A resolution authorizing the Metropolitan Department of Law to compromise and settle the Metropolitan Government’s lawsuit against Z-Tel Technologies, Inc. for eight hundred thousand dollars ($800,000) in cash and eight hundred thousand dollars ($800,000) of Z-Tel Technologies, Inc. stock, all of which is to be deposited into the Metropolitan Employee Benefit System Trust Fund.

WHEREAS, the Metropolitan Government, acting through the Metropolitan Employee Benefit Board Investment Committee, invested in Sewanee Partners II, L.P. as a limited partner; and

WHEREAS, one of Sewanee Partner II, L.P.’s holdings was in Z-Tel Technologies, Inc. stock; and

WHEREAS, in December of 1999, Sewanee Partners II, L.P. decided to dissolve and liquidate its assets, while at approximately the same time Z-Tel Technologies, Inc. (herein after “Z-Tel”) was preparing for its initial public offering; and

WHEREAS, as part of the dissolution of Sewanee Partners II, L.P. the Metropolitan Government was to receive 519,741 shares of stock in Z-Tel; and

WHEREAS, in November of 2000, the Metropolitan Government advised Z-Tel that neither the Metropolitan Government nor the Metropolitan Government’s custodian bank, State Street Bank, had ever received the stock certificate evidencing ownership of 519,741 shares of Z-Tel stock and the Metropolitan Government requested Z-Tel issue it a stock certificate; and

WHEREAS, Z-Tel responded that it had already mailed the stock certificate through the regular U.S. Mail to the Metropolitan Government Benefit Board in February of 2000 and Z-Tel refused to provide the Metropolitan Government a new stock certificate unless the Metropolitan Government executed an affidavit stating that the original stock certificate had been lost and the Metropolitan Government further agreed to either indemnify Z-Tel from any liability arising out of it re-issuing a stock certificate or that the Metropolitan Government agree to purchase an indemnity bond protecting Z-Tel. The Metropolitan Government was unable to execute a lost stock affidavit or to indemnify Z-Tel and was unwilling to purchase an indemnification bond for Z-Tel; and

WHEREAS, in May 2002, Z-Tel finally agreed to provide the Metropolitan Government a replacement stock certificate but by then the value of the Metropolitan Governments Z-Tel stock had decreased significantly; and

WHEREAS, in June of 2002 the Metropolitan Government requested Z-Tel compensate the Metropolitan Government for its damages resulting from the decline in value of its stock but Z-Tel did not believe it was under any duty to do so; and

WHEREAS, the Metropolitan Government, filed the lawsuit The Metropolitan Government of Nashville and Davidson County, Tennessee, suing on behalf of the Metropolitan Employee Benefit Board v. Z-Tel Technologies, Inc., Case No. 8:02-CV-1708-T-24EAJ, in the United States District Court for the Middle District of Florida, Tampa Division, against Z-Tel for the Metropolitan Government’s damages resulting from Z-Tel’s delay in delivering its stock certificate; and

WHEREAS, the Metropolitan Government conducted extensive discovery in Tampa, Florida, Atlanta, Georgia, and Boston, Massachusetts, as well as Nashville, Tennessee, in preparing this case for trial, and successfully defeated numerous dispositive motions filed by Z-Tel; and

WHEREAS, the Metropolitan Government and Z-Tel appeared before a court-appointed mediator in November of 2003 in Tampa, Florida but the mediator was unsuccessful in mediating the matter; and

WHEREAS, this case was set to begin trial on May 17, 2004 when the court ordered the parties to appear before the Magistrate Judge in Tampa, Florida, on April 5, 2004 for one last attempt to mediate the matter if possible before trial. The Magistrate Judge was able to convince counsel for both parties that it was it their best interest to settle this matter given the facts that the dispute would be controlled by Delaware law since Z-Tel is incorporated in Delaware, that Z-Tel had a duty to deliver the stock to the Metropolitan Government but that a presumption of delivery may apply if Z-Tel could persuade the jury that it had in fact put the certificate in the United States mail and that the Metropolitan Government’s damages for the delay in receiving the stock certificate would begin in November 2000 when it first requested a certificate from Z-Tel; and

WHEREAS, the Metropolitan Government has determined that the resolution of the lawsuit set forth in the “Settlement Agreement and Release” and the “Registration Rights Agreement,” attached hereto as Exhibits “A” and “B,” to this resolution is reasonable and in the Metropolitan Government’s best interest.

NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY:

Section 1: The Metropolitan Department of Law is authorized to compromise and settle the lawsuit styled, The Metropolitan Government of Nashville and Davidson County, Tennessee, on behalf of Metropolitan Nashville Employee Benefit Board v. Z-Tel Technologies, Inc., Case No. 8:02-CV-1708-T-24EAJ, United States District Court for the Middle District of Florida, Tampa Division, for eight hundred thousand dollars ($800,000) in cash and eight hundred thousand dollars ($800,000) in Z-Tel Technologies, Inc. stock in accordance with the “Settlement Agreement and Release” and the “Registration Rights Agreement”, attached hereto as Exhibits A and Exhibits B.” The cash and stock shall be deposited in the Metropolitan Employee Benefit System Trust Fund.

Section 2: This Resolution shall take effect from and after its adoption, the welfare of The Metropolitan Government of Nashville and Davidson County requiring it.

Sponsored by: Brenda Gilmore

LEGISLATIVE HISTORY
Referred:	Budget & Finance Committee
Introduced:	May 18, 2004
Adopted:	May 18, 2004
Approved:	May 19, 2004
By: