Exhibit 10.1
PREFERRED STOCK PURCHASE AGREEMENT
By and Among
PAC-WEST TELECOMM, INC.,
and
PAC-WEST ACQUISITION COMPANY LLC
Dated November 15, 2006

 

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TABLE OF CONTENTS

                                      Page 1.   Purchase and Sale of Preferred
Stock     2  
 
  1.1     Sale and Issuance of Series B-1 and Series B-2 Preferred Stock.     2
 
 
  1.2     Deliveries     2  
 
  1.3     Defined Terms Used in this Agreement     3   2.   Representations and
Warranties of the Company     6  
 
  2.1     Organization, Good Standing, Corporate Power and Qualification     6  
 
  2.2     Capitalization     7  
 
  2.3     Subsidiaries     8  
 
  2.4     Authorization     8  
 
  2.5     Valid Issuance of Shares     8  
 
  2.6     Governmental Consents and Filings     9  
 
  2.7     Litigation     9  
 
  2.8     Intellectual Property     9  
 
  2.9     No Conflict     10  
 
  2.10     SEC Documents; Financial Statements     10  
 
  2.11     Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities     10  
 
  2.12     Taxes     11  
 
  2.13     Material Contracts     11  
 
  2.14     Insurance     11  
 
  2.15     Permits     11  
 
  2.16     Investment Company     11  
 
  2.17     Takeover Protections; Rights Agreement     12  
 
  2.18     No Bankruptcy/Insolvency Proceeding     12  
 
  2.19     Brokers     12   3.   Representations and Warranties of the Purchaser
    12  
 
  3.1     Authorization     12  
 
  3.2     Purchase Entirely for Own Account     12  
 
  3.3     Disclosure of Information     12  
 
  3.4     Experience     13  
 
  3.5     Economic Risk     13  
 
  3.6     Restricted Securities     13  
 
  3.7     No Public Market     13  
 
  3.8     Legends     13  
 
  3.9     Accredited Investor     14  
 
  3.10     Brokers     14   4.   Other Agreements     14  
 
  4.1     Form D and Blue Sky     14  
 
  4.2     Regulatory Consents/Approvals     14  
 
  4.3     Board Composition     14  
 
  4.4     Post-Closing Shareholder Meeting     15  
 
  4.5     D&O Liability Insurance Policy     15   5.   Miscellaneous     15  
 
  5.1     Notices     15  

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                                      Page
 
  5.2     Governing Law     15  
 
  5.3     Counterparts     15  
 
  5.4     Headings     16  
 
  5.5     Severability     16  
 
  5.6     Entire Agreement; Amendments     16  
 
  5.7     Successors and Assigns     16  
 
  5.8     No Third Party Beneficiaries     16  
 
  5.9     Survival of Representations, Warranties and Agreements     16  
 
  5.10     Further Assurances     16  
 
  5.11     No Strict Construction     16  
 
  5.12     Remedies     16  
 
  5.13     Fees and Expenses     17  
 
                        Exhibit A Form of Certificate of Determination        

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PREFERRED STOCK PURCHASE AGREEMENT
     THIS PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of
the 15th day of November, 2006, by and among Pac-West Telecomm, Inc., a
California corporation (the “Company”), and Pac-West Acquisition Company LLC, a
Washington limited liability company (“Purchaser”).
RECITALS:
     WHEREAS, the Company, the Purchaser and certain affiliates of the Purchaser
have agreed to a comprehensive restructuring of the Company’s financial position
(the “Restructuring”);
     WHEREAS, as part of the Restructuring, an affiliate of the Purchaser has
concurrently herewith purchased the Company’s current senior secured credit
facility from Comerica Bank, which as of the date hereof has an outstanding
balance of approximately $8.8 million, and increased the maximum loan commitment
under such facility to $24.0 million, consisting of a $8.0 million revolving
credit facility and a $16.0 million term loan, in each case, upon and subject to
the terms of the Amended and Restated Loan and Security Facility;
     WHEREAS, as part of the Restructuring, the Company has concurrently
herewith entered into the Exchange Commitment Letter, the Merrill Lynch
Agreement to Restructure and the Tekelec Agreement;
     WHEREAS, the Company currently has one (1) vacancy on Board of Directors
and as part of the Restructuring, three (3) directors of the Company, William
Davidson, Frederick D. Lawrence and Thomas A. Munro, have irrevocably resigned
(and the Board of Directors of the Company has accepted such resignations) and
the Purchaser’s designees, Kenneth D. Peterson, Jr., Stanley P. Hanks, James F.
Hensel and Richard A. Roman, have been appointed to serve on the Board of
Directors of the Company, in each case, such resignations and appointments with
effect on November 21, 2006;
     WHEREAS, as part of the Restructuring, the Company has concurrently
herewith amended the Rights Agreement to exclude the Purchaser from the
definition of “Acquiring Person” thereunder;
     WHEREAS, the Company has delivered to the Purchaser a two-year business
plan, which is reasonably acceptable to the Purchaser; and
     WHEREAS, the Company has received a commitment from the Purchaser’s parent
to, among other things, cause the Purchaser to fulfill all of its obligations
hereunder.

 

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AGREEMENTS:
     The parties hereby agree as follows:

  1.   Purchase and Sale of Preferred Stock.

  1.1   Sale and Issuance of Series B-1 and Series B-2 Preferred Stock.

               (a) The Company has adopted and concurrently herewith filed with
the Secretary of State of the State of California the Certificate of
Determination in the form of Exhibit A (the “Certificate of Determination”).
               (b) Subject to the terms and conditions of this Agreement, the
Purchaser hereby agrees to purchase and the Company agrees to sell and issue to
the Purchaser, forty eight thousand one hundred fifty eight (48,158) shares of
newly designated Series B-1 Preferred Stock, par value $0.001 per share, with
such terms and conditions as are set forth in the Certificate of Determination
(the “Series B-1 Preferred Stock”) at a purchase price of $1.137505 per share.
               (c) Subject to the terms and conditions of this Agreement, the
Purchaser hereby agrees to purchase and the Company agrees to sell and issue to
the Purchaser eight hundred thirty thousand, nine hundred fifty-nine (830,959)
shares of newly designated Series B-2 Preferred Stock, par value $0.001 per
share, with such terms and conditions as are set forth in the Certificate of
Determination (the “Series B-2 Preferred Stock”) at a purchase price of
$1.137505 per share, such Series B-2 Preferred Stock to be issued to the
Purchaser promptly following such time as the Company receives the requisite
approval from the shareholders of Company to (a) increase the number of
authorized shares of Common Stock to permit the conversion of all outstanding
Series B-2 Preferred Stock, and (b) provide for such additional shares of
authorized Common Stock as the Board of Directors of the Company shall determine
is necessary or appropriate (the “Condition Precedent to the Series B-2
Issuance”).
               (d) The shares of Series B-1 Preferred Stock and Series B-2
Preferred Stock issued to the Purchaser pursuant to this Agreement shall be
referred to in this Agreement as the “Shares.”

  1.2   Deliveries.

               (a) The Purchaser has concurrently herewith delivered to the
Company:
               (i) the aggregate purchase price in respect of the Series B-1
Preferred Stock and the Series B-2 Preferred Stock purchased hereunder by wire
transfer to a bank account designated by the Company; and
               (ii) a certificate executed by the President and Chief Executive
Officer of the Purchaser certifying that the representations and warranties of
the Purchaser contained in Section 3 are true and correct in all material
respects, except that

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any such representations and warranties shall be true and correct in all
respects where such representation and warranty is qualified with respect to
materiality.
               (b) The Company has concurrently herewith delivered to the
Purchaser:
               (i) a certificate representing the Series B-1 Preferred Stock
purchased hereunder;
               (ii) the Disclosure Schedule;
               (iii) a certificate executed by the President and Chief Executive
Officer of the Company certifying that the representations and warranties of the
Company contained in Section 2 are true and correct in all material respects,
except that any such representations and warranties shall be true and correct in
all respects where such representation and warranty is qualified with respect to
materiality, and
               (iv) a legal opinion in the form reasonably agreed to by the
Purhaser.
               (c) The Company will, promptly after the satisfaction of the
Condition Precedent to the Series B-2 Issuance, issue and deliver to the
Purchaser certificates representing the Series B-2 Preferred Stock purchased
hereunder.
          1.3 Defined Terms Used in this Agreement. In addition to the terms
defined above, the following terms used in this Agreement shall be construed to
have the meanings set forth or referenced below.
          “Affiliate” means, with respect to any specified Person, any other
Person who or which, directly or indirectly, controls, is controlled by, or is
under common control with such specified Person, including, without limitation,
any general partner, officer, director or manager of such Person and any venture
capital fund now or hereafter existing that is controlled by one or more general
partners or managing members of, or shares the same management company with,
such Person.
          “Agreement” has the meaning set forth in the preamble.
          “Amended Articles” has the meaning set forth in Section 4.4.
          “Amended and Restated Loan and Security Facility” means the Amended
and Restated Loan and Security Agreement, dated as of the date hereof, by and
between Pac-West Funding Corporation, LLC, the Company, Pac-West Telecomm of
Virginia, Inc., PWT Services, Inc. and PWT of New York, Inc.
          “Articles of Incorporation” means the Amended and Restated Articles of
Incorporation of the Company.
          “Bylaws” means the Amended and Restated Bylaws of the Company.

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          “Certificate of Determination” has the meaning set forth in
Section 1.1.
          “Closing” has the meaning set forth in Section 2.4.
          “Common Stock” has the meaning set forth in Section 2.2.
          “Company” has the meaning set forth in the preamble.
          “Company Intellectual Property” means all patents, patent
applications, trademarks, trademark applications, service marks, tradenames,
copyrights, trade secrets, licenses, domain names, mask works, information and
proprietary rights and processes as are necessary to the conduct of the
Company’s business as now conducted and as presently proposed to be conducted.
          “Company Reports” has the meaning set forth in Section 2.10.
          “Company Subsidiaries” has the meaning set forth in Section 2.3.
          “Condition Precedent to the Series B-2 Issuance” has the meaning set
forth in Section 1.1(c).
          “Disclosure Schedule” has the meaning set forth in the introduction to
Section 2.
          “Encumbrance” means any security interest, pledge, hypothecation,
mortgage, lien including, without limitation, Tax liens (other (a) liens for
Taxes not yet due and payable or for Taxes that the taxpayer is contesting in
good faith through appropriate proceedings, (b) purchase money liens and liens
securing rental payments under capital lease arrangements, and (c) other liens
arising in the ordinary course of business and not incurred in the borrowing of
money), charge, or encumbrance.
          “Exchange Commitment Letter” means that certain letter agreement
between SMH Capital Advisors, Inc. and Pac-West Telecomm, Inc., dated
November 14, 2006.
          “Financial Statements” has the meaning set forth in Section 2.10.
          “GAAP” means the generally accepted accounting principles applied in
the United States.
          “Governmental Authority” means any United States or non-United States
federal, national, supranational, state, provincial, local, or similar
government, governmental, regulatory or administrative authority, agency or
commission or any court, tribunal, or judicial or arbitral body, including the
SEC or the appropriate state public utilities commissions.
          “Governmental Order” means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
          “Investment Company Act” means the Investment Company Act of 1940, as
amended, and all rules and regulations promulgated thereunder.

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          “Knowledge,” including the phrase “to the Company’s knowledge,” shall
mean the actual knowledge after investigation of the following officers: Henry
R. Carabelli, Michael S. Sarina and H. Ravi Brar.
          “Law” means any United States or non-United States federal, national,
supranational, state, provincial, local or similar statute, law, ordinance,
regulation, rule, code, order, requirement or rule of law.
          “Liabilities” shall mean any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law, action or Governmental Order and those arising under any
contract, agreement, arrangement, commitment or undertaking.
          “Material Adverse Effect” means any circumstance, change in or effect
on the Company or its business that, individually or in the aggregate with all
other circumstances, changes in or effects on the Company is or is reasonably
likely to be materially adverse to the business, operations, assets or
liabilities (including, without limitation, contingent liabilities), results of
operations or the financial condition of the Company taken as a whole; provided,
however, that the term “Material Adverse Effect” shall not include (a) any
circumstance, change or effect that arises out of or is attributable to (i) any
change in the market for the Common Stock, including, without limitation,
changes in the market price or liquidity or (ii) general economic conditions
affecting the United States and California economy generally, (b) any other
circumstance, change or effect set forth in Section 1.01 of the Disclosure
Schedule or (c) any circumstance, change or effect disclosed in the Company’s
SEC Reports.
          “Material Contract” has the meaning set forth in Section 2.13.
          “Merrill Lynch Agreement to Restructure” means that certain Agreement
to Restructure, dated as of the date hereof, between Merrill Lynch Capital, a
division of Merrill Lynch Business Financial Services, Inc., and the Company.
          “Person” means any individual, corporation, partnership, trust,
limited liability company, association or other entity.
          “Preferred Stock” has the meaning set forth in Section 2.2.
          “Purchaser” has the meaning set forth in the preamble.
          “Purchaser Directors” has the meaning set forth in Section 4.3.
          “Regulation D” has the meaning set forth in Section 2.6.
          “Restructuring” has the meaning set forth in the recitals.
          “Rights Agreement” means that certain Rights Agreement, dated
August 30, 2005, by and among the Company and Wachovia Bank, National
Association.
          “SEC” means the U.S. Securities and Exchange Commission.

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          “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
          “Series B-1 Preferred Stock” has the meaning set forth in Section 1.1.
          “Series B-2 Preferred Stock” has the meaning set forth in Section 1.1.
          “Shares” has the meaning set forth in Section 1.1.
          “Stock Incentive Plan” has the meaning set forth in Section 2.2.
          “Stock Purchase Plan” has the meaning set forth in Section 2.2.
          “Tax” or “Taxes” means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers’ compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs’ duties, tariffs, and
similar charges.
          “Tax Returns” has the meaning set forth in Section 2.12.
          “Tekelec Agreement” means that certain letter agreement between
Tekelec and the Company, dated November 14, 2006.
          “Transaction Agreements” means this Agreement, the Amended and
Restated Loan and Security Facility, the Merrill Lynch Agreement to Restructure,
the Exchange Commitment Letter, and the Tekelec Agreement.
     2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser that, except as set forth on the
Disclosure Schedule, of even date hereof, and delivered concurrently with the
execution of this Agreement (the “Disclosure Schedule”), which exceptions shall
be deemed to be part of the representations and warranties made hereunder, the
following representations are true and complete as of the date hereof. The
Disclosure Schedule shall be arranged in sections corresponding to the numbered
and lettered sections and subsections contained in this Section 2, and the
disclosures in any section or subsection of the Disclosure Schedule shall
qualify other sections and subsections in this Section 2 to the extent it is
reasonably apparent from a reading of the disclosure that such disclosure is
applicable to such other sections and subsections.
          2.1 Organization, Good Standing, Corporate Power and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the California Corporations Code and has all requisite corporate
power and authority to carry on its business as presently conducted and as
proposed to be conducted. The Company is duly

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qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a Material Adverse Effect.
          2.2 Capitalization.
               (a) The authorized capital stock of the Company consists of
100,000,000 shares of common stock, par value $0.001 per share, of the Company
(the “Common Stock”) and 10,000,000 shares of preferred stock, par value $0.001
per share, of the Company (the “Preferred Stock”), 600,000 shares of which have
been designated Series A Junior Participating Preferred Stock, without par
value. As of the date hereof, 37,667,528 shares of Common Stock and no shares of
Preferred Stock, were issued and outstanding, all of which are validly issued,
fully paid and nonassessable.
               (b) The Company has reserved 7,601,750 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Incentive Plan and 1998 Griffin Non-Qualified Stock
Incentive Plan (collectively, the “Stock Incentive Plan”), and 1,000,000 shares
of Common Stock for issuance to officers, directors and employees of the Company
pursuant to the 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”),
in each case, duly adopted by the Board of Directors of the Company and approved
by the Company’s shareholders. Of the shares of Common Stock reserved for
issuance under the Stock Incentive Plan, restricted stock purchase agreements
and options to purchase covering 5,653,876 shares of Common Stock, including
400,000 shares of restricted Common Stock have been granted and are currently
outstanding and 1,003,153 shares of Common Stock remain available for issuance
to officers, directors, employees and consultants. Of the shares of Common Stock
reserved for issuance under the Stock Purchase Plan, 558,744 Common Stock have
issued, and 441,256 shares of Common Stock remain available for issuance to
officers, directors and employees. The Company has made available to the
Purchaser complete and accurate copies of the Stock Incentive Plan and the Stock
Purchase Plan and forms of agreements used thereunder.
               (c) Except as provided under the Rights Agreement, the Stock
Incentive Plan and the Stock Purchase Plan, and except for the Shares, there are
no outstanding options, warrants, subscriptions, calls, convertible securities,
phantom equity, equity appreciation or similar rights, or other rights,
agreements, arrangements or commitments (contingent or otherwise) (including,
without limitation, any right of conversion or exchange under any outstanding
security, instrument or other agreement or any preemptive right) obligating the
Company to deliver or sell, or cause to be issued, delivered or sold, any shares
of its capital stock or other securities, instruments or rights which are,
directly or indirectly, convertible into or exercisable or exchangeable for any
shares of its capital stock. There are no outstanding contractual obligations of
the Company to repurchase, redeem or otherwise acquire any shares of its capital
stock or to provide funds to, or make any material investment (in the form of a
loan, capital contribution or otherwise) in, any other Person. There are no
voting trusts, shareholder agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
shares of Common Stock to which the Company is a party. As of the date hereof,
the Company has not granted or agreed to grant any holders of shares of Common
Stock or securities convertible into Common Stock registration rights with
respect to such shares under the Securities Act.

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               (d) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act, and the California Corporations Code, or pursuant to valid exemptions
therefrom. None of the issued and outstanding shares of Common Stock was issued
in violation of any preemptive rights.
          2.3 Subsidiaries.
               (a) Section 2.3 of the Disclosure Schedule sets forth the
subsidiaries of the Company and their ownership, including the number of shares,
units or percentages held (the “Company Subsidiaries”). Other than Pac-West
Telecomm of Virginia, Inc., which holds a certificate to provide intrastate
telecommunications services in Virginia, the Company Subsidiaries do not conduct
any business and hold only de minimis assets. Neither the Company nor any of the
Company Subsidiaries is a member of (nor is any material part of their
businesses conducted through) any partnership nor is the Company or any of the
Company Subsidiaries a participant in any joint venture or similar arrangement
that is material to the Company.
               (b) Each Company Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Company
Subsidiary and to carry on its business as it has been and is currently
conducted by such Company Subsidiary and (iii) is duly licensed or qualified to
do business and is in good standing in each jurisdiction in which the failure to
do so would have a Material Adverse Effect.
          2.4 Authorization. All corporate action required to be taken by the
Company’s Board of Directors and shareholders in order to authorize the Company
to enter into the Transaction Agreements, to issue the Series B-1 Preferred
Stock at the closing of the transactions contemplated hereby (the “Closing”) and
the Common Stock issuable upon conversion of the Series B-1 Preferred Stock, and
to issue the Series B-2 Preferred Stock after satisfaction of the Condition
Precedent to the Series B-2 Issuance, has been taken. All action on the part of
the officers of the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the Company under
the Transaction Agreements to be performed as of the Closing, and the issuance
and delivery of the Series B-1 Preferred Stock has been taken. The Transaction
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their respective terms except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other Laws of general application relating to or affecting the enforcement of
creditors’ rights generally, (b) as limited by Laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies, or
(c) to the extent the indemnification provisions may be limited by applicable
federal or state securities Laws.
          2.5 Valid Issuance of Shares. The Shares, when issued, sold and
delivered in accordance with the terms and for the consideration set forth in
this Agreement, will be validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under applicable
state and federal securities Laws and liens or Encumbrances created by

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or imposed by a Purchaser. Assuming the accuracy of the representations of the
Purchaser in Section 3 of this Agreement and subject to the filings described in
Section 2.6 below, the Shares will be issued in compliance with all applicable
federal and state securities Laws. The Common Stock issuable upon conversion of
the Series B-1 Preferred Stock has been duly reserved for issuance, and upon
issuance in accordance with the terms of the Articles of Incorporation as
modified by the Certificate of Determination, will be validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under the Transaction Agreements, applicable federal and state
securities Laws and liens or Encumbrances created by or imposed by a Purchaser.
Based in part upon the representations of the Purchaser in Section 3 of this
Agreement, and subject to Section 2.6 below, the Common Stock issuable upon
conversion of the Shares will be issued in compliance with all applicable
federal and state securities Laws.
          2.6 Governmental Consents and Filings. Assuming the accuracy of the
representations made by the Purchaser in Section 3 of this Agreement, no
consent, approval, Governmental Order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority is required on the part of the Company in
connection with the consummation of the transactions contemplated by the
Transaction Agreements, except for filings pursuant to Regulation D promulgated
under the Securities Act (“Regulation D”), and applicable state securities Laws,
which have been made or will be made in a timely manner.
          2.7 Litigation. There are no legal, administrative, grievance,
arbitration or other proceedings or governmental investigations pending or, to
the Company’s knowledge, threatened, against the Company or any of its
subsidiaries (a) that seek to restrain or enjoin the consummation of the
transactions contemplated by the Transaction Agreements, (b) that seek relief
that would reasonably be expected to have a Material Adverse Effect, (c) that
challenge the validity of the Transaction Agreements or (d) that challenge any
action taken or to be taken by the Company or any of its subsidiaries in
connection with the Transaction Agreements.
          2.8 Intellectual Property. To the Company’s knowledge, no product or
service sold by the Company infringes any patent, trademark, copyright or trade
secret of any other Person. There are no outstanding options, licenses,
agreements, asserted claims, liens, security interests or shared ownership
interests of any kind with respect to the Company Intellectual Property, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, copyrights, trade secrets, or
software of any other Person, other than with respect to commercially available
software products under standard end-user license agreements. The Company has
not received any written communications alleging that the Company has infringed
or, by conducting its business, would infringe any of the patents, trademarks,
copyrights or trade secrets of any other Person. The Company has obtained and
possesses valid licenses to use all of the authorized software programs present
on the computers and other software-enabled electronic devices that it owns or
leases or that it has otherwise provided to its employees for their use in
connection with the Company’s business. To the Company’s knowledge, it will not
be necessary to use any patents of any of its employees or consultants (or
Persons it currently intends to hire) made prior to their employment by the
Company.

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          2.9 No Conflict. The execution, delivery and performance of the
Transaction Agreements by the Company do not and will not (a) violate, conflict
with or result in the breach of any provision of the Articles of Incorporation
and Bylaws of the Company, (b) conflict with or violate any Law or Governmental
Order applicable to the Company or any of its assets, properties or businesses,
or (c) conflict with, result in any breach of, constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Encumbrance on any of the shares of Common
Stock or any of the assets of the Company pursuant to, any note, bond, mortgage
or indenture, contract, agreement, lease, sublease, license, permit, franchise
or other instrument or arrangement to which the Company is a party or by which
any of the shares of Common Stock or any of the assets of the Company is bound
or affected, other than such conflicts or violations described in clauses
(b) and (c) above as would not reasonably be expected to have a Material Adverse
Effect.
          2.10 SEC Documents; Financial Statements. The Company has filed on a
timely basis all registration statements, forms, reports and proxy statements
required to be filed by the Company with the SEC on or after January 1, 2005
(collectively, the “Company Reports”). As of their respective dates, the Company
Reports: (a) were prepared in accordance with the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, (b) complied in all materials respects
with the then applicable accounting requirements and (c) did not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made therein, in the light of the circumstances under
which they were made, not misleading. Each set of the consolidated financial
statements (including in each case any notes and schedules related thereto)
included in the Company Reports (the “Financial Statements”) complies as to form
in all material respects with all applicable accounting requirements and
published rules of the SEC (including Regulation S-X) with respect thereto,
fairly presents in all material respects the consolidated financial position of
the Company and its subsidiaries as of its date, and each of the consolidated
statements of operations, cash flows and shareholders’ deficit included in the
Company Reports (including any related notes and schedules) fairly presents in
all material respects the consolidated results of operations, cash flows or
changes in shareholders’ deficit, as the case may be, of the Company and its
subsidiaries for the periods set forth therein, in each case in accordance with
GAAP applied on a consistent basis consistent with past practice except, in the
case of unaudited statements, for normal and recurring year-end audit
adjustments and as otherwise may be noted therein.
          2.11 Absence of Certain Changes or Events; Absence of Undisclosed
Liabilities.
               (a) Except as disclosed in the Company Reports, since June 30,
2006, the Company has conducted its business only in the ordinary course of
business consistent with past practice and there has not been, and no fact or
condition exists which would have, a Material Adverse Effect.
               (b) Other than as disclosed in the Financial Statements, the
Company has no Liabilities or obligations (whether absolute, accrued, contingent
or otherwise), other than

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(i) Liabilities or obligations related to the transactions contemplated by the
Transaction Agreements, (ii) Liabilities, obligations or contingencies that are
accrued or reserved against in the Financial Statements or disclosed in the
notes thereto, (iii) Liabilities which were incurred after June 30, 2006 in the
ordinary course of business and would not be reasonably expected to have a
Material Adverse Effect or (iv) Liabilities that would not be required by GAAP
to be reflected in a consolidated corporate balance sheet.
          2.12 Taxes. (a) All material returns and reports in respect of Taxes
(“Tax Returns”) required to be filed by the Company and each of its Subsidiaries
(including any consolidated, combined or unitary Tax Returns) have been timely
filed (unless covered by valid extensions of the filing dates therefor);
(b) except where being contested in good faith, all Taxes required to be shown
on such Tax Returns or otherwise due have been timely paid; (c) all such Tax
Returns are true, correct and complete in all material respects; (d) except for
adjustments, actions or proceedings in respect of which adequate reserves have
been established in accordance with GAAP applied on a basis consistent with past
practice, (i) no adjustment relating to such Tax Returns has been proposed
formally or informally by any Tax authority and, to the knowledge of the
Company, after reasonable inquiry, no basis exists for any such adjustment and
(ii) there are no pending or, to the Company’s knowledge, threatened actions or
proceedings for the assessment or collection of Taxes against the Company or any
corporation that was included in the filing of a Tax Return with the Company on
a consolidated or combined basis; and (e) there are no Tax liens filed against
any assets of the Company.
          2.13 Material Contracts. Each material contract to which the Company
is a party (a “Material Contract”) (a) is valid and binding on the parties
thereto, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, fraudulent conveyances, moratorium or other similar Laws
affecting the validity or enforcement of creditors rights generally and the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law), and is in full force and effect and (b) upon
consummation of the transactions contemplated by the Transaction Agreements,
shall continue in full force and effect without penalty or other adverse
consequence. The Company is not in breach of, or default under, any Material
Contract.
          2.14 Insurance. All material assets, properties and risks of the
Company are covered by valid and, except for insurance policies that have
expired under their terms in the ordinary course, currently effective insurance
policies or binders of insurance issued in favor of the Company in such types
and amounts and covering such risks as are consistent with customary practices
and standards of companies engaged in businesses and operations similar to those
of the Company.
          2.15 Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, the lack of
which could reasonably be expected to have a Material Adverse Effect. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
          2.16 Investment Company. The Company is not, and immediately after
receipt of payment for the Shares will not be, an “investment company” or an
entity “controlled” by an

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“investment company” within the meaning of the Investment Company Act and shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
          2.17 Takeover Protections; Rights Agreement. The Company has taken all
necessary action, if any, in order to render inapplicable the Rights Agreement
or those provisions of the California Corporations Code that are or could become
applicable to the Company and the Purchaser as a result of the transactions
contemplated by the Transaction Agreements, including, without limitation, the
Company’s issuance of the Shares and the Purchaser’s ownership of the Shares.
          2.18 No Bankruptcy/Insolvency Proceeding. The Company has not
commenced a proceeding 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.
          2.19 Brokers. No placement agent, broker, finder or investment banker
(other than Miller Buckfire & Co., LLC) is entitled to any placement, brokerage,
finder’s or other fee or commission in connection with the transactions
contemplated by the Transaction Agreements based upon arrangements made by or on
behalf of the Company.
     3. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company that:
          3.1 Authorization. The Purchaser has full power and authority to enter
into the Transaction Agreements. The Transaction Agreements to which the
Purchaser are a party, when executed and delivered by the Purchaser, will
constitute valid and legally binding obligations of the Purchaser, enforceable
in accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
Laws of general application affecting enforcement of creditors’ rights
generally, and as limited by Laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions may be limited by applicable federal or
state securities Laws.
          3.2 Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon the Purchaser’s representation to the Company, which
by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms,
that the Shares to be acquired, directly or indirectly, by the Purchaser will be
acquired for investment for the Purchaser’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represent that the Purchaser does not presently
have any contract, undertaking, agreement or arrangement with any Person to
sell, transfer or grant participations to such Person or to any third Person,
with respect to any of the Shares.
          3.3 Disclosure of Information. The Purchaser has had an opportunity to
discuss the Company’s business, management, financial affairs and the terms and
conditions of

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the offering of the Shares with the Company’s management and representatives and
advisors and has had an opportunity to review the Company’s facilities.
          3.4 Experience. The Purchaser is experienced in evaluating and
investing in private placement transactions of securities of companies such as
the Company, and has either individually or through its current officers,
directors or partners such knowledge and experience in financial and business
matters that the Investor is capable of evaluating the merits and risks of the
their prospective investment in the Company, and have the ability to bear the
economic risks of the investment.
          3.5 Economic Risk. The Purchaser understands that investment in the
Company involves substantial risks. The Purchaser further understands that the
purchase of the Shares will be a highly speculative investment. The Purchaser is
able, without impairing its financial condition, to hold the Shares for an
indefinite period of time and to suffer a complete loss of its investment.
          3.6 Restricted Securities. The Purchaser understands that the Shares
have not been, and will not be, registered under the Securities Act, by reason
of a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of the Purchaser’s representations as expressed herein.
The Purchaser understands that the Shares are “restricted securities” under
applicable U.S. federal and state securities Laws and that, pursuant to these
Laws, the Purchaser must directly or indirectly hold the Shares indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Shares, or the Common Stock
into which it may be converted, for resale. The Purchaser further acknowledges
that if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Shares, and on requirements relating
to the Company which are outside of the Purchaser’s control, and which the
Company is under no obligation and may not be able to satisfy.
          3.7 No Public Market. The Purchaser understands that no public market
now exists for the Shares, and that the Company has made no assurances that a
public market will ever exist for the Shares.
          3.8 Legends. The Purchaser understands that the Shares and any
securities issued in respect of or exchange for the Shares, may bear one or all
of the following legends:
               (a) “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.”

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               (b) Any legend required by the securities Laws of any state to
the extent such Laws are applicable to the Shares represented by the certificate
so legended.
          3.9 Accredited Investor. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D.
          3.10 Brokers. No placement agent, broker, finder or investment banker
is entitled to any placement, brokerage, finder’s or other fee or commission in
connection with the transactions contemplated by the Transaction Agreements
based upon arrangements made by or on behalf of the Purchaser.
     4. Other Agreements.
          4.1 Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Shares as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the date hereof.
          4.2 Regulatory Consents/Approvals.
               (a) Each party hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, do or cause to be done all
things necessary, proper or advisable under applicable Law, and execute and
deliver such documents and other papers as may be reasonably required to carry
out the provisions of the Transaction Agreements and consummate and make
effective the transactions contemplated by Transaction Agreements.
               (b) 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 the Transaction Agreements (except for necessary
reports, applications, petitions, forms, notices or other applicable documents
required or advisable solely with respect to the conversion of the Shares which
shall be promptly prepared and filed upon the request of the Purchaser) and
(ii) comply, at the earliest practicable date following the date of receipt by
the Purchaser or the Company, 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.
          4.3 Board Composition. The Company covenants and agrees that on and
after November 21, 2006 and for so long as any of the Shares are outstanding and
held by the Purchaser or its Affiliates, the Board of Directors of the Company
will nominate for election four (4) persons designated in writing by the
Purchaser, and reasonably acceptable to the Company, to serve on the Board of
Directors of the Company (the “Purchaser Directors”). The initial

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Purchaser Directors shall be Kenneth D. Peterson, Jr., Stanley P. Hanks, James
F. Hensel and Richard A. Roman, each of whom are acceptable to the Company. The
Company further covenants and agrees that on and after November 21, 2006 and for
so long as any of the Shares are outstanding, it will appoint persons designated
in writing by the Purchaser to fill vacancies in directorships reserved for
Purchaser Directors pursuant to the immediately preceding sentence.
          4.4 Post-Closing Shareholder Meeting. After the Closing and at the
written request of the Purchaser, the Company shall promptly thereafter call a
meeting of the shareholders to be held not more than ninety (90) calendar days
thereafter to amend the Articles of Incorporation of the Company to (i) increase
the number of authorized shares of Common Stock to permit the conversion of all
outstanding Series B-2 Preferred Stock, and (ii) provide for such additional
shares of authorized Common Stock as the Board of Directors of the Company shall
determine is necessary or appropriate (the “Amended Articles”). The Company
shall not call a meeting of the shareholders to approve the Amended Articles
unless required to do so by its Articles of Incorporation and Bylaws or
applicable law without the prior written consent of the Purchaser, such consent
not to be unreasonably withheld.
          4.5 D&O Liability Insurance Policy. The Purchaser agrees on behalf of
itself, its Affiliates and the Purchaser Directors that it will not take any
action designed to interfere with any benefits accruing under the Company’s
directors and officers liability insurance policy to the directors and officers
of the Company immediately prior to the date hereof.
     5. Miscellaneous.
          5.1 Notices. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified, (b) when sent by
confirmed electronic mail or facsimile if sent during normal business hours of
the recipient, and if not so confirmed, then on the next business day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) business day after deposit with a
nationally recognized overnight courier, specifying next business day delivery,
with written verification of receipt. All communications shall be sent to the
respective parties at their address as set forth on the signature page.
          5.2 Governing Law. This Agreement (and any claim or controversy
arising out of or relating to this Agreement) shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law.
          5.3 Counterparts. This Agreement may be executed in two (2) or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

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          5.4 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
          5.5 Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
          5.6 Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between Purchaser and its Affiliates, the
Company and their respective Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser. No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.
          5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Purchaser.
          5.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
          5.9 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall terminate on the date that is the
earlier to occur of (a) twelve (12) months from the date hereof and (b) the date
that all Shares have been cancelled and are no longer outstanding.
          5.10 Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
          5.11 No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
          5.12 Remedies. The Company and the Purchaser shall have all rights and
remedies set forth in the Transaction Agreements. The Company and the Purchaser
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other

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rights granted by law. Furthermore, the Company and the Purchaser each recognize
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Agreements, any remedy at law may prove to
be inadequate relief to the Purchaser and the Company, respectively. The Company
and the Purchaser therefore agree that they each shall be entitled to seek
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages and without posting a bond or other security.
          5.13 Fees and Expenses. Each of the Company and the Purchaser shall
pay the fees and disbursements of its own counsel in connection with the
preparation of this Agreement and the other documents contemplated hereby and
the closing of the transactions.
* * * *

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     IN WITNESS WHEREOF, the parties have executed this Preferred Stock Purchase
Agreement as of the date first written above.

                      PAC-WEST TELECOMM, INC.:    
 
               
 
  By:       /s/ Henry R. Carabelli                  
 
                    Name:   Henry R. Carabelli         Title:   President and
Chief Executive Officer    
 
                    Address:   Pac-West Telecomm, Inc.
1776 West March Lane
Stockton, California 95207
Facsimile: (209) 926-4444    
 
                    PAC-WEST ACQUISITION COMPANY LLC:    
 
               
 
  By:       /s/ Kenneth D. Peterson Jr                  
 
                    Name:   Kenneth D. Peterson, Jr.         Title:   Manager  
 
 
                    Address:   c/o Columbia Ventures Corporation
203 SE Park Plaza Drive, Suite 270
Vancouver, Washington 98684    

 

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EXHIBITS
Exhibit A —       Form of Certificate of Determination

 

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EXHIBIT A
FORM OF CERTIFICATE OF DETERMINATION
Exhibit 3.1 of this current report on Form 8-K is incorporated by reference
herein.