COLLATERAL INSTALLMENT NOTE

July 2, 2004

$2,996,445.82

FOR VALUE RECEIVED

, PAC-WEST TELECOMM, INC., a corporation organized and existing under the laws
of the State of California ("Customer") hereby promises to pay to the order of
MERRILL LYNCH CAPITAL, a division of MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC., a corporation organized and existing under the laws of the State of
Delaware ("MLC"), in lawful money of the United States, the principal sum of Two
Million Nine Hundred Ninety Six Thousand Four Hundred Forty Five Thousand and
82/100 Dollars ($2,996,445.82) or if more or less, the aggregate amount advanced
by MLC to Customer pursuant to the Loan Agreement (the "Loan Amount"); together
with interest on the unpaid balance of the Loan Amount, from the Closing Date
until payment, at the Interest Rate, as follows:

DEFINITIONS.

(a) In addition to terms defined elsewhere in this Note, as used herein, the
following terms shall have the following meanings:

"Bank Note" shall mean that certain Note and Warrant Purchase Agreement between
Pac-West Telecomm, Inc. and Deutsche Bank AG, including whether now existing or
hereafter arising: (a) any amendments, restatements, or modifications thereto,
(b) any replacement note or other debt which was used to partially or fully pay
off or refinance such note, and (c) any assignments thereof.

"Closing Date" shall mean the date of advance of funds hereunder.

"Excess Interest" shall mean any amount or rate of interest (including the
Default Rate and, to the extent that they may be deemed to constitute interest,
any prepayment fees, late charges and other fees and charges) payable, charged
or received in connection with any of the Loan Documents which exceeds the
maximum amount or rate of interest permitted under applicable law.

"Interest Rate" shall mean a rate equal to the sum of (A) the Swap Rate plus (B)
(5.00%). "Swap Rate" shall mean the three-year Swap Rate as published on
Bloomberg Professional Servies screen "USSW", determined as of the closing swap
rate two business days prior to the Closing Date.

"Loan Agreement" shall mean that certain TERM LOAN AND SECURITY AGREEMENT dated
as of the date hereof between Customer and MLC, as the same may have been or may
hereafter be amended or supplemented.

"Note" shall mean this COLLATERAL INSTALLMENT NOTE.

(b) Capitalized terms used herein and not defined herein shall have the meaning
set forth in the Loan Agreement. Without limiting the foregoing, the terms "Loan
Documents", "Bankruptcy Event" and "Event of Default" shall have the respective
meanings set forth in the Loan Agreement.

2. PAYMENT AND OTHER TERMS. Customer shall pay the indebtedness under this Note
in 36 consecutive monthly installments commencing on the first day of the second
calendar month following the Closing Date and continuing on the first day of
each calendar month thereafter until this Note shall be paid in full. Each such
installment shall be in the amount which will fully amortize the Loan Amount
with accrued interest in equal monthly installments over a term of 36 months
(except that there shall be added to the first such installment an additional
amount equal to accrued interest at the Interest Rate from the date of funding
to the last day of the calendar month in which funding occurs).

Notwithstanding the foregoing for so long as the Bank Note exists (and is not
retired by virtue of the Bank Note holder exercising the warrants described
therein), if (a) the Bank Note, currently scheduled to mature on December 19,
2006, is not by October 19, 2006 renewed or otherwise extended to a least June
19, 2008 on substantially the same terms and conditions, or (b) a default occurs
under the terms of the Bank Note, the existence of which would permit the holder
thereof to declare or would otherwise cause the Bank Note to become due and
payable prior to the stated maturity thereof; then Customer shall pay to MLC, as
a balloon, all the then outstanding principal, interest, and other outstanding
Obligations to MLC on October 25, 2006 which is 55 days prior to initial
maturity date in the case of clause (a) above, or in the case of clause (b)
above, within five days after the occurrence of such default.

Each payment received hereunder shall be applied first to any fees and expenses
of MLC payable by Customer under the terms of the Loan Agreement (including,
without limitation, late charges), next to accrued interest at the Interest
Rate, with the balance applied on account of the unpaid principal hereof or in
such other manner as the holder hereof may from time to time hereinafter
determine for the allocation of such payments thereof. Any part of the principal
hereof or interest hereon or other sums payable hereunder or under the Loan
Agreement not paid within five (5) days of the applicable due date shall be
subject to a late charge equal to the lesser of (i) 5% of the overdue amount, or
(ii) the maximum amount permitted by law. All interest shall be computed on the
basis of actual days elapsed over a 360-day year.

Customer may not prepay this Note during the first eighteen (18) months
following the Closing Date, except that in the event of a Corporate Transaction
Event, Customer may prepay this Note, in whole, but not in part, during such
eighteen (18) month period, and such prepayment shall be accompanied by a
premium equal to four percent (4%) of the amount prepaid. Customer may for any
reason whatsoever, prepay this Note at any time on or after such eighteen (18)
month period following the Closing Date, in whole but not in part, upon 30 days
prior written notice to MLC, and such prepayment shall, if made on or after the
eighteenth (18th) month but prior to twenty-fourth (24th) month anniversary of
the Closing Date, be accompanied by a premium equal to three percent (3%) of the
amount prepaid, and if made any time thereafter, be accompanied by a premium
equal to one percent (1%) of the amount so prepaid. Except as set forth above,
there shall be no other premium, penalties or fees payable in connection with
any prepayments of the Loans, including without limitation, any breakage,
make-whole or similar premiums, penalties or fees. Notwithstanding anything
contained herein to the contrary, the prepayment premiums set forth above shall
not be payable in connection with any mandatory prepayment of the Loans,
including, without limitation, upon the acceleration of the Loans following an
Event of Default, upon the failure to extend the Bank Note, or upon the
permanent prepayment of Customer's obligations pursuant to Section 3.4(k) of the
Loan Agreement. For purposes of this definition, (i) a "year" means the 365 or
366-day, as applicable, commencing on the Closing Date or any anniversary of the
Closing Date and (ii) a "Corporate Transaction Event" means any transaction by
the Company of the type described in Sections 3.5(k) or 3.3(g) of the Loan
Agreement, and shall include the transfer by the Company of all or substantially
all of its assets into a joint venture.

This Note is the Collateral Installment Note referred to in, and is entitled to
all of the benefits of the Loan Agreement and any Loan Documents. If Customer
shall fail to pay when due any installment or other sum due hereunder, and any
such failure shall continue for more than five (5) Business Days from the due
date, or if any other Event of Default shall have occurred and be continuing,
then at the option of the holder hereof (or, upon the occurrence of any
Bankruptcy Event, automatically, without any action on the part of the holder
hereof), and in addition to all other rights and remedies available to such
holder under the Loan Agreement, any Loan Documents, and otherwise, the entire
Loan Amount at such time remaining unpaid, together with accrued interest
thereon and all other sums then owing by Customer under the Loan Agreement, may
be declared to be and thereby become immediately due and payable.

It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Note at or after maturity, whether by acceleration or otherwise, or shall affect
the obligation of Customer, which is also unconditional and absolute, to pay the
sums payable under this Note in accordance with its terms. Except as otherwise
expressly set forth herein or in the Loan Agreement, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this Note.

Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Note. Notwithstanding any provision to the contrary in this Note, the Loan
Agreement or any of the Loan Documents, no provision of this Note, the Loan
Agreement or any of the Loan Documents shall require the payment or permit the
collection of any Excess Interest. If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Note, the Loan Agreement or any of
the Loan Documents, then: (a) Customer shall not be obligated to pay any Excess
Interest; and (b) If any Excess Interest is provided for, or is adjudicated as
being provided for, in, then: (i) Customer shall not be obligated to pay any
Excess Interest; and (ii) any Excess Interest that MLC may have received under
any of the Loan Documents shall, at the option of MLC, be applied as a credit
against the then unpaid principal balance of this Note, or accrued interest
hereon not to exceed the maximum amount permitted by law or refunded to the
payor thereof.

Upon the occurrence and during the continuance of any Event of Default, but
without limiting the rights and remedies otherwise available to MLC hereunder or
waiving such Event of Default, the interest payable by Customer hereunder shall
at the option of MLC accrue and be payable at the Default Rate. The Default
Rate, once implemented, shall continue to apply to the Obligations under this
Note, the Loan Agreement or any of the Loan Documents and be payable by Customer
until the date MLC gives written notice (which shall not be unreasonably delayed
or withheld) that such Event of Default has been cured to the satisfaction of
MLC.

This Note shall be construed in accordance with the laws of the State of
Illinois and may be enforced by the holder hereof in any jurisdiction in which
the Loan Agreement may be enforced.

 

 

 

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IN WITNESS WHEREOF

, this Note has been executed by Customer as of the day and year first above
written.

 

PAC-WEST TELECOMM, INC.

By: /s/ H. Ravi Brar

Signature

H. Ravi Brar

Printed Name

Chief Financial Officer and Vice President Human Resources

Title