Z-Tel Loses CEO and CTO

TAMPA, Fla. -- Z-Tel Technologies, Inc. (Nasdaq/SC: ZTEL), today announced that D. Gregory Smith, chairman, president and chief executive officer, and Charles W. McDonough, a director and senior vice president - chief technology officer, have resigned from Z-Tel and the Board of Directors to found a new company. Messrs. Smith and McDonough intend to pursue certain product and business initiatives currently under development in the Company's Atlanta Technology Center. Z-Tel's Board of Directors has authorized the Company to negotiate an agreement with Messrs. Smith and McDonough defining the specific activities, assets and personnel to be transferred to the new company and other terms of the transaction. The Board has appointed Trey Davis as Acting Chief Executive Officer and Executive Vice President. Mr. Davis will retain his present duties as Chief Financial Officer. The Board also appointed Frank Grillo as Executive Vice President and Acting Chief Operating Officer.

Z-Tel also announced that it has entered into a $15 million Standby Credit Facility agreement with Z-Tel's largest preferred stockholder, The 1818 Fund III L.P, one of a family of investment funds managed by Brown Brothers Harriman & Company. Pursuant to the standby credit facility, The 1818 Fund will advance $5 million immediately to Z-Tel and, under certain circumstances, may advance up to $10 million in additional loans to Z-Tel. Loans under the facility are represented by a Senior Unsecured Promissory Note, bearing interest at 9.95% annually. The note matures March 31, 2006, but under certain circumstances may be extended until August 30, 2006.

Commenting on these announcements, Mr. Davis said, "The standby credit facility and the anticipated transfer of certain of the Atlanta Technology Center assets are all in furtherance of the previously announced transition underway at Z-Tel to a facilities-based provider of voice, data and broadband services and away from a business model dependent upon UNE-P. That Z-Tel has survived a wrenching downturn in the telecommunications industry since 2000, and has much of the infrastructure and team in place to succeed in this transition, is due significantly to the leadership and tenacity of Gregg Smith and Chuck McDonough. We wish them each well in their future endeavors.

"This new standby credit facility with the 1818 Fund represents a critical first step in addressing our capital structure and raising additional funding for our transition to a facilities-based growth strategy. The 1818 Fund already had a substantial investment in Z-Tel before this credit facility, and we are pleased such a high quality organization that is so familiar with our operations and opportunities has joined us in this initiative.

"As a result of the management changes and our discussions to consummate the standby credit facility, we intend to continue our VoIP investments and our focus on building-out end offices in Tampa and New York City. We continue to plan a conference call in early September to address our progress on these initiatives, our financing initiatives and our UNE-L growth strategy."

Z-Tel Technologies Inc.