1/100th
      of a
      share, as the case may be. 

    

    (j)    The
      Company shall not be required upon the exercise of this Warrant to issue any
      fractional shares, but may pay the value thereof to the Holder in cash on the
      basis of the Fair Market Value per Warrant Share, as determined pursuant to
      Section 1(b) above.

    

    (k)    No
      adjustment in the Exercise Price shall be required unless such adjustment (plus
      any adjustments not previously made by reason of this subsection (k)) would
      require an increase or decrease of at least one (1) percent in such price;
      provided, however, that any adjustments which by reason of this subsection
      (k)
      are not required to be made shall be carried forward and taken into account
      in
      any subsequent adjustment. 

    

    8.    Unless
      registered, 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 TO THE HOLDER OF SUCH
      SECURITIES, 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.

    
      
        
        

      

      
        -
          10 -

        
          

        

      

      
        
        

      

    

    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.

    

    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.    Promptly
      upon the appointment of any subsequent
      transfer agent of the Common Stock, or any other securities issuable upon the
      exercise
      of this Warrant, the Company will deliver to the Holder a statement setting
      forth the name
      and
      address of such subsequent transfer agent.

    

    12.    All
      notices that are required or permitted hereunder shall be in writing and shall
      be sufficient if personally delivered, sent by facsimile in the case of notice
      to the Company only, 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.

    
      
        
        

      

      
        -
          11 -

        
          

        

      

      
        
        

      

    

    13.    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.

    

    14.    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.

    

    15.    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.

    

    16.     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
      letter agreement. 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.  

    

    17.    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.

    

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

    

    19.    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.

    
      
        
        

      

      
        -
          12 -

        
          

        

      

      
        
        

      

    

    20.    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 that certain
      Registration Rights Agreement between the Company and the Holder with respect
      to
      the Warrant Shares. 

    

    21.    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.

    

    22.    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.

    

    23.     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.

    

    [signature
      page follows]

    
      
        
        

      

      
        -
          13 -

        
          

        

      

      
        
        

      

    

    Dated
      as
      of: September 7, 2006

    

    
      	 	
              BAYWOOD
                INTERNATIONAL, INC.

            
	 	 	 
	 	 	 
	 	
              By:  
                

            	
               
                

            
	 	 	
              Name:

            
	 	 	
              Title:

            

    

    

    [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 Net Issue Election 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:  
                

            	 	
               ,
                200__

            

    

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

     

    
      	
               

            	 	 
	
              Signature
                Guaranteed:   

            	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    

    ASSIGNMENT

    

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto
      the
      Assignee named below all of the rights of the undersigned represented by the
      within Warrant,
      with respect to the number of Warrant Shares set forth below:

     

    
      	
               

              Name
                of Assignee

            	 	
              Address

            	
               

            	
              Number
                of Warrant
                Shares

            	
               

            	
              Taxpayer
                Identification
                Number

            
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

    

    

    and
      does
      hereby irrevocably constitute and appoint
      ___________________,
      Attorney, to make such
      transfer on the Warrant Register maintained at the principal office of the
      Company with full power
      of
      substitution in the premises.

    

    
      	
              Dated:  
                

            	 	
               200__ 
                

            	 	 

    

    Signature

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

    

     

    Signature
      Guaranteed:

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