Exhibit 4.1
CONVERTIBLE NOTE AGREEMENT
Up to $_______, subject to conditions
Walnut, California
Date:_____________, 2005
FOR VALUE
RECEIVED, the undersigned Digital Lifestyles Group
Inc., a Delaware corporation ("Company"),
hereby promises to
pay
to ___________, with an address of ___________________,
("Holder"), at such place as Holder may
specify, in lawful
money
of the United States of America, the
Initial Principal Amount (as
defined herein) of __________________ ($______) Dollars on
________________, 2006 (the "Initial Maturity Date"), plus
interest on the principal amount
outstanding from time
to time
hereunder at a rate equal to seven percent
(7%) per annum.
Interest shall be calculated in arrears on
the principal
amount
outstanding through the last day of each
month and shall be
due
and payable in arrears in monthly installments
on the first
business day of each month commencing on
____________, 2005
for
the Initial Principal Amount and
ending on the Initial
Maturity
Date, as may adjusted according to this
Agreement. All
interest
due hereunder shall be computed on the
basis of a 365 day year.
In the event that the Company
satisfies the conditions set
forth in Section 5 of this Agreement and Holder funds the
Conditional Principal Amount (as defined
herein), then the
face
value of this Agreement shall be increased
by an additional
____________ ($________) Dollars to
__________ ($______)
Dollars
(which such principal amount due hereunder,
as may be adjusted or
if not adjusted, shall be referred to
hereafter as the "Aggregate
Principal Amount") and the Company promises
to pay to Holder such
Conditional Principal Amount on or by ___________, 2006 (the
"Second Maturity Date") plus interest on
the Aggregate Principal
Amount outstanding from time to time
hereunder at a rate equal to
seven percent (7%) per annum. In the event of funding
of the
Conditional Principal Amount, then the Initial Maturity Date
shall be delayed to correspond to the
Second Maturity Date
and
the Aggregate Principal Amount shall
be due and payable on
the
Second Maturity Date, which shall now be
referred to hereinafter
as the "Maturity Date". Interest shall be calculated
and paid
as stated above.
The Company shall pay interest only on the Aggregate
Principal Amount outstanding hereunder from the
date of this
Agreement until the day immediately prior to
the Maturity Date.
On the Maturity Date, the Company shall
repay the Aggregate
Principal Amount outstanding plus any
otherwise unpaid
interest
in the full amount, unless either (i)
Holder elects to
convert
this Agreement into shares of common stock of
the Company in
accordance with Section 4; or (ii) the
Company elects to
prepay
all of this Agreement in accordance with
Section 3 and
Holder
declines or does not exercise his right to
convert this Agreement
into shares of common stock of the Company in
accordance with
Section 4. In the event that Company elects
to prepay part
of
this Agreement in accordance with
Section 3 and Holder
declines
or does not exercise his right to convert this
Agreement into
shares of common stock of the Company in
accordance with Section
4 (as may be adjusted pursuant to Section
7(m), then
on the
Maturity Date, the Company shall repay the
remaining
Aggregate
Principal Amount then outstanding plus any otherwise unpaid
interest in the full amount.
1. Advances;
Payments. On or before the date of this
Convertible Note Agreement (the
"Agreement"), Holder will deliver
to Company in immediately available
funds the Initial
Principal
Amount specified above (net of any costs
and expenses to be
paid
by Company to Holder). Thereafter, this Agreement may be
adjusted as set forth in Section 5 and as
stated above.
All
payments under this Agreement shall be applied first to
interest and then to principal. Any principal or interest
payments on this Agreement outstanding
after the occurrence
and
during the continuance of a default under
this Agreement
shall
bear interest at a rate equal to the lesser of
(i) the lawful
legal rate or (ii) three percent (3%) above the
interest rate
otherwise applicable under this
Agreement.
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2. Representations, Warranties
and Covenants of Company.
(a) Corporate
Existence and
Authority.
Company is
duly organized, validly existing and in
good standing under
the
laws of the State of Delaware.
Company has all
requisite power
to execute and deliver this Agreement, and to perform the
provisions of this Agreement and to
consummate the
transactions
contemplated by this Agreement. The execution, delivery and
performance of this Agreement, and the consummation of the
transactions contemplated by this Agreement, have been duly
authorized and approved by Company.
(b) Compliance
with Law. Company has
complied, and
will comply, in all material respects, with
all provisions of all
applicable laws and regulations, including,
but not limited
to,
those relating to Company's ownership of real or personal
property, the conduct and licensing of Company's
business, and
all environmental matters.
(c) Disclosure.
No representation,
other statement or
information made or provided by Company to
Holder contains
any
untrue statement of a material fact or
omits to state a material
fact necessary to make any statements made to Holder not
misleading.
(d) Information.
Company will provide
Holder with
access to or copies of Company's books, records, financial
statements and such additional financial
and other information as
Holder may reasonably request from time to time; provided,
however, to the extent such information is
not otherwise publicly
available, such information shall be kept
confidential by Holder.
3. Prepayments.
For the first six (6)
months from the date of
funding of the Initial Principal Amount or the Conditional
Principal Amount, as the case may be,
Company may not,
at any
time, prepay the loan evidenced hereby.
Thereafter
upon the
expiration of the respective time periods,
upon written notice by
the Company to the Holder, Company
may, at its option, elect to
prepay all or part of the Aggregate Principal
Amount plus
any
unpaid and accrued interest due hereunder without penalty.
Thereafter, interest will continue to
accrue as set forth
herein
on the remaining principal amount not
prepaid by the
Company.
Notwithstanding any of the forgoing
provisions, upon
receipt of
the Company's notice to prepay all or part of the Aggregate
Principal Amount plus any unpaid and accrued interest due
hereunder, Holder shall have the right to
prevent Company
from
prepaying by electing to convert the
principal amount due
into
shares of the common stock of the Company in
accordance
with
Section 4 herein.
4. Optional Conversion.
(a) At Holder's sole and exclusive
option, at any time
after the effective date of this Agreement
or within three
(3)
business days following receipt of notice
by the Company that
it
wishes to exercise its prepayment rights
set forth in Section
3,
the outstanding principle balance due
under the loan as of
the
Conversion Date evidenced by this Agreement
shall be convertible,
without the payment of any additional
consideration by the Holder
and at the option of the Holder, into
shares of common stock
of
the Company. In the event the Holder elects to
convert, Company
shall issue the number of shares of common
stock equivalent
to
the amount calculated by converting the outstanding
principle
balance and all unpaid and accrued
interest due under the
loan
evidenced by this Agreement as of the
Conversion Date into
such
shares of common stock at a price per share of $0.25. The
outstanding principal shall continue to accrue interest, and
Company shall be obligated to pay such
interest, according to the
terms and conditions of this Agreement
until the Conversion
Date
(as defined below). All unpaid and accrued interest
due under
the loan as of the Conversion Date
evidenced by this
Agreement
shall be paid in cash within three (3)
business days from
the
Conversion Date.
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(b) In order for the Holder to convert
all Aggregate
Principal Amounts owing under this Agreement into shares of
common stock of the Company, Holder shall
deliver a written
notice to Company that the Holder elects to convert this
Agreement. Any conversion made at the election
of the Holder
shall be deemed to have been made
immediately prior to the close
