Letter Agreement Regarding Outstanding Debt and Merger Terms between Digital Lifestyles Group Inc. and Laurus Master Fund, Ltd. (December 8, 2005)

Summary

This agreement is between Digital Lifestyles Group Inc. and Laurus Master Fund, Ltd. It outlines how Digital will handle its $1.9 million debt to Laurus during a planned merger with Protron. Digital will make interest-only payments until February 2006, then pay half the debt in cash and the rest in company stock upon the merger. Laurus will receive registration rights for the shares. The agreement also ends a lockbox arrangement but keeps Laurus’s security interest in Digital’s assets. The terms expire on February 20, 2006, unless the merger occurs sooner.

EX-10.1 3 dlfgex10_1.txt LETTER AGREEMENT DATED DECEMBER 8, 2005 Exhibit 10.1 Digital Lifestyles Group Inc. 727 Brea Canyon Road, #6 Walnut, California 91789 ###-###-#### December 8, 2005 Laurus Master Fund, Ltd. c/o Laurus Capital Management, LLC 825 Third Avenue, 14th Floor New York, NY 10022 Re: Outstanding Debt for Digital Lifestyles Group Inc. ("Digital") Gentlemen: On behalf of Digital, I am sending this letter in an attempt to capture Laurus's discussions with Andy Teng on behalf of the outstanding debt Digital owes to Laurus Master Fund, Ltd. ("Laurus") pursuant to Digital's credit facility provided by Laurus. The following outlines Digital's proposal as discussed: 1. Digital anticipates it will complete a merger with Protron ("merger") on or before February 15, 2006, pursuant to which merger Digital will be the surviving entity. 2. Laurus and Digital agree that, with respect to the months of November 2005, December 2005, January 2006 and February 2006, Digital will make interest only payments to Laurus on the aggregate outstanding principal amount of US$1.9 Million owed under the current note issued by Digital to Laurus. Such interest shall be calculated at a per annum rate of the then current prime rate as of the last business day of such month interest accrues as reported in the Wall Street Journal plus 2%. Interest shall be due and payable in cash in arrears on the 1st of each month beginning on December 1, 2005. The first interest payment (which would have been due on December 1, 2005) will be made by Digital upon execution of this letter agreement. 3. On the date of the merger, Digital will pay in cash to Laurus an amount equal to 50% of the outstanding note balance, which 50% amount is equal to $950,000. 4. On the date of the merger, Digital will issue to Laurus an equivalent number of shares of Digital's common stock to pay the remainder of the outstanding note balance in shares of common stock of Digital, at a conversion price based on the previous 30 day average VWAP price calculation prior to the date of the merger. Digital will grant Laurus registration rights for the shares so issued. Digital anticipates that it will have its Annual Report on Form 10-K and any other quarterly reports, as well as any other filings necessary to meet the "current public information" requirement, as such term is commonly understood under the Securities Act of 1933, filed with the SEC in a six month time frame from the date this agreement is signed, and as soon as practicable thereafter, the shares registered for resale pursuant to a Registration Rights Agreement, a draft copy of which is attached as an Exhibit to this letter agreement. 5. Upon execution of this Agreement, Laurus agrees to terminate the current lockbox arrangement required under the existing security agreement between Laurus and Digital. Laurus does not release its security interest in any assets of Digital and hereby reserves its rights thereto. Digital will utilize the proceeds of its accounts receivable for its operating purposes. 6. All agreements made by Laurus and Digital under this letter agreement shall terminate on February 20, 2006, unless Laurus and Digital otherwise agree or the merger is consummated on or prior to such date. In the event of any such termination, all agreements entered into by and among Laurus, Digital and/or any subsidiary or affiliate of Digital prior to the date hereof (collectively, the "Existing Agreements") shall control. Except as specifically set forth in this letter agreement, there are no other amendments or modifications to the Existing Agreements. Laurus hereby reserves all rights and remedies under law and/or equity, and does not waive any of Digital's obligations under the Existing Agreements in any respect, except as set forth herein. This letter agreement shall be governed by, and construed in accordance with, the laws of the State of New York. If the foregoing meets with your acknowledgement and understanding, please execute below to effect this Agreement. Sincerely, Digital Lifestyles Group Inc. By:/s/ Andy Teng Name: Andy Teng Title: Chief Executive Officer Accepted and agreed this ___ day of December, 2005: Laurus Master Fund, Ltd. By: /s/ David Grin Its: Fund Manager