8% CONVERTIBLE SUBORDINATED PROMISSORY NOTE

Exhibit 10.8

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE “LAWS”). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS.

BAYWOOD INTERNATIONAL, INC.

8% CONVERTIBLE SUBORDINATED

PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, BAYWOOD INTERNATIONAL, INC. , a Nevada corporation (“ Baywood ”), located at 14950 North 83 ^rd Place, Suite 1, Scottsdale, Arizona 85260, hereby promises to pay to the order of SKAE BEVERAGE INTERNATIONAL, LLC , with an address at 60 Dutch Hill Road #9, Orangeburg, New York (“ Company ”), in lawful money of the United States, the principal amount of One Million Dollars ($1,000,000) together with interest on the unpaid principal amount hereof, from the date hereof until the outstanding principal amount hereof shall be paid in full, at the rate of eight percent (8%) per annum computed on the basis of a 365-day year.  

1.

Note .  This subordinated promissory note (this “ Note ”) is being delivered by Baywood to Company in partial consideration for the purchase of the Purchased Assets and the Company Business (as such terms are defined in that certain Asset Purchase Agreement, of dated September 9, 2008 herewith, by and among Baywood, Baywood New Leaf Acquisition, Inc., a wholly owned subsidiary of Baywood, Eric Skae and Company (the “ Asset Purchase Agreement ”)).  Unless otherwise stated herein, all capitalized terms not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement.

2.

Payment .  

(a)

Subject to Section 3(a), the principal amount of this Note along with any accrued but unpaid interest shall be payable in a single lump sum on the fifth (5th) anniversary of the date hereof.  

(b)

Accrued interest during the twelve (12) month period following the date hereof shall be due and payable in arrears on the first anniversary of the date hereof.  

(c)

Accrued interest during the forty-eight (48) months following the first anniversary of the date hereof shall be payable in arrears in quarterly installments on each three-month anniversary of the first anniversary of the date hereof.

(d)

All payments shall be made in immediately available funds at Company’s address set forth in the Asset Purchase Agreement, or such other address as Company or its transferee or assignee may designate in writing to Baywood.  Unless otherwise directed, Company hereby directs that payments shall be made to the order of Eric Skae, 42 Delongis Court, Sparkill, NY 10976.

3.

Prepayment .  

(a)

Notwithstanding the provisions of Section 2(a), Company has the right, exercisable by notice in writing at any time on or after February 28, 2009, to declare One Hundred and Fifty Thousand Dollars ($150,000) of the principal amount of this Note to be due and payable on March 31, 2009, if such amount is requested by Company or Eric Skae, its sole member, to satisfy liabilities arising from the transactions contemplated by the Asset Purchase Agreement and Baywood agrees to pay such amount upon such request.

(b)

Subject to Company’s prior right to convert all or any portion of this Note into shares of Common Stock (hereafter defined), this Note may be prepaid in whole or in part at any time or from time to time without premium or penalty or discount, together with accrued interest to the date of payment on the principal amount prepaid.

4.

Optional Conversion of Note.

4.1.

Conversion Procedure .  

(a)

At any time Company at its option may convert all or any portion of this Note into the number of shares (rounded to the nearest share) of common stock, par value $0.001 per share, of Baywood (the “ Common Stock ”), computed by dividing the principal amount of this Note to be converted together with the accrued interest on such principal amount by the Conversion Price (hereafter defined) then in effect.

(b)

Company shall effect a conversion by surrendering this Note accompanied by a proper assignment thereof to Baywood together with a completed and duly executed conversion notice in the form annexed hereto.  Such conversion of this Note will be deemed to have been effected as of the close of business on the date on which this Note and the duly completed exercise notice have been surrendered at the principal office of Baywood.  At such time as such conversion has been effected, the rights of Company to receive

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payments of principal and interest hereon will cease and Company will be deemed to have become the holder of record of the shares of Common Stock represented thereby.  Provisions of this Note that apply to conversion of all of this Note also apply to conversion of a portion of it.

(c)

As soon as possible after a conversion has been effected (but in any event within five (5) days after the surrender of this Note and the conversion notice to Baywood), Baywood will deliver to Company:

(i)

a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in the name of Company in such denomination or denominations as Company has specified; and

(ii)

a new duly executed Note for the principal amount of this Note which was delivered to Baywood in connection with such conversion but which was not converted.

(d)

The issuance of certificates for shares of Common Stock upon conversion of this Note will be made without charge to Company for any issuance tax in respect thereof or other cost incurred by Baywood in connection with such conversion and the related issuance of shares of Common Stock.  Baywood represents and warrants that upon conversion of this Note, the Common Stock issuable with respect to such conversion will be validly issued, fully paid and nonassessable.

(e)

Baywood will not close their respective books against the transfer of this Note or of Common Stock issued or issuable upon conversion of this Note in any manner which interferes with the timely conversion of this Note.  Baywood will from time to time take all such action as may be necessary to assure that the par value per share of the Common Stock acquirable upon conversion of this Note is at all times equal to or less than the Conversion Price then in effect.

(f)

This Note, when delivered for conversion and upon delivery of the stock certificate contemplated in clause (c)(i) above along with any replacement note for the balance due and payable hereunder, shall be cancelled by Baywood.

4.2

Conversion Price .  

(a)

Initial Conversion Price .  The initial Conversion Price will be $1.50 per share.  In order to prevent dilution of the conversion rights granted hereunder, the Conversion Price will be subject to adjustment from time to time pursuant to this Section 4.2.

(b)

Reorganization, Reclassification, Merger or Sale .  In case Baywood shall effect a reorganization, shall merge with or consolidate into another corporation, or shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or

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business and, pursuant to the terms of such reorganization, merger, consolidation or disposition of assets, shares of stock or other securities, property or assets of Baywood, successor or transferee or an affiliate thereof are to be received by or distributed to the holders of Common Stock, then Company shall be provided with written notice from Baywood informing Company of the terms of such reorganization, merger, consolidation or disposition of assets and of the record date thereof for any distribution pursuant thereto, at least ten (10) days in advance of such record date, and Company shall have, in addition to the rights provided for herein, the right to receive, at Company’s election, either (i) upon conversion of this Note, the number of shares of stock or other securities, property or assets of Baywood, successor, transferee or affiliate thereof or cash receivable upon or as a result of such reorganization, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such event or (ii) the securities into which this Note is converted upon, or as a result of such reorganization, mer