SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report: December 31, 1998
Zitel Corporation
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(Exact name of registrant as specified in its charter)
California 0-12194 94-256613
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State of incorporation (Commission (IRS Employer
of organization File Number) Identification No.)
47211 Bayside Parkway, Fremont, California 94538
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(Address of principal executive offices) Zip Code
Registrant's telephone number including ar(510) 440-9600
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N/A
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(Former name or former address, if changed since last report)
Item 5 - Other Events:
On October 5, 1998, Zitel Corporation (the "Company"), Millennium Holding
Corp., a Delaware corporation and a wholly-owned subsidiary of the Company
("Holdco"), Millennium Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Holdco, Zenith Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Holdco, and MatriDigm
Corporation, a California corporation ("MatriDigm"), entered into an
Agreement and Plan of Reorganization and Merger (the "Merger Agreement").
On December 16, 1998, the parties to the Merger Agreement mutually agreed
to terminate the Merger Agreement. The termination and release agreement
(the "Termination and Release Agreement") is attached hereto as Exhibit 2.1
and is incorporated by reference herein. The press release issued by the
Company on December 21, 1998 is attached hereto as Exhibit 99.1 and is
incorporated by reference herein.
Item 7. - Financial Statements and Exhibits
(c) The following exhibits are filed with this report:
2.1 Termination and Release Agreement.
99.1 Press Release.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ZITEL CORPORATION
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(Registrant)
Date: December 31, 1998 /s/ Jack H. King
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Jack H. King
Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description
2.1* Termination and Release Agreement
99.1* Press Release
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*Filed herewith.
EXHIBIT 2.1
TERMINATION AND RELEASE AGREEMENT
This TERMINATION AND RELEASE AGREEMENT (this "Agreement"),
dated as of December 16, 1998, by and among Zitel Corporation, a California
corporation ("Parent"), Millennium Holding Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Holdco"), Zenith Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Holdco
("Zenith Acquisition"), Millennium Acquisition I Corp., a Delaware
corporation and a wholly-owned subsidiary of Holdco ("Millennium
Acquisition"), and MatriDigm Corporation, a California corporation (the
"Company"). The foregoing parties hereto are collectively referred to
herein as the "Parties." Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to such terms in the Merger
Agreement.
RECITALS
WHEREAS, the parties hereto have entered into that certain
Agreement and Plan of Reorganization and Merger, dated as of October 5,
1998 (the "Merger Agreement"), pursuant to which, and subject to the terms
and conditions thereof, among other things, Zenith Acquisition would have
merged with and into Parent (the "Zitel Merger"), with Parent remaining as
the surviving corporation in the Zitel Merger, and Millennium Acquisition
would have merged with and into MatriDigm (the "MatriDigm Merger"), with
MatriDigm remaining as the surviving corporation in the MatriDigm Merger;
and
WHEREAS, the Parties have mutually determined that a Company
Material Adverse Effect (as defined in the Merger Agreement) has occurred,
and, as a result, the parties have mutually agreed to terminate the Merger
Agreement in accordance with its terms;
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Parties hereto agree as follows:
TERMINATION AND RELEASE
1. Termination of the Merger Agreement. Subject to the terms of
this Agreement, the Parties hereby agree to terminate the Merger Agreement
and abandon the transactions specified therein pursuant to Section 7.1(a)
of the Merger Agreement.
2. Effectiveness of Termination. The termination of the Merger
Agreement as set forth above shall be effective upon execution of this
Agreement by the Parties.
3. Fees and Expenses. All fees and expenses incurred in
connection with the Merger Agreement and the transactions contemplated
thereby shall be borne in accordance with the provisions of Section 8.1 of
the Merger Agreement.
4. Parent Release. Except for the obligations expressly set
forth in this Agreement, Parent, with full understanding of the contents
and legal effect of this Agreement, on behalf of its subsidiaries,
shareholders, directors, officers, members, employees, agents, attorneys,
insurers, and any of its predecessors, successors-in-interest, and assigns
(collectively, the "Parent Parties") hereby irrevocably and unconditionally
releases and discharges the Company and its subsidiaries, shareholders,
directors, officers, members, employees, agents, attorneys, insurers, and
any of its predecessors, successors-in-interest, and assigns (collectively,
the "Company Parties") from any and all actions, causes of action, claims,
obligations, fees, expenses, costs, attorneys' fees, damages, losses,
liabilities and demands, of whatever character, including, without limiting
the generality of the foregoing, actions arising from contract, tort, and
bankruptcy, and any other claims of any nature or kind which are or could
have been asserted with respect to, or in any way arise out of or are
related to, the Merger Agreement, the transactions contemplated thereby,
and the termination and abandonment thereof pursuant to this Agreement.
5. Company Release. Except for the obligations expressly set
forth in this Agreement, the Company, with full understanding of the
contents and legal effect of this Agreement, on behalf of itself and the
other Company Parties hereby irrevocably and unconditionally releases and
discharges the Parent Parties from any and all actions, causes of action,
claims, obligations, fees, expenses, costs, attorneys' fees, damages,
losses, liabilities and demands, of whatever character, including, without
limiting the generality of the foregoing, actions arising from contract,
tort, and bankruptcy, and any other claims of any nature or kind which are
or could have been asserted with respect to, or in any way arise out of or
are related to, the Merger Agreement, the transactions contemplated hereby,
and the termination and abandonment thereof pursuant to this Agreement.
6. Section 1542 Waiver. It is further understood and agreed by
the Parties that, except for the obligations expressly set forth in this
Agreement, the foregoing releases extend to all claims, of every nature and
kind whatsoever, known, suspected or unsuspected, past, present or future,
and all rights under Section 1542 of the California Civil Code, arising in
any way out of or which are related to the Merger Agreement, the
transactions contemplated thereby, and the termination and abandonment
thereof pursuant to this Agreement, and all such claims are hereby
expressly waived by each of the Parent Parties and the Company Parties.
Said section reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The Parties hereby acknowledge that they may hereafter discover
facts different from, or in addition to, those which they now believe to be
true with respect to the released claims, and agree that this Agreement and
the releases contained herein shall be and remain effective in all respects
notwithstanding such different or additional facts or the discovery
thereof.
7. Press Release; Nondisparagement. With respect to the
termination of the Merger Agreement, the Parties agree that the press
release attached hereto as Exhibit A shall be issued. Each of the Parties
further agrees that it will not disparage any of the other Parties, or
their respective directors, officers, shareholders, members, or employees,
in any manner intended to be harmful to Parent or the Company or any of
their respective affiliates, or their respective reputations, or the
personal or business reputation of such directors, officers, shareholders,
members or employees; provided, however, that each Party may respond
accurately and fully to any question, inquiry or request for information as
may be required by applicable law.
8. Entire Agreement. It is further understood and agreed that
this Agreement constitutes the entire understanding between the Parties.
All prior negotiations and understandings between the Parties, whether oral
or written, have been merged herein.
9. No Promises, Representations, Warranties. It is further
understood and acknowledged that none of the Parties has made any promise,
representation or warranty whatsoever, express or implied, except as
expressly set forth herein, to induce the other to execute this Agreement,
and the Parties acknowledge that they have not executed this Agreement in
reliance upon any such promise, representation, or warranty; except that,
subsequent to the execution of this Agreement, the Parties hereto
acknowledge that the Company may, at its sole option and discretion,
determine to undertake a private placement financing substantially on the
terms attached hereto as Exhibit B, and Parent, in the event that Parent is
requested by the MatriDigm Executive Committee and approved by Parent's
board of directors to participate in such financing, hereby agrees to
invest an amount not in excess of $1,300,000 in accordance with the terms
and subject to the conditions of such financing as set forth in Exhibit A
and in the definitive agreements as may be mutually agreed upon pursuant
thereto.
10. No Admissions. It is further understood and agreed that
this Agreement represents the release of all claims, except as set forth in
this Agreement, by each of the Parent Parties and the Company Parties. The
execution of this Agreement shall not constitute or be construed as an
admission of any liability whatsoever by any of the Parent Parties or the
Company Parties.
11. Successors. The Parties further expressly agree that this
Agreement shall be binding upon and shall inure to the benefit of their
respective directors, officers, agents, employees, divisions, subsidiaries,
affiliated companies, heirs, administrators, successors and assigns, as
applicable.
12. Assignment of Claims. The Parties represent and warrant
that they have not made any assignment of any claim or cause of action
related in any way to this Agreement.
13. Attorneys' Fees. In the event of any dispute, litigation or
other adversary proceeding that may arise with respect to the subject
matter of this Agreement, the prevailing party will be entitled to receive
from the other reasonable attorneys' fees, costs and expenses incurred in
said proceeding. The "prevailing party" means the party determined by the
court or arbitrator to have most nearly prevailed, even if such party did
not prevail in all matters, and not necessarily the party in whose favor a
judgment is rendered.
14. Modification. The Parties understand and agree that this
Agreement may not be altered, amended, modified, or otherwise changed in
any respect or particular whatsoever except in writing duly executed by
each of the Parties or their authorized representatives.
15. Severability. The provisions of this Agreement shall be
considered severable, such that if any provision or part thereof shall at
any time be held under any law or ruling to be invalid, such provision or
part shall remain in force to the extent allowed by law, and all other
provisions shall remain in force and effect and shall be enforceable in
accordance with their terms.
16. Choice of Law. This Agreement shall be governed by, and
shall be construed in accordance with, the laws of the State of California,
without giving effect to the principles of conflicts of laws thereof.
17. Captions. The section captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
18. Facsimile Signatures. Any signature page delivered by a fax
machine or telecopy machine shall be binding to the same extent as an
original signature page, with regard to any agreement subject to the terms
hereof or any amendment thereto. Any Party who delivers such a signature
page agrees to later deliver an original counterpart to any Party which
requests it.
19. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the day and year first
above written
ZITEL CORPORATION
By: /s/ Henry C. Harris
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Name: Henry C. Harris
Title: Executive Vice President
MILLENNIUM HOLDING CORP.
By: /s/ Henry C. Harris
--------------------------------------
Name: Henry C. Harris
Title: Executive Vice President
ZENITH ACQUISITION CORP.
By: /s/ Henry C. Harris
--------------------------------------
Name: Henry C. Harris
Title: Executive Vice President
MILLENNIUM ACQUISITION I CORP.
By: /s/ Henry C. Harris
-------------------------------------
Name: Henry C. Harris
Title: Executive Vice President
MATRIDIGM CORPORATION
By: /s/ Robert J. Luth
-------------------------------------
Name: Robert J. Luth
Title: Chief Financial Officer
EXHIBIT A
PRESS RELEASE
Refer to Exhibit 99.1 to this Current Report on Form 8-K.
EXHIBIT B
TERMS OF PRIVATE PLACEMENT FINANCING
To be mutually agreed by the Parties in accordance with the
disclosure appearing in the Press Release attached to the Agreement as
Exhibit
A.
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
ZITEL REPORTS ON STATUS OF COMBINATION WITH
MATRIDIGM CORPORATION AND YEAR-END RESULTS
FREMONT, CA, December 21, 1998 -- Zitel Corporation (Nasdaq:
ZITL) today announced that it has re-structured the planned transaction to
combine with MatriDigm Corporation. Instead of the planned merger, Zitel
will convert $3,200,000 of notes receivable plus accrued interest into
MatriDigm preferred stock. Zitel's resulting ownership in MatriDigm will
increase to approximately 58%. As part of the revised plan, the merger
agreement is being terminated. The modified transaction is expected to
close in January 1999. Discussions to combine the companies have been
suspended but may be re- instated at a later date.
Zitel also reported results for the fourth fiscal quarter and
year ended September 30, 1998. The Company announced revenue of $4,022,000
for the fourth quarter of fiscal 1998 versus revenue of $6,258,000 for the
same quarter of the prior year. Prior year revenue included $3,154,000 in
sales and services related to the storage business unit, which was disposed
of in the third quarter of the current fiscal year, and $728,000 in royalty
revenue which terminated in April 1998. Revenue from the Datametrics
division increased 54% to $3,651,000 during the current quarter from
$2,376,000 for the same quarter of the prior year. As a result of the delay
in the materialization of the Y2K market and the disappointing revenue
results, to date, by MatriDigm, the Company wrote off its investment,
loans, notes, and bank guarantee of $10,616,000. In addition, the results
included charges associated with the final wrap up of the storage business
unit of approximately $1,670,000 and costs associated with the subordinated
debentures of $1,058,000. The resulting net loss for the quarter was
$14,691,000 or $0.74 per share versus a net loss of $7,046,000 or $0.46 per
share for the same quarter of the prior year. Weighted average shares
outstanding in the fourth quarter of fiscal 1998 were 19,923,000 compared
to 15,439,000 for the fourth quarter of fiscal 1997.
For the twelve months ended September 30, 1998, the Company
reported revenue of $21,700,000 versus $17,966,000 for the prior year and a
net loss of $43,205,000 or $2.48 per share for the current year versus a
net loss of $17,501,000 or $1.15 per share for the prior year. Weighted
average shares outstanding in fiscal 1998 were 17,433,000 compared to
15,222,000 for fiscal 1997. Subsequent to the end of the year, the
remaining outstanding $4,585,000 of the $10,000,000 Subordinated
Convertible Debentures converted to approximately 1,250,000 of common
stock.
"The decision to write off the balance of our investments in
and advances to MatriDigm was both difficult and troubling because the size
and amount of opportunities currently being negotiated by Zitel and
MatriDigm today are larger and appear to be closer to completion than in
the past," commented Jack H. King, President and CEO, "but without executed
contracts to support the value, we reluctantly concluded that the most
conservative course was to reserve the balance."
"As to the re-structuring of the transaction with MatriDigm,"
continued Mr. King, "the resulting benefits to the shareholders are
substantially better than the prior plan. With the change in ownership to
58%, MatriDigm's financial results will be consolidated with Zitel's
financial statements for reporting purposes. In addition, most of the
infrastructure and business items in the original definitive agreement are
expected to be implemented."
"Zitel has emerged from fiscal 1998 considerably battered and
bruised but with an adequate balance sheet and two business units with
strong prospects for the future," King concluded. "Once the costs of the
terminated merger are behind us, the Company should be positioned to return
to profitability."
This press release contains projections and other
forward-looking statements regarding future events or the future financial
performance of the Company. These statements are only predictions and
actual events or results may differ materially. Refer to the documents the
Company files from time to time with the Securities and Exchange
Commission. These documents contains and identify important factors that
could cause the actual results to differ materially from those contained in
the projections or forward-looking statements in this press release.
Zitel Corporation is an Information Technology company
specializing in systems optimization, modeling and search technology. The
Company's Year 2000 services include consulting, project management,
planning, analysis, code conversion, and testing. Zitel's headquarters are
located at 47211 Bayside Parkway, Fremont, CA 94538. Telephone: (510)
440-9600 or (800) 622-5020. FAX: (510) 400-9696. http://www.zitel.com. For
information on Year 2000 services, call (888) FIND-FIX. Visit Zitel's web
site for information and instructions to receive press releases via e-mail.
Consolidated Financial Summary follows.
Zitel is a registered trademark of Zitel Corporation. All other
product names and brand names are trademarks or registered trademarks of
their respective holders.
<TABLE>
<CAPTION>
Zitel Corporation
CONSOLIDATED SUMMARY OF FINANCIAL STATEMENTS
Consolidated Statements of Operations
(In Thousands Except Per Share Data)
Three Months Ended Twelve Months Ended
9/30/98* 9/30/97* 9/30/98 9/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $ 4,022 $ 5,530 $ 20,159 $ 12,626
Royalty Revenue - 728 1,541 5,340
Total Revenue 4,022 6,258 21,700 17,966
Cost of goods sold 1,915 3,058 12,155 9,301
Research & development expenses 851 2,598 6,419 7,504
Selling, general and
administrative expenses 4,538 5,679 24,012 14,468
Loss on impairment of assets 105 - 2,061 -
Loss from unconsolidated company 10,616 - 10,616 -
Acquisition of in-process
research & development expenses - - - 6,600
Operating loss (14,003) (5,077) (33,563) (19,907)
Other expense 735 1,969 3,142 2,097
Loss before income taxes (14,738) (7,046) (36,705) (22,004)
Provision (benefit) for income
taxes (47) 0 6,500 (4,503)
Net loss $ (14,691) $ (7,046) $ (43,205) $ (17,501)
Net loss per share $ (.74) $ (.46) $ (2.48) $ (1.15)
Number of shares used in per
share calculation 19,923 15,439 17,433 15,222
</TABLE>
Consolidated Balance Sheets
(In Thousands)
September 30, 1998 September 30, 1997
Assets
Current Assets
Cash and cash equivalents $ 6,589 $ 4,224
Short-term investments - 9,596
Accounts receivable 3,579 6,547
Inventories - 3,050
Deferred and refundable taxes 208 3,540
Other current assets 749 993
Total current assets 11,125 27,950
Fixed assets, net 1,311 3,700
Other assets, net 5,634 17,644
Total assets $ 18,070 $ 49,294
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 3,585 $ 4,768
Accrued liabilities 3,666 4,419
Total current liabilities 7,251 9,187
Convertible subordinated
debenture 4,585 24,161
Total Liabilities 11,836 33,348
Shareholders' equity
Common Stock 60,574 27,081
Accumulated deficit (54,340) (11,135)
Total shareholders' equity 6,234 15,946
Total liabilities and
shareholders' equity $ 18,070 $ 49,294
*Three months ended 9/30/97 and 9/30/98 are unaudited.
