Z-Tel Announces Strategic Investment by Brown Brothers Harriman Private Equity Fund

Business Wire, Oct 20, 2000

Business Editors/High-Tech Writers

TAMPA, Fla.--(BUSINESS WIRE)--Oct. 20, 2000

$50 Million Convertible Preferred Stock Placement

With The 1818 Fund III, L.P. Managed by Brown Brothers Harriman

Gregg Smith, President and Chief Executive Officer of Z-Tel Technologies, Inc. (Nasdaq/NMS:ZTEL), today announced that it has entered an agreement to privately place $50 million of convertible preferred stock and warrants with The 1818 Fund III, LP, a private equity investment fund managed by Brown Brothers Harriman. BBH is America's largest private bank and one of the oldest owner-managed partnerships in the country.

The 1818 Funds are a family of private equity partnerships organized by BBH to acquire substantial, non-controlling long-term ownership positions in growing, strongly positioned companies. The Funds have provided active early support and capital to a number of highly successful telecommunications and media companies, such as WorldCom, US Unwired and FrontierVision Partners.

Similar to the placement made by Z-Tel in July, the convertible preferred stock will have an 8% dividend, a conversion price of $12.00 per share and will be convertible into approximately 4.2 million shares of common stock. In addition, Z-Tel has agreed to issue warrants to purchase an additional 2.1 million shares at an exercise price of $13.80 per share. As part of the agreement, The 1818 Fund also received a ninety-day option to purchase, on the same terms, up to an additional $25 million of preferred stock and warrants, commencing on the closing date of the agreement. The agreement provides that The 1818 Fund will have the right to designate two members of Z-Tel's Board of Directors. Closing and funding are subject to customary closing conditions.

"We are very pleased that a company with the reputation and track record of Brown Brothers Harriman's 1818 Fund has chosen to invest in Z-Tel," remarked Mr. Smith. "We have been impressed with Brown Brothers' expertise in telecommunications and thoroughness in due diligence. With the transactions closed earlier in the third quarter, we have now raised financing and obtained commitments for facilities totaling $156 million since June 30, 2000. We believe our ability to consummate these transactions is a further reflection of the potential inherent in Z-Tel, as well as Z-Tel's ability to execute its business plan."

About Z-Tel Technologies, Inc.(TM)

Z-Tel Technologies, Inc. provides consumers bundled local and long distance telephone services, combined with enhanced, Internet-based communications features that enable them to manage all of their voice communications needs. Z-Tel currently sells this bundle as "Z-Line Home Edition(TM)" in nine states, including New York, Texas, Massachusetts, Pennsylvania, Georgia, Oregon, Maryland, California and Illinois, and had 256,000 active customers at the end of the third quarter of 2000. For more information about this innovative new service or about Z-Tel, please visit the Company's web site at www.z-tel.com.

Z-Tel Technologies, Inc., Z-Line and Z-Line Home Edition are trademarks of Z-Tel Technologies, Inc.

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. In order for Z-Tel to utilize the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, you are hereby cautioned, and Z-Tel hereby notes, that these statements may be affected by the risk that the transaction and other commitments described in this press release are subject to closing conditions, and that if any of these conditions is not met, the transaction and other commitments may not be completed; the risk that favorable growth and financial trends may not continue; the risk that the Company will be unable to efficiently and successfully enter new markets; the risk that the Company's existing financing will not be sufficient to fund anticipated growth and that additional financing may not be available on favorable terms or at all; and the risk that further state expansion may not be achieved, as well as the risk factors described in detail in Z-Tel's 1999 Annual Report on Form 10-K, filed March 28, 2000, and in Z-Tel's other filings with the Securities and Exchange Commission. Z-Tel undertakes no obligation to update or revise any such forward-looking statements.