EXHIBIT 99.1
CONTACTS: Larry B. Schlenoff
Chief Financial Officer
Zitel Corporation
510-440-9600
Robert J. Luth
Chief Financial Officer
MatriDigm Corporation
408-360-3210
Marianne O'Connor
Sterling Communications, Inc.
408-441-4100
moc@sterling.com
ZITEL CORPORATION SIGNS DEFINITIVE MERGER AGREEMENT
WITH MATRIDIGM CORPORATION
--NEW COMPANY TO BE NAMED MATRIDIGM CORPORATION--
FREMONT and SAN JOSE, CALIFORNIA, October 6, 1998 -- Zitel Corporation
(Nasadq:ZITL) ("Zitel") and MatriDigm Corporation ("MatriDigm") jointly
announced today that they have signed a definitive merger agreement
providing for a combination of the two companies. Zitel currently owns
approximately one-third of MatriDigm, a privately held company that
provides Year 2000 solutions software and services.
The resulting combination of Zitel and MatriDigm will be a
leading provider of software and services for information systems
optimization. Its primary businesses will include MatriDigm, a provider of
highly automated factory solutions for the Year 2000 IBM COBOL code
problem, and Datametrics, a provider of automated performance analysis and
correlation software designed to solve computer performance problems.
The merger will be effected by combining the ownership of Zitel
and MatriDigm into a new publicly traded Delaware corporation. Following
the consummation of the transaction, the current shareholders of Zitel and
MatriDigm will own approximately 55.5% and 44.5%, respectively, of the new
Company. The merger will include a tax-free exchange of stock whereby
existing Zitel shareholders will receive one share of the new Company for
each share of Zitel common stock they currently own, and existing MatriDigm
shareholders will receive approximately 0.65 share of the new Company for
each MatriDigm share they currently own. The name of the new Company will
be MatriDigm Corporation. For accounting purposes, the transaction will be
treated as a purchase.
The merger is subject to, among other things, Zitel and MatriDigm
obtaining shareholders' approval of the transaction, as well as regulatory
approval. The financial advisers to Zitel and MatriDigm are Salomon Smith
Barney Inc. and Robert E. LaBlanc Associates, Inc., respectively. The
transaction is expected to be completed early in calendar 1999.
Jack H. King, who is currently President and Chief Executive
Officer of Zitel, will continue as President of Zitel, which will consist
of the Datametrics business unit, and serve as a member of the new
MatriDigm Corporation Board of Directors. Richard W. Ormond, currently
Chairman, President and Chief Executive Officer of MatriDigm, will serve as
President, Chief Executive Officer and a Member of the Board of Directors
of the new MatriDigm. The Chairman of the Board will be nominated and
elected following the closing of the transaction.
Mr. King said, "The new MatriDigm will be well-positioned in two
promising segments of the technology marketplace: Y2K solutions and
performance analysis and correlation software. Our two companies are
technologically and strategically an excellent fit. In addition, Zitel
shareholders will benefit from direct ownership and greater visibility of
the MatriDigm business."
Mr. Ormond commented, "Zitel had the vision and foresight to
invest in the formation of MatriDigm in 1996, and has supported our company
as we evolved to provide a unique solution to the Y2K problem. We believe
the Y2K market is reaching a critical point and that this is the most
appropriate time to bring these two companies together to capitalize on
this opportunity. As we look toward the future, our technological
synergies will have important applications beyond the year 2000."
The agreement was unanimously approved by the Board of Directors
of each company who were eligible to vote. In connection with the
execution of the merger agreement, certain shareholders of MatriDigm have
entered into shareholder agreements with Zitel. The shareholder agreements
provide for, among other things, such shareholders' commitment to vote in
favor of the MatriDigm merger and the approval and adoption of the merger
agreement.
Zitel Corporation is an information technology company. Its
Datametrics subsidiary specializes in automated performance analysis and
correlation software and its Year 2000 services include consulting, project
management, planning, analysis, code conversion, code audit and testing.
Zitel is headquartered in Fremont, California. For additional information
about Zitel, including instructions on how to receive press releases via e-
mail, visit the Company's web site at http://www.zitel.com.
MatriDigm Corporation is a software technology company
specializing in the development of technologies and services that improve
the understanding, maintenance, migration, modification, and testing of
software applications. MatriDigm currently offers products and services
addressing the year 2000 problem for IBM COBOL code. MatriDigm has
received ITAA *2000 certification of its products and services. For the
nine months ended June 30, 1998, the company recorded revenues of $3.8
million and an net loss of $10.8 million (unaudited). For more information
about MatriDigm's business, please visit the company's web site at
www.matridigmusa.com or call the Company's Response Center toll free at 1-
888-YRS-2001.
Investors are invited to participate in a teleconference call on
Tuesday, October 6 with the management of Zitel and MatriDigm to discuss
the transaction. The call is scheduled to begin at 10:30 a.m. Eastern
Daylight Time and can be accessed by dialing 1-888-790-1771. The password
is "Zitel." Investors may listen to the conference call over the Internet
through Vcall at http://www.vcall.com. To listen to the live call, please
go to the website at least 15 minutes early to register, download and
install any necessary audio software. A replay will also be available.
This press release contains projections and other forward-looking
statements regarding future events or the future financial performance of
the Zitel Corporation and MatriDigm Corporation. These statements are only
predictions and actual events or results may differ materially. Refer to
the documents Zitel Corporation files from time to time with the Securities
and Exchange Commission. These documents contain 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.
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