Exhibit 10.2
 
PAC-WEST TELECOMM, INC.
PAC-WEST TELECOM OF VIRGINIA, INC.
PWT SERVICES, INC.
PWT OF NEW YORK, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
 

 

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     This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as of
November ___, 2006, by and between PAC-WEST FUNDING COMPANY LLC, a Washington
limited liability company ( “LENDER”) and PAC-WEST TELECOMM, INC., PAC-WEST
TELECOM OF VIRGINIA, INC., PWT SERVICES, INC., and PWT OF NEW YORK, INC. (each a
“Borrower” and collectively, “Borrowers”).
RECITALS
     Borrowers and Comerica Bank (“Comerica”) entered into the Loan and Security
Agreement dated as of November 9, 2005 as amended, supplemented or otherwise
modified to date (the “Original Loan Agreement”) which is being amended and
restated in its entirety herein. PAC-WEST FUNDING COMPANY LLC, a Washington
limited liability company has purchased all of Comerica’s right, title and
interest in and to the Original Loan Agreement and all Loan Documents (as
defined herein) and amendments to the Original Loan Agreement and Borrowers and
Lender desire to amend and restate the Original Loan Agreement in its entirety
as set forth herein. In case of any discrepancy between the Original Loan
Agreement and this Agreement, this Agreement shall control.
AGREEMENT
     The parties agree as follows:
     1. DEFINITIONS AND CONSTRUCTION.
          1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
               “Accounts” means all presently existing and hereafter arising
accounts, contract rights, payment intangibles, and all other forms of
obligations owing to a Borrower arising out of the sale or lease of goods
(including, without limitation, the licensing of software and other technology)
or the rendering of services (including, without limitation, amounts owed to a
Borrower pursuant to intercarrier and interconnection arrangements and
inter-carrier reciprocal compensation payment obligations) by a Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by a Borrower and each Borrower’s Books relating to any of the
foregoing.
               “Advance” or “Advances” means a cash advance or cash advances
under the Revolving Line.
               “Affiliate” means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person’s senior executive officers, directors, and partners.
               “Borrower State” means (a) California, the state under whose laws
Parent is organized and, if Parent is converted, merged or consolidated into a
Permitted Successor Corporation, Delaware, the state under whose laws the
Permitted Successor Corporation shall be organized; (b) Delaware, the state
under whose laws Borrowers PWT of New York, Inc. and PWT Services, Inc. are
organized; and (c) Virginia, the state under whose laws Pac-West Telecom of
Virginia, Inc. is organized.
               “Borrower’s Books” means all of a Borrower’s books and records
including: ledgers; records concerning such Borrower’s assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
               “Borrowing Base” means an amount equal to eighty-five percent
(85%) of Eligible Accounts, as determined by Lender with reference to the most
recent Borrowing Base Certificate delivered by Parent.
               “Business Day” means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.

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               “Business Plan” means Borrower’s Business Plan dated November 13,
2006 attached hereto as Exhibit Y.
               “Business Plan Revenue” means Revenue as set forth in the
Business Plan.
               “Capital Expenditures” means current period cash expenditures
that are amortized over a period of time in accordance with GAAP.
               “Cash” means unrestricted cash and cash equivalents.
               “Cash Position” means the aggregate amount of Cash of the
Borrowers at any time of measurement.
               “Change in Control” shall mean a transaction in which any
“person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of a sufficient number of shares of all classes of stock then outstanding of a
Borrower ordinarily entitled to vote in the election of directors, empowering
such “person” or “group” to elect a majority of the Board of Directors of such
Borrower, who did not have such power before such transaction.
               “Chief Executive Office State” means California, where Borrowers’
chief executive office is located.
               “Closing Date” means the effective date of this Agreement to
amend and restate the Original Loan Agreement.
               “Code” means the California Uniform Commercial Code, as amended
or supplemented from time to time.
               “Collateral” means the property described on Exhibit A attached
hereto and all Negotiable Collateral and Intellectual Property Collateral to the
extent not described on Exhibit A; except to the extent any such property (i) is
nonassignable by its terms without the consent of the licensor thereof or
another party (but only to the extent such prohibition on transfer is
enforceable under applicable law, including, without limitation, Sections 9406
and 9408 of the Code), or (ii) the granting of a security interest therein is
contrary to applicable law, provided that upon the cessation of any such
restriction or prohibition, such property shall automatically become part of the
Collateral; provided that in no case shall the definition of “Collateral”
exclude any Accounts, proceeds of the disposition of any property, or general
intangibles consisting of rights to payment. Notwithstanding the foregoing,
Collateral shall not include Pac-West’s Alcatel 600E switch, located in the
Phoenix Arizona Local Access and Transport Area at V&H coordinates 09125/06749,
and identified in the Local Exchange Routing Guide by the switch ID of
PHNAAZIADS1 and Pac-West’s operating company number of 2821 so long as it is
located and in use in Arizona.
               “Collateral State” means the state or states where the Collateral
currently is located, which are Arizona, California, Nevada, Oregon, New York,
and Washington, and every other state or states where the Collateral may be
located in the future pursuant to Section 7.10.
               “Consolidated Net Income (or Deficit)” means the consolidated net
income (or deficit) of any Person and its Subsidiaries, after deduction of all
expenses, taxes, and other proper charges, determined in accordance with GAAP,
after eliminating therefrom all extraordinary nonrecurring items of income.
               “Consolidated Total Interest Expense” means with respect to any
Person for any period, the aggregate amount of interest required to be paid or
accrued by a Person and its Subsidiaries during such period on all Indebtedness
of such Person and its Subsidiaries outstanding during all or any part of such
period, whether such interest was or is required to be reflected as an item of
expense or capitalized, including payments consisting of

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interest in respect of any capitalized lease or any synthetic lease, and
including commitment fees, agency fees, facility fees, balance deficiency fees
and similar fees or expenses in connection with the borrowing of money.
               “Contingent Obligation” means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit, corporate credit cards, or merchant services issued for the
account of that Person; and (iii) all obligations arising under any interest
rate, currency or commodity swap agreement, interest rate cap agreement,
interest rate collar agreement, or other agreement or arrangement designated to
protect a Person against fluctuation in interest rates, currency exchange rates
or commodity prices; provided, however, that the term “Contingent Obligation”
shall not include (a) any direct or indirect liability for obligations
(including representations and warranties) arising under contracts entered into
in the ordinary course of a Borrower’s business, or (b) endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
               “Copyrights” means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
               “Credit Extension” means each Advance, Term Loan, or any other
extension of credit by Lender to or for the benefit of Borrowers hereunder.
               “DIDOD Release 1.1” means a suite of services which provide
interoperability and interconnection of IP and TDM telephony services, at
minimum inclusive of the availability of the following service elements:
(a) telephone number inventory including number reservation; (b) interconnection
with Local Exchange Carriers and other Carriers as necessary to effectuate both
local call in-bound and local and long distance outbound call termination;
(c) customer order and query submission via GUI or API; (d) number and service
activation on customer request; (e) order provisioning as necessary with other
entities; (f) Network Routing Directory updates; (g) Line Database
(LIDB) updates; (h) Calling Name (CNAM) database updates; (i) CNAM delivery on
outbound calls; (j) local number portability; (k) directory listing;
(l) mandated e911 services via customer provided solution; (m) enhanced billing
and reporting functions; and (n) customer support. For purposes of this
definition API means Application Programming Interface; GUI means Graphical User
Interface; and TDM means Time Division Multiplexing.
               “EBITDA” means with respect to any fiscal period an amount equal
to the sum of (a) Consolidated Net Income of the Borrowers and their
Subsidiaries for such fiscal period, plus (b) in each case to the extent
deducted in the calculation of the Borrowers’ Consolidated Net Income and
without duplication, (i) depreciation and amortization for such period, plus
(ii) income tax expense for such period, plus (iii) Consolidated Total Interest
Expense paid or accrued during such period, plus (iv) non-cash expense
associated with granting stock options and restricted stock, and minus, to the
extent added in computing Consolidated Net Income, and without duplication, all
extraordinary and non-recurring revenue and gains (including income tax benefits
but specifically excluding from the phrase “extraordinary and non-recurring
revenue and gains” revenue and expense settlements with Borrowers’ customers and
other telecomm carrier(s); each, occurring in the ordinary course of Borrowers
business) for such period, all as determined in accordance with GAAP.
               “Eligible Accounts” means those Accounts receivable that arise in
the ordinary course of Borrowers’ business that comply with all of Borrowers’
representations and warranties to Lender set forth in Section 5.3; provided,
that Lender may change the standards of eligibility prospectively by giving
Parent thirty (30) days prior written notice. Unless otherwise agreed to by
Lender, Eligible Accounts shall not include Accounts that the account debtor has
failed to pay in full within ninety (90) days of invoice date.

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               “Environmental Laws” means all laws, rules, regulations, orders
and the like issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.
               “Equipment” means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which a Borrower has any interest.
               “ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
               “Event of Default” has the meaning assigned in Article 8.
               “GAAP” means generally accepted accounting principles,
consistently applied, as in effect from time to time.
               “Indebtedness” means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations, and (d) all Contingent
Obligations.
               “Insolvency Proceeding” means any proceeding commenced by or
against any Person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
               “Intellectual Property Collateral” means all of a Borrower’s
right, title, and interest in and to the following:
               (a) Copyrights, Trademarks and Patents;
               (b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
               (c) Any and all design rights which may be available to a
Borrower now or hereafter existing, created, acquired or held;
               (d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
               (e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
               (f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
               (g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
               “Inventory” means all present and future inventory in which a
Borrower has any interest.
               “Investment” means any beneficial ownership of (including stock,
partnership or limited liability company interest other securities) any Person,
or any loan, advance or capital contribution to any Person.

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               “IRC” means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
               “Lender Expenses” means all reasonable costs or expenses
(including reasonable attorneys’ fees and expenses, whether generated in-house
or by outside counsel) incurred in connection with the preparation, negotiation,
administration, and enforcement of the Loan Sale Agreement and the Loan
Documents; reasonable Collateral audit fees; and Lender’s reasonable attorneys’
fees and expenses (whether generated in-house or by outside counsel) incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal), incurred before, during and after an Insolvency Proceeding, whether
or not suit is brought.
               “Lien” means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
               “Loan Documents” means, collectively, this Agreement, any note or
notes executed by Borrower, and any other amendment, letter agreement, document,
instrument or agreement entered into in connection with this Agreement, all as
amended or extended from time to time including without limitation all those
listed on Exhibit X hereto.
               “Loan Sale Agreement” means that certain Loan Sale Agreement
between Lender and Comerica dated contemporaneously herewith.
               “Material Adverse Effect” means a material adverse effect on
(i) the business operations, condition (financial or otherwise) or prospects of
Borrowers and their Subsidiaries taken as a whole, (ii) the ability of Borrowers
to repay the Obligations or otherwise perform their obligations under the Loan
Documents, (iii) Borrowers’ interest in, or the value, perfection or priority of
Lender’s security interest in the Collateral.
               “Negotiable Collateral” means all of a Borrower’s present and
future letters of credit of which it is a beneficiary, drafts, instruments
(including promissory notes), securities, documents of title, and chattel paper,
and such Borrower’s Books relating to any of the foregoing.
               “New Equity” means cash proceeds received after the Closing Date
from the sale or issuance of Parent’s equity securities.
               “Obligations” means all debt, principal, interest, Lender
Expenses and other amounts owed to Lender by a Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from a Borrower to others that Lender may
have obtained by assignment or otherwise.
               “Original Loan Agreement” has the meaning assigned in the
preamble.
               “Parent” means PAC-WEST TELECOMM, INC., a California corporation.
               “Patents” means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
               “Periodic Payments” means all installments or similar recurring
payments that a Borrower may now or hereafter become obligated to pay to Lender
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between a Borrower and Lender.
               “Permitted Indebtedness” means:
               (a) Indebtedness of Borrowers in favor of Lender arising under
this Agreement or any other Loan Document;

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               (b) Indebtedness permitted under subsection (e) of the defined
term “Permitted Investment;”
               (c) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
               (d) Indebtedness not to exceed Fifteen Million Dollars
($15,000,000) 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;
               (e) Subordinated Debt;
               (f) Indebtedness to trade creditors incurred in the ordinary
course of business; and
               (g) 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 Borrowers or their
Subsidiaries, as the case may be.
               “Permitted Investment” means:
               (a) Investments existing on the Closing Date disclosed in the
Schedule;
               (b) (i) Marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either
Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Lender’s
certificates of deposit maturing no more than one year from the date of
investment therein, (iv) Lender’s money market accounts, and (v) Corporate
bonds, including Eurodollar issues of U.S. corporations, and U.S. denominated
issues of foreign corporations, with a rating of A2 or better by Moody’s
Investor Services or a rating of A or better by Standard and Poor’s Corporation,
at the time of purchase;
               (c) Repurchases of stock from former employees or directors of
Borrowers under the terms of applicable repurchase agreements (i) in an
aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) in any
fiscal year, provided that no Event of Default has occurred, is continuing or
would exist after giving effect to the repurchases, or (ii) in any amount where
the consideration for the repurchase is the cancellation of indebtedness owed by
such former employees to a Borrower regardless of whether an Event of Default
exists;
               (d) Investments accepted in connection with Permitted Transfers;
               (e) Investments of one Borrower in or to other Borrowers;
               (f) Investments not to exceed One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year consisting of (i) travel advances
and employee relocation loans and other employee loans and advances in the
ordinary course of business, and (ii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrowers or their Subsidiaries
pursuant to employee stock purchase plan agreements approved by such Borrower’s
Board of Directors;
               (g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of a Borrower’s business;
               (h) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business, provided that this subparagraph
(h) shall not apply to Investments of a Borrower in any Subsidiary; and

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               (i) Joint ventures or strategic alliances in the ordinary course
of a Borrower’s business consisting of the non-exclusive licensing of
technology, the development of technology or the providing of technical support,
provided that any cash Investments by Borrowers do not exceed One Hundred
Thousand Dollars ($100,000) in the aggregate in any fiscal year.
               “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 Borrowers maintain adequate reserves,
provided the same have no priority over any of Lender’s security interests;
               (c) Liens not to exceed Fifteen Million Dollars ($15,000,000) in
the aggregate (i) upon or in any Equipment acquired or held by a Borrower or any
of their 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) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrowers’ business not interfering in any
material respect with the business of Borrowers and their Subsidiaries taken as
a whole;
               (e) 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;
               (f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Sections 8.5 or 8.9;
               (g) Inchoate Liens arising in the ordinary course of Borrowers’
business and securing obligations which are not delinquent; and
               (h) Liens in favor of other financial institutions arising in
connection with Borrowers’ 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 Lender has a perfected security interest in
the amounts held in such deposit accounts.
               “Permitted Successor Corporation” means any Delaware corporation
into which a Borrower is converted, merged or consolidated (it being understood
that Parent may create a Delaware corporation into which Parent is merged, with
such corporation surviving such merger and Parent merging out of existence), so
long as:
               (a) Parent shall request Lender’s prior written consent to such
conversion, merger or consolidation at least thirty (30) days prior thereto,
which consent shall not be unreasonably withheld or delayed;
               (b) Such surviving corporation shall be a corporation organized
and existing under the laws of the state of Delaware, shall expressly assume all
of Parent’s Obligations and shall expressly affirm all of Parent’s
Representations and Warranties made herein, as if such surviving corporation
were the “Parent” for all purposes;

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               (c) Parent shall cause such surviving corporation to authorize
Lender to file, prior to the effective date of any such conversion, merger or
consolidation, such financing statements, continuation statements, or amendments
as Lender deems necessary or advisable to perfect and maintain the perfection of
Lender’s security interest in the Collateral;
               (d) Such conversion, merger or consolidation shall contemplate
the transfer to the surviving corporation of all of Parent’s right, title and
interest in and to all of Parent’s assets, and Parent and such surviving
corporation shall provide evidence of such transfer satisfactory to Lender;
               (e) No Event of Default exists before or would result after
giving effect to such conversion, merger or consolidation;
               (f) No Change of Control, and no change in executive management
of Parent, has occurred as a result of such conversion, merger or consolidation;
               (g) Immediately after giving effect to such conversion, merger or
consolidation, Parent and the surviving corporation shall have delivered to
Lender a certificate signed by a Responsible Officer of each stating that such
conversion, merger or consolidation complies with the requirements for a
Permitted Successor Corporation and that all conditions precedent herein
provided for relating to such conversion, merger or consolidation have been
satisfied; and
               (h) On or prior to the closing of any such conversion, merger or
consolidation, such conversion, merger or consolidation shall have been approved
by the Board of Directors of Parent and the surviving corporation.
               “Permitted Transfer” means the conveyance, sale, lease, transfer
or disposition by Borrowers or any Subsidiary of:
               (a) Inventory in the ordinary course of business;
               (b) (i) any assets of a Borrower to another Borrower; and
(ii) all, but not less than all, assets of Parent to a Permitted Successor
Corporation (but only in connection with the conversion, merger or consolidation
of Parent into or with such Permitted Successor Corporation;
               (c) licenses and similar arrangements for the use of the property
of Borrowers or their Subsidiaries in the ordinary course of business;
               (d) worn-out or obsolete Equipment not financed with the proceeds
of Advances; or
               (e) other assets of Borrowers or their Subsidiaries that do not
in the aggregate exceed One Hundred Thousand Dollars ($100,000) during any
fiscal year.
               “Person” means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
               “Preferred Stock” has the meaning set forth in the Purchase
Agreement.
               “Purchase Agreement” means the Preferred Stock Purchase Agreement
dated as of the Closing Date between Borrowers and PAC-WEST ACQUISITION COMPANY
LLC, a Washington limited liability company.
               “Purchaser” means Pac-West Acquisition Company LLC.

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               “Regulatory Agency” means the Public Utilities Commission, or
comparable state agency, in a particular jurisdiction.
               “Regulatory Approval” means approval, where required, by the
Regulatory Agencies, of the states in which the Borrowers operate, for the
incurrence of the Indebtedness evidenced by this Agreement and/or the
encumbrance of the Collateral, including but not limited to the respective
Regulatory Certificates.
               “Regulatory Certificates” means the “certificates of convenience”
(or comparable approval irrespective of its form) issued by the Regulatory
Agencies, which permit the respective Borrowers to operate their business in the
respective jurisdictions.
               “Responsible Officer” means each of the Chief Executive Officer
and the Chief Financial Officer of Parent.
               “Revenue” means total revenue calculated in a manner consistent
with past practices under GAAP.
               “Revolving Line” means a Credit Extension of up to Eight Million
Dollars ($8,000,000).
               “Revolving Maturity Date” means December 31, 2008.
               “Schedule” means the schedule of exceptions attached hereto and
approved by Lender, if any.
               “Shares” means (i) sixty-six and two-thirds percent (66-2/3%) of
the issued and outstanding capital stock, membership units or other securities
owned or held of record by any Borrower in any Subsidiary of such Borrower which
is not an entity organized under the laws of the United States or any territory
thereof, and (ii) one hundred percent (100%) of the issued and outstanding
capital stock, membership units or other securities owned or held of record by
any Borrower in any Subsidiary of such Borrower which is an entity organized
under the laws of the United States or any territory thereof.
               “SOS Reports” means the official reports from the Secretaries of
State of each Collateral State, Chief Executive Office State and the Borrower
State and other applicable federal, state or local government offices
identifying all current security interests filed in the Collateral and Liens of
record as of the date of such report.
               “Subordinated Debt” means any debt incurred by a Borrower that is
subordinated in writing to the debt owing by Borrowers to Lender on terms
reasonably acceptable to Lender (and identified as being such by Borrowers and
Lender), including but not limited to the Subordinated Notes.
               “Subordinated Notes” means those Series A and Series B Senior
Notes issued by Parent in the aggregate principal amount of Thirty Six Million
One Hundred Two Thousand Dollars ($36,102,000) bearing interest at the rate of
thirteen and one half percent (13.50%), all due and payable February 1, 2009,
and any notes issued in exchange for such notes, whether secured or unsecured
and on such terms as may be agreed pursuant to any exchange offer.
               “Subsidiary” means any corporation, partnership or limited
liability company or joint venture in which (i) any general partnership interest
or (ii) more than fifty percent (50%) of the stock, limited liability company
interest or joint venture of which by the terms thereof has the ordinary voting
power to elect the Board of Directors, managers or trustees of the entity, at
the time as of which any determination is being made, is owned by a Borrower,
either directly or through an Affiliate.
               “Term Loans” has the meaning set forth in Section 2.1(c).
               “Term Loan Maturity Date” means December 31, 2008.

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               “Trademarks” means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of a Borrower
connected with and symbolized by such trademarks.
               “Tranche A” has the meaning assigned in Section 2.1(c)(i).
               “Tranche A Availability End Date” means the Closing Date.
               “Tranche A Term Loan” or “Tranche A Term Loans” means any Term
Loan(s) made under Tranche A.
               “Tranche B” has the meaning assigned in Section 2.1(c)(i).
               “Tranche B Availability Date” means the latest to occur of
(a) February 1, 2007, (b) the commercial availability of DIDOD Release 1.1, and
(c) the effective date of long term binding agreements between Parent and
VeriSign, Inc. acceptable to Lender.
               “Tranche B End Date” means, (a) if the Tranche B Availability
Date does not occur by April 15, 2007, the close of business on April 15, 2007,
and (b) if the Tranche B Availability Date does occur by April 15, 2007,
December 30, 2008.
               “Tranche B Term Loan” or “Tranche B Term Loan” means any Term
Loan (s) made under Tranche B.
               “TSA” means that certain Transition Services Agreement dated
December 17, 2004, by and between Parent and U.S. TelePacific Corp., a
California corporation.
          1.2 Accounting Terms. Any accounting term not specifically defined
herein shall be construed in accordance with GAAP and all calculations shall be
made in accordance with GAAP. The term “financial statements” shall include the
accompanying notes and schedules.
     2. LOAN AND TERMS OF PAYMENT.
          2.1 Credit Extensions.
               (a) Promise to Pay. Borrowers promise to pay to Lender, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Lender to Borrowers, together with interest on the
unpaid principal amount of such Credit Extensions at rates in accordance with
the terms hereof.
               (b) Advances Under Revolving Line.
                    (i) Amount. Subject to and upon the terms and conditions of
this Agreement, on and after February 1, 2007, (1) Parent may request Advances
in an aggregate outstanding amount of not less than $250,000 and not to exceed
the least of (A) the Revolving Line, (B) the Borrowing Base, and (C) the amount
necessary to replenish the Cash Position of Borrowers to $5,000,000 as of the
close of business on the day the Advance is to be made 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.
                    (ii) Form of Request. When Parent desires to obtain an
Advance, Parent shall notify Lender (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time three
(3) Business Days before the day on which the Advance is to be made. Such notice
shall be substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer.

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               (c) Term Loan.
                    (i) Subject to and upon the terms and conditions of this
Agreement, Parent may request and Lender shall make one (1) or more term loans
(each, a “Term Loan” and collectively, the “Term Loans”) in two (2) tranches,
Tranche A and Tranche B, in an aggregate amount not to exceed Sixteen Million
Dollars ($16,000,000). On the Closing Date, upon satisfaction of the conditions
set forth in subsection 3.1 hereof, $8,805,638.23 of the aggregate obligations
outstanding under the Original Loan Agreement shall be reinstated as Term Loans
under Tranche A hereunder. Tranche B will be in the amount of $7,194,361.77 and
following the Tranche B Availability Date (if it occurs), the Tranche B Term
Loans may be used to replenish the Cash Position of the Company to $5,000,000.
                    (ii) Interest on the Term Loan shall accrue from the Closing
Date at the rate specified in Section 2.2(a), and shall be payable on the Term
Maturity Date. The Term Loans will be due and payable on the Term Loan Maturity
Date. The Term Loans, once repaid, may not be reborrowed. Borrowers may prepay
the Term Loans at any time without penalty or premium.
                    (iii) When Parent desires to obtain a Term Loan under
Tranche B, Parent shall notify Lender (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time three
(3) Business Days before the day on which the Term Loan is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer.
                    (iv) Overadvances. If the aggregate amount of the
outstanding Advances exceeds the lesser of the (A) Revolving Line, or (B) the
Borrowing Base at any time, Borrowers shall immediately upon notice pay to
Lender, in cash, the amount of such excess.
          2.2 Interest Rates, Payments, and Calculations.
               (a) Interest Rates.
                    (i) Advances. The Advances shall bear interest, on the
outstanding daily balance thereof at 12% per annum.
                    (ii) Term Loan. The Term Loan shall bear interest, on the
outstanding daily balance thereof at 12% per annum.
               (b) Late Fee; Default Rate. If any payment is not made within ten
(10) days after the date such payment is due, Borrowers shall pay Lender Bank a
late fee equal to the lesser of (i) five percent (5%) of the amount of such
unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. All Obligations shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a rate equal to
five (5) percentage points above the interest rate applicable immediately prior
to the occurrence of the Event of Default
               (c) Payments. Interest on the Term Loan and the Advances
hereunder shall be due and payable on the Term Loan Maturity Date and the
Revolving Maturity Date, respectively. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
               (d) Computation. All interest chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
          2.3 Crediting Payments. Prior to the occurrence of an Event of
Default, Lender shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Parent specifies. After the
occurrence of an Event of Default, Lender shall have the right, in its sole
discretion, to immediately apply any wire transfer of funds, check, or other
item of payment Lender may receive to conditionally reduce Obligations, but such
applications of funds shall not be considered a payment on account unless such
payment is of immediately

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available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Lender after 12:00
noon Pacific time shall be deemed to have been received by Lender as of the
opening of business on the immediately following Business Day. Whenever any
payment to Lender under the Loan Documents would otherwise be due (except by
reason of acceleration) on a date that is not a Business Day, such payment shall
instead be due on the next Business Day, and additional fees or interest, as the
case may be, shall accrue and be payable for the period of such extension.
          2.4 Fees. Borrowers shall pay to Lender on the Closing Date, all
Lender Expenses incurred through the Closing Date, and, after the Closing Date,
all Lender Expenses as and when they become due.
          2.5 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 13.7, shall continue in full force and effect for so
long as any Obligations remain outstanding or Lender has any obligation to make
Credit Extensions under this Agreement. Notwithstanding the foregoing, Lender
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
     3. CONDITIONS OF LOANS.
          3.1 Conditions Precedent to Amendment and Restatement. The obligation
of Lender to amend and restate the Original Loan Agreement is subject to the
condition precedent that Lender shall have received, in form and substance
satisfactory to Lender, the following:
               (a) Closing of Loan Sale Agreement with Comerica Bank and
satisfaction of all terms thereof;
               (b) this Agreement;
               (c) an officer’s certificate of each Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
               (d) the assignment by Comerica of all the UCC National
Form Financing Statements for each Borrower;
               (e) the assignment by Comerica of the intellectual property
security agreement from each Borrower;
               (f) current SOS Reports indicating that except for Permitted
Liens, there are no other security interests or Liens of record in the
Collateral;
               (g) the assignment and delivery by Comerica of the original
certificate(s) for the Shares, together with Assignment(s) Separate from
Certificate, duly executed by Borrowers to Lender in blank;
               (h) the Borrowers shall have obtained securities and/or deposit
account control agreements with respect to any accounts permitted hereunder
which will also permit Lender to have free access to all available information
on any account other than payroll accounts held in trust for payment of
employees;
               (i) proof of insurance as required and policies or certificates
of insurance;
               (j) payment of the fees and Lender Expenses then due specified in
Section 2.5 hereof;
               (k) current financial statements, including audited statements
for Parent’s most recently ended fiscal year, together with an unqualified
opinion, company prepared consolidated and consolidating

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balance sheets and income statements for the most recently ended month in
accordance with Section 6.2, and such other updated financial information as
Lender may reasonably request;
               (l) current Compliance Certificate in accordance with
Section 6.2;
               (m) such other documents or certificates, and completion of such
other matters, as Lender may reasonably deem necessary or appropriate;
               (n) execution of the Purchase Agreement and compliance with all
conditions to effectiveness of same including all deliverables thereunder; and
               (o) updated Schedules and Exhibits to this Agreement current as
of Closing Date.
          3.2 Conditions Precedent to all Credit Extensions. The obligation of
Lender, if any, to make any further Credit Extensions, is further subject to the
following conditions:
               (a) timely receipt by Lender of the Payment/Advance Form as
provided in Section 2.1; and
               (b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this
Section 3.2.
     4. CREATION OF SECURITY INTEREST.
          4.1 Grant of Security Interest. Each Borrower has granted and pledged
to Lender a continuing security interest in the Collateral to secure prompt
repayment of any and all Obligations and to secure prompt performance by such
Borrower of each of its covenants and duties under the Loan Documents. Except
for Permitted Liens, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in later-acquired Collateral.
Notwithstanding any termination, Lender’s Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
          4.2 Perfection of Security Interest. Each Borrower authorizes Lender
to file at any time financing statements, continuation statements, and
amendments thereto that (i) either specifically describe the Collateral or
describe the Collateral as all assets of such Borrower of the kind pledged
hereunder, and (ii) contain any other information required by the Code for the
sufficiency of filing office acceptance of any financing statement, continuation
statement, or amendment, including whether such Borrower is an organization, the
type of organization and any organizational identification number issued to such
Borrower, if applicable. Any such financing statements may be signed by Lender
on behalf of Borrowers, as provided in the Code, and may be filed at any time in
any jurisdiction whether or not Revised Article 9 of the Code is then in effect
in that jurisdiction. Each Borrower shall from time to time endorse and deliver
to Lender, at the request of Lender, all Negotiable Collateral and other
documents that Lender may reasonably request, in form satisfactory to Lender, to
perfect and continue perfected Lender’s security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the Loan
Documents. Each Borrower shall have possession of the tangible Collateral,
except where expressly otherwise provided in this Agreement or where Lender
chooses to perfect its security interest by possession of non-tangible
Collateral in addition to the filing of a financing statement. Where Collateral
is in possession of a third party bailee, each Borrower shall take such steps as
Lender reasonably requests for Lender to (i) obtain an acknowledgment, in form
and substance satisfactory to Lender, of the bailee that the bailee holds such
Collateral for the benefit of Lender, (ii) obtain “control” of any Collateral
consisting of investment property, deposit accounts, letter-of-credit rights or
electronic chattel paper (as such items and the term “control” are defined in

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Revised Article 9 of the Code) by causing the securities intermediary or
depositary institution or issuing Lender to execute a control agreement in form
and substance satisfactory to Lender. No Borrower will create any chattel paper
without placing a legend on the chattel paper acceptable to Lender indicating
that Lender has a security interest in the chattel paper. Each Borrower from
time to time may deposit with Lender specific cash collateral to secure specific
Obligations; each Borrower authorizes Lender to hold such specific balances in
pledge and to decline to honor any drafts thereon or any request by a Borrower
or any other Person to pay or otherwise transfer any part of such balances for
so long as the specific Obligations are outstanding.
          4.3 Right to Inspect. Lender (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrowers’ usual business hours but no more than twice a year (unless an
Event of Default has occurred and is continuing), to inspect each Borrower’s
Books and to make copies thereof and to check, test, and appraise the Collateral
in order to verify Borrowers’ financial condition or the amount, condition of,
or any other matter relating to, the Collateral.
          4.4 Pledge of Collateral. Each Borrower has pledged, assigned and
granted to Lender a security interest in all the Shares, together with all
proceeds and substitutions thereof, all cash, stock and other moneys and
property paid thereon, all rights to subscribe for securities declared or
granted in connection therewith, and all other cash and noncash proceeds of the
foregoing, as security for the performance of the Obligations. On the Closing
Date, or as soon thereafter as Regulatory Approval is obtained, where required,
the certificate or certificates for the Shares will be delivered to Lender,
accompanied by an instrument of assignment duly executed in blank by the
appropriate Borrower. To the extent required by the terms and conditions
governing the Shares, the appropriate Borrower shall cause the books of each
entity whose Shares are part of the Collateral and any transfer agent to reflect
the pledge of the Shares. Upon the occurrence of an Event of Default hereunder,
Lender may effect the transfer of any securities included in the Collateral
(including but not limited to the Shares) into the name of Lender and cause new
certificates representing such securities to be issued in the name of Lender or
its transferee. Each Borrower will execute and deliver such documents, and take
or cause to be taken such actions, as Lender may reasonably request to perfect
or continue the perfection of Lender’s security interest in the Shares. Unless
an Event of Default shall have occurred and be continuing, Borrowers shall be
entitled to exercise any voting rights with respect to the Shares and to give
consents, waivers and ratifications in respect thereof, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would be inconsistent with any of the terms of this Agreement or which would
constitute or create any violation of any of such terms. All such rights to vote
and give consents, waivers and ratifications shall terminate upon the occurrence
and continuance of an Event of Default.
     5. REPRESENTATIONS AND WARRANTIES.
     Each Borrower represents and warrants as follows:
          5.1 Due Organization and Qualification. Borrower and each Subsidiary
is duly existing under the laws of the state in which it is organized and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified, except
where the failure to do so could not reasonably be expected to cause a Material
Adverse Effect.
          5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower’s powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower’s Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement by which it is
bound, except to the extent such default could not reasonably be expected to
cause a Material Adverse Effect.
          5.3 Collateral. Subject to Section 6.11, Borrower has rights in or the
power to transfer the Collateral, and its title to the Collateral is free and
clear of Liens, adverse claims, and restrictions on transfer or pledge except
for Permitted Liens. All Collateral is located solely in the Collateral States.
The Eligible Accounts are bona fide existing obligations. The property or
services giving rise to such Eligible Accounts has been delivered or rendered to
the account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account. All Inventory is in

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all material respects of good and merchantable quality, free from all material
defects, except for Inventory for which adequate reserves have been made. Except
as set forth in the Schedule, none of the cash and investment Collateral is
maintained or invested with a Person other than Comerica Bank or Bank of
Stockton or such other Person as Lender approves and from whom Lender receives
an account control agreement acceptable to Lender.
          5.4 Intellectual Property Collateral. Borrower is the sole owner of
the Intellectual Property Collateral, except for non-exclusive licenses, granted
by Borrower to its customers, or any other alliance or business relationship
with regards to the development and marketing of products; each in the ordinary
course of business. To the best of Borrower’s knowledge, each of the Copyrights,
Trademarks and Patents is valid and enforceable, and no part of the Intellectual
Property Collateral has been judged invalid or unenforceable, in whole or in
part, and no claim has been made to Borrower that any part of the Intellectual
Property Collateral violates the rights of any third party except to the extent
such claim could not reasonably be expected to cause a Material Adverse Effect.
Except as set forth in the Schedule and except for “shrink-wrap” and other
“off-the-shelf” software, Borrower’s rights as a licensee of intellectual
property do not give rise to more than five percent (5%) of its gross revenue in
any given month, including without limitation revenue derived from the sale,
licensing, rendering or disposition of any product or service.
          5.5 Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof, and its exact legal name is as set forth
in the first paragraph of this Agreement. The chief executive office of Borrower
is located in the Chief Executive Office State at the address indicated in
Section 10 hereof.
          5.6 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which a likely adverse decision could
reasonably be expected to have a Material Adverse Effect.
          5.7 No Material Adverse Change in Financial Statements. All
consolidated and consolidating financial statements related to Borrower and any
Subsidiary that are delivered by Borrower to Lender fairly present in all
material respects Borrower’s consolidated and consolidating financial condition
as of the date thereof and Borrower’s consolidated and consolidating results of
operations for the period then ended. There has not been a material adverse
change in the consolidated or in the consolidating financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Lender.
          5.8 Payment of Debts. Borrower is able to pay its debts (including
trade debts) as they mature.
          5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary
have met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower’s
failure to comply with ERISA that is reasonably likely to result in Borrower’s
incurring any liability that could have a Material Adverse Effect. Borrower is
not an “investment company” or a company “controlled” by an “investment company”
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied in all material respects with all the
provisions of the Federal Fair Labor Standards Act. Borrower is in compliance
with all environmental laws, regulations and ordinances except where the failure
to comply is not reasonably likely to have a Material Adverse Effect. Borrower
has not violated any statutes, laws, ordinances or rules applicable to it, the
violation of which could reasonably be expected to have a Material Adverse
Effect. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, or have been granted an extension to file, and
have paid, or have made adequate provision for the payment of, all taxes
reflected therein except those being contested in good faith with adequate
reserves under GAAP or where the failure to file such returns or pay such taxes
could not reasonably be expected to have a Material Adverse Effect.
          5.10 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.

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          5.11 Government Consents. Subject to Section 6.11, Borrower and each
Subsidiary have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower’s
business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Effect.
          5.12 Inbound Licenses. Except as disclosed on the Schedule and except
for “shrink-wrap” and other “off-the-shelf” software, Borrower is not a party
to, nor is bound by, any license to which Borrower is a licensee or other
agreement that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property where such prohibition and/or restriction could reasonably be
expected to have a Material Adverse Effect.
          5.13 Shares. Subject to Section 3.1(h) and Section 6.11, Borrower has
full power and authority to create a first lien on the Shares and no disability
or contractual obligation exists that would prohibit Borrower from pledging the
Shares pursuant to this Agreement. To Borrower’s knowledge, there are no
subscriptions, warrants, rights of first refusal or other restrictions on
transfer relative to, or options exercisable with respect to the Shares. The
Shares have been and will be duly authorized and validly issued, and are fully
paid and non-assessable. To Borrower’s knowledge, the Shares are not the subject
of any present or threatened suit, action, arbitration, administrative or other
proceeding, and Borrower knows of no reasonable grounds for the institution of
any such proceedings.
          5.14 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Lender
hereunder taken together with all such certificates and written statements
furnished to Lender hereunder contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained in such certificates or statements not misleading, it being recognized
by Lender that the projections and forecasts provided by Borrower in good faith
and based upon reasonable assumptions are not to be viewed as facts and that
actual results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results.
          5.15 TSA. The TSA has expired and there are no outstanding or
continuing obligations of any Borrower thereunder.
     6. AFFIRMATIVE COVENANTS.
     Each Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Lender may have any commitment to
make a Credit Extension hereunder, such Borrower shall do all of the following:
          6.1 Good Standing and Government Compliance. Borrower shall maintain
its and each of its Subsidiaries’ corporate existence and good standing in the
respective states of organization, shall maintain qualification and good
standing in each other jurisdiction in which the failure to so qualify could
have a Material Adverse Effect, and shall furnish to Lender the organizational
identification number issued to Borrower by the authorities of the state in
which Borrower is organized, if applicable. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply in all
material respects with all applicable Environmental Laws, and maintain all
material permits, licenses and approvals required thereunder where the failure
to do so could have a Material Adverse Effect. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, and shall maintain, and
shall cause each of its Subsidiaries to maintain, in force all licenses,
approvals and agreements, the loss of which or failure to comply with which
could reasonably be expected to have a Material Adverse Effect.
          6.2 Financial Statements, Reports, Certificates. Borrower shall
deliver the following to Lender: (i) as soon as available, but in any event
within thirty (30) days after the end of each calendar month, a company prepared
consolidated and consolidating balance sheet and income statement covering
Borrower’s operations during such period, in a form reasonably acceptable to
Lender and certified by a Responsible Officer; (ii) within five (5) days of
filing, all reports on Forms 10-K and 10-Q filed with the Securities and
Exchange Commission; (iv) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against

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Borrower or any Subsidiary that are reasonably likely to result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; (v) promptly upon receipt, each management letter prepared by
Borrower’s independent certified public accounting firm regarding Borrower’s
management control systems; and (vi) such budgets, sales projections, operating
plans or other financial information generally prepared by Borrower in the
ordinary course of business as Lender may reasonably request from time to time,
including Borrower’s annual projections within thirty (30) days prior to
Borrower’s fiscal year end.
               (a) Within thirty days after the last day of each month, Borrower
shall deliver to Lender a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings by invoice date of accounts receivable and accounts payable.
               (b) Within thirty (30) days after the last day of each month,
Borrower shall deliver to Lender with the monthly financial statements, a
Compliance Certificate certified as of the last day of the applicable month and
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
               (c) As soon as possible and in any event within five (5) calendar
days after becoming aware of the occurrence or existence of an Event of Default
hereunder, a written statement of a Responsible Officer setting forth details of
the Event of Default, and the action which Borrower has taken or proposes to
take with respect thereto.
               (d) Lender shall have a right from time to time hereafter to
audit Borrower’s Accounts and appraise Collateral at Borrower’s expense,
provided that such audits will be conducted no more often than every six
(6) months unless an Event of Default has occurred and is continuing.
     Borrower may deliver to Lender on an electronic basis any certificates,
reports or information required pursuant to this Section 6.2, and Lender shall
be entitled to rely on the information contained in the electronic files,
provided that Lender in good faith believes that the files were delivered by a
Responsible Officer. If Borrower delivers this information electronically, it
shall also deliver to Lender by U.S. Mail, reputable overnight courier service,
hand delivery, facsimile or .pdf file within five (5) Business Days of
submission of the unsigned electronic copy the certification of monthly
financial statements, the intellectual property report, the Borrowing Base
Certificate and the Compliance Certificate, each bearing the physical signature
of the Responsible Officer.
          6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
merchantable condition, free from all material defects except for Inventory for
which adequate reserves have been made. Returns and allowances of Inventory, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist on
the Closing Date. Borrower shall promptly notify Lender of all returns and
recoveries of Inventory and of all disputes and claims involving Inventory in an
amount more than One Hundred Thousand Dollars ($100,000).
          6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due
and timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, including, but not limited
to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability,
and will execute and deliver to Lender, on demand, proof satisfactory to Lender
indicating that Borrower or a Subsidiary has made such payments or deposits and
any appropriate certificates attesting to the payment or deposit thereof;
provided that Borrower or a Subsidiary need not make any payment if the amount
or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
          6.5 Insurance.
               (a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks (excluding earthquake and flood), and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in
the locations where Borrower’s business is conducted on the date hereof.
Borrower shall also maintain liability and other insurance in amounts and of a
type that are customary to businesses similar to Borrower’s, naming Lender as
additional insured.

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               (b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Lender. All
policies of property insurance shall contain a lender’s loss payable
endorsement, in a form satisfactory to Lender, showing Lender as an additional
loss payee, and all liability insurance policies shall show Lender as an
additional insured and specify that the insurer must give at least 20 days
notice to Lender before canceling its policy for any reason. At the Closing
Date, Borrower shall deliver to Lender certified copies of the policies of
insurance and evidence of all premium payments. If no Event of Default has
occurred and is continuing, proceeds payable under any casualty policy will, at
Borrower’s option, be payable to Borrower to replace the property subject to the
claim, provided that any such replacement property shall be deemed Collateral in
which Lender has been granted a first priority security interest. If an Event of
Default has occurred and is continuing, all proceeds payable under any such
policy shall, at Lender’s option, be payable to Lender to be applied on account
of the Obligations.
          6.6 Accounts. Borrower shall cause all Cash in deposit accounts to be
subject to control agreements in form and content reasonably acceptable to
Lender. Borrower does not and shall not hold any Investment Property as defined
in the Code in any securities accounts or other accounts unless it is subject to
a control agreement acceptable to Lender.
          6.7 Financial Covenants. Borrowers, on a consolidated basis, shall at
all times maintain the following financial ratios and covenants:
               (a) Trailing Three-month Revenue. Revenue for the preceding three
months shall be at least 90% of the Business Plan Revenue for the same period,
measured monthly, starting with the month ending March 31, 2007.
               (b) EBITDA. EBITDA is positive, measured monthly, starting with
the month ending November 30, 2007.
          6.8 Intellectual Property Rights.
               (a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as the case
may be, those registrable intellectual property rights now owned or hereafter
developed or acquired by Borrower, to the extent that Borrower, in its
reasonable business judgment, deems it appropriate to so protect such
intellectual property rights.
               (b) Borrower shall promptly give Lender written notice of any
applications or registrations of intellectual property rights filed with the
United States Patent and Trademark Office, including the date of such filing and
the registration or application numbers, if any.
               (c) Borrower shall (i) give Lender not less than thirty (30) days
prior written notice of the filing of any applications or registrations with the
United States Copyright Office, including the title of such intellectual
property rights to be registered, as such title will appear on such applications
or registrations, and the date such applications or registrations will be filed;
(ii) prior to the filing of any such applications or registrations, execute such
documents as Lender may reasonably request for Lender to maintain its perfection
in such intellectual property rights to be registered by Borrower; (iii) upon
the request of Lender, either deliver to Lender or file such documents
simultaneously with the filing of any such applications or registrations;
(iv) upon filing any such applications or registrations, promptly provide Lender
with a copy of such applications or registrations together with any exhibits,
evidence of the filing of any documents requested by Lender to be filed for
Lender to maintain the perfection and priority of its security interest in such
intellectual property rights, and the date of such filing.
               (d) Borrower shall execute and deliver such additional
instruments and documents from time to time as Lender shall reasonably request
to perfect and maintain the perfection and priority of Lender’s security
interest in the Intellectual Property Collateral.

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               (e) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the trade secrets, Trademarks, Patents and Copyrights,
(ii) use commercially reasonable efforts to detect infringements of the
Trademarks, Patents and Copyrights and promptly advise Lender in writing of
material infringements detected and (iii) not allow any material Trademarks,
Patents or Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Lender, which shall not be unreasonably withheld.
               (f) Lender may audit Borrower’s Intellectual Property Collateral
to confirm compliance with this Section, provided such audit may not occur more
often than twice per year, unless an Event of Default has occurred and is
continuing. Lender shall have the right, but not the obligation, to take, at
Borrower’s sole expense, any actions that Borrower is required under this
Section to take but which Borrower fails to take, after fifteen (15) days’
notice to Borrower. Borrower shall reimburse and indemnify Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section.
          6.9 [Intentionally deleted]
          6.10 Creation/Acquisition of Subsidiaries. In the event Borrower or
any Subsidiary creates or acquires any Subsidiary, Borrower and such Subsidiary
shall promptly notify Lender of the creation or acquisition of such new
Subsidiary and, if requested by Lender, take all such action as may be
reasonably required by Lender to cause such Subsidiary to become a co-Borrower
hereunder, and Borrower, if requested by Lender, shall grant and pledge to
Lender a perfected security interest in the stock, units or other evidence of
ownership of such Subsidiary.
          6.11 Regulatory Approval. Each party hereto shall cooperate and use
its reasonable best efforts to (i) promptly prepare and file with the
appropriate governmental authorities all necessary reports, applications,
petitions, forms, notices or other applicable documents required or advisable
with respect to the transactions contemplated by this Agreement (except for
necessary reports, applications, petitions, forms, notices or other applicable
documents required or advisable solely with respect to the conversion of the
Shares , described in the Purchase Agreement which shall be promptly prepared
and filed upon the request of the Lender ) and (ii) comply, at the earliest
practicable date following the date of receipt by the Lender or the Borrower,
with any request for information or documents from a governmental authority
related to, and appropriate in the light of, matters within the jurisdiction of
such governmental authority, provided that (x) the parties shall use their
reasonable best efforts to keep any such information confidential to the extent
required by the party providing the information and (y) each party may take, in
its reasonable discretion, appropriate legal action not to provide information
relating to trade or business secrets, privileged information or other
information which reasonably should be treated as confidential.
          6.12 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Lender to effect the purposes of this
Agreement.
     7. NEGATIVE COVENANTS.
     Each Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until the outstanding Obligations are paid in full or for
so long as Lender may have any commitment to make any Credit Extensions, such
Borrower will not do any of the following without Lender’s prior written
consent, which shall not be unreasonably withheld:
          7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise
dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, or move cash balances on
deposit with Lender to accounts opened at another financial institution, other
than Permitted Transfers.
          7.2 Change in Name, Location, Executive Office, or Executive
Management; Change in Business; Change in Fiscal Year; Change in Control. Change
its name or the Borrower State or relocate its chief executive office without
thirty (30) days prior written notification to Lender; replace its chief
executive officer or chief financial officer without prompt written notification
to Lender thereafter; engage in any business, or permit any of its Subsidiaries
to engage in any business, other than or reasonably related or incidental to the
businesses

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currently engaged in by Borrower; change its fiscal year end; suffer or permit a
Change in Control other than transactions between the Parent and Pac-West
Acquisition Company LLC dated contemporaneously herewith.
          7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization (other than (x) mergers or consolidations of a Subsidiary into
another Subsidiary or into Borrower, and (y) the conversion, merger or
consolidation of Borrower with or into a Permitted Successor Corporation), or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person except where (i) such
transactions do not in the aggregate exceed Five Million Dollars ($5,000,000)
during any fiscal year, (ii) no Event of Default has occurred, is continuing or
would exist after giving effect to such transactions, (iii) such transactions do
not result in a Change in Control, and (iv) Borrower is the surviving entity.
          7.4 Indebtedness. Create, incur, assume, guarantee or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness, or prepay any Indebtedness or take any
actions which impose on Borrower an obligation to prepay any Indebtedness,
except Indebtedness to Lender and except as permitted under Section 7.9 hereof.
          7.5 Encumbrances. Create, incur, assume or allow any Lien with respect
to any of its property, or assign or otherwise convey any right to receive
income, including the sale of any Accounts (except in connection with the
conversion, merger or consolidation of Borrower with or into a Permitted
Successor Corporation), or permit any of its Subsidiaries so to do, except for
Permitted Liens, or covenant to any other Person that Borrower in the future
will refrain from creating, incurring, assuming or allowing any Lien with
respect to any of Borrower’s property.
          7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except that Borrower may (i) repurchase the stock of former employees
pursuant to stock repurchase agreements as long as an Event of Default does not
exist prior to such repurchase or would not exist after giving effect to such
repurchase, (ii) repurchase the stock of former employees pursuant to stock
repurchase agreements by the cancellation of indebtedness owed by such former
employees to Borrower regardless of whether an Event of Default exists,
(iii) redeem the Subordinated Notes in an aggregate amount not to exceed
(x) Five Million Dollars ($5,000,000) from other than the proceeds of New
Equity, plus (y) an amount equal to the net proceeds of New Equity, from the
proceeds of such New Equity, and (iv) complete the Exchange Offer described in
Section 8.12 hereof; in each case provided no Event of Default has occurred, is
continuing or would exist after giving effect to such redemption.
          7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments, or maintain or invest any of its property with
a Person other than Lender or Lender’s Affiliates or permit any Subsidiary to do
so unless such Person has entered into a control agreement with Lender, in form
and substance satisfactory to Lender, or suffer or permit any Subsidiary to be a
party to, or be bound by, an agreement that restricts such Subsidiary from
paying dividends or otherwise distributing property to Borrower.
          7.8 Transactions with Affiliates. Except as otherwise expressly
permitted hereunder, directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that
are in the ordinary course of Borrower’s business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm’s
length transaction with a non-affiliated Person.
          7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
affecting Lender’s rights contained in any documentation relating to the
Subordinated Debt without Lender’s prior written consent. Notwithstanding the
foregoing, Parent may repurchase the Subordinated Notes with the proceeds of the
Term Loan and New Equity in accordance with the terms and conditions of this
Agreement.
          7.10 Inventory and Equipment. Store the Inventory or the Equipment
with a bailee, warehouseman, or similar third party unless the third party has
been notified of Lender’s security interest and

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Lender (a) has received an acknowledgment from the third party that it is
holding or will hold the Inventory or Equipment for Lender’s benefit or (b) is
in possession of the warehouse receipt, where negotiable, covering such
Inventory or Equipment. Except for Inventory sold in the ordinary course of
business and except for such other locations as Lender may approve in writing,
and except as set forth in the Schedule, Borrower shall keep the Inventory and
Equipment only at the location set forth in Section 10 and such other locations
of which Borrower gives Lender at least ten (10) days prior written notice and
as to which Lender takes action, where needed, to perfect or continue the
perfection of its security interest.
          7.11 No Investment Company; Margin Regulation. Become or be controlled
by an “investment company,” within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose.
          7.12 Capital Expenditures. Notwithstanding any other provision in this
Agreement, incur Capital Expenditures in excess of (i) Sixteen Million Five
Hundred Thousand Dollars ($16,500,000) for fiscal year 2005; (ii) Fifteen
Million Five Hundred Thousand Dollars ($15,500,000) for fiscal year 2006; and
(iii) Ten Million Dollars ($10,000,000) for fiscal year 2007; in each case, in
the aggregate in the respective fiscal year of Borrowers.
     8. EVENTS OF DEFAULT.
     Any one or more of the following events shall constitute an Event of
Default by Borrowers under this Agreement:
          8.1 Payment Default. If a Borrower fails to pay any of the Obligations
when due;
          8.2 Covenant Default.
               (a) If a Borrower fails to perform any obligation under Article 6
or violates any of the covenants contained in Article 7 of this Agreement, in
each case, in any material respect; or
               (b) If a Borrower fails or neglects to perform or observe any
other material term, provision, condition, covenant contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between a Borrower and Lender and as to any default under such other term,
provision, condition or covenant that can be cured, has failed to cure such
default within ten (10) days after a Borrower receives notice thereof or any
officer of a Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrowers be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrowers
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default but no Credit Extensions will be made;
          8.3 Defective Perfection. If Lender shall receive at any time
following the Closing Date an SOS Report indicating that except for Permitted
Liens, Lender’s security interest in the Collateral is not prior to all other
security interests or Liens of record reflected in such SOS Report;
          8.4 Material Adverse Effect. If there occurs any circumstance or
circumstances that have or are reasonably likely to have a Material Adverse
Effect;
          8.5 Attachment. If any material portion of a Borrower’s assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if a Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of a
Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of a Borrower’s assets by the United States
Government, or any department,

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agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, and the same is not paid within ten (10) days after such
Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by such Borrower
(provided that no Credit Extensions will be made during such cure period);
          8.6 Insolvency Proceedings. If an Insolvency Proceeding is commenced
by a Borrower, or if an Insolvency Proceeding is commenced against a Borrower
and is not dismissed or stayed within thirty (30) days (provided that no Credit
Extensions will be made prior to the dismissal of such Insolvency Proceeding);
          8.7 Other Agreements. If there is a default or other failure to
perform in any agreement to which a Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount that
could have a Material Adverse Effect;
          8.8 Subordinated Debt. If a Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed hereunder or
under any subordination agreement entered into with Lender or pursuant to the
Exchange Offer described in Section 8.12 below;
          8.9 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against a Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
          8.10 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Lender by any Responsible Officer
pursuant to this Agreement or to induce Lender to enter into this Agreement or
any other Loan Document.
          8.11 Breach of Preferred Stock Purchase Agreement. Any material breach
of provision of the Purchase Agreement.
          8.12 Failure to Timely Complete Subordinated Note Exchange. Failure to
consummate an “Exchange Offer” as such term is defined in that certain letter
dated November 7, 2006, by Pac-West Telecomm, Inc. addressed to SMH Capital
Advisors, Inc., wherein at least fifty-one percent (51%) of the notes
outstanding under that certain Indenture dated as of January 29, 1999 (the
Indenture), have been exchanged for Priority Notes (as defined in the
above-referenced letter) and thereby reduced by at least fifty-one percent (51%)
the semi-annual interest payment due under the Indenture on February 1, 2007
(after giving effect to any cure period thereunder), and thereafter.
          8.13 Failure to Timely Complete Merrill Lynch Restructuring. Failure
to consummate on or before March 1, 2007, the restructuring contemplated by the
Agreement to Restructure between Parent and Merrill Lynch Capital, a division of
Merrill Lynch Financial Services, Inc., dated as of November 15, 2006.
          8.14 Failure to Timely Receive Requisite Regulatory Approvals. Failure
to receive all regulatory approvals required in order to permit the conversion
by the Purchaser of all outstanding shares of Preferred Stock, the failure of
which would result in a Material Adverse Effect upon the conversion of all or
part of such Preferred Stock, on or before one hundred eighty (180) calendar
days from the date hereof; provided that Purchaser shall not have materially
breached its obligations under Section 4.2 of the Purchase Agreement.
     9. LENDER’S RIGHTS AND REMEDIES.
          9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Lender may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrowers:

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               (a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.6, all Obligations shall become immediately due and payable without
any action by Lender);
               (b) Demand that Borrowers (i) deposit cash with Lender in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be
paid or payable over the remaining term of the Letters of Credit, and Borrowers
shall promptly deposit and pay such amounts;
               (c) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between a
Borrower and Lender;
               (d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Lender reasonably
considers advisable;
               (e) Make such payments and do such acts as Lender considers
necessary or reasonable to protect its security interest in the Collateral. Each
Borrower agrees to assemble the Collateral if Lender so requires, and to make
the Collateral available to Lender as Lender may designate. Each Borrower
authorizes Lender to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Lender’s determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
a Borrower’s owned premises, each Borrower hereby grants Lender a license to
enter into possession of such premises and to occupy the same, without charge,
in order to exercise any of Lender’s rights or remedies provided herein, at law,
in equity, or otherwise;
               (f) Set off and apply to the Obligations (or recoup against or
administratively freeze) any and all (i) balances and deposits of Borrower held
by Lender, and (ii) indebtedness at any time owing to or for the credit or the
account of a Borrower held by Lender;
               (g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Lender is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
each Borrower’s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Lender’s exercise of its rights under this Section 9.1, each
Borrower’s rights under all licenses and all franchise agreements shall inure to
Lender’s benefit;
               (h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrowers’ premises) as Lender
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Lender deems appropriate. Lender may sell the
Collateral without giving any warranties as to the Collateral. Lender may
specifically disclaim any warranties of title or the like. This procedure will
not be considered adversely to affect the commercial reasonableness of any sale
of the Collateral. If Lender sells any of the Collateral upon credit, Borrowers
will be credited only with payments actually made by the purchaser, received by
Lender, and applied to the indebtedness of the purchaser. If the purchaser fails
to pay for the Collateral, Lender may resell the Collateral and Borrowers shall
be credited with the proceeds of the sale;
               (i) Lender may credit bid and purchase at any public sale;
               (j) Apply for the appointment of a receiver, trustee, liquidator
or conservator of the Collateral, without notice and without regard to the
adequacy of the security for the Obligations and without regard to the solvency
of a Borrower, any guarantor or any other Person liable for any of the
Obligations; and

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               (k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers.
     Lender may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.
     Notwithstanding anything to the contrary contained in this Agreement,
(i) Lender shall not take any action hereunder that would constitute or result
in any transfer of control of the certificates of authority without obtaining
all necessary approvals of the FCC and all other Regulatory Agencies, and
(ii) Lender shall not foreclose on, sell, transfer or otherwise dispose of, or
exercise any right to control the certificates of authority or other regulated
assets as provided herein or take any other action that would affect the
operational, voting, or other control of the Borrowers, unless such action is
taken in accordance with the provisions of the Communications Act of 1934, as
amended, and the rules, regulations and policies of the FCC and all other
applicable laws.
          9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, each Borrower hereby irrevocably
appoints Lender (and any of Lender’s designated officers, or employees) as such
Borrower’s true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Lender’s security interest in the
Accounts; (b) endorse such Borrower’s name on any checks or other forms of
payment or security that may come into Lender’s possession; (c) sign such
Borrower’s name on any invoice or bill of lading relating to any Account, drafts
against account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) dispose of any Collateral;
(e) make, settle, and adjust all claims under and decisions with respect to such
Borrower’s policies of insurance; (f) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Lender determines to be reasonable; (g) to modify, in its sole
discretion, any intellectual property security agreement entered into between
such Borrower and Lender without first obtaining such Borrower’s approval of or
signature to such modification by amending Exhibits A, B, and C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by such Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which such Borrower no longer has or claims
to have any right, title or interest; and (h) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of such Borrower where
permitted by law; provided Lender may exercise such power of attorney to sign
the name of such Borrower on any of the documents described in clauses (g) and
(h) above, regardless of whether an Event of Default has occurred. The
appointment of Lender as each Borrower’s attorney in fact, and each and every
one of Lender’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Lender’s obligation to provide Credit Extensions hereunder is terminated.
          9.3 Accounts Collection. At any time after the occurrence and during
the continuance of an Event of Default, Lender may notify any Person owing funds
to a Borrower of Lender’s security interest in such funds and verify the amount
of such Account. Each Borrower shall collect all amounts owing to such Borrower
for Lender, receive in trust all payments as Lender’s trustee, and immediately
deliver such payments to Lender in their original form as received from the
account debtor, with proper endorsements for deposit.
          9.4 Lender Expenses. If a Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Lender may do any or all of the
following after reasonable notice to Parent: (a) make payment of the same or any
part thereof; (b) set up such reserves under the Revolving Line as Lender deems
necessary to protect Lender from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.5
of this Agreement, and take any action with respect to such policies as Lender
deems prudent. Any amounts so paid or deposited by Lender shall constitute
Lender Expenses, shall be immediately due and payable, and shall bear interest
at the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Lender shall not constitute an agreement by
Lender to make similar payments in the future or a waiver by Lender of any Event
of Default under this Agreement.
          9.5 Lender’s Liability for Collateral. Lender has no obligation to
clean up or otherwise prepare the Collateral for sale. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrowers.

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          9.6 No Obligation to Pursue Others. Lender has no obligation to
attempt to satisfy the Obligations by collecting them from any other Person
liable for them and Lender may release, modify or waive any collateral provided
by any other Person to secure any of the Obligations, all without affecting
Lender’s rights against Borrowers. Each Borrower waives any right it may have to
require Lender to pursue any other Person for any of the Obligations.
          9.7 Remedies Cumulative. Lender’s rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default on a Borrower’s part shall be deemed a continuing waiver. No
delay by Lender shall constitute a waiver, election, or acquiescence by it. No
waiver by Lender shall be effective unless made in a written document signed on
behalf of Lender and then shall be effective only in the specific instance and
for the specific purpose for which it was given. Each Borrower expressly agrees
that this Section may not be waived or modified by Lender by course of
performance, conduct, estoppel or otherwise.
          9.8 Demand; Protest. Except as otherwise provided in this Agreement,
each Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment and any other notices relating to the
Obligations.
     10. NOTICES.
     Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Parent or to Lender, as the case may be, at its addresses
set forth below:

         
 
  If to a Borrower:   PAC-WEST TELECOMM, INC.
 
      1776 W. March Lane, Ste. 250
 
      Stockton, CA 95207
 
      Attn: Chief Financial Officer
 
      FAX: (209) 926-4444
 
       
 
  If to:   PAC-WEST FUNDING COMPANY LLC
 
      203 SE Park Plaza Drive, Suite 270
 
      Vancouver, WA 98684
 
      Attn: President
 
      FAX: (360) 816-1841
 
       
 
  with a copy to:    
 
       
 
      FAX: (650) 213-1710

     The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
     11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
     “This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Jurisdiction shall lie in the State of California. THE
UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE,

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BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED
BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT)
WITH COUNSEL OF ITS, HIS OR HER CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE
MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF
LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT,
INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.”
     12. REFERENCE PROVISION.
     If and only if the jury trial waiver set forth in Section 11 of this
Agreement is invalidated for any reason by a court of law, statute or otherwise,
the reference provisions set forth below shall be substituted in place of the
jury trial waiver. So long as the jury trial waiver remains valid, the reference
provisions set forth in this Section shall be inapplicable.
          12.1 Mechanics.
               (a) Other than (i) nonjudicial foreclosure of security interests
in real or personal property, (ii) the appointment of a receiver or (iii) the
exercise of other provisional remedies (any of which may be initiated pursuant
to applicable law), any controversy, dispute or claim (each, a “Claim”) between
the parties arising out of or relating to this Agreement or any other document,
instrument or agreement between the Lender and the undersigned (collectively in
this Section, the “Loan Documents”), will be resolved by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure (“CCP”), or their successor sections, which
shall constitute the exclusive remedy for the resolution of any Claim, including
whether the Claim is subject to the reference proceeding. Except as otherwise
provided in the Loan Documents, venue for the reference proceeding will be in
the Superior Court or Federal District Court in the County or District where
venue is otherwise appropriate under applicable law (the “Court”).
               (b) The referee shall be a retired Judge or Justice selected by
mutual written agreement of the parties. If the parties do not agree, the
referee shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. The referee shall be appointed to sit
with all the powers provided by law. Each party shall have one peremptory
challenge pursuant to CCP §170.6. Pending appointment of the referee, the Court
has power to issue temporary or provisional remedies.
               (c) The parties agree that time is of the essence in conducting
the reference proceedings. Accordingly, the referee shall be requested to
(a) set the matter for a status and trial-setting conference within fifteen
(15) days after the date of selection of the referee, (b) if practicable, try
all issues of law or fact within ninety (90) days after the date of the
conference and (c) report a statement of decision within twenty (20) days after
the matter has been submitted for decision. Any decision rendered by the referee
will be final, binding and conclusive, and judgment shall be entered pursuant to
CCP §644, except as provided in Section 12.3.
               (d) The referee will have power to expand or limit the amount and
duration of discovery. The referee may set or extend discovery deadlines or
cutoffs for good cause, including a party’s failure to provide requested
discovery for any reason whatsoever. Unless otherwise ordered, no party shall be
entitled to “priority” in conducting discovery, depositions may be taken by
either party upon seven (7) days written notice, and all other discovery shall
be responded to within fifteen (15) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding.
          12.2 Procedures. Except as expressly set forth in this Agreement, the
referee shall determine the manner in which the reference proceeding is
conducted including the time and place of hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter, except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee, and the referee will be provided a courtesy copy of the
transcript. The party making such a request shall have the obligation to arrange
for and pay the court reporter. Subject to the referee’s power to award costs to
the prevailing party, the parties will equally share the cost of the referee and
the court reporter at trial.

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          12.3 Application of Law. The referee shall be required to determine
all issues in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, provide
all temporary or provisional remedies, enter equitable orders that will be
binding on the parties and rule on any motion which would be authorized in a
trial, including without limitation motions for summary judgment or summary
adjudication . The referee shall issue a decision at the close of the reference
proceeding which disposes of all claims of the parties that are the subject of
the reference. The referee’s decision shall be entered by the Court as a
judgment or an order in the same manner as if the action had been tried by the
Court. The parties reserve the right to findings of fact, conclusions of laws, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision. The parties reserve the right to appeal from
the final judgment or order or from any appealable decision or order entered by
the referee.
          12.4 Repeal. If the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by reference
procedure will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge or Justice, in accordance with the California
Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time.
The limitations with respect to discovery set forth above shall apply to any
such arbitration proceeding.
          12.5 THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER
THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND
THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS
REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT)
WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR
THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY
DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE
LOAN DOCUMENTS.
     13. CO-BORROWERS.
          13.1 Co-Borrowers. Borrowers are jointly and severally liable for the
Obligations and Lender may proceed against one Borrower to enforce the
Obligations without waiving its right to proceed against the other Borrower.
This Agreement and the Loan Documents are a primary and original obligation of
each Borrower and shall remain in effect notwithstanding future changes in
conditions, including any change of law or any invalidity or irregularity in the
creation or acquisition of any Obligations or in the execution or delivery of
any agreement between Lender and any Borrower. Each Borrower shall be liable for
existing and future Obligations as fully as if all of the Credit Extensions were
advanced to such Borrower. Lender may rely on any certificate or representation
made by any Borrower as made on behalf of, and binding on, all Borrowers,
including without limitation Advance Request Forms (delivered by a Responsible
Officer), Borrowing Base Certificates and Compliance Certificates. Borrowers are
jointly and severally liable for the Obligations and Lender may proceed against
one or more of the Borrowers to enforce the Obligations without waiving its
right to proceed against any of the other Borrowers. Each Borrower appoints each
other Borrower as its agent with all necessary power and authority to give and
receive notices, certificates or demands for and on behalf of both Borrowers, to
act as disbursing agent for receipt of any Advances on behalf of each Borrower
and to apply to Lender on behalf of each Borrower for Advances, any waivers and
any consents. This authorization cannot be revoked, and Lender need not inquire
as to one Borrower’s authority to act for or on behalf of another Borrower.
          13.2 Subrogation and Similar Rights. Notwithstanding any other
provision of this Agreement or any other Loan Document, each Borrower
irrevocably waives, until all obligations are paid in full and Lender has no
further obligation to make Credit Extensions to Borrower, all rights that it may
have at law or in equity (including, without limitation, any law subrogating the
Borrower to the rights of Lender under the Loan Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by

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the Borrower with respect to the Obligations in connection with the Loan
Documents or otherwise. Any agreement providing for indemnification,
reimbursement or any other arrangement prohibited under this Section shall be
null and void. If any payment is made to a Borrower in contravention of this
Section, such Borrower shall hold such payment in trust for Lender and such
payment shall be promptly delivered to Lender for application to the
Obligations, whether matured or unmatured.
          13.3 Waivers of Notice. Each Borrower waives, to the extent permitted
by law, notice of acceptance hereof; notice of the existence, creation or
acquisition of any of the Obligations; notice of an Event of Default except as
set forth herein; notice of the amount of the Obligations outstanding at any
time; notice of any adverse change in the financial condition of any other
Borrower or of any other fact that might increase the Borrower’s risk;
presentment for payment; demand; protest and notice thereof as to any
instrument; and all other notices and demands to which the Borrower would
otherwise be entitled by virtue of being a co-borrower or a surety. Each
Borrower waives any defense arising from any defense of any other Borrower, or
by reason of the cessation from any cause whatsoever of the liability of any
other Borrower. Lender’s failure at any time to require strict performance by
any Borrower of any provision of the Loan Documents shall not waive, alter or
diminish any right of Lender thereafter to demand strict compliance and
performance therewith. Each Borrower also waives any defense arising from any
act or omission of Lender that changes the scope of the Borrower’s risks
hereunder. Each Borrower hereby waives any right to assert against Lender any
defense (legal or equitable), setoff, counterclaim, or claims that such Borrower
individually may now or hereafter have against another Borrower or any other
Person liable to Lender with respect to the Obligations in any manner or
whatsoever.
          13.4 Subrogation Defenses. Until all Obligations are paid in full and
Lender has no further obligation to make Credit Extensions to Borrower, each
Borrower hereby waives any defense based on impairment or destruction of its
subrogation or other rights against any other Borrower and waives all benefits
which might otherwise be available to it under California Civil Code
Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850, 2899, and 3433 and
California Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those
statutory provisions are now in effect and hereafter amended, and under any
other similar statutes now and hereafter in effect.
          13.5 Right to Settle, Release.
               13.5.1 The liability of Borrowers hereunder shall not be
diminished by (i) any agreement, understanding or representation that any of the
Obligations is or was to be guaranteed by another Person or secured by other
property, or (ii) any release or unenforceability, whether partial or total, of
rights, if any, which Lender may now or hereafter have against any other Person,
including another Borrower, or property with respect to any of the Obligations.
               13.5.2 Without notice to any Borrower and without affecting the
liability of any Borrower hereunder, Lender may (i) compromise, settle, renew,
extend the time for payment, change the manner or terms of payment, discharge
the performance of, decline to enforce, or release all or any of the Obligations
with respect to a Borrower, (ii) grant other indulgences to a Borrower in
respect of the Obligations, (iii) modify in any manner any documents relating to
the Obligations with respect to a Borrower, (iv) release, surrender or exchange
any deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle, renew, or extend the
time for payment, discharge the performance of, decline to enforce, or release
all or any obligations of any guarantor, endorser or other Person who is now or
may hereafter be liable with respect to any of the Obligations.
          13.6 Subordination. All indebtedness of a Borrower now or hereafter
arising held by another Borrower is subordinated to the Obligations and the
Borrower holding the indebtedness shall take all actions reasonably requested by
Lender to effect, to enforce and to give notice of such subordination.
     14. GENERAL PROVISIONS.
          14.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties and shall bind all Persons who become bound as a debtor to this
Agreement; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by a Borrower without Lender’s prior written consent,
which consent may be granted or withheld in Lender’s sole

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discretion. Lender shall have the right without the consent of or notice to a
Borrower to sell, transfer, negotiate, or grant participation in all or any part
of, or any interest in, Lender’s obligations, rights and benefits hereunder.
          14.2 Indemnification. Each Borrower shall defend, indemnify and hold
harmless Lender and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Lender Expenses in any way suffered, incurred, or paid by
Lender, its officers, employees and agents as a result of or in any way arising
out of, following, or consequential to transactions between Lender and a
Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused by
Lender’s gross negligence or willful misconduct.
          14.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
          14.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
          14.5 Amendments in Writing, Integration. All future amendments to or
terminations of this Agreement or the other Loan Documents must be in writing.
All prior agreements, understandings, representations, warranties, and
negotiations between the parties hereto with respect to the subject matter of
this Agreement and the other Loan Documents, if any, are merged into this
Agreement and the Loan Documents. This Agreement and its Exhibits and Schedules
is the entire agreement between Borrowers and Lender with regard to the
obligations and terms of any loans now or hereafter outstanding hereunder.
          14.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
          14.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding or Lender has any obligation to make any Credit
Extension to a Borrower. The obligations of Borrowers to indemnify Lender with
respect to the expenses, damages, losses, costs and liabilities described in
Section 13.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Lender have run.
          14.8 Confidentiality. In handling any confidential information, Lender
and all employees and agents of Lender shall exercise the same degree of care
that Lender exercises with respect to its own proprietary information of the
same types to maintain the confidentiality of any non-public information thereby
received or received pursuant to this Agreement except that disclosure of such
information may be made (i) to the subsidiaries or Affiliates of Lender in
connection with their present or prospective business relations with a Borrower,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrowers and have delivered a copy to Parent, (iii) as required by
law, regulations, rule or order, subpoena, judicial order or similar order,
(iv) as may be required in connection with the examination, audit or similar
investigation of Lender and (v) as Lender may reasonably determine to be
necessary in connection with the enforcement of any remedies hereunder (except
as may be required to be maintained in confidence pursuant to SEC rule or other
legal requirement binding upon Lender). Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Lender when disclosed to Lender, or becomes part of
the public domain after disclosure to Lender through no fault of Lender; or
(b) is disclosed to Lender by a third party, provided Lender does not have
actual knowledge that such third party is prohibited from disclosing such
information.
     15. AMENDMENT AND RESTATEMENT.
     On the Closing Date upon satisfaction of the conditions set forth in
subsection 3.1 hereof, $8,805,638.23 of the aggregate obligations outstanding
under the Original Loan Agreement shall be reinstated as Term Loans under

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Tranche A hereunder. The parties acknowledge and agree that this Agreement and
the other Loan Documents do not constitute a novation, payment and reborrowing,
or termination of the portion of the obligations of Parent or Borrowers under
the Original Loan Agreement reinstated hereby and that all such obligations are
in all respects continued and outstanding as obligations under this Agreement
and the Loan Documents with only the terms being modified from and after the
Closing Date as provided in this Agreement and the other Loan Documents. In
addition, this Agreement shall not release, limit or impair in any way the
priority of any security interests and Liens held by Lender against any assets
of Parent, Borrowers or any of Borrowers’ Subsidiaries arising under the
Original Loan Agreement.
[Balance of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

                  PAC-WEST TELECOMM, INC.    
 
           
 
  By:   /s/ Michael Sarina    
 
           
 
           
 
  Title:   Chief Financial Officer
 
           
 
                PAC-WEST TELECOM OF VIRGINIA, INC.    
 
           
 
  By:   /s/ Michael Sarina    
 
           
 
           
 
  Title:   Chief Financial Officer
 
           
 
                PWT SERVICES, INC.    
 
           
 
  By:   /s/ Michael Sarina    
 
           
 
           
 
  Title:   Chief Financial Officer
 
           
 
                PWT OF NEW YORK, INC.    
 
           
 
  By:   /s/ Michael Sarina    
 
           
 
           
 
  Title:   Chief Financial Officer
 
           
 
                PAC-WEST FUNDING COMPANY LLC    
 
           
 
  By:   /s/ Kenneth D Peterson, Jr    
 
           
 
           
 
  Title:   Manager    
 
           

[Signature Page to Loan and Security Agreement]

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