PROSPECTUS
4,359,603 SHARES
ZITEL CORPORATION
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COMMON STOCK
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The Selling Securityholders identified in this Prospectus are selling
up to 4,359,603 shares of our Common Stock which may be acquired by them upon
conversion of all 3% Convertible Subordinated Debentures and Common Stock
Purchase Warrants. These shares may be offered from time to time by the Selling
Securityholders through public or private transactions, on or off the Nasdaq
National Market, at prevailing market prices or at privately negotiated prices.
The Selling Securityholders will receive all of the proceeds from the sale of
the shares and will pay all underwriting discounts and selling commissions, if
any, applicable to the sale of the shares. We will pay the expenses of
registration of the sale of the shares.
Our common stock is currently traded on the Nasdaq National Market
under the symbol "ZITL." On March 15, 1999, the last reported sales price of
a share of Zitel common stock on the Nasdaq National Market was $2.875 per
share.
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INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE
3 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 15, 1999.
THIS PROSPECTUS IS A PART OF A REGISTRATION STATEMENT WE FILED WITH THE
SEC. YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THE DOCUMENT.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the documents we file at
the SEC's public reference room in Washington, D.C., New York, New York and
Chicago, Illinois. You can request copies of these documents by writing to the
SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our SEC filings are also
available to the public at no cost from the SEC's Website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information that we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934 (the "Exchange Act"):
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are by this reference incorporated in and made a
part of this Prospectus:
(1) The Annual Report on Form 10-K for the fiscal year ended September 30,
1998, including all matters incorporated by reference therein;
(2) The Current Report on Form 8-K filed October 6, 1998;
(3) The Proxy Statement filed on January 27, 1999, including all matters
incorporated by reference therein;
(4) The Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1998, including all matters incorporated by reference
therein;
(5) The Current Report on Form 8-K filed December 31, 1998;
(6) The Current Report on Form 8-K filed February 16, 1999; and
(7) The Quarterly report on Form 10QA filed February 16, 1999.
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2
THE COMPANY
Zitel Corporation was incorporated in California in 1979. Our executive
offices are located at 47211 Bayside Parkway, Fremont, California 94538-6517,
and our telephone number is (510) 440-9600.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
Selling Securityholders.
DIVIDEND POLICY
The Company has never paid cash dividends. The Company's Board of
Directors currently intends to retain any earnings for use in the Company's
business and does not anticipate paying any cash dividends in the foreseeable
future. The Company's 3% Convertible Subordinated Debentures prohibit the
payment of dividends.
RISK FACTORS
AN INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK. THE RISK
FACTORS SET FORTH IN THE COMPANY'S REPORTS UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, SHOULD BE CONSIDERED CAREFULLY BEFORE PURCHASING THE COMMON
STOCK OFFERED HEREBY.
THE DEBENTURES AND WARRANTS
On February 3, 1999 we sold to the Selling Securityholders $5,000,000
of 3% Convertible Subordinated Debentures due February 1, 2000 and Common Stock
Purchase Warrants to acquire 75,000 shares of our Common Stock. The initial
conversion price of the Debentures is $2.593125. We will adjust the
conversion price in the event that the conditions in both a. and b. are met:
a. the lesser of (1) the average of the closing bid prices of the Common
Stock for the twenty consecutive trading days prior to but excluding the
forty-five calendar day anniversary of the effective date of the Registration
Statement of which this Prospectus is a part (such forty-five calendar days
to be extended one day for each day, if any, during that period on which there
is not effective registration), and (2) the average of the closing bid prices
of the Common Stock for the twenty consecutive trading days prior to but
excluding April 4, 1999, is less than $2.88125; and
b. 90% of the lesser of a(1) and a(2) above is lower than the conversion
price
In such event, the adjusted conversion price would be 90% of the lesser of
(1) and (2) above.
The exercise price of the Warrants is 130% of the conversion price, as it may
be adjusted. It will initially be $3.3710625.
3
THE COMPANY
BUSINESS
We develop, market and support data management solutions in the form of
software products for performance monitoring, analysis and modeling of computer
systems. We provide solution services for the year 2000 century date conversion
opportunity through product and service offerings including MatriDigm
Corporation's MAP2000 factory conversion service. We have two business units:
Our software products business unit is the combination of the
Datametrics Systems Corporation and Palmer & Webb Systems companies, acquired in
1997, with the Company's performance & modeling software products. This business
unit's product line is composed of a suite of software with data management,
monitoring, analysis, modeling and control capabilities for mainframe computers,
open systems servers and distributed network systems.
Our solution services business unit provides Year 2000 conversion
services, including project management, planning, analysis, code conversion, and
testing. Our primary code conversion methodology is based on the MatriDigm
MAP2000 process for Cobol. In addition, as a solution provider, we utilize other
tools and processes to meet customer needs in different environments. We serve
our Year 2000 customers both directly, with its own consulting staff, and
through a teaming program where we may be the subcontractor or partner to other
solution providers worldwide.
We have made investments in MatriDigm Corporation, a private company
formed to provide COBOL maintenance and re-engineering services. The Company's
percentage ownership is now approximately 31%. Our investments in and loans to
MatriDigm have been written off or fully reserved for financial reporting
purposes.
4
SELLING SECURITYHOLDERS
The following table sets forth the names of the Selling
Securityholders, the number of shares of Common Stock owned by each Selling
Securityholder prior to this offering, the number of shares of Common Stock
being offered for the account of each Selling Securityholder and the number of
shares of Common Stock to be owned by each Selling Securityholder after
completion of this offering. This information is based upon information provided
by the Selling Securityholders. Because the Selling Securityholders may offer
all, some or none of their Common Stock, no definitive estimate as to the number
of Shares thereof that will be held by the Selling Securityholders after such
offering can be provided.
SHARES BENEFICIALLY SHARES BEING SHARES BENEFICIALLY
SELLING SECURITYHOLDER(1) OWNED PRIOR TO OFFERING (1) OFFERED OWNED AFTER OFFERING (3)
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Halifax Fund, L.P. 1,089,902 (2) 1,089,902 (2) 0
Palladin Overseas Fund Limited 523,152 (2) 523,152 (2) 0
Palladin Partners I, L.P. 523,152 (2) 523,152 (2) 0
The Gleneagles Fund Company 653,941 (2) 653,941 (2) 0
Palladin Securities, LLC 523,152 (2) 523,152 (2) 0
Colonial Penn Life Insurance Company 523,152 (2) 523,152 (2) 0
Lancer Securities Limited 523,152 (2) 523,152 (2) 0
(1) None of the Selling Securityholders has, or within the past three years
has had, any position, office, or other material relationship with the
Company or any of its predecessors and affiliates.
(2) Assumes that all of the shares registered were allocated pro rata among
the Selling Securityholders. Assuming no adjustments were made to the
initial conversion price, 1,928,175 shares of Common Stock would be
issuable upon exercise of the Warrants and conversion of the principal
of (but not the accrued 3% interest on) the Debentures. Pursuant to the
terms of the Debentures and the Warrants, the Debentures are
convertible and the Warrants are exercisable by any holder only to the
extent that the number of shares of Common Stock thereby issuable,
together with the number of shares of Common Stock owned by such holder
and its affiliates (but not including shares of Common Stock underlying
unconverted Debentures or unexercised Warrants) would not exceed 4.9%
of the then outstanding Common Stock as determined in accordance with
Section 13(d) of the Exchange Act. Accordingly the number of shares of
Common Stock set forth in the table for the Selling Securityholders
exceeds the number of shares of Common Stock that the Selling
Securityholders could own beneficially at any given time through its
ownership of the Debentures and Warrants. In that regard, beneficial
ownership of the Selling Securityholders set forth in the table is not
determined in accordance with Rule 13d-3 under the Exchange Act.
(3) Assumes the sale of all Shares offered hereby. The Company has agreed
to pay all reasonable fees and expenses incident to the filing of this
offering.
(4) The shares set forth in the table are managed directly or indirectly by
The Palladin Group, L.P. ("Palladin") or an affiliate of Palladin.
Palladin may be deemed to be the beneficial owner of these shares
pursuant to Section 13(d) of the Exchange Act. Palladin disclaims any
beneficial interest in these securities. None of the Selling
Securityholders set forth in the table has any beneficial interest in
the shares held by any other Selling Securityholder in such table.
5
PLAN OF DISTRIBUTION
The shares may be sold from time to time by the Selling
Securityholders in one or more long or short transactions at fixed prices, at
market prices at the time of sale, at varying prices determined at the time
of sale or at negotiated prices. The Selling Securityholders may offer their
shares in one or more of the following transactions:
- - On any national securities exchange or quotation service on which the Zitel
common stock may be listed or quoted at the time of sale, including the
Nasdaq National Market;
- - In the over-the-counter market;
- - In private transactions;
- - Through options;
- - By pledge to secure debts or other obligations; or
- - A combination of any of the above transactions.
The Selling Securityholders may effect such transactions by selling to
or through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders. The Selling Securityholders and any
broker-dealers that participate in the distribution may, under certain
circumstances, be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such broker-dealers and any
profits realized on any resale of the shares by them might be deemed to
be underwriting discounts and commissions under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares may not simultaneously
engage in market making activities with respect to Zitel Corporation's common
stock for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the Selling
Securityholders and any other person participating in a distribution will be
subject to application provisions of the Securities Exchange Act and the rules
and regulations thereunder, including without limitation, Regulation M under the
Exchange Act, which may limit the timing of purchases and sales of shares of
Zitel common stock by the Selling Securityholders or any such other person.
We will make copies of this Prospectus available to the Selling
Securityholders and have informed the Selling Securityholders of the need for
delivery of a copy of this Prospectus to each purchaser or the shares
prior to or at the time of any sale of the shares.
The Selling Securityholders will pay all underwriting discounts,
commissions, transfer taxes and other expenses associated with the sale of the
shares by them. We will pay all costs and expenses associated with the
registration of the shares. We estimate that our expenses in connection
with this offering will be approximately $22,000.00.
6
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Cooley Godward LLP, San Francisco, California.
EXPERTS
The consolidated balance sheets as of September 30, 1998 and 1997
and the consolidated statements of operations, of shareholders' equity and of
cash flows for each of the three years in the period ended September 30, 1998
incorporated by reference in this prospectus, have been incorporated herein
in reliance on the report by PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts on accounting and
auditing.
7
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
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Page
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Where You Can Find More Information..........................2
Incorporation of Certain Documents by Reference..............2
The Company..................................................3
Use of Proceeds..............................................3
Dividend Policy..............................................3
Risk Factors.................................................3
The Debentures and Warrants..................................3
The Company..................................................4
Selling Securityholders......................................5
Plan of Distribution.........................................6
Legal Matters................................................7
Experts......................................................7
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4,359,603 SHARES
ZITEL CORPORATION
COMMON STOCK
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PROSPECTUS
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MARCH 15, 1999
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