Exhibit 4.11
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH
STOCK UNDER SAID
ACT AND ANY APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF
COUNSEL
REASONABLY SATISFACTORY TO DIGITAL LIFESTYLES GROUP, INC. THAT SUCH
REGISTRATION
IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, DIGITAL LIFESTYLES GROUP, INC. a Delaware
corporation (the
"Borrower") promises to pay to LAURUS MASTER FUND, LTD., M&C
Corporate Services
Limited, P.O. Box 309 GT, Ugland House, South Church Street, George
Town, Grand
Cayman, Cayman Islands, Fax: 345-949-8080 (the "Holder") or its
registered
assigns, the sum of Two Million Seven Hundred Fifty Thousand
Dollars
($2,750,000), or, if different, the aggregate principal amount of
all "Loans"
not evidenced by the Revolving Note (as such term is defined in the
Security
Agreement referred to below), together with any accrued and unpaid
interest
hereon, on November 29, 2007 (the "Maturity Date").
Capitalized terms used herein without definition shall have the
meanings
ascribed to such terms in the Security Agreement between Borrower,
certain
Subsidiaries of the Borrower and the Holder dated as of November
29, 2004 (as
amended, modified and supplemented from time to time, the "Security
Agreement").
The following terms shall apply to this Minimum Borrowing Note (the
"Note"):
ARTICLE I
INTEREST
1.1 Contract Rate.
Subject to Sections 1.2, 4.2, 5.1 and 6.7 hereof, interest
payable on this Note shall accrue at a rate per annum equal to the
"prime
rate" published in The Wall Street Journal from time to time, plus
two
percent (2.0%) (the "Contract Rate"). The Prime Rate shall be
increased or
decreased as the case may be for each increase or decrease in the
Prime
Rate
in an amount equal to such increase or decrease in the Prime
Rate;
each
change to be effective as of the day of the change in such rate
in
accordance with the terms of the Security Agreement. Subject to
Section
1.2,
the Contract Rate shall not be less than six percent (6.0 %).
1.2 Contract Rate
Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each month hereafter until
the
Maturity Date (each a "Determination Date") and shall be subject
to
adjustment as set forth herein. If (i) the Borrower shall have
registered
the
shares of the Borrower's common stock underlying each of the
conversion
of
each Minimum Borrowing Note then outstanding and that certain
warrant
issued to Holder on a registration statement declared effective by
the
Securities and Exchange Commission (the "SEC"), and (ii) the market
price
(the
"Market Price") of the Common Stock as reported by Bloomberg, L.P.
on
the
Principal Market (as defined below) for the five (5) trading
days
immediately preceding a Determination Date exceeds the then
applicable
Fixed Conversion Price by at least twenty five percent (25%), the
Contract
Rate
for the succeeding calendar month shall automatically be reduced
by
200
basis points (200 b.p.) (2.0.%) for each incremental twenty
five
percent (25%) increase in the Market Price of the Common Stock
above the
then
applicable Fixed Conversion Price. If (i) the Borrower shall not
have
registered the shares of the Borrower's common stock underlying
the
conversion of each Minimum Borrowing Note then outstanding and that
certain
warrant issued to Holder on a registration statement declared
effective by
the
SEC and which remains effective, and (ii) the Market Price of
the
Common Stock as
reported by Bloomberg, L.P. on the principal market for the
five
(5) trading days immediately preceding a Determination Date
exceeds
the
then applicable Fixed Conversion Price by at least twenty five
percent
(25%), the Contract Rate for the succeeding calendar month
shall
automatically be decreased by 100 basis points (100 b.p.) (1.0.%)
for each
incremental twenty five percent (25%) increase in the Market Price
of the
Common Stock above the then applicable Fixed Conversion Price.
Notwithstanding the foregoing (and anything to the contrary
contained in
herein), in no event shall the Contract Rate be less than zero
percent
(0%). Interest shall be (i) calculated on the basis of a 360 day
year, and
(ii) payable monthly,
in arrears, commencing on December 1, 2004 and on the
first business day of each consecutive calendar month thereafter
until the
Maturity Date (and on the Maturity Date), whether by acceleration
or
otherwise (each, a "Contract Rate Payment Date").
F-33
<PAGE>
ARTICLE II
ADVANCES, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans evidenced by this Note shall
be made in
accordance with the terms and provisions of the Security
Agreement.
2.2. Fixed Conversion Price. For purposes hereof, subject to
Section 3.5 hereof,
the
initial "Fixed Conversion Price" means $0.39.
2.3. No Effective Registration. Notwithstanding anything to the
contrary herein,
the
Holder shall not be required to accept shares of Common Stock
as
payment following a conversion by the Holder if there fails to
exist an
effective current Registration Statement (as defined in the
Registration
Rights Agreement) covering the shares of Common Stock to be issued,
or if
an
Event of Default hereunder exists and is continuing, unless
such
requirement is otherwise waived in writing by the Holder in whole
or in
part
at the Holder's option.
2.4. Optional Redemption in Cash. The Borrower will have the option
of prepaying
this
Note ("Optional Redemption") by paying to the Holder a sum of
money
equal to one hundred twenty percent (120%) of the principal amount
of this
Note
together with accrued but unpaid interest thereon and any and
all
other sums due, accrued or payable to the Holder arising under this
Note,
the
Security Agreement, or any Ancillary Agreement, except the
Revolving
Note
(as such terms are defined in the Security Agreement) (the
"Redemption
Amount") outstanding on the Redemption Payment Date (as defined
below). The
Borrower shall deliver to the Holder a written notice of redemption
(the
"Notice of Redemption") specifying the date for such Optional
Redemption
(the
"Redemption Payment Date"), which date shall be seven (7) days
after
the
date of the Notice of Redemption (the "Redemption Period"). A
Notice of
Redemption shall not be effective with respect to any portion of
this Note
for
which the Holder has previously delivered a Notice of
Conversion
(defined below) pursuant to Section 3.1, or for conversions elected
to be
made
by the Holder pursuant to Section 3.1 during the Redemption
Period.
The
Redemption Amount shall be determined as if such Holder's
conversion
elections had been completed immediately prior to the date of the
Notice of
Redemption. On the Redemption Payment Date, the Redemption Amount
(plus any
additional interest and fees accruing on the Notes during the
Redemption
Period) must be irrevocably paid in full in immediately available
funds to
the
Holder. In the event the Borrower fails to pay the Redemption
Amount on
the
Redemption Payment Date, then such Redemption Notice will be null
and
void.
ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III,
the Holder
shall have the right, but not the obligation, at any time until
the
Maturity Date, or thereafter during an Event of Default (as defined
in
Article IV), and, subject to the limitations set forth in Section
3.2
hereof, to convert all or any portion of the outstanding Principal
Amount
and/or accrued interest and fees due and payable into fully paid
and
nonassessable shares of the Common Stock at the Fixed Conversion
Price. The
shares of Common Stock to be issued upon such conversion are
herein
referred to as the "Conversion Shares."
3.2. Conversion Limitation. Notwithstanding anything contained
herein to the
contrary, the Holder shall not be entitled to convert pursuant to
the terms
of
this Note an amount that would be convertible into that number
of
Conversion Shares which would exceed the difference between 4.99%
of the
outstanding shares of Common Stock of the Borrower and the number
of shares
of
Common Stock beneficially owned by such Holder or issuable upon
exercise
of
warrants held by such Holder. For the purposes of the
immediately
preceding sentence, beneficial ownership shall be determined in
accordance
with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder.
The
Conversion Shares limitation
described in this Section 3.2 shall
automatically become null and void without any notice to Borrower
upon the
occurrence and during the continuance beyond any applicable grace
period of
an
Event of Default, or upon 75 days prior notice to the Borrower.
In
addition, the Holder shall not be entitled to convert pursuant to
the terms
of
this Note during any twenty two (22) trading day period an amount
that
would result in the issuance of Conversion Shares in excess of
thirty
percent (30%) of the trading volume of the Common Stock for the
twenty two
(22)
trading days immediately prior to the Conversion Date (defined
below).
The
Holder shall deliver no more than two (2) Notices of Conversion
(as
defined below) to Borrower during any twenty two (22) day
period.
3.3. Mechanics of Holder's Conversion. In the event that the Holder
elects to
convert this Note into Common Stock, the Holder shall give notice
of such
election by delivering an executed and completed notice of
conversion
("Notice of Conversion") to the Borrower and such Notice of
Conversion
shall provide a breakdown in reasonable detail of the Principal
Amount,
accrued
<PAGE>
interest and fees that are being converted. On each Conversion Date
(as
hereinafter defined) and in accordance with its Notice of
Conversion, the
Holder shall make the appropriate reduction to the Principal
Amount,
accrued interest and fees as entered in its records and shall
provide
written notice thereof to the Borrower within two (2) business days
after
the
Conversion Date. Each date on which a Notice of Conversion is
delivered
or
telecopied to the Borrower in accordance with the provisions
hereof
shall be deemed a Conversion Date (the "Conversion Date"). A form
of Notice
of
Conversion to be employed by the Holder is annexed hereto as
Exhibit A.
Pursuant to the terms of the Notice of Conversion, the Borrower
will issue
instructions to the transfer agent accompanied by an opinion of
counsel, if
such
an opinion is required by the transfer agent, within one (1)
Business
Day
of the date of the delivery to Borrower of the Notice of Conversion
and
shall cause the transfer agent to transmit the certificates
representing
the
Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation
("DTC")
through its Deposit Withdrawal Agent Commission ("DWAC") system
within
three (3) Business Days after receipt by the Borrower of the Notice
of
Conversion (the "Delivery Date"). In the case of the exercise of
the
conversion rights set forth herein the conversion privilege shall
be deemed
to
have been exercised and the Conversion Shares issuable upon
such
conversion shall be deemed to have been issued upon the date of
receipt by
the
Borrower of the Notice of Conversion. The Holder shall be treated
for
all
purposes as the record holder of such Common Stock, unless the
Holder
provides the Borrower written instructions to the contrary. No
fractional
share shall be issued upon any conversion of this Note. If a
conversion
would result in the issuance of a fraction of a share of Common
Stock, the
Borrower shall, in lieu of issuing any fractional share, pay the
Holder
otherwise entitled to such fraction a sum in cash equal to the fair
market
value of such fraction on the Conversion Date (based on the Current
Market
Price Per Share). The "Current Market Price Per Share" on any date
shall
mean
the average of the Quoted Prices of the Common Stock for the
fifteen
(15)
consecutive Business Days ending before the day in question. If
no
such
Quoted Prices are available, however, "Current Market Price Per
Share"
shall be the Fixed Conversion Price. "Quoted Price" means, with
respect to
any
security on any date, the average of the closing prices on such day
of
such
security on all domestic securities exchanges and inter-dealer
quotation systems providing last sale information on which such
security is
then
listed or tracked, or, if there have been no sales on any such
exchange or inter-dealer quotationsystem on such day, the average
of the
highest bid and low
