DIGITAL LIFESTYLES GROUP INC
ENGAGEMENT LETTER
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>d18405exv10w4.txt
<DESCRIPTION>ENGAGEMENT LETTER
<TEXT>
<PAGE>

                            MASTER PRIVATE PLACEMENT
                                ENGAGEMENT LETTER

                                                      PERSONAL AND CONFIDENTIAL

                                                          August 31, 2004

Digital Lifestyles Group, Inc.
1001 S. Capital of Texas Hwy.
Building 1, Suite 210
Austin, Texas 78746

Attention:        Mr. Kent Savage, Chairman and Chief Executive Officer

Dear Kent:

You have indicated that Digital Lifestyles Group, Inc. (the "COMPANY") desires
to obtain financing for general corporate purposes. The purpose of this letter
(this "AGREEMENT") is to set forth the agreement between the Company and Tejas
Securities Group, Inc. ("TEJAS") regarding the services to be performed by
Tejas.

In connection with the proposed private placement (the "FINANCING") by the
Company of not less than 9,400,000 units (the "SECURITIES"), each unit ("UNIT")
consisting of one share of the Company's Common Stock ("SHARE") and a warrant
(on the terms hereinafter described) ("WARRANT") to purchase one-half of a
Share, priced at the arithmetic mean of the average of the closing sales price
of one share of Common Stock on the Nasdaq OTC Market for the five trading days
ending on the trading date immediately preceding the date of the closing of the
sale of the Securities ("MARKET VALUE") multiplied by (ii) 0.8 per Unit (the
"PER UNIT PRICE"), and on such other terms and conditions to be established by
mutual agreement at the time of sale, the Company and Tejas agree. The Warrants
will be for a term of two (2) years and have an exercise price equal to 110% of
Market Value per Share, which will be subject to adjustment in order to protect
the holders thereof against dilution in certain events.

1.       (a)      Prior to the sale of the Securities to any offeree or any
                  person advising such offeree, they shall: (i) be furnished
                  information by the Company pertaining to the Securities and
                  the terms and conditions of the Financing, and (ii) be given
                  the opportunity by the Company to ask questions and receive
                  answers concerning the Company and the Securities and the
                  terms and conditions of the Financing.

         (b)      The final offering documents signed in connection with the
                  placement of the Securities, including, but not limited to,
                  any stock purchase agreement or any private placement
                  memorandum (the "OFFERING DOCUMENTS"), will not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make such information not
                  misleading.

         (c)      The Company covenants that it shall promptly notify Tejas if,
                  because of the occurrence of any event or condition, the
                  passing of time or otherwise, any of the


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                  Offering Documents, shall, prior to final purchase of the
                  Securities, contain any untrue statement of a material fact or
                  omit to state a material fact necessary to make the
                  statements, in light of the circumstances under which they
                  were made, not misleading. The Offering Documents shall be
                  amended in form and substance so that after giving effect to
                  such amendment, the Offering Documents will not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements in light of the
                  circumstances under which they were made, not misleading.

         (d)      The Company shall furnish or make available to Tejas or its
                  authorized representatives any and all documentation and
                  information reasonably requested in connection with Tejas' due
                  diligence efforts regarding this placement.

         (e)      Except for the Securities and the issuance of stock options or
                  the underlying shares of common stock relating thereto
                  issuable pursuant to the Company Stock Option Plan or any
                  other shares of common stock underlying derivative securities
                  of the Company outstanding on the date hereof, the Company
                  shall not offer to sell any securities of the same class or
                  similar securities as the Securities from the date hereof
                  until after a period of six (6) months has elapsed after the
                  date of the last sale of the Securities unless the Company
                  shall have provided Tejas with a satisfactory opinion from the
                  Company's legal counsel as to whether the proposed offering
                  does not cause any violation of any securities laws, rules or
                  regulations.

2.       The Company hereby appoints Tejas as its exclusive agent to attempt to
         arrange the private placement of the Securities during the period
         commencing on the date of execution of this letter by the Company and
         ending on midnight, August 31, 2004 (the "OFFERING PERIOD"), which may
         be extended by mutual written agreement of the parties hereto;
         provided, however, that the Offering Period will automatically be
         extended until midnight, September 8, 2004 upon notice from Tejas that
         it has identified Investors interested in investing in the Securities
         who require the additional time to complete any closing documents or
         procedures (and any reference hereinafter to the Offering Period shall
         mean the Offering Period as so extended). Subject to the terms and
         conditions herein set forth, Tejas accepts such appointment and shall
         endeavor to find purchasers (the "INVESTORS") for all of the Securities
         who can satisfy the Company that they qualify as "accredited investors"
         pursuant to Rule 501 promulgated under the Securities Act of 1933 (the
         "1933 ACT"). Tejas makes no warranty or guaranty of its success in
         placing the Securities and there is no express or implied warranty and
         no liability to Tejas for failure to expend any particular level of
         effort. Tejas' agency hereunder is coupled with an interest and such
         agency shall continue until the termination of the Offering Period. The
         Company shall have the right to reject any and all proposed purchasers
         of the Securities for any reason the Company deems reasonable. This
         paragraph 2 and paragraphs 4, 5 and 7 below shall survive any
         termination of this Agreement. Notwithstanding the foregoing, in the
         event that a potential purchaser of the Securities (the "OFFEREE") is
         contacted by Tejas during the Offering Period and the Offeree purchases
         Securities from the Company after the expiration of the Offering
         Period, at any time during a period of twelve (12) months from the date
         of this Agreement, Tejas shall be entitled to the same fees and
         warrants provided for below with respect to such purchase had the
         purchase occurred during the Offering Period.


<PAGE>

3.       During the Offering Period, the Company shall not, directly or
         indirectly (except through Tejas), offer to sell, or attempt to offer
         or sell, or solicit any offer to buy, or otherwise negotiate in respect
         of, any of the Securities other than to existing stockholders,
         employees of the Company and other non-institutional potential
         purchasers contacted by the Company prior to the Offering Period (the
         "Company Purchasers").

4.       Upon the closing of the sale of Securities, the Company shall pay Tejas
         a fee in cash at closing equal to four percent (4%) of the aggregate
         proceeds from the sale of Securities to the Investors, which shall not
         include up to $1.1 million in proceeds from the Company Purchasers. At
         the end of the Offering Period (as the same may be extended), if the
         Company and the Investors have agreed on the form of closing documents
         and the Investors are ready and willing to purchase Securities with an
         aggregate purchase price of at least $3.9 million, but the Company
         Purchasers are not ready and willing to purchase Securities with an
         aggregate purchase price of at least $1.1 million and there is no
         closing of the sale of Securities, then the Company shall pay Tejas a
         fee equal to $40,000 and the expense reimbursement described in the
         following sentence. The Company also agrees to reimburse Tejas for all
         documented reasonable out-of-pocket expenses incurred on this project
         through the end of the Offering Period, subject to an aggregate limit
         of $15,000 ($25,000 if the Offering Period is extended) without prior
         written approval. Such expense reimbursement is not contingent upon the
         successful completion of the transaction contemplated hereunder and
         shall be payable upon the first to occur of the closing of the sale of
         the Securities or 30 days after billed by Tejas. The Company shall be
         responsible for, and shall make, all filings required with state
         securities administrators in connection with the Financing and to pay
         all costs and expenses (including legal and filing fees) in connection
         therewith.

5.       (a)      The Company agrees, for a price of one hundred dollars
                  ($100.00) to sell to Tejas, concurrently with, but subject to
                  and contingent on the consummation of the successful sale of
                  the Securities, Warrants exercisable into a number of Shares
                  equal to the sum of 1,000,000 and the number obtained by
                  dividing the gross proceeds from the sale of Securities in
                  excess of $5.0 Million by 5 (including for such purposes
                  Securities purchased by Company Purchasers). By way of
                  example, if Securities are sold resulting in aggregate
                  proceeds of $6,000,000, then Tejas will be entitled to a
                  warrant to purchase 1,200,000 Shares
                  (1,000,000+[1,000,000/5]). All Shares issuable upon the
                  exercise of such Warrants will be issuable out of the
                  authorized unissued shares of Common Stock of the Company.
                  Such Warrants will have a term of eight (8) years and may be
                  exercised as to all or any lesser number of Shares covered
                  thereby, commencing at the end of the Offering Period. Such
                  Warrants shall be transferable (subject to applicable
                  securities laws) and shall contain provisions that require
                  registration for re-sale of the underlying Common Stock, with
                  the registration to remain effective until all can be freely
                  sold without volume limitations under Rule 144(k), all
                  exercisable in whole or in part on a net cashless exercise
                  basis, with the exercise period extended for any period during
                  which the registration is lapsed.


<PAGE>

         (b)      The exercise price of the Warrants to be received by Tejas
                  shall be equal to the exercise price for the Warrants sold to
                  Investors in this Offering and shall except as noted in
                  paragraph 5(a) above, otherwise have the same terms and
                  conditions.

         (c)      Additionally, the Company agrees that Tejas will have, for a
                  period of twelve (12) months from the date of the Agreement ,
                  the right to participate on the same terms and conditions as
                  any other managing underwriter or placement agent in any
                  public offerings, private placements or other equity or debt
                  financings that may be undertaken by the Company in which the
                  Company's Common Stock or securities convertible into or
                  exercisable for Common Stock (including, without limitation,
                  convertible debt) is to be sold at a price, or with a
                  conversion or exercise price, less than $0.416 or at a
                  discount of greater than 30% of the fair market value of such
                  security, in each case on terms and conditions customary for
                  similar transactions. Tejas shall exercise such right within
                  twenty-four (24) hours of receipt of written notification from
                  the Company describing in sufficient detail the terms of such
                  financing. In the event of a breach of this subparagraph 5(c),
                  then Tejas will be entitled to receive the same fee it is
                  receiving under the Agreement for any such financings.

6.       Prior to the sale of any of the Securities, the Company shall make
         customary representations and warranties to Tejas and the purchasers of
         the Securities.

7.       The Company agrees to indemnify Tejas as set forth in Schedule I
         attached hereto, which is to be an integral part of this Agreement.

8.       Any dispute, controversy or claim arising out of, relating to, or in
         connection with, this Agreement or the breach, termination or validity
         hereof shall be settled by submission to arbitration before the
         National Association of Securities Dealers, Inc. ("NASD"), pursuant to
         the Code of Arbitration Procedure of that organization. All parties
         agree to the jurisdiction of the NASD for such purposes. If arbitration
         before the NASD is not available, the parties shall arbitrate pursuant
         to the rules of the American Arbitration Association.

9.       Except where otherwise herein provided all notices, information,
         consents and other communications required or permitted by the
         provisions of this Agreement to be given, sent by any party, shall be
         in writing and shall be deemed to be properly given when: (i) delivered
         personally to any of the hereinafter designated addressees or the named
         representatives thereof; (ii) mailed by prepaid certified or registered
         mail, return receipt requested; or (iii) when sent by telephone
         facsimile, telegram, cable or email; and in each instance addressed to
         such party at the respective address as follows (in each such case
         promptly confirmed with a copy thereof sent as in (ii)):


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If to the Company:                               If to Tejas:

Digital Lifestyles Group, Inc.                   Tejas Securities Group, Inc.
1001 S. Capital of Texas Hwy.                    2700 Via Fortuna, Suite 400
Building 1, Suite 210                            Austin, TX 78746
Austin, Texas 78746

<TABLE>
<S>               <C>                                         <C>                <C>
Attention:        Kent Savage                                 Attention:         John J. Gorman
                  Chairman and Chief Executive Officer                           Chairman
</TABLE>

Either party may at any time change its respectively designated address above by
giving notice thereof to the other parties hereto.

10.      The Company acknowledges that Tejas has been retained hereunder solely
         as an adviser to the Company, and not as an adviser to or agent of any
         other person, and that the Company's engagement of Tejas is as an
         independent contractor and not in any other capacity including as a
         fiduciary. Neither this engagement, nor the delivery of any advice in
         connection with this engagement, is intended to confer rights upon any
         persons not a party hereto (including security holders, employees or
         creditors of the Company) as against Tejas or our affiliates or their
         respective directors, officers, agents and employees.

11.      This agreement is governed by the laws of the State of Texas, without
         regard to conflicts of law principles, and will be binding upon and
         inure to the benefit of the Company and Tejas and their respective
         successors and assigns. This agreement may be executed in two or more
         counterparts, each of which shall be deemed to be an original, but all
         of which shall constitute one and the same agreement. Neither this
         Agreement nor any provisions hereof shall be modified except by an
         instrument in writing, signed by both parties.

If the foregoing correctly sets forth our understanding, please so indicate by
signing and returning to us the enclosed copy.

                                        Very truly yours,

                                        Tejas Securities Group, Inc.



                                    By: /s/ John J. Gorman
                                       ----------------------------------------
                                       John J. Gorman
                                       Chairman

Agreed to and accepted this 31st day of August

Digital Lifestyles Group, Inc.



By: /s/ Kent A. Savage
   ----------------------------------
   Kent A. Savage
   Chief Executive Officer


<PAGE>

                                   SCHEDULE I

1.       The person or entity (the "COMPANY") engaging the services of Tejas
         Securities Group, Inc. ("TEJAS") pursuant to the attached agreement
         (the "AGREEMENT") hereby agrees to indemnify and hold harmless Tejas
         and its affiliates, the respective directors, officers, employees, and
         agents of Tejas and its affiliates, and each other person or entity, if
         any, controlling Tejas or any of its affiliates (Tejas and each of the
         foregoing persons or entities being each referred to herein as an
         "INDEMNIFIED PARTY") from and against any and all losses, claims,
         damages and liabilities whatsoever, joint or several, and expenses
         incurred by them (including, without limitation reasonable fees and
         disbursements of counsel) to which any such Indemnified Party may
         become subject which (a) are related to or arise out of (i) action
         taken or omitted to be taken (including, without limitation, any untrue
         statements made or any statements omitted to be made) by the Company,
         or (ii) action taken or omitted to be taken by an Indemnified Party at
         the Company's direction; or (b) are otherwise related to or arise out
         of Tejas activities on the Company's behalf under the Agreement
         (INCLUDING, WITHOUT LIMITATION, ANY LOSSES, CLAIMS, ACTIONS, DAMAGES,
         LIABILITIES (WHETHER JOINT OR SEVERAL), AND EXPENSES ARISING OUT OF OR
         RESULTING FROM THE SOLE OR CONCURRENT NEGLIGENCE OF ANY INDEMNIFIED
         PARTY), and will reimburse any Indemnified Party for all reasonable
         expenses (including, without limitation, reasonable fees and
         disbursements of counsel) as they are incurred in connection with the
         investigation of, preparation for or defense of any pending or
         threatened claim or any action or proceeding arising therefrom,
         regardless of whether such Indemnified Party is a party and regardless
         of whether such claim, action or proceeding is initiated or brought by
         or on behalf of the Company. The Company will not be liable to any
         Indemnified Party under the foregoing indemnification provisions to the
         extent that any loss, claim, damage, liability or expense otherwise
         subject to indemnification under clause (b) above is finally judicially
         determined (after exhaustion of all appeals or rights to appeal) to
         have resulted primarily and directly from the willful misconduct or
         gross negligence of such Indemnified Party. The Company also agrees
         that no Indemnified Party shall have any liability (WHETHER DIRECT OR
         INDIRECT, IN CONTRACT OR TORT OR OTHERWISE, AND WHETHER ARISING OUT OF
         OR RESULTING FROM THE SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY
         OR VICARIOUS LIABILITY OF SUCH INDEMNIFIED PARTY) to the Company or its
         security holders or creditors related to or arising out of the
         engagement of Tejas or its activities on behalf of the Company, except
         to the extent that any loss, claim, damage, liability or expense is
         finally judicially determined (after exhaustion of all appeals or
         rights to appeal) to have resulted primarily from the Indemnified
         Party's willful misconduct or gross negligence. The Company further
         agrees that it will not, without the prior written consent of any
         Indemnified Party in its sole discretion, settle or compromise or
         consent to the entry of any judgment in any pending or threatened
         claim, action, suit or proceeding in respect of which indemnification
         may be sought hereunder (whether or not any Indemnified Party is an
         active or potential party to such claim, action, suit or proceeding)
         unless such settlement, compromise or consent (a) includes an
         unconditional release of each affected Indemnified Party from all
         liability arising out of such claim, action, suit or proceeding, and
         (b) does not include a statement indicating, or an admission of, any
         fault, culpability, or a failure to act by any affected Indemnified
         Party.

2.       Promptly after receipt by an Indemnified Party of notice of any claim
         or complaint or the commencement of any action or proceeding with
         respect to which indemnification may be


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         sought hereunder, such Indemnified Party shall notify the Company in
         writing of such claim or complaint or of the commencement of such
         action or proceeding, but the failure to so notify the Company will not
         relieve the Company from any liability which it may have hereunder or
         otherwise, except to the extent that such failure results in the
         Company's forfeiture of material rights or defenses. If the Company so
         elects or is requested by such Indemnified Party, the Company will
         assume the defense of such action or proceeding, including without
         limitation, the employment of counsel satisfactory to such Indemnified
         Party in its sole discretion, and the payment of the fees and
         disbursements of such counsel. Each Indemnified Party shall have the
         right to employ separate counsel in any such action or proceeding and
         to participate in the defense thereof, but the fees and expenses of
         such separate counsel shall be at the expense of such Indemnified Party
         unless (a) the employment thereof has been specifically authorized by
         the Company; (b) the Company has failed to promptly assume or to
         diligently conduct the defense and employ counsel acceptable to such
         Indemnified Party in its sole discretion; or (c) the named parties, or
         parties threatened to be named, to any such action or proceeding
         (including, without limitation, any impleaded parties or parties
         threatened to be impleaded) include both such Indemnified Party and the
         Company, and such Indemnified Party shall have been advised by such
         counsel that there may be one or more legal defenses available to it
         which are different from or additional to those available to the
         Company (in each of which cases such Indemnified Party shall have the
         right to employ its own counsel and in each of such cases any fees and
         expenses of such counsel shall be paid by the Company). The Company
         shall pay the fees and expenses of legal counsel engaged in accordance
         with the foregoing provisions promptly after such fees and expenses are
         invoiced.

3.       In the event that an Indemnified Party is requested or required to
         appear as a witness or otherwise participate (including, without
         limitation, through deposition or other discovery) any action or
         proceeding brought by or on behalf of, or against, the Company in which
         such Indemnified Party is not named as a defendant, the Company agrees
         to reimburse Tejas or the Indemnified Party, as the case may be, for
         all reasonable expenses incurred by it, as incurred, in connection with
         such Indemnified Party's appearing and preparing to appear as such a
         witness, including, without limitation, the reasonable fees and
         disbursements of its legal counsel, and to compensate Tejas or the
         Indemnified Party, as the case may be, in an amount to be mutually
         agreed upon.

4.       If for any reason (other than as specified in the second sentence of
         Paragraph 1 above) the benefits of the foregoing indemnification or
         reimbursement provisions are unavailable to an Indemnified Party or
         insufficient to hold any Indemnified Party harmless in respect of any
         losses, claims, damages, liabilities or expenses (or actions in respect
         thereof) referred to herein, then the Company and Tejas shall
         contribute to the amount paid or payable by any of the Indemnified
         Parties as a result of such claim, damage, loss, liability or expense
         in such proportion as is appropriate to reflect not only the relative
         benefits received by the Company, on the one hand, and Tejas, on the
         other hand, from Tejas engagement under the Agreement referred to
         above, but also the relative fault of the Company, on the one hand, and
         Tejas, on the other hand, as well as any other relevant equitable
         considerations; provided, that Tejas obligation to make contribution
         will not exceed under any circumstances the amount of fees actually
         received by Tejas from the Company pursuant to the Agreement. The
         relative benefits received by the Company, on the one hand, and Tejas,
         on the other hand, shall be deemed to be in the same proportions as (i)
         the total value paid or proposed to be paid or received or


<PAGE>

         proposed to be received by the Company or its stockholders pursuant to
         the transaction, whether or not consummated, for which Tejas is engaged
         to render financial advisory services, bears to (ii) the fees paid or
         proposed to be paid to Tejas in connection with the Agreement. The
         relative fault of the Company, on the one hand, and Tejas, on the other
         hand, shall be determined by reference to, among other things, the
         parties' relative intent, knowledge, access to information and
         opportunity to correct or prevent the alleged act, statement or
         omission giving rise to such loss, claim, damage, liability or expense.
         The Company and Tejas agree that it would not be just and equitable if
         contribution were determined by pro rata allocation or by any other
         method of allocation which does not take account of the equitable
         considerations referred to above in this Paragraph 4. The amount paid
         or payable by an Indemnified Party as a result of the losses, claims,
         damages, liabilities or expense (or actions in respect thereof)
         referred to above in this Paragraph 4 shall be deemed to include any
         legal or other expenses incurred by such Indemnified Party in
         connection with investigating or defending any such claim. No person or
         entity guilty of fraudulent misrepresentation (within the meaning of
         Section II(f) of the Securities Act) shall be entitled to contribution
         from any person or entity who was not guilty of such fraudulent
         misrepresentation. If indemnification and reimbursement is available
         under the preceding Paragraphs of this Schedule I, that indemnification
         and reimbursement (in accordance with its terms) shall apply without
         regard to relative fault or other equitable considerations referred to
         in this Paragraph 4.

5.       The foregoing indemnification, reimbursement and contribution
         obligations of the Company shall be (i) cumulative of and in addition
         to any rights that any Indemnified Party may have at common law or
         otherwise, and (ii) APPLICABLE, TO THE EXTENT SET FORTH ABOVE,
         REGARDLESS OF WHETHER SOLE OR CONCURRENT NEGLIGENCE (OTHER THAN GROSS
         NEGLIGENCE), STRICT LIABILITY OR VICARIOUS LIABILITY OF ANY INDEMNIFIED
         PARTY IS ALLEGED OR PROVEN. No investigation or failure to investigate
         by an Indemnified Party shall impair the foregoing indemnification,
         reimbursement and contribution obligations of the Company or any right
         an Indemnified Party may have. The Company acknowledges and agrees that
         Tejas has been retained to provide certain services to the Company more
         specifically described in the Agreement. In such capacity, Tejas shall
         act as an independent contractor, and any duties of Tejas arising out
         of its engagement pursuant to the Agreement shall be owed solely to the
         Company.

6.       The Company hereby consents to personal jurisdiction and service and
         venue in any court in which any claim which is subject to the foregoing
         indemnification, reimbursement and (if applicable) contribution
         provisions is brought against any Indemnified Party.

7.       It is understood that, in connection with Tejas above-mentioned
         engagement, Tejas may also be engaged to act in one or more additional
         capacities, and that the terms of the original engagement or any such
         additional engagement may be embodied in one or more separate written
         agreements. The foregoing indemnification, reimbursement and (if
         applicable) contribution provisions shall apply to the original
         engagement, any such additional engagement and any modification of the
         original engagement or such additional engagement and shall survive, or
         remain in full force and effect following, the completion or any
         termination of Tejas' engagement(s).

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