VitalStream (VSTH)

[Rager]

(R/S) VitalStream Completes $14 Million Equity Financing (R/S)
Monday February 6, 6:30 am ET
Announces Plans for Reverse Stock Split and Application for Nasdaq Listing


IRVINE, Calif.--(BUSINESS WIRE)--Feb. 6, 2006--VitalStream Holdings, Inc. (OTCBB:VSTH - News), the world leader in audio and video streaming, today announced that its board of directors has approved several significant initiatives that significantly strengthen the Company financially and strategically, positioning VitalStream for strong growth in 2006 and beyond. Specifically, the Company is announcing the successful completion of a private financing totaling $14 million in cash for VitalStream, its intention to enact a reverse split of VitalStream common stock designed to allow the company to qualify for listing of its common stock on the Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market) and eventually the Nasdaq National Market, and as announced last week, the addition of Mel Harris, former president of both Paramount Pictures and Sony Pictures Entertainment, to the VitalStream board of directors.
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"As we formalized our 2006 plan, VitalStream's board recognized that in order to accelerate our ability to capture our share of the significant operating and acquisition opportunities in the streaming media applications market, we needed to strengthen our balance sheet, expose the company to a wider investor base, and deepen our strategic relationships. We have now taken significant steps towards achieving all of these objectives," said Jack Waterman, Chairman and Chief Executive Officer of VitalStream.

"We are particularly pleased by the strong show of support from two new investors, Winslow Management Company of Boston, who was the lead in this financing round, and Crosslink Capital. In addition, demand from several existing investors, including Columbia Acorn Fund, was so strong that we were able to complete the transaction without a placement agent. Simultaneously, we believe that enacting a reverse split as the final step towards our ultimate objective of moving to the Nasdaq National Market will make the company more attractive to a broader financial base over time. Furthermore, the addition of someone of Mel Harris' stature to our board is a very strong signal that VitalStream intends to strengthen its leadership and expand its presence in the streaming media industry. With a business built around one of the fastest growing segments of the Internet sector and a financial model featuring strong recurring revenues, we are reiterating our expectations to report record revenues for the fourth quarter of 2005 and positive EBITDA in 2006, excluding stock-based compensation and absent any potential merger or strategic investment opportunities. We look forward to discussing these positive events and our 2005 financial results on our regularly scheduled fourth quarter and fiscal year conference call on February 13, 2006," concluded Mr. Waterman.

The financing transaction was accomplished through a private placement of 10,769,230 shares of common stock of the Company at a price of $1.30 per share, for aggregate proceeds of $14 million. The parties closed the private placement on February 3, 2006. The total number of the Company's common shares outstanding after the financing is 83,854,939. The Company has agreed to promptly file a registration statement registering the resale of the shares of common stock purchased in the financing transaction.

In order to meet the minimum stock price for listing on the Nasdaq Capital Market and the Nasdaq National Market, VitalStream's board of directors has approved, and recommended for approval by shareholders, a resolution authorizing the Board of Directors to effect, or in its discretion not effect, a reverse stock split of all outstanding shares of common stock within a range of 1:2 to 1:5.5 (one post-consolidation share for every two pre-consolidation shares to one post-consolidation share for every five and one-half pre-consolidation shares) at anytime prior to December 31, 2006. The Company intends to immediately seek consent for the reverse split from a majority of shareholders through distribution of a consent solicitation statement, and, assuming shareholder consent is obtained, to effect the reverse split and file an application with Nasdaq within the next few months. The record date for shareholders entitled to give their consent is February 3, 2006. It is anticipated that if the Company's application is successful, its shares of common stock will begin trading on the Nasdaq Capital Market on a post-split basis in April or May of this year.

Conference Call Information

VitalStream will report financial results for its fourth quarter and fiscal 2005 on Monday, February 13, 2006 after the close of market. The company will host a conference call for analysts and investors at 2:00 p.m. PT (5:00 p.m. ET). To participate on the live call, analysts and investors should dial 800-218-0713 at least ten minutes prior to the call. To participate on the live call from outside the U.S., dial 303-262-2140. VitalStream will also offer a live webcast of the conference call, accessible from the "Investor Relations" section of the company's Web site (http://www.vitalstream.com/investor/). A telephonic replay of the conference call will also be available for 48 hours by dialing 800-405-2236 and entering passcode 11051956#.

About VitalStream

VitalStream, Inc., a wholly owned subsidiary of VitalStream Holdings, Inc. (OTCBB:VSTH - News), is the world's leading streaming solutions provider and international content delivery network that provides the reliable choice for delivering streaming media to global audiences. VitalStream provides complete solutions, including video and audio streaming, live event broadcasting, media asset management and consulting services that seamlessly integrate with today's leading streaming media technologies. VitalStream's innovative tool set streamlines the process of delivering the leading streaming media formats, Macromedia® Flash(TM) and Microsoft® Windows Media®, over the Internet. VitalStream's worldwide content delivery network is certified for quality transfer in the United States, Europe and Asia and delivers much of today's most popular online media. VitalStream serves an international customer base including Fortune 500 corporations, movie studios, news broadcasters, music and radio companies, advertising agencies and educational institutions. For more information, visit www.vitalstream.com.

Forward Looking Statements

This news release contains forward-looking statements made by VitalStream in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the use of words or phrases such as "believe," "could," "may," "anticipate," "intend," "expect," "will," "plan," "estimate," "continue," "should" or "would." Actual results may differ materially from those indicated by these statements. The following factors, among others, could cause actual results to differ materially from those described in any forward-looking statements: the risk that the company may not experience strong growth despite a strong cash position on its balance sheet, including the risk that the company's revenue may decrease on a quarter over quarter basis because of a slower than projected growth in the demand for digital broadcast and streaming services; the risks that our existing customers may cease to use our services and/or may not use our services at the projected rate; uncertainties regarding the future demand for our products and services generally despite our recent infrastructure investments, expansion into other markets and product enhancements; the risk that the trend toward increasing broadband penetration may not continue; our inability to compete or the competitive advantage of companies that compete or may compete in our markets; the possibility that our new product offerings developed independently or based upon or incorporating our partners' proprietary technology may not predictably be accepted by our customers, perform as anticipated or be available longer-term due to arrangements that may be terminable under certain circumstances; we may be unable to keep up with evolving industry standards and changing user needs; the risk that inflation or technical, security or legal may increase our operating costs above those projected; the risk that our stock may not be accepted for listing on the Nasdaq Capital Market or Nasdaq National Market; and/or uncertainties regarding our ability to pursue our proposed business strategy, including successfully finding and operating strategic acquisition opportunities. More detailed information about these factors and others are discussed in "Risk Factors," and elsewhere in the most recently filed Annual Report on Form 10-K of VitalStream Holdings, Inc., and other documents periodically filed by VitalStream Holdings, Inc. with the SEC. Such forward-looking statements speak only as of the date of this release. The company is under no obligation and expressly disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

VitalStream is a registered trademark of VitalStream, Inc. All other names or marks are the property of their respective owners.



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Contact:
The Blueshirt Group (for VitalStream)
Alex Wellins or Jennifer Jarman, 415-217-7722 (Investors)



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Source: VitalStream Holdings, Inc.