Second Amend to Loan Agr


    Exhibit
      10.1

    
 

    SECOND
      AMENDMENT

     

    TO
      LOAN
      AND SECURITY AGREEMENT

     

    This
      Second Amendment to Loan and Security Agreement (this “Amendment”) is entered
      into as of July 17, 2006, by and between COMERICA BANK (“Bank”) and VITALSTREAM
      HOLDINGS, INC., VITALSTREAM, INC. and VITALSTREAM BROADCASTING CORPORATION
      (each
      a “Borrower” and collectively, "Borrowers").

     

    RECITALS

     

    Borrowers
      and Bank are parties to that certain Loan and Security Agreement dated as of
      October 7, 2004, as amended from time to time, including by that certain First
      Amendment to Loan and Security Agreement dated as of December 31, 2005
      (collectively, the “Agreement”). The parties desire to amend the Agreement in
      accordance with the terms of this Amendment.

     

    NOW,
      THEREFORE, the parties agree as follows:

     

    1.  
      Section
      1.1
      of the
      Agreement is hereby amended by adding or amending and restated the following
      defined terms:

     

    "'Letter
      of Credit" means a commercial or standby letter of credit or similar undertaking
      issued by Bank at Parent's request in accordance with Section
      2.1(b)(iii)."

     

    "'Letter
      of Credit Sublimit' means a sublimit for Letters of Credit under the Revolving
      Line not to exceed $1,000,000."

     

    "'Liquidity
      Ratio' means, with respect to any period, the ratio
      of (a)
      the sum of (i) Cash plus
      (ii) net
      trade Accounts, provided,
      however
      that
      such Accounts may comprise no more than 50% of the sum of the preceding clauses
      (i) and (ii), divided by
      (b) the
      sum of (i) the current and long term portions of all loans extended to Borrowers
      (including issued and outstanding letters of credit, except to the extent such
      letters of credit are cash secured) plus
      (ii) all
      capitalized leases; in each case as determined in accordance with GAAP,
      consistently applied."

     

    "'Permitted
      Indebtedness' means:

     

    (a) Indebtedness
      of Borrowers in favor of Bank arising under this Agreement or any other Loan
      Document;

     

    (b) Indebtedness
      existing on the Closing Date and disclosed in the Schedule;

     

    (c) Indebtedness
      not to exceed Three Million Five Hundred Thousand Dollars ($3,500,000) in the
      aggregate in any fiscal year of Borrowers secured by a lien described in clause
      (c) of the defined term 'Permitted Liens;' provided such Indebtedness does
      not
      exceed the lesser of the cost or fair market value of the equipment financed
      with such Indebtedness;

     

    (d) Subordinated
      Debt; 

     

    (e) Indebtedness
      to trade creditors incurred in the ordinary course of business; and

     

    
      
         

      

      
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    (f) Extensions,
      refinancings and renewals of any items of Permitted Indebtedness, provided
      that
      the principal amount is not increased or the terms modified to impose more
      burdensome terms upon the respective Borrower or its Subsidiary, as the case
      may
      be."

     

    "'Permitted
      Liens' means the following:

     

    (a) Any
      Liens
      existing on the Closing Date and disclosed in the Schedule (excluding Liens
      to
      be satisfied with the proceeds of the Advances) or arising under this Agreement
      or the other Loan Documents;

     

    (b) Liens
      for
      taxes, fees, assessments or other governmental charges or levies, either not
      delinquent or being contested in good faith by appropriate proceedings and
      for
      which the relevant Borrower maintains adequate reserves, provided the same
      have
      no priority over any of Bank's security interests;

     

    (c) Liens
      not
      to exceed Three Million Five Hundred Thousand Dollars ($3,500,000) in the
      aggregate (i) upon or in any Equipment (other than Equipment financed by an
      Equipment Advance) acquired or held by a Borrower or any of its Subsidiaries
      to
      secure the purchase price of such Equipment or indebtedness incurred solely
      for
      the purpose of financing the acquisition or lease of such Equipment, or (ii)
      existing on such Equipment at the time of its acquisition, provided that the
      Lien is confined solely to the property so acquired and improvements thereon,
      and the proceeds of such Equipment;

     

    (d) Liens
      incurred in connection with the extension, renewal or refinancing of the
      indebtedness secured by Liens of the type described in clauses (a) through
      (c)
      above, provided that any extension, renewal or replacement Lien shall be limited
      to the property encumbered by the existing Lien and the principal amount of
      the
      indebtedness being extended, renewed or refinanced does not increase;


     

    (e) Liens
      arising from judgments, decrees or attachments in circumstances not constituting
      an Event of Default under Sections 8.5 or 8.9; and

     

    (f) Liens
      in
      favor of other financial institutions arising in connection with Borrower's
      deposit accounts held at such institutions to secured standard fees for deposit
      services charged by, but not financing made available by such institutions,
      provided that Bank has a perfected security interest in the amounts held in
      such
      deposit accounts."

     

    "'Revolving
      Line' means a Credit Extension of up to Two Million Two Hundred Thirty Five
      Thousand Dollars ($2,235,000) (inclusive of any amounts outstanding under the
      Letter of Credit Sublimit.)"

     

    2.  
      The
      defined term "EBITDA" set forth in Section
      1.1
      of the
      Agreement is hereby deleted.

     

    3.  
      Section
      2.1(b)(i)
      of the
      Agreement is hereby amended and restated in its entirety to read as
      follows:

     

    "(i) Amount.
      Subject
      to and upon the terms and conditions of this Agreement (1) Parent may request
      Advances in an aggregate outstanding amount not to exceed the Revolving Line,
      less any amounts outstanding under the Letter of Credit Sublimit, and (2)
      amounts borrowed pursuant to this Section 2.1(b) may be repaid and reborrowed
      at
      any time prior to the Revolving Maturity Date, at which time all Advances under
      this Section 2.1(b) shall be immediately due and payable. Borrowers may prepay
      any Advances without penalty or premium."

     

     

    
      
         

      

      
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    4.  
      New
      Section
      2.1(b)(iii)
      is
      hereby added to the Agreement to read in its entirety as follows:

     

    "(iii) Letter
      of Credit Sublimit.
      Subject
      to the availability under the Revolving Line, and in reliance on the
      representations and warranties of Borrowers set forth herein, at any time and
      from time to time from the date hereof through the Business Day immediately
      prior to the Revolving Maturity Date, Bank shall issue for the account of one
      or
      all of the Borrowers such Letters of Credit as Parent may request by delivering
      to Bank a duly executed letter of credit application on Bank's standard form;
      provided, however, that the outstanding and undrawn amounts under all such
      Letters of Credit (i) shall not at any time exceed the Letter of Credit
      Sublimit, and (ii) shall be deemed to constitute Advances for the purpose of
      calculating availability under the Revolving Line. Any drawn but unreimbursed
      amounts under any Letters of Credit shall be charged as Advances against the
      Revolving Line. All Letters of Credit shall be in form and substance acceptable
      to Bank in its sole discretion and shall be subject to the terms and conditions
      of Bank's form application and letter of credit agreement. Borrower will pay
      any
      standard issuance and other fees that Bank notifies Borrower it will charge
      for
      issuing and processing Letters of Credit."

     

    5.  
      New
      Section
      2.1(b)(iv)
      is
      hereby added to the Agreement to read in its entirety as follows:

     

    "(iv) Collateralization
      of Obligations Extending Beyond Maturity.
      If any
      Borrower has not secured to Bank's satisfaction its obligations with respect
      to
      any Letters of Credit by the Revolving Maturity Date, then, effective as of
      such
      date, the balance in any deposit accounts held by Bank and the certificates
      of
      deposit or time deposit accounts issued by Bank in any one or all of Borrowers'
      name (and any interest paid thereon or proceeds thereof, including any amounts
      payable upon the maturity or liquidation of such certificates or accounts),
      shall automatically secure such obligations to the extent of the then continuing
      or outstanding and undrawn Letters of Credit. Borrowers authorize Bank to hold
      such balances in pledge and to decline to honor any drafts thereon or any
      requests by any Borrower or any other Person to pay or otherwise transfer any
      part of such balances for so long as the Letters of Credit are outstanding
      or
      continue."

     

    6.  
      Section
      6.7 of
      the
      Agreement is hereby amended and restated in its entirety to read as
      follows:

     

    "6.7 Financial
      Covenants.
      Borrowers shall at all times maintain the following financial
      covenants:

     

    (a) Minimum
      Cash.
      A
      balance of Cash at Bank of not less (i) Three Million Dollars ($3,000,000)
      when
      aggregate outstanding Advances and Equipment Advances are less than or equal
      to
      Three Million Dollars ($3,000,000); and (ii) Three Million Five Hundred Thousand
      Dollars ($3,500,000) when aggregate outstanding Advances and Equipment Advances
      are greater than Three Million Dollars ($3,000,000). Borrowers may not request
      or receive Advances in order to comply with this Section 6.7(a).

     

    (b) Intentionally
      Omitted.

     

     

    
      
         

      

      
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    (c) Total
      Liabilities to Tangible Net Worth.
      A ratio
      of Total Liabilities to Tangible Net Worth of not more than 1.60 to
      1.00.

    


    (d) Minimum
      Liquidity Ratio.
      A
      Liquidity Ratio of not less than 1.40 to 1.00."

    


    7.  
      Exhibit
      C
      to the Agreement is hereby replaced with Exhibit C attached hereto.

     

    8.  
      No
      course
      of dealing on the part of Bank or its officers, nor any failure or delay in
      the
      exercise of any right by Bank, shall operate as a waiver thereof, and any single
      or partial exercise of any such right shall not preclude any later exercise
      of
      any such right. Bank’s failure at any time to require strict performance by a
      Borrower of any provision shall not affect any right of Bank thereafter to
      demand strict compliance and performance. Any suspension or waiver of a right
      must be in writing signed by an officer of Bank.

     

    9.  
      Unless
      otherwise defined, all initially capitalized terms in this Amendment shall
      be as
      defined in the Agreement. The Agreement, as amended hereby, shall be and remain
      in full force and effect in accordance with its respective terms and hereby
      is
      ratified and confirmed in all respects. Except as expressly set forth herein,
      the execution, delivery, and performance of this Amendment shall not operate
      as
      a waiver of, or as an amendment of, any right, power, or remedy of Bank under
      the Agreement, as in effect prior to the date hereof.

     

    10.  
      Borrowers
      represent and warrant that the Representations and Warranties contained in
      the
      Agreement are true and correct as of the date of this Amendment, and that no
      Event of Default has occurred and is continuing. 

     

    11.  
      As
      a
      condition to the effectiveness of this Amendment, Bank shall have received,
      in
      form and substance satisfactory to Bank, the following:

     

    (a) this
      Amendment, duly executed by each Borrower;

     

    (b) a
      Certificate of the Secretary of each Borrower with respect to incumbency and
      resolutions authorizing the execution and delivery of this
      Amendment;

     

    (c) a
      non-refundable amendment fee of $2,500, which may be debited from any of
      Borrowers' accounts;

     

    (d) all
      reasonable Bank Expenses incurred through the date of this Amendment, which
      may
      be debited from any of Borrower's accounts; 

     

    (e) such
      other documents, and completion of such other matters, as Bank may reasonably
      deem necessary or appropriate.

     

    12.  
      This
      Amendment may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one
      instrument.

     

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      of page intentionally left blank - Signature page follows]

     

    


     


    
      
         

      

      
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    IN
      WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
      date above written.

     

    
 

    
      
        	 	
                VITALSTREAM
                  HOLDINGS, INC.

                 

              
	 	By:	/s/
                Philip Kaplan
                
                

              
	 	 	
                Title:
                  President & COO

              
	 	 	 
	 	
                VITALSTREAM,
                  INC.

                 

              
	 	 	
                By:
                  /s/ Philip Kaplan
                  
                  

                

              
	 	 	
                Title:
                  President & COO

              
	 	 
	 	
                VITALSTREAM
                  BROADCASTING CORPORATION

                 

              
	 	
                By:
                  

              	
                /s/
                  Philip Kaplan
                  
                  

                

              
	 	 	
                Title:
                  President & COO

              
	 	 	 
	 	
                COMERICA
                  BANK

                 

              
	 	
                By:
                  

              	
                Gary
                  Reagan
                  
                  

                

              
	 	
                Title:

              	
                Senior
                  Vice President

              
	 	 	 


      

    

     

    
      
         

      

      
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    EXHIBIT C

     

    COMPLIANCE
      CERTIFICATE

     

    TO:        COMERICA
      BANK

     

    FROM:      VITALSTREAM
      HOLDINGS, INC., for itself and on behalf of all Borrowers

     

    The
      undersigned authorized officer of VITALSTREAM HOLDINGS, INC., for itself and
      on
      behalf of all Borrowers, hereby certifies that in accordance with the terms
      and
      conditions of the Loan and Security Agreement between Borrowers and Bank (the
      "Agreement"), (i) Each Borrower is in complete compliance for the period
      ending _______________ with all required covenants except as noted below and
      (ii) all representations and warranties of each Borrower stated in the
      Agreement are true and correct as of the date hereof. Attached herewith are
      the
      required documents supporting the above certification. The Officer further
      certifies that these are prepared in accordance with Generally Accepted
      Accounting Principles (GAAP) and are consistently applied from one period to
      the
      next except as explained in an accompanying letter or footnotes.

     

    Please
      indicate compliance status by circling Yes/No under "Complies"
      column.

     

    
      	
              Reporting
                Covenant

            	
              Required

            	
              Complies

            
	 	 	 	 
	
              Quarterly
                financial statements

            	
              Quarterly;
                within 45 days of Quarter end

            	
              Yes

            	
              No

            
	
              Annual
                (CPA Audited)

            	
              FYE
                within 90 days

            	
              Yes

            	
              No

            
	
              10K
                and 10Q

            	
              Within
                5 days of filing

            	
              Yes

            	
              No

            
	
              Compliance
                Cert.

            	
              Quarterly;
                within 45 days of Quarter end

            	
              Yes

            	
              No

            
	
              A/R
                Audit

            	
              Initial
                and Semi-Annual

            	
              Yes

            	
              No

            
	
              IP
                Report

            	
              Quarterly
                within 30 days

            	
              Yes

            	
              No

            
	
              Total
                amount of Borrowers' cash and investments

            	
              Amount:
                $________

            	 	 
	
              Total
                amount of Borrowers' cash and investments maintained with
                Bank

            	
              Amount:
                $________

            	 	 
	 	 	 	 
	
              Financial
                Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 	 	 	 	 
	
              Measured
                at all Times:

            	 	 	 	 
	
              Minimum
                Cash with Bank

            	 	
              $_____________

            	 	 
	
              -
                when aggregate Advances1≤
                 $3,000,000

            	
              $3,000,000

            	 	
              Yes

            	
              No

            
	
              -
                when aggregate Advances >  $3,000,000

            	
              $3,500,000

            	 	
              Yes

            	
              No

            
	 	 	 	 	 
	
              Measured
                on a Quarterly Basis

            	 	 	 	 
	
              Maximum
                Total Liabilities to  Tangible
                Net Worth

            	
              1.60:1.00

            	
              ______:1.00

            	
              Yes

            	
              No

            
	
              Minimum
                Liquidity Ratio

            	
              1.40:1.00

            	
              ______:1.00

            	
              Yes

            	
              No

            
	 	 	 	 	 
	 	 	 	 	 
	
              1
                includes Advances and Equipment
                Advances

            


    

    


    


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              Comments
                Regarding Exceptions:
                See Attached.

            	
              BANK
                USE ONLY

            
	 	 
	
              Sincerely,

            	
              Received
                by:       

            
	 	
              
                
 AUTHORIZED
                SIGNER

            
	
               

              

              SIGNATURE

            	
              Date:     
                
                
    

            
	
            	 
	 

              

              TITLE

            	
              Verified:   

            
	
            	
              
                
 AUTHORIZED
                SIGNER

            
	 	
              Date:
                      

            
	 

              

              DATE

            	 
	
            	
              Compliance
                Status

            	
              Yes

            	
              No

            
	 	 


    

    


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