EXHIBIT 5
PAYOFF LETTER AND RELEASE
December 17, 2004
Pac-West Telecomm, Inc.
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Re: Certain transactions contemplated by the Note and Warrant
Purchase Agreement dated October 17, 2003 (as amended, restated,
supplemented or otherwise modified from time to time, the "Note
and Warrant Purchase Agreement") between Pac-West Telecomm, Inc.,
a California corporation (the "Borrower"), and Deutsche Bank AG -
London, acting through DB Advisors, LLC (the "Purchaser")
Ladies and Gentlemen:
This Payoff Letter and Release (this "Letter Agreement") refers to the
financing arrangements among the Borrower and the Purchaser contemplated by the
Note and Warrant Purchase Agreement, pursuant to which (i) the Purchaser
purchased from the Borrower that certain Senior Secured Promissory Note dated as
of December 19, 2003 (as amended, restated, supplemented or otherwise modified
from time to time, the "Senior Note") in the original principal amount of
$40,000,000 made by the Borrower in favor of the Purchaser, (ii) the Borrower
entered into that certain Guaranty and Security Agreement dated as of December
19, 2003 (as amended, restated, supplemented or otherwise modified from time to
time, the "Guaranty and Security Agreement") in favor of Deutsche Bank Trust
Company Americas, as "Collateral Agent" for the Purchaser, pursuant to which the
Borrower granted the Collateral Agent a security interest in substantially all
of its personal property as security for the repayment of the Senior Note, (iii)
the Borrower issued the Purchaser that certain Warrant to Purchase Shares of
Common Stock dated as of December 19, 2003 (as amended, restated, supplemented
or otherwise modified from time to time, the "Warrant") entitling the Purchaser
to purchase up to 26,666,667 shares of the common stock of the Borrower on the
terms set forth therein, and (iv) the Borrower and the Purchaser entered into
that certain Registration Rights Agreement dated as of December 19, 2003 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Registration Rights Agreement") and all such other agreements, instruments,
certificates and documents executed and/or delivered by or on behalf of the
Borrower to or for the benefit of the Purchaser, the Collateral Agent or any
affiliate or representative of the either of the foregoing, in each case,
pursuant to the Note and Warrant Purchase Agreement, the Senior Note, the
Guaranty and Security Agreement, the Warrant and/or the Registration Rights
Agreement (collectively with the Note and Warrant Purchase Agreement, the Senior
Note, the Guaranty and Security Agreement, the Warrant and the Registration
Rights Agreement, the "Transaction Documents").
Pac-West Telecomm, Inc.
December 17, 2004
Page 2
This Letter Agreement is being executed in connection with the execution of
that certain Asset Purchase Agreement, dated December 17, 2004, by and between
U.S. TelePacific Corp. and the Borrower relating to the sale of the Borrower's
small and medium-sized enterprises business on the terms set forth therein (the
"SME Asset Purchase Agreement"). An executed copy of the SME Asset Purchase
Agreement is attached hereto as Exhibit A. The parties hereto understand and
acknowledge that the proceeds of the transactions contemplated by the SME Asset
Purchase Agreement will be used to provide the Payoff Amount (as defined below)
hereunder and that the payment of the Payoff Amount to the Purchaser hereunder
is expressly conditioned on the closing of the transactions contemplated by the
SME Asset Purchase Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the undersigned hereby agrees as follows:
1. Payoff and Termination. Except as provided in Paragraph 8 below, the
Borrower, the Purchaser and the Collateral Agent hereby agree, that upon the
Purchaser's receipt of payment of $40,750,000 plus all fees and expenses of the
Collateral Agent then due and owing as of the date of such payment under the
Guaranty and Security Agreement (the "Payoff Amount") in immediately available
funds of the United States of America at the Purchaser's bank account at _______
_______________________________________________________________________________
___________________________________________ (the date such payment is so made,
being the "Effective Date"):
(a) such Payoff Amount shall be deemed payment in full of all interest
and principal then accrued, due or owing under any and all of the
Transaction Documents;
(b) all outstanding Warrants to purchase the shares of the common
stock of the Borrower issued pursuant to Note and Warrant Purchase
Agreement, the Warrant or any of the other Transactions Documents shall be
deemed immediately terminated, expired and extinguished and of no further
force or effect; and
(c) all of the Transaction Documents shall be deemed immediately
terminated and of no further force or effect (other than with respect to
(i) those indemnification obligations set forth in Section 7.02 of the Note
and Warrant Purchase Agreement and Section 22 of the Guaranty and Security
Agreement (the "Surviving Indemnity Rights") and (ii) the confidentiality
obligations set forth in Section 9.02 of the Note and Warrant Purchase
Agreement and Section 25 of the Guaranty and Security Agreement); all
liens, security interests, bank account control agreements, claims or other
encumbrances granted by the Borrower to the Purchaser or the Collateral
Agent on any of the assets, rights, title or interests of the Borrower (or
any other Grantor or Guarantor under the Guaranty and Security Agreement)
pursuant to the Transaction Documents shall be and are hereby immediately
released and forever discharged, and shall be of no further force or
effect; and the original copy of the Senior Note, the Warrant, the
Registration Rights Agreement, each account control agreement and any such
other Transaction Documents as the Borrower may request, shall be
immediately returned by the Purchaser and/or the
Pac-West Telecomm, Inc.
December 17, 2004
Page 3
Collateral Agent, as applicable, to the Borrower marked "Terminated" and
signed by the Purchaser.
The Borrower shall notify the Purchaser and the Collateral Agent in writing
of the Borrower's intention to make the payment of the Payoff Amount to the
Purchaser no less than two Business Days (as defined in the Note and Warrant
Purchase Agreement) prior to such payment.
The Purchaser, as sole Lender (as defined in the Guaranty and Security
Agreement), hereby notifies the Collateral Agent that Purchaser's receipt of the
Payoff Amount (as defined below) constitutes the payment in full of the Secured
Obligations (as defined in the Guaranty and Security Agreement) as contemplated
under Section 27 of the Guaranty and Security Agreement and directs the
Collateral Agent to sign this Letter Agreement.
2. Releases. Upon the Effective Date, (a) the Borrower hereby releases,
discharges and acquits the Purchaser and the Collateral Agent, and each of their
respective officers, directors, agents and employees and their respective
successors and assigns (the "Purchaser Released Parties"), from all obligations
to the Borrower (and its respective successors and assigns) and from any and all
claims, demands, debts, accounts, contracts, liabilities, actions and causes of
actions, whether in law or in equity, whether known or unknown, that the
Borrower at any time had or has, or that its successors and assigns hereafter
can or may have against the Purchaser Released Parties arising under or in
connection with the Transaction Documents or the transactions contemplated
thereby on or prior to the Effective Date; provided, that nothing herein shall
be deemed to release the Purchaser Released Parties from their obligation to
perform, or the Borrower's right to enforce, this Letter Agreement in accordance
with its terms or any Surviving Indemnity Right under any Transaction Document
with respect to any matter arising after the Effective Date, and (b) the
Purchaser and the Collateral Agent each hereby releases, discharges and acquits
the Borrower (and each other Grantor and Guarantor under the Guaranty and
Security Agreement), and each of their respective officers, directors, agents
and employees and their respective successors and assigns (the "Borrower
Released Parties"), from all obligations to the Purchaser and the Collateral
Agent (and their respective successors and assigns) and from any and all claims,
demands, debts, accounts, contracts, liabilities, actions and causes of actions,
whether in law or in equity, whether known or unknown, that the Purchaser and/or
the Collateral Agent at any time had or has, or that their respective successors
and assigns hereafter can or may have against the Borrower Released Parties
arising under or in connection with the Transaction Documents or the
transactions contemplated thereby on or prior to the Effective Date; provided,
that nothing herein shall be deemed to release the Borrower Released Parties
from their obligation to perform, or the Purchaser's and/or the Collateral
Agent's right to enforce, this Letter Agreement in accordance with its terms or
any Surviving Indemnity Right under any Transaction Document with respect to any
matter arising after the Effective Date.
3. Release Documents; Authorization to File. Upon and after the Effective
Date and at the Borrower's expense, the Purchaser and the Collateral Agent each
hereby authorizes the Borrower to prepare, file and record any Uniform
Commercial Code termination statements to release, as of record, all financing
statements filed by the Purchaser and/or the Collateral Agent
Pac-West Telecomm, Inc.
December 17, 2004
Page 4
naming the Borrower, as debtor, that are currently filed of record and to
terminate all other notices of security interests, mortgages, liens, claims or
other encumbrances previously filed, recorded or registered by the Purchaser
and/or the Collateral Agent with respect to the financing arrangements under the
Transaction Documents (collectively, the "Releases"), and the Purchaser and the
Collateral Agent each hereby agree to execute and/or deliver any such Releases
reasonably requested by the Borrower to effect the termination thereof.
4. Representations of the Purchaser. The Purchaser hereby acknowledges,
represents, warrants, covenants and agrees that on the date hereof and on the
Effective Date:
(a) The Purchaser has full corporate power and authority to enter into
this Letter Agreement and to carry out the transactions contemplated
hereby. The execution, delivery and performance by the Purchaser of this
Letter Agreement have been or prior to the Effective Date will be duly
authorized by all necessary corporate action on the part of the Purchaser.
This Letter Agreement has been duly executed and delivered by the Purchaser
and constitutes the legal, valid and binding obligation of the Purchaser
enforceable in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or similar
laws from time to time in effect affecting creditor's rights generally and
by legal and equitable limitations on the availability of specific
remedies.
(b) The Purchaser is the sole beneficial owner of the Warrant and the
Senior Note, free and clear of any liens, security interests, claims,
encumbrances or restrictions on its ability to, and with full power and
authority to, consummate the transactions contemplated by this Letter
Agreement. The Purchaser has not transferred or assigned to any other
Person any portion of or interest in the Warrant or the Senior Note, and
has not exercised, in whole or in part, the Warrant.
(c) The Purchaser acknowledges that the Borrower may have material,
non-public, confidential information concerning the Borrower (the
"Information"), which has not been, and may not be, disclosed to the
Purchaser or the Collateral Agent. Notwithstanding the foregoing, the
Borrower acknowledges that it has disclosed to the Purchaser all material
Information relating to any offers to purchase a controlling interest in
the Borrower or all or a substantial portion of the Borrower's assets, in
each case, received within the prior twelve (12) months.
(d) The Purchaser is engaged in the business of investing in
securities such as the Warrant and the Senior Note, and as such, is a
sophisticated, experienced and well-informed investor, capable of
evaluating the merits and economic risks which may be associated with a
sale or purchase of the Warrant and the Senior Note.
(e) The Borrower is relying on this Letter Agreement and the payment
and effectiveness of the Payoff Amount to extinguish the Warrant, satisfy
the Senior Note and release the security interests granted to the
Collateral Agent pursuant to the Transaction Documents (the "Payoff"), and
would not enter into the transaction contemplated by this Letter Agreement
in the absence of this Letter Agreement.
Pac-West Telecomm, Inc.
December 17, 2004
Page 5
5. Representations of the Borrower. The Borrower hereby acknowledges,
represents, warrants, covenants and agrees that on the date hereof and on the
Effective Date that it has full corporate power and authority to enter into this
Letter Agreement and to carry out the transactions contemplated hereby. The
execution, delivery and performance by the Borrower of this Letter Agreement
have been or prior to the Effective Date will be duly authorized by all
necessary corporate action on the part of the Borrower. This Letter Agreement
has been duly executed and delivered by the Borrower and constitutes the legal,
valid and binding obligation of the Borrower enforceable in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect affecting
creditor's rights generally and by legal and equitable limitations on the
availability of specific remedies.
6. Additional Covenants.
(a) The Purchaser covenants and agrees that, notwithstanding anything
else to the contrary in the Transaction Documents, it will not transfer or
assign all or any portion of the Warrant or the Senior Note, or any of its
rights and obligations thereunder or under the other Transaction Documents
during the term of this Letter Agreement.
(b) The Borrower agrees to use commercially reasonable efforts to inform
the Purchaser of any material developments that, in the reasonable judgment of
the Borrower, would cause the transactions contemplated by the SME Asset
Purchase Agreement not to close.
7. Further Assurances. At the request of the Borrower, at the Borrowers'
expense, the Purchaser and the Collateral Agent each agree to execute and
deliver such other and further documents and instruments and take such actions
as may be reasonably requested in order to effect or evidence more fully the
matters covered hereby, including, without limitation, notifying any depositary
or securities institutions in respect of which the Borrower maintains any
accounts subject to account control agreements in favor of the Collateral Agent
of the termination of such agreements and the Collateral Agent's rights in
respect thereof.
8. Termination.
(a) The rights and obligations of the parties hereto shall terminate
upon termination of the SME Asset Purchase Agreement in accordance with its
terms; provided, that the Borrower shall provide the Purchaser and the
Collateral Agent written notice that the SME Asset Purchase Agreement has
been terminated and evidence of such termination reasonably satisfactory to
the Purchaser.
(b) The Purchaser may terminate this Letter Agreement, and the rights
and obligations of the parties hereto shall terminate, by written notice to
the Borrower and the Collateral Agent if the transactions contemplated by
the SME Asset Purchase Agreement shall not have been consummated on or
prior to April 15, 2005 (the "Termination Date"); provided that, in the
event that the transactions contemplated by the SME Asset Purchase
Agreement do not close as a result of the failure of either or both of the
parties thereto to obtain all consents, authorizations, assignments,
registrations or waivers required from any governmental authority
("Government Approvals"), the Termination Date shall be extended to the
earlier to occur of (i) the date that is five (5) business days following
receipt of all Government Approvals and (ii) June 30, 2005.
Pac-West Telecomm, Inc.
December 17, 2004
Page 6
The Collateral Agent shall have the same rights and protections hereunder
as it does under the Guaranty and Security Agreement.
9. Purchaser's Legal Fees. The Borrower hereby agrees to reimburse
Purchaser for all of Purchaser's legal expenses (reasonable and documented
attorneys fees and out-of-pocket expenses) incurred in connection with the
negotiation of this letter agreement up to a maximum of $15,000.
10. Governing Law. The validity, construction and effect of this Letter
Agreement shall be governed by the internal laws of the State of New York but
excluding any principles of conflicts of law or other rule of law that would
cause the application of the law of any jurisdiction other than the laws of the
State of New York.
11. Counterparts. This Letter Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof and
admissible into evidence and all of which together shall be deemed to be a
single instrument. Delivery of an executed counterpart of this Letter Agreement
by telecopier shall have the same force and effect as delivery of an original
executed counterpart of this Letter Agreement.
12. Successors and Assigns. This Letter Agreement shall be binding upon,
and shall inure to the benefit of each of the parties hereto and their
respective successors and assigns.
[Signature Pages to Follow]
Very truly yours,
DEUTSCHE BANK AG - LONDON, acting through
DB ALTERNATIVE TRADING INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Title: Chief Operating Officer
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Title: Director
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Collateral Agent
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: Vice President
ACKNOWLEDGED AND AGREED:
PAC-WEST TELECOMM, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Title: President and Chief Executive Officer
EXHIBIT A
EXECUTED SME ASSET PURCHASE AGREEMENT