-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4m6rngETezwr1CUUwjQZaebJwVHGfoA19zIpUGKLmYJgj1wnqMQzOD/vsWu/+3M 1pEn7eE14lwFbgqxHLsusA== 0000950123-03-000723.txt : 20030129 0000950123-03-000723.hdr.sgml : 20030129 20030129161008 ACCESSION NUMBER: 0000950123-03-000723 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20030129 GROUP MEMBERS: DOLPHIN COMM PARALLEL FUND II NETHERLANDS L P GROUP MEMBERS: DOLPHIN COMMUNICATIONS FUND II L P GROUP MEMBERS: DOLPHIN COMMUNICATIONS FUND L P GROUP MEMBERS: DOLPHIN COMMUNICATIONS I L L C GROUP MEMBERS: DOLPHIN COMMUNICATIONS II L P GROUP MEMBERS: DOLPHIN COMMUNICATIONS L P GROUP MEMBERS: DOLPHIN COMMUNICATIONS LLC GROUP MEMBERS: DOLPHIN COMMUNICATIONS PARALLEL FUND L P GROUP MEMBERS: EPOCH HOLDINGS INC GROUP MEMBERS: EPOCH HOSTING INC GROUP MEMBERS: EPOCH NETWORKS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VITALSTREAM HOLDINGS INC CENTRAL INDEX KEY: 0000789851 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870429944 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-39870 FILM NUMBER: 03530076 BUSINESS ADDRESS: STREET 1: ONE JENNER STREET 2: SUITE 100 CITY: IRIVINE STATE: CA ZIP: 92618 BUSINESS PHONE: (949) 743-2000 MAIL ADDRESS: STREET 1: ONE JENNER STREET 2: SUITE 100 CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: CRITERION VENTURES INC DATE OF NAME CHANGE: 19871126 FORMER COMPANY: FORMER CONFORMED NAME: LARSON DAVIS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SENSAR CORP /NV/ DATE OF NAME CHANGE: 19990501 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BREKKA RICHARD CENTRAL INDEX KEY: 0001216110 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: DOLPHIN EQUITY PARTNERS LP STREET 2: 750 LEXINGTON AVE. CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 y82902sc13d.txt SCHEDULE 13D -------------------------- OMB APPROVAL OMB Number: 3235-0145 Expires: December 31, 2005 Estimated average burden hours per response......11 -------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) VITALSTREAM HOLDINGS, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK, $0.001 PAR VALUE PER SHARE - -------------------------------------------------------------------------------- (Title of Class of Securities) 817253107 - -------------------------------------------------------------------------------- (CUSIP Number) DOLPHIN EQUITY PARTNERS, L.P. 750 LEXINGTON AVENUE, 16TH FLOOR NEW YORK, NEW YORK 10022 ATTENTION: MR. RICHARD J. BREKKA TEL: (212) 446-1600 WITH A COPY TO: KIRKLAND & ELLIS CITIGROUP CENTER 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 ATTENTION: MR. JOHN KUEHN, ESQ. TEL: (212) 446-4821 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) JANUARY 15, 2003 - -------------------------------------------------------------------------------- (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box.[ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 24 Pages ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Epoch Hosting, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 3,498,419 shares of common stock ------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER OWNED BY -0- ------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING 3,498,419 shares of common stock ------------------------------------------------------ PERSON 10 SHARED DISPOSITIVE POWER WITH -0- - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO ================================================================================ * SEE INSTRUCTIONS. Page 2 of 24 Pages ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Epoch Networks, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION California - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 3,498,419 shares of common stock ------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER OWNED BY -0- ------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING 3,498,419 shares of common stock ------------------------------------------------------ PERSON 10 SHARED DISPOSITIVE POWER WITH -0- - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO ================================================================================ * SEE INSTRUCTIONS. Page 3 of 24 Pages ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Epoch Holdings, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 3,498,419 shares of common stock ------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER OWNED BY -0- ------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER REPORTING 3,498,419 shares of common stock ------------------------------------------------------ PERSON 10 SHARED DISPOSITIVE POWER WITH -0- - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO ================================================================================ * SEE INSTRUCTIONS. Page 4 of 24 Pages - ------------------- ------------ CUSIP No. 817253107 13D Page 5 of 34 - ------------------- ------------ [Repeat following page as necessary] - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications Fund, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES ----------------------------------------------------- 8 SHARED VOTING POWER BENEFICIALLY 3,498,419 shares of common stock OWNED BY ----------------------------------------------------- 9 SOLE DISPOSITIVE POWER EACH ----------------------------------------------------- REPORTING 10 SHARED DISPOSITIVE POWER PERSON 3,498,419 shares of common stock WITH - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 5 of 24 Pages - ------------------- ------------ CUSIP No. 817253107 13D Page 6 of 34 - ------------------- ------------ [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications Parallel Fund, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 3,498,419 shares of common stock ----------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING -0- PERSON ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER WITH 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 6 of 24 Pages - ------------------- ------------ CUSIP No. 817253107 13D Page 7 of 34 - ------------------- ------------ [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications Fund II, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 4,600,888 shares of common stock (including 3,286,270 shares of common stock BENEFICIALLY issuable upon conversion of convertible notes and 688,725 shares of common stock issuable OWNED BY upon exercise of warrants) ----------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING 3,498,419 shares of common stock PERSON ----------------------------------------------------- 9 SOLE DISPOSITIVE POWER WITH 4,600,888 shares of common stock (including 3,286,270 shares of common stock issuable upon conversion of convertible notes and 688,725 shares of common stock issuable upon exercise of warrants) ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,099,307 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 24.5% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 7 of 24 Pages - ------------------- ------------ CUSIP No. 817253107 13D Page 8 of 34 - ------------------- ------------ [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. DENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications Parallel Fund II (Netherlands), L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 516,896 shares of common stock (including 429, 870 shares of common stock issuable upon BENEFICIALLY conversion of convertible notes and 77,376 shares of common stock issuable upon exercise OWNED BY of warrants) ----------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING 3,498,419 shares of common stock ----------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 516,896 shares of common stock (including 429,870 shares of common stock issuable upon conversion of convertible notes and 77,376 shares of common stock issuable upon exercise of warrants) ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 4,015,315 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.1% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 8 of 24 Pages - ------------------- ------------ CUSIP No. 817253107 13D Page 9 of 34 - ------------------- ------------ [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications, L.P - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 3,498,419 shares of common stock ----------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING -0- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 9 of 24 Pages - ------------------- ------------- CUSIP No. 817253107 13D Page 10 of 34 - ------------------- ------------- [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications II, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 5,117,785 shares of common stock (including 4,256,141 shares of common stock issuable upon BENEFICIALLY conversion of convertible notes and 766,105 shares of common stock issuable upon exercise OWNED BY of warrants) ----------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING 3,498,419 shares of common stock ----------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 5,117,785 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,616,204 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.0% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 10 of 24 Pages - ------------------- ------------- CUSIP No. 817253107 13D Page 11 of 34 - ------------------- ------------- [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications I, L.L.C. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES -0- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 3,498,419 shares of common stock ----------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING -0- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.6% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 11 of 24 Pages - ------------------- ------------- CUSIP No. 817253107 13D Page 12 of 34 - ------------------- ------------- [Repeat following page as necessary] ================================================================================ 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Dolphin Communications, L.L.C. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 5,117,785 shares of common stock (including 4,256,141 shares of common stock issuable upon BENEFICIALLY conversion of convertible notes and 766,105 shares of common stock issuable upon exercise OWNED BY of warrants) ----------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING 3,498,419 shares of common stock ----------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 5,117,785 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER 3,498,419 shares of common stock - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,616,204 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.0% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN ================================================================================ * SEE INSTRUCTIONS. Page 12 of 24 Pages - ------------------ ------------- CUSIP NO.817253107 13D Page 13 of 34 - ------------------ ------------- [Repeat following as necessary] - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS / I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Richard Brekka - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 8,616,204 shares of common stock (including 4,256,141 shares of common stock issuable BENEFICIALLY upon conversion of convertible notes and 766,105 shares of common stock issuable OWNED BY upon exercise of warrants) ----------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING -0- ----------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 8,616,204 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) ----------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,616,204 shares of common stock (including 4,256,141 shares of common stock issuable upon conversion of convertible notes and 766,105 shares of common stock issuable upon exercise of warrants) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.0% (calculated based upon the number of shares of common stock outstanding as of January 15, 2003, and assuming the conversion of all convertible notes and the exercise of all warrants held by each member of the group of reporting persons filing this Schedule 13D) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* - -------------------------------------------------------------------------------- Page 13 of 24 Pages - ------------------ ------------- CUSIP NO.817253107 13D Page 14 of 34 - ------------------ ------------- [REPEAT FOLLOWING AS NECESSARY] IN ================================================================================ * SEE INSTRUCTIONS. Page 14 of 24 Pages This Schedule 13D is filed by Epoch Hosting, Inc., a Delaware corporation ("Hosting"), Epoch Networks, Inc., a California corporation ("Networks"), Epoch Holdings, Inc., a Delaware corporation ("Holdings"), Dolphin Communications Fund, L.P., a Delaware limited partnership ("Dolphin Fund I"), Dolphin Communications Parallel Fund, L.P., a Delaware limited partnership ("Dolphin Parallel I"), Dolphin Communications Fund II, L.P., a Delaware limited partnership ("Dolphin Fund II"), Dolphin Communications Parallel Fund II (Netherlands), L.P. ("Dolphin Parallel II"), Dolphin Communications, L.P., a Delaware limited partnership ("Dolphin Communications"), Dolphin Communications II, L.P., a Delaware limited partnership ("Dolphin Communications II"), Dolphin Communications I, L.L.C., a Delaware limited liability company ("Dolphin I LLC"), Dolphin Communications, L.L.C., a Delaware limited liability company ("Dolphin LLC") and Richard Brekka, an individual ("Brekka," and together with Hosting, Networks, Holdings, Dolphin Fund I, Dolphin Parallel I, Dolphin Fund II, Dolphin Parallel II, Dolphin Communications, Dolphin Communications II, Dolphin I LLC and Dolphin LLC, the "Reporting Persons"). ITEM 1. SECURITY AND ISSUER. The class of equity security to which this statement relates is the common stock, $0.001 par value per share (the "Common Stock"), of VitalStream Holdings, Inc., a Nevada corporation (the "Issuer"). The principal executive offices of the Issuer are located at One Jenner, Suite 100, Irvine, California 92618. ITEM 2. IDENTITY AND BACKGROUND. (a) Pursuant to Rule 13d-1(k)(1)-(2) of Regulation 13D-G of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Act"), the undersigned hereby file this statement on Schedule 13D on behalf of the Reporting Persons. The Reporting Persons are making this single, joint filing because they may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Act. The agreement among the Reporting Persons to file as a group (the "Group Agreement") is attached hereto as Exhibit A. (b)-(c), (f) HOSTING, NETWORKS AND HOLDINGS Hosting is Delaware corporation. Prior to January 15, 2003, Hosting engaged in the Internet hosting and co-location business. On January 15, 2003, Hosting divested substantially all of its assets and business and is currently in the process of liquidating, therefore, Hosting is not presently engaged in any business. Hosting is a wholly owned subsidiary of Networks. Prior to October 10, 2002, Networks engaged in the Internet access business. On October 10, 2002, Networks divested substantially all of its assets and business and is currently in the process of liquidating, therefore, Networks is not presently engaged in any business. Networks is a wholly owned subsidiary Holdings. The principal business of Holdings is serving as a holding company for all of the outstanding shares of Networks. Page 15 of 24 Pages The principal business and principal office address of Hosting, Networks and Holdings is 555 Anton Boulevard, Costa Mesa, California 92626. DOLPHIN FUND I, DOLPHIN PARALLEL I, DOLPHIN COMMUNICATIONS AND DOLPHIN I LLC Dolphin Fund I is a Delaware limited partnership. The principal business of Dolphin Fund I is that of a private investment partnership. The sole general partner of Dolphin Fund I is Dolphin Communications. Dolphin Parallel I is a Delaware limited partnership. The principal business of Dolphin Parallel I is that of a private investment partnership. The sole general partner of Dolphin Parallel I is Dolphin Communications. Dolphin Communications is a Delaware limited partnership. The principal business of Dolphin Communications is that of acting as the general partner of Dolphin Fund I and Dolphin Parallel I. The sole general partner of Dolphin Communications is Dolphin I LLC. Dolphin I LLC is a Delaware limited liability company. The principal business of Dolphin I LLC is that of acting as the general partner of Dolphin Communications. Dolphin I LLC is managed by Brekka, its sole managing member. The principal business and principal office address of Dolphin Fund I, Dolphin Parallel I, Dolphin Communications and Dolphin I LLC is 750 Lexington Avenue, 16th Floor, New York, New York 10022. DOLPHIN FUND II, DOLPHIN PARALLEL II, DOLPHIN COMMUNICATIONS II AND DOLPHIN LLC Dolphin Fund II is a Delaware limited partnership. The principal business of Dolphin Fund II is that of a private investment partnership. The sole general partner of Dolphin Fund II is Dolphin Communications II. Dolphin Parallel II is a Delaware limited partnership. The principal business of Dolphin Parallel II is that of a private investment partnership. The sole general partner of Dolphin Parallel II is Dolphin Communications II. Dolphin Communications II is a Delaware limited partnership. The principal business of Dolphin Communications II is that of acting as the general partner of Dolphin Fund II and Dolphin Parallel II. The sole general partner of Dolphin Communications is Dolphin LLC. Dolphin LLC is a Delaware limited liability company. The principal business of Dolphin LLC is that of acting as the general partner of Dolphin Communications II. Dolphin LLC is managed by Brekka, its sole managing member. The principal business and principal office address of Dolphin Fund II, Dolphin Parallel II, Dolphin Communications II and Dolphin LLC is 750 Lexington Avenue, 16th Floor, New York, New York 10022. Page 16 of 24 Pages BREKKA Richard Brekka, the managing member of Dolphin LLC and Dolphin I LLC, is a citizen of the United States and his principal occupation is managing member of Dolphin I LLC and Dolphin LLC (d) None of the entities or persons identified in this Item 2 has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the entities or persons identified in this Item 2 has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION On November 1, 2002, Networks and Hosting (collectively, as to both parties, the "Selling Parties") entered into an Asset Purchase Agreement, as amended and restated by that certain Amended and Restated Asset Purchase Agreement, dated January 15, 2003 (as amended and restated, the "Asset Purchase Agreement"), with the Issuer and VitalStream Broadcasting Corporation, a Nevada corporation and wholly owned subsidiary of the Issuer ("Broadcasting," together with the Issuer, the "Buying Parties"). Pursuant to the Asset Purchase Agreement: (1) the Buying Parties agreed to purchase substantially all of the assets of Hosting and certain assets of Networks related to the Selling Parties' Internet hosting business, (2) the Buying Parties agreed to assume certain liabilities of the Selling Parties related to the Selling Parties' Internet hosting business and (3) the Issuer agreed to pay cash consideration of $200,000 and issue 3,498,419 shares of Common Stock (the "Asset Purchase Agreement Shares") to Hosting (such number of shares subject to adjustment based upon the satisfaction of certain earn-out provisions set forth in the Asset Purchase Agreement). The Asset Purchase Agreement is attached hereto as Exhibit B, and any description herein is qualified in its entirety by reference thereto. The Selling Parties received the Asset Purchase Agreement Shares in consideration for the sale by the Selling Parties of certain of their assets, as described below, accordingly no funds were required. On November 1, 2002, Dolphin Fund II, Dolphin Parallel II, the Issuer and Broadcasting entered into a Note And Warrant Purchase Agreement, as amended and restated by that certain Amended and Restated Note And Warrant Purchase Agreement, dated January 15, 2003 (as amended and restated, the "Note Purchase Agreement"). Under the Note Purchase Agreement: (a) Dolphin Fund II acquired convertible notes of the Issuer in the aggregate principal amount of $988,900, which convertible notes were convertible, as of January 15, 2003 into 3,826,270 shares of Common Stock (subject to adjustment as described below) (all such convertible notes issued pursuant to the Note Purchase Agreement, the "Convertible Notes") and a warrant (all such warrants issued pursuant to the Note Purchase Agreement, the "Warrants") to purchase, as of January 15, 2003, 688,728 shares of Common Stock, subject to adjustment as described below, and (b) Dolphin Parallel II acquired Convertible Notes in the principal amount of $111,100, which Convertible Notes were convertible, as of January 15, 2003, into 429,870 Page 17 of 24 Pages shares of Common Stock (subject to adjustment as described below), and a Warrant to purchase, as of January 15, 2003, 77,376 shares of Common Stock (subject to adjustment as described below). In consideration for their agreement to purchase the Convertible Notes and Warrants, Dolphin Fund II was issued 85,889 shares of Common Stock and Dolphin Parallel Fund II was issued 9,650 shares of Common Stock (collectively, as to all such shares of Common Stock, the "Commitment Fee"). The Notes, Warrants and Commitment Fee were issued in consideration for an aggregate payment by Dolphin Fund II and Dolphin Parallel Fund II of $1,100,000. The Note Purchase Agreement is attached hereto as Exhibit C, and any description herein is qualified in its entirety by reference thereto. The source of funds for such purchase was the working capital, or funds available for investment, of Dolphin Fund II and Dolphin Parallel Fund II. At any time and from time to time prior to the payment of the Convertible Note in full, Dolphin Fund II may convert all or any portion of the outstanding principal amount of any Note (plus, at the option of Dolphin Fund II, any accrued and unpaid interest on the principal amount converted) into a number of shares of the Issuer's Common Stock or, at the option of Dolphin Fund II, shares of the Issuer's 2002 Series A Preferred Stock (such Series A Preferred, together with the Common Stock, the "Conversion Stock"). The number of shares of Conversion Stock into which the Convertible Note is subject to adjustment for the issuance of shares of Common Stock pursuant to the Asset Purchase Agreement and certain other agreements to which the Issuer is a party. The Convertible Note is attached hereto as Exhibit D, and any description herein is qualified in its entirety by reference thereto. The Warrants are exercisable immediately, for a period of three years ending on January 15, 2006, at an exercise price of $0.3432 per share of Common Stock, subject to adjustment for the issuance of shares of Common Stock pursuant to the Asset Purchase Agreement and certain other agreements to which the Issuer is a party. A form of Warrant is attached hereto as Exhibit E, and any description herein is qualified in its entirety by reference thereto. ITEM 4. PURPOSE OF THE TRANSACTION. The Reporting Persons have acquired securities of the Issuer for investment purposes. (b) See the transactions consummated by the Asset Purchase Agreement and Note Purchase Agreement set forth in Item 3 above. (c) In connection with the transactions contemplated by the Note Purchase Agreement, Dolphin Fund II, Dolphin Parallel II, the Selling Parties, the Issuer and certain other parties thereto entered into an Investors Rights Agreement, dated November 1, 2002 (the "Investors Rights Agreement"), pursuant to which the number of directors on the board of directors of the Issuer was increased and, subject to certain conditions, Dolphin Fund II and Dolphin Parallel II were granted the right to designate one individual to the Board of Directors of the Issuer. In accordance therewith, on January 9, 2003, Salvatore Tirabassi was elected to the Board of Directors of the Issuer as a representative of Dolphin Fund II and Dolphin Parallel II. The Investors Rights Agreement is attached hereto as Exhibit F, and any description herein is qualified in its entirety by reference thereto. Page 18 of 24 Pages ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) The following information is based on a total of 33,077,904 shares of Common Stock outstanding as of January 15, 2003, and gives effect to the conversion of all Convertible Notes, and exercise of all Warrants, held by each Reporting Person assuming conversion as of January 15, 2003. As discussed in Item 4, the number of Asset Purchase Agreement shares, and the number of shares of Common Stock into which the Convertible Notes are convertible and the Warrants are exercisable, are subject to adjustment as set forth in each applicable agreement. HOSTING Hosting owns 3,498,419 shares of Common Stock, or approximately 10.6% of the Common Stock outstanding and has sole voting power of over such shares. NETWORKS Networks, as the parent of Hosting has sole voting power over the approximately 3,498,419 shares of Common Stock held by Hosting and may be deemed to beneficially own the shares held by Hosting. HOLDINGS Holdings, as the parent of Networks and indirect parent of Hosting has sole voting power over the approximately 3,498,419 shares of Common Stock held by Hosting and may be deemed to beneficially own the shares held by Hosting. DOLPHIN FUND I, DOLPHIN PARALLEL I, DOLPHIN FUND II AND DOLPHIN PARALLEL II Dolphin Fund I, Dolphin Parallel I, Dolphin Fund II and Dolphin Parallel II collectively own approximately 92% of the shares of common stock of Holdings (as determined on a fully diluted basis), Hosting's indirect parent, have shared voting power of the shares of Common Stock held by Hosting and together may be deemed to beneficially own the shares held by Hosting. Dolphin Fund II has sole voting power over the approximately 4,600,888 shares of Common Stock acquired pursuant to the Note Purchase Agreement, or approximately 13.8% of the Common Stock outstanding. Dolphin Parallel II has sole voting power over the approximately 516,896 shares of Common Stock acquired pursuant to the Note Purchase Agreement, or approximately 1.6% of the Common Stock outstanding. DOLPHIN COMMUNICATIONS AND DOLPHIN COMMUNICATIONS II Dolphin Communications, as the general partner of Dolphin Fund I and Dolphin Parallel I, and Dolphin Communications II, as the general partner of Dolphin Fund II and Dolphin Parallel II have shared voting power of the shares of Common Stock held by Hosting and may be deemed to beneficially own those shares. Dolphin Communications II has sole Page 19 of 24 Pages voting power over the shares of Common Stock held by Dolphin Fund II and Dolphin Parallel II and may be deemed to beneficially own those shares. DOLPHIN I LLC AND DOLPHIN LLC Dolphin I LLC, as the general partner of Dolphin Communications, may be deemed to beneficially own the securities held by Hosting. Dolphin LLC, as the general partner of Dolphin Communications II, may be deemed to beneficially own the shares of Common Stock held by Dolphin Fund II and Dolphin Parallel II and have sole voting power over those shares of Common Stock. Dolphin I LLC and Dolphin LLC have shared voting power of the shares of Common Stock held by Hosting. BREKKA Richard Brekka is the managing member of Dolphin I LLC and Dolphin LLC and may be deemed to beneficially own, and have sole voting power over, the shares of Common Stock held by Hosting, Dolphin Fund II and Dolphin Parallel II. (c) Not Applicable. (d) Not Applicable. (e) Not Applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. In addition to those agreements discussed in Item 4 above, the Issuer entered into a registration agreement dated as of November 1, 2002 with Dolphin Fund II and Dolphin Parallel II (the "Registration Agreement") pursuant to which, subject to certain limitations, the Issuer has agreed to register shares of Common Stock of the Issuer held by, and at the request of, Dolphin Fund II and Dolphin Parallel II. The Registration Agreement is attached hereto as Exhibit G, and any description herein is qualified in its entirety by reference thereto. The Issuer, Dolphin Fund II and Dolphin Parallel II have also entered into an Escrow Agreement dated January 15, 2003 (the "Escrow Agreement"), pursuant to which the Selling Parties have agreed to place a portion of the Asset Purchase Agreement Shares into escrow so that such shares will be available to satisfy any amounts which may be owed by the Selling Parties to the Issuer under the indemnification provisions set forth in the Asset Purchase Agreement. In the event of a breach by the Selling Parties in certain representations, warranties, covenants and agreements set forth in the Asset Purchase Agreement, up to one-half of the Asset Purchase Agreement Shares may be returned to the Issuer. The Escrow Agreement is attached hereto as Exhibit H, and any description herein is qualified in its entirety by reference thereto. Page 20 of 24 Pages ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit A -- Group Agreement Exhibit B -- Amended and Restated Asset Purchase Agreement dated January 15, 2003 Exhibit C -- Amended and Restated Note Purchase Agreement dated January 15, 2003 Exhibit D -- Form of Convertible Note Exhibit E -- Form of Stock Purchase Warrant Exhibit F -- Investors Rights Agreement dated November 1, 2002 Exhibit G -- Registration Agreement dated November 1, 2002 Exhibit H -- Escrow Agreement dated January 15, 2003 Page 21 of 24 Pages SIGNATURES After reasonable inquiry and to the best of each of the undersigned's knowledge and belief, each of the undersigned certify that the information set forth in this statement is true, complete and correct. Date: January 29, 2003 EPOCH HOSTING, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary EPOCH NETWORKS, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary EPOCH HOLDINGS, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary DOLPHIN COMMUNICATIONS FUND, L.P. By: Dolphin Communications, L.P., Its General Partner By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------ Name: Richard J. Brekka Title: President Page 22 of 24 Pages DOLPHIN COMMUNICATIONS PARALLEL FUND, L.P. By: Dolphin Communications, L.P., Its General Partner By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------ Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS, L.P. By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President Page 23 of 24 Pages DOLPHIN COMMUNICATIONS I, L.L.C., By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: Managing Member DOLPHIN COMMUNICATIONS II, L.P. By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS, L.L.C. By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: Managing Member RICHARD BREKKA /s/ Richard Brekka ------------------------------------------- Page 24 of 24 Pages EX-99.A 3 y82902exv99wa.txt GROUP AGREEMENT EXHIBIT A AGREEMENT OF EPOCH HOSTING, INC., EPOCH NETWORKS, INC., EPOCH HOLDINGS, INC., DOLPHIN COMMUNICATIONS FUND, L.P., DOLPHIN COMMUNICATIONS PARALLEL FUND, L.P., DOLPHIN COMMUNICATIONS FUND II, L.P., DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P., DOLPHIN COMMUNICATIONS, L.P., DOLPHIN COMMUNICATIONS II, L.P., DOLPHIN COMMUNICATIONS I, L.L.C., DOLPHIN COMMUNICATIONS, L.L.C. AND RICHARD BREKKA, PURSUANT TO RULE 13d-1(k) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED The undersigned hereby agree that the statement on schedule 13D to which this Agreement is annexed as Exhibit A is filed on behalf of each of them in accordance with the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended. Date: January 29, 2003 EPOCH HOSTING, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary EPOCH NETWORKS, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary EPOCH HOLDINGS, INC. By:/s/ Karen Muller ------------------------------------------- Name: Karen Muller Title: Secretary DOLPHIN COMMUNICATIONS FUND, L.P. By: Dolphin Communications, L.P., Its General Partner By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President A-1 DOLPHIN COMMUNICATIONS PARALLEL FUND, L.P. By: Dolphin Communications, L.P., Its General Partner By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS, L.P. By: Dolphin Communications I, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President A-2 DOLPHIN COMMUNICATIONS I, L.L.C., By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: Managing Member DOLPHIN COMMUNICATIONS II, L.P. By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS, L.L.C. By:/s/ Richard Brekka ------------------------------------------- Name: Richard J. Brekka Title: Managing Member RICHARD BREKKA /s/ Richard Brekka ------------------------------------------- A-3 EX-99.B 4 y82902exv99wb.txt AMENDED AND RESTATED ASSET PURCHASE AGREEMENT EXHIBIT B AMENDED AND RESTATED ASSET PURCHASE AGREEMENT B-1 AMENDED AND RESTATED ASSET PURCHASE AGREEMENT DATED AS OF JANUARY 15, 2003 AMONG VITALSTREAM HOLDINGS, INC., VITALSTREAM BROADCASTING CORPORATION, EPOCH HOSTING, INC. AND EPOCH NETWORKS, INC. TABLE OF CONTENTS 1. Definitions................................................................................... 1 2. Basic Transaction............................................................................. 16 (a) Purchase and Sale of Assets.......................................................... 16 (b) Assumption of Liabilities............................................................ 16 (c) Consideration........................................................................ 17 (d) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(iii) of the Merger Agreement........................... 18 (e) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(iv) of the Merger Agreement............................ 19 (f) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(v) of the Merger Agreement............................. 20 (g) Allocation of Consideration.......................................................... 20 (h) The Closing.......................................................................... 20 (i) Deliveries at the Closing............................................................ 21 (j) Post-Closing Deliveries.............................................................. 21 3. Representations and Warranties of Hosting and Networks........................................ 21 (a) Organization, Corporate Power and Licenses........................................... 21 (b) Approval and Consents; Authorization; No Breach...................................... 22 (c) Subsidiaries......................................................................... 22 (d) Hosting Financial Statements......................................................... 22 (e) Notes and Accounts Receivable; Notes and Accounts Payable............................ 23 (f) Guaranties........................................................................... 24 (g) Title to Assets; Condition of Assets; Sufficiency of Assets.......................... 24 (h) Absence of Undisclosed Liabilities................................................... 24 (i) Absence of Certain Developments...................................................... 25 (j) Compliance With Laws................................................................. 26 (k) Litigation........................................................................... 26 (l) Contracts and Commitments............................................................ 27 (m) Tax Matters.......................................................................... 28 (n) Real Property........................................................................ 30 (o) Environmental Matters................................................................ 32 (p) Intellectual Property Rights......................................................... 33 (q) Employees............................................................................ 35 (r) Employee Benefits Relating to Hosting................................................ 36 (s) Employee Benefits Relating to Networks............................................... 36 (t) Insurance............................................................................ 37 (u) Affiliate Transactions............................................................... 37 (v) Brokerage............................................................................ 38 (w) Governmental Consent, etc............................................................ 38 (x) Disclosure........................................................................... 38 (y) Capital Stock and Related Matters.................................................... 38 (z) Investment in Purchase Shares........................................................ 38
-i- (aa) Customers and Suppliers.............................................................. 39 (bb) Paid January Expenses................................................................ 39 4. Representations and Warranties of VitalStream................................................. 40 (a) Organization, Corporate Power and Licenses........................................... 40 (b) Approval and Consents; Authorization; No Breach...................................... 40 (c) Subsidiaries......................................................................... 41 (d) Securities and Exchange Commission Reports and VitalStream Financial Statements...... 41 (e) Notes and Accounts Receivable........................................................ 42 (f) Guaranties........................................................................... 42 (g) Title to Assets; Condition of Assets; Sufficiency of Assets.......................... 42 (h) Absence of Undisclosed Liabilities................................................... 43 (i) Absence of Certain Developments...................................................... 43 (j) Compliance With Laws................................................................. 45 (k) Litigation........................................................................... 45 (l) Contracts and Commitments............................................................ 45 (m) Tax Matters.......................................................................... 47 (n) Real Property........................................................................ 48 (o) Environmental Matters................................................................ 50 (p) Intellectual Property Rights......................................................... 51 (q) Employees............................................................................ 54 (r) Employee Benefits.................................................................... 54 (s) Insurance............................................................................ 56 (t) Affiliate Transactions............................................................... 56 (u) Brokerage............................................................................ 56 (v) Governmental Consent, etc............................................................ 56 (w) Disclosure........................................................................... 56 (x) Capital Stock and Related Matters.................................................... 57 (y) Issuance of the Purchase Shares...................................................... 58 (z) Customers and Suppliers.............................................................. 58 (aa) Investment Company................................................................... 58 5. Pre-Closing Covenants......................................................................... 58 (a) General.............................................................................. 58 (b) Notices and Consents................................................................. 58 (c) Operation and Preservation of Business............................................... 59 (d) Full Access.......................................................................... 60 (e) Notice of Developments............................................................... 60 (f) Exclusivity.......................................................................... 61 6. Additional Agreements......................................................................... 62 (a) General.............................................................................. 62 (b) Litigation Support................................................................... 62 (c) Purchase Shares...................................................................... 63 (d) Employees............................................................................ 64 (e) Non-Competition; Non-Interference; Non-Solicitation.................................. 64
-ii- (f) No Assignment Causing Breach......................................................... 66 (g) Mail, Notices and Other Correspondence............................................... 66 (h) Tax Matters.......................................................................... 67 (i) Notice of Assignment................................................................. 67 (j) Updating Hosting Contracts List...................................................... 67 (k) Post-Closing Certifications and Deliveries........................................... 69 (l) Additional Software Licenses......................................................... 69 (m) Reimbursement For Paid January Expenses.............................................. 69 (n) Reimbursement For Unpaid January Expenses............................................ 69 7. Conditions to Obligation to Close............................................................. 70 (a) Conditions to Obligation of Each of VitalStream and the Buyer........................ 70 (b) Conditions to Obligation of Each of Hosting and Networks............................. 73 8. Survival of Representations and Warranties; Indemnification................................... 76 (a) Survival of Representations and Warranties........................................... 76 (b) Indemnification of VitalStream....................................................... 76 (c) Indemnification of the Holders of the Purchase Shares................................ 77 (d) Method of Asserting Claims Involving Third-Party Claims.............................. 78 (e) Method of Asserting Claims not Involving Third-Party Claims.......................... 79 (f) Limitations.......................................................................... 79 (g) Exclusive Remedies................................................................... 80 9. [Intentionally Deleted]....................................................................... 81 10. Miscellaneous................................................................................. 81 (a) Expenses............................................................................. 81 (b) Press Releases and Public Announcements.............................................. 81 (c) No Third-Party Beneficiaries......................................................... 81 (d) Entire Agreement..................................................................... 81 (e) Successors and Assigns............................................................... 81 (f) Counterparts......................................................................... 81 (g) Descriptive Headings; Interpretation................................................. 81 (h) Notices; Business Days............................................................... 82 (i) Amendments and Waivers............................................................... 83 (j) Severability......................................................................... 83 (k) Construction......................................................................... 83 (l) Incorporation of Annexes, Schedules and Exhibits..................................... 84 (m) Specific Performance................................................................. 84 (n) GOVERNING LAW........................................................................ 84 (o) JURISDICTION AND VENUE............................................................... 85 (p) WAIVER OF RIGHT TO JURY TRIAL........................................................ 85
-iii- ANNEXES, SCHEDULES AND EXHIBITS ANNEXES Annex 1 -- Eligible Networks Employees SCHEDULES Schedule 1(b) -- Excluded Hosting Assets Schedule 1(c) -- Hosting Business Customers Schedule 1(d) -- Hosting Permits and Licenses Schedule 1(e) -- Hosting Records and Miscellaneous Items Schedule 1(f) -- Hosting Tangible Personal Property Schedule 1(g) -- Hosting Customer Security Deposits Schedule 3(a) -- Organization, Corporate Power and Licenses Schedule 3(b) -- Approval and Consents Schedule 3(e) -- Notes and Accounts Receivable; Notes and Accounts Payable Schedule 3(f) -- Guaranties Schedule 3(g) -- Title to Assets; Condition of Assets Schedule 3(i) -- Absence of Certain Developments Schedule 3(j) -- Compliance with Laws Schedule 3(k) -- Litigation Schedule 3(l) -- Contracts and Commitments Schedule 3(m) -- Tax Matters Schedule 3(n)(ii) -- Hosting Leased Real Property Schedule 3(p)(iii) -- Intellectual Property Rights - Patents, Trademarks and Copyrights Schedule 3(p)(iv) -- Intellectual Property Rights - Third Parties Schedule 3(q) -- Employees Schedule 3(r) -- Employee Benefits Schedule 3(s) -- Employee Benefits Relating to Networks Schedule 3(u) -- Affiliate Transaction Schedule 3(aa) -- Customers and Suppliers Schedule 3(bb) -- Paid January Expenses Schedule 4(a) -- Organization, Corporate Power and Licenses Schedule 4(b) -- Approval and Consents Schedule 4(c) -- Subsidiaries Schedule 4(d) -- Securities and Exchange Commission Reports and VitalStream Financial Statements Schedule 4(e) -- Notes and Accounts Receivable; Notes and Accounts Payable Schedule 4(f) -- Guaranties Schedule 4(g) -- Title to Assets; Condition of Assets Schedule 4(i) -- Absence of Certain Developments Schedule 4(j) -- Compliance with Laws Schedule 4(k) -- Litigation Schedule 4(l) -- Contracts and Commitments Schedule 4(l)(ii) -- Contracts and Commitments -iv- Schedule 4(m) -- Tax Matters Schedule 4(n)(ii) -- Hosting Leased Real Property Schedule 4(p)(iii) -- Intellectual Property Rights - Patents, Trademarks and Copyrights Schedule 4(p)(iv) -- Intellectual Property Rights - Third Parties Schedule 4(q) -- Employees Schedule 4(r) -- Employee Benefits Schedule 4(t) -- Affiliate Transaction Schedule 4(u) -- Brokerage Schedule 4(x)(i) -- Capital Stock and Related Matters Schedule 4(z) -- Customers and Suppliers Schedule 6(l) -- Additional Software Licenses Schedule 8(f)(ii) -- Non-Locatable Asset List EXHIBITS Exhibit A -- Form of Colocation Agreement Exhibit B -- Form of Escrow Agreement Exhibit C -- Form of Investor Rights Agreement Exhibit D -- Form of Master Access Agreement Exhibit E -- Form of Networks Contribution Agreement Exhibit F -- Form of Opinion of Hosting's Counsel Exhibit G -- Form of Opinion of VitalStream's Counsel Exhibit H -- Form of Registration Agreement Exhibit I -- Form of Customer Migration Agreement Exhibit J -- Form of Assignment and Assumption Agreement Exhibit K -- Form of Bill of Sale Exhibit L -- Hosting Financial Statements Exhibit M -- Form of Partial Termination and Second Amendment to Sublease Agreement Exhibit N -- Form of Hosting Schedule Bring Down Officer's Certificate Exhibit O -- Form of VitalStrean Schedule Bring Down Officer's Certificate -v- AMENDED AND RESTATED ASSET PURCHASE AGREEMENT This AMENDED AND RESTATED ASSET PURCHASE AGREEMENT, dated as of January 15, 2003 (this "Agreement"), by and among VitalStream Holdings, Inc., a Nevada corporation ("VitalStream"), VitalStream Broadcasting Corporation, a Nevada corporation (the "Buyer"; and together with VitalStream, the "Buying Parties"), Epoch Networks, Inc., a California corporation ("Networks"), and Epoch Hosting, Inc. a Delaware corporation ("Hosting"). VitalStream, Buyer, Networks and Hosting are referred to collectively herein as the "Parties." Unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings set forth in Section 1 of this Agreement. RECITALS WHEREAS, the Parties hereto entered into that certain Asset Purchase Agreement dated as of November 1, 2002 (the "Original Asset Purchase Agreement") pursuant to which the Buyer agreed to (1) purchase substantially all of the assets of Hosting and certain specified assets of Networks and (2) assume certain specified Liabilities of Hosting and Networks related to their Hosting Businesses and (3) VitalStream agreed to pay the Cash Consideration and issue the Purchase Shares to Hosting as consideration therefore. WHEREAS, the closing of the transactions contemplated by the Original Asset Purchase Agreement has not yet been consummated. WHEREAS, the Parties desire to enter into this Agreement in order to amend and restate the Original Asset Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties hereby agree that the Original Asset Purchase Agreement shall be amended and restated in its entirety by this Agreement, and the parties hereto further agree as follows: 1. Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below: "AKKAD Agreement" means the Stockholders and Registration Rights Agreement, dated as of August 9, 2000, by and among VitalStream, Inc., Paul Summer, Philip Kaplan and the Series B Holders (as defined therein), as assumed by VitalStream, as amended, modified, restated, superseded or replaced from time to time. "Acquired Assets" means all right, title, and interest of (a) Hosting in and to all of the assets of any kind, other than the Excluded Hosting Assets, that are used or held for use by Hosting following the consummation of the Contribution Transaction in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting, including all rights and benefits of Hosting under and in each of the following: (i) the Hosting Real Property Leases to which Hosting is a party; (ii) the Hosting Tangible Personal Property; (iii) the Hosting Intellectual Property Rights; (iv) the Hosting Contracts; (v) all Hosting Permits and Licenses; (vi) the Hosting Records and Miscellaneous Items; (vii) the Hosting Customer Security Deposits; and (viii) all goodwill and going concern value associated with the Hosting Business as currently operated by Hosting; (b) Networks under and in each of the Hosting Real Property Leases to which it is a party; and (c) Hosting or Networks in and to (i) the $300,000 in Cash contained in an account with Silicon Valley and used to secured a letter of credit in such amount required by the landlord in connection with the Los Angeles Lease Agreement and (ii) all accounts receivable in respect of sales made, or services provided, by the Hosting Business of Networks or Hosting on or after January 1, 2003. "Acquired Assets Generated Quarterly Net Revenues" has the meaning set forth in Section 2(d)(i) of this Agreement. "Affiliate" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. "Articles of Incorporation" means the Articles of Incorporation of VitalStream as amended, modified, restated, superseded or replaced from time to time. "Assignment and Assumption Agreement" has the meaning set forth in Section 2(i) of this Agreement. "Assumed Liabilities" means (a) all of the Liabilities of Hosting or Networks, as the case may be, relating to, or arising out of or in connection with, each of the Hosting Contracts set forth on Schedule 3(l) attached hereto (as such Schedule 3(l) attached hereto may be amended from time to time pursuant to Section 6(j) of this Agreement) to the extent such Liabilities arise or accrue after the Closing Date; (b) all of the Liabilities under the Hosting Real Property Leases to the extent such Liabilities arise or accrue after the Closing Date; (c) all of the Liabilities of Hosting which constitute deferred revenue Liabilities, to the extent such Liabilities do not exceed $20,000 in the aggregate, as determined in accordance with GAAP; and (d) any Liabilities of Networks to any Transferred Employee for paid time off in an amount set forth opposite such Transferred Employee's name on Annex 1 attached hereto under the heading "Dollar Value of Accrued Paid Time Off", which will be updated at Closing for the period from the date of this Agreement through the Closing Date. "Audited Financial Statements Preparation Fee" shall mean an amount equal to $25,000 to be paid by VitalStream as partial reimbursement of the fees and expenses incurred by Hosting in connection with the preparation by Rose, Snyder & Jacobs of the Hosting Audited Financial Statements. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Bill of Sale" has the meaning set forth in Section 2(i) of this Agreement. "Buying Parties" has the meaning set forth in the preamble to this Agreement. -2- "Cash" means cash and cash equivalents (including marketable securities and short term investments) calculated in accordance with GAAP applied on a basis consistent with the preparation of the Hosting Financial Statements. "Cash Consideration" has the meaning set forth in Section 2(c). "Cisco" means Cisco Systems Capital Corporation. "Cisco Indebtedness" means the Indebtedness evidenced by that certain Secured Promissory Note, dated as of August 31, 2001, by Holdings in favor of Cisco. "Cisco Security Agreements" means that certain (a) Second Amended and Restated General Security Agreement, dated as of January 31, 2002, between Holdings, Networks, Epoch Network Communications, Inc., and Cisco, as agent, as amended; (b) Second Amended And Restated Pledge Agreement, dated as of January 31, 2002, by and among Holdings, Networks, Epoch Network Communications, Inc., and Cisco, as agent, as amended; and (c) Second Amended And Restated Guaranty, dated as of January 31, 2002, by and among Networks, Epoch Network Communications, Inc., and Cisco, as agent, as amended. "Claim" means any action, claim, lawsuit, demand, suit, charge, complaint, inquiry, hearing, investigation, notice of a violation or noncompliance, litigation, proceeding, arbitration, appeals or other dispute, whether civil, criminal, administrative or otherwise. "Closing" has the meaning set forth in Section 2(h) of this Agreement. "Closing Date" has the meaning set forth in Section 2(h) of this Agreement. "COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code and of any similar state Law. "Code" means the Internal Revenue Code of 1986, as amended. "Colocation Agreement" means that certain Colocation Agreement, dated as of the Closing Date, by and between VitalStream and Netifice in the form of Exhibit A attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Common Stock" means the Common Stock of VitalStream, par value $0.001 per share. "Confidential Information" means any of the following, to the extent not already made available to the public, trade secrets and any other information of a secret, confidential or proprietary nature concerning the operation of the Hosting Business of Hosting as currently operated by Hosting or of any of the customers or customer accounts of the Hosting Business of Hosting (including the accounts and information related to the Hosting Business Customers), including (a) matters of a technical nature (including know-how, processes, computer programs), (b) accounting methods, and documentation, (c) matters of a business nature (such as information about prices, costs, profits, contract forms, promotional methods, markets, market or marketing plans, sales, customers or accounts, possible customers or accounts, and employees), -3- (d) plans for further development and (e) any other information not generally available to the public. "Contribution Transaction" means the contribution of certain assets of Networks to Hosting and the assumption by Hosting of certain Liabilities of Networks pursuant to the Network Contribution Agreement (including the exhibits attached thereto). "Covered Activities" has the meaning set forth in Section 6(e)(i) of this Agreement. "Convertible Promissory Note and Warrant Purchase Agreement" means that certain Amended and Restated Convertible Promissory Note and Warrant Purchase Agreement, dated as of the Closing Date, by and among VitalStream and the Purchasers set forth on the signature pages thereto, as amended, modified, restated, superseded or replaced from time to time. "Customer Migration Agreement" means that certain Customer Migration Agreement, dated as of the Closing Date, by and between VitalStream and Netifice in the form of Exhibit I attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Debt Security" means any note, bond, debenture or other instrument or security evidencing Indebtedness. "Deciding Accountant" has the meaning set forth in Section 2(d)(iii) of this Agreement. "Dispute" has the meaning set forth in Section 2(d)(ii) of this Agreement. "Dolphin" means Dolphin Equity Partners, L.P. "Dolphin Communications I" means Dolphin Communications Fund, L.P. "Dolphin Communications II" means Dolphin Communications Fund II, L.P. "Dolphin Fund I" means Dolphin Communications I and Dolphin Parallel I. "Dolphin Fund II" means Dolphin Communications II and Dolphin Parallel II. "Dolphin Parallel I" means Dolphin Communications Parallel Fund, L.P. "Dolphin Parallel II" means Dolphin Communications Parallel Fund II (Netherlands), L.P. "Eligible Networks Employees" has the meaning set forth in Section 6(d) of this Agreement. "Employee Benefit Plan" means any "employee benefit plan" (as such term is defined in Section 3(3) of ERISA) and any other employee benefit plan, program or arrangement of any kind. "Environmental, Health, and Safety Requirements" means all Laws, all contractual obligations and all common law concerning public health and safety, worker health and safety, -4- pollution or protection of the environment, including all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect. "Equity Security" means (a) any capital stock or other equity security, (b) any security, directly or indirectly, convertible into or exchangeable for any capital stock or other equity security or security containing any profit participation features, (c) any warrants, options or other rights, directly or indirectly, to subscribe for or to purchase any capital stock, other equity security or security containing any profit participation features or, directly or indirectly, to subscribe for or to purchase any security, directly or indirectly, convertible into or exchangeable for any capital stock, other equity security or security containing profit participation features, or (d) any stock appreciation rights, phantom stock rights or other similar rights. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" has the meaning set forth in the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement, dated as of the Closing Date, by and among VitalStream, Hosting and the Escrow Agent in the form of Exhibit B attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. "Excluded Hosting Assets" means the right, title and interest of Hosting or Networks in and to the following assets: (a) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of Hosting as a corporation, (b) any of the rights of Hosting or Networks under this Agreement (or under any Transaction Agreement or side agreement between Hosting and/or Networks, on the one hand, and VitalStream, on the other hand, entered into on or after the date of this Agreement), (c) all Cash of Hosting or Networks (other than as set forth in subsection (c) of the definition of Acquired Assets), (d) all accounts and notes receivable of Networks or Hosting (including all accounts receivable in respect of sales by Networks or Hosting through December 31, 2002) and (e) any of the assets of Hosting set forth on Schedule 1(b) attached hereto. "Excluded Hosting Liabilities" means all Liabilities of Hosting or Networks which do not constitute Assumed Liabilities. "Fair Market Value" means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset, as determined jointly by -5- VitalStream and Hosting. If such parties are unable to reach agreement within a reasonable period of time, such "Fair Market Value" shall be determined by an independent appraiser experienced in valuing such type of asset jointly selected by VitalStream and Hosting. The determination of such appraiser shall be final and binding upon the Parties and VitalStream shall pay the first $10,000 of the fees and expenses of such appraiser, after which VitalStream and Hosting shall each pay one-half of the fees and expenses of such appraiser. Notwithstanding the foregoing, the "Fair Market Value" of any security listed on any securities exchange or quoted in the NASDAQ System (including the proposed Bulletin Board Exchange) or the over-the-counter market shall be the "Market Price." "Fully Diluted Outstanding Common Stock" means the number of shares of Common Stock actually outstanding on the Closing Date immediately prior to the Closing. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Governmental Entity" means individually, and "Governmental Entities" means collectively, the United States of America, any foreign country and any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including any court. "Guarantee" means any guarantee or other contingent Liability (other than any endorsement for collection or deposit in the ordinary course of business), direct or indirect with respect to any Liabilities of another Person, through a contract or otherwise, including, (a) any endorsement or discount with recourse or undertaking substantially equivalent to or having economic effect similar to a guarantee in respect of any such Liabilities and (b) any contract (i) to purchase, or to advance or supply funds for the payment or purchase of, any such Liabilities, (ii) to purchase, sell or lease property, products, materials or supplies, or transportation or services, in respect of enabling such other Person to pay any such Liability or to assure the owner thereof against loss regardless of the delivery or nondelivery of the property, products, materials or supplies or transportation or services or (iii) to make any loan, advance or capital contribution to or other investment in, or to otherwise provide funds to or for, such other Person in respect of enabling such Person to satisfy a Liability (including any Liability for a dividend, stock liquidation payment or expense) or to assure a minimum equity, working capital or other balance sheet condition in respect of any such Liability. "Highest Calendar Quarter" has the meaning set forth in Section 2(d)(i) of this Agreement. "Highest Calendar Quarter Net Revenues" has the meaning set forth in Section 2(d)(i) of this Agreement. "Holdings" means Epoch Holdings, Inc., a Delaware corporation and the parent of Networks. "Hosting" has the meaning set forth in the preamble of this Agreement. -6- "Hosting Balance Sheet" has the meaning set forth in Section 3(d)(i)(B) of this Agreement. "Hosting Schedule Bring Down Officer's Certificate" means that certain officer's certificate from an officer of Hosting updating and disclosing certain matters regarding the Schedules of Hosting and Networks in the form attached hereto as Exhibit N. "Hosting Business" means (a) the hosting business of any Person, which includes providing customers any or all of an Internet website, server and network monitoring, reporting and ongoing maintenance and backup, e-mail account management (to the extent that such e-mail account management arises solely as part of a hosting agreement) and traffic reporting as each pertains to the provision of hosting services and (b) the colocation business of any Person, which includes leasing or licensing space for a server or other computer equipment to customers. "Hosting Business Customers" means each Person set forth on Schedule 1(c) attached hereto and to which (i) Hosting provided goods or services at any time in connection with the operation of its Hosting Business during the period commencing on January 1, 2002, and continuing through the Closing Date, as determined from the books and records of Hosting or (ii) Networks provided goods or services at any time in connection with the operation of its Hosting Business during the period commencing on January 1, 2002 and continuing through the consummation of the transactions contemplated by the Networks Contribution Agreement, as determined from the books and records of Networks; provided, however, "Hosting Business Customers" shall exclude any Person which, prior to the Closing Date, (a) notified Hosting or Networks, as the case may be, of its intention to cease purchasing goods and services from Hosting or Networks, as the case may be, and (b) ceased purchasing goods and services from Hosting or Networks, as the case may be prior to the Closing Date. "Hosting Contracts" means all contracts, leases, accounts receivable, licenses, employment agreements, instruments and other agreements to the extent that they are used or held for use by Hosting following the consummation of the Contribution Transaction in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting; provided, however, the Hosting Contracts shall exclude any contracts, leases, accounts receivable, licenses employment agreements, instruments and other agreements which constitute an Excluded Hosting Asset. Notwithstanding the foregoing, Hosting Contracts shall not include any contracts, leases, accounts receivable, licenses, employment agreements, instruments and other agreements that are not listed on Schedule 3(l) attached hereto (as such Schedule 3(l) attached hereto may be amended from time to time pursuant to Section 6(j) of this Agreement). "Hosting Customer Security Deposits" means those Cash security deposits held by Hosting and Networks as security for the payment by certain Hosting Business Customers for services provided by the Hosting Business of Hosting and Networks and which are set forth on Schedule 1(g) attached hereto. "Hosting Financial Statements" has the meaning set forth in Section 3(d) of this Agreement. -7- "Hosting Intellectual Property Rights" means all right, title and interest in and to all Intellectual Property Rights to the extent that they are used or held for use by Hosting following the consummation of the Contribution Transaction in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting, including (a) all Intellectual Property Rights with respect to web sites, URLs and domain names, (b) the Intellectual Property Rights set forth on Schedule 3(p)(iii) and Schedule 3(p)(iv) attached hereto and (c) all rights of Hosting arising under licenses and sublicenses and other agreement or permissions obtained with respect to any of the foregoing Intellectual Property Rights, together with all income, royalties, damages and payments due to Hosting and payable on the Closing Date or thereafter (including damages and payments due to Hosting for past or future infringements or misappropriations thereof by third parties), remedies against infringements thereof and rights to protection of interests therein (including the right to sue and recover for past infringements and misappropriations thereof), and any and all corresponding rights that now or hereafter may arise or be secured under the Laws of all jurisdictions; provided, however, the Hosting Intellectual Property Rights shall exclude any Intellectual Property Rights which constitute an Excluded Hosting Asset. "Hosting Material Adverse Effect" means a material and adverse effect upon the business, operations, assets, liabilities, condition (financial or otherwise), operating results, prospects, cash flow, net worth or employee, customer or supplier relations of the Hosting Business of Hosting and Networks as currently operated by Hosting and Networks. "Hosting Material Contracts" has the meaning set forth in Section 3(l). "Hosting Leased Real Property" has the meaning set forth in Section 3(n) of this Agreement. "Hosting Permits and Licenses" means all franchises, authorizations, approvals, permits, licenses, orders, registrations, certificates, variances and similar rights obtained from Governmental Entities to the extent that they are used or held for use by Hosting in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting and includes all such items identified on Schedule 1(d) attached hereto; provided, however, the Hosting Permits and Licenses shall exclude any franchises, authorizations, approvals, permits, licenses, orders, registrations, certificates, variances and similar rights obtained from Governmental Entities which constitute an Excluded Hosting Asset. "Hosting Real Property Leases" has the meaning set forth in Section 3(n) of this Agreement. "Hosting Records and Miscellaneous Items" means all of the following, to the extent that they are used or held for use by Hosting following the consummation of the Contribution Transaction in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting: (a) lists of the Hosting Business Customers, information regarding the Hosting Business Customers and related pricing information; (b) Claims, deposits, prepayments, refunds, causes of action, choices in action, rights of recovery, rights of set off, prepaid operating expenses, deposits, warranties and rights of recoupment (other than any such item relating to the payment of Taxes paid by Hosting); (c) books, records, ledgers, files, documents, -8- correspondence, lists, plats, architectural plans, drawings and specifications, creative materials, advertising, marketing and promotional materials, studies, reports and other printed or written materials; (d) any Debt Securities (under which Hosting is the lender) or Equity Securities held by Hosting immediately prior to the Closing; (e) telephone, telefax and telex numbers and listings in all telephone books, Internet sites and directories used solely in the Hosting Business of Hosting; and (f) all of the items identified on Schedule 1(e) attached hereto; provided, however, the Hosting Records and Miscellaneous Items shall exclude any of the foregoing items which constitute an Excluded Hosting Asset. "Hosting Services Agreement" means that certain Inter-Company Management and Services Agreement, dated as of February 28, 2002, by and between Networks and Hosting, as amended, modified, restated, superseded or replaced from time to time. "Hosting Tangible Personal Property" means all tangible personal property (including all machinery, equipment, inventories of raw materials and supplies, manufactured and purchased parts, goods in process and finished goods, furniture, automobiles, trucks, tractors, trailers, tools, and dies) used or held for use by Hosting following the consummation of the Contribution Transaction in connection with the operation of the Hosting Business of Hosting as currently operated by Hosting including the tangible personal property set forth on Schedule 1(f) attached hereto; provided, however, the Hosting Tangible Personal Property shall exclude any tangible personal property which constitutes an Excluded Hosting Asset. "Improvements" means all buildings, structures, fixtures, building systems and equipment, and all components thereof, including the roof, foundation, load-bearing walls and other structural elements thereof, heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building systems, environmental control, remediation and abatement systems; sewer, storm and waste water systems, irrigation and other water distribution systems, parking facilities; fire protection, security and surveillance systems, telecommunications, computer wiring and cable installations and landscaping. "Indebtedness" with respect to any Person means (a) any Liability of such Person for borrowed money, including: (i) any Liabilities incurred for all or any part of the purchase price of property or other assets or for the cost of property or other assets constructed or of improvements thereto, other than accounts payable included in current Liabilities and incurred in respect of property purchased in the Ordinary Course of Business, (whether or not such Person has assumed or become liable for the payment of such Liabilities) (whether accrued, absolute, contingent, unliquidated or otherwise, known or unknown, whether due or to become due) and whether or not secured by liens; (ii) the face amount of all letters of credit issued for the account of such Person and all drafts drawn thereunder; (iii) capitalized lease obligations; and (iv) all Guarantees of such Person; (b) accounts payable of such Person that have not been paid within sixty (60) calendar days of their due date; and (c) retroactive insurance premium obligations. "Indemnitee" has the meaning set forth in Section 8(d)(i) of this Agreement. "Indemnitor" has the meaning set forth in Section 8(d)(i) of this Agreement. "Initial Purchase Shares" has the meaning set forth in Section 2(c) of this Agreement. -9- "Intellectual Property Rights" means all (a) patents, patent applications and patent disclosures; (b) trademarks, service marks, trade dress, trade names, logos, slogans, corporate names, Internet domain names and registrations and applications for registration thereof, together with all of the goodwill associated therewith (and all translations, adaptations, derivations and combinations of the foregoing); (c) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof; (d) mask works and registrations and applications for registration thereof; (e) computer software (including, but not limited to, source code and executable code), data, databases and documentation thereof; (f) trade secrets and other confidential information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, customer accounts, identifying information regarding customers, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information); (g) domain names, (h) other intellectual property or proprietary rights; and (i) copies and tangible embodiments thereof (in whatever form or medium). "Investment" as applied to any Person means (a) any direct or indirect purchase or other acquisition by such Person of any Debt Securities, Equity Securities, obligations, instruments or ownership interests (including partnership interests and joint venture interests) of any other Person and (b) any capital contribution by such Person to any other Person. "Investor Rights Agreement" means that certain Investor Rights Agreement, dated as of the Closing Date, by and among VitalStream, Hosting and the other signatories thereto in the form of Exhibit C attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Knowledge" except as provided expressly herein, means the actual knowledge or awareness of a Person (which shall include the actual knowledge and awareness of the executive officers and directors of such Person and, in the case of VitalStream only, its Subsidiaries) after making reasonable inquiry and reasonable diligence with respect to the particular matter in question. "Laws" means all constitutions, statutes, laws, treaties, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions, acts, determinations, directions or decrees of any Governmental Entity. "Legal Requirement" means any requirement arising under any action or Law of an arbitrator or Governmental Entity, including any Environmental, Health, and Safety Requirements. "Lease Consents" has the meaning set forth in Section 7(a) of this Agreement. "Leased Real Property" means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures or other Improvements or interest in Real Property. -10- "Liability" means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability or obligation for Taxes. "Liens" means any mortgage, pledge, restriction, security interest, encumbrance, option, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against a Party, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to a Party or any of its Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the Ordinary Course of Business). "Los Angeles Lease Agreement" means that certain Sublease, dated November 15, 1999, by and between Networks and Charter Holdings, Inc., as amended by First Amendment to Sublease, dated March 1, 2000. "Loss" and "Losses" have the meanings set forth in Section 8(b) of this Agreement. "Market Price" of any security means either (a) if such security is listed on an exchange, the closing prices of such security on the principal exchange on which such security is listed, or, if there has been no sales on such exchange on any day, the closing price of such security on the principal exchange on the most recent day on which sales have taken place on such exchange or (b) if such security is not listed on an exchange but is quoted in the NASDAQ System or on the domestic over-the-counter market as reported by the National Quotation Bureau, the average of the closing sales prices as reported by the NASDAQ System or the National Quotation Bureau, as applicable, in each case over a period of five (5) days consisting of the day as of which the "Market Price" is being determined and the four (4) consecutive business days prior to such day on which trades were reported in such security. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the Fair Market Value thereof. "Master Access Agreement" means that certain Master Access Agreement, dated as of the Closing Date, by and between VitalStream and Netifice, in the form of Exhibit D attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Merger Agreement" means that certain merger agreement by and between VitalStream, VitalStream, Inc. and VitalStream Operating Corporation, dated February 13, 2002. "Merger Closing Date" means April 23, 2002. "Most Recent VitalStream Balance Sheet" means the balance sheet of VitalStream as of October 31, 2002, contained within the VitalStream Financial Statements. "Netifice" means Netifice Communications Inc., a Delaware corporation. -11- "Netifice Services Agreement" means that certain Services Agreement, dated as of October 9, 2002, by and between Netifice and Networks, as amended, modified, restated, superseded or replaced from time to time. "Networks" means Epoch Networks, Inc., a California corporation. "Networks Contribution Agreement" means that certain Contribution Agreement dated as of October 4, 2002, by and between Hosting and Networks pursuant to which Networks contributed the Networks Contributed Assets (as defined in the Networks Contribution Agreement) and Hosting assumed the Networks Contributed Liabilities (as defined in the Networks Contribution Agreement), in the form attached hereto as Exhibit E. "Networks Defined Contribution Plan" has the meaning set forth in Section 3(s) of this Agreement. "Networks Plans" has the meaning set forth in Section 3(s) of this Agreement. "Nex2 Disposition" has the meaning set forth in Section 2(e) of this Agreement. "Nex2 Disposition Contingent Shares" has the meaning set forth in Section 2(e) of this Agreement. "Nex2" has the meaning set forth in Section 2(e) of this Agreement. "Non-Material Assets" means (a) a group of assets or properties with a Fair Market Value less than or equal to $20,000, in the aggregate, which are used or held for use by Hosting or Networks in connection with the operation or conduct of their respective Hosting Businesses and (b) Omitted Hosting Contracts that the Buyer is deemed to have accepted pursuant to the third sentence of Section 6(j)(i) of this Agreement. "Omitted Hosting Contract" means any contract, lease, account receivable, license, employment agreement, instrument and other agreement that would have been a Hosting Contract but for the fact that such contract, lease, account receivable, license, employment agreement, instrument or other agreement is not listed on Schedule 3(l) attached hereto. "Opinion of Hosting's Counsel" means an opinion of Karen Muller, general counsel to Hosting and Networks, substantially in the form attached hereto as Exhibit F. "Opinion of VitalStream's Counsel" means an opinion of Stoel Rives LLP legal counsel to VitalStream, substantially in the form attached hereto as Exhibit G. "Option Shares" has the meaning set forth in Section 2(f) of this Agreement. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Original Asset Purchase Agreement" has the meaning set forth in the preamble of this Agreement. -12- "Other Networks Plans" has the meaning set forth in Section 3(s) of this Agreement. "Other VitalStream Plans" has the meaning set forth in Section 4(r) of this Agreement. "Paid January Expenses" has the meaning set forth in Section 3(bb) of this Agreement. "Paid January Expense Amount" has the meaning set forth in Section 3(bb) of this Agreement. "Parties" has the meaning set forth in the preamble of this Agreement. "Permitted Liens" means (a) Liens with respect to Taxes not yet due and payable; (b) deposits or pledges made in connection with, or to secure payment of, utilities or similar services; (c) mechanics', materialmen's or contractors' Liens created by statute securing payment for amounts not yet due and payable; (d) rights of landlords under any Real Property Leases; and (e) in the case of VitalStream and the VitalStream Subsidiaries, purchase money Liens, Liens securing rental payments under capital lease arrangements and Liens on a bank account containing $300,000 (plus interest) necessary to secure the $300,000 letter of credit the Buyer is required to establish in order to be able to assume the Los Angeles Lease Agreement. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other similar entity or organization or a Governmental Entity. "Purchase Shares" has the meaning set forth in Section 2(c) of this Agreement. "Purchase Share Distributees" means Hosting, Networks, Holding, Dolphin Fund I and Dolphin Fund II "Purchase Share Indemnitees" has the meaning set forth in Section 8(c)(i) of this Agreement. "Quarterly Revenue Contingent Shares" has the meaning set forth in Section 2(d)(i) of this Agreement. "Quarterly Revenue Contingent Shares Statement" has the meaning set forth in Section 2(d)(ii) of this Agreement. "Quarterly Revenue Contingent Shares Period" has the meaning set forth in Section 2(d)(i) of this Agreement. "Real Property" means all land, together with all Improvements and all easements and other rights and interests appurtenant thereto (including air, oil, gas, mineral and water rights). "Real Property Lease" means a lease, sublease, license, concession and other agreement (written or oral), including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, pursuant to which a Person holds any Leased Real Property, -13- including the right to all security deposits and other amounts and instruments deposited by or on behalf of such Person thereunder. "Registration Agreement" means that certain Registration Rights Agreement, dated as of the Closing Date, by and between VitalStream and Hosting in the form of Exhibit H attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Restricted Period" has the meaning set forth in Section 6(e)(i)(A) of this Agreement. "Restricted Securities" means (a) the Purchase Shares and (b) any securities issued with respect to the securities referred to in clause (a) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall, subject to the Escrow Agreement and Section 6(c)(v) of this Agreement cease to be Restricted Securities when they have (i) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (ii) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 or become eligible for sale pursuant to Rule 144(k) adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission or (iii) been otherwise transferred and new certificates for them not bearing the Securities Act legend set forth in Section 6(c)(i) of this Agreement have been delivered by VitalStream in accordance with Section 6(c) of this Agreement. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled, subject to the Escrow Agreement and Section 6(c)(v) of this Agreement to receive from VitalStream, without expense, new securities of like tenor not bearing a Securities Act legend of the character set forth in Section 6(c)(i) of this Agreement. "Securities Act" means the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. "Tax" or "Taxes" means federal, state, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, -14- environmental, communications, real or personal property, capital stock, income, license, payroll, wage or other withholding, employment, unemployment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the tax Liability of any other Person. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Transaction Agreements" means this Agreement, the Assignment and Assumption Agreement, the Bill of Sale, Escrow Agreement, Convertible Promissory Note and Warrant Purchase Agreement, Customer Migration Agreement, Colocation Agreement, Master Access Agreement, Registration Agreement, Investor Rights Agreement and all other agreements and instruments contemplated by each of the foregoing instruments or agreements to which VitalStream, the Buyer, Hosting or Networks is a party. "Transferred Employees" has the meaning set forth in Section 6(d) of this Agreement. "Unpaid January Expenses" has the meaning set forth in Section 6(n) of this Agreement. "Unpaid January Expense Amount" has the meaning set forth in Section 6(n) of this Agreement. "Unpaid January Expense Notice" has the meaning set forth in Section 6(n) of this Agreement. "VitalStream" has the meaning set forth in the preamble of this Agreement. "VitalStream Defined Contribution Plan" has the meaning set forth in Section 4(r) of this Agreement. "VitalStream Financial Statements" has the meaning set forth in Section 4(d) of this Agreement. "VitalStream Generated Quarterly Net Revenues" has the meaning set forth in Section 2(d)(i) of this Agreement. "VitalStream Indemnitees" has the meaning set forth in Section 8(b)(i) of this Agreement. "VitalStream Intellectual Property Rights" has the meaning set forth in Section 4(p) of this Agreement. "VitalStream Leased Real Property" has the meaning set forth in Section 4(n) of this Agreement. -15- "VitalStream Material Adverse Effect" means a material and adverse effect upon the business, operations, assets, liabilities, condition (financial or otherwise), operating results, prospects, cash flow, net worth or employee, customer or supplier relations of VitalStream and the VitalStream Subsidiaries taken as a whole. "VitalStream Material Contracts" has the meaning set forth in Section 4(l). "VitalStream Party" has the meaning set forth in Section 5(f)(iii) of this Agreement. "VitalStream Plans" has the meaning set forth in Section 4(r) of this Agreement. "VitalStream Proposed Amounts" has the meaning set forth in Section 2(d)(ii) of this Agreement. "VitalStream Real Property Leases" has the meaning set forth in Section 4(n) of this Agreement. "VitalStream Schedule Bring Down Officer's Certificate" means that certain officer's certificate from an officer of VitalStream and the Buyer updating and disclosing certain matters regarding the Schedules of VitalStream in the form attached hereto as Exhibit O. "VitalStream Securities and Exchange Commission Reports" has the meaning set forth in Section 4(d) of this Agreement. "VitalStream Subsidiaries" has the meaning set forth in Section 4(a) of this Agreement. "VitalStream Transaction" has the meaning set forth in Section 5(f)(iii) of this Agreement. "WARN Act" means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar applicable foreign, state or local Law. 2. Basic Transaction. (a) Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, at the Closing, the Buyer agrees to purchase from Hosting and Networks, and Hosting and Networks agree to sell, transfer, assign, convey and deliver to the Buyer, all of their respective right, title and interest in and to the Acquired Assets, free and clear of all Liens, Claims, Indebtedness and restrictions on transfer (except for Permitted Liens, the Assumed Liabilities and restrictions on transfer set forth in any Hosting Contract) for the consideration specified in Section 2(b) and Section 2(c) of this Agreement. (b) Assumption of Liabilities. (i) On and subject to the terms and conditions of this Agreement, at the Closing, the Buyer agrees to assume and thereafter become responsible for and pay, perform or discharge all of the Assumed Liabilities. -16- (ii) Each of Hosting and Networks expressly understands and agrees that, except for the Assumed Liabilities, the Buying Parties have not agreed to pay, will not be required to assume and will have no Liability for any Liabilities of Hosting, Networks or any Affiliate of Hosting or Networks. Without limiting the breadth of the foregoing, the Buying Parties have not agreed to pay, will not be required to assume and will have no Liability for the Excluded Hosting Liabilities, which Excluded Hosting Liabilities will, as between Hosting and Networks, on the one hand, and the Buying Parties, on the other hand, remain the sole responsibility of, and will be satisfied by, Hosting and Networks, as the case may be. (iii) The assumption by the Buyer of the Assumed Liabilities, and the transfer thereof by Hosting and Networks, shall in no way expand the rights or remedies of any third party against VitalStream, the Buyer, Hosting, Networks or any of their respective Affiliates, officers, directors, employees, shareholders and advisors as compared to the rights and remedies which such third party would have had against such parties had the Buyer not assumed such Assumed Liabilities. Hosting or Networks, as the case may be, shall pay and discharge when due, or contest in good faith, any of their respective Liabilities which constitute Excluded Hosting Liabilities. (c) Consideration. In addition to the assumption of the Assumed Liabilities by the Buyer pursuant to Section 2(b) of this Agreement, in consideration for sale of the Acquired Assets by Hosting and Networks to the Buyer, VitalStream shall pay to Hosting the Cash Consideration and issue to Hosting the Purchase Shares, in accordance with this Section 2(c). (i) Cash Consideration. As partial consideration for the sale by Hosting and Networks to the Buyer of the Acquired Assets, VitalStream agrees to pay to Hosting at Closing cash in the amount of $200,000 (the "Cash Consideration"). (ii) Purchase Shares. VitalStream has duly authorized the issuance of Common Stock pursuant to the terms of this Agreement. As partial consideration for the sale by Hosting and Networks of the Acquired Assets to the Buyer, VitalStream agrees to issue to Hosting a number of shares of Common Stock (the "Initial Purchase Shares") equal to the difference between (A) the Fully Diluted Outstanding Common Stock divided by 0.875 minus (B) the Fully Diluted Outstanding Common Stock (all such shares of Common Stock together with such additional shares of Common Stock issued by VitalStream to Hosting pursuant to the terms of this Agreement are hereinafter referred to as the "Purchase Shares"). Within ten (10) days of the Closing Date, VitalStream shall issue and deliver two stock certificates evidencing the Initial Purchase Shares as follows: (1) one stock certificate shall evidence a number of shares of Common Stock equal to 0.70 multiplied by the number of Initial Purchase Shares and shall be issued in the name of, and shall be delivered to, Hosting and (2) one stock certificate shall evidence a number of shares of Common Stock equal to 0.30 multiplied by the number of Initial Purchase Shares and shall be issued in the name of Hosting and shall be delivered to the Escrow Agent to be held subject to the terms and conditions of the Escrow Agreement. The Initial Purchase Shares delivered to the Escrow Agent pursuant to the terms of this Agreement and held by the Escrow Agent pursuant to the terms of the Escrow Agreement shall be available to satisfy any amounts owed by -17- Hosting or Networks to VitalStream pursuant to Section 8 of this Agreement, in each case subject to the terms of this Agreement and the Escrow Agreement. (d) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(iii) of the Merger Agreement. (i) If VitalStream is required to issue any portion of the 8,789,907 shares of Common Stock (the "Quarterly Revenue Contingent Shares") pursuant to Section 1.4(b) and Section 1.4(c)(iii) of the Merger Agreement (which number of shares of Common Stock shall be determined in accordance with the Merger Agreement based upon VitalStream's and its Subsidiaries' highest quarterly consolidated net revenue for any calendar quarter during the period (the "Quarterly Revenue Contingent Shares Period") beginning on the Merger Closing Date and ending on September 30, 2003 (the calendar quarter during such period in which such highest quarterly consolidated net revenue occurs shall hereinafter be referred to as the "Highest Calendar Quarter" and the consolidated net revenue of VitalStream and its Subsidiaries generated during the Highest Calendar Quarter shall hereinafter be referred to as the "Highest Calendar Quarter Net Revenues")), VitalStream shall, simultaneously with the issuance of such Quarterly Revenue Contingent Shares, deliver to Hosting a stock certificate registered in the name of Hosting evidencing an additional number of shares of Common Stock in an amount equal to: (A) if (1) the Highest Calendar Quarter Net Revenues is equal to or greater than $3,000,000 and (2) the difference (such difference shall hereinafter be referred to as the "VitalStream Generated Quarterly Net Revenues") between (x) the Highest Calendar Quarter Net Revenues minus (y) that portion of the Highest Calendar Quarter Net Revenues (such portion of the Highest Calendar Quarter Net Revenues shall hereinafter be referred to as the "Acquired Assets Generated Quarterly Net Revenues") generated by or from any of the Hosting Business Customers, is equal to or greater than $3,000,000, then zero; (B) if the Highest Calendar Quarter Net Revenues is equal to or greater than $3,000,000 and the VitalStream Generated Quarterly Net Revenues is less than $3,000,000, the product of (1) the number of Quarterly Revenue Contingent Shares actually issued by VitalStream and (2) a fraction, the numerator of which shall be the difference between (x) $3,000,000 minus (y) the VitalStream Generated Quarterly Net Revenues, and the denominator of which shall be $3,000,000; and (C) if the Highest Calendar Quarter Net Revenues is less than $3,000,000, the product of (1) the number of Quarterly Revenue Contingent Shares actually issued by VitalStream and (2) a fraction, the numerator of which shall be the Acquired Assets Generated Quarterly Net Revenues and the denominator of which shall be the Highest Calendar Quarter Net Revenues. (ii) Simultaneously with the issuance of any Quarterly Revenue Contingent Shares pursuant to Section 1.4(b) and Section 1.4(c)(iii) of the Merger Agreement, VitalStream shall prepare and deliver to Hosting a statement (the "Quarterly Revenue Contingent Shares Statement") setting forth the number of Quarterly Revenue Contingent Shares issued, the Highest Calendar Quarter Net Revenues, the VitalStream Generated Quarterly Net Revenues and the Acquired Assets Generated Quarterly Net Revenues (the amounts so determined by VitalStream and set forth in the Quarterly Revenue Contingent Shares Statement being hereinafter respectively referred to as the "VitalStream Proposed Amounts"). Hosting shall have fifteen (15) days after their receipt of such statement to -18- review the VitalStream Proposed Amounts. VitalStream shall make the work papers, books, records and other back-up materials used by VitalStream in preparing the Quarterly Revenue Contingent Shares Statement or otherwise requested by Hosting available to Hosting and its accountants and other representatives at reasonable times and upon reasonable notice during the (A) preparation by VitalStream of the Quarterly Revenue Contingent Shares Statement, (B) the fifteen (15) day period referred to above and (C) resolution by the Parties of any objections raised by Hosting to the VitalStream Proposed Amounts set forth in the Quarterly Revenue Contingent Shares Statement. If Hosting shall deliver to VitalStream a notice indicating its disagreement with any of the VitalStream Proposed Amounts during the fifteen (15) day period referred to above, the Parties shall, in good faith, attempt to resolve the disagreement as to such contested VitalStream Proposed Amounts within fifteen (15) days after VitalStream's receipt of such notice. If the Parties fail to resolve such disagreement (a "Dispute") within such time period, the Parties shall promptly refer such disagreement for resolution to a Deciding Accountant in accordance with the provision of Section 2(d)(iii) of this Agreement. The number of Quarterly Revenue Contingent Shares issued, the Highest Calendar Quarter Net Revenues, the VitalStream Generated Quarterly Net Revenues and the Acquired Assets Generated Quarterly Net Revenues as agreed to by the Parties or as determined by the Deciding Accountant shall be final and binding for all purposes of this Agreement. (iii) In the event the Parties refer a Dispute to an accounting firm, such accounting firm shall be selected by lot (from a group of six Western-regional accounting firms agreed upon by the Parties after excluding the respective regular outside accounting firms of VitalStream, Hosting and Networks) (the "Deciding Accountant"). Each of the Parties shall promptly furnish to the Deciding Accountant, at their own cost and expense, such documents and information as the Deciding Accountant may request in connection with such Dispute. The Deciding Accountant shall be instructed to report its determination of the Dispute in writing to each of the Parties within thirty (30) days after such engagement. The fees and expenses payable to the Deciding Accountant with respect to all disputes subject to the procedure set forth in Section 2(d)(ii), up to $15,000 in the aggregate, shall be borne by VitalStream after which all such fees and expenses shall be paid 50% by Hosting and Networks, on the one hand, and 50% by VitalStream, on the other hand. (iv) All amounts calculated for purposes of this Section 2(d) shall be calculated from the books and records of VitalStream in accordance with GAAP applied on a consistent basis in accordance with VitalStream's past practice. (v) Any additional shares of Common Stock issued by VitalStream pursuant to this Section 2(d) shall not be subject to the terms of the Escrow Agreement. (e) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(iv) of the Merger Agreement. If VitalStream is required to issue any portion of the 1,318,488 shares of Common Stock (the "Nex2 Disposition Contingent Shares") pursuant to Section 1.4(b) and Section 1.4(c)(iv) of the Merger Agreement as a result of the disposition of Nex2, Inc. ("Nex2") by VitalStream (the "Nex2 Disposition"), VitalStream shall, -19- simultaneously with the issuance of such Nex2 Disposition Contingent Shares, deliver to Hosting a stock certificate registered in the name of Hosting evidencing an additional number of shares of Common Stock in an amount equal to the difference between (i) the number of Nex2 Disposition Contingent Shares divided by 0.875 minus (ii) the number of Nex2 Disposition Contingent Shares. Any additional shares of Common Stock issued by VitalStream pursuant to this Section 2(e) shall not be subject to the terms of the Escrow Agreement. (f) Post-Closing Adjustment in Connection with the Issuance of Common Stock Pursuant Section 1.4(c)(v) of the Merger Agreement. If VitalStream is required to issue any portion of the 1,133,905 shares of Common Stock (the "Option Shares") pursuant to Section 1.4(b) and Section 1.4(c)(v) of the Merger Agreement as a result of the amount of proceeds received by VitalStream in connection with the exercise of the "Outstanding Parent Options" (as defined in the Merger Agreement), VitalStream shall, simultaneously with the issuance of such Option Shares, deliver to Hosting a stock certificate registered in the name of Hosting evidencing an additional number of shares of Common Stock in an amount equal to the difference between (i) the number of Option Shares divided by 0.875 minus (ii) the number of Option Shares. Any additional shares of Common Stock issued by VitalStream pursuant to this Section 2(f) shall not be subject to the terms of the Escrow Agreement. (g) Allocation of Consideration. The Parties agree to allocate the aggregate consideration to be paid for the Acquired Assets in accordance with Section 1060 of the Code. The Parties agree that VitalStream shall prepare and provide to Hosting a draft allocation of the consideration to be paid among the Acquired Assets within ninety (90) calendar days after the Closing Date. The Parties agree that the amount of consideration to be allocated to the tangible personal property or assets which constitute part of the Acquired Assets in connection with the allocation of the aggregate consideration to be paid for the Acquired Assets (as adjusted pursuant to Section 2(d), Section 2(e) and Section 2(f) of this Agreement) pursuant to this Section 2(g) shall be $100,000. Hosting shall notify VitalStream within thirty (30) calendar days of receipt of such draft allocation of any objection Hosting may have thereto. The Parties agree to resolve any disagreement with respect to such allocation in good faith. In addition, the Parties hereby undertake and agree to file timely any information that may be required to be filed pursuant to Treasury Regulations promulgated under Section 1060(b) of the Code, and shall use the allocation determined pursuant to this Section 2(g) in connection with the preparation of Internal Revenue Service Form 8594 as such form relates to the transactions contemplated by this Agreement. No Party shall file any Tax Return or other document or otherwise take any position which is inconsistent with the allocation determined pursuant to this Section except as may be adjusted by subsequent agreement following an audit by the Internal Revenue Service or by court decision. (h) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of VitalStream located at One Jenner, Suite 100, Irvine, California 92618 commencing at 9:00 a.m. local time on the date of satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the Parties will take at the Closing itself) or such other date as the Parties may mutually determine in writing (the "Closing Date"). -20- (i) Deliveries at the Closing. At the Closing: (i) Hosting and/or Networks will deliver to the VitalStream the various certificates, instruments and documents referred to in Section 7(a) of this Agreement; (ii) the Buying Parties will deliver to Hosting and Networks the various certificates, instruments and documents referred to in Section 7(b) of this Agreement; (iii) Hosting and Networks will execute and deliver to the Buyer (A) the instrument of assignment substantially in the form of Exhibit J attached hereto (the "Assignment and Assumption Agreement"), (B) the instrument of sale, transfer, conveyance, and assignment substantially in the form of Exhibit K attached hereto (the "Bill of Sale"), and (C) such other instruments, certificates and agreements as VitalStream and its counsel may reasonably request (including any documents evidencing the transfer of the Hosting Intellectual Property Rights); (iv) the Buyer will execute and deliver to Hosting and Networks (A) the Assignment and Assumption Agreement and (B) such other instruments, certificates and agreements as Hosting, Networks and their counsel may reasonably request; (v) VitalStream will execute and deliver to Hosting (A) the Cash Consideration by wire transfer of immediately available funds (B) the Assignment and Assumption Agreement and (C) such other instruments, certificates and agreements as Hosting and its counsel may reasonably request; and (vi) VitalStream will execute and deliver to Networks (A) the Assignment and Assumption Agreement and (B) such other instruments, certificates and agreements as Networks and its counsel may reasonably request. (j) Post-Closing Deliveries. Within 10 days following the Closing Date, (i) VitalStream will execute and deliver to Hosting a stock certificate evidencing the Initial Purchase Shares to be issued to Hosting pursuant to Section 2(c)(ii) of this Agreement registered in the name of Hosting and (ii) VitalStream will execute and deliver to the Escrow Agent a stock certificate evidencing the Initial Purchase Shares to be escrowed pursuant to Section 2(c)(ii) of this Agreement, registered in the name of Hosting. 3. Representations and Warranties of Hosting and Networks. As a material inducement to the Buying Parties to enter into this Agreement, Hosting and Networks, jointly and severally, hereby represent and warrant to the Buying Parties that the statements contained in this Section 3 are correct and complete as of the date hereof (or on the date as of which they are made, in the case of any representation or warranty which specifically relates to an earlier date). (a) Organization, Corporate Power and Licenses. Each of Hosting and Networks is a corporation duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of incorporation and is qualified to do business in every jurisdiction in which such qualification is required, except where failure to be so qualified would not reasonably be expected to have a Hosting Material Adverse Effect. Each of Hosting and Networks possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its Hosting Business as now conducted and presently proposed to be conducted and to carry out the transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party except where such failure would not reasonably be expected to have a Hosting Material Adverse Effect. Schedule 3(a) contains a list of all jurisdictions in which each of Hosting and Networks are qualified or licensed to do business and a list of all of the Hosting Permits and Licenses. The copies of Hosting's and Networks' charter documents and bylaws to which VitalStream has been -21- provided access reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. (b) Approval and Consents; Authorization; No Breach. Each of Hosting and Networks has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and each of the other Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the execution and delivery by each of Hosting and Networks and the performance by each of Hosting and Networks of this Agreement and each of the other Transaction Agreements to which it is a party, and the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements have been duly authorized by the respective boards of directors of each of Hosting and Networks, by Networks, as the sole shareholder of Hosting, and by Holdings, as the sole shareholder of Networks. Except as described above, no other corporate proceedings on the part of Hosting or Networks are necessary to authorize the execution and delivery of this Agreement or any other Transaction Agreements by Hosting and Networks and the consummation by Hosting and Networks of the transactions contemplated by this Agreement and the other Transaction Agreements. Each of this Agreement and the other Transaction Agreements to which Hosting or Networks is a party constitutes a valid and binding obligation of Hosting and Networks enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Except as set forth on Schedule 3(b) attached hereto, the execution and delivery by Hosting and Networks of this Agreement and the other Transaction Agreements to which Hosting or Networks is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by Hosting and Networks do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under or result in the violation of, (iii) result in the creation of any Lien upon Hosting's or Networks' capital stock or assets pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, or (v) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or any Governmental Entity (other than any filings required by state and federal securities Laws) pursuant to, (A) the charter documents or bylaws of Hosting or Networks, (B) any Law or Legal Requirement to which Hosting or Networks is subject, or (C) any material agreement, instrument, order, judgment or decree to which Hosting or Networks is subject. (c) Subsidiaries. All of the issued and outstanding Equity Securities of Hosting are owned by Networks. All of the issued and outstanding Equity Securities of Networks are owned by Holdings. Hosting has no Subsidiaries and does not own or control, directly or indirectly, any shares of capital stock of any other corporation or any interest in any partnership, joint venture or other non-corporate business enterprise. (d) Hosting Financial Statements. (i) Hosting has provided to VitalStream the following financial statements (collectively, as to the financial statements set forth in Section 3(d)(i)(A), Section 3(d)(i)(B) and Section 3(d)(i)(C) of this Agreement, the "Hosting Financial Statements"), each of which is attached to this Agreement as Exhibit L: -22- (A) the audited pro forma balance sheet of the Hosting Business of Hosting and Networks as of December 31, 2001, and the related pro forma statements of income and cash flows as of and for the twelve-month period then ended; (B) the audited pro forma balance sheet of the Hosting Business of Hosting and Networks as of September 30, 2002 (the "Hosting Balance Sheet"), and the related pro forma statements of income and cash flows as of and for the nine-month period then ended; and (C) an unaudited balance sheet of the Hosting Business of Hosting as of October 31, 2002, and the related statements of operations and cash flows as of and for the ten-month period then ended. (ii) The Hosting Financial Statements (A) are accurate and complete in all material respects, (B) are consistent with the books and records of Hosting and Networks, as the case may be (each of which, in turn, are accurate and complete in all material respects), (C) were prepared in accordance with GAAP applied on a consistent basis during the respective periods involved (except as may be indicated therein or in the notes, if any, thereto), subject to normal year-end audit adjustments, which will not be material either individually or in the aggregate, and an absence of required footnotes and (D) fairly present the financial position of the Hosting Business of Hosting and Networks as at the date thereof and the results of their operations and cash flows for the respective periods then ended. (iii) The total revenues of the Hosting Business conducted by Networks and Hosting for the one month ended November 30, 2002 was $233,415. (e) Notes and Accounts Receivable; Notes and Accounts Payable. (i) All notes and accounts receivable of Hosting (including those accounts receivable of Networks which were contributed to Hosting pursuant to the Networks Contribution Agreement) are reflected properly on its books and records, are valid receivables arising from bona fide transactions in the Ordinary Course of Business subject to no setoffs, Claims or refusals to pay, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Hosting Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Hosting and Networks. Schedule 3(e) attached hereto contains a listing of all of the accounts receivable of each of Hosting and Networks (provided, in the case of Networks, solely to the extent arising solely from the conduct by Networks of its Hosting Business) as of August 31, 2002. Except as set forth on Schedule 3(e) attached hereto, as of August 31, 2002, (a) no account or note debtor of Hosting is delinquent in payment by more than sixty (60) days and (b) the aging schedule of the accounts receivable and notes receivable of Hosting included in Schedule 3(e) attached hereto is complete and accurate. -23- (ii) Schedule 3(e) attached hereto contains a listing of all accounts payable and notes payable (which shall include any service level agreement credits, services or goods that have been paid for but not provided or delivered, and similar items) that each of Hosting and Networks (provided, in the case of Networks, solely to the extent arising solely from the conduct by Networks of its Hosting Business) will owe (or have any Liability with respect to) as of August 31, 2002. Except as set forth on Schedule 3(e) attached hereto, as of August 31, 2002, all such accounts payable and notes payable arose from bona fide transactions in the Ordinary Course of Business and, no such account payable or note payable is delinquent by more than sixty (60) days in its payment. (f) Guaranties. Except as set forth on Schedule 3(f) attached hereto, Hosting is not a guarantor of or otherwise is liable for, and no assets or properties of Hosting are subject to, or security for, any Liability (including Indebtedness) of any other Person. (g) Title to Assets; Condition of Assets; Sufficiency of Assets. Either Hosting or Networks has good and marketable title to, or a valid leasehold interest in, the Acquired Assets (other than properties and assets disposed of in the Ordinary Course of Business since the date of the Hosting Balance Sheet), free and clear of all Liens, Claims, Indebtedness and restrictions on transfer, except for (i) Permitted Liens and (ii) the Liens set forth on Schedule 3(g) attached hereto. All of the equipment and other tangible assets included in the Acquired Assets are free from material defects (patent or latent), have been maintained in good operating condition and repair (subject to normal wear and tear), and are suitable for the purpose for which they presently are used by Hosting and Networks in the conduct of their respective Hosting Businesses. Except for (i) the Excluded Hosting Assets, (ii) any Non-Material Assets, (iii) any properties or assets (tangible or intangible) needed to supply the services provided to Networks and Hosting pursuant to the Hosting Services Agreement, (iv) any properties or assets (tangible or intangible) needed to supply the services provided to Hosting pursuant to the Netifice Services Agreement, (v) any properties or assets (tangible or intangible) needed to supply the services provided to Hosting pursuant to the Customer Migration Agreement, (vi) any properties or assets (tangible or intangible) needed to supply the services provided to Hosting pursuant to the Master Access Agreement and (vii) any properties or assets (tangible or intangible) set forth on Schedule 3(g) attached hereto, the Acquired Assets include all of the properties or assets (tangible or intangible) (including all licenses and other forms of permission necessary to use any Intellectual Property Right owned by any third party and used by Hosting or Networks in connection with the Hosting Business of Hosting and Networks during the ninety (90) day period prior to Closing) necessary for the Buyer to, and used immediately prior to the Closing by Hosting to, (x) conduct the Hosting Business as presently conducted by Hosting and (y) conduct the Hosting Business as conducted by Networks immediately prior to the consummation of the transactions contemplated by the Networks Contribution Agreement. (h) Absence of Undisclosed Liabilities. Neither Hosting nor Networks (provided, in the case of Networks, solely with respect to the conduct by Networks of its Hosting Business) has any Liability (and there is no basis for any present or future Claim giving rise to any Liability), except for (i) Liabilities not required to be reflected on a balance sheet of the Hosting Business conducted by Hosting and Networks prepared in accordance with GAAP consistently applied in accordance with Hosting's and Networks' past practice, (ii) Liabilities set forth on the face of the Hosting Balance Sheet (rather than in any notes thereto), (iii) Liabilities which have -24- arisen after the date of the Hosting Balance Sheet in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any Claim, breach of contract, breach of warranty, tort, infringement, Environmental, Health, and Safety Requirements or violation of Law) and (iv) the Assumed Liabilities. (i) Absence of Certain Developments. Except as set forth in Schedule 3(i) attached hereto and for the transactions contemplated by this Agreement and the other Transaction Agreements, since September 30, 2002, no event has occurred or is anticipated, and no fact or facts exists, that individually or in the aggregate have had or could have a Hosting Material Adverse Effect. Without limiting the generality of the foregoing, since September 30, 2002, neither Networks nor Hosting (provided, in the case of Networks, with respect to each of the following items, solely with respect to the conduct by Networks of its Hosting Business): (i) has sold, leased, transferred, or assigned any of its assets, tangible or intangible necessary for, or useful in, the conduct by Hosting or Networks of their respective Hosting Businesses, other than for a fair consideration in the Ordinary Course of Business; (ii) has entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $25,000 or outside the Ordinary Course of Business; (iii) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $25,000 to which Hosting or Networks is a party or by which either of them is bound (and no other party to any such agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) has accelerated, terminated, modified, or cancelled any such agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses); (iv) has imposed, or permitted to exist, any Liens (except for Permitted Liens) upon any of its assets, tangible or intangible; (v) has made any capital expenditure (or series of related capital expenditures) either involving more than $25,000 or outside the Ordinary Course of Business; (vi) has made any Investment in, any loan to, or any acquisition of the assets of, any other Person (or series of related capital Investments, loans, and acquisitions) outside the Ordinary Course of Business; (vii) has issued any Debt Security or created, incurred, assumed, or Guaranteed any Indebtedness for borrowed money or capitalized lease obligation either involving more than $10,000 singly or $50,000 in the aggregate; (viii) has delayed or postponed the payment of accounts payable or other Liabilities outside the Ordinary Course of Business; -25- (ix) has cancelled, compromised, waived, or released any right or Claim (or series of related rights and Claims) either involving more than $10,000 or outside the Ordinary Course of Business; (x) has granted any license or sublicense of any rights under or with respect to any Hosting Intellectual Property Rights, other than in the Ordinary Course of Business; (xi) has experienced any damage, destruction, or loss (whether or not covered by insurance) to its properties or assets; (xii) has made any loan to, or entered into any other transaction with, any of its Affiliates, stockholders, directors, officers or employees outside the Ordinary Course of Business; (xiii) has entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement relating to or affecting any employee of Hosting or Networks; (xiv) has granted any increase in the base compensation of any of the directors, officers or employees of Hosting or Networks outside the Ordinary Course of Business or has granted any increase at all in the base compensation of any of the Transferred Employees; (xv) has adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of the directors, officers or employees of Hosting or Networks, or taken any such action with respect to any other Employee Benefit Plan; (xvi) has made any other change in employment terms for any of the directors, officers or employees of Hosting or Networks outside the Ordinary Course of Business or has made any change at all in the employment terms for any of the Transferred Employees; and (xvii) has not collected any accounts receivable out of the Ordinary Course of Business; and (xviii) has committed to any of the foregoing. (j) Compliance With Laws. Except as set forth in Schedule 3(j) attached hereto, neither Networks nor Hosting (provided, in the case of Networks, with respect to each of the following items, solely with respect to the conduct by Networks of its Hosting Business) has violated any Law or Legal Requirement and neither Hosting nor Networks has not received any written notice alleging any such violation. (k) Litigation. Except as set forth in Schedule 3(k) attached hereto, neither Networks nor Hosting (provided, in the case of Networks, solely with respect to the conduct by Networks of its Hosting Business) is (i) subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a party or, to the Knowledge of Hosting and Networks, threatened to be -26- made a party to any Claim at law or in equity, before any Governmental Entity or that could come before any arbitrator. None of the Claims set forth in Schedule 3(k) attached hereto could, either individually or in the aggregate, result in or have a Hosting Material Adverse Effect. To the Knowledge of Hosting and Networks, neither Hosting nor Networks has any reason to believe that any such Claim may be brought against Hosting or Networks. (l) Contracts and Commitments. (i) Except as expressly contemplated by this Agreement or as set forth in Schedule 3(l) attached hereto, neither Networks nor Hosting (provided, in the case of Networks, with respect to each of the following items, solely with respect to the conduct by Networks of its Hosting Business)is a party to or bound by any written or oral: (A) pension, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other compensation to employees or any other employee benefit plan or arrangement, or any collective bargaining agreement or any other contract with any labor union, or severance agreements, programs, policies or arrangements; (B) contract for the employment of any officer, individual employee or other Person on a full-time, part-time, consulting or other basis providing annual compensation in excess of $75,000 or contract relating to loans to officers, directors or Affiliates (unless terminable at will without severance obligations); (C) contract or agreement with any Governmental Entity entered into outside the Ordinary Course of Business; (D) contract under which Hosting or Networks has advanced or loaned any other Person amounts in the aggregate exceeding $10,000; (E) agreement or indenture relating to borrowed money or other Indebtedness or the mortgaging, pledging or otherwise placing a Lien (other than a Permitted Lien) on any assets of Hosting or Networks; (F) Guarantee of any Liability of any Person; (G) settlement, conciliation or similar agreement under which such party has any future obligations or Liability; (H) lease or agreement under which Hosting is lessee of or holds or operates any property, real or personal, owned by any other party, except for any lease of real or personal property under which the aggregate annual rental payments do not exceed $25,000; (I) lease or agreement under which Hosting or Networks is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by Hosting Networks; -27- (J) contract or group of related contracts with the same party or group of Affiliated parties the performance of which involves the payment by Hosting or Networks of consideration in excess of $25,000 annually; (K) assignment, license, indemnification or agreement with respect to any intangible property (including any Hosting Intellectual Property Rights) entered into outside the Ordinary Course of Business; (L) warranty agreement with respect to its services rendered or its products sold or leased; (M) agreement under which it has granted any Person any registration rights (including demand and piggyback registration rights), any rights of first refusal or vetoes on the sale of the Acquired Assets; (N) agreement relating to any Investment; (O) contract or agreement prohibiting it from freely engaging in any business or competing anywhere in the world; or (P) any other agreement which is material to the operation of its Hosting Business or business prospects or involves a consideration in excess of $25,000 annually. (ii) All of the contracts, agreements and instruments referenced on Schedule 3(l) attached hereto (the "Hosting Material Contracts") are valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Hosting or Networks, as the case may be, has performed all material obligations required to be performed by it under the Hosting Material Contracts and is not in default under or in breach of nor in receipt of any claim of default or breach under any Hosting Material Contracts; no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by Hosting or Networks, as the case may be, under any of the Hosting Material Contracts; neither Hosting nor Networks has any present expectation or intention of not fully performing all such obligations; neither Hosting nor Networks has any Knowledge of any breach or anticipated breach of any material obligation to be performed by the other parties to any of the Hosting Material Contracts. (iii) VitalStream has been provided access to a true and correct copy of each of the written Hosting Material Contracts, together with all amendments, waivers or other changes thereto, and an accurate description of each of the oral Hosting Material Contracts. (m) Tax Matters. -28- (i) Except as set forth in Schedule 3(m) attached hereto, each of Hosting and Networks has filed all Tax Returns which it is required to file under applicable Laws. All such Tax Returns are complete and correct and have been prepared in compliance with all applicable Laws in all material respects. Each of Hosting and Networks has paid all Taxes due and owing by it (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authority all Taxes which they were or are required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third party. Neither Hosting nor Networks has waived any statute of limitations with respect to any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. The accrual for Taxes on the Hosting Balance Sheet would be adequate to pay all Tax Liabilities of Hosting and Networks (provided, in the case of Networks, solely with respect to the conduct of by Networks of its Hosting Business) (A) if Hosting's current Tax year were treated as ending on the date of the Hosting Balance Sheet (excluding any amount recorded which is attributable solely to timing differences between book and Tax income), and (B) if Hosting's current Tax year were treated as ending on the Closing Date and the accrual for Taxes on the Hosting Balance Sheet was adjusted with the past custom and practice of Hosting in filing its Tax Returns. Since the date of the Hosting Balance Sheet, neither Hosting nor Networks has incurred any Liability for Taxes other than in the Ordinary Course of Business. The assessment of any additional Taxes or Hosting or Networks for periods for which Tax Returns have been filed by Hosting or Networks shall not exceed the recorded Liability therefor on the Hosting Balance Sheets (excluding any amount recorded which is attributable solely to timing differences between book and Tax income). There has not been any audit of any Tax Return filed by Hosting or Networks. Neither Hosting nor Networks has consented to any waiver of the statute of limitations for the assessment of any Taxes and had not requested any extension of time for the payment of any Taxes. There are no Liens for Taxes (other than Permitted Liens) upon any of the assets of Hosting or Networks. No Claim has ever been made by an authority in a jurisdiction where neither Hosting nor Networks file Tax Returns that either Hosting or Networks is or may be subject to Taxation by that jurisdiction. No foreign, federal, state or local Tax audits or administrative or judicial proceedings are pending or being conducted with respect to Hosting or Networks. No information related to Tax matters has been requested by any foreign, federal, state or local Taxing authority, no written notice indicating an intent to open an audit or other review has been received by Hosting or Networks from any foreign, federal, state or local Taxing authority, and no notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by a Taxing authority against Hosting or Networks has been received by Hosting or Networks and there are no material unresolved questions or claims concerning Hosting's or Networks' Tax Liability. (ii) Neither Hosting nor Networks has made an election under Section 341(f) of the Code. Neither Hosting nor Networks is liable for the Taxes of another Person that is not a Subsidiary under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign Law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. Neither Hosting nor Networks is a party to any Tax allocation or sharing agreement. Neither Hosting nor Networks has made any payments, is obligated -29- to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under Section 280G of the Code. (n) Real Property. (i) Hosting does not own any Real Property. Networks does not own any Real Property. Hosting is not a party to any agreement or option to purchase any Real Property or interest therein. (ii) Schedule 3(n)(ii) attached hereto sets forth a true and complete list of (A) the address of each parcel of all Leased Real Property that is used or held for use by Hosting or Networks in connection with, the operation of their respective Hosting Business as currently operated by each of them (collectively, the "Hosting Leased Real Property") and (B) the date and the names of the parties to each Real Property Lease in respect of each parcel of Hosting Leased Real Property (collectively, the "Hosting Real Property Leases"). Hosting and Networks has delivered to VitalStream a true and complete copy of each written Hosting Real Property Lease, and in the case of any oral Hosting Real Property Lease, a written summary of the material terms of such Hosting Real Property Lease. Except as set forth on Schedule 3(n)(ii) attached hereto, with respect to each Hosting Real Property: (A) such Hosting Real Property Lease is legal, valid, binding, enforceable and in full force and effect, except as such enforceability may be limited by (1) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally and (2) applicable equitable principles (whether considered in a proceeding at law or in equity); (B) the transactions contemplated by this Agreement and the other Transaction Agreements do not require the consent of any other party to such Hosting Real Property Lease (except as set forth in Schedule 3(b) attached hereto), will not result in a breach of or default under such Hosting Real Property Lease, and will not otherwise cause such Hosting Real Property Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (C) Neither Hosting's nor Network's possession and quiet enjoyment of the Hosting Leased Real Property under such Hosting Real Property Lease has not been disturbed, and there are no disputes with respect to such Hosting Real Property Lease; (D) Neither Hosting's or Network's, on the one hand, nor, to the Knowledge of Hosting and Networks, any other party to such Hosting Real Property Lease, on the other hand, is in breach or default under such Hosting Real Property Lease, and no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, or permit the termination, modification or acceleration of rent under such Hosting Real Property Lease; -30- (E) Neither Hosting nor Networks owe in the future, any brokerage commissions or finder's fees with respect to such Hosting Real Property Lease; (F) The other party to such Hosting Real Property Lease is not an Affiliate of, and otherwise does not have any economic interest in, Hosting or Networks; (G) Neither Hosting nor Networks has subleased, licensed or otherwise granted any Person the right to use or occupy such Hosting Leased Real Property or any portion thereof; (H) Neither Hosting nor Networks has collaterally assigned or granted any other Lien in such Hosting Real Property Lease or any interest therein; and (I) Except as may arise by operation of law or under any Hosting Real Property Lease, there are no Liens on the estate or interest created by such Hosting Real Property Lease. (iii) All Improvements included in the Hosting Leased Real Property are in good condition and repair and sufficient for the operation of the Hosting Business of Hosting and Networks as currently conducted thereon or contemplated to be conducted thereon. There are no structural deficiencies or latent defects affecting any of the Improvements and there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion thereof in the operation of the Hosting Business of Hosting and Networks as currently conducted thereon or contemplated to be conducted thereon. (iv) There is no condemnation, expropriation or other proceeding in eminent domain, pending or threatened, affecting any parcel of Hosting Leased Real Property or any portion thereof or interest therein. There is no injunction, decree, order, writ or judgment outstanding, nor any Claims, administrative actions or similar proceedings, pending or threatened, relating to the ownership, lease, use or occupancy of the Hosting Leased Real Property or any portion thereof, or the operation of the Hosting Business of Hosting as currently conducted thereon or contemplated to be conducted thereon. (v) The Hosting Leased Real Property is in compliance with all applicable Real Property Laws (including any Environmental, Health and Safety Requirements, zoning, planning, subdivision, platting or similar Laws) affecting the Hosting Leased Real Property, and the current use and occupancy of the Hosting Leased Real Property and operation of the Hosting Business of Hosting thereon does not violate any Real Property Laws. Neither Hosting nor Networks has received any notice of violation of any Real Property Law and there is no basis for the issuance of any such notice or the taking of any action for such violation. There is no pending or anticipated change in any Real Property Law that will have a Hosting Material Adverse Effect on the ownership, lease, use or occupancy of any Hosting Leased Real Property or any portion thereof in the -31- continued operation of the Hosting Business of Hosting and Networks as currently conducted thereon or contemplated to be conducted thereon. (o) Environmental Matters. (i) Each of Hosting, Networks and their predecessors have complied and each of Hosting and Networks is in compliance with all Environmental, Health and Safety Requirements and all permits thereunder. (ii) Neither Hosting, Networks nor any of their predecessors or Affiliates has received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any Liabilities or potential Liabilities, including any investigatory, remedial or corrective Liabilities, relating to any of them or their facilities arising under Environmental, Health, and Safety Requirements. (iii) Neither Hosting, Networks nor their predecessors and Affiliates has assumed or undertaken or otherwise become subject to any Liability, including any Liability for corrective or remedial action, of any other Person relating to Environmental, Health, and Safety Requirements. (iv) No facts, events or conditions relating to the past or present facilities, properties or operations of Hosting or Networks, or any of their predecessors or Affiliates will prevent, hinder or limit continued compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or give rise to any other Liabilities pursuant to Environmental, Health, and Safety Requirements, including any relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage. (v) None of Hosting, Networks or their predecessors or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given rise to Liabilities or give rise to Liabilities, including any Liability for response costs, corrective action costs, personal injury, property damage, natural resource damages or attorney fees, pursuant to CERCLA or any other Environmental, Health, and Safety Requirements. (vi) Hosting has provided to VitalStream copies of all material environmental reports, audits, assessments, and investigations, and any other material environmental documents, related to the past or present facilities, properties or operations of Hosting, Networks or their predecessors or Affiliates, to the extent the forgoing are in the possession, custody, or control of Hosting or Networks. -32- (p) Intellectual Property Rights. (i) Hosting owns and possesses all right, title and interest in and to, free and clear of any Liens, Claims, Indebtedness, licenses, restrictions on transfer or any other restrictions or limitations, except for (i) Permitted Liens and (ii) the Liens set forth on Schedule 3(p)(i) attached hereto, or has the right to use pursuant to a valid and enforceable, written license, sublicense, agreement, or other permission, all Hosting Intellectual Property Rights. Hosting has taken all commercially reasonable actions to maintain and protect the Hosting Intellectual Property Rights. (ii) To the Knowledge of Hosting and Networks, neither Hosting nor Networks (provided, in the case of Networks, solely with respect to the conduct by Networks of its Hosting Business) has interfered with, infringed upon, violated, misappropriated, or otherwise come into conflict with any Intellectual Property Rights of any other Person and, to the Knowledge of Hosting and Networks, neither Hosting nor Networks will interfere with, infringe upon, violate, misappropriate or otherwise come into conflict with any Intellectual Property Rights of any Person as a result of the continued operation of its Hosting Business as presently conducted or as contemplated to be conducted. Neither Hosting nor Networks (provided, in the case of Networks, solely with respect to the conduct by Networks of its Hosting Business) has ever received any Claim or notice alleging any such interference, infringement, conflict, misappropriation, or violation (including, but not limited to, any Claim that Hosting or Networks must license or refrain from using any Intellectual Property Rights of any other Person and any demand or offer to license any Intellectual Property Rights from any Person), and neither Hosting nor Networks is aware of any facts that indicate a likelihood of any of the foregoing. To the Knowledge of Hosting and Networks, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Hosting Intellectual Property Rights, and neither Hosting nor Networks is aware of any facts that indicate a likelihood of any of the foregoing. (iii) Schedule 3(p)(iii) attached hereto identifies: (A) each patent or registration which has been issued to Hosting or Networks with respect to any Hosting Intellectual Property Rights and each pending patent application or application for registration which Hosting or Networks has made with respect to any Hosting Intellectual Property Rights; (B) each license, sublicense, agreement, or other permission which Hosting or Networks has granted to any Person with respect to any Hosting Intellectual Property Rights (other than such licenses, sublicenses and other permissions as are granted in the Ordinary Course of Business under the terms of Hosting form licensing agreements), together with any exceptions; (C) each material unregistered trademark, copyright, material service mark, trade name, corporate name or Internet domain name, computer software item (other than commercially available off-the-shelf software purchased or licensed for less than a total cost of $1,000 in the aggregate) within the Hosting Intellectual Property Rights and (D) any other material Hosting Intellectual Property Rights. Hosting or Networks has delivered to VitalStream correct and complete copies of all such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as amended to date) and has made available to VitalStream correct and complete copies of -33- all other written documentation evidencing ownership and prosecution (if applicable) of each such item. (iv) Schedule 3(p)(iv) attached hereto identifies each Hosting Intellectual Property Right that any third party owns and that Hosting or Networks uses pursuant to a written license, sublicense, agreement, or permission (other than commercially available off-the-shelf software purchased or licensed for less than a total cost of $1,000 in the aggregate). Either Hosting or Networks has delivered to VitalStream correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each Hosting Intellectual Property Right required to be identified in Schedule 3(p)(iv) attached hereto: (A) the license, sublicense, agreement, or permission covering such Hosting Intellectual Property Right is legal, valid, binding, enforceable, and in full force and effect; (B) the license, sublicense, agreement, or permission covering such Hosting Intellectual Property Right will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement; (C) to the Knowledge of Hosting and Networks no party to the license, sublicense, agreement, or permission covering such Hosting Intellectual Property Right is in breach or default, and, to the Knowledge of Hosting and Networks, no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (D) to the Knowledge of Hosting and Networks no party to the license, sublicense, agreement, or permission covering such Hosting Intellectual Property Right has repudiated any provision thereof; (E) such Hosting Intellectual Property Right is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (F) no Claim is pending or, to the Knowledge of Hosting and Networks (and employees of Hosting or Networks with responsibility for Intellectual Property Right matters), is threatened which challenges the legality, validity, or enforceability of such Hosting Intellectual Property Right, and there are no grounds for the same; and (G) neither Hosting nor Networks has granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission covering such Hosting Intellectual Property Right. (v) No Hosting Intellectual Property Right is subject to any outstanding injunction, judgment, order, decree, ruling, or charge. No Claim is pending or, to the Knowledge of Hosting and Networks (and employees of Hosting and Networks with responsibility for Intellectual Property Right matters), threatened which challenges the -34- legality, validity, enforceability, use, or ownership of any Hosting Intellectual Property Right, and, to the Knowledge of Hosting and Networks, there are no grounds for the same. To the Knowledge of Hosting and Networks, no loss or expiration of any Hosting Intellectual Property Right is threatened, pending, or reasonably foreseeable, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by Hosting, including, a failure by Hosting or Networks to pay any required maintenance fees). (q) Employees. (i) Hosting does not currently have, and has never had, any employees. (ii) Except as set forth on Schedule 3(q) attached hereto: (A) Networks is not party to or bound by any collective bargaining agreement or relationship with any labor organization; (B) To the Knowledge of Networks, no executive, key employee or group of employees has any plans to terminate their employment with Networks; (C) to the Knowledge of Networks, no labor organization or group of employees has filed any representation petition or made any written or oral demand for recognition; (D) no union organizing or decertification efforts are underway or, to the Knowledge of Networks, threatened; (E) within the past five (5) years no labor strike, work stoppage, slowdown or other labor dispute has occurred, and none is underway or, to the Knowledge of Networks, threatened; (F) there is no workman's compensation Liability, experience or matter that would reasonably be expected to have a Hosting Material Adverse Effect; and (G) there is no employment-related charge, complaint, grievance, investigation, inquiry or Liability of any kind, pending or threatened in any forum, relating to an alleged violation or breach by Networks (or its officers or directors) of any Law, regulation or contract and, to the Knowledge of Networks, no facts or circumstances exist that would reasonably be expected to give rise to such a charge, complaint, grievance, investigation, inquiry or Liability. (iii) Any notice of the transaction contemplated by this Agreement required under any Law or collective bargaining agreement has been given, and all bargaining obligations with any labor organization or other employee representative have been, or prior to Closing will be, satisfied. -35- (iv) In connection with the transactions contemplated by this Agreement, no plant closing or mass layoff of employees has been implemented that could implicate the WARN Act. (v) Annex 1 attached hereto sets forth the name of each Eligible Networks Employee, as defined in Section 6(d) of this Agreement) and separately sets forth each such individual's current annual salary, and for the eight (8) month period ended August 31, 2002, the amount of each such individual's salary, bonus payments and any other indirect compensation as well as the paid time off (in dollar value), holiday time and sick pay due each Eligible Networks Employee as of the date of this Agreement. (r) Employee Benefits Relating to Hosting. (i) Hosting does not have any obligation to contribute to (or any other Liability, including current or potential withdrawal liability, with respect to) any "multiemployer plan" (as defined in Section 3(37) of ERISA), or any "defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not terminated. (ii) Hosting does not maintain or have any obligation to contribute to (or any other Liability with respect to) any plan or arrangement whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated employees (except for limited continued medical benefit coverage required to be provided under COBRA). (iii) Hosting does not maintain, contribute to or have any Liability under (or with respect to) any plan which is a "defined contribution plan" (as defined in Section 3(34) of ERISA), whether or not terminated. (iv) Hosting does not maintain, contribute to or have any Liability under (or with respect to) any Employee Benefit Plan providing benefits to current or former employees, including any bonus plan, plan for deferred compensation, employee health or other welfare benefit plan or other arrangement, whether or not terminated. (s) Employee Benefits Relating to Networks. (i) Networks does not have any obligation to contribute to (or any other Liability, including current or potential withdrawal liability, with respect to) any "multi-employer plan" (as defined in Section 3(37) of ERISA), or any "defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not terminated. (ii) Networks does not maintain or have any obligation to contribute to (or any other Liability with respect to) any plan or arrangement whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated employees (except for limited continued medical benefit coverage required to be provided under COBRA). (iii) Except as set forth on Schedule 3(s) attached hereto, Networks does not maintain, contribute to or have any Liability under (or with respect to) any employee plan -36- which is a "defined contribution plan" (as defined in Section 3(34) of ERISA), whether or not terminated (the "Networks Defined Contribution Plan"). No Acquired Asset is subject to any Lien under ERISA or the Code. (iv) Except for the Networks Defined Contribution Plan and as set forth on Schedule 3(s) attached hereto, Networks does not maintain, contribute to or have any Liability under (or with respect to) any Employee Benefit Plan providing benefits to current or former employees, including any bonus plan, plan for deferred compensation, employee health or other welfare benefit plan or other arrangement, whether or not terminated. Such Employee Benefit Plans are referred to as the "Other Networks Plans" and, together with the Networks Defined Contribution Plan, the "Networks Plans." (v) The Networks Plans and all related trusts, insurance contracts and funds have been maintained, funded and administered in accordance with their terms and have complied in form and in operation in all material respects with the applicable requirements of ERISA, the Code and other applicable Laws. The requirements of COBRA have been met in all material respects with respect to each Networks Plan which is an "employee welfare benefit plan" (as such term is defined in Section 3(1) of ERISA) which is subject to COBRA. (vi) Each of the Networks Plans which is intended to be qualified under Section 401(a) of the Code has received a favorable determination from the Internal Revenue Service that such Networks Plan is qualified under Section 401(a) of the Code, and there are no circumstances which could reasonably be expected to adversely affect the qualified status of any such Networks Plan. All such Networks Plans have been or will be timely amended for the requirements of the Tax legislation commonly known as "GUST" and have been or will be submitted to the Internal Revenue Service for a favorable determination letter within the remedial amendment period prescribed by GUST. (vii) No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any Networks Plan (other than routine claims for benefits) is pending or, to the Knowledge of Networks, threatened which could result in or subject Networks to any material Liability, and there are no circumstances which could reasonably be expected to give rise to any such actions, suits or claims. (t) Insurance. Neither Hosting nor Networks is in material default with respect to its obligations under any insurance policy maintained by it, and neither Hosting nor Networks has ever been denied insurance coverage. The insurance coverage of Hosting is customary for entities of similar size engaged in similar lines of business. The reserves set forth on the Hosting Balance Sheets are adequate to cover all anticipated Liabilities with respect to all self-insurance or co-insurance programs. (u) Affiliate Transactions. Except as set forth on the attached Schedule 3(u) attached hereto, no officer, director, employee, stockholder, or other Affiliate of Hosting or any individual related by blood, marriage or adoption to any such individual or any entity in which any such Person or individual owns any beneficial interest, is a party to any agreement, contract, -37- commitment or transaction with Hosting or Networks or has any material interest in the Acquired Assets. (v) Brokerage. Neither Hosting nor any Affiliate of Hosting has any Liability to pay (or has made any arrangement under which Hosting or VitalStream may be required to pay) any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement or the other Transaction Agreements. (w) Governmental Consent, etc. No permit, consent, approval or authorization of, or declaration to or filing with, any Governmental Entity is required in connection with the execution, delivery and performance by Hosting or Networks of this Agreement or any other Transaction Agreement or the consummation by Hosting or Networks of any of the transactions contemplated hereby or thereby, except for filings with any Governmental Entity which are required or permitted to be made after the date hereof pursuant to applicable federal and state securities Laws and blue sky Laws, which filings will be effected within the applicable statutory periods. (x) Disclosure. This Agreement, together with the annexes, schedules, exhibits and certificates supplied by Hosting or Networks or on behalf of Hosting or Networks with respect to the transactions contemplated by this Agreement and the other Transaction Agreements, do not contain any untrue statement of a material fact, as of the date hereof, or omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. (y) Capital Stock and Related Matters. The authorized capital stock of Hosting consists of 1,000 shares of common stock, par value $0.01 per share, all of which shares of common stock are issued and outstanding and owned by Networks. As of the date hereof, Hosting does not have outstanding any Equity Securities or Debt Securities, except for the shares of common stock held by Networks. (z) Investment in Purchase Shares. (i) Disclosure of Information. Hosting hereby represents that representatives of each of the Purchase Share Distributees have received and reviewed all the information about VitalStream that such Person needs to invest in the Purchase Shares and represents that representatives of each of the Purchase Share Distributees asked questions and received answers from VitalStream regarding the terms and conditions of the offering of the Purchase Shares and the business, properties, prospects and condition (financial or otherwise) of VitalStream and the VitalStream Subsidiaries. The foregoing, however, does not limit or modify the representations and warranties of VitalStream in Section 4 of this Agreement or the right of Hosting to rely thereon. (ii) Investment Experience. Hosting hereby represents that each of the Purchase Share Distributees is able to fend for itself, can bear the economic risk of its investment, has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Purchase Shares and has been represented with respect to the decision to invest in the Purchase Shares by -38- Persons with such knowledge and experience in financial or business matters as to be capable of advising such Purchase Share Distributee with respect to the decision to invest in the Purchase Shares. Hosting also represents none of the Purchase Share Distributees has been organized for the purpose of acquiring the Purchase Shares. (iii) Investment Intent; Own Account. Except for the dividend or other distribution of the Purchase Shares by (A) Hosting to Networks, (B) Networks to Holdings and (C) Holdings to one of more Purchase Share Distributees, Hosting hereby represents that it is acquiring the Purchase Shares for its own account, not as nominee or agent, with the present intention of holding such securities for purposes of investment, and that it has no intention of selling such securities in a public distribution in violation of the federal securities Laws or any applicable state securities Laws. Subject to the foregoing, Hosting further represents that neither it nor any Purchase Shares Distributee has any contract, undertaking or agreement with any Person to sell, transfer or grant participations to such Person or to any other Person with respect to the Purchase Shares. (aa) Customers and Suppliers. (i) Except as set forth on Schedule 3(aa) attached hereto, during the twelve (12) month period ending on the date hereof, there has not been any material interruption or outage (other than as requested by a Hosting Business Customer) in the provision by Hosting or Networks to the Hosting Business Customers of the goods and services provided by Hosting or Networks in the operation of its Hosting Business. (ii) Except as set forth on Schedule 3(aa) attached hereto, no Hosting Business Customer which generated monthly revenues in the one month period ended August 31, 2002 that accounted for in excess of $5,000 of the monthly revenues of the Hosting Business of Hosting or Networks, has terminated or threatened in writing to terminate its relationship, or any agreement, with Hosting or Networks, as the case may be. (iii) Schedule 3(aa) attached hereto sets forth (A) a complete and accurate list of the name of each Hosting Business Customer, together with the amount of revenue generated by such Hosting Business Customer during the one (1) month period ended August 31, 2002 and (B) a list of the contact information of each such Hosting Business Customer. (iv) Schedule 3(aa) attached hereto contains a listing of all suppliers and vendors of the Hosting Business of Hosting and Networks, together with complete contact information and the amount of expense incurred to such vendor or supplier during the one (1) month period ended October 31, 2002. (bb) Paid January Expenses. Schedule 3(bb) attached hereto sets forth a list of all expenses (describing the payee of each expense, a description of each expense and the amount of each expense) that (i) have been incurred by Hosting or Networks on or after January 1, 2003 in the Ordinary Course of Business (which list does not include any expenses related to any Transaction Agreement or any expenses or Liabilities for breach of any agreement or related to any threatened or pending litigation) with respect to the Hosting Business of Hosting or -39- Networks and (ii) have been paid by Hosting or Networks as of the Closing Date (all such expenses satisfying (i) and (ii) above shall hereinafter be referred to as the "Paid January Expenses" and the aggregate amount of all such expenses shall hereinafter be referred to as the "Paid January Expense Amount"). 4. Representations and Warranties of VitalStream. As a material inducement to Hosting and Networks to enter into this Agreement, VitalStream and the Buyer, jointly and severally, hereby represent and warrant to Hosting and Networks that the statements contained in this Section 4 are correct and complete as of the date hereof (or on the date as of which they are made, in the case of any representation or warranty which specifically relates to an earlier date). (a) Organization, Corporate Power and Licenses. Except as set forth on Schedule 4(a), each of VitalStream and its direct and indirect Subsidiaries (including the Buyer) (collectively, the "VitalStream Subsidiaries") is a corporation duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of incorporation and is qualified to do business in every jurisdiction in which such qualification is required except where failure to be so qualified would not reasonably be expected to have a VitalStream Material Adverse Effect. Each of VitalStream and the VitalStream Subsidiaries possess all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its business as now conducted and as presently proposed to be conducted and to carry out the transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party except where such failure would not reasonably be expected to have a VitalStream Material Adverse Effect. The copies of VitalStream's and Buyer's charter documents and bylaws to which Hosting has been provided access reflect all amendments made thereto at any time prior to the date of this Agreement and are correct and complete. (b) Approval and Consents; Authorization; No Breach. Each of the Buying Parties full power and authority (including full corporate power and authority) to execute and deliver this Agreement and each of the other Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the execution and delivery by the Buying Parties and the performance by the Buying Parties of this Agreement and each of the other Transaction Agreements to which either Buying Party is a party, and the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements have been duly authorized by the respective boards of directors of each of VitalStream and Buyer. Except as described above, no other corporate proceedings on the part of any Buying Party is necessary to authorize the execution and delivery of this Agreement or any other Transaction Agreements by any of the Buying Parties and the consummation by the Buying Parties of the transactions contemplated by this Agreement and the other Transaction Agreements. Each of this Agreement and the other Transaction Agreements to which any of the Buying Parties is a party constitutes a valid and binding obligation of each such Buying Party, enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Except as set forth on Schedule 4(b) attached hereto, the execution and delivery by any of the Buying Parties of this Agreement and the other Transaction Agreements to which any of the Buying Parties is a party, and the fulfillment of and -40- compliance with the respective terms hereof and there of by each such Buying Party do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under or result in the violation of, (iii) result in the creation of any Lien upon the capital stock or assets of any of the Buying Parties or any VitalStream Subsidiary pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, or (v) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or any Governmental Entity (other than any filings required by state and federal securities Laws) pursuant to, (A) the charter documents or bylaws of any of the Buying Parties or any VitalStream Subsidiary, (B) any Law or Legal Requirement to which any of the Buying Parties or any VitalStream Subsidiary is subject, or (C) any material agreement, instrument, order, judgment or decree to which any of the Buying Parties or any VitalStream Subsidiary is subject. (c) Subsidiaries. Schedule 4(c) attached hereto sets forth acomplete and accurate list of the VitalStream Subsidiaries. Except as set forth on Schedule 4(c) attached hereto, VitalStream has no Subsidiaries and does not own or control, directly or indirectly, any shares of capital stock of any other corporation or any interest in any partnership, joint venture or other non-corporate business enterprise. All of the outstanding shares of capital stock of each VitalStream Subsidiary are validly issued, full paid and nonassessable, and all such shares are owned by VitalStream or another of the VitalStream Subsidiaries free and clear of any Lien and not subject to any option or right to purchase any such shares. Except as set forth on the Schedule 4(c) attached hereto, neither VitalStream nor any of the VitalStream Subsidiaries owns or holds the right to acquire any shares of stock or any other Equity Security of any other Person. (d) Securities and Exchange Commission Reports and VitalStream Financial Statements. The filings located on the Internet website of the Securities and Exchange Commission with respect to VitalStream (previously known as Sensar Corporation), together with the filings delivered by VitalStream to Hosting prior to the execution of this Agreement, constitute a true and complete copy of each form, report, schedule, registration statement, definitive proxy statement and other document (together with all amendments thereof and supplements thereto), filed by VitalStream or any of the VitalStream Subsidiaries with the Securities and Exchange Commission since January 1, 2001 (as such documents have since the time of their filing been amended or supplemented, the "VitalStream Securities and Exchange Commission Reports"), which are all the documents (other than preliminary material) that VitalStream and the VitalStream Subsidiaries were required to file with the Securities and Exchange Commission since such date. As of their respective dates, the VitalStream Securities and Exchange Commission Reports (i) complied as to form in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) included in the VitalStream Securities and Exchange Commission Reports (the "VitalStream Financial Statements") (A) complied as to form in all material respects with the published rules and regulations of the Securities and Exchange Commission with respect thereto, (B) are accurate and complete in all material respects, (C) are consistent with the books and records of VitalStream and the VitalStream Subsidiaries (which, in turn, are accurate and -41- complete in all material respects), (D) were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (1) with respect to audited statements, as may be indicated therein or in the notes thereto and (2) with respect to unaudited statements, subject to normal year-end audit adjustments, which will not be material either individually or in the aggregate, an absence of required footnotes and as permitted by Form 10-Q of the Securities and Exchange Commission) and (E) fairly present the consolidated financial position of VitalStream and the VitalStream Subsidiaries as at the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended. Except as set forth on Schedule 4(d) attached hereto, each VitalStream Subsidiary is treated as a consolidated Subsidiary of VitalStream in the VitalStream Financial Statements for all periods covered thereby. (e) Notes and Accounts Receivable. (i) All notes and accounts receivable of VitalStream and the VitalStream Subsidiaries are reflected properly on its books and records, are valid receivables arising from bona fide transactions in the Ordinary Course of Business subject to no setoffs, Claims or refusals to pay, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent VitalStream Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of VitalStream. Schedule 4(e) attached hereto contains a listing of all of the accounts receivable of VitalStream and the VitalStream Subsidiaries as of August 31, 2002. Except as set forth on Schedule 4(e) attached hereto, as of August 31, 2002, (a) no account or note debtor of VitalStream or any VitalStream Subsidiary is delinquent in payment by more than sixty (60) days and (b) the aging schedule of the accounts receivable and notes receivable of VitalStream or any VitalStream Subsidiary included in Schedule 4(e) is complete and accurate. (ii) Schedule 4(e) attached hereto contains a listing of all accounts payable and notes payable (which shall include any service level agreement credits, services or goods that have been paid for but not provided or delivered, and similar items) that VitalStream and the VitalStream Subsidiaries will owe (or have any Liability with respect to) as of August 31, 2002. Except as set forth on Schedule 4(e) attached hereto, as of August 31, 2002, all accounts payable and notes payable of VitalStream and the VitalStream Subsidiaries arose from bona fide transactions in the Ordinary Course of Business and, no such account payable or note payable is delinquent by more than sixty (60) days in its payment. (f) Guaranties. Neither VitalStream nor any VitalStream Subsidiary is a guarantor of, or otherwise is liable for, and no assets or properties of VitalStream or any VitalStream Subsidiary are subject to, or security for, any Liability (including Indebtedness) of any other Person. (g) Title to Assets; Condition of Assets; Sufficiency of Assets. Each of VitalStream and the VitalStream Subsidiaries has good and marketable title to, or a valid leasehold interest in, the properties and assets of its respective properties and assets used by it in the conduct of its -42- business, located on its premises or shown on the Most Recent VitalStream Balance Sheet or acquired after the date thereof (other than properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent VitalStream Balance Sheet), free and clear of all Liens, Claims, Indebtedness and restrictions on transfer, except for (i) Permitted Liens and (ii) the Liens set forth on Schedule 4(g) attached hereto. The equipment and other tangible assets of VitalStream and each of the VitalStream Subsidiaries are free from material defects (patent or latent), have been maintained in good operating condition and repair (subject to normal wear and tear), and are suitable for the purpose for which they presently are used (including the conduct of the business of VitalStream and each of the VitalStream Subsidiaries) and are proposed to be used by VitalStream and the VitalStream Subsidiaries. VitalStream and the VitalStream Subsidiaries own, or have a valid leasehold interest in, all properties and assets (tangible and intangible) (including all licenses and other forms of permission necessary to use any Intellectual Property Right owned by any third party and used by VitalStream and the VitalStream Subsidiaries in connection with their Hosting Business during the ninety (90) day period prior to Closing) necessary for VitalStream and the VitalStream Subsidiaries to conduct their Hosting Business as presently conducted and are proposed to be used by VitalStream and the VitalStream Subsidiaries. (h) Absence of Undisclosed Liabilities. Except as set forth on Schedule 4(h), neither VitalStream nor any VitalStream Subsidiary has any Liability (and there is no basis for any present or future Claim giving rise to any Liability), except for (i) Liabilities not required to be reflected on a consolidated balance sheet of VitalStream and the VitalStream Subsidiaries prepared in accordance with GAAP consistently applied in accordance with VitalStream's past practice, (ii) Liabilities set forth on the face of the Most Recent VitalStream Balance Sheet (rather than in any notes thereto) and (iii) Liabilities which have arisen after the date of the Most Recent VitalStream Balance Sheet in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any Claim, breach of contract, breach of warranty, tort, infringement, Environmental, Health, and Safety Requirements or violation of Law). (i) Absence of Certain Developments. Except as set forth in Schedule 4(i) attached hereto and for the transactions contemplated by this Agreement and the other Transaction Agreements, since October 31, 2002, no event has occurred or is anticipated, and no fact or facts exists, that individually or in the aggregate have had or could have a VitalStream Material Adverse Effect. Without limiting the generality of the foregoing, since October 31, 2002: (i) neither VitalStream nor any VitalStream Subsidiary has sold, leased, transferred, or assigned any of its assets, tangible or intangible necessary for, or useful in, the conduct of its business, other than for a fair consideration in the Ordinary Course of Business; (ii) neither VitalStream nor any VitalStream Subsidiary has entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $25,000 or outside the Ordinary Course of Business; -43- (iii) no party (including VitalStream or any VitalStream Subsidiary) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $25,000 to which VitalStream or any VitalStream Subsidiary is a party or by which any of them are bound; (iv) neither VitalStream nor any VitalStream Subsidiary has imposed, or permitted to exist, any Liens (except for Permitted Liens) upon any of their assets, tangible or intangible; (v) neither VitalStream nor any VitalStream Subsidiary has made any capital expenditure (or series of related capital expenditures) either involving more than $25,000 or outside the Ordinary Course of Business; (vi) neither VitalStream nor any VitalStream Subsidiary has made any Investment in, any loan to, or any acquisition of the assets of, any other Person (or series of related capital Investments, loans, and acquisitions) outside the Ordinary Course of Business; (vii) neither VitalStream nor any VitalStream Subsidiary has issued any Debt Security or created, incurred, assumed, or Guaranteed any Indebtedness for borrowed money or capitalized lease obligation either involving more than $10,000 singly or $50,000 in the aggregate; (viii) neither VitalStream nor any VitalStream Subsidiary has delayed or postponed the payment of accounts payable or other Liabilities outside the Ordinary Course of Business; (ix) neither VitalStream nor any VitalStream Subsidiary has cancelled, compromised, waived, or released any right or Claim (or series of related rights and Claims) either involving more than $10,000 or outside the Ordinary Course of Business; (x) neither VitalStream nor any VitalStream Subsidiary has granted any license or sublicense of any rights under or with respect to any VitalStream Intellectual Property Rights, other than in the Ordinary Course of Business; (xi) neither VitalStream nor any VitalStream Subsidiary has experienced any damage, destruction, or loss (whether or not covered by insurance) to its properties or assets; (xii) neither VitalStream nor any VitalStream Subsidiary has made any loan to, or entered into any other transaction with, any of its Affiliates, stockholders, directors, officers or employees outside the Ordinary Course of Business; (xiii) neither VitalStream nor any VitalStream Subsidiary has entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement relating to or affecting any employee of VitalStream or any VitalStream Subsidiary; -44- (xiv) neither VitalStream nor any VitalStream Subsidiary has granted any increase in the base compensation of any of the directors, officers or employees of VitalStream or any VitalStream Subsidiary outside the Ordinary Course of Business; (xv) neither VitalStream nor any VitalStream Subsidiary has adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of the directors, officers or employees of VitalStream or any VitalStream Subsidiary, or taken any such action with respect to any other Employee Benefit Plan; (xvi) neither VitalStream nor any VitalStream Subsidiary has made any other change in employment terms for any of the directors, officers or employees of VitalStream or any VitalStream Subsidiary outside the Ordinary Course of Business; and (xvii) Neither VitalStream nor any VitalStream Subsidiary has not collected any accounts receivable out of the Ordinary Course of Business; and (xviii) Neither VitalStream nor any VitalStream Subsidiary has committed to any of the foregoing. (j) Compliance With Laws. Neither VitalStream nor any VitalStream Subsidiary has violated any Law or Legal Requirement and neither VitalStream nor any VitalStream Subsidiary has received any written notice alleging any such violation. (k) Litigation. Except as set forth in Schedule 4(k) attached hereto, neither VitalStream nor any VitalStream Subsidiary is (i)subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) a party or, to the Knowledge of VitalStream, threatened to be made a party to any Claim at law or in equity, before any Governmental Entity or that could come before any arbitrator. None of the Claims set forth in Schedule 4(k) attached hereto could, either individually or in the aggregate, result in or have a VitalStream Material Adverse Effect. Except as set forth in Schedule 4(k), to the Knowledge of VitalStream, VitalStream does not have any reason to believe that any such Claim may be brought against VitalStream or any of the VitalStream Subsidiaries. (l) Contracts and Commitments. (i) Except as disclosed in the VitalStream Securities and Exchange Commission Reports, as expressly contemplated by this Agreement or as set forth in Schedule 4(l) attached hereto, neither VitalStream nor any VitalStream Subsidiary is a party to or bound by any written or oral: (A) pension, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other compensation to employees or any other employee benefit plan or arrangement, or any collective bargaining agreement or any other contract with any labor union, or severance agreements, programs, policies or arrangements; -45- (B) contract for the employment of any officer, individual employee or other Person on a full-time, part-time, consulting or other basis providing annual compensation in excess of $75,000 or contract relating to loans to officers, directors or Affiliates (unless terminable at will without severance obligations); (C) contract or agreement with any Governmental Entity entered into outside the Ordinary Course of Business; (D) contract under which VitalStream or any VitalStream Subsidiary has advanced or loaned any other Person amounts in the aggregate exceeding $10,000; (E) agreement or indenture relating to borrowed money or other Indebtedness or the mortgaging, pledging or otherwise placing a Lien (other than a Permitted Lien) on any assets of VitalStream or any VitalStream Subsidiary; (F) Guarantee of any Liability of any Person; (G) settlement, conciliation or similar agreement under which such party has any future obligations or Liability; (H) lease or agreement under which VitalStream or any VitalStream Subsidiary is lessee of or holds or operates any property, real or personal, owned by any other party, except for any lease of real or personal property under which the aggregate annual rental payments do not exceed $25,000; (I) lease or agreement under which VitalStream or any VitalStream Subsidiary is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by VitalStream or any VitalStream Subsidiary; (J) contract or group of related contracts with the same party or group of Affiliated parties the performance of which involves the payment by VitalStream or any VitalStream Subsidiary of consideration in excess of $25,000; annually; (K) assignment, license, indemnification or agreement with respect to any intangible property (including any Intellectual Property Rights) entered into outside the Ordinary Course of Business; (L) warranty agreement with respect to its services rendered or its products sold or leased; (M) agreement under which it has granted any Person any registration rights (including demand and piggyback registration rights, any rights of first refusal or vetoes on the sale of the Acquired Assets); (N) agreement relating to any Investment; -46- (O) contract or agreement prohibiting it from freely engaging in any business or competing anywhere in the world; or (P) any other agreement which is material to the operation of its Hosting Business or business prospects or involves a consideration in excess of $25,000; annually. (ii) All of the contracts, agreements and instruments set forth in Schedule 4(l) attached hereto (the "VitalStream Material Contracts") are valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Except as set forth on Schedule 4(l)(ii) attached hereto, VitalStream and each VitalStream Subsidiary has performed all material obligations required to be performed by it under the VitalStream Material Contracts and is not in default under or in breach of nor in receipt of any claim of default or breach under any VitalStream Material Contracts; no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by VitalStream or any of the VitalStream Subsidiaries under any of the VitalStream Material Contracts; neither VitalStream nor any of the VitalStream Subsidiaries has any present expectation or intention of not fully performing all such obligations; VitalStream does not have any Knowledge of any breach or anticipated breach of any material obligation to be performed by the other parties to any of the VitalStream Material Contracts. (iii) Other than VitalStream Material Contracts included as exhibits to the VitalStream Securities and Exchange Commission Reports, Hosting has been supplied with a true and correct copy of each of the written VitalStream Material Contracts, together with all amendments, waivers or other changes thereto, and an accurate description of each of the oral VitalStream Material Contracts. (m) Tax Matters. (i) Except as set forth in Schedule 4(m) attached hereto, each of VitalStream and the VitalStream Subsidiaries has filed all Tax Returns which it is required to file under applicable Laws. All such Tax Returns are complete and correct and have been prepared in compliance with all applicable Laws in all material respects. Each of VitalStream and the VitalStream Subsidiaries has paid all Taxes due and owing by it (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authority all Taxes which they were or are required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third party. Neither VitalStream nor any VitalStream Subsidiary has waived any statute of limitations with respect to any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. The accrual for Taxes on the Most Recent VitalStream Balance Sheet would be adequate to pay all Tax Liabilities of VitalStream and any VitalStream Subsidiaries (A) if VitalStream's current Tax year were treated as ending on the date of the Most Recent VitalStream Balance Sheet (excluding any amount -47- recorded which is attributable solely to timing differences between book and Tax income), and (B) if VitalStream's current Tax year were treated as ending on the Closing Date and the accrual for Taxes on the Most Recent VitalStream Balance Sheet was adjusted with the past custom and practice of VitalStream in filing its Tax Returns. Since the date of the Most Recent VitalStream Balance Sheet, neither VitalStream nor any VitalStream Subsidiary has incurred any Liability for Taxes other than in the Ordinary Course of Business. The assessment of any additional Taxes for periods for which Tax Returns have been filed by VitalStream or any VitalStream Subsidiary shall not exceed the recorded Liability therefor on the Most Recent VitalStream Balance Sheet (excluding any amount recorded which is attributable solely to timing differences between book and Tax income). There has not been any audit of any Tax Return filed by VitalStream or any VitalStream Subsidiary. Neither VitalStream nor any VitalStream Subsidiary has consented to any waiver of the statute of limitations for the assessment of any Taxes and had not requested any extension of time for the payment of any Taxes. There are no Liens for Taxes (other than Permitted Liens) upon any of the assets of VitalStream or any VitalStream Subsidiary. No Claim has ever been made by an authority in a jurisdiction where VitalStream or any VitalStream Subsidiary does not file Tax Returns that it is or may be subject to Taxation by that jurisdiction. No foreign, federal, state or local Tax audits or administrative or judicial proceedings are pending or being conducted with respect to VitalStream or any VitalStream Subsidiary. No information related to Tax matters has been requested by any foreign, federal, state or local Taxing authority, no written notice indicating an intent to open an audit or other review has been received by VitalStream or any VitalStream Subsidiary from any foreign, federal, state or local Taxing authority, and no notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted or assessed by a Taxing authority against VitalStream or any VitalStream Subsidiary has been received by VitalStream or any VitalStream Subsidiary and there are no material unresolved questions or claims concerning VitalStream's or any VitalStream Subsidiary's Tax Liability. (ii) Neither VitalStream nor any VitalStream Subsidiary has made an election under Section 341(f) of the Code. Neither VitalStream nor any VitalStream Subsidiary is liable for the Taxes of another Person that is not a Subsidiary under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign Law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. Neither VitalStream nor any VitalStream Subsidiary is a party to any Tax allocation or sharing agreement. Neither VitalStream nor any VitalStream Subsidiary has made any payments, is not obligated to make payments and is not a party to an agreement that could obligate it to make any payments that would not be deductible under Section 280G of the Code. (n) Real Property. (i) Neither VitalStream nor any VitalStream Subsidiary owns any Real Property. Neither VitalStream nor any VitalStream Subsidiary is a party to any agreement or option to purchase any Real Property or interest therein. (ii) Schedule 4(n)(ii) attached hereto sets forth a true and complete list of (A) the address of each parcel relating to, used in connection with, or necessary or useful in, -48- the operation or conduct of the business of VitalStream and the VitalStream Subsidiaries (collectively, the "VitalStream Leased Real Property") and (B) the date and the names of the parties to each Real Property Lease in respect of each parcel of VitalStream Leased Real Property (collectively, the "VitalStream Real Property Leases"). VitalStream has delivered to Hosting a true and complete copy of each written VitalStream Real Property Lease, and in the case of any oral VitalStream Real Property Lease, a written summary of the material terms of such VitalStream Real Property Lease. Except as set forth on Schedule 4(n)(ii) attached hereto, with respect to each VitalStream Real Property Lease: (A) such VitalStream Real Property Lease is legal, valid, binding, enforceable and in full force and effect, except as such enforceability may be limited by (1) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally and (2) applicable equitable principles (whether considered in a proceeding at law or in equity); (B) the transactions contemplated by this Agreement and the other Transaction Agreements do not require the consent of any other party to such VitalStream Real Property Lease (except as set forth in Schedule 4(b) attached hereto), will not result in a breach of or default under such VitalStream Real Property Lease, and will not otherwise cause such VitalStream Real Property Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing; (C) VitalStream's and the VitalStream Subsidiaries' possession and quiet enjoyment of the VitalStream Leased Real Property under such VitalStream Real Property Lease has not been disturbed and there are no disputes with respect to such VitalStream Real Property Lease; (D) None of VitalStream, any VitalStream Subsidiary or, to the Knowledge of VitalStream, any other party to such VitalStream Real Property Lease is in breach or default under such VitalStream Real Property Lease, and no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, or permit the termination, modification or acceleration of rent under such VitalStream Real Property Lease; (E) Neither VitalStream nor VitalStream Subsidiary owes, or will owe in the future, any brokerage commissions or finder's fees with respect to such VitalStream Real Property Lease; (F) The other party to such VitalStream Real Property Lease is not an Affiliate of, and otherwise does not have any economic interest in, VitalStream or any VitalStream Subsidiary; (G) Neither VitalStream nor any VitalStream Subsidiary has subleased, licensed or otherwise granted any Person the right to use or occupy such VitalStream Leased Real Property or any portion thereof; -49- (H) Neither VitalStream nor any VitalStream Subsidiary has collaterally assigned or granted any other Lien in such VitalStream Real Property Lease or any interest therein; and (I) Except as may arise by operation of law or under any VitalStream Real Property Lease, there are no Liens on the estate or interest created by such VitalStream Real Property Lease. (iii) All Improvements included in the VitalStream Leased Real Property are in good condition and repair and sufficient for the operation of VitalStream's and any VitalStream Subsidiary's business as currently conducted thereon or contemplated to be conducted thereon. There are no structural deficiencies or latent defects affecting any of the Improvements and there are no facts or conditions affecting any of the Improvements which would, individually or in the aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion thereof in the operation of VitalStream's and any VitalStream Subsidiary's business as currently conducted thereon or contemplated to be conducted thereon. (iv) There is no condemnation, expropriation or other proceeding in eminent domain, pending or threatened, affecting any parcel of VitalStream Leased Real Property or any portion thereof or interest therein. There is no injunction, decree, order, writ or judgment outstanding, nor any Claims, administrative actions or similar proceedings, pending or threatened, relating to the ownership, lease, use or occupancy of the VitalStream Leased Real Property or any portion thereof, or the operation of VitalStream's and any VitalStream Subsidiary's business as currently conducted thereon or contemplated to be conducted thereon. (v) The VitalStream Leased Real Property is in compliance with all applicable Real Property Laws (including any Environmental, Health and Safety Requirements, zoning, planning, subdivision, platting or similar Laws) affecting the VitalStream Leased Real Property, and the current use and occupancy of the VitalStream Leased Real Property and operation of by VitalStream and the VitalStream Subsidiaries of their business thereon does not violate any Real Property Laws. VitalStream has not received any notice of violation of any Real Property Law and there is no basis for the issuance of any such notice or the taking of any action for such violation. There is no pending or anticipated change in any Real Property Law that will have a VitalStream Material Adverse Effect on the ownership, lease, use or occupancy of any VitalStream Leased Real Property or any portion thereof in the continued operation of VitalStream's and any VitalStream Subsidiary's business as currently conducted thereon or contemplate to be conducted thereon. (o) Environmental Matters. (i) Each of VitalStream, the VitalStream Subsidiaries and their predecessors has complied and is in compliance with all Environmental, Health and Safety Requirements and all permits thereunder. -50- (ii) Neither VitalStream, the VitalStream Subsidiaries nor any of their predecessors or Affiliates has received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any Liabilities or potential Liabilities, including any investigatory, remedial or corrective Liabilities, relating to any of them or their facilities arising under Environmental, Health, and Safety Requirements. (iii) Neither VitalStream, the VitalStream Subsidiaries nor their predecessors and Affiliates has assumed or undertaken or otherwise become subject to any Liability, including any Liability for corrective or remedial action, of any other Person relating to Environmental, Health, and Safety Requirements. (iv) No facts, events or conditions relating to the past or present facilities, properties or operations of VitalStream, the VitalStream Subsidiaries, or any of their predecessors or Affiliates will prevent, hinder or limit continued compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or give rise to any other Liabilities pursuant to Environmental, Health, and Safety Requirements, including any relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage. (v) None of VitalStream, the VitalStream Subsidiaries or their predecessors or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given rise to Liabilities or give rise to Liabilities, including any Liability for response costs, corrective action costs, personal injury, property damage, natural resource damages or attorney fees, pursuant to CERCLA or any other Environmental, Health, and Safety Requirements (vi) VitalStream has provided to Hosting copies of all material environmental reports, audits, assessments, and investigations, and any other material environmental documents, related to the past or present facilities, properties or operations of VitalStream, the VitalStream Subsidiaries or their predecessors or Affiliates, to the extent the forgoing are in the possession, custody, or control of VitalStream. (p) Intellectual Property Rights. (i) Each of VitalStream and the VitalStream Subsidiaries own and possess all right, title and interest in and to, free and clear of any Liens, Claims, Indebtedness, licenses, restrictions on transfer or any other restrictions or limitations, except for Permitted Liens, or has the right to use pursuant to a valid and enforceable, written license, sublicense, agreement, or other permission, all Intellectual Property Rights relating to, or used in connection with, the operation or conduct of the business of VitalStream and the VitalStream Subsidiaries as presently conducted (the "VitalStream Intellectual Property Rights"). The VitalStream Intellectual Property Rights will be -51- owned or available for use by VitalStream and the VitalStream Subsidiaries immediately subsequent to the Closing on identical terms and conditions as applicable to VitalStream immediately prior to the Closing. VitalStream has taken all commercially reasonable actions to maintain and protect the VitalStream Intellectual Property Rights. (ii) To the Knowledge of VitalStream, neither VitalStream nor the VitalStream Subsidiaries has interfered with, infringed upon, violated, misappropriated, or otherwise come into conflict with any Intellectual Property Rights of any other Person and, to the Knowledge of VitalStream, the continued conduct and operation of its business as presently conducted and operated will not interfere with, infringe upon, violate, misappropriate or otherwise come into conflict with any Intellectual Property Rights of any other Person. Neither VitalStream nor any VitalStream Subsidiary has ever received any Claim or notice alleging any such interference, infringement, conflict, misappropriation, or violation (including, but not limited to, any Claim that VitalStream or any VitalStream Subsidiary must license or refrain from using any Intellectual Property Rights of any other Person or any demand or offer to license any Intellectual Property Rights from any Person), and VitalStream is not aware of any facts that indicate a likelihood of any of the foregoing. To the Knowledge of VitalStream, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any VitalStream Intellectual Property Rights, and VitalStream is not aware of any facts that indicate a likelihood of any of the foregoing. (iii) Schedule 4(p)(iii) attached hereto identifies (A) each patent or registration which has been issued to VitalStream or any VitalStream Subsidiary with respect to any VitalStream Intellectual Property Rights and each pending patent application or application for registration which VitalStream or any VitalStream Subsidiary has made with respect to any VitalStream Intellectual Property Rights (B) each license, sublicense, agreement, or other permission which VitalStream or any VitalStream Subsidiary has granted to any Person with respect to any VitalStream Intellectual Property Rights (other than such licenses, sublicenses and other permissions as are granted in the Ordinary Course of Business under the terms of VitalStream form licensing agreements) (together with any exceptions); (C) each material unregistered trademark, copyright, material unregistered service mark, trade name, corporate name, Internet domain name, computer software item (other than commercially available off-the-shelf software purchased or licensed for less than a total cost of $1,000 in the aggregate) within the VitalStream Intellectual Property Rights; and (D) any other material VitalStream Intellectual Property Rights. VitalStream has delivered to Hosting correct and complete copies of all such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as amended to date) and has made available to Hosting correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. (iv) Schedule 4(p)(iv) attached hereto identifies each VitalStream Intellectual Property Right that any third party owns and that VitalStream or the VitalStream Subsidiaries use (or contemplate to use) pursuant to a written license, sublicense, agreement, or permission (other than commercially available off-the-shelf software purchased or licensed for less than a total cost of $1,000 in the aggregate). VitalStream -52- has delivered to Hosting correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each Intellectual Property Right required to be identified on Schedule 4(p)(iv) attached hereto: (A) the license, sublicense, agreement, or permission covering such VitalStream Intellectual Property Right is legal, valid, binding, enforceable, and in full force and effect; (B) the license, sublicense, agreement, or permission covering such VitalStream Intellectual Property Right will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement (including the assignments and assumptions referred to in Section 2 of this Agreement); (C) to the Knowledge of VitalStream no party to the license, sublicense, agreement, or permission covering such VitalStream Intellectual Property Right is in breach or default, and, to the Knowledge of VitalStream, no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (D) to the Knowledge of VitalStream no party to the license, sublicense, agreement, or permission covering such VitalStream Intellectual Property Right has repudiated any provision thereof; (E) such VitalStream Intellectual Property Right is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (F) no Claim is pending or, to the Knowledge of VitalStream (and employees with responsibility for Intellectual Property Right matters), is threatened which challenges the legality, validity, or enforceability of such VitalStream Intellectual Property Right and there are no grounds for the same; and (G) Neither VitalStream nor any VitalStream Subsidiary has granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission covering such VitalStream Intellectual Property Right. (v) No VitalStream Intellectual Property Right is subject to any outstanding injunction, judgment, order, decree, ruling, or charge. No Claim is pending or, to the Knowledge of VitalStream (and employees with responsibility for Intellectual Property Right matters), is threatened which challenges the legality, validity, enforceability, use, or ownership of any VitalStream Intellectual Property Right, and, to the Knowledge of VitalStream, there are no grounds for the same. To the Knowledge of VitalStream, no loss or expiration of any VitalStream Intellectual Property Right is threatened, pending, or reasonably foreseeable, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by VitalStream or any VitalStream Subsidiary, -53- including, a failure by VitalStream or any VitalStream Subsidiary to pay any required maintenance fees). (q) Employees. (i) Except as set forth on Schedule 4(q) attached hereto: (A) Neither VitalStream nor any of the VitalStream Subsidiaries is a party to or bound by any collective bargaining agreement or relationship with any labor organization; (B) To the Knowledge of VitalStream, no executive, key employee or group of employees has any plans to terminate their employment with any Buying Party or any VitalStream Subsidiary; (C) to the Knowledge of VitalStream, no labor organization or group of employees has filed any representation petition or made any written or oral demand for recognition; (D) no union organizing or decertification efforts are underway or, to the Knowledge of VitalStream, threatened; (E) within the past five (5) years no labor strike, work stoppage, slowdown, or other labor dispute has occurred, and none is underway or, to the Knowledge of VitalStream, threatened; (F) there is no workman's compensation Liability, experience or matter that would reasonably be expected to have a VitalStream Material Adverse Effect; and (G) there is no employment-related charge, complaint, grievance, investigation, inquiry or Liability of any kind, pending or threatened in any forum, relating to an alleged violation or breach by VitalStream or any VitalStream Subsidiary (or their officers or directors) of any Law, regulation or contract and, to the Knowledge of VitalStream, no facts or circumstances exist that would reasonably be expected to give rise to such a charge, complaint, grievance, investigation, inquiry or Liability. (ii) Any notice of the transaction contemplated by this Agreement required under any Law or collective bargaining agreement has been given, and all bargaining obligations with any labor organization or other employee representative have been, or prior to Closing will be, satisfied. (iii) No plant closing or mass layoff of employees has been implemented that could implicate the WARN Act. (r) Employee Benefits. -54- (i) Neither VitalStream nor any VitalStream Subsidiary has any obligation to contribute to (or any other Liability, including current or potential withdrawal liability, with respect to) any "multiemployer plan" (as defined in Section 3(37) of ERISA), or any "defined benefit plan" (as defined in Section 3(35) of ERISA), whether or not terminated. (ii) Except as set forth on Schedule 4(r) attached hereto, neither VitalStream nor any VitalStream Subsidiary maintains or has any obligation to contribute to (or any other Liability with respect to) any plan or arrangement whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated employees (except for limited continued medical benefit coverage required to be provided under COBRA). (iii) Except as set forth on Schedule 4(r) attached hereto, VitalStream does not maintain, contribute to or have any Liability under (or with respect to) any employee plan which is a "defined contribution plan" (as defined in Section 3(34) of ERISA), whether or not terminated (the "VitalStream Defined Contribution Plan"). (iv) Except for the VitalStream Defined Contribution Plan and as set forth on Schedule 4(r) attached hereto, neither VitalStream nor any VitalStream Subsidiary maintains, contributes to or has any Liability under (or with respect to) any Employee Benefit Plan providing benefits to current or former employees, including any bonus plan, plan for deferred compensation, employee health or other welfare benefit plan or other arrangement, whether or not terminated. Such Employee Benefit Plans are referred to as the "Other VitalStream Plans" and, together with the VitalStream Defined Contribution Plan, the "VitalStream Plans." (v) With respect to the VitalStream Defined Contribution Plan and the Other VitalStream Plans (collectively, the "VitalStream Plans"), all required or recommended (in accordance with historical practices) payments, premiums, contributions, reimbursements or accruals for all periods (or partial periods) ending prior to or as of the date hereof shall have been made or properly accrued on the Most Recent VitalStream Balance Sheet. None of the VitalStream Plans has any material unfunded Liabilities which are not reflected on the Most Recent VitalStream Balance Sheet. (vi) The VitalStream Plans and all related trusts, insurance contracts and funds have been maintained, funded and administered in accordance with their terms and have complied in form and in operation in all material respects with the applicable requirements of ERISA, the Code and other applicable Laws. The requirements of COBRA have been met in all material respects with respect to each VitalStream Plan which is an "employee welfare benefit plan" (as such term is defined in Section 3(1) of ERISA) which is subject to COBRA. (vii) Each of the VitalStream Plans which is intended to be qualified under Section 401(a) of the Code has received a favorable determination from the Internal Revenue Service that such VitalStream Plan is qualified under Section 401(a) of the Code, and there are no circumstances which could reasonably be expected to adversely affect the qualified status of any such VitalStream Plan. All such VitalStream Plans have -55- been or will be timely amended for the requirements of the Tax legislation commonly known as "GUST" and have been or will be submitted to the Internal Revenue Service for a favorable determination letter within the remedial amendment period prescribed by GUST. (viii) No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any VitalStream Plan (other than routine claims for benefits) is pending or, to the Knowledge of VitalStream, threatened which could result in or subject VitalStream or any VitalStream Subsidiary to any material Liability, and there are no circumstances which could reasonably be expected to give rise to any such actions, suits or claims. (s) Insurance. Neither VitalStream nor any of the VitalStream Subsidiaries is in material default with respect to its obligations under any insurance policy maintained by it, and neither VitalStream nor any of the VitalStream Subsidiaries has ever been denied insurance coverage. The insurance coverage of VitalStream and the VitalStream Subsidiaries is customary for entities of similar size engaged in similar lines of business. The reserves set forth on the Most Recent VitalStream Balance Sheet is adequate to cover all anticipated Liabilities with respect to all self-insurance or co-insurance programs. (t) Affiliate Transactions. Except as set forth on the attached Schedule 4(t) attached hereto or in the VitalStream Securities and Exchange Commission Reports, no officer, director, employee, stockholder, or other Affiliate of VitalStream or any of the VitalStream Subsidiaries or any individual related by blood, marriage or adoption to any such individual or any entity in which any such Person or individual owns any beneficial interest, is a party to any agreement, contract, commitment or transaction with VitalStream or any of the VitalStream Subsidiaries or has any material interest in any assets or property owned or used by VitalStream or any of the VitalStream Subsidiaries. (u) Brokerage. Except as set forth on Schedule 4(u), neither VitalStream nor any of the VitalStream Subsidiaries has any Liability to pay (or has made any arrangement under which VitalStream or any VitalStream Subsidiary may be required to pay) any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement or the other Transaction Agreements. (v) Governmental Consent, etc. No permit, consent, approval or authorization of, or declaration to or filing with, any Governmental Entity is required in connection with the execution, delivery and performance by VitalStream or the Buyer of this Agreement or any other Transaction Agreement or the consummation by VitalStream or the Buyer of any of the transactions contemplated hereby or thereby, except for filings with any Governmental Entity which are required or permitted to be made after the date hereof pursuant to applicable federal and state securities Laws and blue sky Laws, which filings will be effected within the applicable statutory periods. (w) Disclosure. This Agreement, together with the VitalStream Securities and Exchange Commission Reports and the annexes, schedules, exhibits and certificates supplied by VitalStream or the Buyer or on behalf of VitalStream or the Buyer or any of the other -56- VitalStream Subsidiaries with respect to the transactions contemplated by this Agreement and the other Transaction Agreements, do not contain any untrue statement of a material fact, as of the date hereof or thereof, as the case may be, or omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. (x) Capital Stock and Related Matters. (i) The authorized capital stock of VitalStream consists of (A) 290,000,000 shares of Common Stock, 24,488,933 of which shares of Common Stock are issued and outstanding as of the date hereof and (B) 10,000,000 shares of Preferred Stock, no shares of which have been issued. As of the date hereof, VitalStream does not have outstanding any Equity Securities, except as set forth on Schedule 4(x)(i) attached hereto. Except as required by the Articles of Incorporation, VitalStream is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its Equity Securities. All of the outstanding shares of VitalStream's capital stock have been validly issued and are fully paid and nonassessable. Immediately following the Closing, the Initial Purchase Shares shall represent 12.5% of the sum of (1) the number of shares of Common Stock issuable pursuant to this Agreement at Closing plus (2) the number of shares of Fully Diluted Common Stock. (ii) Except as set forth in Schedule 4(x)(ii) attached hereto, (A) as of the date of the stockholder list attached as part of Schedule 4(x)(ii) attached hereto, no person owns of record or is known to VitalStream to own of record any Equity Securities of VitalStream; (B) no subscription, warrant, option, convertible security, or other right (contingent or otherwise) to purchase or otherwise acquire Equity Securities of VitalStream issued by VitalStream is authorized or outstanding; (C) there is no commitment of VitalStream to issue shares, subscriptions, warrants, options, convertible securities, or other such rights (contingent or otherwise) or to distribute to holders of any of its Equity Securities or Debt Securities any evidence of Indebtedness or assets. Except as provided for in the Articles of Incorporation, or as set forth in Schedule 4(x)(ii) attached hereto, VitalStream has no obligation (contingent or otherwise) to purchase, redeem, or otherwise acquire any of its Equity Securities or Debt Securities or any interest therein or to pay any dividend or make any other distribution is respect thereof. All of the outstanding Equity Securities and Debt Securities of VitalStream were issued in compliance with all applicable federal, provincial and state securities Laws. (iii) There are no statutory or contractual stockholders preemptive rights or rights of refusal with respect to the issuance of the Purchase Shares. VitalStream has not violated any applicable securities Laws in connection with the offer, sale or issuance of any of its capital stock, and (subject to the accuracy of the representations, acknowledgements and agreements contained in Section 3(z) and Section 6(c) of this Agreement), the offer, sale and issuance of the Purchase Shares hereunder do not require registration under the Securities Act or any applicable state securities Laws. To VitalStream's Knowledge, except for the AKKAD Agreement and the Investor Rights Agreement, there are no agreements between VitalStream's stockholders with respect to -57- the voting or transfer of VitalStream's capital stock or with respect to any other aspect of VitalStream's affairs other than as set forth in the Articles of Incorporation. (y) Issuance of the Purchase Shares. The issuance, sale and delivery of the Purchase Shares in accordance with this Agreement, have been, or will be on or prior to the Closing, duly authorized by all necessary corporate action on the part of VitalStream. The Purchase Shares, when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens, and not subject to any preemptive rights. Subject to the accuracy of the representations, acknowledgements and agreements contained in Section 3(z) and Section 6(c) of this Agreement, the offer and sale of the Purchase Shares to Hosting will be in compliance with all applicable Laws. (z) Customers and Suppliers. (i) Except as set forth on Schedule 4(z) attached hereto, during the twelve (12) month period ending on the date hereof, there has not been any material interruption or outage (other than as requested by a customer of VitalStream or any VitalStream Subsidiary) in the provision by VitalStream or any VitalStream Subsidiary to any customer of VitalStream or any VitalStream Subsidiary of the goods and services provided by VitalStream or any VitalStream Subsidiary in the operation of its Hosting Business. (ii) Except as set forth on Schedule 4(z) attached hereto, no customer of VitalStream or any VitalStream Subsidiary which generated monthly revenues in the one month period ended October 31, 2002 that accounted for in excess of $5,000 of the monthly revenues of the Hosting Business operated by VitalStream and any VitalStream Subsidiary has terminated or threatened in writing to terminate its relationship, or any agreement, with VitalStream or any VitalStream Subsidiary, as the case may be. (aa) Investment Company. The Company is not an "investment company" as defined under the Investment Company Act of 1940. 5. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Each of the Parties will, and VitalStream will cause each of the VitalStream Subsidiaries to, use its reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement and by the other Transaction Agreements (including satisfaction, but not waiver, of the closing conditions set forth in Section 6(h)(i) of this Agreement). (b) Notices and Consents. (i) Each of Hosting and Networks, will give any notices to third parties, and each of Hosting and Networks will use their respective reasonable best efforts to obtain any third party consents required in connection with the consummation of the -58- transactions contemplated by this Agreement and the other Transaction Agreements VitalStream may reasonably request in connection with the matters contemplated herein and in the other Transaction Agreements. Each of Hosting and Networks, will give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents and approvals of any Governmental Entity required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements. (ii) Each of the Buying Parties will, and VitalStream will cause each of the other VitalStream Subsidiaries to, give any notices to third parties, and each of the Buying Parties will, and VitalStream will cause each of the VitalStream Subsidiaries to, use their reasonable best efforts to obtain any third party consents required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements Hosting may reasonably request in connection with the matters contemplated herein and in the Transaction Agreements. Each of the Buying Parties will, and VitalStream will cause each of the other VitalStream Subsidiaries to, give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents and approvals of any Governmental Entity required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements. (c) Operation and Preservation of Business. (i) Each of Hosting and Networks shall operate its Hosting Business in the Ordinary Course of Business consistent with prudent business practices and in compliance with applicable Laws, and to the extent consistent therewith so as to preserve the current value and integrity of the Hosting Business of Hosting and the Acquired Assets, maintain insurance on the Acquired Assets (in amounts and types consistent with past practice), and use its reasonable best efforts to preserve the goodwill and organization of the Hosting Business of Hosting and its relationships with customers, suppliers and others having business dealings with it. Neither Hosting nor Networks will engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business of their respective Hosting Businesses. (ii) VitalStream shall, and shall cause each of the VitalStream Subsidiaries to, operate its business in the Ordinary Course of Business consistent with prudent business practices and in compliance with applicable Laws, and to the extent consistent therewith so as to preserve the current value and integrity of its business, and use its reasonable best efforts to preserve the goodwill and organization of its business and its relationships with customers, suppliers and others having business dealings with it. VitalStream will not, and will cause each of the VitalStream Subsidiaries not to, engage in any practice, take any action, or enter into any transaction (other than a transaction described in Section 5(f) of this Agreement which shall be governed by Section 5(f) of this Agreement) outside the Ordinary Course of Business. -59- (d) Full Access. (i) Each of Hosting and Networks shall afford to VitalStream and its counsel, accountants, agents and other authorized representatives specified by VitalStream access during business hours to their respective premises, properties, personnel, books, records (including Tax records), contracts and documents of or pertaining to the Acquired Assets in order that VitalStream may have full opportunity to make such reasonable investigations as it shall desire to make of the affairs of the Acquired Assets and their respective Hosting Businesses. Each of Hosting and Networks shall cause its officers and employees, and shall use its best efforts to cause their counsel and auditors to furnish such additional financial and operating data and other information as VitalStream shall from time to time reasonably request including any internal control recommendations made by its independent auditors in connection with any audit of their respective Hosting Businesses. From time to time prior to the Closing Date, each of Hosting and Networks shall promptly supplement or amend information previously delivered to VitalStream with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or disclosed herein; provided, however, that such supplemental information shall not be deemed to be an amendment to any schedule hereto and shall not change the risk allocation of this Agreement between VitalStream, on the one hand, and Hosting and Networks, on the other hand. (ii) VitalStream shall, and shall cause each of the VitalStream Subsidiaries to, afford to Hosting and its counsel, accountants, agents and other authorized representatives specified by Hosting access during business hours to the premises, properties, personnel, books, records (including Tax records), contracts and documents of or pertaining to VitalStream and each of the VitalStream Subsidiaries in order that Hosting may have full opportunity to make such reasonable investigations as it shall desire to make of the affairs of VitalStream and each of the VitalStream Subsidiaries. VitalStream shall, and shall cause each of the VitalStream Subsidiaries to, cause its officers and employees, and shall use its best efforts to cause their counsel and auditors to furnish such additional financial and operating data and other information as Hosting shall from time to time reasonably request including, any internal control recommendations made by its independent auditors in connection with any audit of VitalStream and the VitalStream Subsidiaries. From time to time prior to the Closing Date, VitalStream shall promptly supplement or amend information previously delivered to Hosting with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or disclosed herein; provided, however, that such supplemental information shall not be deemed to be an amendment to any schedule hereto and shall not change the risk allocation of this Agreement between VitalStream, on the one hand, and Hosting and Networks, on the other hand. (e) Notice of Developments. Each Party will give prompt written notice to the other Party of any material adverse development causing a breach of any of its own representations and warranties set forth in Section 2(j) and Section 4 of this Agreement. No disclosure by any Party pursuant to this Section 5(e), however, shall be deemed to amend or supplement any -60- schedule attached hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (f) Exclusivity. (i) During the period beginning on the date of the execution of this Agreement and continuing until the earlier of (A) the termination of this Agreement and (B) the consummation of the transactions contemplated by this Agreement, no Party (nor any of such Party's stockholders, directors, officers, employees, agents or representatives, if any) will, without the prior written approval of each of the other Parties: (A) solicit, initiate, encourage the submission or discuss any proposal or offer from any Person (other than the Parties) relating to any financing, acquisition, divestiture or business combination of or involving the Hosting Business of such Party (including any acquisition or divestiture of any capital stock or other voting securities or any portion of the assets of such Party and any acquisition structured as a merger, consolidation, or share exchange) other than communications necessary to advise Persons of such Party's lack of interest in any such proposal or offer or (B) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. (ii) For the avoidance of any doubt, this Section 5(f) shall not prohibit any transaction involving, Holdings, Networks or any of their respective Affiliates, stockholders, directors, officers, employees, agents or representatives in connection with any financing, acquisition, divestiture or business combination (including any acquisition or divestiture of any capital stock or other voting securities or any portion of the assets of such Party and any acquisition structured as a merger, consolidation, or share exchange) of or involving the business and operations of Networks or Holdings (or any of their respective Subsidiaries) other than their respective Hosting Business including, without limitation, the transactions contemplated by that certain Asset Purchase Agreement dated as of October 10, 2002, by and among Netifice, Holdings and Networks. (iii) Notwithstanding anything to the contrary set forth in Section 5(f)(i) of this Agreement, this Section 5(f) shall not prohibit (A) the issuance of Equity Securities of VitalStream upon the exercise of any options or warrants outstanding on the Closing Date, (B) the grant of options by VitalStream pursuant to the VitalStream 2001 Stock Incentive Plan, (C) the discussion by VitalStream of any transaction involving VitalStream or any VitalStream Subsidiary or any of their respective Affiliates, stockholders, directors, officers, employees, agents or representatives (each a "VitalStream Party") in connection with any financing, acquisition, divestiture or business combination (including any acquisition or divestiture of any Equity Securities or any portion of the assets of such VitalStream Party and any acquisition structured as a merger, consolidation or share exchange) of or involving the business and operations of VitalStream or any VitalStream Subsidiary (a "VitalStream Transaction") provided, -61- however, that such VitalStream Party shall promptly update Dolphin as to any material information regarding a VitalStream Transaction and provide Dolphin with at least a weekly update of such discussions (in writing, if Dolphin shall so request) regarding any VitalStream Transaction and copies of all term sheets, agreements and any other documentation or correspondence prepared for or in connection with such VitalStream Transaction and provided further, that no VitalStream Party shall enter into any term sheet, contract or other agreement or arrangement (whether written or oral) upon the earlier to occur of (1) December 31, 2002, and (2) that date that is fifteen days following the Closing Date. VitalStream hereby represents and warrants that neither VitalStream, any VitalStream Subsidiary nor, to the Knowledge of VitalStream, any other VitalStream Party has entered into any executory agreement which has not yet terminated or accepted any commitment with respect to any VitalStream Transaction. 6. Additional Agreements. (a) General. At any time after the Closing, if any further action is necessary or desirable to carry out the purposes of this Agreement or any other Transaction Agreement (including any action necessary to transfer, convey and assign the Acquired Assets to VitalStream and to put VitalStream in the possession and operating control of the Acquired Assets), each of the Parties will take such further action (including the execution and delivery of such further instruments and documents of sale, transfer, conveyance, assignment and confirmation) as any other Party may request, at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 8 of this Agreement). Each of Hosting and Networks acknowledges and agrees that from and after the Closing Date VitalStream will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to the Hosting Business of Hosting or the Acquired Assets. Networks acknowledges and agrees that from and after the Closing Date VitalStream will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating solely to the Hosting Business of Networks. (b) Litigation Support. At any time after the Closing, in the event and for so long as any Party actively is contesting or defending against any Claim in connection with (i) any transaction contemplated under this Agreement or any Transaction Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Hosting Business of Hosting or Networks or the Acquired Assets, the other Parties will (and VitalStream will cause each of the VitalStream Subsidiaries to) cooperate with the contesting or defending Party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 of this Agreement). -62- (c) Purchase Shares. (i) The Purchase Shares issued pursuant to this Agreement will be imprinted with a legend substantially in the following form: "THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. "THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THE AMENDED AND RESTATED ASSET PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 2003, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE OTHER PARTIES REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." (ii) Hosting acknowledges and agrees that the Purchase Shares it is acquiring pursuant to this Agreement are characterized as "restricted securities" under the federal securities Laws inasmuch as they are being acquired from VitalStream in a transaction not involving a public offering and that under such Laws such securities may be resold without registration under the Securities Act only in certain limited circumstances as set forth in this Section 6(c). Restricted Securities are transferable only pursuant to (A) public offerings registered under the Securities Act, (B) Rule 144 or Rule 144A adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission if the exemption from registration under such rule is available and (C) subject to the conditions specified in Section 6(c)(iii) below, any other legally available means of transfer. (iii) In connection with the transfer of any Restricted Securities (other than a transfer described in Section 6(c)(ii) of this Agreement), the holder thereof shall deliver -63- written notice to VitalStream describing in reasonable detail the transfer or proposed transfer, together with an opinion of legal counsel which is knowledgeable in securities Law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the Securities Act. In addition, if the transferring holder delivers to VitalStream an opinion of such legal counsel that no subsequent transfer of such Restricted Securities shall require registration under the Securities Act, VitalStream shall promptly upon such contemplated transfer deliver new certificates for such Restricted Securities which do not bear the Securities Act legend set forth in Section 6(c)(i) of this Agreement. If VitalStream is not required to deliver new certificates for such Restricted Securities not bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to VitalStream in writing its agreement to be bound by the conditions contained in this Section 6(c). (iv) Notwithstanding any provision of this Agreement to the contrary, upon the request of the holders of a majority of the Purchase Shares, VitalStream shall promptly supply to such holders or their prospective transferees all information regarding VitalStream required to be delivered in connection with a transfer pursuant to Rule 144A adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. (v) If any Restricted Securities become eligible for sale pursuant to Rule 144(k) adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission, VitalStream shall, upon the request of the holder of such Restricted Securities remove the legend set forth in Section 6(c)(i) of this Agreement from the certificates for such Restricted Securities. (d) Employees. As of the Closing Date, Networks shall terminate the employment of each individual currently employed by Networks and listed on Annex 1 (the "Eligible Networks Employees"). As of the Closing Date, VitalStream will offer employment to the Eligible Networks Employees on such terms and conditions as VitalStream shall determine in its sole discretion. Those Eligible Networks Employees who accept such offer of employment as of the Closing Date shall be referred to herein as the "Transferred Employees." Notwithstanding the provisions of this Section 6(d), nothing in this Agreement shall limit VitalStream's ability to terminate the employment of any Transferred Employee at any time and for any reason, including without cause. Networks shall be liable for all severance costs and other Liabilities incurred as a result of the termination of the Transferred Employees other than those severance costs and other Liabilities expressly assumed by VitalStream pursuant to the terms of this Agreement. VitalStream will use its reasonable best efforts to assist Networks in obtaining releases of Liability of Hosting and Networks from all Transferred Employees. (e) Non-Competition; Non-Interference; Non-Solicitation. As a significant inducement to the Buying Parties to enter into and perform their obligations under this Agreement, each of Networks and Hosting (collectively, the "Noncompeting Parties"), hereby agree as follows: -64- (i) Each Noncompeting Party acknowledges that (A) a principal business of Hosting is the Hosting Business of Hosting; (B) Hosting and Networks are among a limited number of Persons who have developed a Hosting Business; (C) the Hosting Business of Hosting and Networks is, in part, national and international in scope; (D) the agreements and covenants of each Noncompeting Party contained in this Section 6(e)(i) are essential to the business and goodwill of the Hosting Business of Hosting and Networks and the use by VitalStream of the Acquired Assets and the conduct by VitalStream of the Hosting Business of Hosting and Networks; and (E) VitalStream would not have entered into this Agreement and would not have purchased the Acquired Assets but for the covenants and agreements set forth in this Section 6(e)(i). Accordingly, each of the Noncompeting Parties covenants and agrees that: (A) During the period commencing on the Closing Date and ending five (5) years following the Closing Date (the "Restricted Period"), none of the Noncompeting Parties will directly or indirectly, own, operate, manage, control, participate in, consult with, advise, permit its name to be used by, provide services for, lease, or in any manner engage in any business that manufactures or sells any products or provides any services which are in competition with any products or services of the Hosting Business of Hosting and Networks anywhere in the United States, as such businesses exist as of the Closing Date (collectively, "Covered Activities"). (B) At all times after the date hereof, each of the Noncompeting Parties shall keep secret and retain in strictest confidence all Confidential Information, and shall not use for its benefit or for the benefit of any third party, any and all Confidential Information and shall not disclose any Confidential Information to anyone outside of each of the Noncompeting Parties and their Affiliates and advisors who do not presently have such Confidential Information, except with the express written consent of VitalStream and except for Confidential Information which is at the time of receipt or thereafter becomes publicly known through no wrongful act of any of the Noncompeting Parties of their Affiliates. (C) During the Restricted Period, none of the Noncompeting Parties shall, without the prior written consent of VitalStream, directly or indirectly, (i) induce or attempt to induce any employee of any Buying Party to leave the employ of any Buying Party, (ii) employ any employee of any Buying Party when employed by any Buying Party, (iii) in any other way interfere with the relationship between any Buying Party and any employee of any Buying Party, (iv) employ during the period commencing from the date hereof and ending two (2) years following the Closing Date any Person (other than a Transferred Employee) who is employed by any Buying Party during such period, or (v) induce or attempt to induce any customer, supplier, licensee, licensor, reseller, partner or franchisee of any Buying Party (including any Hosting Business Customer) to cease doing business with any Buying Party, or in any way interfere with the relationship between any such customer, supplier, licensee, licensor, reseller, partner or franchisee or business relation and any Buying Party. -65- (ii) Each of Networks and Hosting further acknowledge and agree that: (A) the covenants set forth in Section 6(e)(i) of this Agreement are reasonable in geographical and temporal scope and in all other respects, (B) VitalStream would not have entered into this Agreement but for the covenants of Hosting and Networks contained herein, and (C) the covenants contained herein have been made in order to induce VitalStream to enter into this Agreement and purchase the Acquired Assets from which VitalStream will receive substantial benefit. (iii) If, at the time of enforcement of the covenants contained in Section 6(e)(i) of this Agreement, a court shall hold that the duration, scope or geographic restrictions stated therein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or geographic area reasonable under such circumstances shall be substituted for the stated duration, scope or geographic area (and any court or other adjudicator interpreting these provision is hereby authorized to so amend this Agreement). (iv) For the avoidance of any doubt, this Section 6(e) shall not prohibit any transaction by Networks or any assignee of Networks pursuant to which Networks or any such assignee shall lease the premises located at 555 Anton Blvd, Costa Mesa California, to any third party for the purpose of the conduct by such third party of its colocation business. (f) No Assignment Causing Breach. Notwithstanding anything in this Agreement, neither this Agreement nor any document or instrument delivered pursuant hereto shall constitute an assignment of an Acquired Asset (including any Claim, contract, commitment, sales order or purchase order or any right or any benefit arising thereunder or resulting therefrom) if an attempted assignment thereof without the consent of any other Person would constitute a breach thereof or in any way adversely affect the rights to be assigned. Until such consent is obtained, or if an attempted assignment thereunder would be ineffective or would affect the rights of Hosting thereunder so that VitalStream, would not in fact receive all such rights, Hosting on the one hand, and VitalStream, on the other hand, will cooperate with each other to provide for the benefits of, and to permit VitalStream to assume all Liabilities under, any such Acquired Asset or Assumed Liability including enforcement at the request and expense of VitalStream for the benefit of VitalStream any and all rights of Hosting against any Person thereto arising out of the breach or cancellation thereof by such Person; and any transfer or assignment to VitalStream by Hosting of any Acquired Asset which shall require the consent or approval of any Person shall be made subject to such consent or approval being obtained. (g) Mail, Notices and Other Correspondence. (i) After the Closing, Hosting and Networks shall deliver or cause to be delivered to VitalStream, promptly after receipt by Hosting or Networks, as the case may -66- be, all mail, notices and other correspondence relating to the Acquired Assets or the Hosting Business of Hosting or Networks. (ii) After the Closing, each of VitalStream and the Buyer shall deliver or cause to be delivered to Hosting, promptly after receipt by VitalStream or the Buyer (A) all mail, notices and other correspondence which do not relate to the Acquired Assets or the Hosting Business of Hosting or Networks, (B) all payments in respect of any accounts or notes receivable which constitute an Excluded Asset or (C) any other Excluded Asset that comes into its possession at any time after the Closing. (h) Tax Matters. (i) Hosting and Networks will be responsible for the preparation and filing of all Tax Returns for Hosting and Networks for all periods as to which Tax Returns are due after the Closing Date (including the consolidated, unitary, and combined Tax Returns for Hosting and Networks which include the operations of the Hosting Business of Hosting and Networks for any period ending on or before the Closing Date); provided, however, that VitalStream, will reimburse Hosting or Networks, as the case may be, concurrently therewith to the extent any payment Hosting or Networks, as the case may be, is making relates to the operations of the Hosting Business of Hosting and Networks for any period beginning after the Closing Date. (ii) VitalStream will be responsible for the preparation and filing of all Tax Returns for the Acquired Assets for all periods as to which Tax Returns are due after the Closing Date (other than for Tax Returns of Hosting and Networks described in Section 6(h)(i) of this Agreement). VitalStream will make all payments required with respect to any such Tax Return; provided, however, that Hosting or Networks, as the case may be, will reimburse VitalStream concurrently therewith to the extent any payment VitalStream is making relates to the operations of the Hosting Business of Hosting and Networks for any period ending on or before the Closing Date. (iii) Notwithstanding anything in Section 6(h)(i) and Section 6(h)(ii) to the contrary, Hosting shall pay, or reimburse VitalStream for, all sales Tax payable to the State of California as a result of the purchase and sale of the Acquired Assets pursuant to the Transaction Agreements. (i) Notice of Assignment. Hosting shall promptly after the Closing Date notify the Hosting Business Customers of the assignment of their service contracts to the Buyer and shall instruct the Hosting Business Customers to make payments for the services provided by Buyer directly to the Buyer in accordance with instructions from Buyer. (j) Updating Hosting Contracts List (i) At any time and from time to time following the Closing Date, if Hosting discovers the existence of an Omitted Hosting Contract, Hosting shall deliver to the Buyer and VitalStream an addendum to Schedule 3(l) attached hereto listing such Omitted Hosting Contract (each, a "Contract Addendum"), together with a true, correct -67- and complete copy of such Omitted Hosting Contract. The Buyer shall have ten (10) days after their receipt of the Contract Addendum to review the Contract Addendum. To the extent (a) the document listed on the Contract Addendum is an Omitted Hosting Contract and (b) the performance of such Omitted Hosting Contract, when aggregated with all other Omitted Hosting Contracts listed on Contract Addenda previously delivered to the Buyer and VitalStream involves the payment by or to Hosting of consideration less than or equal to $20,000 annually, such Omitted Hosting Contract shall automatically be deemed to have been accepted by the Buyer as a Hosting Contract and added to Schedule 3(l) attached hereto as of the date hereof. To the extent either (A) the document listed on the Contract Addendum is not an Omitted Hosting Contract or (B) the performance of such Omitted Hosting Contract, when aggregated with all other Omitted Hosting Contracts listed on Contract Addenda previously delivered to the Buyer and VitalStream involves the payment by or to Hosting of consideration greater than $20,000 annually, the Buyer may reject any such asserted Omitted Hosting Contract by delivering written notice (the "Buyer Rejection Notice") to Hosting indicating its rejection of such asserted Omitted Hosting Contract and the reason for such rejection prior to the expiration of the ten (10) day period referred to above. If the Buyer does not deliver a Buyer Rejection Notice within the ten (10) day period described above, the Omitted Hosting Contract described in the respective Contract Addendum shall be deemed to have been accepted by the Buyer as a Hosting Contract and added to Schedule 3(l) attached hereto as of the date hereof. In the event of a dispute regarding whether an asserted Omitted Hosting Contract may, or may not, be rejected, Hosting and the Buyer shall, in good faith, attempt to resolve the dispute within fifteen (15) days after Hosting's receipt of the Buyer Rejection Notice. (ii) At any time and from time to time following the Closing Date if the Buyer discovers the existence of an Omitted Hosting Contract, the Buyer may, in its discretion, deliver to Hosting a demand that Hosting deliver a Contract Addendum listing such Omitted Hosting Contract (a "Contract Demand"). Hosting shall have ten (10) days after its receipt of the Contract Demand to review the Contract Demand. To the extent the document identified in the Contract Demand is an Omitted Hosting Contract, Hosting shall, within the ten (10) day period described above, deliver a Contract Addendum listing such Omitted Hosting Contract (which the Buyer will be deemed to have accepted with respect to the relevant Omitted Hosting Contract). To the extent the document identified in the Contract Demand is not an Omitted Hosting Contract, Hosting may reject any such asserted Omitted Hosting Contract by delivering written notice (a "Hosting Rejection Notice") to the Buyer indicating its rejection of such asserted Omitted Hosting Contract and the reason for such rejection prior to the expiration of the ten (10) day period referred to above. If Hosting does not deliver a Hosting Rejection Notice within the ten (10) day period referred to above, the Omitted Hosting Contract described in the respective Contract Addendum shall be deemed to have been accepted Hosting and the Buyer as a Hosting Contract and added to Schedule 3(l) attached hereto as of the date hereof. In the event of a dispute regarding whether an asserted Omitted Hosting Contract may, or may not, be rejected, Hosting and the Buyer shall, in good faith, attempt to resolve the dispute within fifteen (15)days after the Buyer's receipt of the Hosting Rejection Notice. -68- (k) Post-Closing Certifications and Deliveries. Within ten (10) days of the Closing Date, VitalStream shall deliver to Hosting a list identifying, as of the Closing Date, each of the stockholders of record of the Company and the number of shares of Common Stock held by such stockholders of record, together with a certification executed by an officer of VitalStream certifying that, except as set forth on such list, there were no shares of Common Stock issued or outstanding on the Closing Date. (l) Additional Software Licenses. Hosting and Networks shall each use their good faith reasonable efforts to transfer all right, title and interest, if any, held by each of them in and to each of the software licenses set forth on Schedule 6(l) attached hereto. Notwithstanding the foregoing, VitalStream hereby acknowledges that to the extent Hosting or Networks do not have any right, title or interest in such software licenses, such software licenses shall not be transferred to VitalStream pursuant to this Section 6(l). (m) Reimbursement For Paid January Expenses. Promptly following the receipt by Buyer and/or VitalStream of Cash with respect to accounts receivable generated as a result of sales of products and/or services to the Hosting Business Customers on or after January 1, 2003 (whether such receipt results through collections by Buyer and/or VitalStream or as a result of the collection efforts of a third party on behalf of Buyer and/or VitalStream) in an aggregate amount equal to the Paid January Expense Amount, Buyer and/or VitalStream shall pay to Hosting an amount equal to the Paid January Expense Amount. Notwithstanding anything in this Section 6(m) to the contrary, the aggregate amount Buyer and/or VitalStream shall be obligated to pay to Hosting pursuant to this Section 6(m) shall not exceed the Paid January Expense Amount. (n) Reimbursement For Unpaid January Expenses. (i) From time to time following the Closing Date, Buyer hereby agrees, subject to and in accordance with the provisions of this Section 6(n), to pay all expenses that (A) have been incurred by Hosting or Networks during the period beginning on January 1, 2003 and ending on the Closing Date in the Ordinary Course of Business with respect to the Hosting Business of Hosting or Networks (other than expenses or Liabilities related to any Transaction Agreement, any expenses or Liabilities related to any breach or violation of any agreement, Legal Requirement or Intellectual Property Right or any expenses or Liabilities related to, or arising out of, any litigation), (B) arise (1) from the sale of goods or services by Hosting or Networks to the Hosting Business Customers (which expenses described in this clause (1) shall not exceed $2,000), (2) under the Hosting Contracts assumed by Buyer or (3) with respect to the Transferred Employees and (C) are not a Paid January Expense (ie. not set forth on Schedule 3(bb) attached hereto) (all such expenses satisfying (A), (B) and (C) above shall hereinafter be referred to as the "Unpaid January Expenses"). Upon receipt of an invoice, bill or agreement in respect of an Unpaid January Expense, Hosting shall provide Buyer with a copy of such invoice, bill or agreement along with a written notice (each, an "Unpaid January Expense Notice") setting forth the payee of such expense, a description of such expense and the amount of such expense (each, an "Unpaid January Expense Amount") and stating whether or not such expense has been paid in full or in part by Hosting or Networks. Upon request, Hosting shall provide to Buyer such additional information as -69- Buyer may reasonably request to confirm that such expense is an Unpaid January Expenses and whether or not such Unpaid January Expense has been paid in full or in part by Hosting or Networks. (ii) Promptly following the receipt by Buyer and/or VitalStream of Cash with respect to accounts receivable generated as a result of sales of products and/or services to the Hosting Business Customers on or after January 1, 2003 (whether such receipt results through collections by Buyer and/or VitalStream or as a result of the collection efforts of a third party on behalf of Buyer and/or VitalStream) in an aggregate amount equal to the sum of (A) the Paid January Expense Amount plus (B) the aggregate of all Unpaid January Expense Amounts as set forth in all Unpaid January Expense Notices submitted by Hosting to Buyer, Buyer and/or VitalStream shall (1) pay to Hosting an amount equal to the amount of such Unpaid January Expense Amount paid by Hosting or Networks and/or (2) pay on behalf of Hosting or Networks each Unpaid January Expense Amount (or portion thereof) that has not previously been paid by Hosting or Networks (provided that if such expense is by the terms of the governing invoice, bill or agreement payable on a deferred basis or over time, the Buyer shall be permitted to pay as per the governing invoice, bill or agreement). Notwithstanding anything in this Section 6(n) to the contrary, the aggregate amount Buyer and/or VitalStream shall be obligated to pay to or on behalf of Hosting or Networks pursuant to this Section 6(n) shall not exceed the aggregate of the Unpaid January Expense Amounts. 7. Conditions to Obligation to Close. (a) Conditions to Obligation of Each of VitalStream and the Buyer. The obligation of each of VitalStream and the Buyer to consummate the transactions to be performed by it in connection with the Closing shall be subject to the fulfillment at or prior to the Closing of each of the following conditions, any and all of which may be waived in whole or in part in writing by VitalStream and the Buyer to the extent permitted by applicable Law: (i) Networks Contribution Agreement. The Networks Contribution Agreement shall have been executed and delivered by Networks and Hosting, and shall be in full force and effect and shall not have been amended or modified. The transactions contemplated by the Networks Contribution Agreement shall have been consummated prior to the Closing in accordance with the terms of the Networks Contribution Agreement. (ii) Convertible Promissory Note and Warrant Purchase Agreement. The Convertible Promissory Note and Warrant Purchase Agreement shall have been executed and delivered by each of the Purchasers (as that term is defined in the Convertible Promissory Note and Warrant Purchase Agreement). The Convertible Promissory Note and Warrant Purchase Agreement shall be in full force and effect as of the Closing Date and shall not have been amended or modified. The transactions contemplated by the Convertible Promissory Note and Warrant Purchase Agreement, including the wire transfer to VitalStream of all amounts payable at or in connection with the consummation of the transactions under the Convertible Promissory Note and Warrant Purchase -70- Agreement, shall have been consummated in accordance with the terms of the Convertible Promissory Note and Warrant Purchase Agreement. (iii) Representations and Warranties; Covenants. The representations and warranties contained in Section 3 of this Agreement shall be true and correct in all material respects (except for any representations and warranties which are qualified by materiality, which shall be true and correct in all respects) at the Closing as though then made and as though the Closing Date was substituted for the date of this Agreement throughout such representations and warranties (except for any representation or warranty made as of a specific date, which shall be true and correct as of such date). Hosting and Networks shall have duly performed or complied with, in all material respects, all of the covenants, obligations and conditions to be performed or complied with under the terms of this Agreement and the other Transaction Agreements on, prior to, or at the Closing and shall be in compliance with, in all material respects, all of the covenants, obligations and conditions to be complied with under the terms of this Agreement at the Closing. (iv) Consents and Approvals. Each of Hosting and Networks shall have made all filings and shall have obtained and delivered to VitalStream all governmental and/or third party permits, authorizations, consents and approvals required to be obtained by it to consummate the transactions contemplated by this Agreement and the other Transaction Agreements, including all of the consents to assignment of the Hosting Contracts identified on Schedule 3(b). (v) Litigation. No Claim shall be threatened or shall be pending in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated by this Agreement or that would have, or reasonably be expected to have, a Hosting Material Adverse Effect, and no injunction, judgment, order, decree or ruling with respect thereto shall be in effect. (vi) No Bankruptcy. Neither Hosting nor Networks shall not have sought protection pursuant to any Bankruptcy Law. No Persons shall have initiated any Claim or proceedings under any Bankruptcy Law against Hosting or Networks. (vii) No Hosting Material Adverse Effect. There shall not have occurred any Hosting Material Adverse Effect since the date of the Hosting Balance Sheet. (viii) Escrow Agreement. The Escrow Agreement shall have been executed and delivered by the Hosting and the Escrow Agent and shall be in full force and effect. (ix) Master Access Agreement. The Master Access Agreement shall have been executed and delivered by Netifice and shall be in full force and effect. (x) Customer Migration Agreement. The Customer Migration Agreement shall have been executed and delivered by Netifice and shall be in full force and effect. (xi) Colocation Agreement. The Colocation Agreement shall have been executed and delivered by Netifice and shall be in full force and effect. -71- (xii) Partial Termination and Second Amendment to Sublease Agreement. The Partial Termination and Second Amendment to Sublease Agreement relating to the Los Angeles Lease in the form of Exhibit M attached hereto shall have been executed and delivered by Charter Holdings, Inc and Networks on or prior to the Closing Date and shall be in full force and effect. (xiii) Assignment and Assumption Agreement. The Assignment and Assumption Agreement shall have been executed and delivered by Hosting and shall be in full force and effect. (xiv) Bill of Sale. The Bill of Sale shall have been executed and delivered by Hosting and shall be in full force and effect. (xv) Closing Documents. Hosting and Networks shall have delivered to VitalStream all of the following documents: (A) an officer's certificate, dated as of the Closing Date, stating that the conditions specified in Section 7(a)(i) through Section 7(a)(vii) of this Agreement have been fully satisfied; (B) certified copies of the resolutions complying with the requirements of Section 3(b) duly adopted by the board of directors of Hosting (and by the shareholders of Hosting) authorizing the execution, delivery and performance of this Agreement, the other Transaction Agreements to which it is a party and each of the other agreements contemplated hereby or thereby to which it is a party and the consummation of all other transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party; (C) certified copies of the certificate of incorporation and bylaws of each of Hosting and Networks as in effect at the Closing Date; (D) certificate of good standing of each of Hosting and Networks from the Secretary of State of the state of its respective incorporation dated within five (5) days of the Closing Date; (E) copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements (including all blue sky Law filings); and (F) such other documents relating to the transactions contemplated by this Agreement or the other Transaction Agreements as VitalStream or its special counsel may reasonably request. (xvi) Proceedings. All corporate and other proceedings taken or required to be taken by each of Hosting and Networks in connection with the transactions contemplated hereby and by the other Transaction Agreements to be consummated at or prior to the -72- Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to VitalStream and its special counsel. (xvii) Termination of Cisco Security Agreements. Cisco shall have released the Acquired Assets from all Liens under the Cisco Security Agreements which relate to the Acquired Assets, and evidence of termination of all financing statements and other evidences of a Lien or other Indebtedness with respect to the Cisco Security Agreements affecting any of the Acquired Assets shall have been delivered to VitalStream. (xviii) Supplemental Schedule Certificate. Hosting and Networks shall have delivered the Hosting Schedule Bring Down Officer's Certificate along with the Schedules to be attached thereto. (b) Conditions to Obligation of Each of Hosting and Networks. The obligation of each of Hosting and Networks to consummate the transactions to be performed by it in connection with the Closing shall be subject to the fulfillment at or prior to the Closing of each of the following conditions, any and all of which may be waived in whole or in part in writing by Hosting and Networks to the extent permitted by applicable Law: (i) Convertible Promissory Note and Warrant Purchase Agreement. The Convertible Promissory Note and Warrant Purchase Agreement shall have been executed and delivered by VitalStream. The Convertible Promissory Note and Warrant Purchase Agreement shall be in full force and effect as of the Closing Date and shall not have been amended or modified. The conditions in Section 2(B) of the Convertible Promissory Note and Warrant Purchase Agreement shall have been satisfied in full (without reliance on any waiver by the Purchasers (as that term is defined in the Convertible Promissory Note and Warrant Purchase Agreement)), and the transactions contemplated by the Convertible Promissory Note and Warrant Purchase Agreement shall have been consummated in accordance with the terms of the Convertible Promissory Note and Warrant Purchase Agreement. (ii) Representations and Warranties; Covenants. The representations and warranties contained in Section 4 of this Agreement shall be true and correct in all material respects (except for any representations and warranties which are qualified by materiality, which shall be true and correct in all respects) at the Closing as though then made and as though the Closing Date was substituted for the date of this Agreement throughout such representations and warranties (except for any representation or warranty made as of a specific date, which shall be true and correct as of such date). The Buying Parties shall have duly performed or complied with, in all material respects, all of the covenants, obligations and conditions to be performed or complied with under the terms of this Agreement and the other Transaction Agreements on, prior to, or at the Closing and shall be in compliance with, in all material respects, all of the covenants, obligations and conditions to be complied with under the terms of this Agreement at the Closing. (iii) Consents and Approvals. Each of the Buying Parties shall have made all filings and shall have obtained and delivered to Hosting all governmental and/or third party permits, authorizations, consents and approvals required to be obtained it to -73- consummate the transactions contemplated by this Agreement and the other Transaction Agreements. (iv) Litigation. No Claim shall be threatened or shall be pending in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated by this Agreement or that would have, or reasonably be expected to have, a VitalStream Material Adverse Effect, and no injunction, judgment, order, decree or ruling with respect thereto shall be in effect. (v) No Bankruptcy. No Buying Party nor any Subsidiary of VitalStream shall have sought protection pursuant to any Bankruptcy Law. No Persons shall have initiated any Claim or proceedings under any Bankruptcy Law against any Buying Party or any Subsidiary of VitalStream. (vi) No VitalStream Material Adverse Effect. There shall not have occurred any VitalStream Material Adverse Effect since the date of the Most Recent VitalStream Balance Sheet. (vii) Securities Law Compliance. The Buying Parties shall have made all filings under all applicable federal and state securities Laws necessary to consummate the issuance of the Purchase Shares pursuant to this Agreement in compliance with such Laws. (viii) Escrow Agreement. The Escrow Agreement shall have been executed and delivered by VitalStream and the Escrow Agent and shall be in full force and effect. (ix) Master Access Agreement. The Master Access Agreement shall have been executed and delivered by VitalStream and Netifice and shall be in full force and effect. (x) Customer Migration Agreement. The Customer Migration Agreement shall have been executed and delivered by VitalStream and Netifice and shall be in full force and effect. (xi) Colocation Agreement. The Colocation Agreement shall have been executed and delivered by VitalStream and Netifice and shall be in full force and effect. (xii) Registration Agreement. The Registration Agreement shall have been executed and delivered by VitalStream, and shall be in full force and effect. (xiii) Investor Rights Agreement. The Investor Rights Agreement shall have been executed and delivered by VitalStream and the other signatories thereto (other than Hosting) and shall be in full force and effect. (xiv) Delivery of Cash Consideration. VitalStream shall have delivered or shall be ready to deliver at Closing to Hosting $200,000 by wire transfer of immediately available funds pursuant to Section 2(c) of this Agreement. -74- (xv) Termination of Cisco Security Agreements. Each of the Cisco Security Agreements shall have been terminated by the parties thereto, Cisco shall have released the Acquired Assets from all Liens thereunder which relate to the Acquired Assets, and evidence of termination of all financing statements and other evidences of a Lien or other Indebtedness with respect to the Cisco Security Agreement affecting any of the Acquired Assets shall have been delivered to VitalStream. (xvi) Partial Termination and Second Amendment to Sublease Agreement. The Partial Termination and Second Amendment to Sublease Agreement relating to the Los Angeles Lease in the form of Exhibit M attached hereto shall have been executed and delivered by Charter Holdings, Inc and Networks on or prior to the Closing Date and shall be in full force and effect. (xvii) Closing Documents. VitalStream shall have delivered to Hosting and Networks all of the following documents: (A) an officer's certificate, dated as of the Closing Date, stating that the conditions specified in Section 7(b)(i) through Section 7(b)(vii) of this Agreement have been fully satisfied; (B) certified copies of the resolutions duly adopted by each of VitalStream's and the Buyer's board of directors authorizing the execution, delivery and performance of this Agreement, the other Transaction Agreements to which it is a party and each of the other agreements contemplated hereby or thereby to which it is a party and the consummation of all other transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party; (C) certified copies of the Articles of Incorporation and the articles of incorporation of the Buyer as in effect at the Closing Date; (D) certified copies of the bylaws of each of the Buying Parties as in effect at the Closing Date; (E) certificate of good standing of each of the Buying Parties from the Secretary of State of the state of its respective incorporation dated within five (5) days of the Closing Date; (F) copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements (including all blue sky law filings); and (G) such other documents relating to the transactions contemplated by this Agreement or the other Transaction Agreements as Hosting, Networks or its special counsel may reasonably request. -75- (xviii) Proceedings. All corporate and other proceedings taken or required to be taken by each of the Buying Parties in connection with the transactions contemplated hereby and by the other Transaction Agreements to be consummated at or prior to the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Hosting, Networks and its special counsel. (xix) Supplemental Schedule Certificate. VitalStream and Buyer shall have delivered the VitalStream Schedule Bring Down Officer's Certificate along with the Schedules to be attached thereto. 8. Survival of Representations and Warranties; Indemnification. (a) Survival of Representations and Warranties. (i) The representations and warranties of Hosting and Networks set forth in this Agreement shall survive the Closing (A) with respect to the matters covered by the representations and warranties contained in Section 3(z), until sixty (60) days after the expiration of all applicable statute of limitations (including all periods of extension, whether automatic or permissive), (B) in the case of all other representations and warranties and any covenant or agreement contained in this Agreement to be performed on or prior to the Closing Date (including the Hosting Schedule Bring Down Officer's Certificate), until the date which is nine (9) months after the Closing Date and (C) with respect to each other covenant and agreement contained in this Agreement, until nine (9) months after the last date on which such covenant or agreement is to be performed or, if no such date is specified, indefinitely, in each case regardless of any investigation by VitalStream or on behalf of VitalStream. (ii) The representations and warranties of VitalStream set forth in this Agreement shall survive the Closing (A) with respect to the matters covered by the representations and warranties contained in Section 4(x) and Section 4(y) of this Agreement, until sixty (60) days after the expiration of all applicable statute of limitations (including all periods of extension, whether automatic or permissive), (B) in the case of all other representations and warranties and any covenant or agreement contained in this Agreement to be performed on or prior to the Closing Date (including the VitalStream Schedule Bring Down Officer's Certificate), until the date which is nine (9) months after the Closing Date and (C) with respect to each other covenant and agreement contained in this Agreement, until nine (9) months after the last date on which such covenant or agreement is to be performed or, if no such date is specified, indefinitely, in each case regardless of any investigation by Hosting or Networks or on behalf of Hosting or Networks. (b) Indemnification of VitalStream. (i) Subject to the limitations set forth in this Section 8, Hosting and Networks, jointly and severally, agree to indemnify on an after-tax basis and defend, protect and hold harmless VitalStream and its Affiliates and each of their respective directors, officers, employees, stockholders, members, partners, agents (including, those -76- retained in connection with the transactions contemplated by this Agreement), successors and assigns (collectively, the "VitalStream Indemnitees") from and against any and all Claims, costs, damages, deficiencies, expenses (including interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any Claim, default or assessment), fees, fines, Liabilities, losses and penalties (hereinafter individually, a "Loss" and collectively, "Losses") which, directly or indirectly, arise out of, result from or relate to (irrespective of whether any such VitalStream Indemnitee is a party to the action for which indemnification hereunder is sought): (A) any facts or circumstances which constitute a misrepresentation or breach by Hosting or Networks of any representation or warranty set forth in this Agreement (including any annex or schedule attached hereto), any other Transaction Agreement or in any instrument or document delivered by Hosting or Networks pursuant to this Agreement; (B) any non-fulfillment or breach of any covenant or agreement of Hosting or Networks set forth in this Agreement; or (C) any Excluded Hosting Liability. (ii) To the extent that the foregoing undertakings by Hosting and Networks may be unenforceable for any reason, Hosting and Networks shall make the maximum contribution to the payment and satisfaction of the Losses described above incurred by any VitalStream Indemnitee which is permissible under applicable Law. (c) Indemnification of the Holders of the Purchase Shares. (i) Subject to the limitations set forth in this Section 8, VitalStream agrees to indemnify on an after-tax basis and defend, protect and hold harmless the holders of the Purchase Shares (provided that such holder is Holdings, a wholly-owned Subsidiary of Holdings or an Affiliate of Dolphin) and each of their Affiliates and each of their respective directors, officers, employees, stockholders, members, partners, agents (including those retained in connection with the transactions contemplated by this Agreement), successors and assigns (collectively, the "Purchase Share Indemnitees") from and against any and all Losses which, directly or indirectly, arise out of, result from or relate to (irrespective of whether any such Purchase Share Indemnitee is a party to the action for which indemnification hereunder is sought): (A) any facts or circumstances which constitute a misrepresentation or breach by VitalStream of any representation or warranty set forth in this Agreement (including any annex or schedule attached hereto), any other Transaction Agreement or in any instrument or document delivered by VitalStream pursuant to this Agreement; (B) any non-fulfillment or breach of any covenant or agreement of VitalStream set forth in this Agreement; or -77- (C) any Assumed Liability. (ii) To the extent that the foregoing undertakings by VitalStream may be unenforceable for any reason, VitalStream shall make the maximum contribution to the payment and satisfaction of the Losses described above incurred by any Purchase Share Indemnitee which is permissible under applicable Law. (d) Method of Asserting Claims Involving Third-Party Claims. (i) The following procedures shall be applicable with respect to indemnification for third-party Claims. Promptly after receipt by the Party seeking indemnification under this Section 8 (hereinafter referred to as the "Indemnitee") of notice of the commencement of any (A) Tax audit or proceeding for the assessment of Tax by any Taxing Authority or any other proceeding likely to result in the imposition of a Tax Liability or (B) any action or the assertion of any Claim or Liability by a third party (whether by legal process or otherwise), against which Claim or Liability another Party (hereinafter the "Indemnitor") is, or may be, required under this Agreement to indemnify such Indemnitee, the Indemnitee shall, if a Claim thereon is to be, or may be, made against the Indemnitor, notify the Indemnitor in writing of the commencement or assertion thereof and give the Indemnitor a copy of such Claim, process and all legal pleadings. The Indemnitor shall have the right to (1) participate in the defense of such action with counsel of reputable standing and (2) assume the defense of such action by agreeing to assume such defense within ten (10) calendar days of transmittal of the notice of the Claim by the Indemnitee, in writing unless such Claim (a) may result in criminal proceedings, injunctions or other equitable remedies in respect of the Indemnitee or its business; (b) may result in Liabilities which, taken with other then existing Claims under this Section 8, would not be fully indemnified hereunder; (c) may have a material and adverse effect on the business or condition (financial or otherwise) of the Indemnitee after the Closing Date (including an effect on the Tax Liabilities, earnings or ongoing business relationships of the Indemnitee); (d) is for an alleged amount of less than $5,000; (e) upon petition by the Indemnitee, if an appropriate court rules that the Indemnitor failed or is failing to vigorously prosecute or defend such Claim, in which events the Indemnitee shall assume the defense; or (f) also involves the Indemnitor or its Affiliate as a party and counsel to the Indemnitee determines in good faith that joint representation would give rise to a conflict of interest. (ii) The Indemnitor and the Indemnitee shall cooperate in the defense of any third-party Claims. In the event that the Indemnitor assumes or participates in the defense of such third-party Claim as provided herein, the Indemnitee shall make available to the Indemnitor all relevant records and take such other action and sign such documents as are reasonable necessary to defend such third-party Claim in a timely manner. If the Indemnitee shall be required by judgment or a settlement agreement to pay any amount in respect of any Liability against which the Indemnitor has agreed to indemnify the Indemnitee under this Agreement, the Indemnitor shall promptly reimburse the Indemnitee in an amount equal to the Losses incurred by such Indemnitee in connection with such Liability subject to this Section 8. No Indemnitor, in the defense of any such Claim, shall, except with the consent of the Indemnitee, consent to entry of any judgment -78- or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all Liability with respect to such Claim. In addition, with respect to a Claim for Taxes, the Indemnitor shall not enter into any settlement or arrangement with any Taxing Authority without the prior written consent of the Indemnitee, such consent not to be unreasonably withheld or delayed. In the event that the Indemnitor does not accept the defense of any matter for which it is entitled to assume as provided above, the Indemnitee shall have the full right to defend such Claim. (iii) Prior to paying or settling any Claim against which an Indemnitor is, or may be, obligated under this Agreement to indemnify an Indemnitee, the Indemnitee must first supply the Indemnitor with a copy of a final court judgment or decree holding the Indemnitee liable on such Claim or failing such judgment or decree, must first receive the written approval of the terms and conditions of such settlement from the Indemnitor, which shall not be unreasonably withheld; provided however, that no written approval is required from the Indemnitor as to any third party Claim (A) that results solely in injunctions or other equitable remedies in respect of the Indemnitee or its business; (B) that settles Liabilities, or portions thereof, that are not subject to indemnification hereunder; or (C) is for an amount of less than $5,000. (iv) An Indemnitee shall have the right to employ its own counsel in any case and the fees and expenses of such counsel shall be at the expense of the Indemnitee unless (A) the employment of such counsel shall have been authorized in writing by the Indemnitor in connection with the defense of such Claim; (B) the Indemnitor shall not have employed counsel in the defense of such Claim after ten (10) calendar days notice; or (C) such Indemnitee shall have reasonably concluded that there may be defenses available to it which are contrary to, or inconsistent with, those available to the Indemnitor; in any of the foregoing events such fees and expenses shall be borne by the Indemnitor. (e) Method of Asserting Claims not Involving Third-Party Claims. In the event any Indemnitee shall have a Claim against any Indemnitor under this Agreement which does not involve a Claim being asserted against or sought to be collected from such Indemnitee by a third party, the Indemnitee shall notify the Indemnitor in writing of such Claim. (f) Limitations. (i) In the absence of fraud, (A) neither Hosting nor Networks shall have any Liability, nor be subject to any Claim, under Section 8(b)(i)(A) of this Agreement in respect of any misrepresentation or breach by Hosting or Networks of any representation or warranty set forth in this Agreement (1) with respect to any individual Liability or Claim, unless such Liability or Claim involves Losses in excess of $5,000 or (2) the amount of indemnifiable Losses, in the aggregate, exceeds $75,000, and then shall be liable only to the extent of such excess and (B) the aggregate obligation of Networks and Hosting to indemnify, defend and hold the VitalStream Indemnitees harmless hereunder shall be limited to $800,000. In the event a VitalStream Indemnitee seeks indemnification for Losses pursuant to this Section 8, such VitalStream Indemnitee's sole -79- recourse shall be against the Escrow Shares, (as defined in the Escrow Agreement). Any recourse against the Escrow Shares shall be made based upon the Fair Market Value of the Escrow Shares as determined on the day immediately prior to the date on which a Claims Notice (as defined in the Escrow Agreement) is sent by VitalStream. (ii) In addition to the limitations set forth in Section 8(f)(i) of this Agreement, neither Hosting nor Networks shall have any Liability, nor be subject to any Claim, under this Agreement in respect of any Liability or Claim arising out of or related to (A) the methodology and billing practices utilized by Networks and Hosting to charge its customers for services (including bandwidth) other than Losses incurred by VitalStream based upon any third-party Claim brought against VitalStream with respect to such methodology and billing practices and (B) the failure by Networks or Hosting to transfer any of the assets set forth on Schedule 8(f)(ii). (iii) In the absence of fraud, (A) VitalStream shall have no Liability, nor be subject to any Claim, under Section 8(c)(i)(A) of this Agreement in respect of any misrepresentation or breach by VitalStream of any representation or warranty set forth in this Agreement (1) with respect to any individual Liability or Claim, unless such Liability or Claim involves Losses in excess of $5,000 or (2) the amount of indemnifiable Losses, in the aggregate, exceeds $75,000, and then shall be liable only to the extent of such excess and (B) the aggregate obligation of VitalStream to indemnify, defend and hold Purchase Share Indemnitees harmless hereunder shall be limited to $800,000. In the event a Purchase Share Indemnitee seeks indemnification for Losses pursuant to this Section 8, such Purchase Share Indemnitee's sole remedy shall be the issuance by VitalStream of additional shares of Common Stock to such Purchase Share Indemnitee with an aggregate Fair Market Value (as determined on the day immediately prior to the date on which a Purchase Share Indemnitee sends a notice of an indemnifiable Loss to VitalStream under this Section 8) equal to such indemnifiable Losses; provided, however, the aggregate number of shares of Common Stock VitalStream shall be required to issue pursuant to this Section 8 shall not exceed a number of shares of Common Stock equal to the number of Escrow Shares. Notwithstanding the foregoing, in the event a Purchase Share Indemnitee seeks indemnification for Losses pursuant to this Section 8 in respect of a breach by VitalStream or Buyer of Section 6(m) or Section 6(n) of this Agreement, such Purchase Share Indemnitee shall be entitled to Cash from VitalStream in an amount equal to the amount of such Indemnifiable Losses. (g) Exclusive Remedies. Subject to Section 10(m), the remedies set forth in this Section 8 shall be the exclusive remedies of the Parties with respect to this Agreement and the transactions contemplated hereby. The Parties hereby waive, with respect to each other, to the fullest extent permitted by Law, any and all other rights and remedies. -80- 9. [Intentionally Deleted]. 10. Miscellaneous. (a) Expenses. Each Party shall pay the fees and expenses incurred by such Party in consummation of the transactions contemplated by this Agreement and the other Transaction Agreements. (b) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement or in any document or material filed with any Governmental Entity relating to the subject matter of this Agreement or containing the name of any other Party without the prior written approval of each of the other Parties, unless such Party has a good faith belief that such disclosure is required by applicable Law or governmental regulations or by order of a court of competent jurisdiction, in which case prior to making such disclosure the disclosing Party shall give written notice to the each of the other Parties describing in reasonable detail the proposed content of such disclosure and shall permit the non-disclosing Party to review and comment upon the form and substance of such disclosure. (c) No Third-Party Beneficiaries. Except as expressly provided herein, this Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (d) Entire Agreement. This Agreement, the Transaction Agreements and the documents referred to herein and therein contain the entire agreement between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way (including the Original Asset Purchase Agreement). (e) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of each of the other Parties. Notwithstanding the foregoing and whether or not any express assignment has been made, the provisions of this Agreement or any other Transaction Agreement which are for Hosting's benefit as a holder of Purchase Shares are also for the benefit of, and enforceable by, any subsequent holder of such Purchase Shares so long as such Person is an Affiliate of Dolphin. (f) Counterparts. This Agreement or any other Transaction Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same agreement. A facsimile copy of this Agreement or any counterpart thereto shall be valid as an original. (g) Descriptive Headings; Interpretation. Section headings used in this Agreement or in any other Transaction Agreement are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, such agreement. The use of the -81- word "including" or any variation or derivative thereof in this Agreement or in any other Transaction Agreement is by way of example rather than by limitation. (h) Notices; Business Days. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement or any other Transaction Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to the addresses indicated below: If to VitalStream: One Jenner, Suite 100 Irvine, California 92618 Facsimile: 949-453-8686 Attention: Philip N. Kaplan, Chief Operating Officer with a copy (which shall not constitute notice to VitalStream) to: Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile: 801-578-6999 Attention: Bryan T. Allen, Esq. -82- If to Hosting: Epoch Hosting, Inc. 555 Anton Boulevard Costa Mesa, CA 92626 Facsimile: 714-327-2031 Attention: General Counsel with a copy (which shall not constitute notice to Hosting) to: Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022 Facsimile: 212-446-4900 Attention: John Kuehn, Esq. or to such other address, to the attention of such other Person and/or with such other copy or copies as the recipient party has specified by prior written notice to the sending party. If any time period for giving notice or taking action expires on a day which is a Saturday, Sunday or legal holiday in the State of California or the State of New York (any other day being a "business day"), such time period shall automatically be extended to, the next business day immediately following such Saturday, Sunday or legal holiday. (i) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each Party. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. This Agreement shall amend and restate the Original Asset Purchase Agreement in its entirety and become effective immediately upon the execution of this Agreement by each of the Parties. The Parties hereby acknowledge and agree that (A) references to the "Convertible Promissory Note and Warrant Purchase Agreement", "Note Purchase Agreement" or "Note and Warrant Purchase Agreement, as the case may be, in each of the Transaction Agreements shall be to the Convertible Promissory Note and Warrant Purchase Agreement (as defined herein) (as amended and modified from time to time) and (B) references to the "Asset Purchase Agreement" in each of the Transaction Agreements shall be to this Agreement (as amended and modified from time to time). (j) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement or any other Transaction Agreement is held to be prohibited by or invalid under applicable Law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement or such other Agreement. (k) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement and the other Transaction Agreements. In the event an ambiguity or question -83- of intent or interpretation arises, this Agreement and the other Transaction Agreements shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement or any other Transaction Agreement. Any reference to any federal, state, local, or foreign Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the schedules attached hereto shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the schedule attached hereto identifies the exception with particularity and describes the relevant facts in detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (l) Incorporation of Annexes, Schedules and Exhibits. The annexes, schedules and exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. (m) Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that, notwithstanding any provision limiting the remedies of the Parties contained herein, the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(o) of this Agreement), in addition to any other remedy to which it may be entitled, at law or in equity. (n) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ANY OF THE OTHER TRANSACTION AGREEMENTS AND THE ANNEXES, SCHEDULES AND EXHIBITS HERETO AND THERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF CALIFORNIA SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT AND EACH OF THE OTHER TRANSACTION AGREEMENTS (AND ALL ANNEXES, SCHEDULES AND EXHIBITS -84- HERETO AND THERETO), EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. (o) JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT BY VITALSTREAM OR THE BUYER AGAINST NETWORKS OR HOSTING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN NEW YORK CITY, NEW YORK. ALL JUDICIAL PROCEEDINGS BROUGHT BY NETWORKS OR HOSTING AGAINST VITALSTREAM OR THE BUYER WITH RESPECT TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN ORANGE COUNTY, CALIFORNIA. BY EXECUTING AND DELIVERING THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS TO WHICH THEY ARE A PARTY, EACH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION AGREEMENTS. EACH PARTY HEREBY WAIVES ANY CLAIM THAT ORANGE COUNTY, CALIFORNIA OR NEW YORK CITY, NEW YORK IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. (p) WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Agreement or any of the other Transaction Agreements or the validity, protection, interpretation, collection or enforcement hereof or thereof. EACH PARTY AGREES THAT THIS SECTION 10(p) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND EACH OF THE OTHER TRANSACTION AGREEMENTS AND ACKNOWLEDGES THAT THE OTHER PARTIES WOULD NOT HAVE ENTERED INTO THIS AGREEMENT AND CONSUMMATED THE TRANSACTIONS CONTEMPLATED HEREBY IF THIS SECTION 10(p) WERE NOT PART OF THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS. * * * * * -85- IN WITNESS WHEREOF, the Parties have executed this Amended and Restated Asset Purchase Agreement as of the date first above written. VITALSTREAM HOLDINGS, INC. By: /s/ Paul Summers ----------------------------------------- Name: Paul Summers Title: President and Chief Executive Officer VITALSTREAM BROADCASTING CORPORATION By: /s/ Paul Summers ----------------------------------------- Name: Paul Summers Title: President EPOCH HOSTING, INC. By: /s/ Karen Muller ----------------------------------------- Name: Karen Muller Title: Secretary EPOCH NETWORKS, INC. By: /s/ Karen Muller ----------------------------------------- Name: Karen Muller Title: Secretary -1- EX-99.C 5 y82902exv99wc.txt AMENDED & RESTATED NOTE PURCHASE AGREEMENT EXHIBIT C AMENDED AND RESTATED NOTE PURCHASE AGREEMENT C-1 AMENDED AND RESTATED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT DATED AS OF JANUARY 15, 2003 AMONG VITALSTREAM HOLDINGS, INC. AND THE PURCHASERS REFERRED TO HEREIN TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS..................................................................................... 1 1A. Definitions..................................................................................... 1 SECTION 2. AUTHORIZATION AND CLOSINGS...................................................................... 12 2A. Authorization, Purchase and Sale of the Initial Convertible Notes and Warrants.................. 12 2B. Authorization, Purchase and Sale of the Subsequent Convertible Notes............................ 13 2C. The Closings.................................................................................... 13 SECTION 3. CONDITIONS OF EACH PURCHASER'S OBLIGATIONS AT THE CLOSINGS...................................... 14 3A. Conditions of each Purchaser's Obligations at Each Closing...................................... 14 3B. Additional Conditions of each Purchaser's Obligations at the Initial Closing.................... 16 3C. Additional Conditions of each Purchaser's Obligations at the Subsequent Closing if the Initial Closing has not been Consummated................................................................ 16 3D. Additional Conditions of each Purchaser's Obligations at the Subsequent Closing if the Initial Closing has been Consummated.................................................................... 17 SECTION 4. CONDITIONS OF VITALSTREAM'S OBLIGATIONS AT THE CLOSINGS......................................... 18 4A. Conditions of VitalStream's Obligations at each Closing......................................... 18 4B. Additional Conditions of VitalStream's Obligations at the Subsequent Closing if the Initial Closing has not been Consummated................................................................ 19 4C. Additional Conditions of VitalStream's Obligations at the Subsequent Closing if the Initial Closing has been Consummated.................................................................... 19 SECTION 5. COVENANTS....................................................................................... 19 5A. Reservation of Common Stock and Series A Preferred.............................................. 19 5B. Intellectual Property Rights.................................................................... 20 5C. Restrictive Covenants........................................................................... 20 5D. Compliance with Agreements...................................................................... 26 5E. Current Public Information...................................................................... 26 5F. Information Rights.............................................................................. 27 5G. Public Disclosures.............................................................................. 27 5H. Post-Closing Certifications and Deliveries...................................................... 27 SECTION 6. NATURE OF RESTRICTED SECURITIES; TRANSFER OF RESTRICTED SECURITIES; GENERAL TRANSFER PROCEDURE.. 27 6A. General Provisions.............................................................................. 27 6B. Opinion Delivery................................................................................ 28 6C. Rule 144A....................................................................................... 28 6D. Legend Removal.................................................................................. 28 SECTION 7. REPRESENTATIONS AND WARRANTIES OF VITALSTREAM................................................... 28
i 7A. Approval and Consents; Authorization; No Breach................................................. 29 7B. Capital Stock and Related Matters............................................................... 29 7C. Issuance and Commitment of the Convertible Notes and Warrants................................... 31 7D. Investment Company.............................................................................. 31 7E. Margin Securities............................................................................... 31 7F. Representations and Warranties of VitalStream in the Asset Purchase Agreement................... 31 SECTION 8. [INTENTIONALLY DELETED]......................................................................... 31 SECTION 9. MISCELLANEOUS................................................................................... 31 9A. Commitment Fee; Expenses........................................................................ 31 9B. Remedies; Survival of Representations, Warranties and Covenants; Indemnification................ 32 9C. Purchaser's Representations; Legends............................................................ 33 9D. Entire Agreement................................................................................ 35 9E. Successors and Assigns.......................................................................... 35 9F. Counterparts.................................................................................... 36 9G. Descriptive Headings; Interpretation............................................................ 36 9H. Notices; Business Days.......................................................................... 36 9I. Consent to Amendments and Waivers............................................................... 36 9J. Severability.................................................................................... 37 9K. No Strict Construction.......................................................................... 37 9L. Incorporation of Annexes, Schedules and Exhibits................................................ 38 9M. Registered Holders; Ownership................................................................... 38 9N. Consideration for Warrants and Notes............................................................ 38 9O. Understanding Among the Purchasers.............................................................. 38 9P. GOVERNING LAW................................................................................... 38 9Q. JURISDICTION AND VENUE.......................................................................... 39 9R. WAIVER OF RIGHT TO JURY TRIAL................................................................... 39
ii ANNEXES, SCHEDULES AND EXHIBITS ANNEXES Annex 1 -- Schedule of Purchasers SCHEDULES Schedule 7A -- Approval and Consents Schedule 7B -- Capital Stock and Related Matters EXHIBITS Exhibit A -- Form of Guaranty Exhibit B -- Form of Convertible Note Exhibit C -- Form of Investor Rights Agreement Exhibit D -- Form of Registration Agreement Exhibit E -- Form of VitalStream Counsel Opinion Exhibit F -- Form of Warrant Exhibit G -- Form of Certificate of Designation iii AMENDED AND RESTATED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT AMENDED AND RESTATED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT, dated as of January 15, 2003 (this "Agreement"), by and among VitalStream Holdings, Inc., a Nevada corporation ("VitalStream"), and the Persons listed on Annex 1 attached hereto (such Persons shall be collectively referred to herein as the "Purchasers" and individually as a "Purchaser"). Unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings set forth in Section 1 of this Agreement. WHEREAS, reference is made to that certain Amended and Restated Asset Purchase Agreement, dated as of the date hereof, by and among VitalStream, VitalStream Broadcasting Corporation (the "Buyer"), Epoch Hosting, Inc. ("Hosting") and Epoch Networks, Inc. ("Networks") (as amended and modified from time to time, the "Asset Purchase Agreement"). WHEREAS, reference is made to that certain Convertible Note Purchase Agreement, dated as of November 1, 2002 (the "Original Note Purchase Agreement"), by and among VitalStream, Buyer, Hosting and Networks. WHEREAS, VitalStream, Buyer, Hosting and Networks acknowledge and agree that the Initial Closing under the Original Note Purchase Agreement was consummated on November 26, 2002. WHEREAS, VitalStream, Buyer, Hosting and Networks desire to enter into this Agreement in order to amend and restate the Original Note Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the parties hereto hereby agree that the Original Asset Purchase Agreement shall be amended and restated in its entirety by this Agreement, and the parties hereto further agree as follows: Section 1. Definitions. 1A. Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below: "Affiliate" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. "Agreement" has the meaning set forth in the preamble of this Agreement. "AKKAD Agreement" means the Stockholders and Registration Rights Agreement, dated as of August 9, 2000, by and among VitalStream, Inc., Paul Summer, Philip Kaplan and the Series B Holders (as defined therein), as assumed by VitalStream, as amended, modified, restated, superseded or replaced from time to time. "Articles of Incorporation" means the Articles of Incorporation of VitalStream, as amended, modified, restated, superseded or replaced from time to time. "Asset Purchase Agreement" has the meaning set forth in the preamble of this Agreement. "Authorized VitalStream Acquisition Transaction" means a VitalStream Acquisition Transaction which (i) the Board of Directors has determined, in its good faith judgment, to be fair and in the best interest of all of the securityholders of VitalStream and (ii) has been approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors. "Authorized VitalStream Sale Transaction" means a VitalStream Sale Transaction in which either (i) the consideration to be paid consists solely of Cash Consideration, (ii) each of the following conditions have been satisfied: (a) the Board of Directors has determined, in its good faith judgment, to be fair and in the best interest of all of the securityholders of VitalStream, (b) has been approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors, (c) after giving effect to such VitalStream Sale Transaction, the Net Worth of the acquiring or surviving Person of such VitalStream Sale Transaction immediately after the consummation of such VitalStream Sale Transaction is equal to or greater than the Net Worth of VitalStream immediately prior to the consummation of such VitalStream Sale Transactions, (d) after giving effect to such VitalStream Sale Transaction, the Indebtedness to Equity Ratio of the acquiring or surviving Person of such VitalStream Sale Transaction immediately after the consummation of such VitalStream Sale Transaction less than or equal to 0.35, and (e) after giving effect to such VitalStream Sale Transaction, the Current Ratio of the acquiring or surviving Person of such VitalStream Sale Transaction immediately after the consummation of such VitalStream Sale Transaction is equal to or greater than 1.6 or (iii) the acquiring Person in such VitalStream Sale Transaction shall, immediately prior to the consummation of such VitalStream Sale Transaction, (a) have securities listed on a major national or international stock exchange and (b) have a public market capitalization of at least $1,000,000,000. "Average Monthly Cash Flow" means, with respect to any period of any Person, the sum of the Cash Flow of such Person for each month (and pro rata portion thereof) during such period divided by the number of months (and pro rata portion thereof) in such period. "Board of Directors" means the board of directors of VitalStream. "Buyer" has the meaning set forth in the preamble of this Agreement. "Cash" means cash and cash equivalents (including marketable securities and short term Investments). "Cash Consideration" means cash and Marketable Securities. 2 "Cash Flow" means, with respect to any period of any Person, (i) the sum of each of the following for such Person and all Subsidiaries of such Person on a consolidated basis for such period, to the extent applicable, without duplication, (a) net income or loss (excluding extraordinary or non-recurring items) after Taxes and interest plus (b) depreciation expense minus (ii) the sum of each of the following for such Person and all Subsidiaries of such Person on a consolidated basis for such period, to the extent applicable, without duplication, (a) changes in net working capital (which change for purposes hereunder shall be a positive number for an increase in net working capital and a negative number for a decrease in net working capital) plus (b) changes in fixed assets (which change for purposes hereunder shall be a positive number for an increase in fixed assets and a negative number for a decrease in fixed assets) plus (c) the amount of payments and prepayments of principal on any Indebtedness for borrowed money or any Indebtedness evidenced by any Debt Security minus (iii) the amount of proceeds of any Debt Security issued in substitution for, or exchange of, Indebtedness for borrowed money, in each case as determined in accordance with GAAP applied on a consistent basis in accordance with such Person's past practice. For the avoidance of any doubt, the parties hereto hereby agree that the calculation of Cash Flow as described immediately above shall be done in accordance with the methodology set forth in Chapter 13 of the text Corporate Finance: A Valuation Approach by Simon Benninga and Oded Sarig. "Certificate of Designation" means the Certificate of Designation, setting forth, among other matters, the rights, preferences and privileges of the Series A Preferred, in the form of Exhibit G attached hereto. "Claim" means any action, claim, lawsuit, demand, suit, charge, complaint, inquiry, hearing, investigation, notice of a violation or noncompliance, litigation, proceeding, arbitration, appeals or other dispute, whether civil, criminal, administrative or otherwise. "Closing Date" has the meaning set forth in Section 2C of this Agreement. "Closing" has the meaning set forth in Section 2C of this Agreement. "Common Stock" means VitalStream's Common Stock, par value $0.001 per share, and any capital stock of any class of VitalStream (other than any Preferred Equity Securities or the Series A Preferred) hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of VitalStream. "Commitment Fee" has the meaning set forth in Section 9A of this Agreement. "Convertible Notes" means the Initial Convertible Notes and Subsequent Convertible Notes. "Current Ratio" means, with respect to any Person as of any date, the ratio of (i) the aggregate amount of all current assets of such Person and all Subsidiaries of such Person as determined on a consolidated basis as of such date divided by (ii) the aggregate amount of all current Liabilities of such Person and all Subsidiaries of such Person as determined on a 3 consolidated basis as of such date, in each case as determined in accordance with GAAP applied on a consistent basis in accordance with such Person's past practice. "Debt Security" means any note, bond, debenture or other instrument or security evidencing Indebtedness. "Dolphin" means Dolphin Equity Partners, L.P. "Dolphin Director Notice" has the meaning set forth in Section 5C of this Agreement. "Dolphin Fund II" means Dolphin Communications Fund II, L.P. and Dolphin Communications Parallel Fund II (Netherlands), L.P. "Dolphin Director" has the meaning set forth in the Investor Rights Agreement. "Equity Security" means (i) any capital stock or other equity security, (ii) any security directly or indirectly convertible into or exchangeable for any capital stock or other equity security or security containing any profit participation features, (iii) any warrants, options or other rights, directly or indirectly, to subscribe for or to purchase any capital stock, other equity security or security containing any profit participation features or directly or indirectly to subscribe for or to purchase any security directly or indirectly convertible into or exchangeable for any capital stock or other equity security or security containing profit participation features, or (iv) any stock appreciation rights, phantom stock rights or other similar rights. "Fair Market Value" means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset, as determined jointly by VitalStream and the holders of a majority of the Underlying Common Stock. If such parties are unable to reach agreement within a reasonable period of time, such "Fair Market Value" shall be determined by an independent appraiser experienced in valuing such type of asset jointly selected by VitalStream and the holders of a majority of the Underlying Common Stock. The determination of such appraiser shall be final and binding upon the parties and VitalStream shall pay the fees and expenses of such appraiser. Notwithstanding the foregoing, the "Fair Market Value" of any security listed on any securities exchange or quoted in the NASDAQ System (including the proposed Bulletin Board Exchange) or the over-the-counter market shall be the "Market Price". "Fully Diluted Outstanding Common Stock" has the meaning set forth in the Convertible Notes. "GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a consistent basis. "Governmental Entity" means individually, and "Governmental Entities" means collectively, the United States of America, any state or other political subdivision thereof, or any 4 entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including any court. "Guarantee" means any guarantee of the payment or performance of any Indebtedness or other obligation and any other arrangement whereby credit is extended to one obligor on the basis of any promise of such Person, whether that promise is expressed in terms of an obligation to pay the Indebtedness of such obligor, to provide reimbursement, or to purchase an obligation owed by such obligor, or to purchase goods and services from such obligor pursuant to a take-or-pay contract, or to maintain the capital, working capital, solvency or general financial condition of such obligor, whether or not any such arrangement is listed in the balance sheet of such Person, or referred to in a footnote thereto, but shall not include endorsements of items for collection in the Ordinary Course of Business. "Guaranty" means that certain Guaranty, dated as of the Initial Closing Date or, if there is no Initial Closing, the Subsequent Closing Date, by and among VitalStream, the VitalStream Subsidiaries and the Purchasers, in the form of Exhibit A attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Holdings" means Epoch Holdings, Inc., a Delaware corporation. "Holdings Executive Officer" means any current or former executive officer of Holdings or any of its Subsidiaries or any employee of Holdings or any of its Subsidiaries with a title of "Director" or "Vice-President" (or any equivalent title indicating a position of similar or greater authority and responsibility). "Hosting" has the meaning set forth in the preamble of this Agreement. "Indebtedness" means at a particular time, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any Debt Security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current Liabilities incurred in the Ordinary Course of Business), (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (v) any indebtedness Guaranteed in any manner by a Person (including, without limitation, guaranties in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized leases and (vii) any indebtedness secured by a Lien on a Person's assets. "Indebtedness to Equity Ratio" means, with respect to any Person as of any date, the quotient of (i) the aggregate amount of Indebtedness of such Person and all Subsidiaries of such Person as determined on a consolidated basis as of such date divided by (ii) the aggregate amount of stockholders equity of such Person and all Subsidiaries of such Person as determined on a consolidated basis as of such date, in each case as determined in accordance with GAAP applied on a consistent basis in accordance with such Person's past practice. "Indemnitees" has the meaning set forth in Section 9B of this Agreement. 5 "Initial Closing Date" has the meaning set forth in Section 2C of this Agreement. "Initial Closing" has the meaning set forth in Section 2C of this Agreement. "Initial Convertible Notes" means those certain 10% Convertible Promissory Notes of VitalStream issued at the Initial Closing pursuant to this Agreement, in the form of Exhibit B attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Initial Financing Amount" has the meaning set forth in Section 2A(ii) of this Agreement. "Intellectual Property Rights" means all (i) patents, patent applications and patent disclosures; (ii) trademarks, service marks, trade dress, trade names, logos, slogans, corporate names, Internet domain names and registrations and applications for registration thereof, together with all of the goodwill associated therewith (and all translations, adaptations, derivations and combinations of the foregoing); (iii) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof; (iv) mask works and registrations and applications for registration thereof; (v) computer software (including, but not limited to, source code and executable code), data, databases and documentation thereof; (vi) trade secrets and other confidential information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, customer accounts, identifying information regarding customers, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information); (vii) domain names, (viii) other intellectual property or proprietary rights; and (ix) copies and tangible embodiments thereof (in whatever form or medium). "Investment" as applied to any Person means (i) any direct or indirect purchase or other acquisition by such Person of any Debt Securities, Equity Securities, obligations, instruments or ownership interests (including partnership interests and joint venture interests) of any other Person or any other Person's business and (ii) any capital contribution by such Person to any other Person. "Investor Rights Agreement" means that certain Investor Rights Agreement, dated as of the Initial Closing Date or, if there is no Initial Closing, the Subsequent Closing Date, by and among VitalStream and the securityholders of VitalStream referred to therein, in the form of Exhibit C attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Knowledge" except as otherwise provided expressly herein, means the actual knowledge or awareness of a Person (which shall include the actual knowledge and awareness of the executive officers and directors of such Person and any of such Person's Subsidiaries) after making reasonable inquiry and reasonable diligence with respect to the particular matter in question. 6 "Laws" means all constitutions, statutes, laws, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions, acts or decrees of any Governmental Entity. "Legal Requirement" means any requirement arising under any action, Law, treaty, rule or regulation, determination or direction of an arbitrator or Governmental Entity. "Liability" means any liability or obligation of whatever kind or nature (whether known or unknown, whether assert or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability or obligation for Taxes. "Liens" means any mortgage, pledge, restriction, security interest, encumbrance, option, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against VitalStream or any of the VitalStream Subsidiaries, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to VitalStream or any of the VitalStream Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the Ordinary Course of Business). "Losses" has the meaning set forth in Section 9B of this Agreement. "Market Price" of any security means either (i) if such security is listed on an exchange, the average closing price of such security on the principal exchange on which such security is listed, or, if there has been no sales on such exchange on any day, the closing price of such security on the principal exchange on the most recent day on which sales have taken place on such exchange or (ii) if such security is not listed on an exchange but is quoted in the NASDAQ System or on the domestic over-the-counter market as reported by the National Quotation Bureau, the average of the closing sales prices as reported by the NASDAQ System or the National Quotation Bureau, as applicable, in each case over a period of five (5) days consisting of the day as of which the "Market Price" is being determined and the four (4) consecutive business days prior to such day on which trades were reported in such security. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the Fair Market Value thereof. "Marketable Securities" means securities (i) issued by an issuer with a public float equal to or greater than $500,000,000; (ii) that are of a class of securities listed on a major national or international stock exchange or the Nasdaq National Market; (iii) that constitute, in the aggregate, not more than 3.0% of the outstanding securities of such class; (iv) that are or were issued to the Purchasers in a transaction registered under the Securities Act, or the resale of which by such Purchasers is registered under the Securities Act, and are otherwise freely tradable by such Purchasers without restriction under applicable federal and state securities Laws; and (v) for which the product of (a) the weekly trading volume for such securities for the five (5) business days ending immediately prior to the date of consummation of an Authorized VitalStream Sale Transaction for which such securities are to be issued, multiplied by, (b) four (4), is greater than the aggregate number of shares of securities issued by such issuer as 7 consideration for the Authorized VitalStream Sale Transaction for which such securities are being issued. "Networks" has the meaning set forth in the preamble of this Agreement. "Net Worth" means, with respect to any Person as of any date, the difference of (i) the aggregate amount of all assets of such Person and all Subsidiaries of such Person on a consolidated basis as of such date minus (ii) the aggregate amount of all Liabilities of such Person and all Subsidiaries of such Person on a consolidated basis as of such date, in each case as determined in accordance with GAAP applied on a consistent basis in accordance with such Person's past practice. "Officer's Certificate" means a certificate signed by VitalStream's president or its chief financial officer, stating that (i) the officer signing such certificate has made or has caused to be made such investigations as are necessary in order to permit him to verify the accuracy of the information set forth in such certificate and (ii) to such officer's knowledge, such certificate does not misstate any material fact and does not omit to state any fact necessary to make the certificate not misleading. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Other Company Securities" has the meaning set forth in the Convertible Notes. "Permitted Liens" means (i) Tax Liens with respect to Taxes not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP, consistently applied; (ii) deposits or pledges made in connection with, or to secure payment of, utilities or similar services, workers' compensation, unemployment insurance, old age pensions or other social security obligations; (iii) mechanics', materialmen's or contractors' Liens created by statute securing payment for amounts not yet due and payable; (iv) purchase money Liens and Liens securing rental payments under capital lease arrangements; and (v) Liens on a bank account containing $300,000 (plus interest) necessary to secure the $300,000 letter of credit the Buyer is required to establish in order to be able to assume the Los Angeles Lease Agreement (as defined in the Asset Purchase Agreement). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other similar entity or organization or a Governmental Entity. "Preferred Equity Securities" has the meaning set forth in the Convertible Notes. "Preferred Stock" means VitalStream's Preferred Stock, par value $0.001 per share, as more fully described in the Articles of Incorporation. "Purchasers" has the meaning set forth in the preamble of this Agreement. 8 "Registration Agreement" means that certain Registration Agreement, dated as of the Initial Closing Date, or if there is no Initial Closing, the Subsequent Closing Date, by and among VitalStream and the Purchasers, in the form of Exhibit D attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Restricted Securities" means (i) the Convertible Notes, (ii) the Warrants, (iii) the Equity Securities issued or issuable, directly or indirectly, upon conversion of the Convertible Notes, (iv) the Common Stock issued or issuable upon exercise of the Warrants, (v) the Common Stock issued as payment of the Commitment Fee and (vi) any securities issued with respect to the securities referred to in clauses (i), (ii), (iii), (iv) or (v) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 or become eligible for sale pursuant to Rule 144(k) adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission or (c) been otherwise transferred and new certificates for them not bearing the Securities Act legend set forth in Section 9C of this Agreement have been delivered by VitalStream in accordance with Section 6 of this Agreement. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from VitalStream, without expense, new securities of like tenor not bearing a Securities Act legend of the character set forth in Section 9C of this Agreement. "Rule 144" means Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal Law then in force and the rules promulgated thereunder. "Securities and Exchange Commission" means the Securities and Exchange Commission and any Governmental Entity succeeding to the functions thereof. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal Law then in force and the rules promulgated thereunder. "Series A Preferred" means the 2002 Series A Preferred Stock, $0.001 par value, of VitalStream having the rights and preferences set forth in the Certificate of Designation. "Subsequent Convertible Notes" means those certain 10% Convertible Promissory Notes of VitalStream issued at the Subsequent Closing pursuant to this Agreement in the form of Exhibit B attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of 9 any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. "Tax" or "Taxes" means federal, state, county, local, foreign or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, income, license, payroll, wage or other withholding, employment, unemployment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax Liability of any other Person. "Transaction Agreements" means this Agreement, the Notes, the Guaranty, the Certificate of Designation, the Warrants, the Investor Rights Agreement, the Registration Agreement, the Asset Purchase Agreement and all other agreements and instruments contemplated by each of the foregoing to which VitalStream or any of the VitalStream Subsidiaries is a party other than the Customer Migration Agreement (as defined in the Asset Purchase Agreement), the Colocation Agreement (as defined in the Asset Purchase Agreement) and the Master Access Agreement (as defined in the Asset Purchase Agreement). "Underlying Common Stock" means (i) the Common Stock issued or issuable, directly or indirectly, upon conversion of the Convertible Notes, (ii) the Common Stock issued or issuable upon exercise of the Warrants, (iii) the Common Stock issued or issuable in connection with the Commitment Fee, and (iv) any Common Stock issued or issuable with respect to the securities referred to in clauses (i), (ii) and (iii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, (a) any Person who holds Convertible Notes shall be deemed to be the holder of the Underlying Common Stock issuable, directly or indirectly, upon conversion of such Convertible Notes regardless of any restriction or limitation on the conversion of such Convertible Notes and (b) any Person who holds Warrants shall be deemed to be the holder of the Underlying Common Stock issuable upon exercise of such Warrants regardless of any restriction or limitation on the exercise of such Warrants, and, with respect to both clauses (a) and (b) above, such Underlying Common Stock shall be deemed to be in existence and such Person shall be entitled to exercise the rights of a holder of such Underlying Common Stock hereunder. As to any particular shares of Underlying Common Stock, such shares shall cease to be Underlying Common Stock when they have been (1) effectively registered under the Securities Act and disposed of in accordance with the registration 10 statement covering them, (2) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 or (3) repurchased by VitalStream or any VitalStream Subsidiary. "VitalStream" has the meaning set forth in the preamble to this Agreement. "VitalStream Counsel Opinion" shall mean an opinion of Stoel Rives, LLP, counsel to VitalStream, substantially in the form attached hereto as Exhibit E. "VitalStream Material Adverse Effect" means a material and adverse effect upon the business, operations, assets, Liabilities, condition (financial or otherwise), operating results, prospects, cash flow, net worth or employee, customer or supplier relations of VitalStream and the VitalStream Subsidiaries taken as a whole. "VitalStream Acquisition Transaction" means (i) the acquisition by VitalStream or any VitalStream Subsidiary of a Person who is not an Affiliate of VitalStream or a substantial portion of the business of such Person by means of any transaction or series of related transactions, including (a) any merger, consolidation or other similar transaction, involving VitalStream or any VitalStream Subsidiary and such Person (and its Affiliates) that, if consummated, would result in the securityholders of VitalStream immediately prior to the consummation of such merger, consolidation or other similar transaction, directly or indirectly, owning more than 50% of the voting power of the outstanding Equity Securities and Debt Securities of the surviving Person of such merger, consolidation or other similar transaction, (b) the acquisition by VitalStream or any VitalStream Subsidiary of Equity Securities or Debt Securities of such Person or (c) the acquisition by VitalStream or any VitalStream Subsidiary of the assets of such Person and (ii) VitalStream or any VitalStream Subsidiary entering into a joint venture with a Person who is not an Affiliate of VitalStream. "VitalStream Sale Transaction" means the acquisition of VitalStream or any VitalStream Subsidiary or a substantial portion of the business of VitalStream or any VitalStream Subsidiary by a Person who is not an Affiliate of VitalStream by means of any transaction or series of related transactions, including (i) any merger, consolidation or other similar transaction, involving VitalStream or any VitalStream Subsidiary and such Person (and its Affiliates) that, if consummated, would result in the securityholders of VitalStream immediately prior to the consummation of such merger, consolidation or other similar transaction, directly or indirectly, owning less than 50% of the voting power of the outstanding Equity Securities and Debt Securities of the surviving Person of such merger, consolidation or other similar transaction, (ii) the issuance of Equity Securities or Debt Securities by VitalStream or any VitalStream Subsidiary to such Person (and its Affiliates) or the acquisition by such Person (and its Affiliates) of Equity Securities or Debt Securities of VitalStream or any VitalStream Subsidiary representing more than 50% of the voting power of the outstanding Equity Securities and Debt Securities of VitalStream or such VitalStream Subsidiary, (iii) any tender or exchange offer that, if consummated, would result in such Person and its Affiliates owning Equity Securities or Debt Securities of VitalStream or any VitalStream Subsidiary representing more than 50% of the voting power of the outstanding Equity Securities or Debt Securities of VitalStream or such VitalStream Subsidiary or (iv) the sale of all or substantially all of the assets of VitalStream or any VitalStream Subsidiary followed by a liquidation of VitalStream or such VitalStream Subsidiary. 11 "VitalStream Subsidiaries" shall mean the Subsidiaries of VitalStream. "Warrants" shall mean those certain Common Stock Purchase Warrants of VitalStream issued pursuant to this Agreement, in the form of Exhibit F attached hereto, as amended, modified, restated, superseded or replaced from time to time. "Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary of which all of the outstanding capital stock or other ownership interests are owned by such Person or another Wholly-Owned Subsidiary of such Person. Section 2. Authorization and Closings. 2A. Authorization, Purchase and Sale of the Initial Convertible Notes and Warrants. (i) VitalStream has duly authorized the issuance and sale, pursuant to the terms of this Agreement, of the Initial Convertible Notes and the Warrants. The Initial Convertible Notes are, subject to the terms of the Initial Convertible Notes, convertible into shares of Common Stock, Series A Preferred, Preferred Equity Securities and Other Company Securities. The Warrants are exercisable for shares of Common Stock. (ii) At any time during the period (the "Initial Financing Period") beginning on the date fifteen (15) business days after the date hereof and ending on the day immediately prior to the date of the consummation of the transactions contemplated by the Asset Purchase Agreement, subject to the terms and conditions of this Agreement, at the Initial Closing, VitalStream shall have the one-time right (the "Initial Financing Put Right") to require the Purchasers to purchase, in the aggregate, no less than $150,000 and no more than $409,167.67 principal amount of Initial Convertible Notes. If VitalStream chooses to exercise its Initial Financing Put Rights, VitalStream shall deliver a notice (a "Initial Financing Put Notice") to each Purchaser between the date hereof and the date that is fifteen (15) business days prior to the day immediately prior to the date of the consummation of the transactions contemplated by the Asset Purchase Agreement setting forth the date (the "Initial Closing Date") on which such issuance shall be consummated (which date shall be no less than fifteen (15) business days after the date of the receipt by the Purchasers of such Initial Financing Put Notice and no later than the day immediately prior to the date of the consummation of the transactions contemplated by the Asset Purchase Agreement) and the aggregate principal amount of Initial Convertible Notes (the "Initial Financing Amount") to be purchased by the Initial Purchasers on the Initial Closing Date. In no event may the Initial Closing occur after the day immediately prior to the date of the consummation of the transactions contemplated by the Asset Purchase Agreement. (iii) If VitalStream elects to exercise its Initial Financing Put Rights, subject to the terms and conditions of this Agreement, at the Initial Closing, VitalStream shall issue and sell to each Purchaser and each Purchaser shall purchase from VitalStream: (i) an Initial Convertible Note in the principal amount equal to the product of (a) the Initial Financing Amount multiplied by (b) the percentage set forth opposite such Purchaser's name on Annex 1 attached hereto under the heading "Pro Rata Share of Initial Financing Amount" for a price equal 12 to such principal amount and (ii) for no additional consideration, a Warrant to purchase a number of shares of Common Stock calculated in accordance with the terms of the Warrant. (iv) The sale of the Initial Convertible Notes and Warrants to each Purchaser hereunder shall constitute a separate sale. 2B. Authorization, Purchase and Sale of the Subsequent Convertible Notes. (i) VitalStream has duly authorized the issuance and sale, pursuant to the terms of this Agreement, of the Subsequent Convertible Notes. The Subsequent Convertible Notes are, subject to the terms of the Subsequent Convertible Notes, convertible into shares of Common Stock, Series A Preferred, Preferred Equity Securities and Other Company Securities. (ii) Subject to the terms and conditions of this Agreement, at the Subsequent Closing, VitalStream shall issue and sell to each Purchaser and each Purchaser shall purchase from VitalStream (a) a Subsequent Convertible Note in the principal amount equal to the difference between (1) the product of (A) $1,100,000 multiplied by, (B) the percentage set forth opposite such Purchaser's name on Annex 1 attached hereto under the heading "Pro Rata Share of Initial Financing Amount" minus (2) the principal amount of Initial Convertible Notes, if any, purchased by such Purchaser at the Initial Closing, for a price equal to such principal amount and (b) if the Initial Closing is not consummated, for no additional consideration, a Warrant to purchase a number of shares of Common Stock calculated in accordance with the terms of the Warrant. (iii) The sale of each Subsequent Convertible Note and, if applicable, Warrants to each Purchaser hereunder shall constitute a separate sale. 2C. The Closings. (i) The closing (the "Initial Closing") of the issuance, sale and purchase of the Initial Convertible Notes and Warrants under this Agreement shall, subject to the satisfaction or waiver of all conditions to the obligations of the parties hereto to consummate the Initial Closing (other than conditions with respect to actions the parties hereto will take at the Initial Closing itself), take place at the offices of VitalStream located at One Jenner, Suite 100, Irvine, California 92618 commencing at 9:00 a.m. local time on the Initial Closing Date (or such other date as the parties hereto may mutually determine in writing). At the Initial Closing, VitalStream shall deliver to each Purchaser (a) an instrument evidencing the Initial Convertible Note to be purchased by such Purchaser, payable to such Purchaser or its nominee or registered in such Purchaser's or its nominee's name, upon payment of the purchase price thereof by a cashier's or certified check, or by wire transfer of immediately available funds, to VitalStream and (b) an instrument evidencing the Warrant to be purchased by such Purchaser, registered in such Purchaser's or its nominee's name. (ii) Subsequent Closing. The closing (the "Subsequent Closing") of the issuance, sale and purchase of the Subsequent Convertible Notes and, if the Initial Closing has not been consummated, Warrants under this Agreement, shall, subject to the satisfaction or waiver of all conditions to the obligations of the parties hereto to consummate the Subsequent Closing (other than conditions with respect to actions the parties hereto will take at the 13 Subsequent Closing itself), take place at the offices of VitalStream located at One Jenner, Suite 100, Irvine, California 92618 commencing at 9:00 a.m. local time on the date (the "Subsequent Closing Date" and, together with the Initial Closing Date, the "Closing Dates") of closing of the transactions contemplated by the Asset Purchase Agreement. At the Subsequent Closing (a) if the Initial Closing has been consummated, VitalStream shall deliver to each Purchaser an instrument evidencing the Subsequent Convertible Note to be purchased by such Purchaser, payable to such Purchaser or its nominee or registered in such Purchaser's or its nominee's name, upon payment of the purchase price thereof by a cashier's or certified check, or by wire transfer of immediately available funds, to VitalStream and (b) if the Initial Closing has not been consummated, VitalStream shall deliver to each Purchaser (1) an instrument evidencing the Subsequent Convertible Note to be purchased by such Purchaser, payable to such Purchaser or its nominee or registered in such Purchaser's or its nominee's name, upon payment of the purchase price thereof by a cashier's or certified check, or by wire transfer of immediately available funds, to VitalStream and (2) an instrument evidencing the Warrant to be purchased by such Purchaser, registered in such Purchaser's or its nominee's name. Section 3. Conditions of each Purchaser's Obligations at the Closings. 3A. Conditions of each Purchaser's Obligations at Each Closing. The obligation of each Purchaser to purchase and pay for the Convertible Notes and Warrants, as the case may be, at each Closing shall be subject to the fulfillment at or prior to such Closing of each of the following conditions, any and all of which may be waived in whole or in part in writing by such Purchaser to the extent permitted by applicable Law: (i) Representations and Warranties; Covenants. The representations and warranties of VitalStream contained in Section 7 hereof shall be true and correct in all material respects at and as of such Closing as though then made and as though such Closing Date was substituted for the date of this Agreement throughout such representations and warranties (except for any representations or warranties made as of a specific date, which shall be true and correct as of such date and except for any representations and warranties which are qualified by materiality, which shall be true and correct in all respects). VitalStream shall have duly performed or complied with, in all material respects, all of the covenants, obligations and conditions to be performed or complied with under the terms of this Agreement and the other Transaction Agreements on, prior to, or at such Closing and shall be in compliance with, in all material respects, all of the covenants, obligations and conditions to be complied with under the terms of this Agreement at such Closing. (ii) Consents and Approvals. VitalStream shall have made all filings and shall have obtained and delivered to each Purchaser all permits, authorizations, consents and approvals of any Governmental Entity and/or third party required to be obtained by VitalStream to consummate the transactions contemplated to be consummated at such Closing by this Agreement and the other Transaction Agreements. (iii) Litigation. No suit, action or other proceeding, or injunction, order, decree or judgment relating thereto, shall be threatened or shall be pending in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated under this Agreement or any of the other Transaction Agreements or that would 14 have, or would reasonably be expected to have, a VitalStream Material Adverse Effect, and no injunction, judgment, order, decree or ruling with respect thereto shall be in effect. (iv) Securities Law Compliance. VitalStream shall have made all filings under all applicable federal and state securities Laws necessary to consummate the issuance and sale of the Initial Convertible Notes, Warrants and Underlying Common Stock pursuant to this Agreement in compliance with such Laws. (v) No VitalStream Material Adverse Effect. There shall not have occurred any VitalStream Material Adverse Effect since June 30, 2002. (vi) Asset Purchase Agreement. The Asset Purchase Agreement shall have been executed and delivered by VitalStream, the Buyer, Hosting and Networks. The Asset Purchase Agreement shall be in full force and effect as of such Closing Date and shall not have been amended or modified. (vii) Registration Agreement. The Registration Agreement shall have been executed and delivered by VitalStream and shall be in full force and effect. (viii) Investor Rights Agreement. The Investor Rights Agreement shall have been executed and delivered by VitalStream and each of the other parties thereto and shall be in full force and effect. (ix) Guaranty. The Guaranty shall have been executed and delivered by VitalStream and each VitalStream Subsidiary which has any assets and shall be in full force and effect. (x) Opinion of VitalStream's Counsel. Purchasers shall have received an executed copy of the VitalStream Counsel Opinion. (xi) Sale of Convertible Notes and Warrants to each Purchaser. VitalStream shall have simultaneously issued and sold to each Purchaser the Convertible Notes and Warrants, as the case may be, to be purchased by such Purchaser hereunder at such Closing and VitalStream shall have received payment therefore in full. (xii) Closing Documents. VitalStream shall have delivered to each Purchaser all of the following documents: (a) an Officer's Certificate, dated as of such Closing Date, stating that the conditions specified in Section 3A(i) through Section 3A(vi) of this Agreement have been fully satisfied; (b) certified copies of the resolutions duly adopted by VitalStream's Board of Directors authorizing the execution, delivery and performance of this Agreement, the other Transaction Agreements to which it is a party and each of the other agreements contemplated hereby or thereby to which it is a party, the issuance and sale of the Convertible Notes, the issuance and sale of the Warrants, the reservation for issuance of a number of shares of Common Stock sufficient for conversion of the Convertible 15 Notes, the reservation for issuance of a number of shares of Common Stock sufficient for exercise of the Warrants and the consummation of all other transactions contemplated by this Agreement and the other Transaction Agreements to which it is a party; (c) certified copies of the Articles of Incorporation and VitalStream's bylaws, each as in effect at such Closing Date; (d) certificate of good standing from the Secretary of State of the State of Nevada dated within ten (10) days of such Closing Date; (e) copies of all filings, permits, authorizations, consents and approvals of any Governmental Entity and/or third party required in connection with the consummation of the transactions contemplated by this Agreement and the other Transaction Agreements (including, without limitation, all blue sky Law filings); and (f) such other documents relating to the transactions contemplated by this Agreement or the other Transaction Agreements as any Purchaser or its special counsel may reasonably request. (xiii) Proceedings. All corporate and other proceedings taken or required to be taken by VitalStream in connection with the transactions contemplated hereby and by the other Transaction Agreements to be consummated at or prior to such Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Purchaser and its special counsel. 3B. Additional Conditions of each Purchaser's Obligations at the Initial Closing. In addition to each of the conditions set forth in Section 3A hereof, the obligation of each Purchaser to purchase and pay for the Initial Convertible Notes and Warrants at the Initial Closing shall be subject to the fulfillment at or prior to the Initial Closing of each of the following additional conditions, any and all of which may be waived in whole or in part in writing by such Purchaser to the extent permitted by applicable Law: (i) Payment of the Commitment Fee. VitalStream shall have paid one-third of the aggregate amount of the Commitment Fee to Dolphin. (ii) Payment of Purchasers' Attorneys Fees. VitalStream shall have reimbursed the Purchasers for the fees and expenses of legal counsel incurred by Purchasers in connection with the preparation of this Agreement and the other Transaction Agreements in an amount not to exceed $42,500. 3C. Additional Conditions of each Purchaser's Obligations at the Subsequent Closing if the Initial Closing has not been Consummated. If the Initial Closing has not been consummated, in addition to each of the conditions set forth in Section 3A hereof, the obligation of each Purchaser to purchase and pay for the Subsequent Convertible Notes and Warrants at the Subsequent Closing shall be subject to the fulfillment at or prior to the Subsequent Closing of each of the following additional conditions, any and all of which may be waived in whole or in part in writing by such Purchaser to the extent permitted by applicable Law: 16 (i) Asset Purchase Agreement. The conditions in Section 7(b) of the Asset Purchase Agreement shall have been satisfied in full (without reliance on any waiver by Hosting) (other than the transfer of the Cash Consideration (as defined in the Asset Purchase Agreement) as contemplated by Section 7(b)(xiv) of the Asset Purchase Agreement which transfer shall not occur until immediately after VitalStream has received the purchase price for all of the Subsequent Convertible Notes as contemplated by this Agreement), and the transactions contemplated by the Asset Purchase Agreement shall have been consummated immediately prior to the Subsequent Closing in accordance with the terms of the Asset Purchase Agreement. (ii) Payment of the Commitment Fee. VitalStream shall have paid the Commitment Fee to Dolphin in full. (iii) Payment of Purchasers' Attorneys Fees. VitalStream shall have reimbursed the Purchasers for the fees and expenses of legal counsel incurred by Purchasers in connection with the preparation of this Agreement and the other Transaction Agreements in an amount not to exceed $42,500. (iv) Subsequent Closing Documents. VitalStream shall have delivered to each Purchaser an Officer's Certificate, dated as of the Subsequent Closing Date, stating that the conditions specified in Section 3C(i) of this Agreement have been fully satisfied. 3D. Additional Conditions of each Purchaser's Obligations at the Subsequent Closing if the Initial Closing has been Consummated. If the Initial Closing has been consummated, in addition to each of the conditions set forth in Section 3A hereof, the obligation of each Purchaser to purchase and pay for the Subsequent Convertible Notes at the Subsequent Closing shall be subject to the fulfillment at or prior to the Subsequent Closing of each of the following additional conditions, any and all of which may be waived in whole or in part in writing by such Purchaser to the extent permitted by applicable Law: (i) Consummation of the Initial Closing. The Initial Closing shall have been consummated in accordance with the terms of this Agreement. (ii) No Event of Default. No Event of Default (as defined in the Initial Convertible Notes) shall have occurred and be continuing under the Initial Convertible Notes. (iii) Asset Purchase Agreement. The conditions in Section 7(b) of the Asset Purchase Agreement shall have been satisfied in full (without reliance on any waiver by Hosting) (other than the transfer of the Cash Consideration (as defined in the Asset Purchase Agreement) as contemplated by Section 7(b)(xiv) of the Asset Purchase Agreement which transfer shall not occur until immediately after VitalStream has received the purchase price for all of the Subsequent Convertible Notes as contemplated by this Agreement), and the transactions contemplated by the Asset Purchase Agreement shall have been consummated prior to the Subsequent Closing in accordance with the terms of the Asset Purchase Agreement. (iv) Payment of the Commitment Fee. VitalStream shall have paid in full any amount of the Commitment Fee to Dolphin which has not been previously paid. 17 (v) Subsequent Closing Documents. VitalStream shall have delivered to each Purchaser an Officer's Certificate, dated as of the Subsequent Closing Date, stating that the conditions specified in Section 3D(i) and Section 3D(iii) of this Agreement have been fully satisfied. Section 4. Conditions of VitalStream's Obligations at the Closings. 4A. Conditions of VitalStream's Obligations at each Closing. The obligation of VitalStream to issue and sell the Convertible Notes and Warrants, as the case may be, to the Purchasers at each Closing shall be subject to the fulfillment at or prior to such Closing of each of the following conditions, any and all of which may be waived in whole or in part in writing by VitalStream to the extent permitted by applicable Law: (i) Representations and Warranties; Covenants. The representations and warranties of each of the Purchasers contained in Section 9C hereof shall be true and correct in all material respects at and as of such Closing as though then made and as though such Closing Date was substituted for the date of this Agreement throughout such representations and warranties (except for any representations or warranties made as of a specific date, which shall be true and correct as of such date and except for any representations and warranties which are qualified by materiality, which shall be true and correct in all respects). Each Purchaser shall have duly performed or complied with, in all material respects, all of the covenants, obligations and conditions to be performed or complied with under the terms of this Agreement on, prior to, or at such Closing. (ii) Litigation. No suit, action or other proceeding, or injunction, order, decree or judgment relating thereto, shall be threatened or shall be pending in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with the transactions contemplated under this Agreement or any of the other Transaction Agreements or that would have, or reasonably be expected to have, a VitalStream Material Adverse Effect, and no injunction, judgment, order, decree or ruling with respect thereto shall be in effect. (iii) Asset Purchase Agreement. The Asset Purchase Agreement shall have been executed and delivered by VitalStream, the Buyer, Hosting and Networks. The Asset Purchase Agreement shall be in full force and effect as of such Closing Date and shall not have been amended or modified. (iv) Sale of Convertible Notes and Warrants to each Purchaser. Each Purchaser shall have tendered at such Closing the purchase price required under this Agreement to be tendered for the Convertible Notes and Warrants being purchased. (v) Closing Documents. Each Purchaser shall have delivered to VitalStream such documents relating to the transactions contemplated by this Agreement as VitalStream or its special counsel may reasonably request. (vi) Proceedings. All corporate and other proceedings taken or required to be taken by each Purchaser in connection with the transactions contemplated hereby and by the other Transaction Agreements to be consummated at or prior to such Closing and all documents 18 incident thereto shall be reasonably satisfactory in form and substance to VitalStream and its special counsel. 4B. Additional Conditions of VitalStream's Obligations at the Subsequent Closing if the Initial Closing has not been Consummated. If the Initial Closing has not been consummated, in addition to each of the conditions set forth in Section 4A hereof, the obligation of VitalStream to issue and sell the Convertible Notes and Warrants to the Purchasers at the Subsequent Closing shall be subject to the fulfillment at or prior to the Subsequent Closing of the following additional condition, which may be waived in whole or in part in writing by VitalStream to the extent permitted by applicable Law: (i) Asset Purchase Agreement. The conditions in Section 7(a) of the Asset Purchase Agreement shall have been satisfied in full (without reliance on any waiver by Hosting), and the transactions contemplated by the Asset Purchase Agreement shall have been consummated immediately prior to the Subsequent Closing in accordance with the terms of the Asset Purchase Agreement. 4C. Additional Conditions of VitalStream's Obligations at the Subsequent Closing if the Initial Closing has been Consummated. If the Initial Closing has been consummated, in addition to each of the conditions set forth in Section 4A hereof, the obligation of VitalStream to issue and sell the Subsequent Convertible Notes to the Purchasers at the Subsequent Closing shall be subject to the fulfillment at or prior to the Subsequent Closing of each of the following additional conditions, any and all of which may be waived in whole or in part in writing by VitalStream to the extent permitted by applicable Law: (i) Consummation of the Initial Closing. The Initial Closing shall have been consummated in accordance with the terms of this Agreement. (ii) Asset Purchase Agreement. The conditions in Section 7(a) of the Asset Purchase Agreement shall have been satisfied in full (without reliance on any waiver by Hosting), and the transactions contemplated by the Asset Purchase Agreement shall have been consummated immediately prior to the Subsequent Closing in accordance with the terms of the Asset Purchase Agreement. Section 5. Covenants. 5A. Reservation of Common Stock and Series A Preferred. VitalStream shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance, directly or indirectly, upon the conversion of the Convertible Notes and exercise of the Warrants, such number of shares of Underlying Common Stock issuable upon the conversion of all outstanding Convertible Notes and exercise of all outstanding Warrants. VitalStream shall at all times reserve and keep available out of its authorized but unissued shares of Series A Preferred, solely for the purpose of issuance upon the conversion of the Convertible Notes, such number of shares of Series A Preferred issuable upon the conversion of all outstanding Convertible Notes. All shares of Underlying Common Stock or Series A Preferred, as the case may be, which are so issuable shall, when issued, be duly and validly issued, fully paid and non assessable and free from all Taxes and Liens. VitalStream 19 shall take all such actions as may be necessary to assure that all such shares of Underlying Common Stock or Series A Preferred, as the case may be, may be so issued without violation of any applicable Law or Legal Requirement or any requirements of any domestic securities exchange upon which shares of Underlying Common Stock or Series A Preferred, as the case may be, may be listed (except for official notice of issuance which shall be immediately transmitted by VitalStream upon issuance). 5B. Intellectual Property Rights. VitalStream shall possess and maintain all Intellectual Property Rights necessary to the conduct of its business and own all right, title and interest in and to, or have a valid and enforceable license to use, all such Intellectual Property Rights. VitalStream shall not take any action or fail to take any action which would result in the invalidity, abandonment, misuse or unenforceability of such Intellectual Property Rights or which would infringe upon or misappropriate any Intellectual Property Rights of other Persons. 5C. Restrictive Covenants. In addition to any action otherwise required by the Articles of Incorporation or applicable Law for so long as any Convertible Notes remain outstanding and, (a) at any time on or prior to the Subsequent Closing Date, for so long as the Underlying Common Stock constitutes at least one (1) percent of VitalStream's outstanding Common Stock and (b) at any time following the Subsequent Closing Date, for so long as the Underlying Common Stock constitutes at least three (3) percent of VitalStream's outstanding Common Stock, VitalStream shall not take any of the following actions without the prior written authorization and approval of the holders of a majority of the principal amount of the Convertible Notes then outstanding. (i) directly or indirectly declare or pay any dividends or make any distributions upon any of its Equity Securities, except for dividends payable in shares of Common Stock issued upon the outstanding shares of Common Stock; (ii) directly or indirectly redeem, purchase or otherwise acquire, or permit any of the VitalStream Subsidiaries to redeem, purchase or otherwise acquire, any of VitalStream's or any of the VitalStream Subsidiary's Debt Securities or Equity Securities or directly or indirectly redeem, purchase or make any payments with respect to any stock appreciation rights, phantom stock plans or similar rights or plans; provided, however (a) the payment of any Indebtedness under any Debt Security of VitalStream or any VitalStream Subsidiary at the time, and in the amounts, such Indebtedness becomes due and payable in accordance with the terms of such Debt Security or the repayment in full of all of the Indebtedness under any Debt Security of VitalStream or any VitalStream Subsidiary with the proceeds of an issuance of Debt Securities by VitalStream or any VitalStream Subsidiary shall not require the consent of the holders of the Convertible Notes under this Section 5C(ii) (notwithstanding the foregoing, for the avoidance of any doubt, this provision shall not negate the obligation of VitalStream to obtain the consent of the holders of the Convertible Notes under Section 5C(xiii) of this Agreement) and (b) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, VitalStream may, at any time and from time to time during any fiscal quarter, redeem shares of Common Stock which are publicly traded and listed on any securities exchange or quoted in the NASDAQ System (including the proposed Bulletin Board Exchange) or the over-the-counter market, for an aggregate purchase price of up to an amount equal to 35% 20 of the consolidated Cash Flow of Vital Stream and the VitalStream Subsidiaries for the prior fiscal quarter of VitalStream if (1) the Board of Directors has determined, in its good faith judgment, that such redemption is fair and in the best interest of all of the securityholders of VitalStream and (2) such redemption has been approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors; (iii) (a) make, or permit any of the VitalStream Subsidiaries to make, any loans or advances to, guaranties for the benefit of, or Investments in, any Person or business (other than with respect to Wholly-Owned Subsidiaries), (b) acquire, or permit any of the VitalStream Subsidiaries to acquire, any interest in any Person or business (other than with respect to Wholly-Owned Subsidiaries) by a purchase of assets or (c) enter into, or permit any of the VitalStream Subsidiaries to enter into, a joint venture with any Person (other than a Wholly-Owned Subsidiaries), except for (1) advances to employees of an amount not in excess of one month's salary in the Ordinary Course of Business, (2) Investments having a stated maturity no greater than one year from the date such Investment is made in (A) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (B) certificates of deposit of commercial banks having combined capital and surplus of at least $50 million at the time of such Investment, (C) commercial paper with a rating of at least "Prime-1" by Moody's Investors Service, Inc. at the time of such Investment or (D) Debt Securities of a Person solely as part of the consummation of an acquisition (whether by a purchase of assets, purchase of stock, merger or otherwise) by VitalStream or any VitalStream Subsidiary of any interest in such Person or such Person's business; provided, that, (i) to the extent required, such acquisition has been approved by the holders of the Convertible Notes under this Section 5C, (ii) at any time prior to the date on which the Dolphin Director has become a member of the Board of Directors, such acquisition and Investment has been approved in writing by Dolphin, (iii) such acquisition and Investment has been approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors and (iv) such Investment is an amount not greater than $375,000 or (3) Investments, acquisitions of assets or joint ventures (A) in which the pro forma consolidated Average Monthly Cash Flow of the Person or business in which an Investment is made, the assets acquired or the joint venture entity, as the case may be, for the twelve (12) month period immediately following the execution of a definitive agreement relating to such Investment, purchase of assets or joint venture (as determined, (i) at any time prior to the date on which the Dolphin Director has become a member of the Board of Directors, by Dolphin and (ii) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, by the Board of Directors in its good faith judgment) is greater than $0.00 and (B) which constitute an Authorized VitalStream Acquisition Transaction; (iv) merge or consolidate with any Person, or permit any of the VitalStream Subsidiaries to merge or consolidate with any Person (other than a Wholly-Owned Subsidiary), except, at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, for any merger or consolidation (a) in which the pro forma consolidated Average Monthly Cash Flow of the Person with whom VitalStream or any of the VitalStream Subsidiaries will merge or consolidate for the twelve (12) month period immediately 21 following the execution of a definitive agreement relating to such merger or consolidation (as determined, (1) at any time prior to the date on which the Dolphin Director has become a member of the Board of Directors, by Dolphin and (2) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, by the Board of Directors in its good faith judgment) is greater than $0.00 and (b) which constitutes either (1) an Authorized VitalStream Sale Transaction or (2) an Authorized VitalStream Acquisition Transaction; (v) sell, lease or otherwise dispose of, or permit any of the VitalStream Subsidiaries to sell, lease or otherwise dispose of, in the aggregate, more than 17.5% of the consolidated assets of VitalStream and the VitalStream Subsidiaries (computed on the basis of the greater of (a) book value determined in accordance with GAAP consistently applied or (b) Fair Market Value), except for (1) any sale, lease or other disposition of assets in the Ordinary Course of Business, (2) any sale, lease or other disposition of assets required by any Law or Legal Requirement in order to permit VitalStream or any VitalStream Subsidiary to consummate an acquisition (whether by a purchase of assets, purchase of stock, merger or otherwise) of any interest in a Person or such Person's business; provided, that, (A) to the extent required, such acquisition has been approved by the holders of the Convertible Notes under this Section 5C, (B) at any time prior to the date on which the Dolphin Director has become a member of the Board of Directors, such acquisition has been approved in writing by Dolphin and (C) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, such acquisition has been approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors or (3) any sale of assets which constitutes an Authorized VitalStream Sale Transaction (for the avoidance of any doubt, the granting of a security interest to a secured lender by VitalStream or any VitalStream Subsidiary in its accounts receivable in connection with the establishment by VitalStream or any VitalStream Subsidiary of a secured credit facility shall not constitute a sale, lease or otherwise disposition of the assets of VitalStream or any VitalStream Subsidiary for purposes of this Section 5C(v)); (vi) liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction (including, without limitation, any reorganization into a limited liability company, a partnership or any other non-corporate entity which is treated as a partnership for federal income tax purposes), except for any liquidation, dissolution, recapitalization or reorganization effectuated in connection with the consummation of (a) an Authorized VitalStream Sale Transaction or (b) an Authorized VitalStream Acquisition Transaction; (vii) change the nature of the business or operations of VitalStream or any of the VitalStream Subsidiaries or enter into or allow any of the VitalStream Subsidiaries to enter into the ownership, active management or operation of a line of business other than that line of business in which VitalStream and the VitalStream Subsidiaries engage as of the date hereof; provided, however, that VitalStream may continue to employ new technologies and provide new services which either become commonly employed or provided by, or, in the good faith judgment of the management of Vital Stream are reasonably expected to become commonly employed or provided by, Persons engaged in VitalStream's line of business; 22 (viii) become subject to, or permit any of the VitalStream Subsidiaries to become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict (a) the right of any of the VitalStream Subsidiaries to make loans or advances or pay dividends to, transfer property to, or repay any Indebtedness owed to, VitalStream or any of the VitalStream Subsidiaries or (b) VitalStream's or any of the VitalStream Subsidiaries' right to perform the provisions of this Agreement or any of the other Transaction Agreements (including, without limitation, provisions relating to the payment of principal and interest on the Convertible Notes); (ix) enter into, amend, modify or supplement, or permit any of the VitalStream Subsidiaries to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any of the VitalStream Subsidiaries' officers, directors, employees, stockholders or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person or individual owns a beneficial interest, except for (a) customary employment arrangements bonus and benefit programs on reasonable and customary terms, (b) any agreement, amendment, modification or supplement where the amount involved does not exceed $25,000 per annum or (c) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, any agreement, amendment, modification or supplement which is approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by all of the members of the Board of Directors; (x) except as expressly provided herein or in the Asset Purchase Agreement, (a) induce or attempt to induce, or permit any of the VitalStream Subsidiary to induce or attempt to induce, any Holdings Executive Officer to leave the employ of Holdings or any of its Subsidiaries, (b) hire, employ or engage, or permit any of the VitalStream Subsidiary to hire, employ or engage, any Holdings Executive Officer employed or engaged by Holdings or any of its Subsidiaries, (c) hire, employ or engage, or permit any of the VitalStream Subsidiary to hire, employ or engage, any Holdings Executive Officer who has left the employment or engagement of Holdings or any of its Subsidiaries prior to, on or after the date hereof within two (2) years of the termination of such Holdings Executive Officer's employment or engagement with Holdings or any of its Subsidiaries, or (d) in any other way interfere, or permit any of the VitalStream Subsidiary to in any other way interfere, with the employment relationship between Holdings and any of its Subsidiaries, on the one hand, and any Holding's Executive Officer, on the other hand; (xi) increase, or permit any of the VitalStream Subsidiaries to increase, any compensation (including salary, bonuses and other forms of current and deferred compensation), payable to any officer or director of VitalStream or any of the VitalStream Subsidiaries, except where (a) such increase is on reasonable and customary terms, (b) such increase does not involve an amount in excess of $25,000, (c) such officer or director is offered and accepts new, different, or additional employment or responsibilities with VitalStream or any of the VitalStream Subsidiaries or (d) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, such increase is approved by the unanimous written consent of the Board of Directors; 23 (xii) establish or acquire, or permit any of the VitalStream Subsidiaries to establish or acquire, any Subsidiary that is not a Wholly-Owned Subsidiary, except where such Subsidiary is established or acquired as part of the formation of a joint venture and such Subsidiary will be consolidated with VitalStream and the VitalStream Subsidiaries in preparation of the financial statements of VitalStream and the VitalStream Subsidiaries in accordance with GAAP and either (a) the pro forma consolidated Average Monthly Cash Flow of such joint venture entity for the twelve (12) month period immediately following the execution of a definitive agreement relating to such joint venture (as determined, (1) at any time prior to the date on which the Dolphin Director has become a member of the Board of Directors, by Dolphin and (2) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, by the Board of Directors in its good faith judgment) is greater than $0.00, or (b) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, (1) the establishment or acquisition of such Subsidiary is approved in writing, or by the vote at a duly-called meeting of the Board of Directors, by all of the members of the Board of Directors and (2) the joint venture in connection with which such Subsidiary was established or acquired does not, and will not, require the transfer or contribution by VitalStream or any VitalStream Subsidiary of any assets (including Cash) to such joint venture; (xiii) except as expressly permitted by the Transaction Agreements create, incur, assume or suffer to exist (including as a result of the consummation of an Authorized VitalStream Acquisition Transaction or Authorized VitalStream Sale Transaction in which VitalStream is not the surviving entity), or permit any of the VitalStream Subsidiaries to create, incur, assume or suffer to exist (including as a result of the consummation of an Authorized VitalStream Acquisition Transaction or Authorized VitalStream Sale Transaction in which such VitalStream Subsidiary is not the surviving entity), Indebtedness except for (a) any Indebtedness incurred under capitalized leases entered into in the Ordinary Course of Business or (b) any Indebtedness incurred under one or more commercial bank loans or other credit facilities with one or more commercial banking institutions in an aggregate amount not exceeding $1,000,000 as determined on a consolidated basis; provided, that, with respect to any Indebtedness described in clause (b) above, the Indebtedness evidenced by the Convertible Notes ranks pari passu as to seniority with respect to any Lien granted in any assets of VitalStream or any VitalStream Subsidiary to secure such Indebtedness (other than with respect to any Lien granted in the accounts receivable of VitalStream or any VitalStream Subsidiary after the three-month anniversary of the Subsequent Closing Date); (xiv) create, incur, assume or suffer to exist, or permit any of the VitalStream Subsidiaries to create, incur, assume or suffer to exist, any Liens other than Permitted Liens or Liens incurred in connection with any Indebtedness permitted to be incurred under Section 5C(xiii) of this Agreement; (xv) change its, or permit any VitalStream Subsidiary to change its, fiscal year to a fiscal year ending on a date other than December 31; 24 (xvi) prepay, or permit any of the VitalStream Subsidiaries to prepay, any interest on any Indebtedness or prepay, or permit any of the VitalStream Subsidiaries to prepay, any principal on any Indebtedness; provided, however, the payment of any Indebtedness of VitalStream or any VitalStream Subsidiary at the time, and in the amounts, such Indebtedness becomes due and payable in accordance with the terms of the Debt Security evidencing such Indebtedness or the repayment in full of all of such Indebtedness with the proceeds of an issuance of Debt Securities by VitalStream or any VitalStream Subsidiary shall not require the consent of the holders of the Convertible Notes under this Section 5C(xvi) (notwithstanding the foregoing, for the avoidance of any doubt, this provision shall not negate the obligation of VitalStream to obtain the consent of the holders of the Convertible Notes under Section 5C(xiii) of this Agreement); (xvii) amend or modify, or permit any of the VitalStream Subsidiaries to amend or modify, any stock option plan or employee stock ownership plan as in existence as of the Initial Closing (or if no Initial Closing has occurred, the Subsequent Closing), except any amendments or modifications made with the consent of the majority of the outstanding Common Stock and Underlying Common Stock (voting together as a single class); adopt, or permit any of the VitalStream Subsidiaries to adopt, any new stock option plan or employee stock ownership plan or issue, or permit any of the VitalStream Subsidiaries to issue, any shares of Common Stock to its or any of the VitalStream Subsidiaries' employees, other than, in each case, (a) options, warrants and other rights to acquire Common Stock outstanding on the Initial Closing Date, or if the Initial Closing has not been consummated, the Subsequent Closing Date, (b) shares of Common Stock issued pursuant to any stock option plan or employee stock ownership plan in existence as of the Initial Closing (or if no Initial Closing has occurred, the Subsequent Closing), (c) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, with the approval in writing, or by the vote at a duly-called meeting of the Board of Directors, by a majority of the members of the Board of Directors, shares of capital stock issued by VitalStream to its employees for bona fide capital raising purposes or (d) at any time after the date on which the Dolphin Director becomes a member of the Board of Directors and, for so long as any Convertible Notes remain outstanding, continues to be a member of the Board of Directors, with the approval in writing, or by the vote at a duly-called meeting of the Board of Directors, by all of the members of the Board of Directors; (xviii) within 60 days of the Subsequent Closing Date, use the proceeds from the sale of the Convertible Notes and Warrants other than for (a) working capital and general corporate purposes, (b) the $250,000 payment contemplated by Section 2(c)(i) of the Asset Purchase Agreement, (c) fees and expenses, not exceeding $42,500, payable pursuant to Section 9A of this Agreement, (d) legal and accounting fees and expenses, not exceeding $125,000, of VitalStream's counsel and auditors in connection with the transactions contemplated by the Asset Purchase Agreement and this Agreement (including expenses not to exceed $25,000 to be paid in connection with the preparation of the Hosting Audited Financial Statements (as defined in the Asset Purchase Agreement)), (e) fees not in excess of $100,000 to be paid to The Seidler Companies Incorporated, (f) capital expenditures, not exceeding $50,000 for routers and switches, and (g) any acquisition, merger or Investment (including expenses and fees) which does not require the approval of the holders of the Convertible Notes under this Section 5C; 25 (xix) except as expressly contemplated by the Asset Purchase Agreement or the Transaction Agreements, make any amendment to the Articles of Incorporation or VitalStream's bylaws, or file any resolution of the Board of Directors with the Nevada Secretary of State containing any provisions, which would increase the number of authorized shares of the Common Stock or adversely affect or otherwise impair the rights or the relative preferences and priorities of the holders of the Convertible Notes, Warrants, Series A Preferred or Underlying Common Stock under this Agreement, the Articles of Incorporation, VitalStream's bylaws or the other Transaction Agreements; (xx) except as expressly contemplated by the Transaction Agreements, authorize, issue or create, or enter into any agreement providing for the issuance (contingent or otherwise) of, any Equity Securities which are senior to or on parity with the Series A Preferred with respect to the payment of dividends, redemptions or distributions upon liquidation or otherwise other than Equity Securities that are on parity with the Series A Preferred with respect to the payment of dividends, redemptions or distributions upon liquidation or otherwise that have terms that are identical to the terms of the Series A Preferred (other than the conversion price of such Equity Securities); or (xxi) issue, or enter into any agreement providing for the issuance (contingent or otherwise) of, any shares of Series A Preferred other than upon conversion of the Convertible Notes. For purposes of this Section 5C only, at any time during the period beginning on the date on which the Dolphin Director becomes a member of the Board of Directors and ending on the date on which the Dolphin Director is no longer entitled to be a member of the Board of Directors pursuant to the terms of the Investor Rights Agreement, if no individual is serving as a member of the Board of Directors in the capacity of the Dolphin Director, VitalStream shall have the right to deliver written notice (the "Dolphin Director Notice") to the Dolphin Holders (as defined in the Investor Rights Agreement) requesting that the Dolphin Holders designate an individual to nominated as the Dolphin Director. If the Dolphin Holders do not submit a nominee to serve as the Dolphin Director in writing to VitalStream within ten (10) business days after receipt by the Dolphin Holders of the Dolphin Director Notice, then the Dolphin Director shall be deemed to be a member of the Board of Directors (regardless of whether an individual is actually serving in such capacity). 5D. Compliance with Agreements. VitalStream shall perform and observe all of its obligations to each holder of Convertible Notes, Warrants and Underlying Common Stock as set forth in this Agreement, each of the other Transaction Agreements, the Convertible Notes and the Warrants. 5E. Current Public Information. VitalStream shall file all reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will take such further action as any holder or holders of Restricted Securities may reasonably request, all to the extent required to enable such holders to sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the 26 Securities and Exchange Commission or (ii) a registration statement on Form S-2 or S-3 or any similar registration form hereafter adopted by the Securities and Exchange Commission; provided, however, that the foregoing provision shall not be interpreted to require the VitalStream to file a registration statement on Form S-2 or S-3 other than as may be required pursuant to the Registration Agreement. Upon the request of the holders of a majority of the Underlying Common Stock, VitalStream will deliver to such holders a written statement as to whether it has complied with such requirements. 5F. Information Rights. VitalStream shall deliver to Dolphin Fund II, so long as (a) at any time on or prior to the Subsequent Closing Date, the Underlying Common Stock constitutes at least one percent of VitalStream's outstanding Common Stock and (b) at any time following the Subsequent Closing Date, the Underlying Common Stock constitutes at least three percent of VitalStream's outstanding Common Stock, each monthly, quarterly and annual internally prepared financial statement and budget reporting packages delivered to the Board of Directors. 5G. Public Disclosures. VitalStream shall not disclose any Purchaser's name or identity as a stockholder of VitalStream in any press release or other public announcement or in any document or material filed with any Governmental Entity, without the prior written consent of such Purchaser, unless (i) such disclosure is required by applicable Law, in which case VitalStream shall use its best efforts to permit Purchaser to review and comment upon the form and substance of such disclosure, or (ii) such disclosure has previously been reported in any document or material filed with any Governmental Entity by either VitalStream or such Purchaser. 5H. Post-Closing Certifications and Deliveries. Within ten (10) days of the Subsequent Closing Date, VitalStream shall deliver to each of the Purchasers a list identifying, as of the Closing Date, each of the stockholders of record of the Company and the number of shares of Common Stock held by such stockholders of record, together with a certification executed by an officer of VitalStream certifying that, except as set forth on such list, there were no shares of Common Stock issued or outstanding on the Subsequent Closing Date. Section 6. Nature of Restricted Securities; Transfer of Restricted Securities; General Transfer Procedure. 6A. General Provisions. (i) Each Purchaser acknowledges and agrees that the Convertible Notes and Warrants it is purchasing and the Underlying Common Stock are characterized as "restricted securities" under the federal securities Laws inasmuch as they are being acquired from VitalStream in a transaction not involving a public offering and that under such Laws such securities may be resold without registration under the Securities Act only in certain limited circumstances as set forth in this Section 6. In the absence of an effective registration statement covering such securities or an available exemption from registration under the Securities Act, the Convertible Notes, Warrants and Underlying Common Stock must be held indefinitely. In this connection, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act, 27 including without limitation the Rule 144 condition that current information about VitalStream be available to the public. (ii) Restricted Securities are transferable only pursuant to (a) public offerings registered under the Securities Act, (b) Rule 144 or Rule 144A adopted by the Securities and Exchange Commission under the Securities Act (as such rules may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission if the exemption from registration under such rule is available and (c) subject to the conditions specified in Section 6B below, any other legally available means of transfer. (iii) In addition to the restrictions set forth above, each Purchaser acknowledges and agrees that the Convertible Notes may only be transferred in increments of a minimum of $100,000 and $1,000 increments in excess thereof. 6B. Opinion Delivery. In connection with the transfer of any Restricted Securities (other than a transfer described in Section 6A(i) or Section 6A(ii) above), the holder thereof shall deliver written notice to VitalStream describing in reasonable detail the transfer or proposed transfer, together with an opinion of legal counsel which is knowledgeable in securities Law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the Securities Act. In addition, if the transferring holder delivers to VitalStream an opinion of such legal counsel that no subsequent transfer of such Restricted Securities shall require registration under the Securities Act, VitalStream shall promptly upon such contemplated transfer deliver new certificates for such Restricted Securities which do not bear the Securities Act legend set forth in Section 9C(ii) of this Agreement. If VitalStream is not required to deliver new certificates for such Restricted Securities not bearing such legend, the holder thereof shall not transfer the same until the prospective transferee has confirmed to VitalStream in writing its agreement to be bound by the Investor Rights Agreement and the conditions contained in this Section 6 and Section 9C(ii) of this Agreement. 6C. Rule 144A. Notwithstanding any provision of this Agreement to the contrary, upon the request of the holders of a majority of the Underlying Common Stock, VitalStream shall promptly supply to such holders or their prospective transferees all information regarding VitalStream required to be delivered in connection with a transfer pursuant to Rule 144A adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. 6D. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k) adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission or an effective registration statement under the Securities Act, VitalStream shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 9C(ii) of this Agreement from the certificates for such Restricted Securities. Section 7. Representations and Warranties of VitalStream. As a material inducement to the Purchasers to enter into this Agreement and purchase the Convertible Notes 28 and Warrants hereunder, VitalStream hereby represents and warrants to each of the Purchasers that the statements contained in this Section 7 are correct and complete as of the date hereof (or on the date as of which they are made, in the case of any representation or warranty which specifically relates to an earlier date). 7A. Approval and Consents; Authorization; No Breach. VitalStream has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and each of the other Transaction Agreements to which it is a party and to perform its obligations hereunder and thereunder. Without limiting the generality of the foregoing, the execution, delivery and performance by VitalStream of this Agreement and each of the other Transaction Agreements to which VitalStream is a party, have been duly authorized by VitalStream. Each of this Agreement and the other Transaction Agreements to which VitalStream is a party constitutes a valid and binding obligation of VitalStream enforceable in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity) including those limiting the enforceability of indemnification provisions. Except as set forth on Schedule 7A attached hereto, the execution and delivery by VitalStream of this Agreement and the other Transaction Agreements to which VitalStream or the Buyer is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by VitalStream or the Buyer do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under or result in the violation of, (iii) result in the creation of any Lien upon the capital stock or assets of VitalStream or any VitalStream Subsidiary pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, or (v) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any third party or any Governmental Entity pursuant to, (A) the charter documents or bylaws of VitalStream or any VitalStream Subsidiary, (B) to the Knowledge of VitalStream, any Law or Legal Requirement to which VitalStream or any VitalStream Subsidiary is subject, or (C) to the Knowledge of VitalStream any material agreement, instrument, order, judgment or decree to which VitalStream or any VitalStream Subsidiary is subject. 7B. Capital Stock and Related Matters. (i) The authorized capital stock of VitalStream shall consist of (a) 290,000,000 shares of Common Stock, 24,488,933 of which shares of Common Stock shall be issued and outstanding and (b) 10,000,000 shares of Preferred Stock, none of which are issued and outstanding. As of the date hereof, VitalStream does not have outstanding any Equity Securities, except as set forth on Schedule 7B attached hereto. Except as required by the Articles of Incorporation, as of each Closing, VitalStream shall not be subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of its Equity Securities. As of each Closing, all of the outstanding shares of VitalStream's capital stock shall be validly issued, fully paid and nonassessable. If the Initial Closing is consummated, immediately following the Initial Closing, the Common Stock issuable upon the (1) conversion of the Initial Convertible Notes shall represent 4.4% of the sum of (A) the number of shares of Common Stock issuable upon conversion of the Initial Convertible Notes plus (B) the number of shares of Fully Diluted Common Stock and (2) exercise of the Warrants shall represent 2.376% of the sum 29 of (A) the number of shares of Common Stock issuable upon exercise of the Warrants plus (B) the number of shares of Fully Diluted Common Stock. If the Initial Closing is consummated, immediately following the Subsequent Closing, the Common Stock issuable upon the conversion of the Initial Convertible Notes and the Subsequent Convertible Notes shall represent 13.2% of the sum of (A) the number of shares of Common Stock issuable upon conversion of the Initial Convertible Notes and the Subsequent Convertible Notes plus (B) the number of shares of Fully Diluted Common Stock. If the Initial Closing is not consummated, immediately following the Subsequent Closing, the Common Stock issuable upon the (1) conversion of the Subsequent Convertible Notes shall represent 13.2% of the sum of (A) the number of shares of Common Stock issuable upon conversion of the Subsequent Convertible Notes plus (B) the number of shares of Fully Diluted Common Stock and (2) exercise of the Warrants shall represent 2.376% of the sum of (A) the number of shares of Common Stock issuable upon exercise of the Warrants plus (B) the number of shares of Fully Diluted Common Stock. (ii) Except as set forth in Schedule 7B attached hereto, (i) as of the date of the stockholder list attached as part of Schedule 7B attached hereto, no person owns of record, or to VitalStream's Knowledge is known to own of record, any Equity Securities of VitalStream or any VitalStream Subsidiary; (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire Equity Securities of VitalStream or any VitalStream Subsidiary is authorized or outstanding; (iii) there is no commitment of VitalStream or any VitalStream Subsidiary to issue shares, subscriptions, warrants, options, convertible securities, or other such rights (contingent or otherwise) or to distribute to holders of any of its Equity Securities or Debt Securities any evidence of indebtedness or assets. Except as provided for in the Articles of Incorporation, or as set forth in Schedule 7B attached hereto, neither VitalStream nor any VitalStream Subsidiary has any obligation (contingent or otherwise) to purchase, redeem, or otherwise acquire any of its Equity Securities or Debt Securities or any interest therein or to pay any dividend or make any other distribution is respect thereof. Immediately prior to each Closing, other than the Investor Rights Agreement and the AKKAD Agreement, there are no voting trusts or agreements, shareholders' agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any Debt Securities or Equity Securities of VitalStream or any VitalStream Subsidiary (whether or not VitalStream or any VitalStream Subsidiary is a party thereto). All of the outstanding Debt Securities and Equity Securities of VitalStream and each VitalStream Subsidiary were issued in compliance with all applicable federal and state securities Laws. (iii) Other than as set forth in the Investor Rights Agreement, there are no statutory or contractual stockholders preemptive rights or rights of refusal with respect to the issuance of the Convertible Notes, Warrants or Underlying Common Stock. VitalStream has not violated any applicable securities Laws in connection with the offer, sale or issuance of any of its capital stock, and (subject to the accuracy of the representations, acknowledgements and agreements contained in Section 9C of this Agreement) the offer, sale and issuance of the Convertible Notes or Warrants hereunder or the issuance of the Underlying Common Stock upon conversion of the Notes or exercise of the Warrants do not require registration under the Securities Act or any applicable state securities Laws. To VitalStream's Knowledge, other than the Investor Rights Agreement and the AKKAD Agreement, there are no agreements between VitalStream's stockholders with respect to the voting or transfer of VitalStream's capital stock or 30 with respect to any other aspect of VitalStream's affairs other than as set forth in the Articles of Incorporation. 7C. Issuance and Commitment of the Convertible Notes and Warrants. The issuance, sale and delivery of the Convertible Notes and Warrants in accordance with this Agreement and the issuance of the Underlying Common Stock upon conversion of the Convertible Notes and exercise of the Warrants, have been, or will be on or prior to the Closing, duly authorized by all necessary corporate action on the part of VitalStream. The Convertible Notes and Warrants, when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens, and not subject to any preemptive rights. Subject to the accuracy of the representations, acknowledgements and agreements made by each Purchaser in this Agreement, the offer and sale of the Convertible Notes and Warrants and the issuance of the Underlying Common Stock upon conversion of the Convertible Notes and exercise of the Warrants to each Purchaser will be in compliance with all applicable Laws. 7D. Investment Company. Neither VitalStream nor any of the VitalStream Subsidiaries is an "investment company" as defined under the Investment Company Act of 1940. 7E. Margin Securities. Neither VitalStream nor any of the VitalStream Subsidiaries is engaged in the business of extending credit for the purpose of buying or carrying "margin securities" within the meaning of Regulations T, U or X promulgated by the Board of Governors of the Federal Reserve Board, and no part of the proceeds realized from the sale of the Convertible Notes shall be used to buy or carry any such margin securities or used in violation of Regulations T, U or X. 7F. Representations and Warranties of VitalStream in the Asset Purchase Agreement. The representations and warranties of VitalStream contained in Section 4 of the Asset Purchase Agreement and all information contained in any exhibit, schedule or attachment hereto or in any certificate or other writing delivered by, or on behalf of, VitalStream pursuant to the Asset Purchase Agreement shall be true, correct and complete in all respects as of the date hereof (or on the date as of which they are made, in the case of any representation or warranty which specifically relates to an earlier date). Section 8. [Intentionally Deleted]. Section 9. Miscellaneous. 9A. Commitment Fee; Expenses. (i) VitalStream shall pay to Dolphin Partners a commitment fee (the "Commitment Fee") in an amount equal to $25,000 as follows (A) if VitalStream has elected to consummate the Initial Closing pursuant to Section 2C(i) of this Agreement, one-third of the Commitment Fee shall be paid at the Initial Closing and the remaining two-thirds of the Commitment Fee shall be paid at the Subsequent Closing and (B) if VitalStream has not elected to consummate the Initial Closing pursuant to Section 2C(i) of this Agreement, the aggregate amount of the Commitment Fee shall be paid in full at the Subsequent Closing. The Commitment Fee shall be payable in shares of Common Stock (which shall not be registered 31 under the Securities Act) in an amount equal to $25,000 divided by the Market Price of the Common Stock as determined as of the day three (3) days prior to the Closing Date at which the Commitment Fee is to be paid. Notwithstanding the foregoing, if any fractional interest in a share of Common Stock would be deliverable upon the payment of the Commitment Fee, VitalStream, in lieu of delivering the fractional share therefor, shall pay an amount in cash to Dolphin Partners equal to the Market Price of such fractional interest of Common Stock. (ii) VitalStream shall pay, and hold the Purchasers harmless against Liability for the payment of, (a) the fees and expenses of their special counsel arising in connection with their due diligence review of VitalStream, the negotiation and execution of this Agreement and each of the other Transaction Agreements (other than the Asset Purchase Agreement) and the consummation of the transactions contemplated hereby and thereby (provided, VitalStream shall not be required to pay in excess of $42,500 pursuant to this Section 9A(ii)(a)) and (b) the reasonable fees and expenses incurred with respect to any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement or any the other Transaction Agreements (other than the Asset Purchase Agreement). VitalStream shall pay, and hold each Purchaser and each holder of a Convertible Note, a Warrant or Underlying Common Stock harmless against Liability for the payment of, (1) stamp and other taxes which may be payable in respect of the execution and delivery of this Agreement or the issuance, delivery or acquisition of any Convertible Notes or Warrants, any share of Common Stock issuable upon conversion of a Convertible Note or any share of Common Stock issuable upon exercise of a Warrant, (2) the reasonable fees and expenses incurred with respect to the enforcement of the rights granted under this Agreement or any the other Transaction Agreements (other than the Asset Purchase Agreement), and (3) the reasonable fees and expenses incurred by each such Person in any filing with any Governmental Entity with respect to its Investment in VitalStream or in any other filing with any Governmental Entity with respect to VitalStream which mentions such Person. 9B. Remedies; Survival of Representations, Warranties and Covenants; Indemnification. (i) Each holder of Convertible Notes, Warrants or Underlying Common Stock shall have all rights and remedies set forth in this Agreement, and the other Transaction Agreements for the benefit of each such holder and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any Law. Any Person having any rights under any provision of this Agreement or any other Transaction Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement or any other Transaction Agreement and to exercise all other rights granted by Law. The following indemnification provisions are in addition to, and not in derogation of, any statutory, equitable, or common law remedy any holder of Convertible Notes, Warrants or Underlying Common Stock may have for breach of representation, warranty or covenant with respect to VitalStream or any VitalStream Subsidiary or the transactions contemplated by this Agreement; provided, however, that no provision of this Agreement shall negate any limitation on remedies as agreed among the parties to, and set forth in, the Asset Purchase Agreement with respect to any breach of any provision of the Asset Purchase Agreement. 32 (ii) The representations and warranties set forth in this Agreement shall survive each Closing (a) with respect to the matters covered by the representations and warranties contained in Section 7A, and Section 7B of this Agreement and Section 4(m), Section 4(o) and Section 4(r) of the Asset Purchase Agreement, until sixty (60) days after the expiration of all applicable statute of limitations (including all periods of extension, whether automatic or permissive) and (b) in the case of all other representations and warranties and any covenant or agreement contained in this Agreement to be performed on or prior to a Closing Date, until the date which is nine (9) months after such Closing Date. (iii) In consideration of each Purchaser's execution and delivery of this Agreement and acquiring the Convertible Notes and Warrants hereunder and in addition to all of VitalStream's and the Buyer's other obligations under this Agreement and the other Transaction Agreements, VitalStream agrees to indemnify on an after-tax basis and defend, protect and hold harmless each Purchaser and its Affiliates and each of their respective directors, officers, employees, stockholders, members, partners, agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement), successors and assigns (collectively, the "Indemnitees") from and against any and all Claims, costs, damages, deficiencies, expenses (including interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any Claim, default or assessment), fees, fines, Liabilities, losses and penalties (hereinafter individually, a "Loss" and collectively, "Losses") which, directly or indirectly, arise out of, result from or relate to (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought): (a) any facts or circumstances which constitute a misrepresentation or breach by VitalStream or any VitalStream Subsidiary of any representation, warranty or covenant set forth in this Agreement (including any annex, exhibit or schedule attached hereto), any other Transaction Agreement or in any instrument or document delivered by VitalStream or the Buyer pursuant to this Agreement or (b) any non-fulfillment or breach of any covenant or agreement of VitalStream or any VitalStream Subsidiary set forth in this Agreement or any other Transaction Agreement. To the extent that the foregoing undertakings by VitalStream or the Buyer may be unenforceable for any reason, VitalStream and the Buyer shall make the maximum contribution to the payment and satisfaction of the Losses described above incurred by any Indemnitee which is permissible under applicable Law. 9C. Purchaser's Representations; Legends. (i) Purchaser's Representations. (a) Authorization. Each Purchaser hereby represents that it has full power and authority to enter into this Agreement and the Transaction Agreements, and this Agreement and the Transaction Agreements constitute its valid and legally binding obligations, enforceable in accordance with their respective terms. (b) Disclosure of Information. Each Purchaser hereby represents that it has received and reviewed the information about VitalStream and the VitalStream Subsidiaries that it has requested and represents that it has had an opportunity to ask questions and receive answers from VitalStream and the Buyer regarding the terms and conditions of the offering of the Convertible Notes and Warrants and the business, 33 properties, prospects and financial condition of VitalStream and the VitalStream Subsidiaries that it has requested. The foregoing, however, does not limit or modify the representations and warranties of VitalStream and the Buyer in Section 7 of this Agreement or the right of the Purchasers to rely thereon. (c) Investment Experience. Each Purchaser hereby represents that it is able to fend for itself, can bear the economic risk of its Investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the Investment in the Convertible Notes, Warrants and Underlying Common Stock. If other than an individual, such Purchaser also represents it has not been organized for the purpose of acquiring the Convertible Notes, Warrants or Underlying Common Stock. (d) Accredited Investor. Except as set forth on Schedule 9C attached hereto, each Purchaser hereby represents that it is an "institutional investor," as that term is used in the definition of "Dealer" under Section 359-e of the New York Fraudulent Practices Act, as presently in effect. (e) Investment Intent; Own Account. Each Purchaser hereby represents that it is acquiring the Restricted Securities purchased hereunder or acquired pursuant hereto for its own account, not as nominee or agent, with the present intention of holding such securities for purposes of Investment, and that it has no intention of selling such securities in a public distribution in violation of the federal securities Laws or any applicable state securities Laws; provided that nothing contained herein shall prevent any Purchaser and subsequent holders of Restricted Securities from transferring such securities to its Affiliates or in compliance with the provisions of Section 6 of this Agreement. Each Purchaser further represents that such Purchaser does not have any contract, undertaking or agreement with any Person to sell, transfer or grant participations to such Person or to any other Person with respect to the Restricted Securities. (f) Residence; Domicile. Each Purchaser hereby represents and warrants that the principal office of such Purchaser is located at the address set forth with respect to such Purchaser on Annex 1 attached hereto. (g) Ownership of VitalStream. Dolphin Fund II hereby represents and warrants that, as of the date hereof, Dolphin Fund II and its Affiliates, together with each of Holdings, Networks and Hosting and each of their respective Affiliates own less than 5% of the outstanding Common Stock in the aggregate. (ii) Legends. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, 34 TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE AMENDED AND RESTATED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 2003, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE OTHER PARTIES REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO AN INVESTOR RIGHTS AGREEMENT, DATED AS OF NOVEMBER 26, 2002, AMONG THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH INVESTOR RIGHTS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." 9D. Entire Agreement. This Agreement, the other Transaction Agreements and the other agreements and instruments referred to herein and therein contain the entire agreement between the parties hereto and supersede any prior understandings, agreements or representations by or between the parties hereto, written or oral, which may have related to the subject matter hereof in any way (including the Original Note Purchase Agreement). 9E. Successors and Assigns. Except as otherwise expressly provided herein or therein, all covenants and agreements contained in this Agreement or any other Transaction Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement or any other Transaction Agreement which are for any Purchaser's benefit as a purchaser or holder of Convertible Notes, Warrants or Underlying Common Stock are also for the benefit of, and enforceable by, any subsequent holder of such Convertible Notes, Warrants or Underlying Common Stock. 35 9F. Counterparts. This Agreement or any other Transaction Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same agreement. 9G. Descriptive Headings; Interpretation. Section headings used in this Agreement or in any other Transaction Agreement are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, such agreement. The use of the word "including" or any variation or derivative thereof in this Agreement or in any other Transaction Agreement is by way of example rather than by limitation. 9H. Notices; Business Days. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement or any other Transaction Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to (i) each Purchaser at the address indicated for such Purchaser on Annex 1 attached hereto, (ii) any other holder of a Convertible Note, Warrant or Underlying Common Stock at the address set forth in VitalStream's records and (iii) VitalStream at the address indicated below: One Jenner, Suite 100 Irvine, California 92618 Facsimile: (949)453-8686 Attention: Philip N. Kaplan, Chief Operating Officer with a copy (which shall not constitute notice to VitalStream) to: Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile: (801)578-6999 Attention: Bryan T. Allen, Esq. or to such other address, to the attention of such other Person and/or with such other copy or copies as the recipient party has specified by prior written notice to the sending party. If any time period for giving notice or taking action expires on a day which is a Saturday, Sunday or legal holiday in the State of New York (any other day being a "business day"), such time period shall automatically be extended to, the next business day immediately following such Saturday, Sunday or legal holiday. 9I. Consent to Amendments and Waivers. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be 36 effective against VitalStream or the holders of the Convertible Notes, Warrants or Underlying Common Stock unless such modification, amendment or waiver is approved in writing by (i) VitalStream, in the case of any amendment, modification or waiver affecting the rights and interests VitalStream, (ii) in the case of any amendment, modification or waiver affecting the rights and interests of the holders of the Initial Convertible Notes, Warrants or Underlying Common Stock under this Agreement, the holders of a majority of the Underlying Common Stock with respect to such Initial Convertible Notes, Warrants or Underlying Common Stock and (iii) in the case of any amendment, modification or waiver affecting the rights and interests of any holder of Subsequent Convertible Notes or any Person listed on Annex 1 as obligated to purchase Subsequent Convertible Notes, the holders of a majority of the Underlying Common Stock with respect to such Subsequent Convertible Notes. Notwithstanding the foregoing, without the consent of any other Person, VitalStream may restate Annex 1 attached hereto to (a) add additional Persons who purchase Convertible Notes hereunder and execute and deliver a counterpart signature page to this Agreement or (b) change the addresses for notice to any Person at such Person's request. No other course of dealing between VitalStream and the holder of any Convertible Notes, Warrants or Underlying Common Stock or any delay in exercising any rights under this Agreement or any of the other Transaction Agreements shall operate as a waiver of any rights of any such holder. For purposes of this Agreement, Convertible Notes, Warrants or Underlying Common Stock held by VitalStream or any of the VitalStream Subsidiaries shall not be deemed to be outstanding. This Agreement shall amend and restate the Original Note Purchase Agreement in its entirety and become effective immediately upon the execution of this Agreement by each of the Parties hereto. The parties hereto hereby acknowledge and agree that (A) references to the "Convertible Promissory Note and Warrant Purchase Agreement", "Note Purchase Agreement" or "Note and Warrant Purchase Agreement, as the case may be, in each of the Transaction Agreements shall be to this Agreement (as amended and modified from time to time) and (B) references to the "Asset Purchase Agreement" in each of the Transaction Agreements shall be to the Asset Purchase Agreement (as defined herein) (as amended and modified from time to time). 9J. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement or any other Transaction Agreement is held to be prohibited by or invalid under applicable Law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement or such other Agreement. 9K. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other Transaction Agreements. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the other Transaction Agreements shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement or any other Transaction Agreement. Any reference to any federal, state, local, or foreign Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Nothing in the schedules attached hereto (or, as applicable, to the Asset Purchase Agreement) shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the schedule attached hereto identifies the exception with particularity and describes the relevant 37 facts in detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The parties hereto intend that each representation, warranty, and covenant contained herein shall have independent significance. If any party hereto has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which such party has not breached shall not detract from or mitigate the fact that such party is in breach of the first representation, warranty, or covenant. 9L. Incorporation of Annexes, Schedules and Exhibits. The annexes, schedules and exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. 9M. Registered Holders; Ownership. As used in this Agreement and each of the other Transaction Agreements, references to a "holder" of Convertible Notes, Warrants or Underlying Common Stock shall mean the registered holder of such Convertible Notes, Warrants or Underlying Common Stock as set forth in VitalStream's records. For purposes of this Agreement and each of the other Transaction Agreements, all holdings of Convertible Note, Warrants and Underlying Common Stock by Persons who are Affiliates of each other shall be aggregated for purposes of meeting any threshold tests under this Agreement and each of the other Transaction Agreements. 9N. Consideration for Warrants and Notes. The Purchasers and VitalStream acknowledge and agree that (i) the fair market value of all of the Warrants (the "Aggregate Warrant Value") issued hereunder shall be an amount equal to the product of is (a) $0.055 multiplied by (b) the aggregate Warrant Share Amount (as defined in the Warrant) and (ii) the fair market value of all of the Convertible Notes issued hereunder is $1,100,000 minus the Aggregate Warrant Value. Each Purchaser and VitalStream shall file their respective federal, state and local Tax returns in a manner which is consistent with such valuation and allocation and shall not take any contrary position with any Taxing authority. 9O. Understanding Among the Purchasers. The determination of each Purchaser to purchase the Convertible Notes and Warrants pursuant to this Agreement has been made by such Purchaser independent of any other Purchaser and independent of any statements or opinions as to the advisability of such purchase or as to the properties, business, prospects or condition (financial or otherwise) of VitalStream and the VitalStream Subsidiaries which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser. 9P. GOVERNING LAW. TO THE EXTENT APPLICABLE, THE CORPORATE LAW OF THE STATE OF NEVADA SHALL GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS OF VITALSTREAM AND ITS SECURITYHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ANY OF THE OTHER 38 TRANSACTION AGREEMENTS AND THE ANNEXES, EXHIBITS AND SCHEDULES HERETO AND THERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT AND EACH OF THE OTHER TRANSACTION AGREEMENTS (AND ALL ANNEXES, SCHEDULES AND EXHIBITS HERETO AND THERETO), EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 9Q. JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST VITALSTREAM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN NEW YORK CITY, NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS TO WHICH THEY ARE A PARTY, VITALSTREAM AND EACH HOLDER OF CONVERTIBLE NOTES, WARRANTS OR UNDERLYING COMMON STOCK, ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION AGREEMENTS. VITALSTREAM AND EACH HOLDER OF CONVERTIBLE NOTES, WARRANTS OR UNDERLYING COMMON STOCK HEREBY WAIVE ANY CLAIM THAT NEW YORK CITY, NEW YORK IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. 9R. WAIVER OF RIGHT TO JURY TRIAL. VITALSTREAM AND EACH HOLDER OF CONVERTIBLE NOTES, WARRANTS OR UNDERLYING COMMON STOCK HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Agreement or any of the other Transaction Agreements or the validity, protection, interpretation, collection or enforcement hereof or thereof; AND VITALSTREAM HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF in connection with any such litigation, irrespective of the nature of such setoff except to the extent that the failure so to assert any such setoff would permanently preclude the prosecution of or recovery upon same. VITALSTREAM AGREES THAT THIS SECTION 9R IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND EACH OF THE OTHER TRANSACTION AGREEMENTS AND ACKNOWLEDGES THAT EACH HOLDER OF CONVERTIBLE NOTES, WARRANTS OR UNDERLYING COMMON STOCK WOULD NOT HAVE ENTERED INTO THIS AGREEMENT OR MADE AN 39 INVESTMENT HEREUNDER IF THIS SECTION 9R WERE NOT PART OF THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS. 40 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Convertible Note and Warrant Purchase Agreement as of the date first written above. COMPANY: VITALSTREAM HOLDINGS, INC. By:/s/ Paul Summers ----------------------------------------------- Name: Paul Summers Title: President and Chief Executive Officer PURCHASERS: DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ----------------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By:/s/ Richard Brekka ----------------------------------------- Name: Richard J. Brekka Title: President EX-99.D 6 y82902exv99wd.txt FORM OF CONVERTIBLE NOTE EXHIBIT D FORM OF CONVERTIBLE NOTE D-1 THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE AMENDED AND RESTATED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT, DATED AS OF JANUARY 15, 2003, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE OTHER PARTIES REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO A INVESTOR RIGHTS AGREEMENT, DATED AS OF NOVEMBER 26, 2002, AMONG THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH INVESTOR RIGHTS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. VITALSTREAM HOLDINGS, INC. CONVERTIBLE PROMISSORY NOTE DATE OF ISSUANCE: JANUARY 15, 2003 PRINCIPAL AMOUNT: $_________ VitalStream Holdings, Inc., a Nevada corporation (the "Company"), hereby promises to pay to the order of ________________ (the "Holder"), or its registered assigns, the principal amount of $________________ together with interest thereon calculated from the date hereof on or before the earlier to occur of (a) the later to occur of (i) November 26, 2005 and (ii) the three-year anniversary of the Subsequent Closing Date and (b) the consummation of the sale of all or substantially all of the assets of the Company and its Subsidiaries (the "Maturity Date"), subject to, and in accordance with, the provisions of this Note. This Note was issued pursuant to an Amended and Restated Convertible Note and Warrant Purchase Agreement, dated as of January 15, 2003 (as amended and modified from time to time, the "Note Purchase Agreement"), by and among the Company and the other parties referred to therein, and this Note is one of the "Convertible Notes" referred to in the Note Purchase Agreement. The obligations of the Company under this Convertible Note are guaranteed by certain Subsidiaries of the Company pursuant to a Guaranty, dated as of November 26, 2002 (as amended and modified from time to time, the "Guaranty"), by and among the Company, and each Subsidiary and reference is made to such Guaranty for the terms and conditions governing the guaranty of the obligations of the Company under this Convertible Note. Except as defined in Section 8 or unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings ascribed to them in the Note Purchase Agreement. 1. Payment of Interest. (a) Generally. Except as otherwise expressly provided in Section 4(b), interest shall accrue at a rate of ten percent (10%) per annum (computed on the basis of a 365 or 366 day year, as the case may be, and the actual number of days elapsed in any year) on the unpaid principal amount of this Note outstanding from time to time, or (if less) at the highest rate then permitted under applicable law. The Company shall pay to the Holder of this Note all accrued interest on the last day of each of March, June, September and December, beginning on March 31, 2003. Interest shall accrue on any principal payment due under this Note and, to the extent permitted by applicable law, on any interest which has not been paid on the date on which it is due and payable until such time as payment therefor is actually delivered to the Holder of this Note. Any accrued interest which for any reason has not theretofore been paid, shall be paid in full on the date on which the final principal payment on this Note is made. 2. Payment of Principal. (a) Scheduled Payment. The Company shall pay the principal amount of $69,791.00 (or such lesser principal amount then outstanding) to the Holder of this Note on the Maturity Date, together with all accrued and unpaid interest on the principal amount being repaid. (b) Prepayment. (i) General. The Notes are not prepayable except as expressly provided in this Section 2(b). At any time following the one-year anniversary of the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company may prepay (the "Prepayment") all, but not less than all, of the outstanding principal amount of the Notes outstanding on the Prepayment Date (as defined below) together with all accrued and -2- unpaid interest on such outstanding principal amount for an amount equal to the aggregate Prepayment Price of such Notes in accordance with, and pursuant to, the provisions of this Section 2(b). (ii) Prepayment Notice and Officer's Certificate. If the Company elects to make the Prepayment, the Company shall deliver to each Holder of a Note at least forty-five (45) days prior to the date (the "Prepayment Date") on which the Prepayment is to be consummated (A) a written notice (a "Prepayment Notice") of such election and (B) an Officer's Certificate, dated as of the date of the Prepayment Notice, stating that, as of such date, (1) the Company's Indebtedness to EBITDA Ratio that is less than or equal to 2 and (2) the Company's Current Ratio is greater than or equal to 1.5. The Prepayment Notice shall set forth (x) the Prepayment Date, (y) instructions regarding submission of wiring instructions by the Holder and tender of the Note(s) and (z) any other information the Company deems necessary or expedient in order to facilitate closing of the prepayment. Upon the delivery of the Prepayment Notice, the Company shall be obligated to purchase from each Holder of a Note outstanding on the Prepayment Date such Note at the Prepayment Price of such Note in accordance with, and pursuant to, the provisions of this Section 2(b). (iii) Closing of the Prepayment. If the Company has elected to make the Prepayment pursuant to this Section 2(b), subject to Section 2(b)(iv) of this Note, the closing (the "Prepayment Closing") of the Prepayment shall take place at the principal executive offices of the Company commencing at 9:00 a.m. local time on the Prepayment Date. At the Prepayment Closing, each Holder of a Note then outstanding shall deliver to the Company the Note or Notes held by such Holder, upon payment by the Company of the Prepayment Price of such Note or Notes to such Holder by a cashier's or certified check, or by wire transfer of immediately available funds to the such Holder. Any Prepayment of a Note shall not be deemed to have been effected until the Holder of such Note has received the Prepayment Price of such Note in accordance with this Section 2(b). (iv) Conditions Precedent to Prepayment. If the Company has elected to make the Prepayment pursuant to this Section 2(b), the obligation of each Holder of a Note to deliver the Note(s) then held by such Holder to the Company at the Prepayment Closing shall be subject to the fulfillment at or prior to the Prepayment Closing of each of the following conditions, any and all of which may be waived in whole or in part in writing by such Holder to the extent permitted by applicable law: (A) The Company shall have duly adopted, executed and filed with the Secretary of State of Nevada the Certificate of Designation which shall set forth the powers, preferences and rights establishing the terms and the relative rights and preferences of the Conversion Preferred and the Company shall not have adopted or filed any other document designating terms, relative rights or preferences of the Conversion Preferred. The Certificate of Designation shall be in full force and effect as of the Prepayment Date under the laws of the State of Nevada and shall not have been amended or modified. -3- (B) As of the Prepayment Date, (1) the Company's Indebtedness to EBITDA Ratio shall be less than or equal to 2 and (2) the Company's Current Ratio shall be greater than or equal to 1.5 and the Company shall have delivered to each Holder an Officer's Certificate, dated as of the date of the Prepayment Date, to that effect. (C) The Company shall have tendered at the Prepayment Closing the Prepayment Price of all of the Notes then outstanding (including the Note or Notes then held by such Holder). (v) Optional Conversion in Lieu of Prepayment. Notwithstanding the Company's right of Prepayment set forth in this Section 2(b), following the receipt of a Prepayment Notice by the Holder of a Note such Holder shall have the right to exercise its right to convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) pursuant to, and in accordance with, the provisions of Section 5 of this Note at any time on or before the day immediately prior to the date (the "Final Prepayment Conversion Date") which is 3 days immediately prior to the Prepayment Date. The principal amount outstanding under this Note not converted prior to the Final Prepayment Conversion Date pursuant to, and in accordance with, the provisions of Section 5 of this Note shall be subject to Prepayment on the Prepayment Date. Notwithstanding the foregoing, if the Company does not consummate the Prepayment on the Prepayment Date in accordance with the terms of Section 2(b) of this Note, the Holder shall have the right to exercise its right to convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) pursuant to, and in accordance with, the provisions of Section 5 of this Note at any time after the Prepayment Date. (vi) Expenses. If the Company has elected to make the Prepayment pursuant to this Section 2(b), the Company shall pay, and hold the Holders harmless against, the reasonable fees and expenses incurred by the Holders in connection with their determination whether to convert the Notes or accept the Prepayment Price for such Notes, which determination shall include such Holders' due diligence review of the Company and its Subsidiaries and the reasonable fees of one counsel selected by the Holders of a majority of the outstanding principal amount of the Notes; provided, however, the Company shall not be required to pay in excess of $10,000 pursuant to this Section 2(b)(vi). The Company shall reimburse the Holders of the Notes the fees and expenses described in this Section 2(b)(vi) on the Prepayment Date (regardless of whether any Notes are then outstanding on the Prepayment Date). 3. Pro Rata Payment. All payments (whether for principal, interest or otherwise) to the Holder of this Note, the Holders of any other Notes issued pursuant to the Note Purchase Agreement and the Holders of any other Notes issued upon the exchange or transfer of any portion of the outstanding principal amount of such Notes shall be made pro rata among such Holders based upon the aggregate unpaid or unconverted principal amount of the Note(s) held by each such Holder. If any Holder of a Note obtains any payment (whether voluntary, involuntary or otherwise) of principal, interest or other amount with respect to any Note in excess of such Holder's pro rata share of such payments obtained by all Holders of the Notes (other than as -4- expressly provided herein), by acceptance of a Note each such Holder agrees to purchase from the other Holders of the Notes a participation in the Notes held by them as is necessary to cause such Holders to share the excess payment ratably among each of them as provided in this Section 3. 4. Events of Default. (a) Definition. For purposes of this Note, an "Event of Default" shall be deemed to have occurred if: (i) [Intentionally Deleted]; (ii) the Company does not consummate the Prepayment on the Prepayment Date in accordance with the terms of Section 2(b) of this Note; (iii) the Company does not pay when due and payable (whether at maturity or otherwise) the full amount of interest then accrued on this Note or the full amount of the outstanding principal amount of this Note and such amount remains unpaid for five (5) business days after notice to the Company by any Holder of a Note; (iv) the Company does not to perform or observe any other material covenant of the Company contained in this Note, or any other Transaction Agreement and such failure continues for a period of thirty (30) days after notice to the Company by any Holder of Notes; (v) any representation, warranty or information contained in the Note Purchase Agreement or any of the other Transaction Agreements or required to be furnished to the Holder of this Note pursuant to the Note Purchase Agreement or any of the other Transaction Agreements, or any writing required to be furnished by the Company to the Holder of this Notes, is false or misleading in any material respect on the date made or furnished (for purposes of this Section 2(b)(v), any representation, warranty or information that is false or misleading and results in an aggregate amount of Liabilities to the Company and the Company's Subsidiaries or diminution in value of their assets or securities (when compared with their value had such representation, warranty or information not be false or misleading) of more than $100,000 shall be deemed to be false or misleading in any material respect); (vi) the Company or any of its Subsidiaries makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Company or such Subsidiary bankrupt or insolvent; or any order for relief with respect to the Company or such Subsidiary is entered under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction (a "Bankruptcy Law"); or the Company or such Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Company or such Subsidiary, or of any substantial part of the assets of the Company or such Subsidiary, or commences any proceeding relating to the Company or such Subsidiary under any Bankruptcy Law; or any such petition or application is filed, or any such proceeding is commenced, against the Company or such Subsidiary and either (A) the -5- Company or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (B) such petition, application or proceeding is not dismissed within 20 days; (vii) a judgment in excess of $100,000 is rendered against the Company or any Subsidiary and, within ninety (90) days after entry thereof, such judgment is not discharged in full or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of any such stay, such judgment is not discharged in full; or (viii) the Company or any Subsidiary defaults in the performance of any obligation if the effect of such default is to cause an amount exceeding $100,000 to become due prior to its stated maturity or to permit the holder or holders of such obligation to cause an amount exceeding $100,000 to become due prior to its stated maturity. The foregoing shall constitute Events of Default whatever the reason or cause for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. (b) Consequences of Events of Default. (i) If any Event of Default has occurred and is continuing, the interest rate on this Note shall increase immediately by an increment of two percent (2%) (i.e., 200 basis points) to the extent permitted by applicable law. Thereafter, until such time as no Event of Default exists, the interest rate on this Note shall increase automatically at the end of each succeeding 30-day period by an additional increment of two percent (2%) (i.e., 200 basis points) to the extent permitted by applicable law, provided, however, that in no event shall the interest rate on this Note increase pursuant to this Section 4(b)(i) to a rate in excess of sixteen percent (16%) (i.e., 1600 basis points). Any increase of the interest rate on this Note resulting from the operation of this Section 4(b)(i) shall terminate as of the close of business on the date on which no Events of Default exist (subject to subsequent increases pursuant to this Section 4(b)(i)). (ii) If an Event of Default of the type described in Section 4(a)(vi) has occurred, the principal amount of this Note (together with all accrued interest thereon and all other amounts due and payable with respect thereto) shall become immediately due and payable without any action on the part of the Holder of this Note, and the Company shall immediately pay to the Holder of this Note all amounts due and payable with respect to this Note. (iii) If any Event of Default (other than an Event of Default of the type described in Section 4(a)(vi)), has occurred and is continuing, the Holders of a majority of the principal amount of Notes outstanding may declare all or any portion of the outstanding principal amount of this Note (together with all accrued interest thereon and all other amounts due and payable with respect thereto) to be immediately due and payable and may demand immediate payment of all or any portion of the outstanding principal amount of this Note (together with all such other amounts then due and payable). If such Holders demand any such immediate -6- payment, then the Company will immediately pay to the Holder all amounts due and payable with respect to this Note. (iv) Each Holder shall also have any other rights which such Holder may have been afforded under any contract or agreement at any time and any other rights which such Holder may have pursuant to applicable law. (v) The Company hereby waives diligence, presentment, protest and demand and notice of protest and demand, dishonor and nonpayment of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended from time to time and that the Holder of this Note may accept security for this Note or release security for this Note, all without in any way affecting the liability of the Company hereunder. 5. Conversion. (a) Right to Convert; Initial Conversion Price; Preferred Equity Price. (i) At any time and from time to time prior to the payment of this Note in full, subject to Section 2(b)(v) of this Note, the Holder of this Note may convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) into a number of shares of the Conversion Stock (excluding any fractional share) determined by dividing (A) the sum of (1) the principal amount designated by such Holder to be converted plus (2) at the option of the Holder of this Note, any accrued and unpaid interest on the principal amount converted by (B) the Conversion Price then in effect. The initial Conversion Price shall be equal to (A) $1,100,000 divided by (B) the difference between (1) the Fully Diluted Outstanding Common Stock divided by 0.868 minus (2) the Fully Diluted Outstanding Common Stock. (ii) If, at any time prior to the payment of this Note in full, the Company issues any Preferred Equity Securities, then, subject to Section 2(b)(v) of this Note, at any time and from time to time prior to the payment of this Note in full, the Holder of this Note may convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) into a number of shares of any such Preferred Equity Securities (excluding any fractional share) determined by dividing the principal amount designated by such Holder (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) to be converted by the Preferred Equity Price of such Preferred Equity Securities then in effect. Notwithstanding the foregoing, if, in connection with the issuance of any Preferred Equity Securities, the Company also issues other Equity Securities and/or Debt Securities (such other Equity Securities and/or Debt Securities hereinafter referred to as "Other Company Securities"), the Holder shall, upon conversion pursuant to this Section 5(a)(ii), receive, at the same price (subject to adjustment as provided herein) and on the same terms as the purchasers of such Preferred Equity Securities and Other Company Securities, the amount of such Preferred Equity Securities and each Other Company Security issued in connection therewith (such amount of Preferred Equity Securities and Other Company Security to be in the same relative proportions as purchased by such purchasers) that the Holder of this Note would have received had the Holder of this Note paid an -7- amount equal to the outstanding principal amount of this Note that the Holder of this Note is converting (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount to be converted). (iii) At any time and from time to time after the receipt of a Prepayment Notice and prior to the Final Prepayment Conversion Date, the Holder of this Note may convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) into a number of shares of Conversion Preferred (excluding any fractional share) determined by dividing (A) the product of (1) 1.1 multiplied by (2) the sum of (x) the principal amount designated by such Holder to be converted plus (y) at the option of the Holder of this Note, any accrued and unpaid interest on the principal amount converted by (B) the Series A Liquidation Value (as defined in the Certificate of Designation). (b) Conversion Procedure. (i) The Holder of this Note may exercise its right to convert all or any portion of the outstanding principal amount of this Note (plus, at the option of the Holder, any accrued and unpaid interest on the principal amount converted) pursuant to Section 5(a) by delivering written notice to the Company setting forth (A) the outstanding principal amount of the Note that the Holder of this Note desires to convert, (B) the amount, if any, of any accrued and unpaid interest on such principal amount the Holder of this Note desires to convert, (C) whether the conversion shall be in accordance with Section 5(a)(i), Section 5(a)(ii) or Section 5(a)(iii) and (D) with respect to a conversion pursuant to Section 5(a)(ii) only, if the Company has issued more than one class or series of Preferred Equity Securities, the class or series of Preferred Equity Securities which the Holder of this Note desires to convert the Note into. Except as otherwise expressly provided herein, each conversion of this Note shall be deemed to have been effected as of the close of business on the date on which this Note has been surrendered for conversion at the principal office of the Company (which, with respect to a conversion under Sections 2(b)(v) and 5(a)(iii) shall be the Prepayment Date). At such time as such conversion has been effected, the rights of the Holder of this Note as such Holder to the extent of the conversion shall cease, and the Person or Persons in whose name or names any certificate or certificates for (1) shares of Conversion Stock are to be issued upon such conversion pursuant to Section 5(a)(i), shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby as of the date of such conversion, (2) shares of Preferred Equity Securities (and, if applicable, the Other Company Securities) are to be issued upon such conversion pursuant to Section 5(a)(ii) shall be deemed to have become the holder or holders of record of the shares of Preferred Equity Securities (and, if applicable, the Other Company Securities) represented thereby as of the first date on which the Company issued such Preferred Equity Securities (and, if applicable, the Other Company Securities) or (3) shares of Conversion Preferred are to be issued upon such conversion pursuant to Section 5(a)(iii) shall be deemed to have become the holder or holders of record of the shares of Conversion Preferred represented thereby as of the date of such conversion; provided, however, for purposes of rights relating to dividends or interest with respect to any Preferred Equity Securities (and, if applicable, the Other Company Securities) only, such date shall be the date of such conversion. -8- (ii) Notwithstanding any other provision hereof, if a conversion of all or any portion of this Note is to be made in connection with a registered public offering, a sale of the Company or any other transaction or any other event, the conversion of any portion of this Note may, at the election of the Holder hereof, be conditioned upon the consummation of the public offering or the sale of the Company, in which case such conversion shall not be deemed to be effective until the consummation of such transaction or such event. (iii) As soon as possible after a conversion has been effected (but in any event within five (5) business days in the case of clause (A) below), the Company shall deliver to the converting Holder: (A) a certificate or certificates representing the number of shares of Conversion Stock, Preferred Equity Securities (and, if applicable, the Other Company Securities) or Conversion Preferred (excluding any fractional shares) issuable by reason of such conversion in such name or names and such denomination or denominations as the converting Holder has specified; (B) payment in an amount equal to the sum of the amount payable under Section 5(b)(iv) plus an amount equal to all accrued interest with respect to the principal amount converted which has not been paid prior thereto or which has not been converted at the election of the converting Holder in accordance with the terms hereof; and (C) a new Note representing any portion of the principal amount which was represented by this Note which was not converted. (iv) If any fractional share of Conversion Stock, Preferred Equity Securities (or, if applicable, Other Company Securities) or Conversion Preferred would, except for the provisions hereof, be deliverable upon conversion of this Note, the Company, in lieu of delivering such fractional share, shall pay an amount equal to the Market Price of such fractional share as of the date of such conversion. (v) The issuance of certificates for shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred upon conversion of this Note shall be made without charge to the Holder hereof for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of Conversion Stock Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred. Upon conversion of this Note, the Company shall take all such actions as are necessary in order to insure that the Conversion Stock, Preferred Equity Securities (and, if applicable, the Other Company Securities) or Conversion Preferred issuable with respect to such conversion shall be validly issued, fully paid and non-assessable and free from all liens and charges with respect to the issuance thereof. (vi) The Company shall not close its books against the transfer of Conversion Stock, Preferred Equity Securities (or, if applicable, Other Company Securities) or Conversion Preferred issued or issuable upon conversion of this Note in any manner which interferes with -9- the timely conversion of this Note. The Company shall assist and cooperate with any Holder of this Note required to make any governmental filings or obtain any governmental approval prior to or in connection with the conversion of this Note (including, without limitation, making any filings required to be made by the Company). (vii) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred, solely for the purpose of issuance upon the conversion of the Note, such number of shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred issuable upon the conversion of all outstanding Notes. All shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred which are so issuable shall, when issued, be duly and validly issued, fully paid and non-assessable and free from all taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). (c) Conversion Price. (i) In order to prevent dilution of the conversion rights granted under Section 5(a)(i), the Conversion Price shall be subject to adjustment from time to time pursuant to this Section 5(c). (ii) If and whenever on or after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date) the Company issues or sells, or in accordance with Section 5(d) is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to such time, then immediately upon such issuance or sale the Conversion Price shall be reduced to the Conversion Price determined by dividing (a) the sum of (1) the product derived by multiplying the Conversion Price in effect immediately prior to such issuance or sale times the number of shares of Common Stock Deemed Outstanding immediately prior to such issuance or sale, plus (2) the consideration, if any, received by the Company upon such issuance or sale by (b) the number of shares of Common Stock Deemed Outstanding immediately after such issuance or sale; provided that no adjustment shall be made in the Conversion Price as a result of any issuance (or, in accordance with Section 5(d) any deemed issuance or sale) of shares of its Common Stock: (A) which are included in the calculation of the number of shares of Fully Diluted Outstanding Common Stock, (B) upon issuance of any Notes pursuant to the Note Purchase Agreement, (C) upon issuance of any Warrants pursuant to the Note Purchase Agreement, (D) upon conversion of any Notes, (E) upon exercise of any Warrants, (F) upon exercise of any Options or conversion of any Convertible Securities outstanding on the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing -10- Date), (G) to directors or employees of, or consultants to, the Company and its Subsidiaries pursuant to stock option plans and stock ownership plans approved by the Company's board of directors (including any shares of its Common Stock issued or issuable upon exercise of Options granted pursuant to such plans), up to an aggregate of 8,000,000 shares of Common Stock (including any shares of its Common Stock issued (or, in accordance with Section 5(d) any deemed issuance or sale) pursuant to such plans before, on or after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date)) (as such number of shares is proportionately adjusted for subsequent stock splits, combinations and dividends affecting the Common Stock), (H) as a dividend or other distribution on the outstanding shares of its Common Stock (provided such dividend or other distribution causes an adjustment to the Conversion Price pursuant to Section 5(e)), (I) in connection with a stock split or subdivision of its outstanding Common Stock (provided such stock split or subdivision causes an adjustment to the Conversion Price pursuant to Section 5(e)) or (J) in connection with equipment lease financing transactions, real estate leasing transactions, strategic partnering arrangements and other similar transaction provided such issuances are (1) approved by the Company's board of directors and (2) primarily for purposes other than an Equity Securities or Debt Securities financing (including any shares of its Common Stock issued or issuable upon exercise of Options or conversion of Convertible Securities granted in connection therewith). (d) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under Section 5(c), the following shall be applicable: (i) Issuance of Rights or Options. If the Company in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options, or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options, shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 5, the "price per share for which Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities" is determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. -11- (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 5, the "price per share for which Common Stock is issuable upon conversion or exchange thereof" is determined by dividing (A) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5(d), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Option, the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted immediately to the Conversion Price which would have been in effect at such time had such Option or Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that if such adjustment of the Conversion Price would result in an increase in the Conversion Price then in effect, such adjustment shall not be effective until 30 days after written notice thereof has been given to all Holders of the Notes. For purposes of this Section 5(d), if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of this Note are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change; provided that no such change shall at any time cause the Conversion Price hereunder to be increased. (iv) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with -12- any merger in which the Company is the surviving entity, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Company and the Holders of a majority of the outstanding principal amount of the Notes. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the Holders of a majority of the outstanding principal amount of the Notes. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Company. (v) Integrated Transactions. In case any Option is issued in connection with the issuance or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. (vi) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (e) Subdivision or Combination. If, after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock or Preferred Equity Securities into a greater number of shares, each of the Conversion Price and the Preferred Equity Price in respect of such class of Preferred Equity Securities in effect immediately prior to such subdivision shall be proportionately reduced, and if, after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock or Preferred Equity Securities into a smaller number of shares, each of the Conversion Price and the Preferred Equity Price in respect of such class of Preferred Equity Securities in effect immediately prior to such combination shall be proportionately increased.(1) If, after the - -------------------------------------- (1) For example only, (1) if the Company consummates a two for one stock split of its Common Stock, the Conversion Price or Preferred Equity Price, as the case may be, shall be reduced to fifty percent of the Conversion Price or Preferred Equity Price, as the case may be, theretofore in effect and (2) if the Company consummates a one for two reverse stock split of its Common Stock, the Conversion Price or Preferred Equity Price, as the case may be, -13- Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company at any time subdivides (by any stock split, stock dividend or otherwise) one or more classes of its outstanding shares of Other Company Securities into a greater number of shares, the purchase price per share of the shares of such Other Company Securities shall be proportionately reduced and the number of shares of such class of Other Company Securities which the Holder of this Note would be entitled upon conversion shall be proportionately increased, and if the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Other Company Securities into a into a smaller number of shares, the purchase price per share of the shares of such Other Company Securities shall be proportionately increased and the number of shares of such class of such Other Company Securities which the Holder of this Note would be entitled upon conversion shall be proportionately decreased.(2) (f) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, which in each case is effected in such a manner that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, Conversion Preferred or Preferred Equity Securities (and, if applicable, Other Company Securities), as the case may be, is referred to herein as an "Organic Change". Prior to the consummation of any Organic Change, the Company shall make lawful and adequate provision (in form and substance satisfactory to the Holders of a majority of the principal amount of the Notes then outstanding) to insure that each of the Holders of the Notes shall thereafter have the right to acquire and receive, in lieu of or addition to (as the case may be) shares of Conversion Stock, Conversion Preferred or Preferred Equity Securities (and, if applicable, Other Company Securities), as the case may be, immediately theretofore acquirable and receivable upon the conversion of such Holder's Note, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Conversion Stock, Conversion Preferred or Preferred Equity Securities (and, if applicable, Other Company Securities), as the case may be, immediately theretofore acquirable and receivable upon conversion of such Holder's Note had such Organic Change not taken place. In any such case, appropriate provision (in form and substance satisfactory to the Holders of a majority of the principal amount of the Notes then outstanding) shall be made with respect to such Holder's rights and interests to insure that the provisions of this Section 5 and Section 6 and Section 7 shall thereafter be applicable in - ------------------------------------------------------------------------------ shall be increased to two hundred percent of the Conversion Price or Preferred Equity Price, as the case may be, theretofore in effect. (2) For example only, (1) if the Company consummates a two for one stock split of any of its Other Company Securities, the purchase price per share of the shares of such Other Company Securities which the Holder of this Note would be entitled upon conversion shall be reduced by fifty percent and the number of shares of such Other Company Securities which the Holder of this Note would be entitled upon conversion shall be increased by two hundred percent and (2) if the Company consummates a one for two reverse stock split of any of its Other Company Securities, the purchase price per share of the shares of such Other Company Securities which the Holder of this Note would be entitled upon conversion shall be increased by two hundred percent and the number of shares of such Other Company Securities which the Holder of this Note would be entitled upon conversion shall be reduced by fifty percent. -14- relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of the Notes (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Conversion Price or Preferred Equity Price, as the case may be, to the value for the Common Stock, Conversion Preferred or Preferred Equity Securities (and, if applicable, Other Company Securities), as the case may be, reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Conversion Stock, Conversion Preferred or Preferred Equity Securities (and, if applicable, Other Company Securities), as the case may be, acquirable and receivable upon conversion of the Notes, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form reasonably satisfactory to the Holders of a majority of the principal amount of the Notes then outstanding), the obligation to deliver to each such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to acquire. (g) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in each of the Conversion Price and the Preferred Equity Price and/or the quantity of Other Company Securities issuable upon conversion of this Note so as to protect the rights of the Holders of the Notes; provided that no such adjustment shall increase the Conversion Price or Preferred Equity Price as otherwise determined pursuant to this Section 5 or decrease the number of shares of Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred issuable upon conversion of the Notes then outstanding. (h) Notices. (i) Immediately upon any adjustment of the Conversion Price or Preferred Equity Price, the Company shall send written notice thereof to the Holder of this Note, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall send written notice to the Holder of this Note at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Conversion Stock, any Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred, (B) with respect to any pro rata subscription offer to holders of Conversion Stock, any Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred or (C) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Company shall also give at least twenty (20) days prior written notice of the date on which any Organic Change, dissolution or liquidation shall take place. -15- 6. Liquidating Dividends. If the Company declares a dividend upon the Conversion Stock, any Preferred Equity Securities (and, if applicable, Other Company Securities) or the Conversion Preferred payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company shall pay to the Holder of this Note at the time of payment thereof the Liquidating Dividend which would have been paid to the Holder of this Note on, at the option of the Holder of this Note, the Conversion Stock, Preferred Equity Securities (and, if applicable, Other Company Securities) or Conversion Preferred, as the case may be, had this Note been fully converted immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. 7. Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of the Conversion Stock (the "Purchase Rights"), then the Holder of this Note shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Conversion Stock acquirable upon complete conversion of this Note immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of the Conversion Stock are to be determined for the grant, issuance or sale of such Purchase Rights. 8. Definitions. For purposes of this Note, the following capitalized terms have the following meanings: "Asset Purchase Agreement" means that certain Amended and Restated Asset Purchase Agreement, dated as of January 15, 2003, by and among the Company, VitalStream Broadcasting Corp., Epoch Networks, Inc. and Epoch Hosting, Inc., as amended, modified, restated, superseded or replaced from time to time. "Asset Purchase Agreement Shares" means the aggregate number of shares of Common Stock issued by the Company pursuant to Section 2(c), Section 2(d), Section 2(e) and Section 2(f) of the Asset Purchase Agreement. "Cash" means cash and cash equivalents (including marketable securities and short term Investments). "Certificate of Designation" has the meaning ascribed thereto in the Note Purchase Agreement. "Common Stock" means the common stock, par value $0.001 per share, and any capital stock of any class of the Company (other than any Preferred Equity Securities or the Conversion Preferred) hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. -16- "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Section 5(d) of this Note regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock issuable upon exercise of the Notes. "Conversion Preferred" means the 2002 Series A Preferred Stock, $0.001 par value, of the Company having the rights and preferences set forth in the Certificate of Designation. "Conversion Stock" means shares of the Company's authorized but unissued Common Stock; provided that if there is a change such that the securities issuable upon conversion of the Notes are issued by an entity other than the Company or there is a change in the class of securities so issuable, then the term "Conversion Stock" shall mean one share of the security issuable upon conversion of this Note if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Convertible Securities" means any capital stock or securities (directly or indirectly) convertible into or exchangeable for Common Stock. "Current Ratio" means, with respect to the Company as of any date, the ratio of (a) the aggregate amount of all current assets of the Company and the Company's Subsidiaries on a consolidated basis as of such date to (b) the aggregate amount of all current Liabilities of Company and the Company's Subsidiaries on a consolidated basis as of such date, in each case as determined (i) in accordance with GAAP applied on a consistent basis in accordance past practice and (ii) after giving effect to the payment of the aggregate Prepayment Price for the Notes outstanding as of such date. "Debt Security" means any note, bond, debenture or other instrument or security evidencing Indebtedness. "EBITDA" means, with respect to any period of any Person, (a) the net income or loss (excluding extraordinary or non-recurring items) of such Person for such period plus (b) the sum of the amount of each of the following for such Person for such period to the extent deducted in the computation of such net income or loss: (i) interest expense, (ii) income tax expense, (iii) depreciation expense and (iv) amortization expense (each item referred to in clauses (a) and (b) above to be calculated in accordance with GAAP in accordance with such Person's past practice on a consistent basis, in each case on a consolidated basis). "Equity Securities" means (a) any capital stock or other equity security, (b) any security directly or indirectly convertible into or exchangeable for any capital stock or other equity security or security containing any profit participation features, (c) any warrants, options or other rights directly or indirectly to subscribe for or to purchase any capital stock, other equity security or security containing any profit participation features or directly or indirectly to subscribe for or to purchase any security directly or indirectly convertible into or exchangeable -17- for any capital stock, other equity security or security containing profit participation features, or (d) any stock appreciation rights, phantom stock rights or other similar rights. "Fully Diluted Outstanding Common Stock" means the sum of (a) the number of shares of Common Stock actually outstanding on the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), as determined immediately prior to the consummation of the transactions contemplated by the Asset Purchase Agreement, (b) the number of Merger Agreement Shares, (c) the number of Option Shares and (d) the number of Asset Purchase Agreement Shares. "GAAP" means United States generally accepted accounting principles as in affect from time to time on a consistent basis. "Guarantee" means any guarantee of the payment or performance of any Indebtedness or other obligation and any other arrangement whereby credit is extended to one obligor on the basis of any promise of such Person, whether that promise is expressed in terms of an obligation to pay the Indebtedness of such obligor, to provide reimbursement, or to purchase an obligation owed by such obligor, or to purchase goods and services from such obligor pursuant to a take-or-pay contract, or to maintain the capital, working capital, solvency or general financial condition of such obligor, whether or not any such arrangement is listed in the balance sheet of such Person, or referred to in a footnote thereto, but shall not include endorsements of items for collection in the Ordinary Course of Business. "Holders" means all the holders of the Notes. "Indebtedness" means at a particular time, without duplication, (a) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (b) any indebtedness evidenced by any note, bond, debenture or other Debt Security, (c) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the Ordinary Course of Business), (d) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (e) any indebtedness Guaranteed in any manner by a Person (including, without limitation, guaranties in the form of an agreement to repurchase or reimburse), (f) any obligations under capitalized leases and (g) any indebtedness secured by a Lien on a Person's assets. "Indebtedness to EBITDA Ratio" means, with respect to the Company as of any date, the quotient of (a) the aggregate amount of Indebtedness of the Company and the Company's Subsidiaries as determined (i) on a consolidated basis as of such date, (ii) in accordance with GAAP applied on a consistent basis in accordance past practice and (iii) after giving effect to the payment of the aggregate Prepayment Price for the Notes outstanding as of such date divided by (b) the product of (i) the EBITDA of the Company and the Company's Subsidiaries as determined on a consolidated basis for the three-calendar-month period ending on the last day of the calendar month that is two months prior to the calendar month in which the Indebtedness to EBITDA Ratio is to be calculated multiplied by (ii) four. -18- "Initial Closing Date" has the meaning set forth in the Note Purchase Agreement. "Liability" means any liability or obligation of whatever kind or nature (whether known or unknown, whether assert or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability or obligation for taxes. "Lien" means any mortgage, pledge, restriction, security interest, encumbrance, option, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Company or any of its subsidiaries, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to the Company or any of its subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the Ordinary Course of Business). "Market Price" of any security means (a) if such security is listed on an exchange, the average closing price of such security on the principal exchange on which such security is listed, or, if there has been no sale on any such exchange on any day, the average closing price of such security on the principal exchange on the most recent day on which sales of such security have taken place on such exchange or (b) if such security is not listed on an exchange but is quoted through the NASDAQ System, or on the domestic over-the-counter market as reported by the National Quotation Bureau, the average of the closing sales prices as reported by the NASDAQ System or the National Quotation Bureau, as applicable, over a period of 5 days consisting of the day as of which "Market Price" is being determined and the 4 consecutive business days prior to such day on which trades were reported in such security. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Company and the Holders of a majority of the outstanding principal amount of the Notes. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the Holders of a majority of the outstanding principal amount of the Notes. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Company. "Merger Agreement" means that certain Merger Agreement, dated as of February 13, 2002, among the Company, VitalStream, Inc., and VitalStream Operating Corporation. "Merger Agreement Shares" means the aggregate number of shares of Common Stock issued by the Company after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date) pursuant to Section 1.4(b) of the Merger Agreement and each of Section 1.4(c)(iii), Section 1.4(c)(iv), Section 1.4(c)(v) and Section 1.4(c)(vi) (with respect to Section 1.4(c)(vi), such number of shares, as of the date hereof, is expected to be 1,752,982 shares of Common Stock, which shares of Common Stock the Company expects to -19- issue on or about November 15, 2002) of the Merger Agreement (as each such section may be amended, modified, restated, superseded or replaced from time to time). "Merger Closing Date" means April 23, 2002. "Networks" means Epoch Networks, Inc. "Notes" means this Note together with (a) any other "Convertible Notes" issued pursuant to the Note Purchase Agreement and (b) any Notes issued upon the exchange or transfer or in replacement or substitution of all or any portion of the outstanding principal amount of such Notes. "Officer's Certificate" means a certificate signed by the Company's president or its chief financial officer, stating that (a) the officer signing such certificate has made or has caused to be made such investigations as are necessary in order to permit him to verify the accuracy of the information set forth in such certificate and (b) to such officer's knowledge, such certificate does not misstate any material fact and does not omit to state any fact necessary to make the certificate not misleading. "Options" means any rights or options to subscribe for or purchase Common Stock or Convertible Securities. "Option Shares" means the aggregate number of shares of capital stock issued by the Company pursuant to (a) that certain Option Agreement, dated as of May 10, 2002, by and between the Company and Steve Smith, as amended, modified, restated, superseded or replaced from time to time, (b) that certain Option Agreement, dated as of May 10, 2002, by and between the Company and David R. Williams, as amended, modified, restated, superseded or replaced from time to time, (c) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and Kevin Herzog, as amended, modified, restated, superseded or replaced from time to time, (d) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and David R. Williams, as amended, modified, restated, superseded or replaced from time to time, and (e) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and Steve Smith, as amended, modified, restated, superseded or replaced from time to time. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other similar entity or organization or a governmental entity or any department, agency or political subdivision thereof. "Preferred Equity Price" means, with respect to any Preferred Equity Security as of any date, the lowest net price per share at which any such share of Preferred Equity Security has been issued or sold (or deemed to have been issued or sold) on or prior to such date. -20- "Preferred Equity Securities" means any Equity Security of the Company (other than the Conversion Preferred) that ranks senior to the Common Stock as to dividends or the distribution of assets upon any liquidation, dissolution or winding up of the Company, or any Debt Security that is issued with any Equity Security. "Prepayment Price" means, with respect to any Note, the product of (a) the outstanding principal amount of such Note plus all accrued and unpaid interest on the principal amount of such Note through and including the Prepayment Date multiplied by (b) 1.1. "Subsequent Closing Date" has the meaning set forth in the Note Purchase Agreement. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. "Transaction Agreements" means the Notes, the Guaranty, the Certificate of Designation, the Warrants, the Note Purchase Agreement, the Investor Rights Agreement, the Registration Agreement, the Asset Purchase Agreement and all other agreements and instruments contemplated by each of the foregoing to which the Company or any of its Subsidiaries is a party other than the Customer Migration Agreement (as defined in the Asset Purchase Agreement), the Colocation Agreement (as defined in the Asset Purchase Agreement) and the Master Access Agreement (as defined in the Asset Purchase Agreement). "Warrants" has the meaning set forth in the Note Purchase Agreement. 9. Registered Holder; Ownership. As used in this Note, references to a "Holder" of a Note shall mean the registered Holder of such Note as set forth in the Company's records. The Holder of this Note is the Holder of such Note with respect to the principal and interest in respect of such Note. 10. Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender of this Note by the Holder at the principal office of the Company, for one or more new Notes of like tenor representing in the aggregate the rights -21- hereunder, and each such new Note will represent such portion of such rights as is designated by the Holder of this Note at the time of such surrender. 11. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Holder executed under penalty of perjury being satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Note, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the Holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of this Note, the Company will execute and deliver in lieu of this Note a new Note of like kind representing the rights represented by such lost, stolen, destroyed or mutilated Note and dated the date of such lost, stolen, destroyed or mutilated Note. 12. Cancellation. After all principal and accrued interest at any time owed on this Note has been paid in full, this Note shall be surrendered to the Company for cancellation and shall not be reissued. 13. Payments. All payments to be made to the Holder of this Note shall be made in the lawful money of the United States of America in immediately available funds. 14. Place of Payment. Payments of principal and interest shall be delivered to Holder, or its registered assigns, at the address of the Holder set forth in the Company's records or to such other address or to the attention of such other Person as specified by prior written notice delivered by the Holder to the Company. 15. Descriptive Headings; Interpretation. Section headings used in this Note are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Note. The use of the word "including" or any variation or derivative thereof in this Note is by way of example rather than by limitation. 16. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Note shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to (i) the Holder of this Note at the address of the Holder set forth in the Company's records and (ii) the Company at the address indicated below: One Jenner, Suite 100 Irvine, California 92618 Facsimile: (949) 453-8686 Attention: Philip N. Kaplan, Chief Operating Officer -22- with a copy (which shall not constitute notice to the Company) to: Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile: (801) 578-6999 Attention: Bryan T. Allen, Esq. or to such other address, to the attention of such other Person and/or with such other copy or copies as the recipient party has specified by prior written notice to the sending party. 17. Business Days. If any payment is due, or any time period for giving notice or taking action expires, on a day which is a Saturday, Sunday or legal holiday in the State of New York or the State of California, the payment shall be due and payable on, and the time period shall automatically be extended to, the next business day immediately following such Saturday, Sunday or legal holiday, and interest shall continue to accrue at the required rate hereunder until any such payment is made. 18. Usury Laws. It is the intention of the Company and the Holder of this Note to conform strictly to all applicable usury laws now or hereafter in force, and any interest payable under this Note shall be subject to reduction to the amount not in excess of the maximum legal amount allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction over such matters. If the maturity of this Note is accelerated by reason of an election by the Holder of this Note resulting from an Event of Default, voluntary prepayment by the Company or otherwise, then earned interest may never include more than the maximum amount permitted by law, computed from the date hereof until payment, and any interest in excess of the maximum amount permitted by law shall be canceled automatically and, if theretofore paid, shall at the option of the Holder of this Note either be rebated to the Company or credited on the principal amount of this Note, or if this Note has been paid, then the excess shall be rebated to the Company. The aggregate of all interest (whether designated as interest, service charges, points or otherwise) contracted for, chargeable, or receivable under this Note shall under no circumstances exceed the maximum legal rate upon the unpaid principal balance of this Note remaining unpaid from time to time. If such interest does exceed the maximum legal rate, it shall be deemed a mistake and such excess shall be canceled automatically and, if theretofore paid, rebated to the Company or credited on the principal amount of this Note, or if this Note has been repaid, then such excess shall be rebated to the Company. 19. Time of Essence. Time is of the essence for the performance by the Company of the obligations set forth in this Note. 20. Amendment and Waiver. Except as otherwise expressly provided herein, the provisions of this Note may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holders of a majority of the outstanding principal amount -23- of the Notes; provided that no such action shall change (a) the principal amount outstanding or the rate at which or the manner in which interest accrues on this Note or the times at which such interest becomes payable or (b) the Conversion Price, the Preferred Equity Price or the number of shares or the class of stock into which this Note is convertible, without the written consent of the Holder of this Note. 21. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS NOTE, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 22. JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN NEW YORK CITY, NEW YORK OR LOS ANGELES, CALIFORNIA. BY EXECUTING AND DELIVERING THIS NOTE, THE COMPANY, ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS NOTE. THE COMPANY HEREBY WAIVES ANY CLAIM THAT NEW YORK CITY, NEW YORK OR LOS ANGELES, CALIFORNIA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. 23. WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Note or the validity, protection, interpretation, collection or enforcement of this Note; AND THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF OR COUNTERCLAIM OR CROSS-CLAIM in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of or recovery upon same. THE COMPANY AGREES THAT THIS SECTION 23 IS A SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND ACKNOWLEDGES THAT THE HOLDER OF THIS NOTE WOULD NOT HAVE EXTENDED TO THE COMPANY THE LOANS -24- IN RESPECT OF WHICH THIS NOTE WAS ISSUED AND SOLD HEREUNDER IF THIS SECTION 23 WERE NOT PART OF THIS NOTE. * * * * * -25- IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the date first above written. VITALSTREAM HOLDINGS, INC. By: ____________________________________ Name: Title: [Corporate Seal] Attest: ____________________________________ Name: Title: EX-99.E 7 y82902exv99we.txt FORM OF STOCK PURCHASE WARRANT EXHIBIT E FORM OF STOCK PURCHASE WARRANT E-1 THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT, DATED AS OF NOVEMBER 1, 2002, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE OTHER PARTIES REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO A INVESTOR RIGHTS AGREEMENT, DATED AS OF NOVEMBER 26, 2002, AMONG THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH INVESTOR RIGHTS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. VITALSTREAM HOLDINGS, INC. COMMON STOCK PURCHASE WARRANT DATE OF ISSUANCE: NOVEMBER 26, 2002 CERTIFICATE NO. W- ___ FOR VALUE RECEIVED, VitalStream Holdings, Inc., a Nevada corporation (the "Company"), hereby grants to _______________, or its registered assigns (the "Registered Holder"), the right to purchase from the Company a number of shares of the Company's Common Stock equal to the Warrant Share Amount at a price per share equal to $0.34 (as adjusted from time to time hereunder, the "Exercise Price"). This Warrant was issued pursuant to a Convertible Note and Warrant Purchase Agreement, dated as of November 1, 2002 (as amended and modified from time to time, the "Note Purchase Agreement"), between the Company and the other parties referred to therein, and this Warrant is one of the "Warrants" referred to in the Note Purchase Agreement. The amount and kind of securities obtainable pursuant to the rights granted hereunder and the Exercise Price for such securities are subject to adjustment pursuant to the provisions contained in this Warrant. For income tax purposes, the fair market value of this Warrant on the date hereof is an amount equal to the product of is (i) $0.055 multiplied by (b) the Warrant Share Amount. Except as defined in Section 5 or unless otherwise indicated herein, capitalized terms used in this Warrant have the meanings ascribed to them in the Note Purchase Agreement. This Warrant is subject to the following provisions: Section 1. Exercise of Warrant. 1A. Exercise Period. The Registered Holder may exercise, in whole or in part (but not as to a fractional share of Common Stock), the purchase rights represented by this Warrant at any time and from time to time after the Date of Issuance until and including the third anniversary of the Date of Issuance (the "Exercise Period"). The Company shall give the Registered Holder written notice of the expiration of the rights hereunder at least thirty (30) days but not more than ninety (90) days prior to the end of the Exercise Period. 1B. Exercise Procedure. (i) This Warrant shall be deemed to have been exercised when the Company has received all of the following items (the "Exercise Time"): (a) a completed Exercise Agreement, substantially in the form of Exhibit A attached here, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the "Purchaser"); (b) this Warrant; (c) if this Warrant is not registered in the name of the Purchaser, an Assignment Agreement or Assignments Agreements, substantially in the form set forth as Exhibit B attached hereto, evidencing the assignment of this Warrant to the Purchaser, in which case the Registered Holder shall have complied with the provisions set forth in Section 7 of this Warrant; and (d) either (1) a check payable to the Company in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the surrender to the Company of VitalStream Securities having a Market Price equal to the Aggregate Exercise Price of the Common Stock being purchased upon such exercise (provided that for purposes of this Section 1B(i)(d), the Market Price of any note or other Debt Security -2- or any Preferred Stock shall be deemed to be equal to the aggregate outstanding principal amount or liquidation value thereof plus all accrued and unpaid interest thereon or accrued or declared and unpaid dividends thereon) or (3) a written notice to the Company that the Purchaser is exercising the Warrant (or a portion thereof) by authorizing the Company to withhold from issuance a number of shares of Common Stock issuable upon such exercise of the Warrant which when multiplied by the Market Price of the Common Stock is equal to the Aggregate Exercise Price (and such withheld shares shall no longer be issuable under this Warrant). (ii) Certificates for shares of Common Stock purchased upon exercise of this Warrant shall be delivered by the Company to the Purchaser within five (5) business days after the date of the Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall within such five (5) business day period, deliver such new Warrant to the Person designated for delivery in the Exercise Agreement. (iii) The Common Stock issuable upon the exercise of this Warrant shall be deemed to have been issued to the Purchaser at the Exercise Time, and the Purchaser shall be deemed for all purposes to have become the record holder of such Common Stock at the Exercise Time. (iv) The issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Registered Holder or the Purchaser for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. Each share of Common Stock issuable upon exercise of this Warrant shall upon payment of the Exercise Price therefor, be fully paid and non-assessable and free from all liens and charges with respect to the issuance thereof. (v) The Company shall not close its books against the transfer of this Warrant or of any share of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. The Company shall from time to time take all such action as may be necessary to assure that the par value per share of the unissued Common Stock acquirable upon exercise of this Warrant is at all times equal to or less than the Exercise Price then in effect. (vi) The Company shall assist and cooperate with any Registered Holder or Purchaser required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant (including, without limitation, making any filings required to be made by the Company). (vii) Notwithstanding any other provision hereof, if an exercise of all or any portion of this Warrant is to be made in connection with a registered public offering, the sale of the Company or any other transaction or any other event, the exercise of any portion of this Warrant may, at the election of the Holder hereof, be conditioned upon the consummation of the -3- public offering or sale of the Company in which case such exercise shall not be deemed to be effective until the consummation of such transaction or such event. (viii) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock issuable upon the exercise of all outstanding Warrants. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and non-assessable and free from all taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). The Company shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon exercise of the Warrants. 1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise Agreement shall be substantially in the form set forth as Exhibit A attached hereto, except that if the shares of Common Stock are not to be issued in the name of the Person in whose name this Warrant is registered, the Exercise Agreement shall also state the name of the Person to whom the certificates for the shares of Common Stock are to be issued, and if the number of shares of Common Stock to be issued does not include all the shares of Common Stock purchasable hereunder, it shall also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. Such Exercise Agreement shall be dated the actual date of execution thereof. 1D. Fractional Shares. If a fractional share of Common Stock would, but for the provisions of Section 1A of this Warrant, be issuable upon exercise of the rights represented by this Warrant, the Company shall, within five (5) business days after the date of the Exercise Time, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share in an amount equal to the difference between Market Price of such fractional share as of the date of the Exercise Time and the Exercise Price of such fractional share. Section 2. Adjustment of Exercise Price and Number of Shares. In order to prevent dilution of the rights granted under this Warrant, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 2, and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2. 2A. Adjustment of Exercise Price and Number of Shares upon Issuance of Common Stock. (i) If and whenever on or after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company issues or sells, or in accordance with Section 2B of this Warrant is deemed to have issued or sold, any shares of -4- Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of such issuance or sale, then immediately upon such issuance or sale the Exercise Price shall be reduced to the Exercise Price determined by multiplying the Exercise Price in effect immediately prior to such issue or sale by a fraction, the numerator of which shall be the sum of (a) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance of sale, plus (b) the consideration, if any, received by the Company upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. (ii) Upon each such adjustment of the Exercise Price hereunder, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (iii) Notwithstanding the foregoing, there shall be no adjustment to the Exercise Price or the number of shares of Common Stock obtainable upon exercise of this Warrant with respect any sale or issuance (or in accordance with Section 2B any deemed issuance or sale) of shares of its Common Stock: (a) which are included in the calculation of the number of shares of Fully Diluted Outstanding Common Stock, (b) upon issuance of any Notes pursuant to the Note Purchase Agreement, (c) upon issuance of any Warrants pursuant to the Note Purchase Agreement, (d) upon conversion of any Notes, (e) upon exercise of any Warrants, (f) upon exercise of any Options or conversion of any Convertible Securities outstanding on the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), (g) to directors or employees of, or consultants to, the Company and its Subsidiaries pursuant to stock option plans and stock ownership plans approved by the Company's board of directors (including any shares of its Common Stock issued or issuable upon exercise of Options granted pursuant to such plans), up to an aggregate of 8,000,000 shares of Common Stock (including any shares of its Common Stock issued (or in accordance with Section 2B of this Warrant is deemed to have issued or sold) pursuant to such plans before, on or after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date)) (as such number of shares is proportionately adjusted for subsequent stock splits, combinations and dividends affecting the Common Stock), (h) as a dividend or other distribution on the outstanding shares of its Common Stock (provided such dividend or other distribution causes an adjustment to the Conversion Price pursuant to Section 2C of this Warrant), (i) in connection with a stock split or subdivision of its outstanding Common Stock (provided such stock split or subdivision causes an adjustment to the Conversion Price pursuant to Section 2C of this Warrant) or (j) in connection with equipment lease financing transactions, real estate leasing transactions, strategic partnering arrangements and other similar transactions provided such issuances are (1) approved by the Company's board of directors and (2) primarily for purposes other than an Equity Securities or Debt Securities financing (including any shares of its Common Stock issued or issuable upon exercise of Options or conversion of Convertible Securities granted in connection therewith). -5- 2B. Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Section 2A of this Warrant, the following shall be applicable: (i) Issuance of Rights or Options. If the Company in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of the Common Stock as of the date of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options, or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options, shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Options for such price per share. For purposes of this Section 2B(i), the "price per share for which Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities" is determined by dividing (a) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (b) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price of the Common Stock as of the date of such issuance or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2B(ii), the "price per share for which Common Stock is issuable upon conversion or exchange thereof" is determined by dividing (a) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (b) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price had been or are to be made pursuant to other provisions of this Section 2B, no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. -6- (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issuance, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Exercise Price in effect at the time of such change shall be adjusted immediately to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock issuable hereunder shall be correspondingly adjusted provided that if such adjustment would result in an increase of the Exercise Price then in effect, such adjustment shall not be effective until 30 days after written notice thereof has been given by the Company to all Holders of the Warrants. For purposes of this Section 2B, if the terms of any Option or Convertible Security which was outstanding as of Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date) are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change; provided that no such change shall at any time cause the Exercise Price hereunder to be increased. (iv) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities shall be determined jointly by the Company and the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of such Warrants. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of such Warrants. The determination of such appraiser shall be final and binding on the Company and the Registered Holders of the Warrants, and the fees and expenses of such appraiser shall be paid by the Company. (v) Integrated Transactions. In case any Option is issued in connection with the issuance or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. -7- (vi) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (vii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 2C. Subdivision or Combination of Common Stock. If, after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately increased. If, after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased.(1) 2D. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Common Stock obtainable upon exercise of all Warrants then outstanding) to insure that each of the Registered Holders of the Warrants shall thereafter have the right to acquire and receive, in lieu of or addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such Holder's Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of such Holder's Warrant had such Organic Change not taken place. In any such case, the Company shall make appropriate provision (in - ------------ (1) For example only, (1) if the Company consummates a two for one stock split of its Common Stock, the Conversion Price shall be reduced to fifty percent of the Conversion Price theretofore in effect and (2) if the Company consummates a one for two reverse stock split of its Common Stock, the Conversion Price shall be increased to two hundred percent of the Conversion Price theretofore in effect. -8- form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Common Stock obtainable upon exercise of all Warrants then outstanding) with respect to such Holders' rights and interests to insure that the provisions of this Section 2 and Section 3 and Section 4 of this Warrant shall thereafter be applicable to the Warrants (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Exercise Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the Registered Holders of Warrants representing a majority of the Common Stock obtainable upon exercise of all of the Warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to acquire. 2E. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Holders of the Warrants; provided that no such adjustment shall increase the Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 2. 2F. Notices. (i) Immediately upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Registered Holder at least twenty (20) business days prior to the date on which the Company closes its books or takes a record (a) with respect to any dividend or distribution upon the Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Company shall also give written notice to the Registered Holders at least twenty (20) business days prior to the date on which any Organic Change, dissolution or liquidation shall take place. Section 3. Liquidating Dividends. If the Company declares or pays a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with GAAP, consistently applied) except for a stock dividend -9- payable in shares of Common Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered Holder of this Warrant at the time of payment thereof the Liquidating Dividend which would have been paid to such Registered Holder on the Common Stock had this Warrant been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 4. Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then the Registered Holder of this Warrant shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights. Section 5. Definitions. The following terms have meanings set forth below: "Asset Purchase Agreement" means that certain Asset Purchase Agreement, dated as of November 1, 2002, by and among the Company, VitalStream Broadcasting Corp., Networks and Hosting, as amended, modified, restated, superseded or replaced from time to time. "Asset Purchase Agreement Shares" means the aggregate number of shares of Common Stock issued by the Company pursuant to Section 2(c), Section 2(d), Section 2(e) and Section 2(f) of the Asset Purchase Agreement. "Common Stock" means the common stock, par value $0.001 per share, any capital stock of any class of the Company (other than any Preferred Equity Securities (as defined in the Notes) or the Conversion Preferred (as defined in the Notes)) hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Section 2B(i) and Section 2B(ii) of this Warrant regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock issuable upon exercise of the Warrants. "Convertible Securities" means any capital stock or securities (directly or indirectly) convertible into or exchangeable for Common Stock. "Date of Issuance" has the meaning set forth in Section 8 of this Warrant. -10- "Fully Diluted Outstanding Common Stock" means the sum of (a) the number of shares of Common Stock actually outstanding on the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date), as determined immediately prior to the consummation of the transactions contemplated by the Asset Purchase Agreement, (b) the number of Merger Agreement Shares, (c) the number of Option Shares and (d) the number of Asset Purchase Agreement Shares. "Hosting" means Epoch Hosting, Inc., a Delaware corporation. "Initial Closing Date" has the meaning set forth in the Asset Purchase Agreement. "Market Price" of any security means (a) if such security is listed on an exchange, the average closing price of such security on the principal exchange on which such security is listed, or, if there has been no sale on any such exchange on any day, the closing price of such security on the principal exchange on the most recent day on which sales of such security have taken place on such exchange or (b) if such security is not listed on an exchange but is quoted through the NASDAQ System, or on the domestic over-the-counter market as reported by the National Quotation Bureau, the average of the closing sales prices as reported by the NASDAQ System or the National Quotation Bureau, as applicable, over a period of 5 days consisting of the day as of which "Market Price" is being determined and the 4 consecutive business days prior to such day on which trades were reported in such security. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Company and the holders of a majority of the Underlying Common Stock. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the holders of a majority of the Underlying Common Stock. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Company. "Merger Agreement" means that certain Merger Agreement, dated as of February 13, 2002, among the Company, VitalStream, Inc., and VitalStream Operating Corporation. "Merger Agreement Shares" means the aggregate number of shares of Common Stock issued by the Company after the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the Initial Closing Date) pursuant to Section 1.4(b) of the Merger Agreement and each of Section 1.4(c)(iii), Section 1.4(c)(iv), Section 1.4(c)(v) and Section 1.4(c)(vi) (with respect to Section 1.4(c)(vi), such number of shares, as of the date hereof, is expected to be 1,752,982 shares of Common Stock, which shares of Common Stock the Company expects to issue on or about November 15, 2002) of the Merger Agreement (as each such section may be amended, modified, restated, superseded or replaced from time to time). "Merger Closing Date" means April 23, 2002. "Networks" means Epoch Networks, Inc., a California corporation. "Notes" has the meaning set forth in the Note Purchase Agreement. -11- "Options" means any rights or options to subscribe for or purchase Common Stock or Convertible Securities. "Option Shares" means the aggregate number of shares of capital stock issued by the Company pursuant to (a) that certain Option Agreement, dated as of May 10, 2002, by and between the Company and Steve Smith, as amended, modified, restated, superseded or replaced from time to time, (b) that certain Option Agreement, dated as of May 10, 2002, by and between the Company and David R. Williams, as amended, modified, restated, superseded or replaced from time to time, (c) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and Kevin Herzog, as amended, modified, restated, superseded or replaced from time to time, (d) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and David R. Williams, as amended, modified, restated, superseded or replaced from time to time, and (e) that certain Option Agreement, dated as of November 1, 2001, by and between the Company and Steve Smith, as amended, modified, restated, superseded or replaced from time to time. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other similar entity or organization or a governmental entity or any department, agency or political subdivision thereof. "Subsequent Closing" has the meaning set forth in the Asset Purchase Agreement. "Subsequent Closing Date" has the meaning set forth in the Asset Purchase Agreement. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. "Underlying Common Stock" means (a) the Common Stock issued or issuable upon exercise of the Warrants and (b) any Common Stock issued or issuable with respect to the securities referred to in clause (a) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Warrant, any Person who holds a Warrant shall be deemed to be the holder of -12- the Underlying Common Stock issuable upon exercise of such Warrant regardless of any restriction or limitation on the exercise of such Warrant, and, such Underlying Common Stock shall be deemed to be in existence and such Person shall be entitled to exercise the rights of a holder of such Underlying Common Stock hereunder. As to any particular shares of Underlying Common Stock, such shares shall cease to be Underlying Common Stock when they have been (1) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (2) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 or (3) repurchased by the Company or any of its subsidiaries. "Warrants" means this Warrant together with (a) any other "Warrants" issued pursuant to the Note Purchase Agreement and (b) any Warrants issued upon the exchange or transfer or in replacement or substitution of all or any portion of the unexpired and unexercised purchase rights of such Warrants. "Warrant Share Amount" means the product of (a) 0.899, (b) 0.18 and (c) the difference between (1) the Fully Diluted Outstanding Common Stock divided by 0.868 minus (2) the Fully Diluted Outstanding Common Stock. Other capitalized terms used in this Warrant but not defined herein shall have the meanings set forth in the Note Purchase Agreement. Section 6. No Voting Rights; Limitations of Liability. Except as provided in the Investor Rights Agreement and Note Purchase Agreement, this Warrant shall not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Common Stock, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such Holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a stockholder of the Company. Section 7. Warrant Transferable. Subject to the transfer conditions referred to in the legend endorsed hereon, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Registered Holder, upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit B attached hereto) at the principal office of the Company. Section 8. Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. The date the Company initially issues this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. Section 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and -13- the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the Holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 10. Notices. Except as otherwise expressly provided herein, all notices or other communications to be given or delivered under or by reason of the provisions of this Warrant shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices and other communications shall be sent to (i) the Company, at its principal executive offices and (ii) the Registered Holder of this Warrant, at such Registered Holder's address as it appears in the records of the Company (unless otherwise indicated by any such Registered Holder). Section 11. Descriptive Headings; Interpretation. Section headings used in this Warrant are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Warrant. The use of the word "including" or any variation or derivative thereof in this Warrant is by way of example rather than by limitation. Section 12. Business Days. If any payment is due, or any time period for giving notice or taking action expires, on a day which is a Saturday, Sunday or legal holiday in the State of New York or the State of California, the payment shall be due and payable on, and the time period shall automatically be extended to, the next business day immediately following such Saturday, Sunday or legal holiday, and interest shall continue to accrue at the required rate hereunder until any such payment is made. Section 13. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants; provided that no such action may change the Exercise Price of the Warrants or the number of shares or class of stock obtainable upon exercise of each Warrant without the written consent of the Registered Holder of that Warrant subject to such action. SECTION 14. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND -14- INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS WARRANT, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. SECTION 15. JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY WITH RESPECT TO THIS WARRANT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN NEW YORK CITY, NEW YORK OR LOS ANGELES, CALIFORNIA. BY EXECUTING AND DELIVERING THIS WARRANT, THE COMPANY, ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS WARRANT. THE COMPANY HEREBY WAIVES ANY CLAIM THAT NEW YORK CITY, NEW YORK OR LOS ANGELES, CALIFORNIA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SECTION 16. WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Warrant or the validity, protection, interpretation, collection or enforcement of this Warrant; AND THE COMPANY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF OR COUNTERCLAIM OR CROSS-CLAIM in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of or recovery upon same. THE COMPANY AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS WARRANT AND ACKNOWLEDGES THAT THE HOLDER OF THIS WARRANT WOULD NOT HAVE PURCHASED THIS WARRANT IF THIS SECTION WERE NOT PART OF THIS WARRANT. * * * * * -15- IN WITNESS WHEREOF, the Company has executed and delivered this Warrant as of the date first above written. VITALSTREAM HOLDINGS, INC. By: _______________________ Name: Title: [Corporate Seal] Attest: ______________________________________ Name: Title: EX-99.F 8 y82902exv99wf.txt INVESTOR RIGHTS AGREEMENT EXHIBIT F INVESTORS RIGHTS AGREEMENT F-1 INVESTOR RIGHTS AGREEMENT DATED AS OF NOVEMBER 26, 2002 AMONG VITALSTREAM HOLDINGS, INC., AND THE COMMON STOCKHOLDERS, CONVERTIBLE NOTEHOLDERS AND WARRANT HOLDERS OF VITALSTREAM HOLDINGS, INC. REFERRED TO HEREIN TABLE OF CONTENTS 1. DEFINITIONS................................................................... 2 2. PREEMPTIVE RIGHTS............................................................. 5 3. BOARD OF DIRECTORS............................................................ 6 4. BOARD OF DIRECTOR OBSERVATION RIGHTS.......................................... 7 5. REPRESENTATIONS AND WARRANTIES; COVENANTS..................................... 8 6. TRANSFERS..................................................................... 8 7. TRANSFERS IN VIOLATION OF AGREEMENT........................................... 8 8. LEGEND........................................................................ 8 9. ENTIRE AGREEMENT.............................................................. 9 10. SUCCESSORS AND ASSIGNS........................................................ 9 11. COUNTERPARTS.................................................................. 9 12. DESCRIPTIVE HEADINGS; INTERPRETATION.......................................... 9 13. NOTICES; BUSINESS DAYS........................................................ 9 14. AMENDMENT AND WAIVER; EFFECTIVENESS AND BINDING NATURE OF THIS AGREEMENT...... 10 15. SEVERABILITY.................................................................. 10 16. NO STRICT CONSTRUCTION........................................................ 10 17. GOVERNING LAW................................................................. 11 18. WAIVER OF RIGHT TO JURY TRIAL................................................. 11
INVESTOR RIGHTS AGREEMENT This INVESTOR RIGHTS AGREEMENT, dated as of November 26, 2002 (this "Agreement"), is by and among VitalStream Holdings, Inc. a Nevada corporation (the "Company"), the holders of Common Stock listed on the Schedule of Common Stockholders attached hereto (including such other holders of Common Stock who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Common Stockholders) (the "Common Stockholders"), the holders of Convertible Notes listed on the Schedule of Convertible Noteholders attached hereto (including such other holders of Convertible Notes who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Convertible Noteholders attached hereto) (the "Convertible Noteholders"), and the holders of Warrants listed on the Schedule of Warrant Holders attached hereto (including such other holders of Warrants who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Warrant Holders attached hereto) (the "Warrant Holders"). Unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings set forth in Section 1 hereof. RECITALS WHEREAS, reference is made to that certain Asset Purchase Agreement, dated as of November 1, 2002 (as amended and modified from time to time, the "Asset Purchase Agreement"), by and among the Company, the Buyer and Hosting pursuant to which the Buyer shall, subject to the closing of the transaction contemplated by the Asset Purchase Agreement, acquire substantially all of the assets and assumed certain liabilities of Hosting in consideration for the issuance of shares of Common Stock by the Company to Hosting. WHEREAS, reference is also made to that certain Note and Warrant Purchase Agreement, dated as of November 1, 2002 (as amended and modified from time to time, the "Note and Warrant Purchase Agreement"), by and among the Company and those purchasers of Convertible Notes and Warrants referred to therein pursuant to which the Company sold and the purchasers purchased the Convertible Notes and Warrants. WHEREAS, pursuant to the Note and Warrant Purchase Agreement, the Company issued shares of Common Stock to the purchasers of Convertible Notes and Warrants referred to therein as payment of a commitment fee due and payable upon the closing of the transactions contemplated by the Note and Warrant Purchase Agreement. WHEREAS, in order to induce the parties hereto to consummate the transactions contemplated by each of the Asset Purchase Agreement and the Note and Warrant Purchase Agreement, the Company, the Common Stockholders, the Convertible Noteholders and the Warrant Holders have agreed to enter into this Agreement for the purposes, among others, of (a) establishing the composition of the Board of Directors and (b) assuring continuity in the management and ownership of the Company. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Note and Warrant Purchase Agreement and Asset Purchase Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Definitions. "Affiliate" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. "Agreement" has the meaning set forth in the preamble of this Agreement. "Asset Purchase Agreement" has the meaning set forth in the recitals of this Agreement. "Board of Directors" means the board of directors of the Company. "Buyer" means VitalStream Broadcasting Corporation, a Nevada corporation. "Common Stock" means (a) the Common Stock, par value $0.001 per share, of the Company as more fully described in the certificate of incorporation of the Company and any capital stock or other Equity Security of any class of the Company (other than any Preferred Equity Securities or the Series A Preferred) hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company and (b) any capital stock or other Equity Securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clause (a) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. "Common Stockholders" has the meaning set forth in the preamble to this Agreement. "Company Security" means any Debt Security or Equity Security of the Company. "Company" has the meaning set forth in the preamble of this Agreement. "Convertible Noteholders" has the meaning set forth in the preamble to this Agreement. "Convertible Notes" means the 10% Convertible Promissory Notes of the Company issued pursuant to the Note and Warrant Purchase Agreement. -2- "Debt Securities" means any note, bond, debenture or other instrument or security evidencing Indebtedness. "Dolphin" means Dolphin Fund II. "Dolphin Communications II" means Dolphin Communications Fund II, L.P. "Dolphin Director" has the meaning set forth in Section 3 of this Agreement. "Dolphin Fund II" means Dolphin Communications II and Dolphin Parallel II. "Dolphin Holders" means Dolphin and any Affiliate of Dolphin that holds Stockholder Shares. "Dolphin Parallel II" means Dolphin Communications Parallel Fund II (Netherlands), L.P. "Equity Securities" means (a) any capital stock or other equity securities, (b) any securities, directly or indirectly, convertible into or exchangeable for any capital stock or other equity securities or containing any profit participation features, (c) any warrants, options or other rights, directly or indirectly, to subscribe for or to purchase any capital stock, other equity securities or securities containing any profit participation features or, directly or indirectly, to subscribe for or to purchase any securities, directly or indirectly, convertible into or exchangeable for any capital stock, other equity securities or securities containing profit participation features, or (d) any stock appreciation rights, phantom stock rights or other similar rights. "Governmental Entity" means individually, and "Governmental Entities" means collectively, the United States of America, any foreign country and any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government, including any court. "Holders" means the Common Stockholders, the Convertible Noteholders and the Warrant Holders. "Hosting" means Epoch Hosting, Inc., a Delaware corporation. "Indebtedness" means, at a particular time, without duplication, (a) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (b) any indebtedness evidenced by any Debt Security, (c) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business), (d) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (e) any indebtedness guaranteed in any manner by a Person (including, without limitation, guaranties in the form of an agreement to repurchase or reimburse), (f) any obligations under capitalized leases and (g) any indebtedness secured by a lien on a Person's assets. -3- "Laws" means all constitutions, statutes, laws, treaties, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions, acts, determinations, directions or decrees of any Governmental Entity. "Notes" means those certain 10% convertible promissory notes issued by Company pursuant to the Note and Warrant Purchase Agreement. "Note and Warrant Purchase Agreement" has the meaning set forth in the preamble to this Agreement. "Observer" has the meaning set forth in Section 4 of this Agreement. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or any other similar entity or organization or a governmental entity or any department, agency or political subdivision thereof. "Preferred Equity Securities" means any Equity Security of the Company (other than the Series A Preferred) that ranks senior to the Common Stock as to dividends or the distribution of assets upon any liquidation, dissolution or winding up of the Company, or any Debt Security that is issued with any Equity Security. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force and the rules promulgated thereunder. "Series A Preferred" means the 2002 Series A Preferred Stock, $0.001 par value, of the Company. "Stockholder Shares" means (a) any Common Stock issued pursuant to the Asset Purchase Agreement or the Note and Warrant Purchase Agreement, (b) any Common Stock issued or issuable, directly or indirectly, upon conversion of the Convertible Notes, (c) any Common Stock issued or issuable, directly or indirectly, upon exercise of the Warrants, (d) any Common Stock purchased or otherwise acquired by any holder of the Common Stock referred to in clauses (a), (b) or (c) above and (e) any capital stock or other Equity Securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clauses (a), (b), (c) or (d) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, (i) any Person who holds Convertible Notes shall be deemed to be the holder of the Stockholder Shares obtainable upon conversion of such Convertible Notes regardless of any restriction or limitation on the conversion thereof and (ii) any Person who holds Warrants shall be deemed to be the holder of the Stockholder Shares obtainable upon exercise of such Warrants regardless of any restriction or limitation on the exercise thereof and, with respect to both clause (i) and (ii) above, such Stockholder Shares shall be deemed to be in existence, and such Person shall be entitled to exercise the rights of a holder of Stockholder Shares hereunder. In addition, for purposes of this Agreement, any Person who holds Stockholder Shares as a result of a Transfer of Stockholder Shares shall be deemed to be the holder of Stockholder Shares. -4- "Subsequent Closing Date" has the meaning set forth in the Note and Warrant Purchase Agreement. "Subsidiary Board of Directors" has the meaning set forth in Section 3 of this Agreement. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. Notwithstanding the foregoing, "Subsidiary" shall not include any entity that does not have any operations, assets or liabilities. "Transfer" means a sale, assignment, transfer, pledge, encumbrance or other disposition. "Warrant Holders" has the meaning set forth in the preamble to this Agreement. "Warrants" means those certain warrants to purchase shares of the Company's Common Stock issued pursuant to the Note and Warrant Purchase Agreement. 2. Preemptive Rights. (a) If, at any time during the three-year period beginning on the Subsequent Closing Date (or, if the Subsequent Closing is not consummated, the date hereof), the Company shall issue any Preferred Equity Securities (including Preferred Equity Securities issued or sold together with any Debt Security), each Holder of Stockholder Shares shall be entitled to purchase the same proportion of such Preferred Equity Securities to be issued necessary in order that the aggregate shares of Common Stock beneficially held by such holder constitute the same percentage of all Common Stock (assuming, in each case, the conversion, exercise or exchange of all outstanding Company Securities, including outstanding Company Securities held by such Holder), after the issuance of such Preferred Equity Securities as before the issuance thereof. (b) A Holder of Stockholder Shares may exercise his or its right under this Section 2 to purchase Preferred Equity Securities by providing written notice to the Company, and by paying the purchase price therefor at the principal office of the Company within 45 days, after the receipt of notice from the Company (which notice by the Company shall be given at -5- least 45 days before the issuance of the Preferred Equity Securities) stating the amount of Preferred Equity Securities the Company intends to issue and the price and characteristics thereof. Each Holder of Stockholder Shares exercising his or its rights under this Section 2 shall pay such purchase price in immediately available funds. Each Holder of Stockholder Shares' contractual preemptive rights under this Section 2 shall be deemed to be exercised immediately prior to the close of business on the day of payment of the purchase price in accordance with the foregoing provisions, and at such time such Holder shall be treated for all purposes as the record holder of the Preferred Equity Securities, as the case may be. As promptly as practicable (and in any event within 10 days) on or after the purchase date, the Company shall issue and deliver at its principal office a certificate or certificates for the number of full shares or amount, whichever is applicable, of Preferred Equity Securities together with cash for any fraction of a share or portion of a Preferred Equity Security at the purchase price to which the Holder of Stockholder Shares is entitled hereunder. 3. Board of Directors. (a) At any time and from time to time until the Notes have been paid in full, each Holder shall vote all of its Company Securities now or hereafter owned by such Holder with voting rights or over which such Holder has voting control, and shall take all other necessary or desirable actions within its control (whether in its capacity as a stockholder, director, member of the Board of Directors or any committee thereof (but not if such action would be a breach of any fiduciary duty imposed by applicable Law), officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary or desirable actions within its control (including, without limitation, calling special Board of Directors and stockholder meetings), so that: (i) one individual (who initially shall be Salvatore Tirabassi) designated by the Dolphin Holders owning a majority of the Stockholder Shares held by all Dolphin Holders (the "Dolphin Director") shall be nominated for election and elected to the Board of Directors at the Company's next annual meeting, which shall be held no later than January 31, 2003, for a term of three (3) years; (ii) in the event that on the date of termination of the Dolphin Director's three (3) year term pursuant to Section 3(a)(i), payment in full of all obligations under the Notes has not been made, then the Dolphin Director shall be elected to the Board of Directors for a second term which shall begin on the date of termination of the initial three-year term referred to in clause (i) above and continue until payment in full of all obligations under the Notes has been made (at which time such Dolphin Director shall, if requested by the Company, resign); (iii) at any time the Dolphin Director is entitled to serve on the Board of Directors, the composition of the board of directors of each of the Company's Subsidiaries (each, a "Subsidiary Board of Directors") shall include the Dolphin Director; (iv) to the extent permitted under applicable Law and any exchange on which any Company Securities may be listed, any committees of the Board of Directors -6- or a Subsidiary Board of Directors shall be created only upon the unanimous approval of the members of the Board of Directors and the composition of each such committee (if any) shall be proportionately equivalent to that of the Board of Directors; (v) to the extent permitted under applicable Law and any exchange on which any Company Securities may be listed, the removal from the Board of Directors or any Subsidiary Board of Directors (with or without cause) of the Dolphin Director shall be at the written request of the Dolphin Holders holding a majority of the Stockholder Shares held by all Dolphin Holders but only upon such written request and under no other circumstances; and (vi) in the event that the Dolphin Director ceases to serve as a member of the Board of Directors or any Subsidiary Board of Directors during his term of office (whether by death, resignation or removal), the resulting vacancy on the Board of Directors shall be filled by an individual designated by the Dolphin Holders owning a majority of the Stockholder Shares held by all Dolphin Holders. (b) The Company shall pay the reasonable out-of-pocket expenses incurred by the Dolphin Director in connection with attending the meetings of the Board of Directors, any Subsidiary Board of Directors and any committee of any of the foregoing. (c) If the Dolphin Holders owning a majority of the Stockholder Shares held by all Dolphin Holders fail to designate an individual to fill the Dolphin directorship pursuant to the terms of this Section 3, the individual previously holding such directorship shall be elected to such position, or if such individual fails or declines to serve, the election of an individual to such directorship shall be accomplished in accordance with the Company's bylaws and applicable law; provided that each Holder shall vote all Company Securities now or hereafter owned by such Holder with voting rights or over which such Holder has voting control to remove such individual if the party which failed to designate such directorship so directs. (d) In the event that any Holder shall fail to vote all shares of Company Securities now or hereafter owned by such Holder with voting rights over which such Holder has voting control so as to achieve any election or removal of an Dolphin Director, as set forth in this Section 3, such Holder shall be deemed immediately upon the existence of such a breach to have granted to the Chairman of the Board of Directors (or, if no Chairman of the Board of Directors has been elected, the chief executive officer of the Company), a proxy to all shares of Company Securities now or hereafter owned by such Holder with voting rights or over which such Holder has voting control to ensure that all such shares or other securities will be voted as prescribed in this Section 3 of this Agreement. Each Holder acknowledges that each proxy granted hereby, including any successive proxy, is given to secure the performance of a duty and shall be irrevocable until the duty is performed. 4. Board of Director Observation Rights. At any time prior to the payment in full of the Notes that (i) any Dolphin Holders continue to hold any Stockholder Shares and (ii) the Dolphin Director is not a member of the Board of Directors, VitalStream shall give Dolphin written notice of each meeting of the Board of Directors (and any committees thereof), at the same time and in the same manner as notice is given to the directors of the Board of Directors, -7- and VitalStream shall permit one representative selected by Dolphin (the "Observer") to attend, as an observer, all such meetings. The Observer shall be entitled to receive all written materials and other information (including, without limitation, copies of meeting minutes) given to directors of the Board of Directors (and any committees thereof) in connection with such meetings at the same time such materials and information are given to such directors. VitalStream shall provide a copy of any proposed action by written consent in lieu of a meeting of directors of VitalStream to the Observer prior to the effective date upon delivery to the members of the Board of Directors of such consent describing in reasonable detail the nature and substance of such action. 5. Representations and Warranties; Covenants. Each Holder represents and warrants that (a) as of the date hereof such Holder is the record owner of the number of shares or principal amount of the Company Securities held by such Holder as of the date hereof as set forth in the Schedules to this Agreement; (b) this Agreement has been duly authorized, executed and delivered by such Holder and constitutes the valid and binding obligation of such Holder, enforceable in accordance with its terms; and (c) such Holder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. No Holder shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. 6. Transfers. Prior to transferring any Company Securities to any Person, the transferring Holder shall cause the prospective transferee to be bound by this Agreement and to execute and deliver to the Company and the Holders a counterpart signature page of this Agreement. So long as any such Transfer is made in accordance with the provisions of this Agreement, the transferee shall be deemed a Holder of such Company Securities within the meaning of this Agreement. 7. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Holder in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Company Security as the owner of such Company Security for any purpose. 8. Legend. Each instrument evidencing Common Stock, Convertible Notes and Warrants held by a Person who is a signatory to this Agreement, and each instrument issued in exchange for or upon the Transfer of any Stockholder Shares, Convertible Notes and Warrants and held by a Person who is a signatory to this Agreement shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO AN INVESTOR RIGHTS AGREEMENT, DATED AS OF NOVEMBER 26, 2002, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND THE STOCKHOLDERS OF THE COMPANY REFERRED TO THEREIN, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH INVESTOR RIGHTS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE -8- COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST. 9. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 10. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Holders and any subsequent holders of Stockholder Shares, Convertible Notes or Warrants and the respective successors and assigns of each of them, so long as they hold any Stockholder Shares, Convertible Notes or Warrants. 11. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 12. Descriptive Headings; Interpretation. Section headings used herein are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. The use of the word "including" or any variation or derivative thereof in this Agreement is by way of example rather than by limitation. 13. Notices; Business Days. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to (a) a Common Stockholder at the address indicated on the Schedule of Common Stockholders, (b) a Convertible Noteholder at the address indicated on the Schedule of Convertible Noteholders, (c) a Warrant Holder at the address indicated on the Schedule of Warrant Holders and (d) the Company at the address indicated below: -9- VitalStream Holdings, Inc. One Jenner, Suite 100 Irvine, California 92618 Facsimile: 949-453-8686 Attention: Philip N. Kaplan, Chief Operating Officer with a copy (which shall not constitute notice to the Company) to: Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile: (801) 578-6999 Attention: Bryan T. Allen, Esq. or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. If any time period for giving notice or taking action expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday. 14. Amendment and Waiver; Effectiveness and Binding Nature of this Agreement. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Holders unless such modification, amendment or waiver is approved in writing by (a) the Company, (b) the holders of a majority of the Common Stock (other than any Common Stock which constitute Stockholder Shares) and (c) the Dolphin Holders owning a majority of the Stockholder Shares held by all Dolphin Holders. Notwithstanding the foregoing, without the consent of any other Person, the Company may restate any schedule to this Agreement so that it more accurately reflects the holders of securities of the type in question and/or to change the addresses for notice to any Person at such Person's request. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 15. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 16. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, -10- and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 17. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SECURITYHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. 18. WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND EACH OF THE HOLDERS HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Agreement or the validity, protection, interpretation, collection or enforcement hereof; AND THE COMPANY AND EACH OF THE HOLDERS HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff would permanently preclude the prosecution of or recovery upon same. THE COMPANY AGREES THAT THIS SECTION 18 IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE HOLDERS WOULD NOT HAVE ENTERED INTO THIS AGREEMENT IF THIS SECTION 18 WERE NOT PART OF THIS AGREEMENT. * * * * * -11- IN WITNESS WHEREOF, the parties have executed this Investor Rights Agreement as of the date first written above. VITALSTREAM HOLDINGS, INC. By: /s/ Paul Summers ---------------------------- Name: Paul Summers Title: President COMMON STOCKHOLDERS EPOCH HOSTING, INC. By: /s/ Karen Muller ---------------------------- Name: Karen Muller Title: Secretary DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President [SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT] COMMON STOCKHOLDERS (CONT'D) /s/ Paul Summers ------------------------------------------- Paul Summers /s/ Philip N. Kaplan ------------------------------------------- Philip N. Kaplan /s/ David Williams ------------------------------------------- David R. Williams /s/ Steve Smith ------------------------------------------- Steve Smith /s/ Kevin Herzog ------------------------------------------- Kevin Herzog -2- [SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT] CONVERTIBLE NOTEHOLDERS DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President -3- [SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT] WARRANT HOLDERS DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka -------------------------------- Name: Richard J. Brekka Title: President -4- EX-99.G 9 y82902exv99wg.txt REGISTRATION AGREEMENT EXHIBIT G REGISTRATION AGREEMENT G-1 REGISTRATION AGREEMENT DATED AS OF NOVEMBER 26, 2002 AMONG VITALSTREAM HOLDINGS, INC. AND THE COMMON STOCKHOLDERS, CONVERTIBLE NOTEHOLDERS AND WARRANT HOLDERS OF VITALSTREAM HOLDINGS, INC. REFERRED TO HEREIN TABLE OF CONTENTS 1. DEFINITIONS.................................. 2 2. DEMAND REGISTRATIONS......................... 3 3. PIGGYBACK REGISTRATIONS...................... 5 4. HOLDBACK AGREEMENTS.......................... 6 5. REGISTRATION PROCEDURES...................... 6 6. REGISTRATION EXPENSES........................ 9 7. INDEMNIFICATION.............................. 10 8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.. 11 9. MISCELLANEOUS................................ 11
REGISTRATION AGREEMENT REGISTRATION AGREEMENT, dated as of November 26, 2002 (this "Agreement"), by and among VitalStream Holdings, Inc., a Nevada corporation (the "Company"), the holders of Common Stock listed on the Schedule of Common Stockholders attached hereto (including such other holders of Common Stock who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Common Stockholders) (the "Common Stockholders"), the holders of Convertible Notes listed on the Schedule of Convertible Noteholders attached hereto (including such other holders of Convertible Notes who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Convertible Noteholders attached hereto) (the "Convertible Noteholders"), and the holders of Warrants listed on the Schedule of Warrant Holders attached hereto (including such other holders of Warrants who may from time to time become parties hereto after the date hereof and be listed on the Schedule of Warrant Holders attached hereto) (the "Warrant Holders"). WHEREAS, reference is made to that certain Asset Purchase Agreement, dated as of November 1, 2002 (as amended and modified from time to time, the "Asset Purchase Agreement"), by and among the Company, VitalStream Broadcasting Corporation (the "Buyer"), Epoch Hosting, Inc. ("Hosting") and Epoch Networks, Inc. ("Networks") pursuant to which the Buyer acquired substantially all of the assets and assumed certain liabilities used in the conduct by Hosting and Networks of their Hosting Businesses (as defined in the Asset Purchase Agreement) in consideration for the issuance of shares of Common Stock by the Company to Hosting. WHEREAS, reference is also made to that certain Note and Warrant Purchase Agreement, dated as of November 1, 2002 (as amended and modified from time to time, the "Note and Warrant Purchase Agreement"), by and among the Company and the purchasers referred to therein pursuant to which the Company sold and the purchasers purchased the Convertible Notes and Warrants. WHEREAS, pursuant to the Note and Warrant Purchase Agreement, the Company issued shares of Common Stock to the purchasers of Convertible Notes and Warrants referred to therein as payment of a commitment fee due and payable upon the closing of the transactions contemplated by the Note and Warrant Purchase Agreement. WHEREAS, to induce the parties hereto to consummate the transactions contemplated by the Asset Purchase Agreement and the Note and Warrant Purchase Agreement, the Company, the Common Stockholders, the Convertible Noteholders and the Warrant Holders have agreed to enter into this Agreement for the purposes of providing for registration rights for Common Stock held by such holders. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Except as defined in this Section 1 or unless otherwise indicated herein, capitalized terms used in this Agreement have the meanings ascribed to them in the Asset Purchase Agreement or the Note and Warrant Purchase Agreement, as the case may be. "Common Stock" means the Common Stock, par value $0.001 per share, of the Company as more fully described in the certificate of incorporation of the Company. "Convertible Notes" means those certain 10% Convertible Promissory Notes of the Company issued to certain purchasers pursuant to the Note and Warrant Purchase Agreement. "Dolphin" means Dolphin Fund II. "Dolphin Communications II" means Dolphin Communications Fund II, L.P. "Dolphin Fund II" means Dolphin Communications II and Dolphin Parallel II. "Dolphin Holders" means Dolphin and any Affiliate of Dolphin that holds Registrable Securities. "Dolphin Parallel II" means Dolphin Communications Parallel Fund II (Netherlands), L.P. "Registrable Securities" means (a) any Common Stock issued pursuant to the Note and Warrant Purchase Agreement, (b) any Common Stock issued or issuable, directly or indirectly, upon conversion of the Convertible Notes, (c) any Common Stock issued or issuable, directly or indirectly, upon exercise of the Warrants and (d) any capital stock or other Equity Securities issued or issuable directly or indirectly with respect to the Common Stock referred to in clauses (a), (b) or (c) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities, when (i) they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force), (ii) the holder of such Registrable Securities can sell all, but not less than all, of the Registrable Securities held by such holder to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) without exceeding such volume limitations under such rule, or (iii) six years after the date of this Agreement. For purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities, and such Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Registrable Securities hereunder. In addition, for purposes of this Agreement, any Person who holds Registrable Securities as a result of a transfer of Registrable Securities shall be deemed to be the holder of Registrable Securities. -2- "Registration Expenses" shall have the meaning set forth in Section 6(a). "Warrants" means those certain warrants to purchase shares of the Company's Common Stock issued pursuant to the Note and Warrant Purchase Agreement. 2. Demand Registrations. (a) Requests for Registration. (i) At any time and from time to time after the first anniversary of the Closing Date (as defined in the Note and Warrant Purchase Agreement), the Dolphin Holders owning a majority of the Registrable Securities held by all Dolphin Holders may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration ("Long-Form Registrations"), and (ii) at any time and from time to time after the first anniversary of the Closing Date (as defined in the Note and Warrant Purchase Agreement), the holders of a majority of the Registrable Securities held by all Dolphin Holders may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations"), if available; provided, however, that respect to Section 2(a)(i) and Section 2(a)(ii) above, in the event the Company files with the Securities and Exchange Commission a registration statement requesting registration of securities (other than any post-effective amendment to any registration statement filed by the Company prior to the date hereof; provided that such post-effective amendment does not increase the number of shares of Common Stock registered by such registration statement) (whether on behalf of itself or any third Person), the limitation on registration requests until the first anniversary of the Closing Date (as defined in the Note and Warrant Purchase Agreement) set forth in Section 2(a)(i) and Section 2(a)(ii) above shall immediately cease and the Dolphin Holders owning a majority of the Registrable Securities held by all Dolphin Holders may request registration under the Securities Act in accordance with the provisions of this Agreement. All registrations requested pursuant to this Section 2(a) are referred to herein as "Demand Registrations". Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered (which shall be no fewer than the lesser of (i) Registrable Securities with a Market Price of $3,000,000, or (ii) 25% of the outstanding Registrable Securities), the anticipated per share price range for such offering and the intended method of distribution. Within ten (10) days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to the terms of Section 2(d) hereof, shall include in such registration (and in all related registrations and qualifications under state blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after the receipt of the Company's notice. (b) Long-Form Registrations. The Dolphin Holders shall be entitled to request two (2) Long-Form Registrations in which the Company shall pay all Registration Expenses. A registration shall not count as one of the permitted Long-Form Registrations until it has become effective, and any Long-Form Registration shall not count as one of the permitted Long-Form Registrations unless the holders of Registrable Securities are able to register and sell at least 90% of the Registrable Securities requested to be included in such registration; provided that in any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Long-Form Registration whether or not it has become effective and -3- whether or not such registration has counted as one of the permitted Long-Form Registrations. All Long-Form Registrations shall be underwritten registrations. (c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to Section 2(b), the holders of Registrable Securities shall be entitled to request an unlimited number of Short-Form Registrations in which the Company shall pay all Registration Expenses. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form and if the managing underwriters (if any) agree to the use of a Short-Form Registration. The Company shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Registrable Securities. (d) Priority on Demand Registrations. The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of at least a majority of the Registrable Securities initially requesting such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities initially requesting registration, the Company shall include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the respective holders thereof on the basis of the amount of Registrable Securities owned by each such holder. (e) Restrictions on Long-Form Registrations. The Company shall not be obligated to effect any Demand Registration within 180 days after the effective date of a previous Demand Registration. The Company may postpone for up to 180 days the filing or the effectiveness of a registration statement for a Demand Registration if the Company's board of directors determines in its reasonable good faith judgment that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the Ordinary Course of Business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event, the holders of Registrable Securities initially requesting such Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all Registration Expenses in connection with such registration. The Company may delay a Demand Registration hereunder only once in any twelve-month period. (f) Selection of Underwriters. Within thirty (30) days following submission of a request for registration pursuant to this Agreement, the Company shall choose the managing underwriter administering the offering of any Registrable Securities registered pursuant to this Agreement, which managing underwriter shall be a nationally recognized or regionally recognized investment bank. In the event that the Company fails to choose the managing underwriter within such thirty (30) period, the holders of a majority of the Registrable Securities -4- initially requesting registration hereunder shall have the right to select the managing underwriter to administer the offering. (g) Other Registration Rights. The Company represents and warrants that, except for the agreements disclosed on Schedule 3(l) to the Asset Purchase Agreement (the "Other Registration Rights Agreements"), it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other Person with respect to any securities of the Company. Except as provided in this Agreement, the Company shall not grant to any Person the right to request the Company to register any Equity Securities of the Company, or any securities convertible or exchangeable into or exercisable for Equity Securities of the Company, without the prior written consent of the holders of at least a majority of the Registrable Securities held by all Dolphin Holders; provided that the Company may grant rights to other Persons to (i) participate in Piggyback Registrations so long as such rights are subordinate to the rights of the holders of Registrable Securities with respect to such Piggyback Registrations as set forth in Section 3(c) and Section 3(d) hereof and (ii) request registrations so long as the holders of Registrable Securities are entitled to participate in any such registrations with such Persons pro rata on the basis of the number of shares owned by each such holder. 3. Piggyback Registrations. (a) Right to Piggyback. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a Demand Registration) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company shall give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to the terms of Section 3(c) and Section 3(d) hereof, shall include in such registration (and in all related registrations or qualifications under blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within twenty (20) days after the receipt of the Company's notice. (b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations. (c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. (d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of -5- securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration, the Company shall include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of securities so requested to be included therein, and (ii) second, other securities requested to be included in such registration. (e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering must be approved by the holders of a majority of the Registrable Securities held by all Dolphin Holders included in such Piggyback Registration. Such approval shall not be unreasonably withheld or delayed. (f) Other Registrations. Unless required to do so by the terms of one or more of the Other Registration Rights Agreements, if the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Section 2 or pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected any other registration of any of its Equity Securities or securities convertible or exchangeable into or exercisable for its Equity Securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least one 180 days has elapsed from the effective date of such previous registration. 4. Holdback Agreements. (a) Each holder of Registrable Securities shall not effect any public sale or distribution (including sales pursuant to Rule 144) of Equity Securities of the Company during the seven (7) days prior to and the ninety (90) day period beginning on the effective date of any underwritten Demand Registration (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. (b) The Company (i) shall not effect any public sale or distribution of its Equity Securities, during the seven (7) days prior to and during the ninety (90) day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) shall cause each holder of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering or pursuant to a right to purchase Common Stock existing on the date hereof) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 5. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the -6- Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof and pursuant thereto the Company shall as expeditiously as possible: (a) prepare and file with the Securities and Exchange Commission a registration statement, and all amendments and supplements thereto and related prospectuses as may be necessary to comply with applicable securities laws, with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel); (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; -7- (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system, the OTC Bulletin Board or any successor to the OTC Bulletin Board; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities held by all Dolphin Holders being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and (k) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; (l) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order; and (m) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; -8- 6. Registration Expenses. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration, qualification and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), shall be borne as provided in this Agreement, except that the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system, the OTC Bulletin Board or any successor to the OTC Bulletin Board, and the underwriting expenses (including discounts and commissions of the Company but excluding discounts and commissions of any other Person) with respect to Piggy Back Registrations in which the Company has elected to engage an underwriter. (b) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities held by all Dolphin Holders initially requesting such registration (the "Dolphin Counsel") and for the reasonable fees and disbursements of each additional counsel retained by any holder of Registrable Securities for the purpose of rendering a legal opinion on behalf of such holder in connection with any underwritten Demand Registration or Piggyback Registration, provided, however, that the Company shall not be obligated to reimburse (i) the holders with respect to the Dolphin Counsel for more than $25,000 (and the counsels of all other holders for more than $10,000 in the aggregate) in connection with any Demand Registration or Piggyback Registration on Form S-1 or any similar long-form registration and (ii) the holders with respect to the Dolphin Counsel for more than $13,000 (and the counsels of all other holders for more than $5,000) in connection with any Demand Registration or Piggyback Registration on Form S-2 or S-3 or any similar short-form registration (provided that such Demand Registration or Piggyback Registration on Form S-2 or S-3 does not involve the preparation of any registration statement, prospectus or similar disclosure document containing substantially the information generally set forth in a registration statement on Form S-1). (c) To the extent Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration hereunder shall pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable shall be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. -9- 7. Indemnification. (a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, actions, damages, liabilities and expenses caused by (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and to pay to each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act), as incurred, any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall -10- not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party. No indemnifying party, in the defense of such claim or litigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 8. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) No Inconsistent Agreements; Entire Agreement. The Company shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. (b) Adjustments Affecting Registrable Securities. The Company shall not take any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce such rights specifically to recover damages caused by -11- reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that, in addition to any other rights and remedies existing in its favor, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement. (d) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the holders of Registrable Securities may be transferred or assigned (but only with all related obligations) by a holder of Registrable Securities to a transferee or assignee of such Registrable Securities, provided: (i) such transferee or assignee shall agree in writing to be bound by and subject to the terms and conditions of this Agreement and (ii) such transfer or assignment shall be effective only upon the receipt by the Company of written notice of such transfer or assignment. (e) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. (f) Descriptive Headings; Interpretation. Section headings used herein are for convenience only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. The use of the word "including" or any variation or derivative thereof in this Agreement is by way of example rather than by limitation. (g) Notices; Business Days. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be given by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly given unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to (i) a Convertible Noteholder at the address indicated on the Schedule of Convertible Noteholders, (ii) a Warrant Holder at the address indicated on the Schedule of Warrant Holders, (iii) a Common Stockholder at the address indicated on the Schedule of Common Stockholders and (iv) the Company at the address indicated below: One Jenner, Suite 100 Irvine, California 92618 Facsimile: 949-453-8686 Attention: Philip N. Kaplan, Chief Operating Officer with a copy (which shall not constitute notice to the Company) to: -12- Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile: (801)578-6999 Attention: Bryan T. Allen, Esq. or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday. (h) Amendments and Waivers; Effectiveness and Binding Nature of this Agreement. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of (i) the Company and (ii) the Dolphin Holders owning a majority of the Registrable Securities held by all Dolphin Holders. Notwithstanding the foregoing, without the consent of any other Person, the Company may restate any schedule hereto to (A) add additional Persons who become holders of Common Stock, Convertible Notes or Warrants and execute and deliver a counterpart to this Agreement or (B) change the address for notice to any Person at such Person's request. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. (i) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (j) No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. (k) GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF NEVADA HALL GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SECURITYHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN -13- THE STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY. (l) WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND EACH HOLDER OF REGISTRABLE SECURITIES HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Agreement or the validity, protection, interpretation, collection or enforcement hereof; AND THE COMPANY AND EACH HOLDER OF REGISTRABLE SECURITIES HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SETOFF OR COUNTERCLAIM OR CROSS-CLAIM in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of or recovery upon same. THE COMPANY AGREES THAT THIS SECTION 9(l) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE HOLDERS OF REGISTRABLE SECURITIES WOULD NOT HAVE ENTERED INTO THIS AGREEMENT IF THIS SECTION 9(l) WERE NOT PART OF THIS AGREEMENT. * * * * * -14- IN WITNESS WHEREOF, the parties have executed this Registration Agreement as of the date first written above. VITALSTREAM HOLDINGS, INC. By: /s/ Paul Summers ----------------------------- Name: Paul Summers Title: President COMMON STOCKHOLDERS DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President [SIGNATURE PAGE TO REGISTRATION AGREEMENT] CONVERTIBLE NOTEHOLDERS DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President [SIGNATURE PAGE TO REGISTRATION AGREEMENT] WARRANT HOLDERS DOLPHIN COMMUNICATIONS FUND II, L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President DOLPHIN COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P. By: Dolphin Communications II, L.P., Its General Partner By: Dolphin Communications, L.L.C., Its General Partner By: /s/ Richard Brekka ------------------------------ Name: Richard J. Brekka Title: President EX-99.H 10 y82902exv99wh.txt ESCROW AGREEMENT EXHIBIT H ESCROW AGREEMENT H-1 INDEMNITY ESCROW AGREEMENT This INDEMNITY ESCROW AGREEMENT (this "Agreement"), dated as of January 15, 2003, is entered into among VITALSTREAM BROADCASTING CORPORATION, a Nevada corporation ("VitalStream Broadcasting"), VITALSTREAM HOLDINGS, INC. a Nevada corporation ("VitalStream" and, together with VitalStream Broadcasting, the "Buyers"), EPOCH HOSTING, INC., a Delaware corporation ("Hosting") and CITY NATIONAL BANK, as escrow agent (the "Escrow Agent," which term also includes any successor escrow agent appointed in accordance with Section 9(b) hereof). The Escrow Agent, VitalStream Broadcasting, VitalStream and Hosting are each referred to herein as a "Party" and collectively as the "Parties." All capitalized terms used but not defined in this Agreement have the meanings ascribed in the Purchase Agreement (as defined below). WHEREAS, reference is made to the Amended and Restated Asset Purchase Agreement, dated as of January 15, 2003 (as amended, modified, restated, superseded or replaced from time to time, the "Purchase Agreement") among VitalStream, VitalStream Broadcasting, Epoch Networks, Inc., a California corporation ("Networks") and Hosting; WHEREAS, this Agreement is the "Escrow Agreement" under the Purchase Agreement; WHEREAS, in connection with the consummation of the transactions contemplated by the Purchase Agreement, Hosting and Networks have agreed to provide certain indemnification rights to VitalStream; WHEREAS, pursuant to the terms of the Purchase Agreement, the parties to the Purchase Agreement have agreed to place a portion of the Initial Purchase Shares into escrow pursuant to the terms hereof, which Initial Purchase Shares shall be available to satisfy any amounts owed by Hosting or Networks to VitalStream pursuant to Section 8 of the Purchase Agreement; and WHEREAS, the Escrow Agent is willing to act as escrow agent under this Agreement. NOW, THEREFORE, to induce the Buyers to enter into, and in consideration of the Buyers entering into, the Purchase Agreement, and in consideration of the premises and the representations, warranties and agreements contained herein, the Parties agree as follows: 1. Appointment of Escrow Agent. The Parties hereby designate and appoint the Escrow Agent as joint escrow agent for the Buyers, on the one hand, and Hosting, on the other hand, pursuant to the terms hereof. The Escrow Agent agrees to (a) act as the Escrow Agent and (b) deposit and hold all portions of the Escrow Fund (as defined below) in an account or accounts maintained by the Escrow Agent, in each case in accordance with the terms and conditions of this Agreement. 2. Escrow Fund. On the date of this Agreement, pursuant to the Purchase Agreement, VitalStream has delivered a stock certificate representing an aggregate amount of shares of Common Stock equal to thirty percent of the Initial Purchase Shares (the "Escrow Shares") in the name of Hosting (the "Escrow Fund"), and the Escrow Agent is accepting the Escrow Fund for deposit in escrow pursuant to the provisions of this Agreement. The Escrow Shares shall be subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's capital stock affecting any class or series of which the Escrow Shares are part. 3. Rights to Escrow Fund. The Escrow Fund shall be for the exclusive benefit of the VitalStream Indemnitees, Hosting and, with respect to amounts to which the Escrow Agent may be entitled pursuant to Sections 9(c) and 9(d) hereof, the Escrow Agent and the Escrow Agent's respective successors and assigns. No other person or entity shall have any right, title or interest in the Escrow Fund. Any claim of any person to the Escrow Fund, or any part thereof, shall be subject and subordinate to the prior right thereto of the VitalStream Indemnitees, Hosting and the Escrow Agent, as contemplated by this Section 3. 4. Distribution of the Escrow Fund. (a) From time to time on or before October 15, 2003 (the "Escrow Termination Date"), in the event that a VitalStream Indemnitee shall desire to claim (each, a "Claim") a right to payment of an indemnifiable Loss pursuant to Section 8 of the Purchase Agreement, VitalStream shall, on behalf of such VitalStream Indemnitee, give written notice (each, a "Claims Notice") to Hosting and the Escrow Agent specifying in reasonable detail the nature and dollar amount of such Claim and the Fair Market Value of an Escrow Share as determined on the day immediately prior to the date on which such Claims Notice is sent by VitalStream. VitalStream shall also deliver to the Escrow Agent evidence, satisfactory to the Escrow Agent in its sole discretion, of the date of the receipt by Hosting of the Claims Notice regarding such Claim. (b) After receipt of a Claims Notice, Hosting may give written notice (each, a "Dispute Notice") to VitalStream and to the Escrow Agent disputing the Claim which is the subject of such Claims Notice or the Fair Market Value set forth in such Claims Notice and setting forth the basis of such dispute. If, at any time prior to the expiration of the 30-day period (the "Dispute Notice Period") following the receipt by Hosting of such Claims Notice, the Escrow Agent receives a Dispute Notice in respect of such Claims Notice, then the Escrow Agent shall not take the action(s) requested in such Claims Notice unless and until the Escrow Agent has received either (i) a Joint Instruction Notice (as defined in Section 10(a) hereof) in respect of the requested actions from VitalStream and Hosting acting jointly in accordance with Section 10(a) hereof or (ii) a Notice of Arbitration Decision (as defined in Section 10(b) hereof) in accordance with Section 10(b) hereof from either VitalStream or Hosting. (c) With respect to each Claims Notice, if no Dispute Notice is received by the Escrow Agent prior to the expiration of the Dispute Notice Period in respect of such Claims Notice, then the dollar amount of indemnifiable damages claimed by the VitalStream Indemnitee as set forth in such Claims Notice shall be deemed established for purposes of this Agreement and the Purchase Agreement and, after the expiration of the Dispute Notice Period, the Escrow Agent shall release from the Escrow Fund and deliver to the VitalStream Indemnitee such number of Escrow Shares from the Escrow Fund equal to the dollar amount of indemnifiable damages claimed in such Claims Notice divided by the Fair Market Value of an Escrow Share as set forth in such Claims Notice. 2 (d) As may be necessary pursuant to any release of Escrow Shares from the Escrow Fund pursuant to this Section 4, VitalStream shall provide the Escrow Agent with (i) a new certificate registered in the name of the VitalStream Indemnitee representing the aggregate number of shares of Common Stock to be released from the Escrow Fund and delivered to the VitalStream Indemnitee pursuant to this Section 4 and (ii) a new certificate registered in the name of Hosting for deposit into the Escrow Fund representing an aggregate number of shares of Common Stock equal to (A) the number of shares of Common Stock initially deposited in the Escrow Fund (subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part) minus (B) an amount of shares of Common Stock equal to the sum of (1) the number of Escrow Shares to be released from the Escrow Fund and delivered to the VitalStream Indemnitee in respect of a Claim pursuant to this Section 4 plus (2) the aggregate number of Escrow Shares previously released from the Escrow Fund pursuant to this Section 4, if any (such number of Escrow Shares to be subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part). (e) The Escrow Agent shall not inquire into or consider whether a Claim complies with the requirements of the Purchase Agreement. 5. Termination. (a) On the Escrow Termination Date, the Escrow Fund shall terminate and the Escrow Agent shall release any Escrow Shares constituting the Escrow Fund from the Escrow Fund and deliver such Escrow Shares to Hosting unless the Escrow Agent shall have received any Claims Notices prior to the Escrow Termination Date that have not been resolved in accordance with the terms hereof, in which case a number of Escrow Shares as determined in accordance with Section 10 hereof that may be reasonably necessary to satisfy each unresolved Claim ("Unresolved Claims") specified in such Claims Notices shall be retained by the Escrow Agent in the Escrow Fund (and the balance of the Escrow Shares constituting the Escrow Fund shall be released from the Escrow Fund and delivered to Hosting) until such Unresolved Claims are processed in accordance with the terms hereof. As soon as each Unresolved Claim is resolved, the Escrow Agent shall deliver to Hosting all of the Escrow Shares which were retained in the Escrow Fund in respect of such Unresolved Claim less any Escrow Shares, if any, to be released from the Escrow Fund and delivered to a VitalStream Indemnitee in satisfaction of such Unresolved Claim. (b) As may be necessary pursuant to any release of Escrow Shares from the Escrow Fund pursuant to this Section 5, VitalStream shall provide the Escrow Agent with (i) a new certificate registered in the name of the VitalStream Indemnitee representing the aggregate number of shares of Common Stock, if any, to be released from the Escrow Fund and delivered to the VitalStream Indemnitee in respect of pursuant to this Section 4 and (ii) a new certificate registered in the name of Hosting for deposit into the Escrow Fund representing an aggregate number of shares of Common Stock equal to (A) the number of shares of Common Stock initially deposited in the Escrow Fund (subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part) minus (B) an amount of 3 shares of Common Stock equal to the sum of (1) the number of Escrow Shares to be released from the Escrow Fund and delivered to the VitalStream Indemnitee in respect of a Claim pursuant to this Section 4 and (2) the aggregate number of Escrow Shares previously released from the Escrow Fund pursuant to this Section 4, if any (such number of Escrow Shares to be subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part). (c) As may be necessary pursuant to any release of Escrow Shares from the Escrow Fund pursuant to this Section 5, VitalStream shall provide the Escrow Agent with (i) a new certificate registered in the name of Hosting representing the aggregate number of Escrow Shares to be released from the Escrow Fund and delivered to Hosting pursuant to this Section 5 upon termination of the Escrow Fund and (ii) a new certificate registered in the name of Hosting for deposit into the Escrow Fund representing an aggregate number of shares of Common Stock equal to (A) the number of shares of Common Stock initially deposited in the Escrow Fund (subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part) minus (B) an amount of shares of Common Stock equal to the sum of (1) the number of Escrow Shares to be released from the Escrow Fund and delivered to the Hosting pursuant to this Section 5 plus (2) the aggregate number of Escrow Shares previously released from the Escrow Fund pursuant to Section 4 and this Section 5, if any (such number of Escrow Shares to be subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization of VitalStream's stock affecting any class or series of which the Escrow Shares are part). (d) Upon disbursement of the entirety of the Escrow Fund pursuant to Section 5(a) hereof, this Agreement shall terminate and the Escrow Agent shall close the escrow account and shall thereafter have no further obligations hereunder. (e) Notwithstanding any termination of this Agreement, the provisions of Sections 9(c) and 9(d) hereof shall survive such termination and remain in full force and effect. 6. Further Assurances. In order to effectuate the release of the Escrow Shares from the Escrow Fund in accordance with the terms of this Agreement (a) Hosting hereby agrees to execute and deliver to the Escrow Agent and the Buyers (or VitalStream's transfer agent) such documents and instruments (including instructions regarding the release of the Escrow Shares as provided herein) as may be necessary to effectuate such release in accordance with the terms of this Agreement and (b) the Buyers hereby agree to execute and deliver (and cause VitalStream's transfer agent to execute and deliver) such documents and instruments (including certificates representing the Escrow Shares to be released to Hosting in accordance with the terms of this Agreement and certificates representing the remaining Escrow Shares that are to be held by the Escrow Agent in accordance with the terms of this Agreement) as may be necessary to effectuate such release in accordance with the terms of this Agreement. 7. Voting Rights. During the term of this Agreement, Hosting shall have the right to vote the Escrow Shares (including the right to take action by written shareholder consent) on all matters which come before the holders of the Common Stock of VitalStream. 4 8. Cancellation of Escrow Shares. VitalStream hereby agrees that any Escrow Shares released to VitalStream from the Escrow Fund shall be held by VitalStream as treasury shares and shall no longer be deemed issued or outstanding. 9. Escrow Agent. (a) Obligations. (i) The obligations of the Escrow Agent are those specifically provided in this Agreement and no other, and the Escrow Agent shall have no Liability under, or duty to inquire into the terms and provisions of, any agreement between the Parties hereto. The duties of the Escrow Agent are purely ministerial in nature, and the Escrow Agent shall not incur any Liability whatsoever, except for as a result of willful misconduct or gross negligence. The Escrow Agent may consult with counsel of its choice and shall not be liable for following the reasonable advice of such counsel. (ii) The Escrow Agent shall not have any responsibility for the genuineness or validity of any document or other item deposited with the Escrow Agent or of any signature thereon and shall not have any Liability for acting in accordance with any written instructions or certificates received by the Escrow Agent hereunder and believed by it to be signed by the proper parties. In performing its duties under this Agreement, the Escrow Agent shall assume that the "VitalStream Indemnities" include the Buyers and anyone certified in writing by VitalStream to be a VitalStream Indemnity. (iii) The Escrow Agent shall not be required to expend or risk any of its own funds or otherwise incur any financial or other Liability in the performance of any of its duties hereunder. (iv) The Escrow Agent shall not be under any duty to give the Escrow Fund any greater degree of care than the Escrow Agent gives the Escrow Agent's own similar property and shall not be required to invest any funds held hereunder except as directed in this Escrow Agreement. (b) Resignation and Removal. The Escrow Agent may resign at any time by giving at least 30 days' notice of such resignation to VitalStream and Hosting, specifying a date upon which such resignation shall take effect (the "Resignation Notice"); provided, however, that the Escrow Agent shall continue to serve until the Escrow Agent's successor accepts the Escrow Fund. Upon receipt of any Resignation Notice, a successor Escrow Agent shall be appointed by the mutual agreement of VitalStream and Hosting, such successor Escrow Agent to become the "Escrow Agent" hereunder on the later of the date set forth in the Resignation Notice and the date on which the successor Escrow Agent accepts the Escrow Fund. If an instrument of acceptance by a successor Escrow Agent shall not have been delivered to the resigning Escrow Agent within 40 days after delivery of the Resignation Notice, the resigning Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent. The expenses relating to such petition shall be paid one-half by VitalStream and one-half out of the Escrow Fund. VitalStream and Hosting, acting jointly, may at any time substitute a new 5 Escrow Agent by giving 10 days' notice thereof to the current Escrow Agent and paying all fees and expenses of the current Escrow Agent as provided in Section 9(d) hereof. (c) Indemnification. The Buyers, on the one hand, and Hosting, on the other hand, shall jointly and severally hold the Escrow Agent harmless from, and indemnify the Escrow Agent against, any loss, Liability, expense (including reasonable attorneys' fees and expenses), claim or demand arising out of or in connection with the performance of the Escrow Agent's obligations under this Agreement and which are attributable to any act or omission of the Escrow Agent, except for any of the foregoing arising out of the gross negligence or willful misconduct of the Escrow Agent. The foregoing indemnification obligations in this Section 9(c) shall survive the resignation and substitution of the Escrow Agent and the termination of this Agreement. (d) Fees and Expenses of the Escrow Agent. (i) For the Escrow Agent's services hereunder, the Escrow Agent shall separately bill VitalStream and Hosting for the time spent by its professionals in accordance with the Escrow Agent's fee schedule attached hereto as Exhibit C. VitalStream and Hosting shall each be responsible for one-half of the fees of the Escrow Agent. In addition, except as otherwise provided in Section 9(d)(ii) hereof, VitalStream and Hosting shall reimburse the Escrow Agent for all reasonable expenses, disbursements and advances, including reasonable attorneys' fees, incurred by the Escrow Agent in connection with carrying out its ordinary duties to maintain and dispose of the Escrow Fund pursuant to this Agreement. The amount of such reimbursement shall be paid one-half by VitalStream and one-half by Hosting. (ii) Hosting, on the one hand, and the Buyers, on the other hand, agree that if the Escrow Agent shall incur or suffer any other reasonable costs, charges, damages or attorneys' fees on account of being the Escrow Agent or on account of having received the Escrow Fund hereunder (including, without limitation, costs, charges, damages and reasonable attorneys' fees as a result of litigation involving this Agreement or the Escrow Fund other than by reason of the gross negligence or willful misconduct of the Escrow Agent), then such costs, charges, damages or fees shall be paid one-half by VitalStream and one-half by Hosting, or, in the case of any cost, charge, damage or fee arising as a result of litigation, in such manner as the court in which such litigation occurs may direct. 10. Dispute Resolution Procedures. (a) Amicable Resolution. In the event of delivery of a Dispute Notice by Hosting, VitalStream and Hosting shall attempt in good faith to establish the merits and amount, if any, of any outstanding Claim (the "Dispute") and, upon the mutual written agreement by VitalStream and Hosting of the merits and amount, if any, of such Claim, VitalStream and Hosting shall deliver a written instrument jointly executed by VitalStream and Hosting substantially in the form set forth in Exhibit A attached hereto (such written instrument hereinafter referred to as a "Joint Instruction Notice") to the Escrow Agent. If VitalStream and Hosting are unable to reach such an agreement, the merits and amount, if any, of the Claim shall be determined by an arbitrator in accordance with the arbitration provisions set forth in Section 10(b) hereof. 6 (b) Arbitration. (i) Generally; Notice. If any Dispute is not resolved pursuant to Section 10(a) hereof prior to the thirtieth day after the related Dispute Notice is received by VitalStream, then either VitalStream or Hosting (in either case, the "Disputing Person") may commence an arbitration proceeding pursuant to this Section 10(b) by giving the non-Disputing Person a written notice (an "Arbitration Notice") setting forth any matters which are required to be set forth therein in accordance with the arbitration rules of the Association as in effect from time to time (the "AAA Rules") and a copy of such Arbitration Notice shall be furnished to the Escrow Agent; provided that such arbitration will be the sole and exclusive method of resolving such Dispute; provided further that nothing in this Section 10(b) will prohibit a Party from instituting litigation to enforce any Final Arbitration Award (as defined below). Except as otherwise provided in the AAA Rules, the arbitration procedures described in this Section 10(b) and any Final Arbitration Award will be governed by, and will be enforceable pursuant to, the Uniform Arbitration Act as in effect in the State of California from time to time. The arbitration shall be conducted in Orange County, California. (ii) Selection of Arbitrator. VitalStream and Hosting will attempt to select a single arbitrator by mutual agreement. If no such arbitrator is selected prior to the tenth day after the related Arbitration Notice is received, then an arbitrator which is experienced in matters of the type which are the subject matter of the Dispute will be selected in accordance with the AAA Rules. (iii) Conduct of Arbitration. The arbitration will be conducted under the AAA Rules, as modified by any written agreement between VitalStream and Hosting. The arbitrator (the "Arbitrator") will conduct the arbitration in a manner so that the final result, determination, finding, judgment or award determined by the Arbitrator (the "Final Arbitration Award") is made or rendered as soon as practicable, and the parties will use reasonable efforts to cause a Final Arbitration Award to occur not later than the sixtieth day after the Arbitrator is selected. The Final Arbitration will include a determination with respect to the matters contained in the Dispute Notice (the "Determination") and written directions substantially in the form set forth in Exhibit B attached hereto (such written instrument hereinafter referred to as a "Notice of Arbitration Decision") to make disbursements from the Escrow Fund (or, if appropriate, withdrawal of a request for such action or disbursement) which are appropriate in order to give effect to the provisions of this Agreement in light of the Determination, and either VitalStream or Hosting may deliver a copy of such Notice of Arbitration Decision to the Escrow Agent for execution pursuant to this Agreement. The Escrow Agent may rely conclusively on any copy of such Notice of Arbitration Decision provided to the Escrow Agent. Any Final Arbitration Award will be final and binding upon VitalStream and Hosting, and there will be no appeal from or reexamination of any Final Arbitration Award, except in the case of fraud, perjury or evident partiality or misconduct by the Arbitrator prejudicing the rights of VitalStream or Hosting. (iv) Enforcement. VitalStream and Hosting agree that a Final Arbitration Award may be enforced in any state or federal court in the State of California. (v) Expenses. Each prevailing Party in any arbitration proceeding in connection with this Agreement also will be entitled to recover from any non-prevailing Party(s) 7 such prevailing Party's reasonable attorneys' fees and disbursements in addition to any damages or other remedies awarded to it, and the non-prevailing Party(s) also will be required to pay all other costs and expenses associated with the arbitration; provided that (A) if the Arbitrator is unable to determine that a Party is a prevailing Party in any such arbitration proceeding, then such costs and expenses will be equitably allocated by such Arbitrator upon the basis of the outcome of such arbitration proceeding, (B) if the Arbitrator is unable to allocate such costs and expenses in such a manner, then the costs and expenses of such arbitration will be paid one-half by Hosting and one-half by VitalStream, and each Party will pay the out-of-pocket expenses incurred by it and (C) the Escrow Agent shall not be considered a "non-prevailing Party" for purposes of this Section 10(b)(v). As part of any Final Arbitration Award, the Arbitrator may designate the prevailing Party(s) for purposes of this Section 10(b)(v). Except as provided in the preceding sentences of this Section 10(b)(v), each Party to this Agreement will bear its own costs and expenses (including legal fees and disbursements) in connection with any such proceeding or submission. 11. Miscellaneous. (a) Definitions. For the purposes of this Agreement, the following terms have the meanings set forth below: (i) "Fair Market Value" means the price at which an asset would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties are able, as well as willing, to trade and are well-informed about the asset and the market for the asset, as determined jointly by VitalStream and Hosting. If such parties are unable to reach agreement within a reasonable period of time, such "Fair Market Value" shall be determined by an independent appraiser experienced in valuing such type of asset jointly selected by VitalStream and Hosting. The determination of such appraiser shall be final and binding upon the Parties and VitalStream shall pay the first $10,000 of the fees and expenses of such appraiser, after which VitalStream and Hosting shall each pay one-half of the fees and expenses of such appraiser. Notwithstanding the foregoing, the "Fair Market Value" of any security listed on any securities exchange or quoted in the NASDAQ System (including the proposed Bulletin Board Exchange) or the over-the-counter market shall be the "Market Price." (ii) "Market Price" of any security means either (1) if such security is listed on an exchange, the closing prices of such security on the principal exchange on which such security is listed, or, if there has been no sales on such exchange on any day, the closing price of such security on the principal exchange on the most recent day on which sales have taken place on such exchange or (2) if such security is not listed on an exchange but is quoted in the NASDAQ System or on the domestic over-the-counter market as reported by the National Quotation Bureau, the average of the closing sales prices as reported by the NASDAQ System or the National Quotation Bureau, as applicable, in each case over a period of thirty (30) days consisting of the day as of which the "Market Price" is being determined and the twenty nine (29) consecutive business days prior to such day on which trades were reported in such security. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the Fair Market Value thereof. 8 (b) Notices. All notices, demands or other communications to be delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been received when delivered personally to the recipient or when sent by facsimile followed by delivery by reputable overnight courier service (charges prepaid), one day after being sent to the recipient by reputable overnight courier service (charges prepaid) or five days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Any notice, demand or other communication hereunder may be delivered by any other means (including telecopy or electronic mail), but shall not be deemed to have been duly received unless and until it is actually received by the intended recipient. Such notices, demands and other communications shall be sent to the addresses indicated below: If to Hosting, to: Epoch Hosting, Inc. 555 Anton Boulevard Costa Mesa, CA 92626 Facsimile: 714-327-2031 Attention: General Counsel with a copy (which shall not constitute notice to Hosting) to: Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022 Facsimile: 212-446-4900 Attention: John Kuehn, Esq. If to the Buyers to: VitalStream Holdings, Inc. One Jenner, Suite 100 Irvine, California 92618 Facsimile: (949) 453-8686 Attention: Phillip N. Kaplan, Chief Operating Officer with a copy (which shall not constitute notice to the Buyers) to: Stoel Rives LLP 201 South Main Street, Suite 1100 Salt Lake City, Utah 84111 Facsimile (801) 578-6999 Attn: Bryan Allen If to the Escrow Agent, to: City National Bank 9 Attn: Sue Behning, VP 1950 Avenue of the Stars, 2nd Floor Los Angeles, CA 90067 Phone: 310-282-2921 Fax: 310-282-2936 or to such other address as any Party hereto to whom notice is to be given may have furnished to the other Parties hereto in writing in accordance herewith. (c) Counterparts; Facsimile. This Agreement may be executed by facsimile and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (d) Governing Law. This Agreement shall be governing by and construed in accordance with the laws of the State of California without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. in furtherance of the foregoing, the internal law of the State of California shall control the interpretation and construction of this agreement (and all annexes and exhibits hereto), even though under that jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. (e) JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS BROUGHT BY ANY BUYER, ANY VITALSTREAM INDEMNITEE OR HOSTING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN ORANGE COUNTY, CALIFORNIA. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION AGREEMENTS. EACH PARTY HEREBY WAIVES ANY CLAIM THAT ORANGE COUNTY, CALIFORNIA IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. (f) WAIVER OF RIGHT TO JURY TRIAL. EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY in any litigation in any court with respect to, in connection with, or arising out of this Agreement or the validity, protection, interpretation, collection or enforcement hereof or thereof. EACH PARTY AGREES THAT THIS SECTION 11(f) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE OTHER PARTIES WOULD NOT HAVE ENTERED INTO THIS AGREEMENT AND CONSUMMATED THE TRANSACTIONS CONTEMPLATED HEREBY IF THIS SECTION 11(f) WERE NOT PART OF THIS AGREEMENT. (g) Benefits of Agreement. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties hereto and their respective successors and 10 assigns. Anything contained in the preceding sentence to the contrary notwithstanding, neither this Agreement nor any of the rights, interests or obligations herein or hereunder shall be assignable by any Party hereto without the consent of the other Parties hereto; provided, however, without the consent of the other Parties, Hosting shall have the right to assign its rights to receive any of the Escrow Shares released hereunder upon termination of the Escrow Fund to any Affiliate provided that written notice of such assignment is furnished to each of the other Parties hereto and such distribution is in accordance with the terms of the Purchase Agreement. An individual VitalStream Indemnitee's right to payment from the Escrow Fund may not be assigned except, upon the death or judicial declaration of incompetency of such VitalStream Indemnitee, to the executors, administrators or heirs of such VitalStream Indemnitee. (h) Modifications. This Agreement shall not be altered or otherwise amended except pursuant to an instrument in writing signed by each of the Parties hereto. (i) Descriptive Headings. The descriptive headings in this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. (j) Time of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty under this Agreement shall fall upon a Saturday, Sunday or any date on which banks in Orange County, California are closed, the Party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular business day. Any notice that, pursuant to Section 11(a) hereof, would be deemed to have been given on a day that is not a business day will instead be deemed to have been given on the next succeeding business day. (k) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement or such other Agreement. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. (m) Incorporation of Exhibits. The exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. (n) Representations and Warranties. Each of VitalStream Broadcasting, VitalStream and Hosting hereby represents and warrants (i) that this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding 11 obligation and (ii) that the execution, delivery and performance of this Agreement by each of VitalStream Broadcasting, VitalStream and Hosting, respectively, does not and will not violate any applicable Law. 12 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and delivered on the date first above written. VITALSTREAM HOLDINGS, INC. By: /s/ Paul Summers ------------------------------------------ Name: Paul Summers Title: President & Chief Executive Officer VITALSTREAM BROADCASTING CORPORATION By: /s/ Paul Summers ------------------------------------------ Name: Paul Summers Title: President & Chief Executive Officer EPOCH HOSTING, INC. By: /s/ Karen Muller ------------------------------------------ Name: Karen Muller Title: Secretary CITY NATIONAL BANK By: __________________________________________ Name: Title: EXHIBIT A [ESCROW AGENT] [ADDRESS] [Date] Joint Instructions Notice Ladies and Gentlemen: Reference is made to the Indemnity Escrow Agreement dated January 15, 2003 (the "Escrow Agreement"), by and among VitalStream Broadcasting Corporation, a Nevada corporation, VitalStream Holdings, Inc., a Nevada corporation, Epoch Hosting, Inc., a Delaware corporation and you. Pursuant to Section 10(a) of the Escrow Agreement, the undersigned hereby instruct you to disburse from the Escrow Fund (as defined in the Escrow Agreement) to the Party or Parties set forth on Annex I hereto the respective amounts set forth opposite their names thereon. VITALSTREAM HOLDINGS, INC. By: _______________________________ Name: Title: VITALSTREAM BROADCASTING CORPORATION By: _______________________________ Name: Title: EPOCH HOSTING, INC. By: _______________________________ Name: Title: A-1 ANNEX I [To be supplied by the undersigned to the attached Joint Written Instructions] A-2 EXHIBIT B [ESCROW AGENT] [ADDRESS] [Date] Notice of Arbitration Decision Ladies and Gentlemen: Reference is made to the Indemnity Escrow Agreement dated January 15, 2003 (the "Escrow Agreement"), by and among VitalStream Broadcasting Corporation, a Nevada corporation, VitalStream Holdings, Inc., a Nevada corporation, Epoch Hosting, Inc., a Delaware corporation, and you. Pursuant to Section 10 of the Escrow Agreement, the undersigned hereby instructs you to deliver to [insert recipient] _____________ shares of Common Stock from the Escrow Fund (as defined in the Escrow Agreement) in accordance with the or decision of the American Arbitration Association a certified copy of which is attached hereto. VITALSTREAM HOLDINGS, INC. By: _______________________________ Name: Title: VITALSTREAM BROADCASTING CORPORATION By: _______________________________ Name: Title: EPOCH HOSTING, INC. By: _______________________________ Name: Title: B-1 ANNEX I [Attach certified copy of arbitration decision] B-2 EXHIBIT C [SCHEDULE OF ESCROW AGENT FEES] C-1 -----END PRIVACY-ENHANCED MESSAGE-----