THIS NOTE HAS 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 (AS DEFINED BELOW) RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY, THAT THIS NOTE 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.
Form of 12% Subordinated 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) _________, 2009; (ii) consummation of a Change of Control Transaction (as defined herein); and (iii) fifteen
(15) business days following the closing of a debt or equity financing or series of debt or equity financings in
which the Company receives at least $3,000,000 of gross proceeds (a “ Qualified Placement ”), the principal
sum of _____________________ Dollars ($______________) 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 e