-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CvwJgyPXsl+tfKIsK8eCCKGEbXW8+z5qNJXZgpDoBoXHwOtQ7ArBlUVgbb1mcxWt CIjiIH1mO+12un5XZ0/UPQ== 0000912057-00-001182.txt : 20000202 0000912057-00-001182.hdr.sgml : 20000202 ACCESSION NUMBER: 0000912057-00-001182 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZITEL CORP CENTRAL INDEX KEY: 0000731647 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 942566313 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-94607 FILM NUMBER: 506789 BUSINESS ADDRESS: STREET 1: 47211 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538-6517 BUSINESS PHONE: 5104409600 MAIL ADDRESS: STREET 1: 47211 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000 REGISTRATION NO. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- ZITEL CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 7372 94-2566313 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) ---------------- 47211 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538-6517 (510) 440-9600 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- ANNA M. MCCANN, CHIEF FINANCIAL OFFICER 47211 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538-6517 (510) 440-9600 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- COPIES TO: JOHN L. CARDOZA, ESQ., COOLEY GODWARD LLP ONE MARITIME PLAZA #2000, SAN FRANCISCO, CALIFORNIA 94111 (415) 693-2000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ---------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is filed in a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement of the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ---------------- CALCULATION OF REGISTRATION FEE
================================================================================ TITLE OF EACH PROPOSED PROPOSED CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE - -------------------------------------------------------------------------------- Common Stock (2) 4,659,897 $2 15/32 $11,504,121 $3,037.09 TOTAL ================================================================================
(1) Estimated in accordance with Rule 457(c) solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices of the Company's Common Stock as reported on the Nasdaq National Market System on January 12, 2000. (2) Issuable upon conversion of the Series B Convertible Preferred Stock of the Company (the "Series B Preferred"). For purposes of estimating the number of shares of Common Stock to be included in the Registration Statement, the Company used the maximum number of shares which may be issued upon conversion of the Series B Preferred. In addition to the shares set forth in the table, the amount to be registered includes an indeterminate number of shares issuable upon conversion of or in respect of the Series B Preferred, as such number may be adjusted as a result of stock splits, stock dividends and antidilution provisions in accordance with Rule 416. - --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. =============================================================================== PROSPECTUS 4,659,897 SHARES ZITEL CORPORATION ------------------- COMMON STOCK ------------------- The Selling Securityholders identified in this Prospectus are selling up to 4,659,897 shares of our common stock that may be acquired by them upon conversion of 200,000 shares of our Series B Convertible Preferred Stock. These shares may be offered from time to time by the Selling Securityholders through public or private transactions, on or off The Nasdaq SmallCap 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 SmallCap Market under the symbol "ZITL." On __________, 2000, the last reported sales price of a share of Zitel common stock on The Nasdaq SmallCap Market was $_______ per share. ------------------- INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 2 OF THIS PROSPECTUS. ------------------- 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 ___________, 2000. 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 rooms 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: INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by Zitel Corporation with the SEC pursuant to the Securities Exchange Act of 1934 are by this reference incorporated in and made a part of this Prospectus: (1) The Proxy Statement filed on January 27, 1999, including all matters incorporated by reference therein; (2) The Annual Report on Form 10-K for the fiscal year ended September 30, 1999, including all matters incorporated therein by reference; (3) The Amendment to the Annual Report on Form 10-K for the fiscal year ended September 30, 1999, filed December 30, 1999 on Form 10-K/A. --------------------------------------- 1. 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 Zitel has never paid cash dividends. The Company's Board of Directors currently intends to retain any earnings for use in Zitel's business and does not anticipate paying any cash dividends in the foreseeable future. AN INVESTMENT IN ZITEL INVOLVES A HIGH DEGREE OF RISK. THE RISK FACTORS SET FORTH BELOW SHOULD BE CONSIDERED CAREFULLY BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. RISK FACTORS RECENT LEVELS OF NET SALES HAVE BEEN INSUFFICIENT TO PRODUCE OPERATING PROFITS In recent years, we have not generated net sales sufficient to produce an operating profit and have relied on a stream of royalty payments under an agreement with IBM and significant financings to support our activities. In April 1998, Zitel and IBM entered into an agreement whereby IBM stopped paying royalties to Zitel in exchange for a lump sum payment amounting to $740,000. We sustained substantial operating losses and net losses in fiscal 1997, fiscal 1998 and fiscal 1999. We must generate substantial additional net sales and gross margins on our products and services and must continue to successfully implement programs to manage cost and expense levels in order to remain a viable operating entity. There can be no assurance that we can achieve these objectives. WE HAVE REPORTED SIGNIFICANT LOSSES During our 1999 fiscal year, we reported a net loss of $13,103,000. We reported a net loss of $43,205,000 in fiscal 1998. We reported a net loss of $17,501,000 in fiscal 1997. While we have taken a number of steps to attempt to return to profitability, there is no assurance that we will be successful. A significant portion of the recent losses were caused by the operations of our former storage systems business unit and the writeoff of our investment in and advances to MatriDigm Corporation. In July 1998, we sold the storage systems business unit. At September 30, 1999, we had written off all of our investments in and advances to MatriDigm Corporation. We are in the process of attempting to sublease our Fremont, California headquarters and move to substantially smaller and less costly premises. We are also taking other actions to reduce our costs in an effort to bring costs into line with anticipated revenues. There can be no assurance that we will be successful in this effort and remain a viable operating entity. WE HAVE EXPERIENCED FLUCTUATIONS IN QUARTERLY RESULTS Our quarterly operating results have in the past varied and may in the future vary significantly depending on a number of factors, including: - The level of competition, size, timing, cancellation or rescheduling of significant orders; - Market acceptance of new products and product enhancements; - New product announcements or introductions by our competitors; - Deferrals of customer orders in anticipation of new products or product enhancements; 2. - Changes in pricing by us or our competitors; - Our ability to develop, introduce and market new products and product enhancements on a timely basis; - Our success in expanding our sales and marketing programs; - Technological changes in the market for our products; - Product mix and the mix of sales among our sales channels; - Levels of expenditures on research and development; - Changes in our strategy and personnel changes; - General economic trends and other factors. Due to all of the foregoing factors, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as an indicator of future performance. It is possible that in some future quarter our operating results may be below the expectations of public market analysts and investors. OUR STOCK PRICE HAS BEEN VOLATILE The price of our common stock was subject to extreme volatility during fiscal 1998, as the closing bid price ranged between a low of 2-7/32 and a high of 23-5/8. We feels that one of the reasons for this volatility was rumored progress of and rumored problems in the product development program and marketing efforts of MatriDigm. The price of our common stock during fiscal year 1999 demonstrated significantly less volatility, ranging from the low closing bid price of 1-7/32 to the high closing bid price of 6-15/32. THE MARKET FOR SYSTEMS MANAGEMENT TOOLS IS INTENSELY COMPETITIVE The market for system management tools in which our software products business unit competes is intensely competitive. Many of the companies with which we compete, such as TeamQuest Corporation, Computer Associates International, Inc., Hewlett-Packard Company and BMC Software, Inc., have sold systems to many more customers and have greater financial resources than Zitel. There can be no assurance that our competitors will not develop products comparable or superior to those developed by us or adapt more quickly than we do to new technologies, evolving industry standards, new product introductions, or changing customer requirements. RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR EXISTING PRODUCTS AND SERVICES OBSOLETE The markets in which we operate are characterized by rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards. The introduction of products embodying new technologies and/or the emergence of new industry standards could render our existing products and services obsolete and unmarketable. Our future success will depend upon our ability to develop and introduce new products and services on a timely basis that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our customers. There can be no assurance that we will be successful in developing and marketing products or services that respond to technological changes or evolving industry standards, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products or services, or that our new products or services will adequately meet the requirements of the marketplace and achieve market acceptance. If we are unable, for technological or other reasons, to develop and introduce new products or services in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition will be harmed. PRODUCT LIABILITY COULD HURT US IF LIABILITY LIMITATIONS ARE NOT EFFECTIVE Our agreements with our customers typically contain provisions intended to limit our exposure to potential product liability claims. It is possible that the limitation of liability provisions contained in our agreements may not be effective. Although we have not 3. received any product liability claims to date, the sale and support of products and the incorporation of products from other companies may entail the risk of such claims. A successful product liability claim against us could harm our business. OUR SUCCESS DEPENDS ON PROPRIETARY TECHNOLOGY Our success depends significantly upon our proprietary technology. We currently rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality agreements and contractual provisions to protect our proprietary rights. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. We have registered our Zitel and Datametrics trademarks and will continue to evaluate the registration of additional trademarks as appropriate. We generally enter into confidentiality agreements with our employees and with key vendors and suppliers. We currently hold a United States patent on one of our software technologies. There can be no assurance that this patent will provide us with any competitive advantages or will not be challenged by third parties, or that the patents of others will not impair our ability to do business. We believe that the rapidly changing technology in the computer industry makes our success depend more on the technical competence and creative skills of our personnel than on patents. There has also been substantial litigation in the computer industry regarding intellectual property rights, and litigation may be necessary to protect our proprietary technology. We have not received significant claims that we are infringing third parties' intellectual property rights, but there can be no assurance that third parties will not in the future claim infringement by us with respect to current or future products, trademarks or other proprietary rights. We expect that companies in our markets will increasingly be subject to infringement claims as the number of products and competitors in our target markets grows. Any such claims or litigation may be time-consuming and costly, cause product shipment delays, require us to redesign our products or require us to enter into royalty or licensing agreements, any of which could have a harm on our business. Despite our efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products or design around patents issued to us or our other intellectual property rights. INTERNATIONAL SALES AND OPERATIONS INVOLVE RISKS NOT EXPERIENCED IN DOMESTIC OPERATIONS Sales to customers outside the United States have accounted for significant portions of our net sales, and we expect that the acquisition of companies headquartered and operating in the United Kingdom and The Netherlands, respectively, will result in international sales representing an increasingly significant portion of our net sales. International sales pose certain risks not faced by companies that limit themselves to domestic sales. Fluctuations in the value of foreign currencies relative to the U.S. dollar, for example, could make our products less price competitive. If in the future we denominate any of our sales in foreign currencies, this could result in losses from foreign currency transactions. International sales also could be harmed by factors beyond our control, including the imposition of government controls, export license requirements, restrictions on technology exports, changes in tariffs and taxes and general economic and political conditions. The laws of some countries do not protect our intellectual property rights to the same extent as the laws of the United States. We do not believe these additional risks are significant in the United Kingdom or in The Netherlands. LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS Our future performance depends in significant part upon the continued service of our key technical and senior management personnel. We provide incentives such as salary, benefits and option grants (which are typically subject to vesting over four years) to attract and retain qualified employees. The loss of the services of one or more of our officers or other key employees could harm our business. Our future success also depends on our continuing ability to attract and retain highly qualified technical and management personnel. Competition for such personnel is intense, and there can be no assurance that we can retain our key technical and management employees or that we can attract, assimilate and retain other highly qualified technical and management personnel in the future. We believe there is significant competition for the few software development professionals with the advanced technological skills necessary to perform the services offered by our business. Our ability to maintain or renew existing relationships and obtain new business depends, in large part, on our ability to hire and retain technical personnel. An inability to hire such additional qualified personnel could impair our ability to manage and complete our existing projects and to bid for and obtain new projects. 4. ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE TENDER OFFER OR TAKEOVER ATTEMPTS, INCLUDING THOSE THAT MIGHT RESULT IN A PREMIUM OVER MARKET PRICE Certain provisions of our Articles of Incorporation, as amended and restated, and Bylaws, as amended, California law and our indemnification agreements with our officers and directors may be deemed to have an anti-takeover effect. Such provisions may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in that stockholder's best interests, including attempts that might result in a premium over the market price for the shares held by stockholders. Our Board of Directors may issue additional shares of common stock or establish one or more classes or series of Preferred Stock, having the number of shares, designations, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations as determined by the Board of Directors without stockholder approval. Our Board of Directors has approved the adoption of a Preferred Share Purchase Rights Plan (the "Rights Plan"). Terms of the Rights Plan provide for a dividend distribution of one preferred share purchase right for each outstanding share of our common stock. Each purchase right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $69.50 per one one-hundredth of a preferred share, subject to adjustment, and a redemption price of $.01 per purchase right. Each one one-hundredth of a share of preferred stock has designations and the powers, preferences and rights, and the qualifications, limitations and restrictions which make its value approximately equal to the value of a common share. The purchase rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that a person, entity or group of affiliated or associated persons have acquired beneficial ownership of 15% or more of the outstanding common stock or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or entity acquires 15% or more of our outstanding common stock) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding common stock. The purchase rights have certain anti-takeover effects, as they would cause substantial dilution to a person or group that attempted to acquire Zitel on terms not approved by our Board of Directors. The purchase rights should not interfere with any merger or other business combination approved by the Board of Directors, since the purchase rights may be redeemed at $.01 per purchase right prior to the earliest of (i) the twentieth day following the time that a person or group has acquired beneficial ownership of 15% or more of our outstanding common stock (unless extended for one or more 10 day periods by the Board of Directors), (ii) a change of control, or (iii) the final expiration date of the purchase rights. 5. THE SERIES B CONVERTIBLE PREFERRED STOCK On August 27, 1999, we sold 200,000 shares of our Series B Convertible Preferred Stock to the selling securityholders named in this prospectus. These shares of preferred stock: - have liquidation preferences of $10.00 per share plus any declared and unpaid dividends over all other current classes of stock; - provide for non-cumulative dividends of $.30 per share, if, as and when declared; - have no voting rights except to the extent required by California law; - are subject to redemption of all, but not less than all, of the outstanding shares of preferred stock at our option at any time at a liquidation price of $10.00 per share plus declared and unpaid dividends; - are convertible at the option of the holder into the number of shares of Common Stock of the Company equal to the quotient obtained by dividing the liquidation preference by a conversion price based on the conversion formula described below. The conversion formula is based on the closing price of our common stock on the effective date of the registration statement of which this prospectus is a part and the closing price on the day prior to date of conversion. Under the formula, the baseline price is $__________. On the effective date and for the first 180 days thereafter, the conversion price is equal to the closing price on the trading day prior to the date of conversion. However, during that 180-day period, the conversion price shall not be less than 70% of the baseline price and shall not be more than the closing price on the trading day prior to the date of conversion plus one half of the amount by which the closing price exceeds 130% of the baseline price. After that 180-day period, the conversion price is equal to the closing price on the trading day prior to the day of conversion, provided it shall not be less than the baseline price. The conversion price is subject to antidilution and similar adjustments. BUSINESS We are an information technology company specializing in performance management of enterprise information systems. We employ our core competencies through Datametrics software products and services business, marketing multi-platform performance analysis and correlation software used to optimize performance in mission critical systems, databases and applications. Zitel was organized in 1979 to develop, market and sell semiconductor memory systems. It subsequently developed memory algorithms, which we incorporated in high performance data storage systems developed, marketed and sold by our data storage business. With the acquisition, in June 1997, of the business of Datametrics Systems Corporation, we commenced the transition to an information technology company. This transition was completed in July 1998, when we sold our data storage business. GENERAL We develop, market and support a wide range of data management solutions in the form of multi-platform performance analysis and correlation software used to optimize performance in mission critical systems, databases and applications. We do so through our Datametrics software products business, which is the combination of Datametrics Systems Corporation and Palmer & Webb Systems companies, which were acquired in 1997 and combined with our Performance and Modeling, Inc. subsidiary. The business operates under the Datametrics Systems Corporation name. This business markets a suite of ViewPoint software utilized for data management that automatically alerts, analyzes, correlates, investigates and reports on data center performance for mainframe computers, open systems and distributed network systems. In addition, this business includes a professional services business to solve customers' IT professional needs and a training business to assist customers with their software training needs. Products are sold through a direct sales force in the United States and Europe, and through value added resellers, distributors and original equipment manufacturers worldwide. This business provides both direct and indirect customer maintenance and support for its software products. 6. PRODUCTS AND SERVICES SOFTWARE PRODUCTS The flagship product of our Datametrics business is ViewPoint. ViewPoint is a multi-platform performance management and analysis product for the entire enterprise that automatically monitors, analyzes and correlates thousands of performance metrics simultaneously and at a very high speed. ViewPoint also provides trend analysis, simulation modeling and "What If" analysis for capacity planning. ViewPoint operates in systems running Compaq, OpenVMS, Unisys 2200, Unisys A Series, Windows NT and many UNIX platforms including Sun, HP, IBM, Siemans, and Sequent. Datametrics also markets VisualRoute and VisualRoute Server which are Java based tools providing the functionality of the common Internet tools, "ping", "whois" and "traceroute" in an integrated fashion. VisualRoute provides a simple, graphical tool to determine precisely where and how the traffic is flowing between a server and the client trying to access it, providing a geographical map of the route and the performance of each portion of the route. VisualRoute can be installed on a client PC to determine connectivity and connection performance between that PC and any server on the Internet. VisualRoute Server, the enterprise version of VisualRoute, enables Web Master and ISP's to provide this capability to any client that has a Java-enabled Web browser. Datametrics Professional Services (DPS) group provides professionals to its customers to assist in installation, confirmation, outsourcing, training and consultation. DPS will work with clients to provide the skills and knowledge for deployment and maintenance of performance enhancing products throughout their enterprise. DPS will provide services at the clients facility, at DPS's facilities or provide distance learning through Web-driven computer-based training. The latter is done via a Process-based Structured Intranet Training Environment which is a browser-based knowledge environment delivering process specific training or support knowledge for custom situations. DPS is also a performance service provider, providing outsourcing services to clients whereby DPS will provide performance management for its clients enterprise on an outsource basis. MARKETING We sell our software products through a direct sales force in the United States, the United Kingdom and The Netherlands, and through value added resellers, distributors and original equipment manufacturers worldwide. We provide direct customer maintenance and support for our software products. EMPLOYEES At September 30, 1999, we employed 117 persons on a full-time basis: 22 in research and development, 13 in professional services, 7 in operations, 50 in sales and marketing, and 25 in general management and administration. We believe that our further success will depend, in part, on our ability to attract and retain qualified employees, who are in great demand. None of our employees are represented by a labor union and we believe that our employee relations are good. 7. 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 if all of the shares are sold and no other shares are acquired. 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 SHARES BENEFICIALLY SHARES BENEFICIALLY SELLING OWNED PRIOR TO BEING OWNED AFTER SECURITYHOLDER(1) OFFERING OFFERED OFFERING(3) ---------------- -------------- -------------- ------------- ECC Chief, Inc. 2,329,948.5(2) 2,329,948.5(2) 0 ACS BRC Holding, Inc. 2,329,948.5(2) 2,329,948.5(2) 0
(1) Neither 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 are allocated pro rata between the Selling Securityholders. (3) Assumes the sale of all shares offered hereby. We have agreed to pay all reasonable fees and expenses incident to the filing of this offering. 8. PLAN OF DISTRIBUTION The common stock issuable upon conversion of the Series B preferred stock may be sold from time to time by the selling securityholders in one or more 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 common stock in one or more of the following transactions directly or through underwriters, broker dealers or agents: - On any national securities exchange or quotation service on which our common stock may be listed or quoted at the time of sale, including the Nasdaq SmallCap 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 these transactions by selling to or through one or more underwriters, broker-dealers or agents, and such underwriters, broker-dealers or agents may receive compensation in the form of underwriting discounts, concessions or commissions from the selling securityholders. The selling securityholders and any other persons that participate in the distribution may at times, be deemed to be "underwriters" within the meaning of the Securities Act of 1933, and any commissions received by such broker-dealers and any profits realized on any resale of the common stock by them might be deemed to be underwriting discounts and commissions under the Securities Act. Under applicable rules and regulations under the Securities Exchange Act, any person engaged in the distribution of the common stock may not simultaneously engage in market making activities with respect to our 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 Securities Exchange Act, which may limit the timing of purchases and sales of shares of our 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 prior to or at the time of any sale of the common stock. The selling securityholders will pay all underwriting discounts, commissions, transfer taxes and other expenses associated with the sale of the common stock by them. We will pay all costs and expenses associated with the registration of the common stock. We estimate that our expenses in connection with this offering will be approximately $30,000.00. 9. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for Zitel by Cooley Godward LLP, San Francisco, California. EXPERTS The financial statements incorporated in this Prospectus by reference to the Annual Report on Form 10-K/A for the year ended September 30, 1999 have been so incorporated herein in reliance on the report by PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in auditing and accounting. 10. ============================================================================== 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 ZITEL. 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 PAGE ---- Where You Can Find More Information ................................. 1 Incorporation of Certain Documents by Reference ..................... 1 The Company ......................................................... 2 Use of Proceeds ..................................................... 2 Dividend Policy ..................................................... 2 Risk Factors ........................................................ 2 The Series B Convertible Preferred Stock ............................ 3 Business ............................................................ 4 Selling Securityholders ............................................. 8 Plan of Distribution ................................................ 9 Legal Matters ....................................................... 10 Experts ............................................................. 11 ============================================================================= 4,659,897 SHARES ZITEL CORPORATION COMMON STOCK ------------ PROSPECTUS ------------ JANUARY __, 2000 ============================================================================= INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses payable by the Company in connection with the sale, issuance and distribution of the securities being registered, other than underwriting discounts and commissions. All amounts are estimates except the SEC registration fee. None of these expenses will be paid by the Selling Securityholders. SEC Registration Fee $ 3,037.39 Printing and Engraving Expenses 5,000.00 Legal Fees and Expenses $15,500.00 Accounting Fees and Expenses 5,000.00 Blue Sky Fees and Expenses 1,462.61 ---------- Total $30,000.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant's Amended and Restated Articles of Incorporation and Bylaws include provisions to (i) eliminate the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by California law and (ii) require the Registrant to indemnify its directors and officers to the fullest extent permitted by California law, including circumstances in which indemnification is otherwise discretionary. Pursuant to California law, a corporation generally has the power to indemnify its present and former directors, officers, employees and agents against expenses incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in such positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of a corporation, and, with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. The Registrant believes that these provisions are necessary to attract and retain qualified persons as directors and officers. These provisions do not eliminate liability for breach of the director's duty of loyalty to the Registrant or its stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for any transaction from which the director derived an improper personal benefit or for any willful or negligent payment of any unlawful dividend or any unlawful stock purchase agreement or redemption. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NUMBER DESCRIPTION 4.1 Certificate of Determination of Preferences of Series B Convertible Preferred Stock of Zitel Corporation* 5.1 Opinion of Cooley Godward LLP. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2 Consent of Cooley Godward LLP. Reference is made to 5.1. 24.1 Power of Attorney (included on signature page II-3). 99.1 Series B Convertible Preferred Stock Purchase Agreement dated as of September 3, 1999 99.2 Registration Rights Agreement dated as of September 3, 1999
* Incorporated by reference to the indicated exhibit to the Company's report on 10-K for the fiscal year ended September 30, 1999. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any II-1. facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. PROVIDED, HOWEVER, the foregoing undertaking shall not apply if the information required to be included in a post-effective amendment by the foregoing paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to provisions described in Item 15, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Fremont, State of California, on January 13, 2000. ZITEL CORPORATION By /s/ Asa W. Lanum -------------------------- Asa W. Lanum President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Asa W. Lanum and Anna M. McCann, or either of them, his attorneys-in-fact, and agents each with the power of substitution, for him in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Asa W. Lanum President, Chief Executive January 13, 2000 - ----------------------- Officer and Director Asa W. Lanum (PRINCIPAL EXECUTIVE OFFICER) /s/ Anna M. McCann Vice President, Finance and January 13, 2000 - ----------------------- Administration, Secretary and Anna M. McCann Chief Financial Officer (PRINCIPAL ACCOUNTING OFFICER) /s/ William R. Longergan Chairman of the Board of January 13, 2000 - ------------------------ Directors William R. Lonergan Director January , 2000 - ------------------------ Tsvi Gal /s/ Jack H. King Director January 13, 2000 - ------------------------ Jack H. King /s/ Philip J. Koen Director January 13, 2000 - ------------------------ Philip J. Koen /s/ Catherine P. Lego Director January 13, 2000 - ------------------------ Catherine P. Lego /s/ William M. Regitz Director January 13, 2000 - ------------------------ William M. Regitz II-3. EX-5.1 2 OPINION OF COOLEY GODWARD LLP EXHIBIT 5.1 [LETTERHEAD] January 13, 2000 Zitel Corporation 47211 Bayside Parkway Fremont, CA 94538-6517 Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing by Zitel Corporation (the "Company") of a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission covering the offering of 4,659,897 shares (the "Shares") of the Company's Common Stock, without par value, issuable upon the conversion of the Company's outstanding Series B Convertible Preferred Stock (the "Preferred Stock"). In connection with this opinion, we have examined the Registration Statement, the Company's Amended and Restated Certificate of Incorporation and Bylaws, and such other documents, records, certificates, memoranda and other instruments as we deem necessary as a basis for this opinion. We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when issued upon conversion of the Preferred Stock in accordance with the terms thereof, will be validly issued, fully paid and nonassessable. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, COOLEY GODWARD LLP John L. Cardoza EX-23.1 3 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated December 30, 1999 relating to the financial statements and financial statement schedule, which appear in Zitel Corporation's Annual Report on Form 10-K/A for the year ended September 30, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California January 11, 2000 EX-99.1 4 SERIES B CONVERTIBLE PREFERRED STOCK EXHIBIT 99.1 ZITEL CORPORATION SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of September 3, 1999, by and among ZITEL CORPORATION, a California corporation (the "Company") and each of those persons and entities, severally and not jointly, whose names are set forth on the Schedule of Purchasers attached hereto as Exhibit A (which persons and entities are hereinafter collectively referred to as "Purchasers" and each individually as a "Purchaser"). RECITALS WHEREAS, the Company has authorized the sale and issuance of an aggregate of Two Hundred Thousand (200,000) shares (the "Shares") of its Series B Convertible Preferred Stock (the "Series B Preferred"); WHEREAS, Purchasers desire to purchase the Shares on the terms and conditions set forth herein; and WHEREAS, the Company desires to issue and sell the Shares to Purchasers on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. 1.1 AUTHORIZATION OF SHARES. The Company has authorized (a) the sale and issuance to Purchasers of the 200,000 shares of Series B Preferred and (b) the issuance of such shares of Common Stock to be issued upon conversion of the Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall have the rights, preferences and privileges set forth in the Certificate of Determination of Series B Convertible Preferred Stock of Zitel Corporation, in the form attached hereto as Exhibit B (the "Certificate"). 1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the Closing (as hereinafter defined) the Company hereby agrees to issue and sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase from the Company, severally and not jointly, the number of Shares set forth opposite such Purchaser's name on Exhibit A, at a purchase price of ten dollars ($10.00) per share. 2. CLOSING, DELIVERY AND PAYMENT. 2.1 CLOSING. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at August 6, on the date hereof, at the offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California 94705 or at such other time or place as the Company and Purchasers may mutually agree (such date is hereinafter referred to as the "Closing Date"). 2.2 DELIVERY. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a certificate representing the number of Shares to be purchased at the Closing by such Purchaser, against payment of the purchase price therefor by wire transfer to Wells Fargo Bank to be held for the account of the Company as collateral for the guarantee by the Company of the obligations of Matridigm Corporation under a promissory note in the principal amount of three million dollars ($3,000,000) or to be applied to the principal balance of such note. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Purchaser as of the date of this Agreement as follows: 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, and the Registration Rights Agreement in the form attached hereto as Exhibit C (the "Registration Rights Agreement"), to issue and sell the Shares and the Conversion Shares, and to carry out the provisions of this Agreement, the Registration Rights Agreement and the Certificate and to carry on its business as presently conducted and as presently proposed to be conducted. 3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the Company, consists of 40,000,000 shares of Common Stock, 23,416,572 shares of which are issued and outstanding, 1,000,000 shares of Preferred Stock, 100,000 of which are designated Series A Preferred Stock, none of which are issued and outstanding and 200,000 Shares of Series B Preferred, none of which were issued and outstanding prior to the Closing. The rights, preferences, privileges and restrictions of the Shares are as stated in the Certificate The Conversion Shares have been duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and the Certificate, the Shares and the Conversion Shares will be validly issued, fully paid and nonassessable. 3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement and the Registration Rights Agreement, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, sale, issuance and delivery of the Shares pursuant hereto and the Conversion Shares pursuant to the Certificate has 3.4 been taken. The Agreement and the Registration Rights Agreements, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions in Section 2.4 of the Registration Rights Agreement may be limited by applicable laws. The sale of the Shares and the subsequent conversion of the Shares into Conversion Shares are not subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 3.5 SEC REPORTS. The Company has made available to the Purchasers copies of its Annual Report on Form 10K under the Securities Exchange Act of 1934, as amended (the "Act") for the year ended September 30, 1998, and the other reports filed by the Company under the Act since September 30, 1998 (collectively, the "SEC Filings"). The SEC Filings, as of the respective dates of filing, complied as to form with the requirements of the Act and the Rules and Regulations thereunder. 3.6 LITIGATION. There is no action, suit, proceeding or investigation pending or to the Company's knowledge currently threatened against the Company that questions the validity of this Agreement, or the Related Agreements or the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing. 3.7 OFFERING VALID. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of the Shares and the Conversion Shares will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"). Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Shares to any person or persons other than the Purchasers. 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Registration Rights Agreement and to carry out their provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements have been taken. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (b) general principles of equity that restrict the availability of equitable remedies, and (c) to the extent that the enforceability of the indemnification provisions of Section 2.4 of the Registration Rights Agreement may be limited by applicable laws. 4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the Shares nor the Conversion Shares have been registered under the Securities Act. Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement. Purchaser hereby represents and warrants as follows: (A) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely unless the Shares (or the Conversion Shares) are registered pursuant to the Securities Act, or an exemption from registration is available. Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Purchaser to transfer all or any portion of the Shares or the Conversion Shares under the circumstances, in the amounts or at the times Purchaser might propose. (B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Shares and the Conversion Shares for Purchaser's own account for investment only, and not with a view towards their distribution, provided Purchaser may resell the Conversion Shares in a transaction which is registered under the Securities Act or which is exempt from the registration requirements of the Securities Act. (C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and the Related Agreements. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. (D) ACCREDITED INVESTOR. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (E) COMPANY INFORMATION. Purchaser has received and read the SEC Filings and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. (F) RULE 144. Purchaser acknowledges and agrees that the Shares, and, if issued, the Conversion Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. (G) RESIDENCE. The office of the Purchaser in which its investment decision was made is located at the address or addresses of the Purchaser set forth on Exhibit A. 5. CONDITIONS TO CLOSING. 5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Purchasers' obligations to purchase the Shares at the Closing are subject to the satisfaction, at or prior to the Closing Date, of the following conditions: (A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company in Section 3 hereof shall be true and correct as of the Closing Date with the same force and effect as if they had been made as of the Closing Date, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. (B) RELEASE OF GUARANTEES. Wells Fargo Bank shall have released the guarantees of Kathryn Ayres Esping, P. E. Esping, and the estate of P. E. Esping and ACS BRC Holdings, Inc. of obligations of Matridigm Corporation, each in the aggregate principal amount of one million dollars ($1,000,000) upon receipt of the purchase price of the Shares. (C) CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). (D) FILING OF CERTIFICATE. The Certificate shall have been filed with the Secretary of State of the State of California and shall continue to be in full force and effect as of the Closing Date. (E) CORPORATE DOCUMENTS. The Company shall have delivered to Purchasers or their counsel, copies of all corporate documents of the Company as Purchasers shall reasonably request. (F) RESERVATION OF CONVERSION SHARES. The Conversion Shares issuable upon conversion of the Shares shall have been duly authorized and reserved for issuance upon such conversion. (G) COMPLIANCE CERTIFICATE. The Company shall have delivered to Purchasers a Compliance Certificate, executed by the President of the Company, dated the Closing Date, to the effect that the conditions specified in subsections (a), (c), (d) and (f) of this Section 5.1 have been satisfied. (H) REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the parties thereto. (I) LEGAL OPINION. The Purchasers shall have received from legal counsel to the Company an opinion addressed to them, dated as of the Closing Date, in substantially the form attached hereto as Exhibit D. (J) Certificates representing the Shares shall have been delivered to the Purchasers. 5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation to issue and sell the Shares at each Closing is subject to the satisfaction, on or prior to such Closing, of the following conditions: (A) REPRESENTATIONS AND WARRANTIES TRUE. The representations and warranties in Section 4 made by those Purchasers acquiring Shares hereof shall be true and correct at the date of the Closing, with the same force and effect as if they had been made on and as of said date. (B) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have performed and complied with all agreements and conditions herein required to be performed or complied with by such Purchasers on or before the Closing. (C) FILING OF CERTIFICATE. The Certificate shall have been filed with the Secretary of State of the State of California. (D) REGISTRATION RIGHTS AGREEMENT. An Investor Rights Agreement substantially in the form attached hereto as Exhibit C shall have been executed and delivered by the Purchasers. (E) MATRIDIGM GUARANTEE. Wells Fargo Bank shall have agreed to hold the purchase price of the Shares for the account of the Company as collateral for the guarantee by the Company of obligations of Matridigm Corporation in the principal amount of $3,000,000 or to apply the collateral to the principal of the obligation of Matridigm in the principal amount of $3,000,000. (F) CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (except for such as may be properly obtained subsequent to the Closing). 6. MISCELLANEOUS. 6.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and performed entirely in California. 6.2 SURVIVAL. The representations and warranties made herein shall terminate at the Closing. 6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time. 6.4 ENTIRE AGREEMENT. This Agreement and the Registration Rights Agreements constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 6.5 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6.6 AMENDMENT AND WAIVER. (A) This Agreement may be amended or modified only upon the written consent of the Company and holders of at least seventy-five percent (75%) of the issued and outstanding Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). (B) The obligations of the Company and the rights of the holders of the Shares and the Conversion Shares under this Agreement may be waived only with the written consent of the holders of at least a seventy-five percent (75%) of the issued and outstanding Shares (treated as if converted and including any Conversion Shares into which the Shares have been converted that have not been sold to the public). 6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, the Registration Rights Agreement or the Certificate, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. 6.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof and to Purchaser at the address set forth on Exhibit A attached hereto or at such other address as the Company or Purchaser may designate by ten (10) days advance written notice to the other parties hereto. 6.9 EXPENSES. The Company shall reimburse the reasonable fees of and expenses of one special counsel for the Purchasers, not to exceed $25,000, and shall reimburse such special counsel for reasonable expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement. 6.10 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 6.11 TITLES AND SUBTITLES. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 6.12 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 6.13 BROKER'S FEES. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 6.13 being untrue. 6.14 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written consent of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement or the Related Agreements, discussions or negotiations relating to this Agreement or the Related Agreements, the performance of its obligations hereunder or the ownership of the Shares purchased hereunder. 6.15 PRONOUNS. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require. 6.16 SHAREHOLDER APPROVAL. In that conversions of the Shares are suspended under the provisions of Section E.1 of the Certificate of Determination of the Shares, the Company agrees to forthwith call a special meeting of its shareholders to approve the issuance of additional Shares of Common Stock upon conversion of the Shares, and to use its best efforts to obtain such approval. IN WITNESS WHEREOF, the parties hereto have executed the SERIES B PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: ZITEL CORPORATION EC CHIEF, INC. By: s/ Asa W. Lanum By: s/_______________________________ President Title: CHIEF FINANCIAL OFFICER ACS BRC HOLDINGS, INC. By: S/_______________________________ Title: PRESIDENT ZITEL CORPORATION SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT TABLE OF CONTENTS
PAGE 1. AGREEMENT TO SELL AND PURCHASE........................................1 1.1 Authorization of Shares......................................1 1.2 Sale and Purchase............................................1 2. CLOSING, DELIVERY AND PAYMENT.........................................2 2.1 Closing......................................................2 2.2 Delivery.....................................................2 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................2 3.1 Organization, Good Standing and Qualification................2 3.2 Capitalization; Voting Rights................................2 3.3 Authorization; Binding Obligations...........................2 3.4 SEC Reports..................................................3 3.5 Litigation...................................................3 3.6 Offering Valid...............................................3 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................3 4.1 Requisite Power and Authority................................3 4.2 Investment Representations...................................4 5. CONDITIONS TO CLOSING.................................................5 5.1 Conditions to Purchasers' Obligations at the Closing.........5 5.2 Conditions to Obligations of the Company.....................6 6. MISCELLANEOUS.........................................................7 6.1 Governing Law................................................7 6.2 Survival.....................................................7 6.3 Successors and Assigns.......................................7 6.4 Entire Agreement.............................................7 6.5 Severability.................................................7 6.6 Amendment and Waiver.........................................7 6.7 Delays or Omissions..........................................7 6.8 Notices......................................................7 6.9 Expenses.....................................................8
i. TABLE OF CONTENTS (CONTINUED)
PAGE 6.10 Attorneys' Fees..............................................8 6.11 Titles and Subtitles.........................................8 6.12 Counterparts.................................................8 6.13 Broker's Fees................................................8 6.14 Confidentiality..............................................8 6.15 Pronouns.....................................................9 6.16 Shareholder Approval.........................................9
ii. LIST OF EXHIBITS Schedule of Purchasers Exhibit A Certificate of Determination Exhibit B Registration Rights Agreement Exhibit C Form of Legal Opinion Exhibit D iii. EXHIBIT A SCHEDULE OF PURCHASERS
AGGREGATE NAME AND ADDRESS SHARES PURCHASE PRICE EC Chief, Inc. 100,000 $1,000,000 c/o EFO Holdings, Ltd. 2626 Cole Avenue, Suite 700 Dallas, TX 75204 ACS BRC Holding, Inc. 100,000 $1,000,000 TOTAL: 200,000 $2,000,000 ------- ---------- ------- ----------
EX-99.2 5 REGISTRATION RIGHTS AGREEMENT EXHIBIT 99.2 ZITEL CORPORATION REGISTRATION RIGHTS AGREEMENT TABLE OF CONTENTS
PAGE SECTION 1. GENERAL.........................................................................................1 1.1 Definitions.....................................................................................1 SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER..........................................................2 2.1 Restrictions on Transfer........................................................................2 2.2 Registration....................................................................................3 2.3 Furnishing Information; Compliance with the Securities Act......................................4 2.4 Indemnification.................................................................................4 2.5 Assignment of Registration Rights...............................................................6 2.6 Amendment of Registration Rights................................................................6 2.7 Reporting.......................................................................................7 2.8 Prospectus Delivery.............................................................................7 SECTION 3. MISCELLANEOUS...................................................................................7 3.1 Governing Law...................................................................................7 3.2 Survival........................................................................................7 3.3 Successors and Assigns..........................................................................7 3.4 Entire Agreement................................................................................7 3.5 Severability....................................................................................8 3.6 Amendment and Waiver............................................................................8 3.7 Delays or Omissions.............................................................................8 3.8 Notices.........................................................................................8 3.9 Attorneys' Fees.................................................................................8 3.10 Titles and Subtitles............................................................................9 3.11 Counterparts....................................................................................9
i. ZITEL CORPORATION REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of the 3rd day of September, 1999, by and among ZITEL CORPORATION, a CALIFORNIA corporation (the "COMPANY") and the purchasers of the Company's Series B Convertible Preferred Stock ("SERIES B STOCK") set forth on Exhibit A of that certain Series B Convertible Preferred Stock Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT") and the signature page hereto. The purchasers of the Series B Stock shall be referred to hereinafter as the "INVESTORS" and each individually as an "INVESTOR." RECITALS WHEREAS, the Company proposes to sell and issue two hundred thousand (200,000) shares of its Series B Stock pursuant to the Purchase Agreement; and WHEREAS, as a condition of entering into the Purchase Agreement, the Investors have requested that the Company extend to them registration rights as set forth below. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows: SECTION 1. GENERAL 1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.5 hereof. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means Common Stock of the Company issued or issuable upon conversion of the Shares. Notwithstanding the foregoing, Registrable Securities 1. shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to conversion of outstanding Series B Stock. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Section 2.2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "COMMISSION" means the Securities and Exchange Commission. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale. "SHARES" shall mean the Company's Series B Stock issued pursuant to the Purchase Agreement and held by the Investors listed on Exhibit A hereto and their permitted assigns. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or former partners in accordance with partnership 2. interests, (B) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (C) to the Holder's family member or trust for the benefit of an individual Holder; PROVIDED that in each case the transferee will be subject to the terms of this Agreement to the same extent as if the transferee were an original Holder hereunder. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS IN ITS DISCRETION THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. 2.2 REGISTRATION. The Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement on Form S-3 with respect to the Registrable Securities and use its best lawful efforts to cause such registration statement to become effective and use its best lawful effort to keep such registration statement continuously effective until the 10th day of the seventh month following the day such registration statement is first declared effective, plus one day for each day the Adjustment Period is extended pursuant to Section E.3(d) or E.3(e) of the Certificate of Determination of the Series B Stock, or if earlier, until the Holder or Holders have completed the distribution pursuant thereto. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus in conformity with the requirements of the Securities Act. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; PROVIDED that the Company shall not be required in 3. connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. A notice pursuant to this Section 2.2(e) shall be referred to herein as a "Blackout Notice." 2.3 FURNISHING INFORMATION; COMPLIANCE WITH THE SECURITIES ACT. (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (b) Each Holder agrees that it will comply with the prospectus delivery requirements of the Act with respect to any sale of Registrable Securities pursuant to the registration statement and refrain from sales of Registrable Securities upon receipt of a Blackout Notice and until the Company has advised that the statement or omission which gave rise to the Blackout Notice has been cured. 2.4 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Section 2.2: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED HOWEVER, that the indemnity agreement contained in this Section 2.4(a) shall not apply to amounts paid in settlement of any 4. such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any violation described in clauses 2.4(a)(i) and (ii) above or a violation of Section 2.8 below (a "Shareholder Violation"), in each case to the extent (and only to the extent) that such Shareholder Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Shareholder Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 2.4(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; PROVIDED FURTHER, that in no event shall any indemnity under this Section 2.4 exceed the proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.4 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.4, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.4, but the omission so to deliver written notice to the 5. indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.4. (d) If the indemnification provided for in this Section 2.4 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; PROVIDED, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.4 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.5 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or retired member of a Holder, (b) is a Holder's family member or trust for the benefit of an individual Holder, (c) controls, is controlled by or is under common control with the holder and acquires at least five thousand (5,000) shares of Registrable Securities (as adjusted for stock splits and combinations); PROVIDED, HOWEVER, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.6 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 2.6 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereof. 6. 2.7 REPORTING. The Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act, a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 2.8 PROSPECTUS DELIVERY. Each holder agrees to comply with the prospectus delivery requirements of the Securities Act in connection with any resale of Registrable Securities. SECTION 3. MISCELLANEOUS 3.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 3.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 7. 3.5 SEVERABILITY. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 3.6 AMENDMENT AND WAIVER. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least a majority of the outstanding Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least a majority of the outstanding Registrable Securities. (c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Shares as "INVESTORS," "Holders" and parties hereto. 3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 3.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 3.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 8. 3.10 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: INVESTORS: ZITEL CORPORATION EC CHIEF, INC. By: Asa W. Lanum By: /s/ --------------------------------- Title: Chief Financial Officer ACS BRC HOLDINGS, INC. By: /s/ --------------------------------- Title: President 9. -----END PRIVACY-ENHANCED MESSAGE-----