SECURITIES AND EXCHANGE COMMISSION 
  
                          WASHINGTON, D.C.  20549 
                            ____________________ 
  
                                  FORM 8-K 
                               CURRENT REPORT 
  
                   PURSUANT TO SECTION 13 OR 15(D) OF THE 
                      SECURITIES EXCHANGE ACT OF 1934 
  
                              October 5, 1998 
                     (Date of earliest event reported) 
  
                             ZITEL CORPORATION 
           (Exact name of Registrant as specified in its charter) 
  
  
        California          0-12194                94-2566313
         (State of     (Commission File No.)     (IRS Employer 
     incorporation or                            Identification No.) 
      organization) 
  
  
                           47211 Bayside Parkway 
                            Fremont, California 
                  (Address of principal executive offices) 
  
  
                                   94538 
                                 (zip code) 
  
  
                               (510) 440-9600 
            (Registrant's telephone number, including area code) 
  
  
  

 ITEM 5.   OTHER EVENTS. 
  
           On October 5, 1998, Zitel Corporation, a California corporation
 (the "Company"), entered into an Agreement and Plan of Reorganization and
 Merger, dated as of October 5, 1998 (the "Merger Agreement"), by and among
 the Company, Millennium Holding Corp., a Delaware corporation and a wholly
 owned subsidiary of the Company ("Holdco"), Zenith Acquisition Corp., a
 Delaware corporation and a wholly owned subsidiary of Holdco ("Zenith
 Acquisition"), Millennium Acquisition I Corp., a Delaware corporation and a
 wholly owned subsidiary of Holdco ("Millennium Acquisition"), and MatriDigm
 Corporation, a California corporation ("MatriDigm"), pursuant to which (i)
 Zenith Acquisition will merge with and into the Company (the "Zitel
 Merger"), with the Company remaining as the surviving corporation in the
 Zitel Merger (the "Zitel Surviving Corporation"), and (ii) Millennium
 Acquisition will merge with and into MatriDigm (the "MatriDigm Merger", and
 together with the Zitel Merger, the "Mergers"), with MatriDigm remaining as
 the surviving corporation in the MatriDigm Merger (the "MatriDigm Surviving
 Corporation"). 
  
           Upon the consummation of the transactions contemplated by the
Merger Agreement, (i) (a) each outstanding share of common stock, par value
$0.01 per share, of the Company (the "Company Common Stock") will be
converted into the right to receive one fully paid and nonassessable share
of common stock, par value $0.01 per share, of Holdco (the "Holdco Common
Stock"), and (b) each outstanding option to purchase Company Common Stock
under the Company's employee stock option plans will be assumed by Holdco,
and (ii) (a) each outstanding share of common stock, no par value, of
MatriDigm (the "MatriDigm Common Stock") (excluding any MatriDigm Common
Stock held directly or indirectly by the Company, each of which will be
converted into the right to receive one fully paid and nonassessable share
of common stock of the MatriDigm Surviving Corporation) will be converted
into the right to receive approximately .65 of a fully paid and
nonassessable share of Holdco Common Stock, and (b) each outstanding option
to purchase MatriDigm Common Stock under the MatriDigm's employee stock
option plans will be assumed by Holdco at the conversion rate of
approximately .65 of a fully paid and nonassessable share of Holdco Common
Stock.
  
           Consummation of the Mergers remains subject to certain
 conditions, including (a) the approval of the Zitel Merger, the MatriDigm
 Merger, the Merger Agreement and the transactions contemplated thereby by
 a majority of the outstanding shares of Zitel and MatriDigm, respectively.
 It is also a condition to the Company's obligation to consummate the
 transactions contemplated by the Merger Agreement that all outstanding
 shares of preferred stock of MatriDigm, as well as all warrants to
 purchase shares of common stock or preferred stock of MatriDigm, shall
 have been converted into that number of shares of MatriDigm Common Stock
 equal to the net number of shares of MatriDigm Common Stock into which
 each such warrant or share of preferred stock would have been convertible
 immediately prior to the effectiveness of the Millennium Merger. The
 Company currently owns approximately 31.3% of the outstanding MatriDigm
 Common Stock on an as converted basis. A copy of the Merger Agreement is
 filed herewith as Exhibit 2.1 and incorporated by reference herein. The
 description of the Merger Agreement set forth herein does not purport to
 be complete and is qualified in its entirety by the provisions of the
 Merger Agreement.
   
           On October 5, 1998 and in connection with the execution
 and delivery of the Merger Agreement, the Company entered into Shareholder
 Agreements with certain specified shareholders of MatriDigm.  Pursuant to
 each of these Shareholder Agreements, the shareholder party thereto agreed
 to vote for the Millennium Merger and related transactions, as well as to
 convert shares of preferred stock of MatriDigm or warrants to purchase
 capital stock of MatriDigm held by such shareholder to shares of common
 stock of MatriDigm immediately prior to the effectiveness of the Millennium
 Merger.  A copy of the Form of Shareholder Agreement is filed herewith as
 Exhibit 10.1 and incorporated by reference herein.  The description of the
 Form of Shareholder Agreement set forth herein does not purport to be
 complete and is qualified in its entirety by the provisions of the
 Shareholder Agreement filed as an exhibit hereto. 
  
           On October 5, 1998 and in connection with the execution and
 delivery of the Merger Agreement, the Company entered into Lock-Up
 Agreements with certain specified shareholders of MatriDigm. Pursuant to
 each of these Lock-Up Agreements, during the period commencing on October
 5, 1998 and ending (A) if the Mergers are consummated prior to January 29,
 1999, on the second trading day following the public announcement of the
 consolidated results of operations of the Company and MatriDigm for the
 fiscal quarter ended March 31, 1999, and (B) if the Mergers are
 consummated after January 29, 1999, on the second trading day following
 the public announcement of the consolidated results of operations of the
 Company and MatriDigm for the fiscal quarter ended June 30, 1999, certain
 shareholders of MatriDigm have agreed not to (1) offer, pledge, sell,
 contract to sell, sell any option or contract to purchase, grant any
 option, right or warrant to purchase, or otherwise transfer or dispose of,
 directly or indirectly, any shares of Holdco Common Stock or any
 securities convertible into or exercisable or exchangeable for Holdco
 Common Stock (including, without limitation, shares of Holdco Common Stock
 or securities convertible into or exercisable or exchangeable for Holdco
 Common Stock which may be deemed to be beneficially owned by the
 undersigned in accordance with the rules and regulations of the Securities
 and Exchange Commission), or (2) enter into any swap or other arrangement
 that transfers all or a portion of the economic consequences associated
 with the ownership of any Holdco Common Stock (regardless of whether any
 of the transactions described in this or the immediately preceding
 paragraph is to be settled by the delivery of Holdco Common Stock, or such
 other securities, in cash or otherwise), without the prior written consent
 of Holdco; provided, that (a) during such period such shareholders may
 make gifts of shares of Holdco Common Stock or securities convertible into
 Holdco Common Stock upon the condition that the donees agree to be bound
 by the foregoing restriction in the same manner as it applies to such
 shareholders, and (b) with respect to securities convertible into or
 exercisable or exchangeable for Holdco Common Stock, such shareholders may
 distribute such securities to their partners or members, as the case may
 be, so long as the recipients of such securities agree to be bound by the
 foregoing restriction in the same manner as it applies to the shareholder
 in question. A copy of the Form of Lock-Up Agreement is filed herewith as
 Exhibit 10.2 and incorporated by reference herein. The description of the
 Form of Lock-Up Agreement set forth herein does not purport to be complete
 and is qualified in its entirety by the provisions of the Lock-Up
 Agreement filed as an exhibit hereto.
  
           Selected Summary Financial Data, in addition to the foregoing
 specified exhibits filed herewith, for the period ended June 30, 1998 is
 filed herewith as Exhibit 27.1.
  
           The transactions are expected to close either before the end of
 this year or early in the first quarter of 1999. 
  

 ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS. 
  
 2.1       Agreement and Plan of Reorganization and Merger, dated as of
           October 5, 1998, by and among Zitel Corporation, Millennium
           Holding Corp., Zenith Acquisition Corp., Millennium Acquisition
           I Corp., and MatriDigm Corporation.

 10.1      Form of Shareholder Agreement, dated as of October 5, 1998, by
           and between, in each case, Zitel Corporation and a certain
           specified shareholder of MatriDigm Corporation.

 10.2      Form of Lock-Up Letter, dated as of October 5, 1998, addressed,
           in each case, to Millennium Holding Corp. from a certain
           specified shareholder of MatriDigm Corporation.

 27.1      Selected Summary Financial Data for the period ended June 30, 1998.

 99.1      Joint Press Release of Zitel Corporation and MatriDigm
           Corporation, dated October 5, 1998.



                                 SIGNATURE 
  
            Pursuant to the requirements of the Securities Exchange Act of
 1934, the registrant has duly caused this report to be signed on its behalf
 by the undersigned, thereto duly authorized. 
  
  
                          ZITEL CORPORATION 
  
  
                          By: /s/ Jack H. King
                             ---------------------------
                          Name:  Jack H. King 
                          Title: Chief Executive Officer 
  
  
 Date:  October 5, 1998 

  
                               EXHIBIT INDEX 
  
 Exhibit       Description                                           Page

 2.1           Agreement and Plan of Reorganization and Merger,         6
               dated as of October 5, 1998, by and among Zitel
               Corporation, Millennium Holding Corp., Zenith
               Acquisition Corp., Millennium Acquisition I Corp.,
               and MatriDigm Corporation.

 10.1          Form of Shareholder Agreement, dated as of October      83
               5, 1998, by and between, in each case, Zitel
               Corporation and a certain specified shareholder of
               MatriDigm Corporation.

 10.2          Form of Lock-Up Letter, dated as of October 5,          97
               1998, addressed, in each case, to Millennium
               Holding Corp. from a certain specified shareholder
               of MatriDigm Corporation.

 27.1          Selected Summary Financial Data for the period          98
               ended June 30, 1998.

 99.1          Joint Press Release of Zitel Corporation and
               MatriDigm Corporation, dated October 5, 1998.           99
[{"type": "8-K", "sequence": "1", "secsgml_size_bytes": 11605}]
{"company-data": {"conformed-name": "ZITEL CORP", "cik": "0000731647", "assigned-sic": "6794", "irs-number": "942566313", "state-of-incorporation": "CA", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-12194", "film-number": "98721102"}, "business-address": {"street1": "47211 BAYSIDE PARKWAY", "city": "FREMONT", "state": "CA", "zip": "94538-6517", "phone": "5104409600"}, "mail-address": {"street1": "47211 BAYSIDE PARKWAY", "city": "FREMONT", "state": "CA", "zip": "94538"}}
SECURITIES AND EXCHANGE COMMISSION 
  
                          WASHINGTON, D.C.  20549 
                            ____________________ 
  
                                  FORM 8-K 
                               CURRENT REPORT 
  
                   PURSUANT TO SECTION 13 OR 15(D) OF THE 
                      SECURITIES EXCHANGE ACT OF 1934 
  
                              October 5, 1998 
                     (Date of earliest event reported) 
  
                             ZITEL CORPORATION 
           (Exact name of Registrant as specified in its charter) 
  
  
        California          0-12194                94-2566313
         (State of     (Commission File No.)     (IRS Employer 
     incorporation or                            Identification No.) 
      organization) 
  
  
                           47211 Bayside Parkway 
                            Fremont, California 
                  (Address of principal executive offices) 
  
  
                                   94538 
                                 (zip code) 
  
  
                               (510) 440-9600 
            (Registrant's telephone number, including area code) 
  
  
  

 ITEM 5.   OTHER EVENTS. 
  
           On October 5, 1998, Zitel Corporation, a California corporation
 (the "Company"), entered into an Agreement and Plan of Reorganization and
 Merger, dated as of October 5, 1998 (the "Merger Agreement"), by and among
 the Company, Millennium Holding Corp., a Delaware corporation and a wholly
 owned subsidiary of the Company ("Holdco"), Zenith Acquisition Corp., a
 Delaware corporation and a wholly owned subsidiary of Holdco ("Zenith
 Acquisition"), Millennium Acquisition I Corp., a Delaware corporation and a
 wholly owned subsidiary of Holdco ("Millennium Acquisition"), and MatriDigm
 Corporation, a California corporation ("MatriDigm"), pursuant to which (i)
 Zenith Acquisition will merge with and into the Company (the "Zitel
 Merger"), with the Company remaining as the surviving corporation in the
 Zitel Merger (the "Zitel Surviving Corporation"), and (ii) Millennium
 Acquisition will merge with and into MatriDigm (the "MatriDigm Merger", and
 together with the Zitel Merger, the "Mergers"), with MatriDigm remaining as
 the surviving corporation in the MatriDigm Merger (the "MatriDigm Surviving
 Corporation"). 
  
           Upon the consummation of the transactions contemplated by the
Merger Agreement, (i) (a) each outstanding share of common stock, par value
$0.01 per share, of the Company (the "Company Common Stock") will be
converted into the right to receive one fully paid and nonassessable share
of common stock, par value $0.01 per share, of Holdco (the "Holdco Common
Stock"), and (b) each outstanding option to purchase Company Common Stock
under the Company's employee stock option plans will be assumed by Holdco,
and (ii) (a) each outstanding share of common stock, no par value, of
MatriDigm (the "MatriDigm Common Stock") (excluding any MatriDigm Common
Stock held directly or indirectly by the Company, each of which will be
converted into the right to receive one fully paid and nonassessable share
of common stock of the MatriDigm Surviving Corporation) will be converted
into the right to receive approximately .65 of a fully paid and
nonassessable share of Holdco Common Stock, and (b) each outstanding option
to purchase MatriDigm Common Stock under the MatriDigm's employee stock
option plans will be assumed by Holdco at the conversion rate of
approximately .65 of a fully paid and nonassessable share of Holdco Common
Stock.
  
           Consummation of the Mergers remains subject to certain
 conditions, including (a) the approval of the Zitel Merger, the MatriDigm
 Merger, the Merger Agreement and the transactions contemplated thereby by
 a majority of the outstanding shares of Zitel and MatriDigm, respectively.
 It is also a condition to the Company's obligation to consummate the
 transactions contemplated by the Merger Agreement that all outstanding
 shares of preferred stock of MatriDigm, as well as all warrants to
 purchase shares of common stock or preferred stock of MatriDigm, shall
 have been converted into that number of shares of MatriDigm Common Stock
 equal to the net number of shares of MatriDigm Common Stock into which
 each such warrant or share of preferred stock would have been convertible
 immediately prior to the effectiveness of the Millennium Merger. The
 Company currently owns approximately 31.3% of the outstanding MatriDigm
 Common Stock on an as converted basis. A copy of the Merger Agreement is
 filed herewith as Exhibit 2.1 and incorporated by reference herein. The
 description of the Merger Agreement set forth herein does not purport to
 be complete and is qualified in its entirety by the provisions of the
 Merger Agreement.
   
           On October 5, 1998 and in connection with the execution
 and delivery of the Merger Agreement, the Company entered into Shareholder
 Agreements with certain specified shareholders of MatriDigm.  Pursuant to
 each of these Shareholder Agreements, the shareholder party thereto agreed
 to vote for the Millennium Merger and related transactions, as well as to
 convert shares of preferred stock of MatriDigm or warrants to purchase
 capital stock of MatriDigm held by such shareholder to shares of common
 stock of MatriDigm immediately prior to the effectiveness of the Millennium
 Merger.  A copy of the Form of Shareholder Agreement is filed herewith as
 Exhibit 10.1 and incorporated by reference herein.  The description of the
 Form of Shareholder Agreement set forth herein does not purport to be
 complete and is qualified in its entirety by the provisions of the
 Shareholder Agreement filed as an exhibit hereto. 
  
           On October 5, 1998 and in connection with the execution and
 delivery of the Merger Agreement, the Company entered into Lock-Up
 Agreements with certain specified shareholders of MatriDigm. Pursuant to
 each of these Lock-Up Agreements, during the period commencing on October
 5, 1998 and ending (A) if the Mergers are consummated prior to January 29,
 1999, on the second trading day following the public announcement of the
 consolidated results of operations of the Company and MatriDigm for the
 fiscal quarter ended March 31, 1999, and (B) if the Mergers are
 consummated after January 29, 1999, on the second trading day following
 the public announcement of the consolidated results of operations of the
 Company and MatriDigm for the fiscal quarter ended June 30, 1999, certain
 shareholders of MatriDigm have agreed not to (1) offer, pledge, sell,
 contract to sell, sell any option or contract to purchase, grant any
 option, right or warrant to purchase, or otherwise transfer or dispose of,
 directly or indirectly, any shares of Holdco Common Stock or any
 securities convertible into or exercisable or exchangeable for Holdco
 Common Stock (including, without limitation, shares of Holdco Common Stock
 or securities convertible into or exercisable or exchangeable for Holdco
 Common Stock which may be deemed to be beneficially owned by the
 undersigned in accordance with the rules and regulations of the Securities
 and Exchange Commission), or (2) enter into any swap or other arrangement
 that transfers all or a portion of the economic consequences associated
 with the ownership of any Holdco Common Stock (regardless of whether any
 of the transactions described in this or the immediately preceding
 paragraph is to be settled by the delivery of Holdco Common Stock, or such
 other securities, in cash or otherwise), without the prior written consent
 of Holdco; provided, that (a) during such period such shareholders may
 make gifts of shares of Holdco Common Stock or securities convertible into
 Holdco Common Stock upon the condition that the donees agree to be bound
 by the foregoing restriction in the same manner as it applies to such
 shareholders, and (b) with respect to securities convertible into or
 exercisable or exchangeable for Holdco Common Stock, such shareholders may
 distribute such securities to their partners or members, as the case may
 be, so long as the recipients of such securities agree to be bound by the
 foregoing restriction in the same manner as it applies to the shareholder
 in question. A copy of the Form of Lock-Up Agreement is filed herewith as
 Exhibit 10.2 and incorporated by reference herein. The description of the
 Form of Lock-Up Agreement set forth herein does not purport to be complete
 and is qualified in its entirety by the provisions of the Lock-Up
 Agreement filed as an exhibit hereto.
  
           Selected Summary Financial Data, in addition to the foregoing
 specified exhibits filed herewith, for the period ended June 30, 1998 is
 filed herewith as Exhibit 27.1.
  
           The transactions are expected to close either before the end of
 this year or early in the first quarter of 1999. 
  

 ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS. 
  
 2.1       Agreement and Plan of Reorganization and Merger, dated as of
           October 5, 1998, by and among Zitel Corporation, Millennium
           Holding Corp., Zenith Acquisition Corp., Millennium Acquisition
           I Corp., and MatriDigm Corporation.

 10.1      Form of Shareholder Agreement, dated as of October 5, 1998, by
           and between, in each case, Zitel Corporation and a certain
           specified shareholder of MatriDigm Corporation.

 10.2      Form of Lock-Up Letter, dated as of October 5, 1998, addressed,
           in each case, to Millennium Holding Corp. from a certain
           specified shareholder of MatriDigm Corporation.

 27.1      Selected Summary Financial Data for the period ended June 30, 1998.

 99.1      Joint Press Release of Zitel Corporation and MatriDigm
           Corporation, dated October 5, 1998.

                                 SIGNATURE 
  
            Pursuant to the requirements of the Securities Exchange Act of
 1934, the registrant has duly caused this report to be signed on its behalf
 by the undersigned, thereto duly authorized. 
  
  
                          ZITEL CORPORATION 
  
  
                          By: /s/ Jack H. King
                             ---------------------------
                          Name:  Jack H. King 
                          Title: Chief Executive Officer 
  
  
 Date:  October 5, 1998 

  
                               EXHIBIT INDEX 
  
 Exhibit       Description                                           Page

 2.1           Agreement and Plan of Reorganization and Merger,         6
               dated as of October 5, 1998, by and among Zitel
               Corporation, Millennium Holding Corp., Zenith
               Acquisition Corp., Millennium Acquisition I Corp.,
               and MatriDigm Corporation.

 10.1          Form of Shareholder Agreement, dated as of October      83
               5, 1998, by and between, in each case, Zitel
               Corporation and a certain specified shareholder of
               MatriDigm Corporation.

 10.2          Form of Lock-Up Letter, dated as of October 5,          97
               1998, addressed, in each case, to Millennium
               Holding Corp. from a certain specified shareholder
               of MatriDigm Corporation.

 27.1          Selected Summary Financial Data for the period          98
               ended June 30, 1998.

 99.1          Joint Press Release of Zitel Corporation and
               MatriDigm Corporation, dated October 5, 1998.           99