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.
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.
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.
(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
