[VitalStream Letterhead]

August 2, 2006
 

Eric Mersch
2278 Moresca Avenue
Henderson, Nevada 89119

Dear Eric,

On behalf of VitalStream, I am pleased to offer you the exempt position of Chief
Financial Officer starting on August 9, 2006. In this capacity you will report
to Philip Kaplan, President and COO, and myself, Chief Executive Officer &
Chairman.

Base compensation for the position if $180,000 annually ($7,500 per pay period)
with two pay periods per month in accordance with VitalStream’s payroll
practices. Additionally, you will be eligible to receive an annual bonus
targeted at 30% of your annual base alary. The bonus criteria would be based on
achieving predetermined goals set by the Company’s Board of Directors or its
Compensation Committee, which for the balance of 2006 will be on a pro rata
basis. The actual amount of bonus payment would take into consideration under or
over achievement of the various components of the bonus criteria and therefore
could result in a payment less than or greater than 30% of your annual base
salary.
 
Management will request that the VitalStream Board of Directors grant to you an
option to purchase 125,000 shares of VitalStream Holdings, Inc. common stock at
an exercise price equal to the closing price of the stock on the date of grant.
 
It is important to note that our company adheres to the policy of
employment-at-will, which enables either the company or the employee to
terminate employment at any time with or without reason.
 
Any controversy or claim arising out of, or relating to your employment with the
company or termination of employment, shall be settled by final and binding
arbitration in the city of Irvine, State of California, and governed by the law
in and of the State of California and administered by the American Arbitration
Association under its National Rules for Resolution of Employment Disputes.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court of competent jurisdiction.
 
The claims covered by this agreement to arbitrate include, but are not limited
to, claims for breach of contract, covenant of good faith and fair dealing, wage
claims, wrongful termination in violation of public policy, retaliatory or
constructive discharge, wrongful demotion, discrimination, harassment, or
retaliation prohibited by law, tort claims, claims for violation of public
policy or any other claim of a violation of a legally protected right afforded
by State or Federal law, including, but not limited to, the California Fair
Employment and Housing Act, Title VII of the Civil Rights Act, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, and the
California Labor Code.
 
This agreement to arbitrate excludes claims for normal workers’ compensation
benefits and unemployment insurance benefits. You and VitalStream agree that
neither shall initiate nor file any lawsuit or administrative action (other than
a charge with the National Labor Relation Board, the Equal Employment
Opportunity Commission, or the Department of Fair Employment and Housing) in any
way related to any claim covered by this agreement to arbitrate.
 
 
 
 

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Letter to Eric Mersch
Page 2
August 2, 2006
 
Your first ninety (90) days of employment at VitalStream are considered an
Introductory Period, and during that period you will accrue holiday pay benefits
described in the VitalStream Employee Manual, and benefits otherwise required by
law. PTO benefits described in the Employee Manual will begin accruing after the
successful completion of your Introductory Period. Under our current insurance
plan, you will be eligible for health, vision and dental insurance beginning on
the first day of the month following your date of hire.
 
ViatalStream is a multimedia content company. In the ordinary course of
business, VitalStream and its clients handle and display a wide variety of
material that may or may not seem offensive depending on the individual.
Therefore, by signing this letter, you acknowledge and accept that you any be
directly or indirectly exposed to such content as part of your employment at
VitalStream, and you assume the risk of such exposure.
 
In accordance with Vital Stream policy, final confirmation of this employment
offier is contingent upon the successful completion of VitalStream’s background
verification process. This offer is also contingent on your reviewing and
signing our standard employee documents, such as our confidentiality and
work-for-hire agreement and employee manual.
 
This letter shall constitute the entire Agreement between the parties regarding
terms of employment, and shall supersede any and all understandings on this
matter, whether written or oral, and shall not be deemed amended waived, or
modified unless such amendment, waiver or modification is in writing and signed
by an authorized office of VitalStream.
 
Most importantly, we work hard, we have fun, and we plan to continue developing
a world-class content delivery company. We are pleased to have you as part of
our team.
 
Unless accepted by you, this offer expires at the close of business on Monday,
August 7, 2006. Please indicate your acceptance of this offer by signing this
letter where indicated below and returning a copy to VitalStream’s Human
Resources department by confidential fax at (949) 743-2006.

Sincerely,
VitalStream Holdings, Inc.

/s/ Jack L. Waterman
Chief Executive Officer & Chairman
 
 

Agreed & Accepted: Date
 
 
/s/ Eric Mersch                                         
Eric Mersch
 
 
August 2, 2006