Exhibit 10.39

PURCHASE AGREEMENT

 

                         THIS PURCHASE AGREEMENT ("Agreement") is made as of February 3, 2006 (the "Effective Date") by and among VitalStream Holdings, Inc., a Nevada corporation (the "Company"), and the Investors set forth on the signature pages affixed hereto (each an "Investor" and collectively the "Investors").

Recitals

            A.             The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2), and/or Regulation D ("Regulation D"), as promulgated by the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended; and

            B.             Each of the Investors wishes to purchase from the Company, and the Company wishes to sell and issue to each of the Investors, upon the terms and conditions stated in this Agreement, such number of shares of the Company's Common Stock, par value $0.001 per share (the "Common Stock") as set forth below such Investor's name on such Investor's signature page hereto; and

            C.             Contemporaneous with the sale of the Common Stock, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company will agree to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, and applicable state securities laws.

                        In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

            1.             Definitions.  In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

                        "Affiliate" means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with, such Person.

                        "Business Day" means a day, other than a Saturday or Sunday, on which banks in Los Angeles, California, are open for the general transaction of business.

                        "Common Stock" has the meaning set forth in the Recitals. 

                        "Company's Knowledge" (including any derivation thereof such as "known" or "knowing") means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company, after due inquiry, including, but not limited to, reviewing this Agreement.

                        "Confidential Information" means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

                        "Control" (including the terms "controlling", "controlled by" or "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

                        "Intellectual Property" means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

                        "Material Adverse Effect" means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), prospects or business of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.  

                        "Person" means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

                        "Purchase Price" means, with respect to each Investor, the Purchase Price designated on the counterpart signature page signed by such Investor.  The Purchase Price shall be calculated based upon a purchase price of $1.30 per Share.

                        "Registration Statement" shall mean any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of the Registration Rights Agreement by and among the Company and the Investors as of the date hereof, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

                        "Required Investors" means a group of Investors (i) that have subscribed to purchase, and if Closing has occurred, have purchased, no fewer than 60% of the Shares subscribed for as of the applicable date, and (ii) that includes each Investor that has subscribed to purchase, or if Closing has occurred, has purchased, Shares with a Purchase Price of $2,000,000 or more.  For purposes of the subscription and purchase requirements of subsection (ii), the subscriptions and purchases of all Persons or investment accounts directed or controlled by a single Person shall be aggregated, and, with respect to such group of related Persons or investment accounts, the inclusion requirement of subsection (ii) shall be satisfied if the group of Investors includes the Person that directs or controls such related Persons or accounts.  

                        "SEC Filings" has the meaning set forth in Section 4.6.

                        "Shares" means the shares of Common Stock being purchased by the Investors hereunder.

                        "Subsidiary" means a Person of which the Company holds, directly or indirectly, more than 40% of the outstanding equity interests.  

                        "Transaction Documents" means this Agreement and the Registration Rights Agreement.

                        "Transfer Agent" means Progressive Transfer or the successor transfer agent of the Company.

                        "1933 Act" means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

                        "1934 Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

            2.             Purchase and Sale of the Shares.  Subject to the terms and conditions of this Agreement, on the Closing Date, each of the Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to the Investors, severally and not jointly, the Shares in the respective amounts set forth opposite the Investors' names on the signature pages attached hereto in exchange for the Purchase Price as specified in Section 3 below, with the aggregate Purchase Price paid for all the Shares not to exceed $14,000,000.

            3.             Closing.  On the Effective Date, the Company shall deliver to Parr Waddoups Brown Gee & Loveless (the "Closing Agent"), in trust, irrevocable instructions to the Transfer Agent to issue certificates, registered in such name or names as the Investors may designate, representing the Shares within two (2) Business Days of receipt of such instructions, together with instructions to the Closing Agent that such instructions are to be held for release to the Transfer Agent only upon (i) the Closing Agent's receipt of funds from the Investors constituting in the aggregate the minimum amount required by Section 6.2(d) hereof,  (ii) the Closing Agent's receipt of the Investor's Purchase Price from such Investor, and (ii) the Closing Agent's receipt of notification from the Company that all conditions precedent to Closing with respect to the Company and such Investor have been satisfied (or waived in a manner consistent with this Agreement).  Upon such receipt by the Closing Agent of the instructions described above, the Closing Agent shall provide notice thereof to the Investors (which notice may be by facsimile or telephone), and each Investor shall promptly, but no more than one Business Day thereafter, cause a wire transfer in same-day funds to be sent to the account of the Closing Agent set forth immediately following this paragraph in an amount representing such Investor's Purchase Price as set forth on the signature pages to this Agreement.  On the date (the "Closing Date") the conditions set forth in subsections (i), (ii) and (iii) above are satisfied with respect to any Investors, the irrevocable instructions to the Transfer Agent shall be delivered to the Transfer Agent (the "Closing"), after which the Purchase Price paid by such Investors shall be transferred to the Company.  To the extent the Closing does not occur within three Business Days of the date the Closing Agent receives from any Investor such Investor's Purchase Price, the Closing Agent shall, absent written instructions to the contrary from such Investor, by the next Business Day, commence commercially reasonable efforts to return to such Investor such Investor's Purchase Price.  The Closing of the purchase and sale of the Shares shall take place at the offices of the Company, or at such other location and on such other date as the Company and the Investors shall mutually agree.  To the extent permitted by Section 6, the transactions contemplated by this Agreement may occur in more than one Closing, in which case the terms "Closing" and "Closing Date" shall, for each Investor, refer to or be based upon the Closing(s) in which such Investor participates.

            The Purchase Price shall be wire transferred to the following account:

	Chase Bank