Exhibit 99.1
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 30, 2003
AMONG
VITALSTREAM HOLDINGS, INC.
AND
THE PURCHASERS REFERRED TO HEREIN
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.................................................................................... 4
1A. Definitions.................................................................................... 4
SECTION 2. AUTHORIZATION AND CLOSINGS..................................................................... 14
2A. Authorization, Purchase and Sale of the New Preferred and Additional Warrants.................. 14
2B. Exchange of Original Notes for Amended and Restated Notes...................................... 15
2C. Exchange of Original Warrants for Amended and Restated Warrants................................ 15
2D. The Closing.................................................................................... 16
SECTION 3. CONDITIONS OF EACH PURCHASER'S OBLIGATIONS AT THE CLOSING...................................... 16
3A. Conditions of each Purchaser's Obligations at the Closing...................................... 16
SECTION 4. CONDITIONS OF VITALSTREAM'S OBLIGATIONS AT THE CLOSINGS........................................ 19
4A. Conditions of VitalStream's Obligations at the Closing......................................... 19
SECTION 5. COVENANTS...................................................................................... 21
5A. Reservation of Common Stock and Conversion Preferred........................................... 21
5B. Intellectual Property Rights................................................................... 21
5C. Compliance with Agreements..................................................................... 21
5D. Current Public Information..................................................................... 22
5E. Information Rights............................................................................. 22
5F. Public Disclosures............................................................................. 22
5G. Attorneys Fees................................................................................. 22
5H. Filing of Certificate of Designation........................................................... 23
SECTION 6. NATURE OF RESTRICTED SECURITIES; TRANSFER OF RESTRICTED SECURITIES;
GENERAL TRANSFER PROCEDURE.............................................................................. 23
6A. General Provisions............................................................................. 23
6B. Opinion Delivery............................................................................... 24
6C. Rule 144A...................................................................................... 24
6D. Legend Removal................................................................................. 24
SECTION 7. REPRESENTATIONS AND WARRANTIES OF VITALSTREAM AND THE VITALSTREAM SUBSIDIARIES................. 24
7A. Approval and Consents; Authorization; No Breach................................................ 25
7B. Capital Stock and Related Matters.............................................................. 25
7C. Issuance and Commitment of the Additional Convertible Notes and Additional Warrants............ 27
7D. Investment Company............................................................................. 27
7E. Margin Securities.............................................................................. 27
7F. Organization, Corporate Power and Licenses..................................................... 28
7G. Subsidiaries................................................................................... 28
i
7H. Securities and Exchange Commission Reports and VitalStream Financial Statements................ 28
7I. Notes and Accounts Receivable.................................................................. 29
7J. Guaranties..................................................................................... 29
7K. Absence of Undisclosed Liabilities............................................................. 29
7L. Absence of Certain Developments................................................................ 30
7M. Compliance With Laws........................................................................... 31
7N. Litigation..................................................................................... 31
7O. Contracts and Commitments...................................................................... 31
7P. Tax Matters.................................................................................... 31
7Q. Real Property.................................................................................. 32
7R. Environmental Matters.......................................................................... 34
7S. Intellectual Property Rights................................................................... 34
7T. Employees...................................................................................... 36
7U. Employee Benefits.............................................................................. 37
7V. Insurance...................................................................................... 38
7W. Affiliate Transactions......................................................................... 38
7X. Disclosure..................................................................................... 39
7Y. Customers...................................................................................... 39
SECTION 8. MISCELLANEOUS.................................................................................. 39
8A. Remedies; Survival of Representations, Warranties and Covenants; Indemnification............... 39
8B. Purchaser's Representations; Legends........................................................... 41
8C. Entire Agreement............................................................................... 43
8D. Successors and Assigns......................................................................... 44
8E. Counterparts................................................................................... 44
8F. Descriptive Headings; Interpretation........................................................... 44
8G. Notices; Business Days......................................................................... 44
8H. Consent to Amendments and Waivers.............................................................. 45
8I. Severability................................................................................... 46
8J. No Strict Construction......................................................................... 46
8K. Incorporation of Annexes, Schedules and Exhibits............................................... 46
8L. Registered Holders; Ownership.................................................................. 46
8M. Understanding Among the Purchasers............................................................. 46
8N. GOVERNING LAW.................................................................................. 47
8O. JURISDICTION AND VENUE......................................................................... 47
8P. WAIVER OF RIGHT TO JURY TRIAL.................................................................. 48
8Q. Approval and Consent........................................................................... 48
8R. Consideration for Warrants and Notes........................................................... 48
ii
ANNEXES, SCHEDULES AND EXHIBITS
ANNEXES
Annex 1 Schedule of Purchasers Of New Preferred and Additional Warrants
Annex 2 Schedule of Purchasers Participating in the Exchange
SCHEDULES
Schedule 7A Approval and Consent; Authorization; No Breach
Schedule 7B Capital Stock and Related Matters
Schedule 7G Subsidiaries
Schedule 7I Notes and Accounts Receivable
Schedule 7J Guaranties
Schedule 7K Absence of Undisclosed Liabilities
Schedule 7L Absence of Certain Developments
Schedule 7M Compliance with Laws
Schedule 7N Litigation
Schedule 7O Contracts and Commitments
Schedule 7P Tax Matters
Schedule 7Q Real Property
Schedule 7S Intellectual Property Rights
Schedule 7U Employee Benefits
Schedule 7V Insurance
Schedule 7W Affiliates Transactions
Schedule 7Y Customers
EXHIBITS
Exhibit A -- Form of Additional Warrant
Exhibit B -- Form of Amended and Restated Note
Exhibit C -- Form of Amended and Restated Warrant
Exhibit D -- Form of Certificate of Designation
Exhibit E -- Form of Guaranty
Exhibit F -- Form of Investor Rights Agreement
Exhibit G -- Form of Registration Agreement
Exhibit H -- Form of VitalStream Counsel Opinion
iii
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
This SECURITIES EXCHANGE AND PURCHASE AGREEMENT, dated as of
September 30, 2003 (this "Agreement"), by and among VitalStream Holdings, Inc.,
a Nevada corporation ("VitalStream"), and the Persons listed on Annex 1 or Annex
2 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 Convertible Note
and Warrant Purchase Agreement, dated as of November 1, 2002 (the "Initial Note
Purchase Agreement"), by and among VitalStream and the Purchasers which were
party thereto pursuant to which the Initial Closing was consummated on November
26, 2002.
WHEREAS, reference is made to that certain Amended and
Restated Convertible Note and Warrant Purchase Agreement dated January 15, 2003
(the "Subsequent Note Purchase Agreement"), which amended and restated the
Initial Note Purchase Agreement and pursuant to which the Subsequent Closing was
consummated on January 15, 2003.
WHEREAS, VitalStream and the Purchasers desire to enter into
this Agreement in order to provide for (i) the exchange of Original Notes for
Amended and Restated Notes, (ii) the exchange of Original Warrants for Amended
and Restated Warrants and (iii) the purchase and sale of shares of New Preferred
and Additional Warrants.
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 as
follows:
Section 1. Definitions.
1A. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Additional Warrants" means those certain Common Stock
Purchase Warrants of VitalStream issuable pursuant to Section 2A(ii) of this
Agreement and in the form of Exhibit A attached hereto, as amended, modified,
restated, superceded or replaced from time to time.
"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.,
Xxxx Summer, Xxxxxx Xxxxxx and the Series B Holders (as defined therein), as
assumed by VitalStream, as amended, modified, restated, superseded or replaced
from time to time.
"Alliance Factoring and Security Agreements" means the two
Factoring and Security Agreements dated June 30, 2003 by and among Alliance Bank
and VitalStream and certain VitalStream Subsidiaries and the Memorandum of
Interest in Trademark and Goodwill dated July 7, 2003 by and among Alliance
Bank, VitalStream and certain VitalStream Subsidiaries.
"Alliance Intercreditor Agreement" means that certain
intercreditor agreement dated June 30, 2003, by and between Alliance Bank and
Dolphin Fund II, and consented to by VitalStream and certain VitalStream
Subsidiaries, as amended, modified, restated, superceded or replaced from time
to time.
"Amended and Restated Notes" means those certain Convertible
Notes of VitalStream issuable upon cancellation of the Original Notes in the
Exchange pursuant to this Agreement, in the form of Exhibit B attached hereto,
as amended, modified, restated, superceded or replaced from time to time.
"Amended and Restated Warrants" means those certain Common
Stock Purchase Warrants of VitalStream issuable upon cancellation of the
Original Warrants in the Exchange pursuant to this Agreement, in the form of the
Exhibit C attached hereto, as amended, modified, restated, superceded 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" means that certain Amended and
Restated Asset Purchase Agreement, dated as of January 15, 2003, by and among
VitalStream, VitalStream Broadcasting Corp., Epoch Networks, Inc. and Epoch
Hosting, Inc., as amended, modified, restated, superseded or replaced from time
to time.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of
VitalStream.
"Cash" means cash and cash equivalents (including marketable
securities and short term Investments).
"Certificate of Designation" means the Certificate of
Designation, setting forth, among other matters, the rights, preferences and
privileges of the Series A Preferred and Series B Preferred, in the form of
Exhibit D attached hereto.
"Churn Rate" for any period means the quotient of (a) the
monthly recurring revenue of customers whose agreements were cancelled or
otherwise terminated during such period, divided by (b) the aggregate monthly
recurring revenue of all customers of VitalStream and its Subsidiaries during
such period, calculated in accordance with VitalStream's past practice.
5
"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 2D(i) of this
Agreement.
"Closing Date" has the meaning set forth in Section 2D(i) 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, the Series A Preferred or the Series B
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" means the shares of Common Stock issued as
the "Commitment Fee" pursuant to the Initial Note Purchase Agreement and the
Subsequent Note Purchase Agreement.
"Conversion Preferred" means those certain shares of 2003
Series B Preferred Stock, $.001 par value, of VitalStream issuable upon
conversion of the Amended and Restated Notes and having the rights and
preferences set forth in the Certificate of Designation with respect to the
Series 2003 Series B Preferred Stock.
"Debt Security" means any note, bond, debenture or other
instrument or security evidencing Indebtedness.
"Dolphin" means Dolphin Equity Partners, L.P.
"Dolphin Fund II" means Dolphin Communications Fund II, L.P.
and Dolphin Communications Parallel Fund II (Netherlands), L.P.
"Dolphin Security Agreement" means that certain Amended and
Restated Security Agreement dated as of the Closing Date, by and among
VitalStream, VitalStream, Inc., VitalStream Broadcasting Corporation and Dolphin
Communications Partners, L.P., a Delaware limited partnership, as agent for, and
representative of, the holders of the Amended and Restated Notes.
"Environmental, Health, and Safety Requirements" means all
Laws, all contractual obligations and all common law concerning public health
and safety, worker health and safety, 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.
6
"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.
"Exchange" means the exchange of (i) Original Notes for
Amended and Restated Notes as contemplated by Section 2B and (ii) Original
Warrants for Amended and Restated Warrants as contemplated by Section 2C.
"Fully Diluted Outstanding Common Stock" has the meaning set
forth in the Amended and Restated 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 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 Amended and Restated Guaranty,
dated as of the Closing Date, by and among VitalStream, the VitalStream
Subsidiaries and the Purchasers, in the form of Exhibit E attached hereto, as
amended, modified, restated, superseded or replaced from time to time.
"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.
7
"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.
"Indemnitees" has the meaning set forth in Section 8A of this
Agreement.
"Initial Asset Purchase Agreement" means that certain Asset
Purchase Agreement dated as of November 1, 2002, by and among VitalStream,
VitalStream Broadcasting Corp., Epoch Networks, Inc. and Epoch Hosting, Inc.,
which was amended and restated by the Asset Purchase Agreement.
"Initial Closing" means the issuance, sale and purchase of the
Initial Notes and Initial Warrants under the Initial Note Purchase Agreement
consummated on November 26, 2002.
"Initial Notes" means those certain 10% Convertible Promissory
Notes of VitalStream in the principal amount of $409,000 issued at the Initial
Closing pursuant to the Initial Note Purchase Agreement.
"Initial Warrants" means those certain Common Stock Purchase
Warrants of VitalStream issued at the Initial Closing pursuant to the Initial
Note Purchase 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).
8
"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 Amended and
Restated Investor Rights Agreement, dated as of the date hereof, by and among
VitalStream and the securityholders of VitalStream referred to therein, in the
form of Exhibit F 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.
"Laws" means all constitutions, statutes, laws, codes,
ordinances, regulations, rules, orders, judgments, writs, injunctions, acts or
decrees of any Governmental Entity.
"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.
"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 a Person or
any Subsidiary of that Person, 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 Person
or any Subsidiary of that Person 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 8A of this
Agreement.
"Merger Agreement" means that certain Merger Agreement, dated
as of February 13, 2002, among the Company, VitalStream, Inc., and VitalStream
Operating Corporation.
9
"New Preferred" means those certain shares of Series A
Preferred to be purchased by the Purchasers pursuant to Section 2A of this
Agreement at the Closing and having the rights set forth for the Series A
Preferred in the Certificate of Designation, as amended, modified, restated,
superseded or replaced from time to time.
"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).
"Original Notes" means the Initial Notes and the Subsequent
Notes.
"Original Warrants" means the Initial Warrants.
"Other Company Securities" has the meaning set forth in the
Amended and Restated Notes.
"Other VitalStream Plans" has the meaning set forth in Section
7U.
"Per Unit Price" has the meaning set forth in Section 2(A).
"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; (v) Liens on a bank account containing $300,000 (plus interest)
necessary to secure the $300,000 letter of credit VitalStream Broadcasting is
required to establish in order to be able to assume the Los Angeles Lease
Agreement (as defined in the Asset Purchase Agreement); and (vi) to the extent
the issuance of the underlying Indebtedness and the creation of any Liens with
respect thereto are permitted under the Amended and Restated Notes and
Certificate of Designation, Liens arising under the Alliance Factoring and
Security Agreements and the Dolphin Security 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
Amended and Restated Notes.
10
"Preferred Stock" means VitalStream's Preferred Stock, par
value $0.001 per share, as more fully described in the Articles of
Incorporation.
"Preferred Shares" means the New Preferred and the Conversion
Preferred.
"Preferred Unit" has the meaning set forth in Section 2A.
"Purchasers" has the meaning set forth in the preamble of this
Agreement.
"Purchase Price" has the meaning set forth in Section 2A.
"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, including the right
to all security deposits and other amounts and instruments deposited by or on
behalf of such Person thereunder.
"Real Property Laws" has the meaning set forth in Section 7Q.
"Registration Agreement" means that certain Amended and
Restated Registration Agreement, dated as of the date hereof, by and among
VitalStream and the Purchasers, in the form of Exhibit G attached hereto, as
amended, modified, restated, superseded or replaced from time to time.
"Restricted Securities" means (i) the Amended and Restated
Notes, (ii) the Warrants, (iii) the Preferred Shares, (iv) the Equity Securities
issued or issuable, directly or indirectly, upon conversion of the Amended and
Restated Notes, (v) the Common Stock issued or issuable upon exercise of the
Warrants, (vi) the Common Stock issued or issuable, directly or indirectly, upon
conversion of the Preferred Shares, (vii) the Common Stock issued as payment of
the Commitment Fee and (viii) any securities issued with respect to the
securities referred to in clauses (i), (ii), (iii), (iv), (v), (vi) or (vii)
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 8B 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 8B of this Agreement.
11
"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 B Liquidation Value" has the meaning set forth in the
Certificate of Designation.
"Series A Preferred" means those certain shares of 2003 Series
A Preferred Stock, $.001 par value per share, of VitalStream having the rights
and preferences set forth in the Certificate of Designation with respect to the
2003 Series A Preferred Stock.
"Series B Preferred" means those certain shares of 2003 Series
B Preferred Stock, $.001 par value per share, of VitalStream having the rights
and preferences set forth in the Certificate of Designation with respect to the
Series 2003 Series B Preferred Stock.
"Subsequent Closing" means the issuance, sale and purchase of
the Subsequent Notes under the Subsequent Note Purchase Agreement consummated on
January 15, 2003.
"Subsequent Notes" means those certain 10% Convertible
Promissory Notes of VitalStream in the principal amount of $691,000 issued at
the Subsequent Closing pursuant to the Subsequent Note Purchase Agreement.
"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 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,
12
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 Returns" 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 Amended and
Restated Notes, the Guaranty, the Certificate of Designation, the Warrants, the
Investor Rights Agreement, the Registration Agreement, the Security Agreement
and all other agreements and instruments delivered pursuant to any of the
foregoing.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable, directly or indirectly, upon conversion of the Amended and Restated
Notes, (ii) the Common Stock issued or issuable, directly or indirectly, upon
conversion of the Preferred Shares, (iii) the Common Stock issued or issuable
upon exercise of the Warrants, (iv) the Common Stock issued or issuable in
connection with the Commitment Fee, and (v) any Common Stock issued or issuable
with respect to the securities referred to in clauses (i), (ii), (iii) and (iv)
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 Amended
and Restated Notes shall be deemed to be the holder of the Underlying Common
Stock issuable, directly or indirectly, upon conversion of such Amended and
Restated Notes regardless of any restriction or limitation on the conversion of
such Amended and Restated Notes, (b) any Person who holds Preferred Shares shall
be deemed to be the holder of the Underlying Common Stock issuable, directly or
indirectly, upon conversion of such Preferred Shares regardless of any
restriction or limitation on the conversion of such Preferred Shares and (c) 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
clauses (a), (b) and (c) 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 statement covering them, (2)
distributed to the public through a broker, dealer or market maker or (3)
repurchased by VitalStream or any VitalStream Subsidiary.
"VitalStream" has the meaning set forth in the preamble to
this Agreement.
"VitalStream Broadcasting" means VitalStream Broadcasting
Corporation.
"VitalStream Counsel Opinion" means an opinion of Stoel Rives,
LLP, counsel to VitalStream, substantially in the form attached hereto as
Exhibit H.
13
"VitalStream Defined Contribution Plan" has the meaning set
forth in Section 7U.
"VitalStream Financial Statements" has the meaning set forth
in Section 7H.
"VitalStream Intellectual Property Rights" has the meaning set
forth in Section 7S.
"VitalStream Leased Real Property" has the meaning set forth
in Section 7Q.
"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 Plans" has the meaning set forth in Section 7U.
"VitalStream Real Property Leases" has the meaning set forth
in Section 7Q.
"VitalStream Securities and Exchange Commission Reports" has
the meaning set forth in Section 7H.
"VitalStream Subsidiaries" has the meaning set fort in Section
7F.
"Warrants" means the Additional Warrants and the Amended and
Restated Warrants.
"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 New Preferred and
Additional Warrants.
(i) VitalStream has duly authorized the issuance and
sale, pursuant to the terms of this Agreement, of the New Preferred and
Additional Warrants. The New Preferred are, subject to the terms of the Series A
Preferred set forth in the Certificate of Designation, convertible into shares
of Common Stock. The Additional Warrants are exercisable for shares of Common
Stock.
(ii) The New Preferred and Additional Warrants shall be
offered and sold in units ("Preferred Units"), with each Preferred Unit
consisting of (a) one share of New Preferred, and (b) an Additional Warrant to
purchase 833 1/3 shares of Common Stock subject to the terms and conditions of
the Additional Warrant. The purchase price per Preferred Unit (the "Per Unit
Price") shall be One Thousand Dollars ($1,000), and the "Purchase Price" for
each Purchaser shall be the product of the number of Preferred Units subscribed
for by such Purchaser multiplied by the Per Unit Price.
14
(iii) Subject to the terms and conditions of this
Agreement, VitalStream shall issue and sell to each Purchaser and each Purchaser
shall purchase from VitalStream, for the Purchase Price, a number of Shares of
New Preferred and Additional Warrants equal to the number of Shares of New
Preferred set forth opposite such Purchaser's name on Annex 1 attached hereto
under the heading "Number of Shares of New Preferred" and the number of
Additional Warrants set forth opposite such Purchaser's name hereto under the
heading "Number of Additional Warrants." The sale of the Preferred Units to each
Purchaser hereunder shall constitute a separate sale.
2B. Exchange of Original Notes for Amended and Restated Notes.
(i) VitalStream has duly authorized the issuance,
pursuant to the terms of this Agreement, of the Amended and Restated Notes and
the issuance of such Amended and Restated Notes in exchange for the cancellation
by the respective holder of Original Notes with a principal amount identical to
the Amended and Restated Note issued in the Exchange. The Amended and Restated
Notes are, subject to the terms of the Amended and Restated Notes, convertible
into shares of Common Stock, Conversion Preferred, Preferred Equity Securities
and Other Company Securities.
(ii) Subject to the terms and conditions of this
Agreement, VitalStream shall issue to each Purchaser holding an Original Note,
upon delivery by such Purchaser for cancellation of the Original Note registered
in such Purchaser's name and for no additional consideration, an Amended and
Restated Note with a principal amount equal to the outstanding principal amount
of the cancelled Original Note registered in such Purchaser's name or its
nominee's name. With respect to each Purchaser, the principal amount of and
accrued interest under the Original Notes to be cancelled in the Exchange is set
forth opposite such Purchaser's name on Annex 2 attached hereto under the
heading "Principal Amount of (and Accrued Interest Under) Original Notes," and
the principal amount of and accrued interest under the Amended and Restated
Notes to be issued in the Exchange is set forth opposite such Purchaser's name
on Annex 2 attached hereto under the heading "Principal Amount of (and Accrued
Interest Under) Amended and Restated Notes." Upon consummation of the Exchange
and issuance of the Amended and Restated Notes, all Original Notes, including
all accrued but unpaid interest thereon and with respect thereto, shall
automatically be cancelled without any action on the part of any Person.
2C. Exchange of Original Warrants for Amended and Restated
Warrants.
(i) VitalStream has duly authorized the issuance,
pursuant to the terms of this Agreement, of the Amended and Restated Warrants
and the issuance of such Amended and Restated Warrants in exchange for the
cancellation of Original Warrants relating to an identical number of shares of
Common Stock. The Amended and Restated Warrants are exercisable for shares of
Common Stock.
(ii) Subject to the terms and conditions of this
Agreement, VitalStream shall issue to each Purchaser holding an Original
Warrant, upon delivery by such Purchaser for cancellation of the Original
Warrant(s) registered in such Purchaser's name and for no additional
consideration, an Amended and Restated Warrant to purchase a number of shares of
Common
15
Stock equal to the number of shares of Common Stock purchasable pursuant to the
terms of the cancelled Original Warrant(s) registered in such Purchaser's name
or its nominee's name. With respect to each Purchaser, the number set forth in
subsection (a) of the definition of "Warrant Shares" contained in the Original
Warrants held by such Purchaser to be cancelled in the Exchange is set forth
opposite such Purchaser's name on Annex 2 attached hereto under the heading
"Warrant Share Amount of Original Warrants," and the number to be set forth in
subsection (a) of the definition of "Warrant Shares" contained in the Amended
and Restated Warrant to be issued in the Exchange is set forth opposite such
Purchaser's name on Annex 2 attached hereto under the heading "Warrant Share
Amount of Restated Warrant." Upon consummation of the Exchange and issuance of
the Amended and Restated Warrants, the Original Warrants shall automatically be
cancelled in the Exchange without any action on the part of any person.
2D. The Closing.
(i) Closing. The closing (the "Closing") of the (a)
issuance, sale and purchase of the shares of New Preferred and Additional
Warrants under this Agreement, (b) the Exchange of the Original Notes for the
Amended and Restated Notes and (c) the Exchange of the Original Warrants for the
Amended and Restated Warrants shall, subject to the satisfaction or waiver of
all conditions to the obligations of the parties hereto to consummate the
Closing (other than conditions with respect to actions the parties hereto will
take at the Closing itself), take place at the offices of VitalStream located at
Xxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000 commencing at 9:00 a.m. local
time on the date which is one day following satisfaction of the conditions to
the Closing set forth in Section 3 or such other date as mutually agreed upon
among the parties hereto in writing (the "Closing Date").
(ii) At the Closing, VitalStream shall deliver to each
Purchaser (A) an instrument evidencing the shares of New Preferred and
Additional Warrant to be purchased by such Purchaser 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, (B) an instrument evidencing the Amended and Restated
Note to be issued to each Purchaser holding an Original Note, payable to such
Purchaser or its nominee, in exchange for the Original Note delivered to
VitalStream for cancellation at the Closing and (C) an instrument evidencing the
Amended and Restated Warrant to be issued to each Purchaser holding an Original
Warrant, registered in such Purchaser's or its nominee's name, in exchange for
the Original Warrant delivered to VitalStream for cancellation at the Closing.
Section 3. Conditions of each Purchaser's Obligations at the
Closing.
3A. Conditions of each Purchaser's Obligations at the Closing.
The obligation of each Purchaser to purchase and pay for the Preferred Units at
the Closing, and, if such Purchaser is a holder of Original Notes and Original
Warrants, to exchange such Purchaser's Original Notes for Amended and Restated
Notes and such Purchaser's Original Warrants for Amended and Restated Warrants
at 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 such Purchaser to the extent permitted by applicable
Law:
16
(i) Representations and Warranties; Covenants. The
representations and warranties of VitalStream contained in Section 7 of this
Agreement shall be true and correct in all material respects at and as of 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 representations or warranties made as of a specific date, which
shall be true and correct in all material respects as of such date and except
for any representations and warranties which are qualified by a specific
materially standard, which shall be true and correct subject only to the
specific materiality standard contained in the respective representation or
warranty). 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 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.
(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 the 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 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 (or with respect to filings not required to be made at or before Closing,
shall be prepared to make) all filings under all applicable federal and state
securities Laws necessary to consummate (A) the issuance and sale of the
Preferred Units, (B) the Exchange (including the issuance of the Amended and
Restated Notes and the Amended and Restated Warrants) and (C) the issuance of
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, 2003.
(vi) Registration Agreement. The Registration Agreement
shall have been executed and delivered by VitalStream and shall be in full force
and effect.
(vii) Investor Rights Agreement. The Investor Rights
Agreement shall have been executed and delivered by VitalStream and each of the
parties thereto other than any Affiliates of Dolphin and shall be in full force
and effect.
(viii) Guaranty. The Guaranty shall have been executed and
delivered by VitalStream and each VitalStream Subsidiary and shall be in full
force and effect.
17
(ix) Opinion of VitalStream's Counsel. Purchasers shall
have received an executed copy of the VitalStream Counsel Opinion.
(x) Sale of New Preferred and Additional Warrants to each
Purchaser. VitalStream shall have simultaneously issued and sold to each
Purchaser the shares of New Preferred and Additional Warrants to be purchased by
such Purchaser hereunder at the Closing and VitalStream shall have received
payment therefore in full.
(xi) Closing Documents. VitalStream shall have delivered
to each Purchaser all of the following documents:
(a) an Officer's Certificate, dated as of the
Closing Date, stating that the conditions specified in Section 3A(i)
through Section 3A(v) 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 New Preferred and Additional Warrants, the consummation of
the Exchange (including the issuance of the Amended and Restated Notes
for the Original Notes and the Amended and Restated Warrants for the
Original Warrants), the reservation for issuance of a number of shares
of Common Stock sufficient for conversion of the New Preferred, the
Amended and Restated Notes and the Conversion Preferred, the
reservation for issuance of a number of shares of Conversion Preferred
sufficient for conversion of the Amended and Restated 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) copies of the Articles of Incorporation and
Bylaws of VitalStream, each as in effect on the Closing Date, certified
by an officer of VitalStream;
(d) a copy of a certificate of good standing
from the Secretary of State of the State of Nevada dated within ten
(10) days of the 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.
(xii) Certificate of Designation. The Certificate of
Designation shall have been filed with and received by the Nevada Secretary of
State.
18
(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 the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to each Purchaser and its special counsel.
(xiv) Payment of Purchasers' Attorneys Fees. VitalStream
shall have reimbursed Dolphin for all fees and expenses of legal counsel, up to
a maximum aggregate amount of Fifty Thousand Dollars ($50,000), incurred in
connection with the preparation and review of this Agreement and the other
Transaction Agreements to the extent evidenced by detailed billing invoices
received by VitalStream three or more business days prior to the Closing.
(xv) No Event of Default. No Event of Default (as defined
in the Subsequent Notes) shall have occurred and be continuing under the Initial
Notes or Subsequent Notes.
(xvi) No Bankruptcy. Neither VitalStream nor any of its
Subsidiaries shall have sought protection pursuant to any Bankruptcy Law. No
Person shall have initiated any Claim or proceedings under any Bankruptcy Law
against VitalStream or any of its Subsidiaries.
(xvii) Exchange of Original Notes. All of the Original Notes
shall have been exchanged pursuant to the Exchange for the Amended and Restated
Notes and the Amended and Restated Notes shall be in full force and effect.
(xviii) Exchange of Warrants. All of the Original Warrants
shall have been exchanged pursuant to the Exchange for the Amended and Restated
Warrants and the Amended and Restated Warrants shall be in full force and
effect.
(xix) Intercreditor Agreement. Dolphin Fund II and Alliance
Bank shall have amended the Alliance Intercreditor Agreement (with the consent
of VitalStream and certain VitalStream Subsidiaries) as necessary in order to
reflect the transactions contemplated by this Agreement.
(xx) Security Agreement. VitalStream, VitalStream, Inc.
VitalStream Broadcasting Corporation and Dolphin Bank shall have amended and
restated the Dolphin Security Agreement as necessary in order to reflect the
transactions contemplated by this Agreement.
Section 4. Conditions of VitalStream's Obligations at the
Closings.
4A. Conditions of VitalStream's Obligations at the Closing.
The obligation of VitalStream to issue and sell the shares of New Preferred and
the Additional Warrants to the Purchasers at the Closing and to exchange the
Amended and Restated Notes for the Original Notes and exchange the Amended and
Restated Warrants for the Original Warrants at 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
to the extent permitted by applicable Law:
19
(i) Representations and Warranties; Covenants. The
representations and warranties of each of the Purchasers contained in Section 8B
hereof shall be true and correct in all material respects at and as of 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 representations or warranties made as of a specific date, which
shall be true and correct in all material respects as of such date and except
for any representations and warranties which are qualified by materiality, which
shall be true and correct subject only to the materiality qualification
contained in the respective representation or warranty). 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 the 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) Sale of New Preferred and Additional Warrants to each
Purchaser. Each Purchaser shall have paid at the Closing the Purchase Price
required under this Agreement to be paid for the New Preferred and the
Additional Warrants to be purchased hereunder, delivered for cancellation of all
of their Original Notes in exchange for Amended and Restated Notes and delivered
for cancellation of all of their Original Warrants in exchange for Amended and
Restated Warrants.
(iv) 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.
(v) 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 the Closing and all documents incident thereto shall
be reasonably satisfactory in form and substance to VitalStream and its special
counsel.
(vi) Registration Agreement. The Registration Agreement
shall have been executed and delivered by all parties thereto other than
VitalStream and shall be in full force and effect.
(vii) Investor Rights Agreement. The Investor Rights
Agreement shall have been executed and delivered by all parties thereto other
than VitalStream and shall be in full force and effect.
(viii) Certificate of Designation. The Certificate of
Designation shall have been filed with and received by the Nevada Secretary of
State.
20
(ix) Intercreditor Agreements. Dolphin and Alliance Bank
shall have executed and delivered counterpart signature pages to an amended
Alliance Intercreditor Agreement as necessary in order to reflect the
transactions contemplated by this Agreement.
Section 5. Covenants.
5A. Reservation of Common Stock and Conversion Preferred.
VitalStream shall at all times until expiration or termination of the Amended
and Restated Notes, Series A Preferred, Conversion Preferred and Warrants, as
applicable, 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 Amended and Restated Notes, Series A Preferred,
Conversion Preferred and Warrants, as applicable, and exercise of the Warrants,
such number of shares of Underlying Common Stock issuable upon the conversion of
all outstanding Amended and Restated Notes and Preferred Shares and exercise of
all outstanding Warrants. VitalStream shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Preferred,
solely for the purpose of issuance upon the conversion of the Amended and
Restated Notes, such number of shares of Conversion Preferred issuable upon the
conversion of all outstanding Amended and Restated Notes. All shares of
Underlying Common Stock or Conversion 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 shall take all such
actions as may be necessary to assure that all such shares of Underlying Common
Stock or Conversion 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
Conversion 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, except where
VitalStream's failure to so possess, maintain, own or have a license to use such
Intellectual Rights would not have a VitalStream Material Adverse Effect.
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, except where VitalStream's
failure to take such action or failure to take such action, or such infringement
or misappropriation, would not have a VitalStream Material Adverse Effect. For
purposes of clarification, the parties agree that the grant of a Lien with
respect to Intellectual Property rights otherwise permitted by the Transaction
Agreements does not constitute any action which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights.
The covenants set forth in this Section 5B shall expire simultaneously with the
expiration or termination of the covenants set forth in Section 8 of the Amended
and Restated Notes.
5C. Compliance with Agreements. VitalStream shall perform and
observe all of its obligations to each holder of Amended and Restated Notes,
Preferred Shares, Warrants and
00
Xxxxxxxxxx Xxxxxx Stock as set forth in this Agreement and each of the other
Transaction Agreements.
5D. 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 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. The covenants set forth in this Section 5D shall expire on the
date the Equity Securities and Debt Securities constituting the Restricted
Securities immediately following the Closing cease to be Restricted Securities.
5E. Information Rights. VitalStream shall deliver to Dolphin,
upon request, so long as the Underlying Common Stock held by Dolphin or an
Affiliated of Dolphin 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; provided, however, in connection with the receipt of any materials
and other information by Dolphin pursuant to this Section 5E, Dolphin shall sign
a confidentiality agreement in form and substance reasonably satisfactory to
Dolphin and VitalStream to the extent required by Regulation FD promulgated
under the Securities Act or any other securities law or regulation that would,
absent such confidentiality agreement, require public disclosure of the
information learned by Dolphin at such meeting or through the receipt of such
information or materials.
5F. 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.
5G. Attorneys Fees. Within thirty (30) days of the Closing,
Dolphin shall deliver to VitalStream a detailed billing invoice for fees and
expenses of legal counsel that were not paid by VitalStream at or before the
Closing and that were incurred by Dolphin in connection with the preparation and
review of this Agreement and the other Transaction Agreements (including the
preparation and review of any agreement prepared following June 1, 2003 in
contemplation of any proposed transactions with VitalStream or any VitalStream
Subsidiary involving an
22
additional investment in VitalStream or related to the amendment or restatement
of the Original Notes) and the consummation of the Closing. Within ten (10) days
of the receipt of such detailed billing invoice, VitalStream shall reimburse
Dolphin for all fees and expenses of legal counsel that are reflected on such
detailed billing invoice, up to a maximum aggregate amount of Fifty Thousand
Dollars ($50,000) when combined with all fees and expenses paid by VitalStream
at or before the Closing, and that were incurred in connection with the
preparation and review of this Agreement and the other Transaction Agreements
(including the preparation and review of any agreement prepared following June
1, 2003 in contemplation of any proposed transactions with VitalStream or any
VitalStream Subsidiary involving an additional investment in VitalStream or
related to the amendment or restatement of the Original Notes) and the
consummation of the Closing.
5H. Filing of Certificate of Designation.
If it has not done so before the date this Agreement is executed by all
parties thereto, as soon as possible following the execution and delivery of
this Agreement by all parties thereto, VitalStream shall deliver a fully
executed Certificate of Designation to the Secretary of State of the State of
Nevada and take such commercially reasonable steps as are necessary to cause the
Certificate of Designation to be filed by the Secretary of State of the State of
Nevada.
Section 6. Nature of Restricted Securities; Transfer of
Restricted Securities; General Transfer Procedure.
6A. General Provisions.
(i) Each Purchaser acknowledges and agrees that the
Amended and Restated Notes, Preferred Shares 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 Amended and Restated
Notes, Preferred Shares, 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, 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 (to the extent such Purchaser is party to
the Investor Rights
23
Agreement) the Amended and Restated Notes, Preferred Shares, Warrants and the
Underlying Common Stock and the transfer of any such Equity Securities is
subject to the terms of the Investor Rights Agreement and the terms and
provisions 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
8B(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
8B(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 8B(ii) of this Agreement from
the certificates for such Restricted Securities.
Section 7. Representations and Warranties of VitalStream and
the VitalStream Subsidiaries. As a material inducement to the Purchasers to
enter into this Agreement, exchange the Original Notes and Original Warrants,
and purchase the Preferred Units thereunder, 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 Closing Date (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). For purposes of this Section 7, any matter
disclosed on a Schedule in respect of a particular representation will be deemed
to have been disclosed on a different Schedule in respect of a representation
calling for a reasonably similar or related type of disclosure (even if such
matter may have been omitted from such different Schedule), if and only to the
extent that, it is reasonably clear from a reading of the disclosure on any such
Schedule that it applies to such other Schedule.
24
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 7(a) attached
hereto, the execution and delivery by VitalStream of this Agreement and the
other Transaction Agreements to which VitalStream or any VitalStream Subsidiary
is a party, and the fulfillment of and compliance with the respective terms
hereof and thereof by VitalStream or any VitalStream Subsidiary 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) Immediately prior to the Closing, the authorized
capital stock of VitalStream shall consist of (a) 290,000,000 shares of Common
Stock, 31,158,392 of which shares of Common Stock shall be issued and
outstanding and (b) 10,000,000 shares of Preferred Stock, none of which were
issued and outstanding immediately prior to the Closing. VitalStream does not
have outstanding immediately following the Closing any Equity Securities, except
as set forth on Schedule 7(b) attached hereto. Except as required by the
Articles of Incorporation, as of the Closing, VitalStream is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its Equity Securities. As of the Closing, all of the outstanding
shares of VitalStream's capital stock are validly issued, fully paid and
nonassessable. Immediately following the Closing, the Common Stock issuable upon
the (1) conversion of the Amended and Restated Notes shall represent 15.18% of
the sum of (A) the number of shares of Common Stock issuable upon conversion of
the Amended and Restated Notes plus (B) the number of shares of Fully Diluted
Common Stock and (2) exercise of the Warrants shall represent 4.05% 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. Except as
set forth under the title "Newly Issued Shares" on Schedule 7(b), VitalStream
has not issued any Equity Securities since January 15, 2003.
25
(ii) Except as set forth in Schedule 7(b) attached hereto
or as contemplated by the transactions set forth in this Agreement, (i) as of
the date of the stockholder list attached as part of Schedule 7(b) 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 authorized, granted or issued by
VitalStream or any VitalStream Subsidiary or, to VitalStream's Knowledge, any
other Person, 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 7(b) attached hereto or
as contemplated by the transactions set forth in this Agreement, 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 in respect thereof. Immediately prior to the
Closing, other than the Prior Investor Rights Agreement (as defined in the
Investor Rights Agreement) and the AKKAD Agreement or as contemplated by the
transactions set forth in this 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 to
which VitalStream or any VitalStream Subsidiary is a party (or, to the Knowledge
of VitalStream, by and between any other Person). 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 Prior Investor Rights
Agreement, there are no statutory or contractual stockholders preemptive rights
or rights of refusal with respect to the issuance of the Amended and Restated
Notes, Additional Warrants, Amended and Restated Warrants, the Preferred Shares
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 8B of this Agreement) the
offer, exchange, sale and/or issuance of the Amended and Restated Notes,
Additional Warrants, the Preferred Shares and Amended and Restated Warrants
under this Agreement or the issuance of the Underlying Common Stock upon
conversion of the Amended and Restated Notes or Preferred Shares, or exercise of
the Additional Warrants or Amended and Restated Warrants, do not require
registration under the Securities Act or any applicable state securities Laws.
To VitalStream's Knowledge, other than the Transaction Agreements, and the AKKAD
Agreement, there are no agreements or proxies between VitalStream's stockholders
with respect to the voting or transfer of VitalStream's Equity Securities or
Debt Securities or with respect to any other aspect of VitalStream's affairs
other than as set forth in the Articles of Incorporation.
(iv) As of immediately prior to the Closing, the number of
shares of Common Stock outstanding for the purposes of the definition of "Fully
Diluted Common Stock" as defined in the Original Notes was equal to 30,790,086
shares of Common Stock (the "Closing Date Issued Fully Diluted Common Stock).
Notwithstanding any other provision of this Agreement,
26
in the event of breach by VitalStream of the representation and warranty set
forth in the immediately preceding sentence, the number of shares of Common
Stock set forth in subsection (a) of the definition of "Fully Diluted
Outstanding Common Stock" in any Transaction Document shall be increased by that
number of shares of Common Stock equal to the number of shares of Common Stock
outstanding immediately prior to the Closing in excess of the number of shares
of Common Stock set forth in the definition of Closing Date Issued Fully Diluted
Common Stock. VitalStream has issued all shares of Common Stock which may be
issued or issuable by VitalStream pursuant to (x) Section 2(c), Section 2(e) or
Section 2(f) of the Asset Purchase Agreement, as in effect on the date hereof
and (y) Section 1.4(c)(iv), Section 1.4(c)(v) and Section 1.4(c)(vi) of the
Merger Agreement. Notwithstanding any other provision of this Agreement, in the
event of breach by VitalStream of the representation and warranty set forth in
the immediately preceding sentence, the number of shares of Common Stock set
forth in subsection (a) of the definition of "Fully Diluted Outstanding Common
Stock" in any Transaction Document shall be increased by that number of shares
of Common Stock equal to the number of shares issued by VitalStream pursuant to
(x) Section 2(c), Section 2(e) or Section 2(f) of the Asset Purchase Agreement,
as in effect on the date hereof and (y) Section 1.4(c)(iv), Section 1.4(c)(v)
and Section 1.4(c)(vi) of the Merger Agreement. Notwithstanding any other
provision of this Agreement (including with respect to Section 8A), this
representation and warrant shall survive the Closing and continue until sixty
(60) days after the expiration of all applicable statute of limitations
(including all periods of extension, whether automatic or permissive).
7C. Issuance and Commitment of the Additional Convertible
Notes and Additional Warrants. The issuance, sale and delivery of the Preferred
Shares and Additional Warrants and consummation of the Exchange (including the
issuance of the Amended and Restated Notes and the Amended and Restated
Warrants) in accordance with this Agreement and the issuance of the Underlying
Common Stock upon conversion of the Amended and Restated Notes and Preferred
Shares and exercise of the Additional Warrants and Amended and Restated
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 Amended and
Restated Notes, Additional Warrants, Preferred Shares and Amended and Restated
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, except for any Lien permitted under applicable
Law to be created without VitalStream's Knowledge by any other Party with rights
therein. Subject to the accuracy of the representations, acknowledgements and
agreements made by each Purchaser in this Agreement, the offer, exchange and/or
sale of the Amended and Restated Notes, Additional Warrants, Preferred Shares
and Amended and Restated Warrants and the issuance of the Underlying Common
Stock upon conversion of the Amended and Restated Notes and Preferred Shares and
exercise of the Additional Warrants and Amended and Restated 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
27
"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. Organization, Corporate Power and Licenses. Except as set
forth on Schedule 7(f), each of VitalStream and its direct operating
Subsidiaries, VitalStream, Inc. and VitalStream Broadcasting Corporation
(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 charter documents and bylaws to which Purchasers have been
provided access reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
7G. Subsidiaries. Schedule 7(g) attached hereto sets forth a
complete and accurate list of the Subsidiaries of VitalStream. Except as set
forth on Schedule 7(g) attached hereto, VitalStream, 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 (except for Permitted Liens) and not subject to any option or
right to purchase any such shares. Except as set forth on Schedule 7(g) 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.
7H. Securities and Exchange Commission Reports and VitalStream
Financial Statements. Since April 23, 2002, VitalStream and the VitalStream
Subsidiaries have filed with the Securities and Exchange Commission (as such
documents have since the time of their filing been amended or supplemented, the
"VitalStream Securities and Exchange Commission Reports"), all documents (other
than preliminary material) that VitalStream and the VitalStream Subsidiaries
were required to file with the Securities and Exchange Commission since such
date. 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 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
28
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. Each VitalStream Subsidiary is
treated as a consolidated Subsidiary of VitalStream in the VitalStream Financial
Statements for all periods covered thereby.
7I. Notes and Accounts Receivable.
(i) All notes and accounts receivable of VitalStream and
the VitalStream Subsidiaries are reflected properly on their 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 VitalStream Balance Sheet as of June 30, 2003 (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 (except in respect
of receivables of less than $75,000 in the aggregate). Schedule 7(i) attached
hereto contains a listing of all of the accounts receivable of VitalStream and
the VitalStream Subsidiaries as of June 30, 2003 (except in respect of accounts
and debts of less than $75,000 in the aggregate). Except as set forth on
Schedule 7(i) attached hereto (and except in respect of accounts and debts of
less than $75,000 in the aggregate), as of June 30, 2003, (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 7(i) is complete and accurate.
(ii) Schedule 7(i) 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
owed (or have any Liability with respect to) as of June 30, 2003 (except in
respect of accounts and debts of less than $75,000 in the aggregate). Except as
set forth on Schedule 7(i) attached hereto, as of June 30, 2003, 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 (except in respect of accounts and debts of less than $75,000 in the
aggregate).
7J. Guaranties. Other than as set forth in the Guaranty,
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.
7K. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 7(k), neither VitalStream nor any VitalStream Subsidiary has any
Liability (and, to VitalStream's or the VitalStream Subsidiaries' Knowledge,
there is no basis for any present or future Claim giving
29
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
VitalStream Balance Sheet as of June 30, 2003 (rather than in any notes thereto)
and (iii) Liabilities which have arisen after the date of the VitalStream
Balance Sheet as of June 30, 2003 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).
7L. Absence of Certain Developments. Except as set forth in
Schedule 7(l) attached hereto and for the transactions contemplated by this
Agreement and the other Transaction Agreements, since June 30, 2003, 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, and except as set
forth in Schedule 7(l), since June 30, 2003 :
(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;
(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 $75,000 to which VitalStream or any
VitalStream Subsidiary is a party or by which any of them are bound (except in
respect of agreements, contract or licenses between VitalStream or VitalStream
Subsidiaries and their respective customers);
(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 $75,000 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) either involving more than $50,000 or 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 involving more
than $75,000 singly or $250,000 in the aggregate;
30
(viii) 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 $75,000 or outside the
Ordinary Course of Business;
(ix) 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;
(x) neither VitalStream nor any VitalStream Subsidiary
has experienced any damage, destruction, or loss (whether or not covered by
insurance) to its properties or assets other than in the Ordinary Course of
Business;
(xi) 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;; and
(xii) Neither VitalStream nor any VitalStream Subsidiary
has not collected any accounts receivable out of the Ordinary Course of
Business; and
(xiii) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, neither VitalStream nor any VitalStream Subsidiary has entered into
or created any legally binding obligation committing them to any of the
foregoing
7M. Compliance With Laws. Except as set forth on Schedule
7(m), to their respective Knowledge, neither VitalStream nor any VitalStream
Subsidiary has violated any material Law or Legal Requirement and neither
VitalStream nor any VitalStream Subsidiary has received any written notice
alleging any such violation. For purposes of this Section 7(m), a "material Law
or Legal Requirement" is a law or requirement, the violation of which would
reasonably be expected to result in a VitalStream Material Adverse Effect.
7N. Litigation. Except as set forth in Schedule 7(n) 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.
7O. Contracts and Commitments. Set forth in Schedule 7(o)
attached hereto is a true and complete listing of all material contracts that
have been or are or were required to be included as exhibits to the VitalStream
Securities and Exchange Commission Reports since April 23, 2002.
7P. Tax Matters.
Since April 23, 2002, except as set forth in Schedule 7(p)
attached hereto:
(i) Each of VitalStream and the VitalStream Subsidiaries
has filed all Tax Returns which it is required to file under applicable Laws.
31
(ii) All such Tax Returns are complete and correct and
have been prepared in compliance with all applicable Laws in all material
respects.
(iii) To VitalStream's Knowledge, 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 has withheld and
paid over to the appropriate taxing authority all Taxes which it was or is
required to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third party, except for any immaterial amounts.
(iv) 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. Since June
30, 2003, neither VitalStream nor any VitalStream Subsidiary has incurred any
Liability for Taxes other than in the Ordinary Course of Business. 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 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.
7Q. 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 7(q) 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, 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 Purchasers 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 7(q) attached hereto, with respect to
each VitalStream Real Property Lease:
(a) 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 7(q) 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;
32
(b) 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;
(c) 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;
(d) 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;
(e) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, 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;
(f) 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;
(g) Neither VitalStream nor any VitalStream
Subsidiary has collaterally assigned or granted any other Lien in such
VitalStream Real Property Lease or any interest therein (other than
Permitted Liens); and
(h) 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 (other than
Permitted Liens).
(iii) All Improvements included in the VitalStream Leased
Real Property ("Improvements") are in good condition and repair (except for
ordinary wear and tear and conditions or a state of repair that do not
materially affect the use of such Improvements ) and sufficient for the
operation of VitalStream's and any VitalStream Subsidiary's business as
currently conducted thereon or contemplated to be conducted thereon. To
VitalStream's or the VitalStream Subsidiaries' Knowledge, 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 material 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, to VitalStream's or the VitalStream
Subsidiaries' Knowledge, 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,
33
administrative actions or similar proceedings, pending or, to VitalStream's or
the VitalStream Subsidiaries' Knowledge, 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) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, the VitalStream Leased Real Property is in compliance with all
applicable Laws (including any Environmental, Health and Safety Requirements,
zoning, planning, subdivision, platting or similar Laws) affecting the
VitalStream Leased Real Property ("Real Property Laws"), and the current use and
occupancy of the VitalStream Leased Real Property and operation 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, to VitalStream's or the VitalStream Subsidiaries'
Knowledge, there is no basis for the issuance of any such notice or the taking
of any action for such violation. To VitalStream's or the VitalStream
Subsidiaries' Knowledge, 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.
7R. Environmental Matters. Since April 23, 2002, except in
respect of the assets acquired pursuant to the Asset Purchase Agreement:
(i) Each of VitalStream and the VitalStream Subsidiaries
has complied and is in material compliance with all Environmental, Health and
Safety Requirements and all permits thereunder.
(ii) Neither VitalStream, the VitalStream Subsidiaries nor
any of their 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
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.
7S. Intellectual Property Rights.
(i) Except in respect of the assets purchased pursuant to
the Asset Purchase Agreement, 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 material Intellectual Property Rights
relating to, or used in connection with, the operation or
34
conduct of the business of VitalStream and the VitalStream Subsidiaries as
presently conducted (excluding any assets purchased pursuant to the Asset
Purchase Agreement, the "VitalStream Intellectual Property Rights"). The
VitalStream Intellectual Property Rights will be 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) Except a set forth on Schedule 7(s), 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, except in each case for any
alleged interference, infringement, misappropriation or conflict which would not
reasonably be expected to result in a VitalStream Material Adverse Effect or has
been resolved.
(iii) To the Knowledge of VitalStream, neither VitalStream
nor any VitalStream Subsidiary has ever received any Claim or notice alleging
any interference, infringement, conflict, misappropriation, or violation in
respect of the Intellectual Property Rights of any other Person (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, except a set forth on Schedule 7(s), VitalStream is not aware
of any facts that indicate a likelihood of any of the foregoing, except in each
case for any alleged interference, infringement, conflict, misappropriation or
violation which would not reasonably be expected to result in a VitalStream
Material Adverse Effect. 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,
except in each case for any possible interference, infringement,
misappropriation or conflict which would not reasonably be expected to result in
a VitalStream Material Adverse Effect or has been resolved.
(iv) Schedule 7(s) 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). With respect to each Intellectual
Property Right required to be identified on Schedule 7(s) 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) to the Knowledge of VitalStream no party to the
license, sublicense, agreement, or permission covering such VitalStream
Intellectual Property Right is in
35
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;
(c) 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;
(d) such VitalStream Intellectual Property Right is
not subject to any outstanding injunction, judgment, order, decree,
ruling or charge;
(e) 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.
(v) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, no VitalStream Intellectual Property Right is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge. No Claim is
pending or, except a set forth on Schedule 7(s),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 licenses expiring at the end of
the term of their respective license agreements (and not as a result of any act
or omission by VitalStream or any VitalStream Subsidiary, including, a failure
by VitalStream or any VitalStream Subsidiary to pay any required maintenance
fees).
7T. Employees.
(i) Except as set forth on Schedule 7(t) 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;
36
(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 xxxxxxx'x 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,
to VitalStream's Knowledge, 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.
7U. Employee Benefits.
(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 7(u) 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 7(u) 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 7(u) 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
37
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 Plans, all required
or recommended (in accordance with historical practices) payments, premiums,
contributions, reimbursements or accruals for the period ending June 30, 2003
shall have been made or properly accrued on the VitalStream Balance Sheet as of
June 30, 2003. None of the VitalStream Plans has any material unfunded
Liabilities which are not reflected on the VitalStream Balance Sheet.
(vi) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, 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. To
VitalStream's or the VitalStream Subsidiaries' Knowledge, 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, to VitalStream's or the
VitalStream Subsidiaries' Knowledge, 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 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) To VitalStream's or the VitalStream Subsidiaries'
Knowledge, 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.
7V. Insurance. To VitalStream's or the VitalStream
Subsidiaries' Knowledge, 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, except a set forth on Schedule 7(v),
neither VitalStream nor any of the VitalStream Subsidiaries has ever been denied
insurance coverage. To VitalStream's or the VitalStream Subsidiaries' Knowledge,
the insurance coverage of VitalStream and the VitalStream Subsidiaries is
adequate for the operation and conduct of their business. To VitalStream's or
the VitalStream Subsidiaries' Knowledge, the reserves set forth on the
VitalStream Balance Sheet as of June 30, 2003 is adequate to cover all known
potential Liabilities with respect to all self-insurance or co-insurance
programs.
7W. Affiliate Transactions. Except as set forth on the
attached Schedule 7(w) attached hereto or in the VitalStream Securities and
Exchange Commission Reports, no officer,
38
director, or other Affiliate of VitalStream or any of the VitalStream
Subsidiaries (excluding Dolphin and Xxxxxxxxx Xxxxxxxxx and their respective
Affiliates) 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, except in respect of amounts less than $60,000,
or in connection with employment offer letters, or rights or options to
subscribe for or purchase VitalStream Equity Securities that have been granted
pursuant to approval of the Board of Directors since the Dolphin Director (as
defined in the Investor Rights Agreement) has been a member of the Board of
Directors.
7X. Disclosure. This Agreement, together with the VitalStream
Securities and Exchange Commission Reports and the annexes, schedules, exhibits
and certificates supplied by VitalStream or on behalf of VitalStream or any of
the other 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, as of the date hereof or thereof, as the case may be, 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.
7Y. Customers.
(i) Except as set forth on Schedule 7(y) attached hereto,
no customer of VitalStream or any VitalStream
Subsidiary which generated monthly revenues in the
one month period ended June 30, 2003 that accounted
for in excess of $5,000 of the monthly revenues of
the 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.
(ii) Set forth on Schedule 7(y) is the Churn Rate of
VitalStream on a consolidated basis for the six month
period ended August 31, 2003.
Section 8. Miscellaneous.
8A. Remedies; Survival of Representations, Warranties and
Covenants; Indemnification.
(i) Each holder of Amended and Restated Notes, Preferred
Shares, 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
39
addition to, and not in derogation of, any statutory, equitable, or common law
remedy any holder of Amended and Restated Notes, Preferred Shares, 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, this Agreement.
(ii) The representations, warranties, covenants and
agreements set forth in this Agreement shall survive the Closing (a) with
respect to the matters covered by the representations and warranties contained
in Sections 7A, 7B, 7P, 7R and 7U, 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 in its entirety on or prior to the Closing Date, until the date which
is nine (9) months after the Closing Date; and (c) in the case of any covenant
or agreement contained in this Agreement not to be performed in its entirety on
or prior to the Closing Date, until the date which is nine (9) months after such
covenant terminates or expires. The designation of a survival period with
respect to a representation, warranty, covenant or agreement shall not extend
the term of such representation, warranty, covenant or agreement but shall
merely set the last date on which notice of a Claim with respect to such
representation, warranty, covenant or agreement under this Agreement may be
delivered.
(iii) In consideration of each Purchaser's execution and
delivery of this Agreement, participation in the Exchange and acquiring the New
Preferred and Additional Warrants hereunder and in addition to all of
VitalStream'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 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 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 Indemnitee which is permissible
under applicable Law.
40
8B. 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 regarding the terms and conditions of the
offering of the Amended and Restated Notes, Preferred Shares and
Warrants and the business, 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 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 Amended and Restated Notes,
Preferred Shares, Warrants and/or Underlying Common Stock. If other
than an individual, such Purchaser also represents it has not been
organized for the purpose of acquiring the Amended and Restated Notes,
Preferred Shares, Warrants or Underlying Common Stock.
(d) Accredited Investor.
(1) Dolphin Fund II hereby represents that
each of its constituent entities is an "institutional buyer," 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.
(2) Each Purchaser hereby represents that it
is an "accredited investor," as that term is defined in Section 501(a)
promulgated under the Securities Act, as presently in effect.
(e) Investment Intent; Own Account. Each Purchaser
hereby represents and warrants 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.
41
(f) Residence; Domicile. Each Purchaser hereby
represents and warrants that (1) if such Purchaser is not an
individual, the principal office of such Purchaser is located at the
address set forth with respect to such Purchaser on Annex 1 attached
hereto, and (2) if such Purchaser is an individual, the principal
residence of such Purchaser is located at the address set forth with
respect to such Purchaser on Annex 1 hereto.
(g) Ownership of Original Notes and Original
Warrants. Each Purchaser identified on Annex 2 represents and warrants
that its owns, free of any Lien, commitment to sell or similar
encumbrance, (i) Original Notes with an aggregate principal amount of
the principal amount identified next to such Purchaser's name in the
column entitled "Principal Amount of Original Notes" on the Schedule of
Participants in Exchange attached hereto as Annex 2, and (ii) all of
the Original Warrants identified next to such Purchaser's name in the
column entitled "Warrant Amount of Original Warrants" on the Schedule
of Participants in Exchange attached hereto as Annex 2.
(h) Interested Person Representations. Each of the
Purchasers represents and warrants that either (i) such Purchaser does
not beneficially own directly or indirectly, and has not beneficially
owned directly or indirectly at any time during the three years
preceding the Closing Date, 10% or more of the voting power of the
outstanding shares of capital stock of VitalStream or (ii) if such
Purchaser beneficially owns directly or indirectly, or has beneficially
owned directly or indirectly at any time during the three years
preceding the Closing Date, 10% or more of the voting power of the
outstanding shares of capital stock of VitalStream, such Purchaser
first became the beneficial owner directly or indirectly of 10% or more
of the voting power of the outstanding shares of capital stock of
VitalStream (A) on November 1, 2002 as a result of the execution of the
Initial Asset Purchase Agreement, (B) on November 26, 2002, as a result
of the Initial Closing, (C) on January 15, 2003 as a result of the
Subsequent Closing and the consummation of the transactions
contemplated by the Asset Purchase Agreement or (D) on April 23, 2002,
as a result of the consummation of the merger contemplated by the
Merger Agreement.
(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, 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
42
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 SECURITIES EXCHANGE AND
PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 30, 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.
[Only if the purchaser is party to the Investor Rights Agreement]
THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO AN AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT, DATED AS OF SEPTEMBER 30, 2003,
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."
[With respect to the Amended and Restated Notes only, and only as long
as the Alliance Intercreditor Agreement remains effective]
THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO THAT
CERTAIN INTERCREDITOR AGREEMENT DATED JUNE 30, 2003, BY AND AMONG
ALLIANCE BANK, DOLPHIN COMMUNICATIONS FUND II, L.P. AND DOLPHIN
COMMUNICATIONS PARALLEL FUND II (NETHERLANDS), L.P.
8C. 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 Initial Note Purchase Agreement and the
Subsequent Note Purchase Agreement). Effective upon the Closing, all covenants
and agreements contained in Section 5 and Section 6 of the Initial Note Purchase
Agreement and Subsequent Note Purchase Agreement shall terminate and be of no
further effect (if not earlier terminated in accordance with the terms of such
agreements); provided, however, that such termination shall not constitute a
waiver of any Claims arising thereunder prior to such termination in accordance
with the terms of the Initial Note Purchase Agreement and Subsequent Note
Purchase Agreement. Effective upon the Closing that certain Guaranty dated
November 26, 2002 issued in connection with the
43
Initial Note Purchase Agreement shall be amended and restated pursuant to the
Guaranty attached hereto as Exhibit E.
8D. 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 Amended and Restated Notes, Preferred
Shares, Warrants or Underlying Common Stock are also for the benefit of, and
enforceable by, any subsequent holder of such Amended and Restated Notes,
Preferred Shares, Warrants or Underlying Common Stock other than a purchaser or
holder that acquired such Amended and Restated Notes, Preferred Shares, Warrants
or Underlying Common Stock (a) in connection with a re-sale of such any such
securities that was registered under the Securities Act, or (b) following a sale
of such securities to the public pursuant to Rule 144 (including Rule 144(k)).
8E. 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.
8F. 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.
8G. 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 Amended and Restated Note,
Preferred Share, Warrant or Underlying Common Stock at the address set forth in
VitalStream's records and (iii) VitalStream at the address indicated below:
00
Xxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Chief Operating Officer
with a copies (which shall not constitute
notice to VitalStream) to:
Xxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: General Counsel
Stoel Rives LLP
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
or to such other address, to the attention of such other Person and/or with such
other copy or 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.
8H. Consent to Amendments and Waivers. Except as otherwise
provided herein, no modification, amendment or waiver of any provision of this
Agreement shall be effective against VitalStream or the holders of the Amended
and Restated Notes, Conversion Preferred, New Preferred, 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 Amended and Restated Notes or Conversion Preferred, the holders
of a majority of the Underlying Common Stock issuable with respect to the
Amended and Restated Notes and Conversion Preferred, (iii) in the case of any
amendment, modification or waiver affecting the rights and interests of the
holders of the Amended and Restated Warrants and the Additional Warrants, the
holders of a majority of the Underling Common Stock issuable with respect to the
Amended and Restated Warrants and the Additional Warrants, (iv) in the case of
any amendment, modification or waiver affecting the rights and interests of the
holders of the New Preferred, the holders of a majority of the Underling Common
Stock issuable with respect to the New Preferred. Notwithstanding the foregoing,
without the consent of any other Person, VitalStream may restate Annex 1 and
Annex 2 attached hereto to 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 Preferred Shares, Amended and Restated 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,
45
Convertible Notes, Preferred Shares, Warrants or Underlying Common Stock held by
VitalStream or any of the VitalStream Subsidiaries shall not be deemed to be
outstanding.
8I. 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.
8J. 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. 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.
8K. 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.
8L. Registered Holders; Ownership. As used in this Agreement
and each of the other Transaction Agreements, references to a "holder" of
Preferred Shares, Convertible Notes, Warrants or Underlying Common Stock shall
mean the registered holder of such Preferred Shares, 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
Preferred Shares, 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.
8M. Understanding Among the Purchasers
(i) The determination of each Purchaser to purchase the
New Preferred, Amended and Restated 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.
46
(ii) Each Purchaser acknowledges that Xxxxxxxx & Xxxxx LLP
is acting as counsel solely to Dolphin and that Xxxxxxxx & Xxxxx LLP is not
acting as counsel to any other Purchaser in connection with the transactions
contemplated by this Agreement or any Transaction Agreement.
(iii) Each Purchaser acknowledges that Stoel Rives is
acting as counsel solely to VitalStream and the VitalStream Subsidiaries and
that Stoel Rives is not acting as counsel to any Purchaser in connection with
the transactions contemplated by this Agreement or any Transaction Agreement.
8N. 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 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.
8O. 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 NEW PREFERRED, 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
47
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.
8P. WAIVER OF RIGHT TO JURY TRIAL. VITALSTREAM AND EACH HOLDER
OF NEW PREFERRED, 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 8P 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 INVESTMENT HEREUNDER IF THIS
SECTION 8P WERE NOT PART OF THIS AGREEMENT AND THE OTHER TRANSACTION AGREEMENTS.
8Q. Approval and Consent. To the extent that the transactions
contemplated by this Agreement and the other Transaction Agreements are, absent
written authorization and approval of the holders of a majority of the principal
amount of the Original Notes, prohibited by Section 5C of the Subsequent Note
Purchase Agreement, each of the Purchasers that holds an Original Note hereby
authorizes and approves the transactions contemplated by this Agreement and the
other Transaction Documents.
8R. Consideration for Warrants and Notes. VitalStream and
Dolphin agree to use their good faith commercially reasonable efforts to
determine the fair market value of the Original Warrants, Additional Warrants
and Amended and Restated Warrants and not to file any federal, state and local
Tax returns in a manner which is inconsistent with such valuation and allocation
or take any contrary position with any Taxing authority.
48
IN WITNESS WHEREOF, the parties have executed this Securities
Exchange and Purchase Agreement as of the date first written above.
COMPANY:
VITALSTREAM HOLDINGS, INC.
By:_________________________________
Name: Xxxx X. Xxxxxxx
Title: President
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:___________________________
Name: Xxxxxxx X. Xxxxxx
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:___________________________
Name: Xxxxxxx X. Xxxxxx
Title: President
____________________________________
XXXXXX X. XXXXXX, AN INDIVIDUAL
49
[SIGNATURE PAGE FOR SECURITIES EXCHANGE AND PURCHASE AGREEMENT (CONTINUED)]
PURCHASERS (CONTINUED):
____________________________________
XXXXX XXXXX, AN INDIVIDUAL
____________________________________
XXXXX X. XXXXXX, AN INDIVIDUAL
____________________________________
XXXXXXX X. XXXXX, AN INDIVIDUAL
____________________________________
XXXXXX XXXX, AN INDIVIDUAL
50
ANNEX 1
SCHEDULE OF PURCHASERS OF NEW PREFERRED
AND ADDITIONAL WARRANTS
NUMBER OF SHARES OF NUMBER OF ADDITIONAL
NAMES AND ADDRESSES NEW PREFERRED WARRANTS PURCHASE PRICE
------------------- ------------------- -------------------- --------------
1. Dolphin Communications Fund II, 495 412,500 $495,000
L.P.
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy (which shall not
constitute
notice to the Dolphin) to:
Xxxxxxxx & Xxxxx
Citigroup Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
2. Dolphin Communications Parallel 55 45,833 $ 55,000
Fund II (Netherlands), L.P.
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy (which shall not
constitute
notice to the Dolphin) to:
Xxxxxxxx & Xxxxx
Citigroup Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
Xxxxxx X. Xxxxxx 50 41,667 $ 50,000
0 Xxxxxxxxx
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
00
XXXXX 0
XXXXXXXX XX XXXXXXXXXX XX XXX XXXXXXXXX
AND ADDITIONAL WARRANTS
NUMBER OF SHARES OF NUMBER OF ADDITIONAL
NAMES AND ADDRESSES NEW PREFERRED WARRANTS PURCHASE PRICE
------------------- ------------------- -------------------- --------------
Xxxxx Xxxxx 25 20,833 $ 25,000
0000 X. Xxxxxx Xxxxxx
Xxxxx Xxx, XX 00000
Telephone: (000) 000-0000
Xxxxx Xxxxxx 50 41,667 $ 50,000
0000 Xxxxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Xxxxxxx X. Xxxxx 200 166,667 $200,000
0 Xxxxxxxxx
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Xxxxxx Xxxx 25 20,833 $ 25,000
00000 Xxxxx Xxxxx Xxxx
Xxxxxx Xxxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
TOTAL ---- ------- --------
900 750,000 $900,000
52
ANNEX 2
SCHEDULE OF PARTICIPANTS IN THE EXCHANGE
PRINCIPAL AMOUNT
PRINCIPAL AMOUNT OF (AND ACCRUED PRO RATA SHARE
OF (AND ACCRUED INTEREST UNDER) AMOUNT OF PRO RATA SHARE
INTEREST UNDER) AMENDED AND ORIGINAL AMOUNT OF
NAMES AND ADDRESSES ORIGINAL NOTES RESTATED NOTES WARRANTS RESTATED WARRANTS
------------------- ---------------- ---------------- -------------- -----------------
3. Dolphin Communications Fund II, $ 367,691 $ 988,900 .899 .899
L.P. ($ 9,267.84) ($ 24,925.71)
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx $ 621,209
Xxx Xxxx, XX 00000 (15,657.87)
Attention: Xx. Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy (which shall not
constitute
notice to the Dolphin) to:
Xxxxxxxx & Xxxxx
Citigroup Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
4. Dolphin Communications Parallel $ 41,309 $ 111,100 .101 .101
Fund II (Netherlands), L.P. ($ 1,041.21) ($ 2,800.33)
000 Xxxxxxxxx Xxxxxx
00xx Xxxxx $ 69,791
Xxx Xxxx, XX 00000 ($ 1,759.12)
Attention: Xx. Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy (which shall not
constitute
notice to the Dolphin) to:
Xxxxxxxx & Xxxxx
Citigroup Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
------------ ------------ ---- ----
TOTAL $ 1,100,000 $ 1,100,000 1.00 1.00
($ 27,726.04) ($ 27,726.04)
53
EXHIBIT A
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Additional Warrant
[see attached]
54
EXHIBIT B
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Amended and Restated Note
[see attached]
55
EXHIBIT C
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Amended and Restated Warrant
[see attached]
56
EXHIBIT D
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Certificate of Designation
[see attached]
57
EXHIBIT E
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Guaranty
[see attached]
58
EXHIBIT F
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Investor Rights Agreement
[see attached]
59
EXHIBIT G
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of Registration Agreement
[see attached]
60
EXHIBIT H
TO
SECURITIES EXCHANGE AND PURCHASE AGREEMENT
Form of VitalStream Counsel Opinion
[see attached]
61
