Exhibit 10.7
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% SUBORDINATED
PROMISSORY NOTE
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$[Principal]
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September 9, 2008
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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, jointly and
severally, promise to pay to the order of [Noteholder] ,
with an address at [Address] (“ Noteholder ”),
in lawful money of the United States, the principal amount of
[Principal] 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
Noteholder in connection with the purchase of certain business
assets and the assumption of related liabilities pursuant to an
Asset Purchase Agreement, of dated September 8, 2008 herewith, by
and among Baywood, Baywood New Leaf Acquisition, Inc., a
wholly-owned subsidiary of Baywood, Eric Skae and Skae Beverage
International, LLC.
2.
Payment .
(a)
Subject to Section 3, the principal
amount of this Note shall be payable as to (i) no less than $25,000
and no more than $50,000 every three (3) months commencing on
the first anniversary of the date hereof and (ii) any and all
remaining principal and any
accrued but unpaid interest in a single
lump sum on the fifth (5th) anniversary of the date
hereof.
(b)
Accrued interest in respect of the twelve
(12) month period following the date hereof shall be calculated and
compounded monthly and be payable in arrears on the first
anniversary of the date hereof.
(c)
Accrued interest in respect of the
forty-eight (48) months following the first anniversary of the date
hereof shall be calculated and compounded monthly and 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 Noteholder’s address set forth in this
Note, or such other address as Noteholder may designate in writing
to Baywood.
3.
Prepayment .
Subject to Noteholder’s prior right
to convert all or any portion of this Note into shares of Common
Stock (hereafter defined) pursuant to Section 4, 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.
Conversion upon Event of
Default.
4.1.
Conversion Procedure
.
(a)
Upon the occurrence of any Event of
Default, as defined below, at its option the Noteholder 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)
Noteholder 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 a form satisfactory to Baywood. 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 Noteholder to receive payments of principal and interest
hereon will cease and Noteholder 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.
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(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 Noteholder:
(i)
a certificate or certificates
representing the number of shares of Common Stock issuable by
reason of such conversion in the name of Noteholder in such
denomination or denominations as Noteholder 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 Noteholder 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,
shall be cancelled by Baywood.
4.2
Conversion Price
.
(a)
Initial Conversion Price
. The Conversion Price will be the
greater of (i) sixty percent (60%) of the Current Market Price (as
defined below) (as adjusted, the “ Discounted Current
Market Price ”) at the time of the Event of Default, and
(ii) $0.85 (the “ Minimum Conversion Price ”).
In order to prevent dilution of the conversion rights granted
hereunder, the Minimum Conversion Price will be subject to
adjustment from time to time pursuant to this Section 4.2.
If the Discounted Current Market Price is lower
than the Minimum Conversion Price on the day of the Conversion, the
Company will provide additional cash compensation (the “
Additional Compensation ”) as set forth below.
Such Additional Compensation will be calculated as the
Minimum Conversion Price less the Discounted Current Market Price
multiplied by the dollar value of the principal converted. By
example, and for illustrative purposes only, if the Noteholder
converts $1,000 of principal at a Conversion Price of $0.85 and the
Discounted Current Market Price is $0.40,
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the Additional Compensation will be
(0.85-0.40)*1,000 or $450.00. Such Additional Compensation
will be rounded up or down to the nearest whole dollar.
The Company will pay the Additional Compensation
in cash within twenty (20) business days following the
Company’s receipt of the conversion notice pursuant to
Section 4.1(b).
(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 business and, pursuant to the te
