Exhibit 10.4
PAC-WEST TELECOMM, INC.
J776 W. March Lane, Suite 250
Stockton, California 95207
November 14, 2006                                                            
SMH Capital Advisors, Inc.
4800 Qverton Plaza Suite 300
Fort Worth, TX 76109
Attn: Mr. Dwayne Moyers

Re:   Indenture, dated as of January 29, 1999 (the “Indenture”), among Pac-West
Telecomm, Inc. (the “Company”), as Issuer, and Wells Fargo Bank Minnesota, N.A.
(formerly known as Norwest Bank Minnesota, National Association), as indenture
trustee (the “Trustee”), with respect to the Company’s 13.5% Senior Notes due
2009 of the Company (the “Senior Notes”).

Ladies and Gentlemen:
     As you are aware, the Company is in the process of structuring a
comprehensive restructuring of the Company’s financial position pursuant to
which, among other things, (i) an affiliate of Columbia Ventures Corporation
(the “Investor”) is expected to purchase the Company’s senior secured credit
facility from Comerica Bank, which as of the date hereof has an outstanding
balance of approximately $8.8 million, and increase the maximum loan commitment
under such facility to $24.0 million, consisting of a $8.0 million revolving
credit facility and a $16.0 million term loan, in each case, upon and subject to
the terms of an Amended and Restated Loan and Security Agreement currently being
negotiated between the parties substantially in the form attached hereto as
Exhibit A and (ii) another affiliate of the Investor is expected to purchase for
aggregate consideration of approximately $1,000,000 shares of newly designated
Series B-1 Preferred Stock, par value $0.001 per share, and Series B-2 Preferred
Stock, par value $0.001 per share, of the Company, which are collectively
convertible into an aggregate of approximately 95% of the outstanding Common
Stock, par value $0.001 per share, of the Company. For purposes hereof, the
transactions referred to in clauses (i) and (ii) above are referred to as the
“Restructuring.”
     As part of the Restructuring, the Company expects to agree to offer to
exchange all of the outstanding Senior Notes for new 13.5% Senior Priority Notes
due 2009 (the “Priority Notes”) with such terms and conditions as are
substantially identical to the Senior Notes, except that the Priority Notes will
provide that (i) interest under the Priority Notes will not be payable until
maturity and (ii) the holders of the Priority Notes will have the right to
receive payment of all outstanding principal and accrued interest thereunder
before the holders of the Senior Notes will have the right to receive any
outstanding principal thereunder (the “Exchange Offer”). The Company expects to
conduct the Exchange Offer promptly following consummation of the Restructuring
under an exemption from registration pursuant to Section 3(a)(9) under the
Securities Act of 1933, as amended.

 

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SMH Capital Advisors, Inc.
November 14, 2006
Page 2
     Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Indenture.
     By executing this letter agreement below, you hereby:
     (1) represent that, to the best of your knowledge after reasonable
investigation, you have valid investment discretion with respect to $21 million
in principal amount of the Senior Notes (“Controlled Senior Notes”);
     (2) subject to consummation of the Restructuring, agree to exchange, or
cause to be exchanged, all Controlled Senior Notes for the same principal amount
of Priority Notes in the Exchange Offer pursuant to the terms and conditions
thereof;
     (3) subject to consummation of the Restructuring, agree to exercise such
rights as you may possess to cause the custodian(s) and/or DTC participant(s)
through which the Controlled Senior Notes are held and The Depository Trust
Company (“DTC”) and/or its nominee to execute such documents and take such as
actions as may be necessary to effect the exchange of all Controlled Notes as
provided paragraph 2 of this letter agreement;
     (4) subject to consummation of the Restructuring, agree not to direct the
sale, assignment, or other disposal of any of Controlled Senior Notes, or take
any other action with the intent to cause or influence your clients to withdraw
or terminate your investment discretion for the purpose of avoiding your
obligations under this letter agreement, in each case, at any time prior to
January 29, 2007;
     (5) acknowledge receipt of, among other due diligence materials, a
liquidation analysis estimating that in the event of the Company’s liquidation
on or about November 30, 2006, holders of Senior Notes would receive a
distribution of between 1.0% and approximately 10% of the outstanding principal
amount of the outstanding Senior Notes;
     (6) acknowledge that you have conducted your own due diligence in making
the decision to exchange the Controlled Senior Notes: and
     (7) acknowledge that the Company may possess material non-public
information regarding the business, assets, liabilities, results of operations,
financial condition, future projections and/or other aspects of the Company
and/or its affiliates, the Senior Notes and the Priority Notes;
provided, however, the Company acknowledges and agrees that your clients have
the right to terminate their advisory relationship with you at any time and that
upon any such termination by a client your right to exercise investment
discretion on their behalf with respect to any Senior Notes held for the benefit
of such client will cease and such Senior Notes will no longer be considered
Controlled Senior Notes.
     This letter agreement shall be binding on the undersigned and the
successors, heirs, personal representatives and assigns of the undersigned. The
parties agree that Pac-West

 

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SMH Capital Advisors, Inc.
November 14, 2006
Page 3
Acquisition Company LLC and Pac-West Funding Company LLC are third party
beneficiaries of this letter agreement.
     If any of the terms set forth in this letter, or any part thereof, should,
for any reason whatsoever, be declared invalid or unenforceable by a court of
competent jurisdiction, the validity or enforceability of the remainder of such
terms shall not thereby be adversely affected. This letter agreement sets forth
the entire understanding between the parties, there are no representations or
warranties except as expressly set forth in this letter, and this letter cannot
be changed or amended except by written agreement executed by authorized
representatives of each of the parties hereto. This letter shall be governed by
the laws of the State of New York, without regard to its conflict of law
principles. This letter may be signed in one or more counterparts.
* * * *

 

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SMH Capital Advisors, Inc.
November 14, 2006
Page 4
     To confirm our agreement, please sign in the space provided below and
return an originally executed copy to us.

     
 
  PAC-WEST TELECOMM, INC.
 
   
 
  /s/ Henry R. Carabelli
 
   
 
  Name: Henry R. Carabelli
 
  Title: CEO

Accepted and agreed to as of the date first written above:

 
SMH CAPITAL ADVISORS, INC.
 
/s/ Dwayne Moyers
 
Name: Dwayne Moyers
Title: Chief Investment Officer